Energy Transfer's Strong Marketing Performance in Q1

First-quarter market conditions have generally played directly into Energy Transfer’s (ET) strengths around optimization and marketing activities during times of oil and gas price volatility. Primarily due to optimization efforts, Energy Transfer is now guiding toward a 2022 EBITDA midpoint of $12.4 billion from $12 billion previously. With first-quarter EBITDA of $3.3 billion, annualizing those results put full-year EBITDA estimates above $13 billion, and the partnership acknowledges the difference is primarily due to its conservatism around pricing and spreads. While the upside is sizable, at first glance, we maintain our $16.50 fair value estimate and no-moat rating. We consider these types of earnings contributions to be temporary and expect considerable downside when oil and gas prices return to more normalized levels well below current prices.

Aside from the marketing upside, we do think Energy Transfer is benefiting from quite a bit of momentum across virtually its entire business. We expect a final investment decision on the Lake Charles LNG project by the end of 2022 given a number of recent contracts, and Energy Transfer expects to sell down its ownership stake to as little as 25% while retaining an operator role. There is also the previously highlighted Permian gas takeaway project, which is expected to be between 1.5 billion cubic feet per day and 2 billion cubic feet per day and is expected online in under two years. Energy Transfer is now also evaluating petrochemicals opportunities, perhaps via M&A, to enhance the value and opportunities available across its natural gas liquids business. Not surprisingly, growth capital spending is now expected to be closer to $2 billion from $1.75 billion previously. Energy Transfer’s earlier discussions of a midpoint of $600 million in growth capital spending annually seem very unlikely to come to fruition anytime soon.