SEC Filing | Energy Transfer

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

Document

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-31219

Energy Transfer Operating, L.P.

(Exact name of registrant as specified in its charter)



Delaware		73-1493906
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8111 Westchester Drive, Suite 600, Dallas, Texas 75225

(Address of principal executive offices) (zip code)

Registrant’s telephone number, including area code: (214) 981-0700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
7.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units	ETPprC	New York Stock Exchange
7.625% Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units	ETPprD	New York Stock Exchange
7.600% Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units	ETPprE	New York Stock Exchange
7.500% Senior Notes due 2020	ETP 20	New York Stock Exchange
4.250% Senior Notes due 2023	ETP 23	New York Stock Exchange
5.875% Senior Notes due 2024	ETP 24	New York Stock Exchange
5.500% Senior Notes due 2027	ETP 27	New York Stock Exchange

Table of Contents

FORM 10-Q

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

TABLE OF CONTENTS



PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Consolidated Balance Sheets	1

Consolidated Statements of Operations	3

Consolidated Statements of Comprehensive Income	4

Consolidated Statements of Equity	5

Consolidated Statements of Cash Flows	7

Notes to Consolidated Financial Statements	8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	50

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	73

ITEM 4. CONTROLS AND PROCEDURES	75

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	76

ITEM 1A. RISK FACTORS	76

ITEM 6. EXHIBITS	77

SIGNATURE	78

Table of Contents

Forward-Looking Statements

Certain matters discussed in this report, excluding historical information, as well as some statements by Energy Transfer Operating, L.P. (the “Partnership” or “ETO”) in periodic press releases and some oral statements of the Partnership’s officials during presentations about the Partnership, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “believe,” “intend,” “project,” “plan,” “expect,” “continue,” “estimate,” “goal,” “forecast,” “may,” “will” or similar expressions help identify forward-looking statements. Although the Partnership and its General Partner believe such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations, or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Partnership’s actual results may vary materially from those anticipated, projected or expected, forecasted, estimated or expressed in forward-looking statements since many of the factors that determine these results are subject to uncertainties and risks that are difficult to predict and beyond management’s control. For additional discussion of risks, uncertainties and assumptions, see “Part I – Item 1A. Risk Factors” in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on February 22, 2019.

Definitions

The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:



	/d		per day

	AmeriGas		AmeriGas Partners, L.P.

	AOCI		accumulated other comprehensive income (loss)

	BBtu		billion British thermal units

	Btu		British thermal unit, an energy measurement used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy used

	CDM		CDM Resource Management LLC and CDM Environmental & Technical Services LLC, collectively

	Citrus		Citrus, LLC, which owns 100% of FGT

	DOJ		United States Department of Justice

	EPA		United States Environmental Protection Agency

	ET		Energy Transfer LP, a publicly traded partnership and the owner of ETP LLC

	ETC Sunoco		ETC Sunoco Holdings LLC (formerly Sunoco, Inc.)

	ETP GP		Energy Transfer Partners GP, L.P., the general partner of ETO

	ETP LLC		Energy Transfer Partners, L.L.C., the general partner of ETP GP

	Exchange Act		Securities Exchange Act of 1934

	FEP		Fayetteville Express Pipeline LLC

	FERC		Federal Energy Regulatory Commission

	FGT		Florida Gas Transmission Company, LLC

	GAAP		accounting principles generally accepted in the United States of America

	IDRs		incentive distribution rights

	Lake Charles LNG		Lake Charles LNG Company, LLC (previously named Trunkline LNG Company, LLC)

	LIBOR		London Interbank Offered Rate

	MBbls		thousand barrels

	MEP		Midcontinent Express Pipeline LLC

	MTBE		methyl tertiary butyl ether

Table of Contents



	NGL		natural gas liquid, such as propane, butane and natural gasoline

	NYMEX		New York Mercantile Exchange

	OSHA		federal Occupational Safety and Health Act

	OTC		over-the-counter

	Panhandle		Panhandle Eastern Pipe Line Company, LP and its subsidiaries

	PES		Philadelphia Energy Solutions Refining and Marketing LLC

	Preferred Unitholders		Unitholders of the Series A Preferred Units, Series B Preferred Units, Series C Preferred Units, Series D Preferred Units and Series E Preferred Units, collectively

	Regency		Regency Energy Partners LP

	RIGS		Regency Intrastate Gas System

	Rover		Rover Pipeline LLC, a subsidiary of ETO

	SEC		Securities and Exchange Commission

	SemGroup		SemGroup Corporation

	Series A Preferred Units		6.250% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	Series B Preferred Units		6.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	Series C Preferred Units		7.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	Series D Preferred Units		7.625% Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	Series E Preferred Units		7.600% Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

	SPLP		Sunoco Pipeline L.P.

	Sunoco R&M		Sunoco (R&M), LLC (formerly Sunoco, Inc. (R&M))

	Southwest Gas		Pan Gas Storage LLC (d.b.a. Southwest Gas Storage Company)

	Transwestern		Transwestern Pipeline Company, LLC

	Trunkline		Trunkline Gas Company, LLC, a subsidiary of Panhandle

	UGI		UGI Corporation

	USAC		USA Compression Partners, LP

	USAC Preferred Units		USAC Series A Preferred Units

iii

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)



	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	207		$	418
Accounts receivable, net	4,368			4,009
Accounts receivable from related companies	224			176
Inventories	1,814			1,677
Income taxes receivable	109			73
Derivative assets	56			111
Other current assets	377			356
Total current assets	7,155			6,820

Property, plant and equipment	83,537			79,280
Accumulated depreciation and depletion	(14,667		)	(12,625		)
	68,870			66,655

Advances to and investments in unconsolidated affiliates	2,987			2,636
Lease right-of-use assets, net	889			—
Other non-current assets, net	1,089			1,006
Notes receivable from related company	3,606			440
Intangible assets, net	5,781			6,000
Goodwill	4,870			4,885
Total assets	$	95,247		$	88,442

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)



	September 30, 2019			December 31, 2018
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,519		$	3,491
Accounts payable to related companies	23			119
Derivative liabilities	181			185
Operating lease current liabilities	57			—
Accrued and other current liabilities	3,228			2,847
Current maturities of long-term debt	14			2,655
Total current liabilities	7,022			9,297

Long-term debt, less current maturities	46,716			37,853
Non-current derivative liabilities	360			104
Non-current operating lease liabilities	807			—
Deferred income taxes	3,094			2,884
Other non-current liabilities	1,138			1,184

Commitments and contingencies
Redeemable noncontrolling interests	499			499

Equity:
Limited Partners:
Preferred Unitholders	3,151			2,388
Common Unitholders	24,526			26,372
Accumulated other comprehensive loss	(40		)	(42		)
Total partners’ capital	27,637			28,718
Noncontrolling interests	7,974			7,903
Total equity	35,611			36,621
Total liabilities and equity	$	95,247		$	88,442

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions)

(unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
REVENUES:
Refined product sales	$	4,311		$	4,777		$	12,514		$	12,980
Crude sales	3,971			3,844			11,842			11,344
NGL sales	1,723			2,870			6,121			7,461
Gathering, transportation and other fees	2,466			1,781			6,768			4,878
Natural gas sales	822			1,026			2,549			3,112
Other	202			216			699			739
Total revenues	13,495			14,514			40,493			40,514
COSTS AND EXPENSES:
Cost of products sold	9,890			11,093			29,607			31,681
Operating expenses	806			784			2,406			2,280
Depreciation, depletion and amortization	782			747			2,334			2,100
Selling, general and administrative	171			175			495			495
Impairment losses	12			—			62			—
Total costs and expenses	11,661			12,799			34,904			36,556
OPERATING INCOME	1,834			1,715			5,589			3,958
OTHER INCOME (EXPENSE):
Interest expense, net of capitalized interest	(575		)	(446		)	(1,680		)	(1,246		)
Equity in earnings of unconsolidated affiliates	82			87			224			258
Losses on extinguishments of debt	—			—			(2		)	(109		)
Gains (losses) on interest rate derivatives	(175		)	45			(371		)	117
Other, net	113			40			242			96
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE	1,279			1,441			4,002			3,074
Income tax expense (benefit) from continuing operations	55			(52		)	216			7
INCOME FROM CONTINUING OPERATIONS	1,224			1,493			3,786			3,067
Loss from discontinued operations, net of income taxes	—			(2		)	—			(265		)
NET INCOME	1,224			1,491			3,786			2,802
Less: Net income attributable to noncontrolling interests	261			223			783			557
Less: Net income attributable to redeemable noncontrolling interests	12			—			38			—
Less: Net income (loss) attributable to predecessor equity	—			133			—			(37		)
NET INCOME ATTRIBUTABLE TO PARTNERS	$	951		$	1,135		$	2,965		$	2,282

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in millions)

(unaudited)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Net income	$	1,224		$	1,491	$	3,786		$	2,802
Other comprehensive income (loss), net of tax:
Change in value of available-for-sale securities	—			2		8			—
Actuarial gain (loss) related to pension and other postretirement benefit plans	(3		)	—		7			(2		)
Change in other comprehensive income from unconsolidated affiliates	(4		)	2		(13		)	9
	(7		)	4		2			7
Comprehensive income	1,217			1,495		3,788			2,809
Less: Comprehensive income attributable to noncontrolling interests	261			223		783			557
Less: Comprehensive income attributable to redeemable noncontrolling interests	12			—		38			—
Less: Comprehensive income (loss) attributable to predecessor equity	—			133		—			(37		)
Comprehensive income attributable to partners	$	944		$	1,139	$	2,967		$	2,289

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(unaudited)



	Limited Partners
	Preferred Unitholders			Common Unitholders			AOCI			Non-controlling Interests			Total
Balance, December 31, 2018	$	2,388		$	26,372		$	(42	)	$	7,903		$	36,621
Distributions to partners	(64		)	(1,450		)	—			—			(1,514		)
Distributions to noncontrolling interests	—			—			—			(361		)	(361		)
Capital contributions from noncontrolling interests	—			—			—			140			140
Sale of noncontrolling interest in subsidiary	—			—			—			93			93
Other comprehensive income, net of tax	—			—			8			—			8
Other, net	—			15			—			13			28
Net income, excluding amounts attributable to redeemable noncontrolling interests	40			972			—			256			1,268
Balance, March 31, 2019	2,364			25,909			(34		)	8,044			36,283
Distributions to partners	(18		)	(1,625		)	—			—			(1,643		)
Distributions to noncontrolling interests	—			—			—			(370		)	(370		)
Units issued for cash	780			—			—			—			780
Capital contributions from noncontrolling interests	—			—			—			66			66
Other comprehensive income, net of tax	—			—			1			—			1
Other, net	(1		)	(36		)	—			—			(37		)
Net income, excluding amounts attributable to redeemable noncontrolling interests	53			949			—			266			1,268
Balance, June 30, 2019	3,178			25,197			(33		)	8,006			36,348
Distributions to partners	(82		)	(1,562		)	—			—			(1,644		)
Distributions to noncontrolling interests	—			—			—			(374		)	(374		)
Capital contributions from noncontrolling interests	—			—			—			72			72
Other comprehensive loss, net of tax	—			—			(7		)	—			(7		)
Other, net	—			(5		)	—			9			4
Net income, excluding amounts attributable to redeemable noncontrolling interests	55			896			—			261			1,212
Balance, September 30, 2019	$	3,151		$	24,526		$	(40	)	$	7,974		$	35,611

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(unaudited)



	Limited Partners
	Preferred Unitholders			Common Unitholders			General Partner			AOCI		Non-controlling Interests			Predecessor Equity			Total
Balance, December 31, 2017	$	1,491		$	26,531		$	244		$	3	$	5,882		$	2,816		$	36,967
Distributions to partners	(24		)	(657		)	(264		)	—		—			—			(945		)
Distributions to noncontrolling interests	—			—			—			—		(183		)	(70		)	(253		)
Units issued for cash	—			20			—			—		—			—			20
Repurchases of common units	—			(24		)	—			—		—			—			(24		)
Subsidiary repurchases of common units	—			—			—			—		—			(300		)	(300		)
Capital contributions from noncontrolling interests	—			—			—			—		229			—			229
Cumulative effect adjustment due to change in accounting principle	—			—			—