Ron Hiram | Nov 13, 2012 01:00PM ET
On November 7, 2012, Energy Transfer Partners, L.P. (ETP) reported results of operations for 3Q 2012. I usually prefer to review trailing 12-months data but in this case nine-month data will have to suffice because restated prior data is available only for the quarter and nine-month period ending 9/30/11. Restatement was required because in October 2012, ETP sold ETC Canyon Pipeline, LLC (“Canyon”) for ~$207 million and reclassified Canyon’s results for the three and nine months ended September 30, 2012, as discontinued operations. Prior year amounts were accordingly restated and a $145 million non-cash write-down of the Canyon assets was recorded during the three months ended September 30, 2012. Note that the propane business is not considered a discontinued operation. It was contributed by ETP to AmeriGas Partners, L.P. (APU) in January 2012 in return for ~$1.46 billion in cash and ~29.6 million APU units (which ETP is obligated to hold until January 2013). Its results are accounted for under the equity method, similarly to the manner in which ETP accounts for its 50% interest in the Fayetteville Express Pipeline (“FEP”) and 50% interest in Citrus Corp. (“Citrus”) which owns the FGT natural gas pipeline.
The acquisition of Sunoco, Inc. (SUN) pursuant to which SUN shareholders received ~55 million ETP units plus $2.6 billion in cash was completed on October 5, 2012, and is therefore not yet reflected in ETP’s 3Q12 financials.
Revenues, operating income, net income and earnings before interest, depreciation & amortization and income tax expenses (“EBITDA”) are summarized in Table 1 below:
Segment contribution to Adjusted EBITDA was as follows:
The higher Adjusted EBITDA levels at the Interstate Transportation segment reflect increase in transported volumes, primarily due to the Tiger pipeline expansion, and contributions from unconsolidated affiliates that began in 2012. Specifically, in the nine months ending 9/30/12 the 50% ownership stake in Citrus contributed $162.2 million and the 50% interest in FEP contributed $21.1 million to Adjusted EBITDA.
Higher transportation volumes, higher gross margins improved the year-to-date Adjusted EBITDA numbers for the Midstream segment.
The increase in NGL Transportation and Services segment Adjusted EBITDA primarily reflect a full nine months of activity for the Lone Star JV compared to only five months of activity in 2011
In an article titled Estimating sustainable DCF-why and how . Applying the method described there to ETP results through 9/30/12 generates the comparison outlined in Table 3 below:
The differences between reported DCF and sustainable DCF in Table three relate to ETP’s risk management activities and to a variety of items grouped under “Other”.
In deriving its reported DCF, ETP adds back losses from risk management activities. This item totals $68 million in the nine months ended 9/30/12, the bulk of which is due to derivatives related to stored natural gas. ETP adds back this unrealized loss in calculating DCF while I do not.
Coverage ratios continue to be below 1.0 as indicated in Table 4 below:
ETP’s current yield of 8.50% is higher than almost all the other MLPs I cover:
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