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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 June 30, 2020



☐	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
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 (Loss)	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	37

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	64

ITEM 4. CONTROLS AND PROCEDURES	65

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS	67

ITEM 1A. RISK FACTORS	67

ITEM 6. EXHIBITS	68

SIGNATURE	70

Table of Contents

Definitions

References to the “Partnership” or “ETO” refer to Energy Transfer Operating, L.P. In addition, the following is a list of certain acronyms and terms used throughout this document:



	/d		per day

	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

	Citrus		Citrus, LLC

	DOJ		United States Department of Justice

	EPA		United States Environmental Protection Agency

	ET		Energy Transfer LP, the parent company of ETO

	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, a wholly-owned subsidiary of Citrus

	GAAP		accounting principles generally accepted in the United States of America

	HFOTCO		Houston Fuel Oil Terminal Company, a wholly-owned subsidiary of ETO, which owns the Houston Terminal

	Lake Charles LNG		Lake Charles LNG Company, LLC, a wholly-owned subsidiary of ETO

	LIBOR		London Interbank Offered Rate

	MBbls		thousand barrels

	MEP		Midcontinent Express Pipeline LLC

	MTBE		methyl tertiary butyl ether

	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, wholly-owned by ETO

	PES		Philadelphia Energy Solutions Refining and Marketing LLC, non-controlling interest owned by ETO

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

	Regency		Regency Energy Partners LP, a wholly-owned subsidiary of ETO

	Rover		Rover Pipeline LLC, a less than wholly-owned subsidiary of ETO

	SEC		Securities and Exchange Commission

	SemCAMS		SemCAMS Midstream ULC, a less than wholly-owned subsidiary of ETO

	SemGroup		SemGroup, LLC (formerly SemGroup Corporation)

Table of Contents




	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

	Series F Preferred Units		6.750% Series F Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units

	Series G Preferred Units		7.125% Series G Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units

	SPLP		Sunoco Pipeline L.P., a wholly-owned subsidiary of ETO

	Sunoco Logistics Operations		Sunoco Logistics Partners Operations L.P., a wholly-owned subsidiary of ETO

	Sunoco R&M		Sunoco (R&M), LLC

	Transwestern		Transwestern Pipeline Company, LLC, a wholly-owned subsidiary of ETO

	Trunkline		Trunkline Gas Company, LLC, a wholly-owned subsidiary of Panhandle

	USAC		USA Compression Partners, LP, a wholly-owned subsidiary of ETO

	USAC Preferred Units		USAC Series A Preferred Units
	White Cliffs		White Cliffs Pipeline

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)



	June 30, 2020			December 31, 2019*
ASSETS
Current assets:
Cash and cash equivalents	$	152		$	288
Accounts receivable, net	2,955			5,038
Accounts receivable from related companies	139			167
Inventories	1,593			1,532
Income taxes receivable	68			147
Derivative assets	14			23
Other current assets	245			291
Total current assets	5,166			7,486

Property, plant and equipment	91,774			89,294
Accumulated depreciation and depletion	(17,125		)	(15,398		)
	74,649			73,896

Advances to and investments in unconsolidated affiliates	3,306			3,454
Lease right-of-use assets, net	1,112			964
Other non-current assets, net	1,511			1,572
Notes receivable from related company	2,865			3,603
Intangible assets, net	6,007			6,154
Goodwill	3,868			5,167
Total assets	$	98,484		$	102,296

*As adjusted. See Note 1.

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)



	June 30, 2020			December 31, 2019*
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,138		$	4,119
Accounts payable to related companies	36			31
Derivative liabilities	24			147
Operating lease current liabilities	54			60
Accrued and other current liabilities	2,730			3,339
Current maturities of long-term debt	34			25
Total current liabilities	5,016			7,721

Long-term debt, less current maturities	51,179			50,905
Non-current derivative liabilities	577			273
Non-current operating lease liabilities	903			901
Deferred income taxes	3,277			3,171
Other non-current liabilities	1,216			1,161

Commitments and contingencies
Redeemable noncontrolling interests	750			739

Equity:
Limited Partners:
Preferred Unitholders	4,764			3,174
Common Unitholders	22,510			24,226
Accumulated other comprehensive loss	(21		)	(18		)
Total partners’ capital	27,253			27,382
Noncontrolling interests	8,313			8,018
Predecessor equity	—			2,025
Total equity	35,566			37,425
Total liabilities and equity	$	98,484		$	102,296

*As adjusted. See Note 1.

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 June 30,						Six Months Ended June 30,
	2020			2019*			2020			2019*
REVENUES:
Refined product sales	$	2,000		$	4,477		$	5,232		$	8,203
Crude sales	1,329			4,346			4,872			7,871
NGL sales	1,254			1,996			2,943			4,398
Gathering, transportation and other fees	2,137			2,035			4,522			4,302
Natural gas sales	514			763			1,102			1,727
Other	104			260			294			497
Total revenues	7,338			13,877			18,965			26,998
COSTS AND EXPENSES:
Cost of products sold	4,117			10,301			12,408			19,778
Operating expenses	770			792			1,649			1,600
Depreciation, depletion and amortization	934			781			1,799			1,552
Selling, general and administrative	171			175			373			324
Impairment losses	4			—			1,329			50
Total costs and expenses	5,996			12,049			17,558			23,304
OPERATING INCOME	1,342			1,828			1,407			3,694
OTHER INCOME (EXPENSE):
Interest expense, net of interest capitalized	(578		)	(578		)	(1,178		)	(1,105		)
Equity in earnings of unconsolidated affiliates	85			77			78			142
Losses on extinguishments of debt	—			—			(59		)	(2		)
Losses on interest rate derivatives	(3		)	(122		)	(332		)	(196		)
Other, net	(29		)	112			16			129
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	817			1,317			(68		)	2,662
Income tax expense	98			35			127			161
NET INCOME (LOSS)	719			1,282			(195		)	2,501
Less: Net income attributable to noncontrolling interests	225			266			25			522
Less: Net income attributable to redeemable noncontrolling interests	13			13			25			26
Less: Net loss attributable to predecessor equity	—			—			(6		)	—
NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS	$	481		$	1,003		$	(239	)	$	1,953

*As adjusted. See Note 1.

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

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ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019*			2020			2019*
Net income (loss)	$	719	$	1,282		$	(195	)	$	2,501
Other comprehensive income (loss), net of tax:
Change in value of available-for-sale securities	9		3			—			8
Actuarial gain related to pension and other postretirement benefit plans	8		3			14			10
Foreign currency translation adjustments	30		—			30			—
Change in other comprehensive loss from unconsolidated affiliates	—		(5		)	(16		)	(9		)
	47		1			28			9
Comprehensive income (loss)	766		1,283			(167		)	2,510
Less: Comprehensive income attributable to noncontrolling interests	225		266			25			522
Less: Comprehensive income attributable to redeemable noncontrolling interests	13		13			25			26
Less: Comprehensive loss attributable to predecessor equity	—		—			(6		)	—
Comprehensive income (loss) attributable to partners	$	528	$	1,004		$	(211	)	$	1,962

*As adjusted. See Note 1.

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

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ENERGY TRANSFER OPERATING, L.P. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(unaudited)



	Limited Partners
	Preferred Unitholders			Common Unitholders			AOCI			Noncontrolling Interests			Predecessor Equity			Total
Balance, December 31, 2019*	$	3,174		$	24,226		$	(18	)	$	8,018		$	2,025		$	37,425
Distributions to partners	(80		)	(2,550		)	—			—			—			(2,630		)
Distributions to noncontrolling interests	—			—			—			(340		)	(25		)	(365		)
Units issued for cash	1,580			—			—			—			—			1,580
Capital contributions from noncontrolling interests	—			—			—			66			30			96
SemGroup contribution (See Note 2)	—			1,840			(2		)	333			(2,171		)	—
Other comprehensive loss, net of tax	—			—			(19		)	—			(38		)	(57		)
Other, net	(3		)	(8		)	—			3			(10		)	(18		)
Net income (loss), excluding amounts attributable to redeemable noncontrolling interests	77			(797		)	—			(200		)	(6		)	(926		)
Balance, March 31, 2020*	4,748			22,711			(39		)	7,880			(195		)	35,105
Distributions to partners	(67		)	—			—			—			—			(67		)
Distributions to noncontrolling interests	—			—			—			(340		)	—			(340		)
Capital contributions from noncontrolling interests	—			—			—			82			—			82
SemGroup contribution (See Note 2)	—			(630		)	(20		)	455			195			—
Other comprehensive income, net of tax	—			—			38			9			—			47
Other, net	(1		)	32			—			2			—			33
Net income, excluding amounts attributable to redeemable noncontrolling interests	84			397			—			225			—			706
Balance, June 30, 2020	$	4,764		$	22,510		$	(21	)	$	8,313		$	—		$	35,566

*As adjusted. See Note 1.

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			Noncontrolling Interests			Total
Balance, December 31, 2018*	$	2,388		$	26,539		$	(42	)	$	7,903		$	36,788
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 interest	40			910			—			256			1,206
Balance, March 31, 2019*	2,364			26,014			(34		)	8,044			36,388
Distributions to partners	(18		)	(1,625		)	—			—			(1,643		)
Distributions to noncontrolling interests	—			—			—			(370		)	(370		)
Units issued for cash	780			—