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Energy Transfer Partners: Outlook for the 2nd Half of 2015

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Energy Transfer Partners’ outlook

According to Wall Street estimates, Energy Transfer Partners’ (ETP) distributions may keep growing throughout the rest of 2015. ETP’s expected quarterly distribution per unit of $1.059 and $1.078 for 3Q15 and 4Q15, respectively, would add up to $4.187 for the whole of 2015. This represents an 8.4% YoY (year-over-year) increase for 2015.

ETP is expected to benefit from growth in fee-based cash flows resulting from:

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  • the Regency Energy Partners merger completed during 2Q15
  • other fee-based projects that are expected to come online in the remaining quarters of 2015
  • IDR (incentive distribution rights) subsidies from general partner Energy Transfer Equity (ETE)
  • growth in distributions from its subsidiaries:
    • 27% limited partner interest, 10% GP (general partner) interest, and IDRs (incentive distribution rights) in Sunoco Logistics (SXL)
    • ETP will hold a ~57% limited partner interest in Sunoco LP (SUN) pursuant to the completion of the Sunoco LP GP and IDR exchange, discussed in Part 4

Distribution yield

ETP has a current distribution yield of 8.74%. This high distribution yield can be attributed to the tier-4 split IDRs present in its capital structure and a volatile cash stream. Plus, some of its business segments have commodity price exposure.

Energy Transfer Equity (ETE), which holds the IDRs in ETP, is currently trading at a distribution yield of 3.69%. The tier-4 IDRs lead to a large share of ETP’s total distributions being paid to ETE.

Peer comparision

ETP peers EnLink Midstream Partners (ENLK) and DCP Midstream Partners (DPM) have IDRs in their capital structure as well. These two companies are trading at current distribution yields of 8.5% and 10.4%, respectively. MarkWest Energy Partners (MWE), which has no IDRs, trades at a current yield of 6.72%.

Together, ETP, SXL, MWE, ENLK, and DPM account for ~25.05% of AMLP.

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