Energy Transfer (ET -0.95%) is coming off a record year. The master limited partnership (MLP) produced record earnings in 2022, fueled by record volumes across many of its midstream segments. That enabled the company to generate lots of free cash flow to repay debt and steadily increase its distribution.
The company currently expects 2023 to be a much more modest year, with growth flattening out from lower commodity prices and no large-scale acquisition to drive results. However, that doesn't mean this year will be boring. Here are three bold predictions of things I think we could see from the midstream giant this year.
1. Energy Transfer finally moves forward with Lake Charles
Energy Transfer has been working on converting its Lake Charles LNG import facility into an export terminal for years. The company initially worked with BG Group on the project until Shell (SHEL -0.97%) acquired that company in 2016. Shell assumed the partnership but ultimately abandoned it in early 2020, leaving Energy Transfer to take full control.
It finally started making progress last year as several customers signed sale and purchase agreements, including Shell. It has contracts covering 7.9 million tons per year, about half the proposed 16.5 million tons per year of capacity it hopes to build. The company has signed other non-binding agreements and is actively negotiating with additional customers. It's also actively seeking joint venture partners that will help fund the project.
Energy Transfer is facing a lot of competition from other proposed LNG projects, so signing the agreements needed to make a positive financial investment decision (FID) on the project is taking longer. However, co-CEO Tom Long stated on the fourth-quarter call that "we are optimistic that we will bring this project to FID." I predict they will finally make that FID by the end of this year.
2. Energy Transfer makes another large-scale acquisition
Energy Transfer is a consolidator in the midstream sector. The company has made several acquisitions throughout its history:
Image source: Energy Transfer Investor Relations Presentation.
Some deals move the needle more than others. For example, its $7.2 billion acquisition of Enable Midstream, which closed in late 2021, helped drive growth last year. Meanwhile, its more recent deals -- $325 million for Spindletop and $485 million for Woodford Express in 2022 -- were smaller bolt-on acquisitions.
Given the company's acquisition prowess, I believe it will make another sizable deal this year. It's in a much stronger financial position to make an acquisition after spending the past several quarters paying down debt to achieve its targeted leverage level.
3. Energy Transfer sells its stake in at least one MLP
Energy Transfer owns one of the country's largest and most diversified energy portfolios. Among its many assets are minority interests of fellow MLPs Sunoco (SUN -1.53%) and USA Compression Partners (USAC 0.54%). It owns 34% of Sunoco and 47% of USA Compression Partners. They're non-core assets that I believe the company will eventually monetize.
This year would be a great time to divest one or both of its ownership stakes in those MLPs. Their unit prices have recovered sharply from their pandemic bottoms; both are up more than 100% in the past three years. And that means the company could get a good value for its interests, enabling it to recycle capital into other opportunities, such as an acquisition that expands its core operations.
2023 could be a busy year for the midstream giant
Energy Transfer expects 2023 to be relatively tame after delivering record results last year. While it may not have needle-moving growth this year, I think 2023 will set the stage for its next growth phase. I see the company sanctioning Lake Charles, making a large-scale acquisition, and finally monetizing its MLP minority interests. Those moves could enable the MLP to grow its big-time distribution in the coming years.
