Energy Transfer Partners Reports First Quarter Results

Energy Transfer Partners Reports First Quarter Results

Energy Transfer Partners, L.P. (NYSE: ETP) (“ETP” or the “Partnership”) today reported its financial results for the quarter ended March 31, 2017. Net income for the three months ended March 31, 2017 was $364 million, a decrease of $12 million compared to the three months ended March 31, 2016, primarily due to income tax benefits recognized in the prior period. Adjusted EBITDA for ETP for the three months ended March 31, 2017 totaled $1.41 billion, an increase of $2 million compared to the three months ended March 31, 2016, which reflects significantly higher results from the midstream and liquids transportation and services segments, offset by lower operating results from the legacy Sunoco Logistics crude oil acquisition and marketing activities. The lower Adjusted EBITDA from the crude oil acquisition and marketing activities was due to approximately $50 million of unfavorable impacts from LIFO inventory accounting, which are expected to reverse in future periods. On a pro forma basis for the ETP/Sunoco Logistics merger (discussed below), Distributable Cash Flow attributable to partners, as adjusted, for the three months ended March 31, 2017 totaled $907 million, a decrease of $43 million compared to the three months ended March 31, 2016, primarily due to the unfavorable impact from LIFO inventory accounting and an increase in net interest expense.

The results reported above reflect the consolidated results of Energy Transfer Partners, L.P. In April 2017, Energy Transfer Partners, L.P. merged with a subsidiary of Sunoco Logistics Partners L.P., with Energy Transfer Partners, L.P. continuing as the surviving entity and becoming a wholly owned subsidiary of Sunoco Logistics Partners L.P. At the same time, Energy Transfer Partners, L.P. changed its name to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” For purposes of maintaining clarity, the following references are used herein:

• References to “ETP” refer to the entity named Energy Transfer Partners, L.P. prior to the close of the merger and Energy Transfer, LP subsequent to the close of the merger;
• References to “Sunoco Logistics” refer to the entity named Sunoco Logistics Partners L.P. prior to the close of the merger; and
• References to “Post-Merger ETP” refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the merger.

In April 2017, Post-Merger ETP announced a quarterly distribution of $0.535 per unit ($2.14 annualized) on Post-Merger ETP Common Units for the quarter ended March 31, 2017; this quarterly distribution is equivalent to $0.8025 per ETP common unit on a pre-merger basis.

An analysis of ETP’s segment results and other supplementary data is provided after the financial tables shown below. ETP has scheduled a conference call for 8:00 a.m. Central Time, Thursday, May 4, 2017 to discuss the first quarter 2017 results. The conference call will be broadcast live via an internet webcast, which can be accessed through www.energytransfer.com and will also be available for replay on ETP’s website for a limited time.

Energy Transfer Partners, L.P. (NYSE: ETP) is a master limited partnership that owns and operates one of the largest and most diversified portfolios of energy assets in the United States. Strategically positioned in all of the major U.S. production basins, ETP owns and operates a geographically diverse portfolio of complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGL) and refined product transportation and terminalling assets; NGL fractionation; and various acquisition and marketing assets. ETP’s general partner is owned by Energy Transfer Equity, L.P. (NYSE: ETE). For more information, visit the Energy Transfer Partners, L.P. website at www.energytransfer.com .

Energy Transfer Equity, L.P. (NYSE:ETE) is a master limited partnership that owns the general partner and 100% of the incentive distribution rights (IDRs) of Energy Transfer Partners, L.P. (NYSE: ETP) and Sunoco LP (NYSE: SUN). ETE also owns Lake Charles LNG Company. On a consolidated basis, ETE’s family of companies owns and operates a diverse portfolio of natural gas, natural gas liquids, crude oil and refined products assets, as well as retail and wholesale motor fuel operations and LNG terminalling. For more information, visit the Energy Transfer Equity, L.P. website at www.energytransfer.com .

PennTex Midstream Partners, LP (NASDAQ: PTXP) is a growth-oriented master limited partnership focused on owning, operating, acquiring and developing midstream energy infrastructure assets in North America. PTXP provides natural gas gathering and processing and residue gas and natural gas liquids transportation services to producers in the Terryville Complex in northern Louisiana. PennTex Midstream Partners, LP’s general partner is a consolidated subsidiary of Energy Transfer Partners, L.P. (NYSE: ETP). For more information, visit the PennTex Midstream Partners, LP website at www.penntex.com .

Forward-Looking Statements

This news release may include certain statements concerning expectations for the future that are forward-looking statements as defined by federal law. Such forward-looking statements are subject to a variety of known and unknown risks, uncertainties, and other factors that are difficult to predict and many of which are beyond management’s control. An extensive list of factors that can affect future results are discussed in the Partnership’s Annual Report on Form 10-K and other documents filed from time to time with the Securities and Exchange Commission. The Partnership undertakes no obligation to update or revise any forward-looking statement to reflect new information or events.

The information contained in this press release is available on our website at www.energytransfer.com .

(a) Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures used by industry analysts, investors, lenders, and rating agencies to assess the financial performance and the operating results of ETP’s fundamental business activities and should not be considered in isolation or as a substitute for net income, income from operations, cash flows from operating activities, or other GAAP measures.

There are material limitations to using measures such as Adjusted EBITDA and Distributable Cash Flow, including the difficulty associated with using either as the sole measure to compare the results of one company to another, and the inability to analyze certain significant items that directly affect a company’s net income or loss or cash flows. In addition, our calculations of Adjusted EBITDA and Distributable Cash Flow may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP, such as gross margin, operating income, net income, and cash flow from operating activities.

Definition of Adjusted EBITDA

We define Adjusted EBITDA as total partnership earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Adjusted EBITDA reflects amounts for less than wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on our proportionate ownership.

Adjusted EBITDA is used by management to determine our operating performance and, along with other financial and volumetric data, as internal measures for setting annual operating budgets, assessing financial performance of our numerous business locations, as a measure for evaluating targeted businesses for acquisition and as a measurement component of incentive compensation.

Definition of Distributable Cash Flow

We define Distributable Cash Flow as net income, adjusted for certain non-cash items, less maintenance capital expenditures. Non-cash items include depreciation, depletion and amortization, non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and deferred income taxes. Unrealized gains and losses on commodity risk management activities includes unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). For unconsolidated affiliates, Distributable Cash Flow reflects the Partnership’s proportionate share of the investee’s distributable cash flow.

Distributable Cash Flow is used by management to evaluate our overall performance. Our partnership agreement requires us to distribute all available cash, and Distributable Cash Flow is calculated to evaluate our ability to fund distributions through cash generated by our operations.

On a consolidated basis, Distributable Cash Flow includes 100% of the Distributable Cash Flow of ETP’s consolidated subsidiaries. However, to the extent that noncontrolling interests exist among our subsidiaries, the Distributable Cash Flow generated by our subsidiaries may not be available to be distributed to our partners. In order to reflect the cash flows available for distributions to our partners, we have reported Distributable Cash Flow attributable to partners, which is calculated by adjusting Distributable Cash Flow (consolidated), as follows:

• For subsidiaries with publicly traded equity interests, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiary, and Distributable Cash Flow attributable to our partners includes distributions to be received by the parent company with respect to the periods presented.
• For consolidated joint ventures or similar entities, where the noncontrolling interest is not publicly traded, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiary, but Distributable Cash Flow attributable to partners is net of distributions to be paid by the subsidiary to the noncontrolling interests.

For Distributable Cash Flow attributable to partners, as adjusted, certain transaction-related and non-recurring expenses that are included in net income are excluded.

(b) Amount reflects distributions for the first quarter of 2017, to be paid by PennTex on May 12, 2017 with respect to ETP’s ownership interests of 6.3 million common units and 20 million subordinated units of PennTex acquired on November 1, 2016.

(c) Distributions on ETP Common Units and the number of ETP Common Units outstanding at the end of the period, both as reflected above, exclude amounts related to ETP Common Units held by subsidiaries of ETP.

(d) For the three months ended March 31, 2016, the “Pro Forma for Merger” column excludes distributions on Sunoco Logistics Common Units held by ETP as those units were cancelled in connection with the closing of the merger.

(e) For the three months ended March 31, 2017 and 2016, the “Pro Forma for Merger” columns reflect the sum of (i) the ETP Common Units outstanding at the end of period multiplied by a factor of 1.5x and (ii) the Sunoco Logistics Common Units outstanding at end of period minus 67.1 million Sunoco Logistics Common Units held by ETP, which units were cancelled in connection with the closing of the merger.

(f) Distribution coverage ratio for a period is calculated as Distributable Cash Flow attributable to partners, as adjusted, divided by net distributions expected to be paid to the partners of ETP in respect of such period.

ETP’s Segments

Midstream

Gathered volumes and NGL production increased primarily due to recent acquisitions, including PennTex, and gains in the Permian and Northeast regions, partially offset by basin declines in the South Texas, North Texas, and Mid-Continent/Panhandle regions.

For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our midstream segment increased due to the net effects of the following:

• an increase of $45 million in non-fee based margin due to higher crude oil and NGL prices;
• an increase of $17 million in non-fee based margin due to gains in the Permian, partially offset by declines in the South Texas, North Texas, and Mid-Continent/Panhandle regions;
• an increase of $13 million in fee based revenue due to growth in the Permian, Northeast and North Louisiana, including recent acquisitions, offset by declines in South Texas, North Texas and the Mid-Continent/Panhandle regions; and
• an increase of $13 million in fee based revenue due to the PennTex acquisition; partially offset by
• a decrease of $5 million (excluding unrealized gains of $16 million) in non-fee based margin due to higher benefit from settled derivatives used to hedge commodity margins;
• an increase of $16 million in operating expenses primarily due to recent acquisitions, including PennTex; and
• an increase of $11 million in general and administrative expenses primarily due to a decrease of $4 million in capitalized overhead, a $3 million increase in shared services allocation, a $2 million increase in insurance allocation, and $2 million additional costs from the PennTex acquisition.

Liquids Transportation and Services

NGL transportation volumes increased in most major producing regions, including the Permian, North Texas, Louisiana and the Eagle Ford. Additionally, our Bayou Bridge crude pipeline, originating in Nederland and delivering into Lake Charles, began transporting volumes in April 2016.

Average daily fractionated volumes increased for the three months ended March 31, 2017 compared to the same period last year primarily due to the commissioning of our fourth fractionator at Mont Belvieu, Texas, in October 2016, which has a capacity of 120,000 Bbls/d, as well as increased producer volumes as mentioned above.

For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our liquids transportation and services segment increased due to net impact of the following:

• an increase of $37 million in transportation fees due to higher NGL and crude transport volumes;
• an increase of $17 million in processing and fractionation margin (excluding changes in unrealized gains of $4 million) primarily due to higher NGL volumes from most major producing regions, as noted above; and
• an increase of $8 million in storage margin primarily due to increased volumes from our Mont Belvieu fractionators; partially offset by
• a decrease of $8 million in other margin (excluding changes in unrealized gains of $31 million) primarily due to the timing of the recognition of margin from optimization activities;
• an increase of $19 million in operating expenses primarily due to increased costs associated with our fourth fractionator at Mont Belvieu and new pipelines placed in service; and
• an increase of $2 million in general and administrative expenses due to lower capitalized overhead as a result of reduced capital spending.

Interstate Transportation and Storage

Transported volumes decreased primarily due to mild weather; in particular, volumes on the Transwestern pipeline decreased by 64,827 MMBtu/d. In addition, volumes on the Sea Robin pipeline decreased 37,075 MMBtu/d due to producer maintenance and production declines.

Segment Adjusted EBITDA. For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our interstate transportation and storage segment decreased due to decreases in revenues of $12 million on the Tiger pipeline due to contract restructuring, $10 million on the Panhandle and Trunkline pipelines due to weak spreads and mild weather, and $2 million on the Sea Robin pipeline due to producer maintenance and production declines.

The increase in cash distributions from unconsolidated affiliates is due to increased distributions from MEP.

Intrastate Transportation and Storage

Transported volumes decreased primarily due to lower production volumes in the Barnett Shale region, partially offset by increased volumes related to significant new long-term transportation contracts, as well as the addition of a new short haul transport pipeline delivering volumes into our Houston Pipeline system.

Segment Adjusted EBITDA. For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our intrastate transportation and storage segment decreased due to the net impacts of the following:

• a decrease of $10 million in transportation fees due to renegotiated contracts resulting in lower demand volumes beginning in the second quarter of 2016 on our ET Fuel pipeline, partially offset by an increase of $5 million due to fees from renegotiated and newly initiated fixed fee contracts primarily on our Houston Pipeline system;
• a decrease of $8 million in storage margin (excluding net changes in unrealized amounts of $18 million related to fair value inventory adjustments and unrealized gains and losses on derivatives), as discussed below; and
• an increase of $5 million in operating expenses primarily due to higher outside services labor costs and compression fuel expenses; partially offset by
• an increase of $7 million in natural gas sales and other (excluding changes in unrealized gains of $4 million) primarily due to higher realized gains from the buying and selling of gas along our system; and
• an increase of $5 million in retained fuels (excluding changes in unrealized gains of $1 million) primarily due to higher market prices. The average spot price at the Houston Ship Channel location increased 56% for the quarter ended March 31, 2017 compared to the same period last year.

Investment in Sunoco Logistics

See discussion of Sunoco Logistics’ segments in the following section.

All Other

Amounts reflected in our all other segment primarily include:

• our equity method investment in limited partnership units of Sunoco LP consisting of 43.5 million units, representing 43.7% of Sunoco LP’s total outstanding common units;
• our natural gas marketing and compression operations;
• a non-controlling interest in PES, comprising 33% of PES’ outstanding common units; and
• our investment in Coal Handling, an entity that owns and operates end-user coal handling facilities.

For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our all other segment increased primarily due to an increase of $22 million in Adjusted EBITDA related to our investment in PES. The three months ended March 31, 2017 also reflected higher gross margin of $9 million and lower selling, general and administrative expenses of $6 million resulting from lower transaction-related expenses. These increases were partially offset by a decrease of $19 million related to the termination of the $75 million annual management fee paid by ETE that ended in 2016.

Sunoco Logistics’ Segments

Crude Oil

Segment Adjusted EBITDA. For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to Sunoco Logistics’ Crude Oil segment decreased primarily due to the impact of LIFO inventory accounting on Sunoco Logistics’ contango inventory positions resulting in approximately $60 million of positive earnings during the first quarter 2016, compared to approximately $50 million of negative earnings during the first quarter 2017. The unfavorable LIFO timing is expected to be reversed in future periods as commodity prices fall or the inventory positions are liquidated. Excluding these inventory timing impacts, Adjusted EBITDA for the crude oil segment increased $33 million compared to the prior year period. This increase related to improved results from Sunoco Logistics’ crude oil pipelines and terminalling activities of $56 million which was largely attributable to expansion capital projects which commenced operations in 2016, the acquisition of Vitol Inc.'s crude oil assets in the fourth quarter 2016, and the formation of Permian Express Partners LLC in the first quarter of 2017. Partially offsetting this improvement was lower operating results from Sunoco Logistics’ crude oil acquisition and marketing activities of $23 million, which includes transportation and storage fees related to Sunoco Logistics’ crude oil pipelines and terminal facilities.

Natural Gas Liquids

Segment Adjusted EBITDA. For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to Sunoco Logistics’ Natural Gas Liquids segment increased primarily due to increased volumes and fees from Sunoco Logistics’ Mariner NGLs projects of $12 million, which includes Sunoco Logistics’ NGLs pipelines and terminal facilities at Marcus Hook and Nederland. These positive factors were partially offset by lower operating results from Sunoco Logistics’ NGLs acquisition and marketing activities of $2 million.

Refined Products

Segment Adjusted EBITDA. For the three months ended March 31, 2017 compared to the same period last year, Segment Adjusted EBITDA related to Sunoco Logistics’ Refined Products segment decreased due to lower results from Sunoco Logistics’ refined products acquisition and marketing activities of $7 million. This decrease was partially offset by improved results from Sunoco Logistics’ refined products pipelines of $4 million and improved contributions from joint venture interests of $2 million.

The following is a summary of capital expenditures (net of contributions in aid of construction costs) for the three months ended March 31, 2017:

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