Energy Transfer Q3 2026 Earnings Conference Call - ENERGY TRANSFER LP

Explicit Guidance:

• Full-Year 2026 Adjusted EBITDA: Raised to a range of $19.7 billion to $19.9 billion, representing an ~$850 million midpoint increase over the prior quarter's guidance. Drivers include $285 million recognition of previously disputed natural gas purchases with a downstream customer in Q4 2026 and outperformance in the Bates business.
• 2026 Organic Growth Capital (CapEx): Expected to be $5.4 billion to $5.6 billion (excluding Sunoco and USA Compression).
• 2027 Organic Growth CapEx: Anticipated to be approximately $7 billion, reflecting projects advancing toward Final Investment Decision (FID).
• Figueroa (Vaquero) Acquisition Impact: The ~$2.625 billion acquisition is expected to be immediately accretive to distributable cash flow (DCF) per common unit upon closing.
• Financial Metrics: The Figueroa acquisition implies an ~8.5x multiple on 2027 estimated EBITDA, expected to compress to below 7x by 2029 as utilization increases.

Business-Segment Outlook:

• Natural Gas (Intrastate/Interstate):
  • Hugh Brinson Pipeline: Phase 1 is in service; Phase 2 (additional downstream compression) is expected in service in Q1 2027, increasing capacity to >2.3 BCF/day.
  • Demand Drivers: Significant new demand from power generation and data centers (hyperscalers). Executed agreements for >9.5 MMBtu/day of volume since early 2025.
  • New Agreements: 250,000 MMBtu/day, 10-year firm agreement with a hyperscaler; 15-year agreement with a Marcellus producer adding 250,000 MMBtu/day effective Nov 1st.
  • Oklahoma/Missouri Power: Expect fourth new power plant connection in service in Q4 2028; new agreements in Missouri effective late 2027 and mid-2028 providing ~150,000 MCF/day.
• Midstream Gathering (Permian/Delaware Basin):
  • Vaquero Acquisition: Closing in Q4 2026; adds ~300 miles of pipeline and 675 MMcf/day processing capacity, integrating with the existing Delaware Basin network.
  • Bear 2 Processing Plant: Positive FID reached; expected to be in service in Q3 2027 with ~$225 million CapEx.
  • Mustang Draw 2: Placed in service Oct 2026; volumes expected to ramp through H1 2027.
• NGL and Refined Products:
  • Frac 10 (Mont Belvieu): Positive FID reached; expected to be in service in H1 2029 with 200,000 bpd capacity, bringing total Mont Belvieu capacity to ~1.6 million bpd.
  • Neyland Terminal: Ethane export expansion up-sized to ~300,000 bpd; expected to be placed in service in stages beginning 2028, with docks expected mid-2029.
  • Marcus Hook: Ethane expansion expected to complete in H2 2027, increasing capacity to ~100,000 bpd with offtake agreements through the late 2030s/early 2040s.
• Derivatives/Volatility: ~$100 million in marketing margin gains recorded in Q3 (NGL/Crude) is expected to be offset by derivative losses over the next two quarters.
• Long-Term Returns: Majority of growth projects are contracted under long-term commitments expected to generate mid-teen returns and considerable earnings growth over the next decade plus.

Market and Competitive Outlook:

• Southeastern U.S. Growth: South Mississippi Pipeline project (FID reached, $1.6 billion cost) expected to be in service in 2030, connecting producing basins to the growing Florida/Louisiana markets.
• TransWestern Expansions:
  • Cholla Lateral: Expected in service Q1 2029, converting a coal plant to natural gas.
  • Springerville/Cholla: Enabling conversion of coal-fired power plants to natural gas service; CapEx expected to be fully reimbursable.
• Permian Crude Egress: Management expects Permian crude supply-demand balance to tighten; willing to contract out more capacity if rates reflect appropriate value.
• LNG and Export Markets: Growing demand in India, South Korea, China, and Europe supports continued NGL export terminal growth.
• Competitive Advantage: Management emphasizes an "unmatched" integrated network (wellhead to export dock) and unique connectivity allowing flow in multiple directions (e.g., backhaul capabilities) as a stable competitive advantage.

Macro / Industry Outlook:

• Energy Demand: Exponential growth expected in natural gas demand driven by power generation and data center construction.
• Commodity Prices/Volatility: Management anticipates continued volatility and higher spreads to drive earnings, though specific duration is not capped.
• Global Supply: Identified as a stable global source of supply amidst geopolitical uncertainty; expects underlying global pull to support higher rates and volumes longer than spot markets.
• Regulatory/Political: Management views political outcomes (elections) as less impactful on long-term industry support; continues to support and grow regardless of administration.
• Credit Environment: Robust credit processes maintained for data center projects, generally requiring contracts with investment-grade counterparties or substantial parental guarantees/LCs for non-investment-grade.

Strategic Initiatives:

• M&A (Figueroa/Vaquero): ~$2.625 billion acquisition (cash and units) closing Q4 2026; enhances integrated natural gas gathering/processing in the Delaware Basin.
• Capital Projects (FID):
  • South Mississippi Pipeline: 215-mile, 36-inch pipeline ($1.6B), Energy Transfer as 51% owner; FID achieved, in service 2030.
  • Desert Southwest Pipeline: FERC application expected Q4 2026.
  • Bear 2 & Mustang Draw 2: Processing expansions in the Permian/Delaware Basin.
  • Frac 10: Fractionation expansion at Mont Belvieu.
• Customer Expansion: Advanced negotiations for additional volumes with hyperscalers, data centers, and power plants across Texas, Oklahoma, Arkansas, Louisiana, Ohio, and Illinois.
• Leadership Transition: Mackie McCree stepping down as Co-CEO; Tom Long to serve as sole CEO starting January 2027.

Risks and Headwinds to Outlook:

• Regulatory/Closing Conditions: Figueroa acquisition closing is subject to regulatory approval and customary closing conditions.
• Derivative Realization: Recognized marketing margins (~$100 million) are subject to offset by derivative losses if market volatility reverses.
• Construction/Execution: Management acknowledges risk in project timing but states projects are "expected to come in under budget" and emphasizes discipline to deliver "on time and on budget."
• Market Volatility: Future earnings are partially tied to market volatility and spreads; a reduction in volatility could reduce optimization-driven earnings (estimated ~$1.5B benefit for 2026).
• Capacity Utilization: Future multiples on acquisitions are contingent on the ability to increase utilization of existing processing capacity.

Management Tone on the Future:

• Confidence Level: Highly confident and "optimistic," describing the future as "so great" and stating "the best is yet to come."
• Sentiment: Repeated emphasis on "clear line of sight to growth," "excellent positioning," and "unique and stable competitive advantage."
• Guidance Changes: Notes "third consecutive quarter" of upside capture from market volatility and "solid earnings results," signaling a positive shift in execution relative to prior periods.
• Capital Discipline: Reinforced commitment to capital discipline alongside project execution, with 2027 CapEx expected to be a "high watermark" but sustained >$5B run rate.

Miscellaneous:

• Share Count/Dividends: No specific new targets mentioned; focus remains on immediate accretion to DCF per common unit from acquisitions.
• Tax Rate: Not explicitly guided; "Brad" (tax) highlighted as a key team member.
• Q4 Outlook: Management expects Q4 to be up from the previous guidance, driven by the resolution of the customer dispute ($285M) and continued strong operational performance.