<

Why investors must watch future Energy Transfer and Targa merger

Part 4
Why investors must watch future Energy Transfer and Targa merger (Part 4 of 5)

Energy Transfer has growth projects to bring a merged entity

Energy Transfer Equities growth projects

Energy Transfer Equity (ETE) receives stable, growing distributions through its LP (or limited partner) interest, GP (or general partner) interest and IDRs (or incentive distributions rights) in ETP and Regency (RGP) as well in 50% GP interests and IDRs in Sunoco Logistics (SXL). ETE’s cash flow comes from a highly diversified revenue stream supported by long-term, fee-based contracts. Breaking down ETE’s performance by operating units, we find that ETP has six distinct business segments, each making meaningful earnings before interest, taxes, depreciation, and amortization (or EBITDA) contributions. In RGP, majority of the cash flows arise from gathering and processing across 6 diversified basins. SXL continues to grow its crude oil business which accounts for over two-thirds of its EBITDA.

ETE's growth projectsEnlarge Graph

RGP’s acquisitions to strengthen midstream operations

In December, 2013, Regency (RGP) entered into an agreement to purchase Eagle Rock’s midstream business for $1.3 billion. Complement Regency’s core gathering and processing business, this acquisition is expected to diversify RGP’s basin exposure in the Texas Panhandle, east Texas, and south Texas. By end of 1Q14, ETE increased its revolving credit facility to invest in $400 million worth of RGP units in connection with the Eagle Rock transactions.

RGP also completed acquisitions of Hoover Energy and PVR Partners during 1Q14. The acquisition of Hoover for $5.6 billion is expected to enhance RGP and ETE’s presence in the natural gas rich Marcellus and Utica shales in the Appalachian Basin and the Granite Wash in the Mid-Continent region.

SXL has a number of growth projects lined up

Sunoco Logistics (SXL) has significant investments committed to increase transportation capacity in the Permian Basin. The Permian Express 1 and 2 projects involve the construction of approximately 300–400 miles of new crude oil pipelines, with origins in multiple locations in west Texas. The Permian 1 Express is scheduled to have a capacity of pipeline throughput of 150,000 barrels per day by end of 2Q14. With an expected initial capacity of approximately 200,000 barrels per day, Permian Express 2 is expected to deliver to multiple refiners and markets beginning in the 2Q15. The pipelines will have fee-based income from long-term contracts.

Granite Wash Extension

The Granite Wash Extension project, which is a construction of 200-mile long new pipeline, aims to transport crude from existing pipelines at Ringgold, Texas to Corsicana, Texas. The pipeline is expected to have 70,000 thousand barrels per day of capacity and to be operational in the 3Q14.

Eaglebine Express

The Eaglebine Express pipeline, the construction of which was initiated during 3Q13, would convert the company’s existing MagTex refined products pipeline into crude oil services while the flows reversed to capture the growing production in the Eaglebine and Woodbine crude areas in east Texas. Expected to come online by 3Q14, it would have an estimated capacity to transport approximately 60,000 barrels of crude oil per day.

The other project that is expected to bring volumes business to SXL is the Allegheny Access project, which would transport 85,000 barrels per day of refined products from the Midwest to eastern Ohio and western Pennsylvania markets.

Targa Resources Partners L.P. (NGLS) is a master limited partnership (or MLP) operating in the midstream energy space. Targa Resources Corp. (TRGP) is the general partner of NGLS. NGLS is a component of the Alerian MLP ETF (AMLP) and the Yorkville High Income Infrastructure MLP ETF (YMLI). Energy Transfer Equity L.P. (ETE), through its subsidiaries, provides diversified energy-related services. ETE is a component of First Trust North American Energy Infrastructure Fund (EMLP).

 

The Realist Discussions