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eto-20200930

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, 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

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

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.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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			36

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			63

ITEM 4. CONTROLS AND PROCEDURES			65

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS			66

ITEM 1A. RISK FACTORS			66









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 subsidiary of ETO

			USAC Preferred Units						USAC Series A Preferred Units
			White Cliffs						White Cliffs Pipeline, L.L.C.

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, 2020		December 31, 2019*
ASSETS
Current assets:
Cash and cash equivalents	$	274	$	288
Accounts receivable, net	3,731		5,038
Accounts receivable from related companies	93		167
Inventories	1,723		1,532
Income taxes receivable	77		146
Derivative assets	19		23
Other current assets	246		291

Total current assets	6,163		7,485

Property, plant and equipment	92,744		89,294
Accumulated depreciation and depletion	(17,906)		(15,398)
	74,838		73,896

Advances to and investments in unconsolidated affiliates	3,063		3,454

Lease right-of-use assets, net	934		964
Other non-current assets, net	1,582		1,571
Notes receivable from related company	2,609		3,603
Intangible assets, net	5,915		6,154
Goodwill	2,418		5,167
Total assets	$	97,522	$	102,294

*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)


	September 30, 2020		December 31, 2019*
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,765	$	4,119
Accounts payable to related companies	46		31
Derivative liabilities	264		147
Operating lease current liabilities	54		60
Accrued and other current liabilities	2,905		3,336
Current maturities of long-term debt	21		26
Total current liabilities	6,055		7,719

Long-term debt, less current maturities	51,352		50,904

Non-current derivative liabilities	275		273
Non-current operating lease liabilities	901		901
Deferred income taxes	3,314		3,171
Other non-current liabilities	1,152		1,162

Commitments and contingencies
Redeemable noncontrolling interests	756		739

Equity:
Limited Partners:





Preferred Unitholders	4,768		3,174
Common Unitholders	20,714		24,226
Accumulated other comprehensive loss	(4)		(18)
Total partners’ capital	25,478		27,382
Noncontrolling interests	8,239		8,018
Predecessor equity	—		2,025
Total equity	33,717		37,425
Total liabilities and equity	$	97,522	$	102,294

*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 September 30,				Nine Months Ended September 30,
	2020		2019*		2020		2019*
REVENUES:
Refined product sales	$	2,720	$	4,311	$	7,952	$	12,514
Crude sales	2,298		3,971		7,170		11,842
NGL sales	1,808		1,723		4,751		6,121
Gathering, transportation and other fees	2,283		2,466		6,805		6,768
Natural gas sales	681		822		1,783		2,549
Other	165		202		459		699
Total revenues	9,955		13,495		28,920		40,493
COSTS AND EXPENSES:
Cost of products sold	6,376		9,864		18,784		29,642
Operating expenses	773		806		2,422		2,406
Depreciation, depletion and amortization	910		782		2,709		2,334
Selling, general and administrative	174		171		547		495
Impairment losses	1,474		12		2,803		62
Total costs and expenses	9,707		11,635		27,265		34,939
OPERATING INCOME	248		1,860		1,655		5,554
OTHER INCOME (EXPENSE):
Interest expense, net of interest capitalized	(569)		(575)		(1,747)		(1,680)
Equity in earnings (losses) of unconsolidated affiliates	(32)		82		46		224
Impairment of investment in an unconsolidated affiliate	(129)		—		(129)		—
Losses on extinguishments of debt	—		—		(59)		(2)
Gains (losses) on interest rate derivatives	55		(175)		(277)		(371)
Other, net	107		113		123		242
INCOME (LOSS) BEFORE INCOME TAX EXPENSE	(320)		1,305		(388)		3,967
Income tax expense	42		55		169		216
NET INCOME (LOSS)	(362)		1,250		(557)		3,751
Less: Net income attributable to noncontrolling interests	284		261		309		783
Less: Net income attributable to redeemable noncontrolling interests	11		12		36		38
Less: Net loss attributable to predecessor equity	—		—		(6)		—
NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS	$	(657)	$	977	$	(896)	$	2,930

*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 COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019*		2020		2019*
Net income (loss)	$	(362)	$	1,250	$	(557)	$	3,751
Other comprehensive income (loss), net of tax:


Change in value of available-for-sale securities	3		—		3		8
Actuarial gain (loss) related to pension and other postretirement benefit plans	4		(3)		18		7
Foreign currency translation adjustments	18		—		48		—
Change in other comprehensive income (loss) from unconsolidated affiliates	1		(4)		(15)		(13)
	26		(7)		54		2
Comprehensive income (loss)	(336)		1,243		(503)		3,753
Less: Comprehensive income attributable to noncontrolling interests	284		261		309		783
Less: Comprehensive income attributable to redeemable noncontrolling interests	11		12		36		38
Less: Comprehensive loss attributable to predecessor equity	—		—		(6)		—
Comprehensive income (loss) attributable to partners	$	(631)	$	970	$	(842)	$	2,932

*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		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
Distributions to partners	(80)		(1,100)		—		—		—		(1,180)
Distributions to noncontrolling interests	—		—		—		(350)		—		(350)

Capital contributions from noncontrolling interests	—		—		—		25		—		25

Other comprehensive income, net of tax	—		—		17		9		—		26
Other, net	—		45		—		(42)		—		3
Net income (loss), excluding amounts attributable to redeemable noncontrolling interests	84		(741)		—		284		—		(373)
Balance, September 30, 2020	$	4,768	$	20,714	$	(4)	$	8,239	$	—	$	33,717

*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