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Why investors must watch future Energy Transfer and Targa merger

Part 2
Why investors must watch future Energy Transfer and Targa merger (Part 2 of 5)

Why investors can expect synergies from the combined assets

Targa’s assets and business overview

Let’s look at the businesses and assets of these two companies. Targa Resource Partners (NGLS) has two operating divisions, Gathering and Processing, and Logistics and Marketing. The Gathering and Processing division gathers and processes natural gas from the Permian Basin in west Texas and southeast New Mexico; the Fort Worth Basin, including the Barnett Shale in north Texas; and the Williston Basin in North Dakota, as well as the onshore region of the Louisiana Gulf Coast and the Gulf of Mexico. Its assets comprise of approximately 11,300 miles of natural gas pipelines.

 

Targa's asset mapEnlarge Graph

The Logistics and Marketing division converts processes natural gas liquid (or NGL) products; provides value added services, including fractioning, storing, terminalling, transporting, distributing, and marketing NGLs and NGL products; and stores refined petroleum products and crude oil, as well as supplies and markets natural gas. This division’s assets are located at Mont Belvieu and Galena Park near Houston, Texas and in Lake Charles, Louisiana, Arizona, Nevada, California, Florida, Alabama, Mississippi, Tennessee, Kentucky, New Jersey, and Washington. The Logistics and Marketing division owns or operates 39 storage wells with a storage capacity of approximately 64 million barrels. It also owns railcars, transport tractors, and NGL barges.

ETE’s assets through ETP investment

ETP Asset MapEnlarge Graph

Energy Transfer Equity (ETE) owns and operates approximately 7,800 miles of natural gas transportation pipelines and three natural gas storage facilities located in the state of Texas; and approximately 12,800 miles of interstate natural gas pipeline. Through the company’s investments in intrastate transportation and storage operations in Energy Transfer Partners (ETP), ETE has ownership over approximately 14 billion cubic feet per day of gas transportation capacity and three natural gas storage facilities located in Texas. This operation generates revenues from fees charged for storing natural gas in ETP’s storage facilities from third parties. In the midstream operations of ETP, ETE has ownership over approximately 6 billion cubic feet per day of gathering capacity, five natural gas processing plants, 15 natural gas treating facilities, and three natural gas conditioning facilities. The midstream assets are located in the major gas shales in the U.S. like the Eagle Ford Shale, the Permian Basin, the Barnett Shale and Woodford Shale, the Marcellus Shale, and the Haynesville Shale. ETE also operates transportation and service operations in natural gas liquids through ETP’s 70% interest in Lone Star.

ETE’s assets through investment in SXL

ETP’s interest in Sunoco Logistics (SXL) gives ETE acccess to SXL’s geographically diverse portfolio of complementary pipeline, terminalling, and acquisition and marketing assets. SXL purchases and sells crude oil and refined petroleum products pipelines primarily in the northeast, midwest, and southwest regions of the United States. SXL owns 4,900 miles of crude oil trunk pipelines and approximately 500 miles of crude oil gathering lines that supply the trunk pipelines.

ETE’s Retail business

ETP also operates a retail marketing operations consisting of the sale of gasoline and distillates at retail locations. These operations are located primarily in Connecticut, Florida, Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, Pennsylvania, and Virginia.

ETE’s assets through investment in RGP

Regency Partners (RGP) transports raw natural gas from the wellhead in west Texas through gathering systems, processes raw natural, and separates NGLs from the stream and sells the pipeline-quality natural gas and NGLs to various markets and pipeline systems. RGP also owns two intrastate pipelines, one that delivers natural gas from northwest Louisiana to downstream pipelines and markets and the other that stretches from southeast Oklahoma through northeast Texas, northern Louisiana, and central Mississippi through Alabama.

Why the potential merger of ETE-NGLS would make sense

Therefore, ETE and Targa have a lot of common asset base in natural gas and NGL transportation and services, and the merged entity would have presence across a vast geography in the U.S. The presence of assets in the high yielding gas shales locations of the Eagle Ford Shale, the Permian Basin, the Barnett Shale and Woodford Shale, the Marcellus Shale, and the Haynesville Shale would be benefited from similar assets, in which the any merger would draw economies of scale. Besides, Targa’s fractionators of Mont Belvieu and Galena Park near Houston would increase the overall capacity of the potential merged entity greatly, as Mont Belvieu is a giant NGL processing hub near the Gulf Coast of the U.S.

On the other hand, Targa’s asset base would be greatly complemented by ETE’s retail operations of gasoline and distillates, particularly in places where it has not developed any presence yet. ETE, through SXL, also owns a much bigger crude oil trunk pipeline business, which would help diversify the operations of the possible merged entity. A trunk pipeline transports crude from production point to refineries and from refineries to terminals. In addition, both the companies are investing in building capacity to export liquefied natural gases (LNGs) and natural gas liquids, which could turn out to be game-changers for a merged entity.

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).

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