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Energy Transfer Partners LP (NYSE:ETP)

Q3 2012 Earnings Call

November 08, 2012 9:30 am ET

Executives

Martin Salinas - Chief Financial Officer of Energy Transfer Partners LLC and Principal Accounting Officer of Energy Transfer Partners LLC

Kelcy L. Warren - Chairman of the Board of Directors of Energy Transfer Partners LLC and Chief Executive Officer of Energy Transfer Partners LLC

Marshall S. McCrea - President of Energy Transfer Partners LLC, Chief Operating Officer of Energy Transfer Partners LLC and Director of Energy Transfer Partners LLC

Brian P. MacDonald - Chairman of Sunoco Partners LLC

Analysts

Stephen J. Maresca - Morgan Stanley, Research Division

Curt N. Launer - Deutsche Bank AG, Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Heejung Ryoo - Barclays Capital, Research Division

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Operator

Good morning, ladies and gentlemen, and welcome to the Energy Transfer Third Quarter 2012 Earnings Call. [Operator Instructions] Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I would now like to turn the call over to Mr. Martin Salinas, Chief Financial Officer. Mr. Salinas, you may begin.

Martin Salinas

Thank you, operator, and good morning, everyone. Welcome to Energy Transfer's Third Quarter 2012 Earnings Call. With me today are Kelcy, Mackie, John McReynolds, Tom Mason and other members of our management team, who are available to help answer your questions after my prepared remarks. We also have with us today, Brian MacDonald and Bob Owens from Sunoco.

Today, I'll start with a few comments about our recently closed Sunoco acquisition and formation of ETP Holdco, as well as a status update on some of our other growth initiatives. We'll then discuss third quarter financial and operating results for ETP, ETE and Southern Union before taking your questions.

Our earnings releases, which were issued yesterday after the market closed, are available on our website, and we intend to file our 10-Q later today. I'd also like to remind you that during this call, I'll make forward-looking statements within the meaning of Section 21E of the SEC Act of 1934 based on our beliefs, as well as certain assumptions and information available to us. I'll also refer to adjusted EBITDA and distributable cash flow, or DCF, which are non-GAAP financial measures. Reconciliations of net income to adjusted EBITDA and DCF are provided on our website for your reference.

With that, let's talk about our recent acquisition of Sunoco and the formation of ETP Holdco. As you're aware, on October 5, we completed the acquisition of Sunoco for roughly $2.6 billion of cash and approximately 55 million ETP common units. Immediately following the acquisition, ETP contributed Sunoco to ETP Holdco, a newly formed entity, for a 40% equity interest and ETE contributed Southern Union to ETP Holdco for a 50% equity interest.

In addition, I'd point out that prior to the formation of Holdco, Sunoco's interest in Sunoco Logistics or SXL were transferred to ETP. As a result, ETP now owns a GP interest in IDRs of Sunoco Logistics and roughly 32% of Sunoco Logistics' common units. With these transactions, we have positioned the partnership to better manage operations across our asset base and realized operating and cost synergies at both Southern Union and Sunoco.

Now our focus turns to integrating and optimizing our portfolio of assets, a process that is well underway. We have already identified more than $80 million of annual cost synergies at Southern Union and are exploring numerous commercial opportunities. We've also started the exercise of integrating Sunoco into our system through an integration team comprised of members from both Energy Transfer and Sunoco. And while we're in the early stages of this process, we are confident we will realize meaningful synergies once the integration is complete.

And as we look at our current organizational structure, we believe there will be opportunities for simplification, such as transferring assets from Holdco into an MLP structure. In evaluating these possibilities, we will consider both tax consequences and credit impact, while ensuring transactions are accretive to our unit holders.

Now I'd like to briefly comment on our projects under construction in both our Midstream and NGL segments. These projects will support growth in our distributable cash flow, while continuing to diversify our business mix. In our Midstream segment, Phase 2 of our Rich Eagle Ford Mainline and our Red River Gathering Pipeline went into service during the third quarter of 2012, and we expect our Justice NGL pipeline and our Karnes County processing plant to go in service by December. We also expect Lone Star's West Texas Gateway pipeline and our first 100,000-barrel a day Mont Belvieu fractionator to go in service in December, ahead of our initial time line.

Additionally, Phase 1 of our Denton County processing plant is also expected to come online in the first quarter of 2013. And we are proceeding nicely on the second fractionator, which is now expected to be in service sometime in Q4 of 2013, also ahead of schedule. And since the fourth quarter of 2010, we have announced more than $3 billion of growth projects primarily focused in the rich gas shale plays in Texas, and worth approximate $2 billion will be in service by year end. Once the full suite of announced projects are in service, they are expected to contribute annual EBITDA of $400 million to $500 million when fully ramped up for the next couple of years.

Let's now go into ETP's Q3 2012 results where adjusted EBITDA was $482 million, up 19% from Q3 of last year. Distributable cash flow for the quarter was $340 million, an increase of $73 million. And for the third quarter of 2012, ETP will pay its unit holders $0.89375, or $3.575 on an annualized basis, per unit on November 14 to our unit holders of record as of November 6.

Now let's dive into our segment results, starting with the Midstream segment, where Q3 2012 adjusted EBITDA was $105 million, up slightly from Q3 of 2011. Our fee-based margin increased $20 million from the prior year, primarily due to increased unit volumes at our La Grange and Chisholm plants as a result of higher production out of the Eagle Ford Shale play. Offsetting this increase, margins from our non-fee-based projects and processing activities declined 18% from Q3 of 2011, that's primarily due to lower NGL prices and slightly lower equity volumes.

Out of the large portfolio of growth projects expected to come online over the next 6 to 12 months, we expect our Midstream segment to grow significantly and represent a larger portion of our overall business mix. The majority of the increased cash flow will come from long-term fee-based contracts.

Turning our attention to the Interstate segment, where adjusted EBITDA was $204 million for the quarter, that's doubled from Q3 of 2011. Increased demand fees from our Tiger Pipeline expansion accounted for a roughly $17.5 million of the increase. Also, adjusted EBITDA attributable to ETP's share of FEP increased $6 million to $20 million for the quarter, and adjusted EBITDA attributable to ETP's 50% share of Citrus was $81 million. And from a cash perspective, ETP received distributions from FEP of $17.3 million and Citrus of $37.5 million for the third quarter.

Now onto our NGL Transportation and Services segments, for Q3 2012, adjusted EBITDA was $36 million, that's a 19% increase from Q3 of last year. That's primarily driven by the results of our Lone Star JV, which is 70% owned by ETP, in addition to the Freedom and Liberty pipelines which were recently placed in service. NGL Transportation volumes averaged 174,000 barrels per day for the quarter, that's a 31% increase compared to last period, in 2011. That's primarily driven by the increase in volumes transported on our wholly owned NGL pipelines as a result of higher production again coming from the Eagle Ford. Average NGL fractionation volumes were 11,500 barrels per day for the quarter, down due to lower production at our Geismar, Louisiana fractionation facility due to refinery closures as a result of Hurricane Isaac and refinery downtime.

And similar to the Midstream, we also expect our volumes and margins at our NGL segment to continue increasing significantly, as the new projects I mentioned earlier contribute to the already solid platform of NGL services we provide our customers.

Now looking at our Intrastate Transportation & Storage segment, adjusted EBITDA for the quarter was $121 million, down 29% from Q3 of 2011 primarily due to lower transported volumes. Transportation volumes averaged 9.9 Bcf a day in Q3 of 2012, down approximately 1.2 Bcf a day from Q3 of last year due to the continued low natural gas price environment and the narrow basis differential that continue to exist. However, if you look sequentially, our volumes quarter-over-quarter were flat, signaling to us that producers have reacted to the low natural gas price environment and we're seeing volumes that are leveling off. And from a margin perspective, our transportation fees decreased $9 million, primarily due to lower demand fees of $8 million. Our retained fuel revenues were also down $11 million for the quarter as a result of lower gas prices and slightly lower volumes.

Margins from our sales of natural gas and other activities also decreased $21 million, primarily due to a smaller realized gain from derivative activities of $15 million and a decline of $8 million in margins where we utilize third-party processing. And as it relates to storage, our margin for these activities was $10 million for the quarter, a $6 million increase from Q3 of 2011, primarily driven by an increase in inventory valuations and derivatives sell-through in the period. And as of September 30, we had approximately 46 Bcf of natural gas in storage for our own account, where we continue to expect a withdrawal in late 2012 and early 2013.

That pretty much covers our results for the quarter. Let's move on to the growth CapEx where, in the third quarter of 2012, we invested a total of $583 million, with the majority of that spent in our Midstream and NGL segments, primarily on our Eagle Ford Shale-related projects and NGL pipeline and fractionation projects at Lone Star.

Our maintenance CapEx for Q3 was $27 million. $17 million of it was spent in our Midstream, Intrastate and NGL segments, $9 million on our Interstate segment and the remainder in other segments. For the fourth quarter of this year, we expect to spend between $550 million and $625 million of total growth CapEx, including $200 million to $225 million in our Midstream segment, roughly $350 million to $400 million in our NGL segment. For a 30% share of growth CapEx at Lone Star, we also expect to receive between $100 million and $120 million in contributions from Regency in the fourth quarter. And as it relates to maintenance, we expect to spend between $30 million and $40 million in the fourth quarter of this year.

And turning our attention to 2013, we expect to spend between $750 million and $900 million of total growth CapEx. That includes $350 million to $400 million in our Midstream segment, $400 million to $500 million in our NGL segment. That doesn't reflect $100 million to $150 million of expected contributions from Regency for their 30% share of Lone Star's growth CapEx. We also expect to spend between $125 million and $145 million on maintenance for 2013.

And with respect to liquidity, ETP has approximately $2 billion of availability on its revolving credit facility at September 30, which was subsequently reduced by $620 million of borrowings to fund the Sunoco acquisition in early October. And as always, we continue to keep a close eye on the capital markets and plan to opportunistically raise debt and equity to fund our growth CapEx needs, maintain sufficient liquidity and, of course, manage our credit metrics to maintain our investment-grade credit rating. That wraps up ETP.

Let's move on to Southern Union where its results for the third quarter was $169 million of adjusted EBITDA. That compares to $247 million in Q3 of 2011. Period-over-period results was lower largely due to the sale of Citrus to ETP in March of 2012 and the impact of lower realized NGL prices impacting the Gathering and Processing segment.

In the Gathering and Processing segment, adjusted EBITDA was $25 million compared to $34 million in Q3 of last year, as lower average NGL prices and lower natural gas prices were offset by increased NGL produced volumes. And for Q3 of 2012, realized NGL prices averaged roughly $0.92 per gallon. That compares to $1.38 per gallon in Q3 of 2011. And average NGLs produced were 42,000 barrels per day in Q3 2012. That's an almost 11% increase from Q3 of last year.

Within the Transportation and Storage segment, adjusted EBITDA was $122 million for Q3 of 2012. That's down about $77 million from Q3 of 2011, primarily driven by the lower adjusted EBITDA of $79 million due to the sales of Citrus to ETP. And within the Distribution segment, adjusted EBITDA increased $8 million from Q3 of 2011 to $22 million in Q3 of 2012. That's driven by a decrease in operating, maintenance and general expenses, as well as an increase in net operating revenues, which resulted from the impact of new customer rates at the New England Gas Company.

Now for ETE, where distributable cash flow, adjusted to exclude certain acquisition-related costs incurred by both Southern Union and ETE, was $189 million for the quarter. That compares to $126 million in Q3 of last year. ETE's cash distribution expected from ETP, before the impact of IDR relinquishment, were $197 million for Q3 of 2012. That compares to $154 million in Q3 2011. Net of the Citrus and Sunoco IDR relinquishment, which ETE agreed to as part of ETP's acquisition of a 50% interest in Citrus and the Holdco transaction, cash distributions from ETP were $166 million for the quarter.

For the same period, ETE's cash distributions expected from Regency were $15 million, that's an increase of roughly 4%. As it relates to distributions, distributions to ETP unit holders $0.625 per unit on a quarterly basis, or $2.50 on an annual basis, will be paid on November 16 to unit holders of record as of November 6.

As we stated before, the Energy Transfer family stands to benefit for not only the ETP-Sunoco merger, but also the ETP-Holdco transaction, as they will create a best-in-class natural gas, crude oil, NGLs and refined products logistics platform, but also further Energy Transfer's long-term initiative to expand its business mix, diversify and grow its cash flows, while providing for numerous commercial opportunities through Sunoco Logistics' complementary asset base and significant inventory of attractive, highly accretive growth projects.

With that, operator, let's go ahead and open the line for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is coming from the line of Stephen Maresca from Morgan Stanley.

Stephen J. Maresca - Morgan Stanley, Research Division

Two quick on housekeeping. I don't know if I heard you. 2013 growth CapEx, did you say a number, and I missed it?

Martin Salinas

We did, Stephen. For 2013 growth CapEx, we expect to spend between $750 million and $900 million.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. And that is at the ETP level?

Martin Salinas

That's at the ETP level, correct. And that doesn't reflect the 30% contribution from Regency on Lone Star projects, which that will be about $100 million to $150 million.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. And then you also mentioned earlier like a $400 million to $500 million of EBITDA contribution. What was that referring to? Was that just all CapEx projects or was that something that...

Martin Salinas

Yes. No. So what I commented on is that we are investing about $3 billion in our -- primarily in our Midstream and NGL platforms. Once all these assets come in service, of which about $2 million come in by the end of this year, we expect the contribution to be about $400 million to $500 million once those projects are in service and the volumes that we anticipate, either through the commitments or what we believe will show up, we'll end up being on an annual basis. And that will take 1 year or 2. But we think that, that's what the expected EBITDA contribution from our assets will be, those projects in particular.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. And then with relation to CapEx, you talked about opportunistically raising debt and equity. Can you remind us what -- I mean you still have AmeriGas APU units, is that correct, that you could use in terms of a -- as a funding source for you?

Martin Salinas

That is correct. We come out of the lock-up period on that starting first quarter next year. So that's another arrow in our quiver of liquidity sources for us.

Stephen J. Maresca - Morgan Stanley, Research Division

And what's the amount that you have?

Martin Salinas

Roughly $1.3 billion.

Stephen J. Maresca - Morgan Stanley, Research Division

And you can do, was it $500 million next year, or you can do more than that?

Martin Salinas

We can do more than that. So we have 2 $500 million offerings limitation.

Kelcy L. Warren

Hey, Stephen, this is Kelcy. I want to add to that. We have a great deal of respect for the AmeriGas people, and we can consider ourselves to be good partners. So believe me, anything we do in regard to those units -- and we do intend to divest of those units, but it will be done with good communication and cooperation with AmeriGas.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. And then on the Intrastate business, I mean, do you think we're starting to see an inflection a little bit? It looks like on a year-on-year basis, the margin relative to volumes increased a little bit? I mean, are we at a low point with upside, or some comments on that maybe?

Marshall S. McCrea

Yes, this is Mackie. We do believe we're at a low. The Barnett Shale has continued to drop throughout the year. We said last time, it's starting to level out, and from quarter-to-quarter, it's pretty level. But from year-to-year, third quarter last year to this year, it has fallen fairly dramatically. Hence, it's reflected in our numbers. But we believe it's leveled out. And we also, with bringing on the Woodford project, we're already adding volumes. We expect those volumes to grow every month throughout 2013. So we are very optimistic that we'll see volumes grow and grow fairly consistently and significantly throughout 2013.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. A final one from me. Martin, you mentioned just sort of simplification of Holdco and transfer of Holdco into an MLP structure, which it seemed -- I don't know if that was meant to be generic. I mean, is that -- is it fair to say that, that would -- the ideal place for that would be to collapse that fully into ETP?

Martin Salinas

It is, Stephen. I mean, it wasn't mentioned there. I think -- and not to steal some thunder for next week's discussions, but we think there's a number of opportunities that are available to us to solve [ph] -- for moving some of the -- not only moving some of the C corp assets that are [indiscernible] qualifying into MLPs, but also to simplify the structure. In a perfect world, as you mentioned, I think that an easy step to that simplification is to have ETP buy out the remaining 50% interest in Holdco from ETE. And those are one of a number of things that we are exploring to solve or to execute on our planned simplification.

Operator

Your next question is coming from the line of Curt Launer from Deutsche Bank.

Curt N. Launer - Deutsche Bank AG, Research Division

A couple of related questions on the ETE side first. I'll add admit to finding it confusing to try to figure out what the ETE report was from an EBITDA perspective. And I think part of the differentiation here is trying to run through the APU ownership from the standpoint of the cash received on the units owned, as well as the equity value there. Could you walk us through the ETE side with a little bit more detail than what you provided on the call?

Martin Salinas

Yes, I think it would be helpful, Curt, if you go and look at the press release that we issued yesterday. And I think that to simplify ETE's cash flow, today -- I say today, as of September 30, there's really 3 primary sources of ETE's cash flow; the largest being ETP and its ownership of the GP IDRs and roughly 50 million units of ETP. And that net number for the quarter came out about $166 million. Its ownership of Regency resulted in about $15.5 million to ETE. And then distributable cash flow related to its ownership of Southern Union resulted in about $76.5 million. That, obviously, will be changing with the Holdco transaction. Again, our objective going forward is to provide a little bit more color as to how those cash flows will be coming out to both ETP and ETE as a result of that transaction. And I guess you'll see some more color from us in the days to come. But for the quarter, just simplifying those cash flows, those are the 3 sources for ETE.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay fine. We'll work on that more, and I'll probably try to call you later because it still is confusing. We're getting a lot of questions relative to ETE and where the EBITDA was relative to consensus and things like that. So let's leave it there for now. Second question, probably an easier one on the SUN side, just want to get an update relative to the issues in the Northeast related to the hurricane and now the snow. And are there any issues for the products' pipelines and terminals and so forth from the SUN side of the house?

Martin Salinas

Yes, you bet. Curt, maybe I'll turn it over to Brian. And, Brian, would you mind addressing that?

Brian P. MacDonald

Sure. I think what I would say is as of now, we've worked through all the supply issues. We had a number of stations, over 500 down, due to no electricity. Everything is substantially up now. We are incurring some incremental transportation charges of kind of getting product to stations. But I would say, overall, no material financial impact, and we're really focused on getting product to the stations and making sure we have ample supply.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay. And terminals are operating normally?

Brian P. MacDonald

Well, we have some issues that are impacting us in the short term, and we're working around those. But we expect everything to be back to normal in a matter of weeks.

Curt N. Launer - Deutsche Bank AG, Research Division

Okay. And just one last question on this, sorry to beat it to death. But demand impact, any kind of a thought relative to what the fourth quarter might show with all this going on?

Brian P. MacDonald

It's a little hard on demand. Obviously, there was a few days when things were really shut down, and then a big spike back up as people filled up and got product for generators, the vehicles got moving around again. So it's really hard to say what the overall impact would be on the fourth quarter yet.

Operator

Your next question is coming from the line of Ted Durbin from Goldman Sachs.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Just a couple of things on this -- the conversion of trunk line. I'm just wondering if you can talk about where you are in the regulatory process with FERC, any kind of feedback you've gotten about changing that into crude. And then, sort of, similarly, I think you'd mentioned at one point, you'd think about doing some conversion on Transwestern, or maybe leaving a portion of that, to move to liquid service, kind of where your thoughts are on that.

Marshall S. McCrea

Okay, this is Mackie. Yes, we're very excited about the trunk line conversion. We have begun, back in September, the abandonment process, that is going very well. There were some concerns that were brought up from some shippers, and we have alleviated many of those concerns, and we are confident that we'll receive the approval to abandon it sometime second to third quarter of 2013. We continue to talk to some large players and have different sources of supply for that pipeline. And as I mentioned, we're very excited about that project. In regards to TW, there's a 24-inch pipeline that runs through Southeastern New Mexico and into West Texas. It was very underutilized. We did abandon it, and we have and are in the process of converting it to NGL service to accommodate the growing demand for NGL output from that area, and especially from our Red Bluff facility under SUGS and other SUGS-related assets.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

And can you tell us the timing then if you get the abandonment approval when that -- what would be timing of bringing trunk line into service? What kind of capacity do you think you could move on it?

Marshall S. McCrea

If everything goes as planned, we expect to bring it on by the second quarter or the middle of 2014. Depending on the shippers that sign up, it could range anywhere from 400,000 barrels a day to 600,000 barrels a day, whether it's light crude or heavy crude. But we do anticipate that because of early conversations, it will probably be more around the 400,000 to 420,000 barrels a day starting mid-2014.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

And any sense of the capital that you'd need to do the conversion?

Marshall S. McCrea

Yes. A lot of that will depend on the amount of shippers that signed up. At ultimately, fully loaded, we're estimating about 1.5 billion.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Okay, that's very helpful. And then if you can just give us an update on where you are on hedging, whether it's on retained fuel, maybe some of the basis differentials, any of the NGL links for 2013?

Marshall S. McCrea

Okay. On retained fuel, we've seen volumes drop on our systems. We're familiar with volumes declining on other systems. And we, as a partnership, had really become much more bullish. Not saying that gas price is going through the roof, but we do think they'll maintain, especially with any type of a cold winter. We think we could see strengthening. So we don't have a lot of hedges on right now; we're very minimally hedged on our retained fuel on our Intrastate assets. However, on our -- because of our growth and our NGL recoveries and because of the types of contracts the SUG gases have, we are continuing to evaluate and do intend to put on hedges around our NGL business. We've been hesitant in the past because of the limited amount of plants where you could create misuse, but we do plan on hedging some of our NGLs, and we also will, at the right time, hedge our retained fuel. As far as the basis spread, there still is no basis, it's pretty much 0. Some days, it's higher in the West, and some days, it's higher in the East. We continue to try to create revenue around that narrow basis. We expect with a lot of the volumes moving out into the -- or out of the Eagle Ford into Southeast Texas, that we may see some movement there. And we are poised to move quickly on any type of widening of basis and locking in longer-term deals.

Operator

The next question is coming from the line of Darren Horowitz from Raymond James.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Martin, I appreciate your color around the project timing. But I was just curious, as it relates to West Texas and Justice and the 2 fracs, has anything changed from a CapEx perspective?

Martin Salinas

No. I think, Darren, those estimates are still expected to be achieved from a cost perspective.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Okay. And then, Mackie, just a final question for me. As it relates to Lone Star, how are you all thinking about downstream opportunities? Whether or not it's additional brand to support what could possibly be like a FRAC III or maybe even more downstream connectivity for LPG export. With FRAC I and FRAC II seemingly being almost fully committed at this point, how do you start thinking about the back end of that supply chain?

Marshall S. McCrea

We are thinking about it very intensely. We -- because of the amount of processing plants we're building, we will need more frac capacity. As you mentioned, we are very close to filling up now the second frac. We do have room at Mont Belvieu on our property to construct another fractionator, and we are looking forward to make that decision in the very near future. And we're also moving forward on other related synergistic-type downstream business related to our Lone Star assets.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

And would that possibly include LPG export?

Marshall S. McCrea

Absolutely. Any way we can enhance the value of our significant foothold in Mont Belvieu and our growing presence there, certainly that's something that we're looking at closely.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Is it too early to put some details around scale and scope of what you're contemplating?

Marshall S. McCrea

Yes, it is at this time.

Operator

Your next question is coming from the line of Michael Blum, Wells Fargo.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Two questions for you. One, do you have any time line in terms of when you think you'll realize all these synergies that you laid out as it relates to the acquisition?

Martin Salinas

Yes. On Southern Union, as I mentioned, we've identified about $80 million that I think we'll start seeing the benefits in 2013. I think we'll see some carryover into 2014, just from a run-rate basis as some of the integration steps will occur probably first half of '13. As it relates to Sunoco, we'll probably start looking at seeing some of those in '13, with some carryover into '14. I think it's safe to say, by '14, we will have all of our integration in place and synergies locked in.

Michael J. Blum - Wells Fargo Securities, LLC, Research Division

Great. And then do you have a growth CapEx estimate for 2013 for Southern Union and Sunoco, if there is any capital to be spent there?

Martin Salinas

At this time, I guess it's a little too early. We're going through our budgets right now with all the entities. Obviously, we felt comfortable with where we are with ETP and Sunoco Logistics from 2013 CapEx guidance. We're sharpening the pencils on Southern Union, and we'll provide that number probably sometime in the fourth quarter.

Operator

And your next question is coming from the line of Helen Ryoo from Barclays.

Heejung Ryoo - Barclays Capital, Research Division

A question on your Southern Union maintenance CapEx. It seems like it came down sequentially, $42 million versus $48 million last quarter. Is this a good run rate to use? Is there more -- further room to bring this down?

Martin Salinas

To answer your question second question, I think there is. As I just stated to Michael, we're still sharpening the pencils around Southern Union's CapEx. We think there is some opportunity to bring the number down, so -- from what it had been historically. As for the run rate, I think it's a little too early to tell, to answer that question. But certainly, before the end of the fourth quarter, we'll provide guidance on where we think Southern Union's CapEx will be, both growth and maintenance.

Heejung Ryoo - Barclays Capital, Research Division

Okay. And the synergies that you will realize, it will show up -- some of that may show up in the maintenance CapEx and some of that may show up in the segment results, is that sort of how we should think about it?

Martin Salinas

That's a fair statement, yes.

Heejung Ryoo - Barclays Capital, Research Division

Okay, great. And then just on Transportation segment, the EBITDA was up about 6% from Q2. Could you maybe talk about what's driving that?

Martin Salinas

The transportation on Southern Union?

Heejung Ryoo - Barclays Capital, Research Division

Yes, yes, Southern Union, yes.

Martin Salinas

Yes. A lot of that, I think, was a result of just increased demand through the system. From a trend perspective, I think we kind of continue to see volumes there kind of holding their own, similar to what we saw in our Intrastate. So nothing more than I think just a higher demand across the pipeline.

Heejung Ryoo - Barclays Capital, Research Division

So is that a sustainable -- this quarter's number, is that a sustainable number going forward or should that be some sort of fluctuation depending on the demand you see on each quarter?

Martin Salinas

Yes. I mean, we typically see a little bit of seasonality on the Transportation within Southern Union. Again, it's a result of just the seasons. So I think it's probably best to kind of look at it on as trailing 12.

Heejung Ryoo - Barclays Capital, Research Division

Okay. And then -- speaking to SUG, on the interest expense, it came down to $35 million versus $57 million. Could you talk about what drives the big reduction in interest expense there?

Martin Salinas

I'd have to go back and look at that one. Off the top of my head, Helen, I don't recall. You're looking at, I guess, last quarter to this quarter, right?

Heejung Ryoo - Barclays Capital, Research Division

Yes, yes.

Martin Salinas

Yes, okay. We -- if you recall, as a result of selling Citrus, we repaid some of the debt at Southern Union. And so debt levels are just coming down as a result of that. And so the interest expense is following that. And then we refinanced our term loan at Southern Union right before we closed, and that had a slightly lower interest cost component to it. So those 2 makes up the delta between interest expense Q3 of last year to Q3 of this year.

Heejung Ryoo - Barclays Capital, Research Division

Okay, great. And just lastly, on your growth CapEx, $750 million to $900 million. So net to yours, after receiving contribution from Regency, is that $650 million to $750 million, or is it…

Martin Salinas

That is correct.

Heejung Ryoo - Barclays Capital, Research Division

Okay, okay. And is it based on projects that have already been announced? So, if you were to add any more projects, would this number go up, or does it include some projects that are not yet announced, but being developed?

Martin Salinas

No, as we've typically done, we'll put our guidance on what we've announced. Those are all the projects that are currently under construction today. As an example, Mackie talked about the truck line conversion. We're not quite there yet, in terms of the commercial side is well deferred. Once we do get there, though, we'll revise those numbers and those numbers will, obviously, be reflected upwards or adjusted upwards. So that number is based on what we've announced and are committed to today.

Operator

Your next question is coming from the line of Sichi Tang [ph] from Bali Asni [ph].

Unknown Analyst

This is Sichi [ph] from Bali Asni. Just curious about your plan on this LDC and retail assets, and then can you guys provide any color in terms of what you want to do with them?

Kelcy L. Warren

Yes, this is Kelcy. The retail sales of that metro gas through the Missouri utility and the Massachusetts utilities are businesses we would -- are considering exiting those businesses. And I do believe that we will exit those businesses. So that's the first answer. And then on the retail sales of gasoline, that's a business that we've stated that we think it makes most sense for our unit holders that we are a long-term holder of those businesses. And we think they're extremely well run. And we are very confident that the cash flow generated from those businesses is predictable, somewhat absent of seasonality. And so we're okay with that business and probably will be a long-term holder of that business.

Unknown Analyst

Interesting. And then in terms of timing for any potential divestiture of this, how should we think about it?

Kelcy L. Warren

That -- as you have -- you get -- state commissions, public utility commissions, are involved in those processes. So those do not move as quickly as other divestitures might move. However, saying that, we're down the road in our thinking of a divestiture of those businesses. And I think it's reasonable to see something, and if we do something, something in no later than mid-'13.

Operator

Your next question is coming from the line of Ethan Bellamy from Robert W. Baird.

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Two big picture questions. Just to follow up on Sichi's [ph] question about the retail gas stations. Does the Susser model hold any appeal to you as another potential capital channel? And then maybe going the other way, what potential synergies could you realize merging Regency with either ETP or SXL, and what are your current thoughts there?

Kelcy L. Warren

Yes, and to go back to retail, and I think everybody on this call understands, one of the key things we acquired with Sunoco was expertise. As I think most people in this call know, the majority of us are blue-collared pipelining people, natural gas people. The natural gas sector is very different than the crude sector. And we do not profess to be knowledgeable people on the retail sales of gasoline. However, we acquired that, and we're very pleased with that. And so we were very confident in the people's abilities to run the business the way they've run in the past. We would be open minded to strategic growth in the retail sector. And, in fact, the gentleman that runs that, Bob Owens, is, in fact, probably thinking that way for us now. So it would be wrong for me to comment on the Susser thing. I would need to talk to Bob about that. And then your other question was what?

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Potentially merging the Regency into ETP or SXL; and I know you don't want to comment too much about that, but just curious about what type of synergies might be realized if you were to put, say, Regency with Energy Transfer.

Kelcy L. Warren

Yes. Well, the -- we have shared services with Regency and Energy Transfer today. So a lot of the synergies have been extracted from the partnerships. However, I believe, at some point, it does make mathematical sense to consider the merger of Regency into Energy Transfer Partners. Obviously, they are publicly traded as is ETP, and there would be conflicts committees, various opinions, it would be the process that we take very, very seriously. But I think, at some point, I think that is something that I believe to be inevitable.

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Okay. One more question. With respect to the Williams' PLR in chemicals, how does that change the game at all for you? Has it opened up new ideas for potentially moving downstream?

Kelcy L. Warren

Mackie, will you help me with that? I believe there's a PLR.

Marshall S. McCrea

It's a private letter ruling, I'm not sure which. Could you tell us which one you're talking about?

Ethan H. Bellamy - Robert W. Baird & Co. Incorporated, Research Division

Just the olefins business in Geismar.

Marshall S. McCrea

I don't know if we've studied that one.

Kelcy L. Warren

I've not.

Marshall S. McCrea

Yes. We don't have our Lone Star folks on the line, and I'm not familiar with that.

Operator

At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Martin Salinas for any closing remarks.

Martin Salinas

Thanks, Derek, and thanks, everybody, for joining us today. We look forward to the future for Energy Transfer. And, everybody, have a good day. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.

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