Energy Transfer(ET) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited financial statements, management's analysis of financial condition and operations, market risk disclosures, and internal controls Financial Statements (Unaudited) The unaudited financial statements for Q1 2023 detail revenue and income changes, balance sheet positions, and significant cash flow increases from operations Consolidated Balance Sheets The balance sheet as of March 31, 2023, shows total assets of $104.5 billion, a slight decrease, with stable equity and increased cash and cash equivalents Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $330 | $257 | | Property, plant and equipment, net | $80,004 | $80,311 | | Total assets | $104,521 | $105,643 | | Liabilities & Equity | | | | Total current liabilities | $10,162 | $10,368 | | Long-term debt, less current maturities | $47,229 | $48,260 | | Total equity | $40,669 | $40,659 | | Total liabilities and equity | $104,521 | $105,643 | Consolidated Statements of Operations For Q1 2023, total revenues decreased to $19.0 billion, but operating income increased to $2.1 billion, with net income attributable to partners at $1.11 billion Statement of Operations Summary (in millions, except per unit data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $18,995 | $20,491 | | Cost of products sold | $14,610 | $16,138 | | Operating Income | $2,062 | $1,846 | | Net Income | $1,447 | $1,487 | | Net Income Attributable to Partners | $1,113 | $1,269 | | Basic Net Income Per Common Unit | $0.32 | $0.38 | | Diluted Net Income Per Common Unit | $0.32 | $0.37 | Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $3.35 billion in Q1 2023, while investing activities used less cash and financing activities used more Cash Flow Summary (in millions) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,350 | $2,370 | | Net cash used in investing activities | $(803) | $(1,271) | | Net cash used in financing activities | $(2,474) | $(324) | | Increase in cash and cash equivalents | $73 | $775 | Notes to Consolidated Financial Statements Notes detail the Lotus Midstream acquisition, $2.15 billion in debt redemptions, debt covenant compliance, and $217 million in accrued contingent legal obligations - On May 2, 2023, Energy Transfer acquired Lotus Midstream for $900 million in cash and approximately 44.5 million newly issued common units[29] - In Q1 2023, the Partnership redeemed a total of $2.15 billion in senior notes: $350 million of 3.45% notes, $800 million of 3.60% notes, and $1.00 billion of 4.25% notes[41] - The company was in compliance with all debt covenants as of March 31, 2023, with a leverage ratio of 3.26x as calculated per its revolving credit facility[46] - As of March 31, 2023, the company had accrued approximately $217 million for contingent obligations from legal and regulatory matters. The range of additional possible losses is estimated up to approximately $800 million[76] - The aggregate transaction price for unsatisfied performance obligations was $39.06 billion as of March 31, 2023, which is expected to be recognized as revenue in future periods[129] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses a 3% increase in Q1 2023 Adjusted EBITDA to $3.43 billion, segment performance, quarterly distributions, and 2023 capital expenditure forecasts Recent Developments Recent developments include the Lotus Midstream acquisition, Sunoco LP's terminal purchase, a $0.3075 quarterly distribution, and ongoing FERC regulatory reviews - Energy Transfer acquired Lotus Midstream on May 2, 2023, for $900 million cash and approximately 44.5 million new ET common units[160] - A quarterly distribution of $0.3075 per unit ($1.23 annualized) was announced for the quarter ended March 31, 2023[162] - FERC is reviewing its policies on income tax allowances for MLPs and certification for new natural gas pipelines, creating uncertainty for future rates and projects[163][166][167] Results of Operations Q1 2023 consolidated Adjusted EBITDA increased by $93 million to $3.43 billion, driven by NGL and Refined Products, partially offset by Midstream and Crude Oil declines Segment Adjusted EBITDA (in millions) | Segment | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Intrastate transportation and storage | $409 | $444 | $(35) | | Interstate transportation and storage | $536 | $453 | $83 | | Midstream | $641 | $807 | $(166) | | NGL and refined products transportation and services | $939 | $700 | $239 | | Crude oil transportation and services | $526 | $593 | $(67) | | Investment in Sunoco LP | $221 | $191 | $30 | | Investment in USAC | $118 | $98 | $20 | | Adjusted EBITDA (consolidated) | $3,433 | $3,340 | $93 | - The NGL and refined products segment's Adjusted EBITDA grew by $239 million, driven by higher volumes, favorable rates, and optimization activities[175] - The Midstream segment's Adjusted EBITDA fell by $166 million, primarily due to unfavorable natural gas and NGL prices[175] Liquidity and Capital Resources The company plans to fund 2023 capital expenditures of $1.9-$2.1 billion for growth and $740-$790 million for maintenance using cash from operations and borrowings, with $3.01 billion available under its credit facility 2023 Capital Expenditure Forecast (in millions) | Category | Low Estimate | High Estimate | | :--- | :--- | :--- | | Growth Capital | $1,900 | $2,100 | | Maintenance Capital | $740 | $790 | - Net cash from operating activities was $3.35 billion in Q1 2023, a significant increase from $2.37 billion in Q1 2022[215] - As of March 31, 2023, the Partnership had $1.96 billion in outstanding borrowings under its $5.0 billion Five-Year Credit Facility, with $3.01 billion available[227] Cash Distributions Energy Transfer declared a $0.3075 per common unit cash distribution for Q1 2023 and detailed preferred unit distributions, including a floating rate for Series A Cash Distributions on Common Units | Quarter Ended | Record Date | Payment Date | Rate per Unit | | :--- | :--- | :--- | :--- | | December 31, 2022 | Feb 7, 2023 | Feb 21, 2023 | $0.3050 | | March 31, 2023 | May 8, 2023 | May 22, 2023 | $0.3075 | - Beginning February 15, 2023, the Series A Preferred Units transitioned from a fixed rate to a floating distribution rate based on the three-month LIBOR plus a spread of 4.028% per annum[234] Quantitative and Qualitative Disclosures About Market Risk The company faces commodity price and interest rate risks, managing exposure through derivatives, with $4.29 billion in floating rate debt sensitive to rate changes - The company manages commodity price volatility using futures, swaps, and options, with non-trading positions offsetting physical exposures[246][247] - As of March 31, 2023, the company had $4.29 billion in floating rate debt. A 100 basis point change in rates would result in an estimated $43 million annual change in interest expense[249] - The company utilizes interest rate swaps to manage its mix of fixed and variable rate debt. A hypothetical 100 basis point change in rates would result in an $80 million change in the fair value of these derivatives[250] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - The Co-Principal Executive Officers and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[254] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[255] PART II — OTHER INFORMATION This section provides details on legal proceedings, confirms no material changes to risk factors, and lists all filed exhibits Legal Proceedings This section refers to Note 10 for legal proceedings and details a June 2022 pipeline incident in Tennessee involving a 4,345-barrel crude oil release with ongoing remediation - For comprehensive information on legal proceedings, the report directs readers to Note 10 of the financial statements[257] - On June 29, 2022, a pipeline was struck by a contractor in Tennessee, releasing an estimated 4,345 barrels of crude oil. Remediation is ongoing, and a final report was submitted to the state environmental agency on April 28, 2023[259] Risk Factors No material changes to the company's risk factors have occurred since the filing of its 2022 Annual Report on Form 10-K - No material changes have occurred in the company's risk factors since the filing of its 2022 Form 10-K[263] Exhibits This section lists all exhibits filed with the quarterly report, including organizational documents, officer certifications, and interactive data files - The report includes a list of all filed exhibits, such as organizational documents, officer certifications, and interactive data files[265]