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On its Q3:2012 earnings call, management at Energy Transfer announced its Lone Star's West Texas Gateway pipeline and its first 100,000 Bpd Mont Belvieu fractionator will go into service in December, ahead of management's previous time line. The accelerated in-service-date of these two projects could accelerate operating cash flow and distributable cash flow, which would serve as a catalyst for Energy Transfer Equity (NYSE:ETE), Regency Energy Partners (NYSE:RGP), and Energy Transfer Partners (NYSE:ETP) units.

Originally, management had expected West Texas Gateway to begin service by the end of Q4:2012, and that Lone Star's first fractionator was expected to begin service by the end of Q1:2013.

The Projects

(click to enlarge)West Texas Gateway. The estimated project cost for West Texas Gateway, a 570 mile, 200,000 Bpd NGL pipeline from Winkler County to Jackson County, TX, is ~$970 million. Given a conservative 8x investment multiple, we expect that West Texas Gateway could contribute $30 million of EBITDA in its first full quarter of operation. Given the 70/30 ownership split of Lonestar between ETP and RGP, we expect West Texas Gateway could contribute $21 million of EBITDA to ETP and $9 million of EBITDA to RGP.

Lonestar Frac 1. The estimated project cost for Lonestar Frac 1, a 100,000 Bpd NGL fractionator being built in Mont Belvieu, TX, is ~$390 million. Given a conservative 8x investment multiple, we expect Lonestar Frac 1 could contribute $12 million of EBITDA in its first full quarter of operation. Given the 70/30 ownership split of Lonestar between ETP and RGP, we expect Lonestar Frac 1 could contribute $8.5 million of EBITDA to ETP and $3.7 million of EBITDA to RGP.

In aggregate, in their first full quarter of operation, we expect West Texas Gateway and Lonestar Frac 1 could contribute $30 million of EBITDA to ETP and $13 million of EBITDA to RGP.

Distributable Cash Flow ("DCF")

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ETP. Assuming that Q3:2012's results are a good base off which to build, and given that ETP's General Partner, ETE is in the top IDR distribution tier, we expect West Texas Gateway and Lonestar Frac 1 could contribute ~$15 million of quarterly DCFto ETP's common units, and ~$15 million to its General Partner, ETE.

RGP. As above, assuming that Q3:2012's results are a good base off which to build, and using the assumption that RGP's General Partner, ETE will stay in its 15% IDR distribution tier, we expect West Texas Gateway and Lonestar Frac 1 could contribute $11 million of quarterly DCF to RGP's common units, and $2 million to its General Partner, ETE.

ETE. Given the above assumptions, we expect West Texas Gateway and Lonestar Frac 1 will increase ETE's quarterly DCF by $16-17 million, just from its ETP and RGP's GP and IDR distributions. If ETP and RGP are able to increase their distributions to their common units, ETE will also benefit via its ownership of ETP and RGP common units.

Quarterly Distributable Cash Flow per Common Unit

(click to enlarge)Over the past few quarters and years, ETE, ETP, and RGP investors have been disappointed by the lack of per unit distribution growth. In order to increase distributions per unit, two conditions must be met: (1) DCF must be increasing, and (2) DCF must be greater than Total Cash Distributed to Common and GP units. In other words the Distribution Coverage Ratio (DCR) must, at a minimum, be greater than 1.0x to prudently increase distributions/common unit.

ETP. In Q3:2012, ETP's total quarterly distributions exceeded DCF by $84.5 million; and thus, its quarterly DCR was 0.8x. Given the seasonality of many MLPs' businesses, low DCF in the summer is often offset by higher DCF in the winter. However, ETP's LTM DCF was still in deficit (less than 1.0x), indicating that the cash flow benefits of Lonestar's West Texas Gateway and Lonestar Frac 1 projects alone are not sufficient for the company to be able to increase its distribution to ETP common units.

Of note, given the timing of its acquisition of Sunoco, ETP's common unit count in Q3:2012 includes units issued for the acquisition. However, the company's results did not include results from Sunoco. On a run rate basis, we expect Sunoco and its Sunoco Logistics subsidiary could contribute greater than $240 million of quarterly EBITDA.

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RGP. In Q3:2012, RGP's quarterly distributions exceeded Distributable Cash Flow by $14 million and thus, its quarterly DCR was 0.83x. That said, RGP's LTM DCF was slightly greater than parity, 1.0x, indicating that an increase RGP's operational results could flow through to common unit holders via an increase in distribution/unit. Given the increased DCF from RGP's interest in the Lonestar West Texas Gateway and Lonestar Frac 1 projects, all other things being equal to Q3:2012's results, we expect RGP's quarterly distribution could increase by up to $0.06 per unit. Based on an 8% dividend yield, a $0.06 per quarter increase in RGP's per unit distribution could increase RGP's unit price by as much as $3.00 per unit.

ETE. In Q3:2012, ETE's quarterly DCF exceeded distributions by $14 million and thus, its quarterly DCR was 1.08x. That said, ETE's LTM DCF was 0.9x, slightly less than parity, 1.0x, indicating that ETE's subsidaries, ETP, RGP, and ETP Holdco, may still need to increase their operational results before ETE can increase its distributions/unit. Given the increased DCF from ETE's ownership of the GPs of both ETP and RGP, and ETP and RGP's interests in the Lonestar in West Texas Gateway and Lonestar Frac 1, we expect that ETE's quarterly distribution could increase by as much as $0.06 per unit. Based on a 5% dividend yield, a $0.06 per quarter increase in ETE's per unit distribution could increase ETE's unit price by as much as $4.50-5.00 per unit.

Source: The Lonestar Effect On Energy Transfer Equity, Regency Energy Partners, And Energy Transfer Partners