Energy Transfer Partners Will Prove To Be A Solid Investment

Jul.21.14 | About: Energy Transfer (ETP)

Summary

The unit price has been poor over the last few months compared to some of its peers.

Planned expansions and new projects coming online over the next 2-3 years will result in considerable growth for the partnership.

Acquisition of Susser Holdings will give ETP diversity, both in terms of geography and products portfolio.

Energy Transfer Partners (NYSE:ETP) is one of the largest energy MLPs with a significant position in the midstream, NGL transportation and storage services. The partnership has a strong market presence in each of its operating segments and is well-positioned to compete in the natural gas midstream and transportation as well as storage markets with a diversified asset mix. The partnership is a relatively smaller player compared to its competitors and the year-to-date unit performance has been poor - ETP is down about 1% compared to a gain of about 2.5% by Kinder Morgan Energy Partners (NYSE:KMP) and over 17% by Enterprise Products Partners (NYSE:EPD).

However, ETP recently announced major expansion projects in two of its major high yielding areas, which will result in robust future growth for the partnership. These projects will likely result in increased revenues through long-term agreements with the shippers. Moreover, the partnership also raised its cash distributions by 1.63%.

ETP: Ready to take a Leap

The U.S. energy sector has taken several twists and turns over the last few years. The shale boom has enabled the companies to significantly diversify their asset bases. ETP also reaped considerable benefits during the period and attained strong asset base. The partnership is ideally situated to benefit from increasing production arising from unconventional sources of natural gas. With one of the largest intrastate and interstate pipelines system, the partnership has its roots in nearly every natural gas shale play in North America.

ETP is following a strict growth plan and is in the process of expanding few of its major pipeline systems in the highest yielding areas. The partnership announced to build a pipeline that transports natural gas from processing facilities located in the resource-rich acreage in Marcellus and Utica Shale to several markets in the U.S. and Canada. Further, ETP also announced that it has also signed and agreed long-term working interests with multiple shippers in the proposed near-term Open season. Currently, the natural gas pipeline is designed to transport 2.2 billion cubic feet per day, which will be extended to transport up to 3.25 billion cubic feet per day, depending on shipper requirements.

As mentioned earlier, the extended pipelines system also holds strong revenue growth by operating in the high-yielding areas of the region. The first 644-kilometers of the pipelines project will enable the partnership to transport natural gas from processing plants and interconnections in Pennsylvania and Ohio to the terminal points of ETP's existing Panhandle Eastern Pipeline [PEPL] and another Midwest pipeline near Ohio. The new pipeline's interconnections with ETP's existing assets will enable it to give access to both new and existing industrial markets and potential liquefaction export markets in the Gulf Coast. Further, the partnership also expects to have initial service to the markets by the fourth quarter of 2016 and early 2017.

Moreover, ETP has also made efforts to shift its focus from natural gas to crude through the Trunk line pipeline, which will be operational by 2015. Further, the partnership also announced a crude oil pipeline project connecting Bakken supplies to Patoka, Illinois and to the Gulf Coast markets. The pipeline has a strategic advantage to transport crude from the resource rich and high-yielding areas in the Bakken and Three Forks, having acreage of 1,100 mile with a capacity of 320,000 barrels per day. The project will be completed and operational by the end of 2016 and will supply Bakken crude to refineries in the east and along the Gulf Coast. The construction of the new Bakken pipeline will further help ETP to harvest from the crude rich areas of Bakken. Moreover, the partnership is also in discussion with its subsidiary, Sunoco Logistics Partners (NYSE:SXL), to help finance the expansion project by buying an equity stake in the project. Further, ETP also plans to develop a rail terminal facility in Illinois to gain access in the East Coast refineries.

Expected Acquisition

ETP is also in the process of acquiring Susser Holdings (NYSE:SUSS), a gasoline retailer, which will likely be concluded by the third quarter of this year with a price tag of around $1.8 billion including units and cash consideration. The acquisition will result in considerable benefits for the partnership as the company holds a strong track record of sustainable earnings growth including the expansion of existing network of gas stations - Susser Holdings operates more than 600 retail stations selling gasoline, diesel and other convenient store items. Moreover, ETP also plans to combine the Susser operations with its Sunoco business operations, which will create a beneficial platform for the partnership and diversify the asset base by geography and product lines.

Conclusion

The unit performance of the partnership has been poor recently. However, the growth prospects over the next 2-3 years will push the unit price up. Further, the growth coming from the expansion projects will result in considerable increase in the cash flows of the company, which will allow ETP to grow its cash distributions at a larger rate. We maintain that ETP will prove to be a solid investment over the next 2-3 years as we see considerable growth coming from the new projects coming online.

Additional Disclosure: This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.