With its first-quarter earnings release on Thursday, investors are finally seeing signs of a bright future at Energy Transfer Partners (NYSE:ETP). Adjusted EBITDA grew $462 million year over year, and revenue blew past expectations, coming in at approximately $10.9 billion.
As management continues to simplify the structure at ETP -- which requires moving assets between Energy Transfer Equity (NYSE:ET) and theoretically Sunoco Logistics Partners (NYSE:SXL) -- year-over-year comparisons will be full of asterisks indicating earnings from the previous structure, as well as the one-time charges we are accustomed to seeing. With that in mind, today I'm focusing primarily on ETP from an operations and progress perspective, highlighting three key areas investors should take away from the first quarter.
ETP's Midstream unit turned in an excellent performance on the back of increasing production in the Eagle Ford Shale. NGL production was way up on ETP's legacy assets, and fee-based revenue in this segment climbed from $70 million to $97 million year over year. The bulk of that, some $22 million, can be attributed solely to growth in the Eagle Ford.
The NGL transportation and services segment also exploded in the first quarter. Transportation and fractionation volumes were both up significantly. Higher costs ate into some of the profits, but overall, adjusted EBITDA increased 60% year over year.
Management has two stated goals that investors keep coming back to: increasing the distribution and simplifying the organizational structure. After the completion of the ETP Holdco buyout, we have very tangible proof that management is on track on the latter point. As for a distribution increase, we got this from CEO Kelcy Warren on Thursday's earnings call:
Absolutely, there is commitment to raise the distribution as fast as we can raise it, but that is our absolutely commitment here. We are pleased that we've simplified our structure again. We put assets in the place they belong... But I will tell you, trust me. Nothing gets [talked] about more in the halls around here than getting ETP to a point where it can resume distribution growth... We are committed to getting ETP consistently above the one coverage ratio in a healthy way and to resume distribution growth. At ETP, we are committed.
Distributable cash flow is up again this quarter, and given the strengthening of operations and management's ability to follow through on its goals, investors should feel good about the possibility of an increase sometime this year or early 2014.
3. New structure
Management conveniently laid out which assets from the Holdco acquisition belong to which operating segments.
- Interstate transportation and storage: Southern Union's transportation and storage assets
- Midstream: Southern Union's gathering and processing assets
- Retail marketing: Sunoco's retail operations
As a reminder, ETP's other segments include intrastate transportation and storage, NGL transportation and services, and "all other." The last segment captures Southern Union's local distribution business, ETP's natural gas compression business, and a 30% operating stake in a refinery.
If you've had Energy Transfer Partners on your radar for a while, now is the time to move it to the top of your Watchlist and wait for a buying opportunity. After a lot of hard work and many strategic acquisitions, ETP is about to take off.
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