Energy Transfer (ET -0.06%) has invested billions of dollars in building one of the largest energy midstream companies in the country. The master limited partnership (MLP) has completed a steady stream of expansion projects and acquisitions, giving it a nearly unparalleled footprint.
While growth has slowed in recent years due to its bloated balance sheet and challenges in the oil and gas market, that's about to change. The company is working on a growing list of development projects while also pursuing strategic acquisitions that could reaccelerate its growth engine. Here's a look at all the projects it has coming down the pipeline.
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Hitting the ground running in 2022
Energy Transfer recently reported its first-quarter results, which were strong after adjusting for the non-recurring positive impact of winter storms last year. In addition to the solid performance of its legacy assets, the company completed several expansion projects that will help fuel growth in the coming quarters.
The MLP also made two notable strategic moves. It agreed to sell its interest in Energy Transfer Canada for $270 million in cash. That sale will reduce its debt by $450 million, enhancing its financial flexibility to invest in expanding its U.S. footprint. Meanwhile, the company completed a $325 million bolt-on acquisition of underground storage assets and an ethylene storage header that enhanced its footprint. This acquisition provided the company with two active storage caverns, one under development, and the potential to develop at least four or five more in the future.
Growth spending is going back up
Energy Transfer ended the quarter with plans to invest $1.8 billion to $2.1 billion on expansion projects this year. While that's higher than last year's $1.6 billion spending level and a slight increase from its initial $1.6 billion to $1.9 billion budget range, it's down significantly from prior years. Energy Transfer routinely invested between $3 billion and $5 billion per year on expansion projects in the 2017 to 2020 timeframe.
However, one of the clear takeaways from the company's first-quarter conference call is it has a growing pipeline of expansion projects under development. CFO Tom Long walked investors through the recent progress on its growth projects.
He noted that the company had signed several sales and purchase agreements with customers to support its Lake Charles LNG project. He said the company was also in active negotiations with several other potential customers and is targeting a final investment decision (FID) on the project in the fourth quarter. Long stated that "we expect to finance a significant portion of the capital cost of this project by means of the sale of equity in the project to infrastructure funds and possibly to one or more industry participants." That will reduce the amount of capital the company invests in the project.
Next, Long stated that:
We continue to evaluate the opportunity to develop a petchem project along the Gulf Coast. If we are able to reach FID, we believe that our cracker will be a very unique world-class facility, providing unparalleled access to the lowest cost feedstock through our pipeline systems, as well as unparalleled access to downstream domestic and international ethylene and propylene markets through our pipelines, our storage facilities, and our export terminal.
The CFO also noted that the company intends to partner with at least one other company on the potential project. In addition, Energy Transfer continues to evaluate potential M&A opportunities in the petchem space. These comments suggest the company intends to be a major player in the petchem sector.
The company is also pursuing a new pipeline to move gas out of the Permian Basin. Long noted that it "has significant advantages over competing projects." These include the proposed route, ability to utilize existing assets, and completion timeline of less than two years after reaching an FID.
Meanwhile, the company is also exploring alternative energy opportunities. Long stated that "we continue to pursue a number of projects related to carbon capture, including sequestration, enhanced oil recovery, and utilization projects." It's in active discussions with several developers on potential projects in Louisiana, which are near its facilities in the region, making them a strategic fit.
Finally, while the company is exiting Canada to focus on expanding its U.S. footprint, it hasn't completed dismissed international expansion opportunities. It's working on the Trans-Panama Gateway Pipeline. It's working to bring this project to fruition because "Panama's geographic location and favorable investment climate make this an attractive project."
Revving up the growth engine
Energy Transfer is actively exploring several potential large-scale expansion projects. These projects could help drive growth in the coming years. While moving forward with these large projects would mean increasing its capital spending range, the company also intends to bring on partners to help cover some of the costs. These new growth projects could give Energy Transfer the fuel to continue increasing its 7.3%-yielding distribution in the coming years.
