Energy Transfer LP Q4 FY2024 earnings call

• 2024 adjusted EBITDA was $15.5 billion, up 13% from 2023, and DCF attributable to partners was $8.4 billion, up 10% from 2023.
• 2025 organic growth capital guidance is approximately $5 billion, including $1.4 billion in intrastate natural gas, $1.4 billion in NGL and refined products, $1.6 billion in midstream, $295 million in crude oil, $170 million in interstate natural gas, and $100 million in power generation.
• Approved construction of the Mustang Draw processing plant in the Midland Basin.
• Progress on Lake Charles LNG project with a 20-year LNG sale and purchase agreement with Chevron.
• Strong power generation opportunities, including a deal on the EOIT pipeline and a partnership with CloudBurst data centers.

For the fourth quarter of 2024:

• NGL and refined products: Adjusted EBITDA was $1.1 billion compared to $1.04 billion in Q4 2023, primarily due to higher throughput and rates across Gulf Coast and Mariner East pipeline operations.
• Midstream: Adjusted EBITDA was $705 million compared to $674 million, driven by higher volumes in the Permian Basin but offset by decreased volumes in dry gas regions.
• Crude oil: Adjusted EBITDA was $760 million compared to $775 million, with growth in crude gathering systems offset by lower transportation revenue.
• Interstate natural gas: Adjusted EBITDA was $493 million compared to $541 million, with higher demand offset by lower interruptible utilization.
• Intrastate natural gas: Adjusted EBITDA was $263 million compared to $242 million, due to increased gains from pipeline and storage optimization.

• 2025 adjusted EBITDA is expected to be between $16.1 billion and $16.5 billion, up ~5% from 2024 at midpoint.
• Expect to spend approximately $5 billion in 2025 on organic growth capital.
• Projects expected to achieve mid-teen returns, with most online in 2026 or 2027, driving earnings growth in later years.

Q: Pretty significant uptick in the growth outlook as far as project backlog goes. Can you talk about the returns that you're seeing? Have they evolved or changed at all, with these incremental projects?

A: Nothing's really changed over the last couple years. We are always kind of targeting, depending on the project, kind of that mid-teen to upper teen rate of return. A lot of that depends on how much synergistic benefits up and down, but that's kind of the range that we look at on these projects, kind of the mid to upper teens.

Q: Related to your intrastate project, Hugh Brinson, interesting that you put Abilene as a marker as one of the towns that the pipeline runs directly through. Any reason for that that you want to articulate on? And just a look on the backlog of these kinds of demand pull projects for that pipeline that could push forward the second phase?

A: Yes. Let me start out first saying how excited we are without that project. It's been a while since we built a 42-inch. For years we were building one back every month we were building a new pipeline, it seemed like, but we're very excited about that. The producers in the Permian Basin need it desperately. We've seen 10 Bcf of growth over the last four or five years out of that basin. We think we'll go up another six to seven over the next four or five years. So what a shot and arm for them. And then, the market pull, it's significant not only in Texas, but other parts of the Southeast that our systems will ultimately feed into. So we're extremely excited about that. But it is interesting your question. Even preparing for this call, I got to think about you look at where many of the data centers are going. Especially in Texas, but also throughout the Southwest, Southeast and up the Midwest. And it's almost as if Energy Transfer was working years ago to figure out, where the best spots are for these data centers, because if you look at them, the vast majority of them are within several miles of our pipeline. So we feel extremely fortunate. All these assets that we build, all these pipelines that we built for the purpose of moving products from point A to point B. We really never envisioned there'd be this kind of power plant demand growth, both for data centers and others that are just right on top of significant part of our pipeline. So yeah, Abilene's had a little press with Stargate. We do see that as highly potential project for us. We are very well positioned to provide whatever is necessary there, and we have our team working on that as well as Tom talked about, numerous data center, and power plant projects throughout the U.S.

Q: The next question will come from Keith Stanley with Wolfe Research. Please go ahead. Hi, good afternoon. Wanted to start on the $5 billion growth CapEx for this year. Does that include any meaningful unsanctioned projects, we may not know about? And then for the midstream piece, $1.6 billion is more than you've spent in the past several years. Can you just give a little more detail on projects, or where you're investing more than prior years in midstream?

A: Yes, this is Mackie again. Hi Keith. You know the $5 billion, those were projects we've sanctioned, they're moving forward, great rate of returns. We're very, very, very excited about that. And when you look at what's driving a lot of that is midstream. I mean midstream is kind of the, call it the heart. It's what starts everything. It's where we gather and process and treat, compress and then put it into our system. It goes through our cryos, and then the residue goes into our intra/interstate pipeline networks. And of course the NGLs go into Lone Star and feed all that, and then all of our crude business as well. So it's a very viable important part and segment of our partnership. And when you look at Mustang Draw, you look at these improvements we're making very inexpensively to some of the trials we already have by increasing capacity. And we got Badger coming on as well this year. You know that's what's driving this. There's just an insatiable need for more cryogenic processing plants in the Permian basin, and we are so well positioned to benefit from that across our entire enterprise, including all of our downstream assets.

Q: The next question will come from Jeremy Tonet with JPMorgan. Please go ahead. Hi, good afternoon. Just wanted to follow-up on the last one. CloudBurst here. It seems like you have a lot of confidence in this project overall, having PR-ed it, and just wondering if you could talk a bit more on how to quantify, I guess, how you see the TAM. What you expect for win rate, or just any way to frame with numbers, I guess, what this could mean for Energy Transfer?

A: Okay. Well, we'll go as deep as we can considering we do have an MD&A. But one thing we've learned is there's five critical things for these data centers. And the most important ones are energy. And so for example, this will not only be tied to ERCOT, of course, will be tied to us with significant gas supply, backed up by storage for natural gas-fired generation. They're also going to have diesel-powered backup generation. They're going to have backup battery. So power is critical to these projects. And this particular company has a significant amount of expertise, as I just mentioned, and they also have a very proprietary software system in, because one of the most important variables is access to high-bandwidth optical fibers and kind of with low latency, I guess, it is what it is. And there's not 1,000 places in the U.S. or certainly in Texas that fit all those variables, where you have a reliable energy supply, where you have plenty of water for cooling, where you have plenty of land, and where you have a bunch of redundancy. And so this fits so well with our assets, and talk to them and kind of their expectations, as they go to the primary 10 that they're chasing, just kind of a little bit more transparency. They do believe that some of these turbines for this site, are already ordered in an inventory. That could move this a lot quicker than what we have said. And so, we're optimistic that we've - on this particular one, we've aligned ourselves with a very strong company that knows what the heck they are doing. With a lot of contacts out in the industry around data centers. And we are optimistic that they will ramp this up. Whether they go all of the way up to 450 or 350 remains to be seen, but we believe this will be a very successful project.

Q: The next question will come from Spiro Dounis with Citi. Please go ahead. Thanks, operator. Afternoon guys. I wanted to start with capital return. Seems like for a while, you were getting a little bit closer to potentially doing more on the buyback side. But obviously, the equity has been strong. And of course, with CapEx. Now it seems like it's crowding some of that out. At the same time, Tom, you pointed to 5% EBITDA growth year-over-year at the midpoint. So curious, is all that kind of collectively point you towards maybe accelerating distribution growth more towards that 5% versus 3%? And if not, we think you're waiting to see to accelerate there?

A: Yes. Well, like I always like to say that's a good question and a good dialogue, to have around here is, when you start talking about how large our growth is going to be. But we're still kind of staying with that 3% to 5%. And I think with all these projects we're talking about, don't mind saying, we'd love to see that moving up to the higher end of that range. I think that's fair to say. But let's go back to the capital allocation a little bit. We always had the balance sheet, in other words, the debt paydown. And then second, we looked at the distribution growth, and then we looked at the growth capital, with those buybacks in there. We still have all four of those on the radar screen. But with this - all these great projects that we've been talking about today. You can see that right now, it makes a lot of sense to - for the long-term to continue to strengthen the footprint that, we have and the asset base we have. So we are very, very excited with what we have in front of us and absolutely. The distribution growth is definitely very key here.

Q: The next question will come from Jean Ann Salisbury with Bank of America. Please go ahead. Thanks a lot for the time. There are more competitors really making investments to grow in the Permian NGL kind of pipeline, frac and export space. There's a ton of NGL pipeline capacity coming on this year. There was more LPG export capacity recently announced by a new entrant, is this space getting too crowded? And are you worried about returns falling in the segment over the next few years? And I guess as a follow-up, does there need to be more consolidation among the NGL integrated in your view, to stop that from happening?

A: Let me start with the second part, and I'll now start - this is Mackie again. Yes, we're always going to see competition, of course, and we certainly don't dwell on to worry about what our competitors are doing, or what their rates of return, on what risk they might be taking. We focus on our customers, our producers, our markets and then build assets to fit the services they're asking for. So we feel very good about everything we've announced. We feel very good about slowly ramping up and filling up every asset that we have, whether it's cryos or NGL pipelines. We certainly look at that very closely so that we stay ahead of it. If we see a year or two down the road, we're going to run into capacity problems, we certainly addressed that and you'll see that from time-to-time. But new projects, yes, there's a new LPG project. I guess it's a Texas City that's going to be built in four or five years, not really concerning, because one of the advantages that we have and we've had it kind of - since we started this company years ago, is that once we build assets, and we're able to provide some interim service for somebody that wants that particular product, for example, we can build on that. So for example, as some of these new LPG facilities are being built over the next four or five years, we'll be negotiating and having pretty long extensions added to the existing business we add, and new business that we develop over the next three to four years. So may not be a lot of market available for some of these projects that are coming online in '28, '29, because a lot of that's under contract. But once again, we don't worry about what they're doing. We worry about our business, our returns, taking care of our customers and growing this partnership, as we have consistently for the last many years.

Q: The next question will come from Michael Blum with Wells Fargo. Please go ahead. Thank you. Good afternoon, everyone. I wanted to go back to the data center strategy conversation. First question is really how much - when you look at the opportunity set how much do you expect to be front of the meter versus behind the meter?

A: Great question. And we're - depending on the customer walking through that now. For example, we've got actually one customer that intends to tie to ERCOT pretty large customer in the DFW area, but they will have 100% backup generation in the event they lose ERCOT power. In that situation, as all the data centers we have such an advantage, because of our big inch pipe multiple big inch pipes in North Texas, and our access to a significant amount of storage. So that's one example. This one we're talking about now is behind the meter. But I would say probably weighing it, it's going to be more of behind-the-meter where the natural gas power generation, will be the primary source of electricity, with a lot of redundant other sources of backup power, but that will be. I would say, the majority of them will be that type of project.

Q: The next question will come from Gabe Moreen with Mizuho. Please go ahead. Hey, good afternoon everyone. Can I ask about some of the buckets for 2025 guidance and you've got the commodity bucket, and the spread sliver as well. Can you just maybe talk within those, I think NGL prices and nat gas prices, clearly, it's much better this year than last. Maybe what the delta is in your guidance versus last year? And then, to what extent that may or may not be offset by Waha basis compressing going into '25?

A: Yes. Gabe, so when we look at the guidance for this year, like always, we're looking out over the forward curves, and we're using those to really set the basis there. So that's the base commodity price assumptions. And so, I think as you alluded to, one of the headwinds is that Waha basis. If we look out over the curves here, we don't see nearly the basis that we saw last year. Now obviously, that going into our guide gives us some upside, if things do get tight through the year and those spreads blow out. That obviously pushes up there to the higher end of the range then.

Q: The next question will come from Jackie Koletas with Goldman Sachs. Please go ahead. Hi, good afternoon. Thank you for the time. Just starting on the - could you walk through more of the drivers or puts and takes that are better in guidance for '25. How much of that guide includes implied synergies, or optimizations of recently acquired assets, the potential WPG acquisition potentially starting to flow more meaningfully into NGLs, et cetera?

A: Yes. So as we look out over the guide for this year, I think a couple of things to hit on. This will include the full year of WTG, so we got about extra six months of that. We do have some downstream synergies from that, although I don't think they don't materially ramp up here on the downstream synergies throughout '25. I think that's more as we get down in '26 and beyond that we really see the material ramp-up in those downstream synergies. But we'll get obviously the full year impact there in midstream. We'll also pick up the full year, an extra four months of NuStar that will come through our investment in Sunoco. A couple of other of the big drivers here. We'll have Flexport coming on here in the back half of the year. So that will start to contribute and really meaningfully ramp up, as we get into the fourth quarter here. So with growth projects like that coming on along with some additional Permian processing, I think within the full year number, you will see that really start to accelerate through the end of the year in the fourth quarter, as these projects come on.