Energy Transfer Partners - An Investment With Profitable Partnerships

Jul.31.14 | About: Energy Transfer (ETP)


The Bakken field is expected to expand crude production by 40%-50% by the end of 2016.

To capitalize on the production growth, ETP decided to build a pipeline to meet the requirements of midstream infrastructure.

The recently approved Bakken pipeline will be a cost-effective method for transporting increased production to the major U.S. markets.

The partnership is well positioned in the Permian basin and expected to generate considerable cash flows.

Energy Transfer Partners' (NYSE:ETP) operations include natural gas midstream and intrastate transportation and storage businesses in the United States. The partnership's Midstream segment gathers, compresses, treats, blends, processes, and markets natural gas in the major basins in the U.S.

The assets of Energy Transfer Partners are strategically situated to benefit from increasing production of unconventional sources of natural gas. The partnership has a strong market presence in nearly all of the major U.S. natural gas producing regions. Going forward, with its recently announced projects, the partnership expects to further strengthen its portfolio of assets. Let us discuss these projects in detail.

The Bakken Pipeline

Higher production at the Bakken shale is encouraging for the midstream pipeline operators. To capitalize on the increased production in the Bakken shale, Energy Transfer Partners is putting efforts into building a crude oil pipeline. The company recently announced it would to start building a 1,100-mile crude oil pipeline known as the Bakken Pipeline. The pipeline will be transporting crude oil from the Bakken and Three Forks production area in North Dakota to Patoka, Illinois. From Patoka, the rail services will be used to transport crude to the Midwest markets and East Coast markets.

In addition, the pipeline will connect the partnership's existing Trunkline Pipeline, which is being converted from natural gas service to crude transportation service. The conversion of the Trunkline project is expected to be completed by the end of 2016. With the help of the Trunkline Pipeline, crude oil can be transported to Sunoco Logistics Partners' (NYSE:SXL) crude oil terminal facility in Nederland, Texas. ETP disclosed that it secured multiple long-term contracts with Sunoco Logistics. The company was in discussions with SXL regarding equity participation by Sunoco Logistics in the Bakken pipeline project. Sunoco Logistics is a crude oil pipeline operator with significant operations in the Permian Basin.

The pipeline is expected to initially provide 320,000 barrels per day of capacity, which can be further increased per customer demand. An exposure to the Bakken Pipeline will also help it to add growth to its asset portfolio. The partnership expects the pipeline to be fully operational by the end of 2016. The construction of the Bakken Pipeline project will help further develop the crude rich areas around the Bakken and will be able to provide additional U.S. crude supplies to the U.S. markets and refineries along the East and Gulf Coasts. A crude oil pipeline is generally more cost effective, hence the successful completion of the pipeline will enable ETP to compete against rail and truck transportation by offering a cost effective transportation facility to oil & gas producers in Bakken. Moreover, with the revenues secured through fee-based contracts, the pipeline is poised to generate ample cash flows for ETP.

Permian Basin

Currently, ETP has approximately 7,800 miles of natural gas transportation pipelines and three natural gas storage facilities in Texas. The partnership has 1,070-mile-long pipelines with the capacity to transport 137,000 barrels per day. The assets are owned by Lone Star, and ETP has a 70% interest in Lone Star.

In addition, the other pipeline that connects the Permian and Delaware Basins and the Eagle Ford shale to Mont Belvieu, Texas is the West Texas Gateway pipeline. The pipeline has the capacity to transport 209,000 barrels per day of NGLs. This interstate pipeline is 570 miles long and is also operated by Lone Star.

Going forward, as the producers are quickly ramping up their drilling programs, the partnership seems to be excited about further expansion. Martin Salinas, the chief financial officer of ETP, has observed, "We see expansion opportunities in the areas of pipeline conversion and repurposing opportunities as well as growth in the Eagle Ford and Permian areas."

Acquisition synergies

Energy Transfer Partners' is all set to benefit from the acquisition of gasoline retailer Susser Holdings Corp. (NYSE:SUSS). The acquisition is also expected to be closed by the third quarter of the current year. Upon successful completion, the partnership will be able to meaningfully expand its existing network of gas stations. Currently, Susser Holdings has been operating more than 600 Stripes and Sac-N-Pac retail stations aimed at selling gasoline, diesel fuel, and convenience store items. The company has a large footprint across Texas, New Mexico, and Oklahoma.

The acquisition will help ETP to capitalize on the strong foothold of Susser Holdings and will open new vistas for ETP to grow. The completion of the acquisition will help Energy Transfer Partners to enhance its market share which will in turn generate significant cash flows for its unit holders.

Concluding Remarks

The successful completion of the Bakken pipeline will not only open up multiple markets for shippers but also help the partnership to have lower operation costs. The Bakken pipeline will provide a cost-effective alternative to transporting production from the region to the major U.S. markets. It will also reduce the dependence on rail and truck transportation, which will generate higher cash flows for the unit holders. Moreover, ETP is well positioned to capitalize on the production growth in the Permian basin. The company is determined to exploit any expansion opportunities in the region.

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.