Since the onset of 2022, Energy Transfer (NYSE: ET) has enhanced its distribution on a quarterly basis. Nevertheless, the journey has not always been seamless for the organization. Specifically, in 2020, the midstream firm halved its distribution.
So, what lies ahead for Energy Transfer’s shares and its distribution? To begin with, let’s delve into the company’s functions and its approach towards expanding its distribution.
An Enormous Midstream Player
Energy Transfer operates as an integrated midstream enterprise that moves hydrocarbons like natural gas, natural gas liquids (NGLs), crude oil, and refined products. Its operations cover various midstream activities including gathering and processing, fractionation, storage, and transportation. Moreover, the company holds interests in fuel distribution firm Sunoco LP and USA Compression Partners, a provider of natural gas compression services. Energy Transfer functions as a master limited partnership (MLP), offering investors a K-1 form and presenting unique tax benefits (along with obligations).
An estimated 90% of Energy Transfer’s projected 2024 earnings before interest, taxes, depreciation, and amortization (EBITDA) are anticipated to originate from fee-based operations. Fee-based enterprises tend to exhibit steadier and more predictable performance as they are shielded from direct impacts of commodity price fluctuations. This aspect is particularly crucial for income-focused energy investors as it points towards the sustainability of a midstream company’s distributions.
With its expansive integrated network, Energy Transfer stands as one of the leading energy arbitrageurs in the U.S. The company capitalizes on geographic and seasonal disparities to enhance its own outcomes as well as those of its clients. This can be accomplished through various means such as marketing natural gas – which undergoes significant regional pricing variations – in a market with more favorable pricing. Additionally, the company may store hydrocarbons to secure better prices in the future or refine NGLs into higher-value commodities.
The narrative continues
Overall, Energy Transfer is well equipped to deliver consistent performance across diverse commodity cycles due to its substantial involvement in fee-based activities across multiple product categories. Its asset base facilitates strategic decision-making to optimize the sale of hydrocarbons…
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