Energy Transfer (ETP) Q1 2011 Results

Energy Transfer Partners reported Q1 2011 results last week on May 4, 2011. The press release is here. The high level summary of the results;

Energy Transfer Partners, L.P. (NYSE:ETP) today reported Adjusted EBITDA, Distributable Cash Flow, and net income for the quarter ended March 31, 2011. Adjusted EBITDA for the three months ended March 31, 2011 totaled $471.3 million, a decrease of $42.4 million from the three months ended March 31, 2010. Distributable Cash Flow for the three months ended March 31, 2011 totaled $337.1 million, a decrease of $47.5 million from the three months ended March 31, 2010. Net income for the three months ended March 31, 2011 totaled $247.2 million, an increase of $7.1 million from the three months ended March 31, 2010.

The Q1 2011 results were basically a bit lower than expected. All of the decrease year over year was due to lower results in their natural gas storage business and was due to a conscious decision on the part of the company. Due to low natural gas prices ETP chose not to draw too much natural gas out of storage. This impacted the quarterly results but should benefit the company on any improvement in natural gas prices going forward.

More importantly for me, the company’s distribution coverage ratio is now back over 1. They closed the quarter with a coverage ratio of 1.16x. The distribution remained the same for Q1 2011 at $0.894 per unit. Volume at their new long haul pipelines continues to increase as they come online. Also, the company has announced many new growth initiatives over the last 6 months, the latest being the big joint acquisition, with Regency, of LDH energy which will get the company into the midstream services segment significantly. Also, I really liked the announcement of a joint development, with EPD, on an oil pipeline from Cushing to the Gulf to take advantage of the spread between Brent and WTI crude. Very positive for the future.

Finally, what most investors are waiting for with ETP is distribution growth something we’ve been without for over 2 years. The company put a stake in the ground on the conference call and said the distribution would be raised no later than Q3 2011. This is about one quarter later than I expected but given all the growth initiatives ETP is chasing I’m ok with it. On the distribution side, the company also announced a new distribution reinvestment plan where reinvestment prices would be given a 5% discount. This is the same as the EPD program which has been great for long term investors.

In summary, while Q1 2011 was lighter than expected, the developments at ETP are all very positive and bode well for future distribution growth. With the recent sell off in MLPs, ETP now yields about 7.5% the highest among the large cap MLPs which represent a good value. Their general partner, ETE, with a yield of about 5.5% is also a good value with its leveraged exposure to ETP growth.

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