Energy Transfer LP
Q2 2017 Earnings Call Transcript
Published:
- Operator:
- Greetings, and welcome to the Energy Transfer Second Quarter Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to our group CFO, Tom Long. Thank you. You may now begin.
- Tom Long:
- Thank you, Operator. Good morning, everyone, and welcome to the Energy Transfer's second quarter 2017 earnings call, and thank you for joining us today. I'm also joined today by Kelcy Warren, Mackie McCrea, Matt Ramsey and John McReynolds and other members of the senior management team who are here to help answer your questions after our prepared remarks. I will begin today with an overview of some of our recent announcements, followed by an update on merger synergies between ETP and SXL as well as a discussion on the latest developments on our Bakken, Rover, Permian Express III, Mariner East 2 and other growth projects. Then I'll turn our focus to a discussion of Energy Transfer Partners second quarter results, followed by a liquidity discussion, a Capex and funding update, and lastly a distribution discussion. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These are based on our beliefs as well as certain assumptions and information currently available to us. I will also refer to adjusted EBITDA and distributable cash flow, or DCF, both of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website. First, turning to our most recent announcement. On July 31, we were pleased to announce they we have signed an agreement to sell 32.44% equity interest in the entity holding interest in the Rover pipeline project to funds managed by Blackstone for approximately $1.57 billion. The transaction is structured at a sell of a 49.9% interest in ET Rover pipeline or HoldCo, an entity that owns a 65% interest in Rover. The agreement with Blackstone requires Blackstone to contribute at closing funds to reimburse ETP for its pro rata share of the Rover construction cost incurred by ETP through the closing date, along with the payment of certain additional amounts. After the closing date, Blackstone will contribute specified amounts of Rover's future construction cost and will also make certain additional payments to ETP. Immediately upon closing, we plan to use the proceeds to pay down debt; therefore, reducing our leverage and to help fund future growth projects. Energy Transfer will remain the operator of the Rover pipeline project. It is expected to close in October of this year, subject to customary closing conditions. Upon closing, HoldCo will be owned 50.1% by Energy Transfer and 49.9% by Blackstone. Also in June, ETP purchased all of the outstanding PennTex common units not previously owned by ETP for $20 per common unit in cash. ETP now owns all of the economic interest of PennTex, and PennTex common units are no longer publicly traded or listed on the NASDAQ. EBITDA is not impacted by this transaction as we were previously fully consolidating PennTex due to our controlling interest through our ownership of the general partner. Now to provide just a brief update on synergies from our merger with SXL. We continue to expect that we will achieve commercial synergies and cost savings in excess of $200 million annually by 2019. In particular, we continue to expect significant commercial opportunities related to our Permian Basin, Marcellus, Utica Shale and Gulf Coast liquids platforms. Now let's move to our growth projects, where we have several projects completed and ramping up and others in the construction phase progressing toward completion. First, we are obviously very excited to say that our Bakken pipeline project went into commercial service under the committed transportation service agreements on June 1 of this year. The project has commitments including shipper flexibility and walk-up for an initial capacity of approximately 470,000 barrels per day. We had a successful open season earlier this year, which increased the total to approximately 525,000 barrels per day. As of June 1, we are collecting demand charges on the initial committed capacity. We are very pleased to have this project online after a rigorous and thorough regulatory process we have had to work through over the last 3.5 years. We are now delivering domestic crude production to refineries in the Midwest and along the Gulf Coast for the benefit of U.S. consumers. As to Rover, construction of Phase 1 is substantially complete with 100% cleared and graded and the pipes strong, welded and lowered in. We expect to be finished with the construction of Phase 1a from Cadiz to Defiance by next week and plan to immediately ask for permission to bring Phase 1a in service. On Phase 1b from Seneca to Cadiz, once we receive approval from FERC to drill under Captina Creek, we believe we will have it drilled and completed in approximately 40 days, at which point we will request FERC permission to bring this segment into service. When approved, all of Phase 1 will be in service. We are waiting on approval from FERC to resume drilling the HDDs. In the meantime, we continue construction on all phases of the pipeline except the HDDs. Assuming quick resolution by FERC regarding Phase 2, we expect to be in service by the end of November or early December with full commercial service in January. On our Revolution project, construction is scheduled to be completed in the fourth quarter of 2017. Now moving to West Texas, the 200,000 million cubic foot per day Arrowhead processing plant in Reeves County in Delaware Basin recently came on line ahead of schedule. This plant meets a critical need for additional processing capacity and will continue to ramp up throughout this year. The $200 million per day Rebel II processing plant will deliver NGLs into Lone Star's pipes and is expected to go into service in the second quarter of 2018, including the Panther plant, which came on line December of last year, third plant in the Midland Basin. We are nearing capacity in the Permian and will need Rebel II as soon as possible to meet growing producer demand in the region. The residue gas in NGl barrels for the Arrowhead, Panther and Rebel II plants will be delivered into ETP systems. Also in West Texas, we are pleased to announce that we will be constructing the Red Bluff pipeline, which will run through the heart of the Delaware Basin and will connect our Orla plant to the Waha plant to provide residue gas take away. The pipe will be 80 miles of 30-inch and 42-inch pipe that will have a capacity of at least 1.4 BCF per day with guaranteed fee-based, long-term commitments supporting the project. The project is expected to be on line in the second quarter of 2018. Next on Bayou Bridge. On the 30-inch segment from Nederland to Lake Charles, we transported an average of 118,000 barrels per day in the second quarter. On the 24-inch segment of Bayou Bridge from Lake Charles to St. James, construction is expected to commence this quarter, and we are now targeting being complete in the first quarter of 2018. Lone Star's 120,000 barrels per day FRAC V is fully subscribed by multiple long-term, fixed-fee contracts. This also includes NGL product infrastructure and a new 3 million barrel y-grade cavern. It is expected to be in service in the third quarter of 2018. Next, the 400 million cubic foot per day agreement with Enable, which will allow us to begin fully utilizing idle pipeline and processing capacity in North Texas, is expected to begin in the second quarter of 2018. When complete, this contract fills all unused capacity at our 700 million cubic foot per day Godley plant under a 10-year demand agreement. On Permian Express 3, we are pleased to announce a successful open season for Phase 1 and are moving forward to bring these volumes on around year-end. We have the ability to expand by a minimum of 200,000 barrels per day and may launch another open season later this year. Moving on to Mariner East 2. We continue to make significant progress on the construction of this project. On the pipeline, approximately 80% of the pipe has been strung, more than 70% is welded and over half has been lowered in and backfilled. We have made significant progress in resolving issues with the Pennsylvania Environmental Hearing Board to allow us to resume drilling various HDDs in Pennsylvania. Over the last several days, the hearing board has authorized ME2 to proceed with 16 drill locations. We are working for approval to complete the remaining drills. Now let's turn to our second quarter results. Adjusted EBITDA on a consolidated basis totaled $1.6 billion, which was up $229 million compared to the second quarter of 2016. This increase is due to significantly higher results from the midstream and crude oil transportation and services segments. On a pro forma basis for the ETP, SXL merger, DCF attributable to partners, as adjusted, totaled $990 million, an increase of $175 million compared to the second quarter of 2016, primarily due to the increase in adjusted EBITDA. Looking at the individual segment results. As a result of the merger with SXL, ETP's reportable segments were revised. The legacy ETP midstream, interstate, intrastate and all other segments remain unchanged. The legacy ETP liquids transportation and services segment have been split into 2 new segments. The crude oil segment now includes the legacy ETP crude oil assets like Bayou Bridge and the Bakken pipeline, along with the legacy SXL crude oil assets. And the NGL and refined product segment includes the legacy ETP non-crude liquid assets including all of the Lone Star along with the legacy SXL natural gas liquids and refined products assets. Amounts for prior periods have been retrospectively adjusted to conform to the current reportable segment presentation. So starting with midstream, adjusted EBITDA was $412 million compared to $298 million for the second quarter of 2016. This increase was primarily due to higher throughput volumes, higher NGL and crude prices, as well as a handful of nonrecurring items that contribute approximately $30 million to gross margin this quarter. Gathered volumes totaled $11 million MMBtus per day compared to $10 million MMBtus per day for the same period last year. This was primarily due to increased volumes in the Permian from the ramp-up of the Orla and Panther processing plants, growth on the Ohio River system in the Northeast as well as the acquisition of the PennTex in North Louisiana. NGL production totaled 474,000 barrels per day compared to 469,000 barrels per day for the second quarter of 2016. Equity NGLs were 28,000 barrels per day for the second quarter of this year compared to 32,000 barrels per day for the same period of 2016. Growth on Ohio River system in the Northeast is exceeding our expectations, as we are seeing great results from our anchor shippers on this pipeline in the dry Utica. And we remain strongly positioned to meet producers growing needs for gas and liquid services in the Permian Basin, which will continue to be one of the primary growth drivers for our midstream business. In the NGL and Refined Product segment, adjusted EBITDA increased to $391 million compared to $341 million for the same period last year. The increase was due to higher volumes on our Texas NGL pipelines and the ramp-up of our Mariner East system, increased fractionation in refining services margins and higher throughput at the Lone Star fractionators. NGL transportation volumes on our wholly-owned and joint venture pipelines were 835,000 barrels per day compared to 741,000 barrels per day for the same period last year, due to the increased volumes out of the Permian basin, Louisiana and the Eagle Ford, partially offset by declines in North Texas. Refined products transportation volumes on our wholly-owned and joint venture pipelines increased to 643,000 barrels per day compared to 556,000 barrels per day for the same period last year due to the increased throughput on certain Midwest and Northeast refineries. Year-over-year, average daily fractionated volumes increased 25% to 431,000 barrels per day due to the startup of our fourth fractionater at Mont Belvieu, which was commissioned in October 2016 as well as increased producer volumes. Now looking at the crude oil segment. Adjusted EBITDA increased to $279 million compared to $124 million for the same period last year. The increase was due to the impact of LIFO accounting, which with had a negative $60 million impact in the second quarter of 2016 and a positive impact of $10 million in the second quarter of 2017. Absent the LIFO noise, adjusted EBITDA was up $85 million as a result of higher volumes related to new pipeline brought on line and the acquisition of Vitol's assets in the fourth quarter of 2016. Crude transportation volumes increased to 3.5 million barrels per day compared to approximately 2.6 million barrels per day for the same period last year, primarily due to placing the Bakken pipeline, Delaware Basin extension, Phase 1 of Bayou Bridge and the Permian Longview and Louisiana Access projects in service, as well as the Vitol acquisition and growth on existing assets. Crude terminal volumes increased to 1.9 million barrels per day compared to 1.5 million barrels per day, primarily due to growth at Nederland and Midland. We continue to remain very bullish on Permian production. We have been very pleased with the early results of our acquisition of the Vitol terminal and gathering system in the Midland basin. And we remain very excited about our strategic crude oil joint venture project with ExxonMobil, known as Permian Express Partners, where we combined key crude oil pipeline efforts of both companies, aligning our Permian takeaway assets with ExxonMobil's crude pipeline network will provide increased volume opportunities. And we expect to achieve significantly greater long-term accretion working together on this exciting crude oil venture as domestic crude oil production grows over time. In our Intrastate segment, adjusted EBITDA was $148 million compared to $149 million in the second quarter of last year. Growing fees related to the exports to Mexico, higher results related to our commercial optimization business and higher EBITDA from unconsolidated affiliates due to placing Trans Pecos and Comanche Trail in service were offset by lower transportation and storage margin. Transported intrastate volumes increased slightly due to higher demand from exports to Mexico as well as the addition of a small intrastate pipeline in North Louisiana. We continue to expect volumes to Mexico to grow, particularly with the startup of Comanche Trail in January 2017 and the startup of Trans Pecos pipeline in March of 2017, which should result in increased demand for transport services through our existing pipeline network. In our Interstate segment, adjusted EBITDA was $262 million compared to $278 million for the second quarter of 2016. We did see an impact from the contract restructuring on Tiger as well as lower rates on some of our pipelines due to weaker basis spreads and mild weather. We expect earnings in this segment to pick up once Rover is complete and goes into service and we're able to efficiently provide end-user customers with Marcellus and Utica gas. In addition, we will also be receiving significant revenues from our backhaul capabilities on Panhandle and Trunkline. Moving on to the All Other segment, which includes our equity method investment in limited partnership units of SUN LP, consisting up 43.5 million units representing 43.7% of SUN's total outstanding common units, along with other assets. Adjusted EBITDA was $107 million compared to $180 million a year ago, primarily due to a decrease in adjusted EBITDA from PES as well as higher OpEx and higher transaction-related expenses. Now taking a look at our liquidity position. As a result of the merger with SXL, ETP's previous ATM was terminated. In May we entered into a new $1 billion ATM program. During the second quarter, we saw net proceeds of $162 million from the issuance of common units under this program. In addition, in connection with the SXL merger, ETP's distribution reinvestment program was terminated. In July of this year, we initiated a new drip, which will be available for second quarter distributions. Both the legacy ETP $3.75 billion credit facility and the legacy SXL $2.5 billion credit facility remain outstanding. As of June 2017, the legacy ETP credit facility had $1.54 billion of outstanding commercial paper borrowings, and the legacy SXL credit facility had $1.67 billion outstanding, which includes $241 million of commercial paper. In aggregate, the combined partnerships have borrowing capacity of up to $6.25 billion. And the total liquidity under these 2 facilities at the end of the quarter was approximately $3 billion. Now moving on to CapEx update and our 2017 funding strategy. For the first 6 months of 2017, ETP invested approximately $2.7 billion in organic growth projects, with approximately $1 billion of this funded through asset level debt. For the first 6 months of 2017, ETP spent $167 million on maintenance capital expenditures. For full year 2017, we expect to spend approximately $3.9 billion on capital expenditure funding, net of $1 billion finance to the asset level and net of approximately $1.4 billion reduction related to the sale of a portion of our interest in the Rover pipeline project. During the first of the year, we spent approximately $1.7 billion, leaving about $2.2 billion remaining to be spent in the second half of the year. In addition to the approximately $3 billion available under our credit facility and the public debt and equity markets, we are evaluating the following equity funding options
- Operator:
- [Operator Instructions] Our first question comes from Jeremy Tonet with J. P. Morgan.
- Jeremy Tonet:
- Just wanted to touch base on the midstream segment there. Performance was up quite notably quarter-over-quarter. You said there was some one-time items that might have benefited you there. Just wondering if you could talk about that a bit more, but also just margins seem quite robust nonetheless. Any additional commentary that you can provide?
- Kelcy Warren:
- Really, the $30 million related to some MBC payments that we wanted to put into kind of the nonrecurring-type bucket. So pretty simple-type answer but basically, that's what that was.
- Jeremy Tonet:
- So would you expect those MBCs to kind of recur for each quarter if those aren't hit?
- Matthew Ramsey:
- Jeremy, this is Matthew. The way it works in some of our contracts is if certain volumes, minimum volumes don't flow, then there's a payment made at some date in the future, a demand payment made. So if they're paid during the year, it won't be recurring. If they float it exactly like they did in the past, there could be an MBC at one time. But typically, we structure these. We'll see them more consistently through the year.
- Jeremy Tonet:
- And then just turning to the crude oil segment. There is some concern in the marketplace with regards to headwinds in the industry. I'm just wondering what color that you guys could provide as far as what you see in that segment going forward for a legacy SXL there?
- Matthew Ramsey:
- I think we know -- this is Matthew here, Jeremy. I think we know what you are alluding to. And fortunately the way inter transfer partners set up in the country -- we're so diversified. And the way you get hurt in this business is on bases collapse. And where most of our assets -- or all of our assets are of any significance -- we haven't seen the collapse. In fact, we have actually seen the bases between WTI and LLS and Nederland expand throughout the quarter, and hang in there now. We also, of course, are seeing -- will see the spread, needing to widen out the Bakken. So we are very, I guess, pleased with how our assets sit in the country and we are not as, I guess, at risk to say a Cushing to Houston spread as some of our other competitors are. So we feel real good about our crude assets. And I think our performance this quarter kind of stands behind that statement.
- Operator:
- Our next question comes from Brian Zarahn with Mizuho.
- Brian Zarahn:
- The Rover asset sale clearly is a positive. Construction issues have been unfavorable. And I would appreciate some additional color on some of those issues and potential risks to your plan and service dates.
- Matthew Ramsey:
- This is Matt Ramsey. With regard to, particularly to the issues regarding Tuscarawas River, we've been working closely with the Ohio EPA. In fact, we are working closely towards resolving all those issues with Ohio. And we are under an order from the Ohio EPA, which we're fully complying with. And, again, we are working with them on kind of a daily basis. We expect to have the Tuscarawas River cleanup done where the inadvertent lease was by mid-August. And we are in the process of cleaning up the quarries now. And I think those issues are going to resolve themselves pretty quickly. As that comes on, FERC has stopped us on drills up there. But again, we are having continuing conversations with them, and we hope to have all this resolved and move forward very quickly.
- Brian Zarahn:
- So you're fairly confident that Phase 1a and b will be in service this year?
- Matthew Ramsey:
- Yes, with regard to that, we're -- with regard to Phase 1a and 1b, we essentially have 100% of the pipe in the grounds from -- ditched. And we're just waiting on the last HDDs. And on the mainline of Phase 1b, we have Captina Creek, which is really the last mainline drill we had to be done. So we plan to finish up Phase 1a, ask FERC immediately if we can put that segment into service and then follow up closer thereafter with Phase 1b. So we are very confident we're going to get this thing in service.
- Brian Zarahn:
- And then my follow-up on Mariner East 2. Where do you stand? How close to the finish line are you on potential a JV given the financing needs for your CapEx budget?
- Marshall McCrea:
- It's is Mackie again. As far as our JV, we're not talking any specifics. We're really not down the road and any link with anybody. But it is our strategy and our approach now on assets of that size that partners that come in and not only will promote above the cost but also bring added value like long-term demand charges and/or long-term purchases. So we'll continue to have dialogue and pursue those type of opportunities because it makes a lot of sense for us to continue to grow at the level we've been going over the years.
- Operator:
- Our next question comes from Shneur Gershuni with UBS.
- Shneur Gershuni:
- Before asking my question, I just had a quick clarification. Tom, in your prepared remarks when you walk through the CapEx number that that was roughly about $5 billion for the year and $2.2 billion left to spend for the balance of this year?
- Tom Long:
- Yes, Shneur, but I think it's important that you see that it was about the $3.9 billion net that I walked through there in total. And then what you've got is, net of the financing and net of the sell down with the Rover, with about the $1.7 billion being spent. So you got $2.2 billion, is the number for the remainder of the year.
- Shneur Gershuni:
- And that $2.2 billion assumes that your partner is funding part of that as well, too?
- Tom Long:
- That $2.2 billion is what we are saying net, net to us.
- Shneur Gershuni:
- And just sort of following along the CapEx lines, you gave some interesting data points with ME2 80% strong, 70% while the 50% drop and so forth. When we think of the total CapEx number for that project, how much has been spent at this stage right now? Are we at the 60%, 70% mark? Is it higher? I'm just wondering if you can you give a little color on that.
- Tom Long:
- Sure. That's not something that we've given a lot of guidance on at this point, as far as that specific project. So I think we would like to just give the total numbers, is what we're doing, the grand total numbers, and probably stay away from that for right now for competitive reasons.
- Shneur Gershuni:
- Fair enough. Secondly, you talked about the amount of liquidity that you have in place right now. Given the amount of liquidity, given the Rover sale as well, also, is it possible to actually fund your CapEx needs including all of Mariner East 2 without meeting a JV? It seems like you have adequate liquidity. Is the pursuit really more for risk management? Or do you actually need that capital to be able to finish all of your plans for the next 18 months?
- Tom Long:
- No, Shneur, I wouldn't say the need by any means. So I would say that -- as I kind of walk through, we've got quite a bit of liquidity options as we look at that. So that's something that, obviously, like Mackie just said, it's great when you can bring in a strategic partner who strengthens the project even more. And that's exactly what we are working on here from that standpoint. But I wouldn't want to use the word need. We clearly have lots of flexibility, I think, lots of options here as we work through the funding with all the things I laid out.
- Shneur Gershuni:
- And final question, I know you've received -- and are probably sick of the question about simplification -- leverage. Currently where it's at is probably the primary limiting factor. Have you looked at any options where you can simplify the IDRs and convert them into ETP units, but not actually combine the two entities, which would then avoid needing to go to the agencies to get an IG rating for both companies, effectively resulting in 2 entities outstanding, 1 IG, 1 not? Wondering if you have thought about that, or if it's something that you might pursue as a strategy going forward?
- Kelcy Warren:
- This is Kelcy. Yes, we have thought about that. We are looking at all of our options right now of what would be -- if there's an interim step that can be done sooner. So yes, we've looked at that.
- Operator:
- Our next question comes from Michael Blum with Wells Fargo.
- Michael Blum:
- First question I wanted to ask just back on Mariner East 2. Can you give us a sense of kind of number one, your latest estimate on timing regarding that project into service? And then, where are you in terms of contractual commitments? And how do we think about the type of return you're going to generate on that project?
- Marshall McCrea:
- Well, as we said in our opening statements, we do expect to have it in service sometime in the fourth quarter. We have made significant progress on extending and restructuring the vast majority of the agreements that kind of allow us to finalize it in the fourth quarter. But we also need Rover in service, and we need Mariner in service to be able to kind of provide the outlets, if so necessary, not only for our assets revolution of others, but for a lot of our competitors and a lot of the gas in the -- both Eastern Ohio and Western Pennsylvania and Northern West Virginia. So there are a tremendous amount of customers that we're talking to now, not only C3-plus but also on ethane. But it's kind of hard to bring new customers on until you get the project that's been in the works for many years in service. So we are in great shape the day we bring it on, on initial revenues. And we are highly confident that we will bring on significantly more commitments and more volumes after we bring the pipeline in service.
- Michael Blum:
- And then as a follow-up to that, can you give us any sense of, how you think the mix, ethane versus C3-plus -- I know there's been some discussion, even on new refined products, of what that might look like when it's all said and done.
- Marshall McCrea:
- A year or two from now, it may be a little bit different than what we are thinking now. But you could run through some scenarios where Mariner 1 has converted to all refined products and 2 is full of C3-plus and 2x is full of ethane. And that's certainly a hypothetical and a possibility. But what we'll do is continue to contract the strongest margins and the largest commitments we can of whatever commodity it is. And then we'll, of course, fill the projects up and the pipelines up according to those commitments.
- Michael Blum:
- And then lastly, do you have any update on the revolution project?
- Marshall McCrea:
- The only update is, it will be up and ready for service in the fourth quarter. But we do need Rover. So it will come on line as soon as Rover is connected to the plant.
- Operator:
- Our next question comes from Ted Durbin with Goldman Sachs.
- Ted Durbin:
- On the Dakota Access Pipeline, you had a judge in June come and say that you need to read sort of the environmental analysis and book about environment justice, potentially even shutting down the pipeline, if I read that right. I guess, how should we think about that as a real threat? Or what's your position on that?
- Tom Mason:
- This is Tom Mason. I'm the General Counsel. The judge granted summary judgment in favor of the Army Corps and into good access on substantially all the claims that were presented to the court related to the pipeline. And so they remain at three discreet issues to the Army Corps for further analysis and explanation of its priority terminations under certain statutes. But if you look at the opinion, it's very clear that they didn't criticize the Army Corps for a failure or two. On its conclusion, it was really more than it and needed further analysis on these issues. So we feel very comfortable that this will be resolved in our favor. And then I think, secondly, the court asked for a briefing on the question of whether the pipeline should be shut down pending this further analysis. And briefing on that is going to be completed by the end of August. The judge will rule in September. The Army Corps came out with a -- its briefing that it would be actually more harmful to shut down the pipeline during the pendency of this review. So we also submitted a brief to that fact. So we are highly confident that the pipeline will not be shut down, pending this further analysis.
- Ted Durbin:
- And then if I can ask about Lake Charles and the Kogas agreement. I guess if you think about that project and what's happened with the ENC market and other things as you're thinking on, what your capital spending would be on the project changed. I think before you talked about maybe a $2 per MMBtu toll would get you the -- kind of the returns you want. Have you dusted that project off enough to kind of be able to dial in some numbers there?
- Kelcy Warren:
- Not really. This is Kelcy. First of all, let me apologize. All of our Lake Charles staff, they're in Asia now with Kogas. We're trying to define what that relationship is. What we hope is that Kogas will not only be a partner, but taken up to justify 1 train, leaving us and Shell, if Shell decides to proceed, with a lesser hurdle to get over in filling the capacity. But unfortunately, the staff's not here that can probably answer this better than I can we are not prepared for much definition yet. But hopefully when they come back, which is this weekend, we'll have a lot more definition then.
- Operator:
- Our next question from Eric Genco with Citi.
- Eric Genco:
- I just want to come back to the CapEx discussion, maybe from a different angle. Just want to understand some parameters around possible equity needs. Should we think about this as saying, okay, the $2.2 billion you referenced is what's left? Half of that, being $1.1 million is about the equity needs? And then you would subtract any sort of future JVs from that number? Is that the right way to think about it? Or where would you put your equity needs?
- Tom Long:
- And listen, Eric, I think the way that we have always done this is, we just managed through kind of looking at the -- as we get through each quarter and seeing where our leverage is. It's all about managing towards the leverage. It's not, of course, managing towards the liquidity. So we're going to -- we obviously stay in close communication with the agencies, showing them, laying out to them what the different options we have as we walk through it. But we've always said that we generally kind of fund things when we start off a project and we look at economics, we always kind of look at it kind of as a 50-50 debt-type equity, clearly, when we look at -- when the evaluation from an accretion standpoint. So I think as we look out through the year, the real beauty is, is that we do have EBITDA growth as you've seen from this quarter. It continues to ramp up. And we -- remember that the coverage piece of it, too. I think it's very important, all the bullets -- I kind of walked through there. You look at all those. So you likewise have the excess coverage. And that's 100% equity that you're putting back into it. So I can't really probably emphasize that one enough that it's great to be where we are right now like with the 1.18 coverage for this quarter.
- Eric Genco:
- And then I guess, switching gears a little bit. I wanted to ask about acquisition strategy overall. And then just how you think about things now. Because I think we can all appreciate that over a period of time, the best combination of growth is a combination of organic and acquisition. But for the last couple of months, we've been talking to investors. There's been some concern about a potential big deal on the horizon. And I recognize you're always churning. But I just wanted to sort of get a sense from you as to -- with the units trading at double-digit yields and all the organic opportunities you have right in front of you, like, what level of appetite do you really have for a transaction, sitting here today, unless the perfect opportunity really fell in your lap?
- Tom Long:
- You said it well, unless the perfect opportunity was presented. We have very little appetite. We are tired. I mean, it's been a tough year for us, tough couple of years. And we're to get on these projects on line and demonstrating -- creating distributable cash flow for our unit holders. And the future looks really bright for us. I think it's time for us to take a little break on M&A. Again, unless the perfect deal was available to us and -- we would be opportunistic in that case. But I don't see that right now.
- Operator:
- Our next question comes from Keith Stanley with Wolfe Research.
- Keith Stanley:
- I noticed in the press release, the sell-down to Blackstone is expected to close in October, which is before Phase 2 of Rover's plan to start up. So can you confirm if you can close on that sell-down before the full projects in service? Or any color on terms that need to be satisfied prior to closing?
- Tom Long:
- Yes. We can close. That's a very good question. I think you've seen the agreement but we are targeting October. And, absolutely, that was not a condition to close throughout the negotiations.
- Keith Stanley:
- And then one follow up on Rover. The investigation at FERC into finding diesel fuel and in the inadvertent releases, is that something that needs to be resolved, in your view, prior to FERC allowing Rover to come into service? Or do you consider that a separate matter?
- MatthewRamsey:
- Well, with regard to -- this is Matt by the way. With regard to that, we are working closely with FERC on it. As we've made very clear, we do not know the source of the diesel and the drilling mud. There are a lot theories put out there about it, but we actually do not know the source of it. And so we continue to work with FERC. And I don't think that's going to be an issue as far as putting the pipeline into service. They've made things pretty clear that we have been completely transparent with them. So I think that we will get through that issue with FERC without any real big problems.
- Operator:
- Our next question comes from Ethan Bellamy with Baird.
- Ethan Bellamy:
- Do you foresee having sufficient BCF coverage at ETP to let all of the IDR waivers expire? And are there any things that could derail that? Or any things that have to happen to make -- to allow that to occur?
- Marshall McCrea:
- Yes, we do. Of course, I know we keep kind of referring back to the merger docs between ETP and SXL. But as we've run these numbers, as we kind of set up where we are right now with this coverage with bridging between these projects coming on, I think you've heard today us giving you the updates that we see those, once again between now and year-end or early -- or the January 1 on one of them, is that absolutely we feel like we've got the coverage to continue to see that as we roll through next year. And that includes the IDR is rolling off.
- Ethan Bellamy:
- And then ETP's cost of equity. I mean, frankly, it stinks. It's not competitive. And I'd love to hear, why you guys think that is? Do you think that the market doesn't believe the growth that you've laid out? I mean, is it too much debt? And then, what you think the key things that you can do to change that are right ahead of you in the next maybe 12 to 18 months?
- Tom Long:
- Ethan, I mean, clearly we go on what feedback we hear. And probably the most common thing we hear right now is really the equity-overhang. So we continue to work hard to try to communicate in all the options we have, et cetera, and feel strong. That's going to be the cure. As these projects come on as the leverage comes down because, remember, our leverage, once again, it's worth repeating. It's not paying down debt it's the EBITDA catching up with 3 years worth of funding of these projects. And so once we get to that over the next, between now and year-end, we feel strong that in that overhang is gone we do feel strong. It's going to be once again a totally different balance sheet and totally different view.
- Marshall McCrea:
- Yes. But I'd like to add to that. We've got some proving to do here to the market and you know Dakota Access pipeline was quite the experience. And part of that, we have the Williams transaction. And so now here we are with other projects that are delayed, primarily from regulatory reasons. But it doesn't matter. What matters is that we have an obligation to you guys and our unit holders to deliver. And we hope you're hearing that we are about to get that promise accomplished here. But we got to do that. And so that probably is a factor as well.
- Operator:
- We have now reached the end of our Q&A session. I would like to turn the floor back over to Tom Long for closing comments.
- Tom Long:
- Listen, once again, thank you all of you for joining us today. As always, we appreciate -- of course, we appreciate the sport. And we're very, very excited, as Kelcy just said, about all of the projects that we have coming on line as well as what we're seeing occur with the merger between ETP and SXL. And we look forward to talking to all of you in the future. Thank you.
- Operator:
- Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation
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