Energy Transfer (ET) is among the largest midstream companies in the world, with a valuation of almost $44 billion. The company is also one of the most committed to growing its infrastructure, with an impressive portfolio of assets and a consistent focus on bolt-on acquisitions. As we’ll see throughout this article, the company is a valuable long-term investment.
Expansive Energy Transfer Developments
The company has worked to build additional developments to continue helping its overall portfolio.
The company is proposing a new offshore port and TotalEnergies has represented interest in 4 million barrels / month. This is another example of an asset the company could build that would integrate well with its pipelines and all other assets. The company’s budding NGL business has also expanded dramatically with fractionation and transportation volumes hitting records.
Expanding Energy Transfer Footprint
As the company continues its expansion, its footprint continues to grow into essential infrastructure.
U.S. shale is the largest energy producing area in the world, and the north-east coast along with various population centers in between represent some of the largest energy consumption areas in the world. The company’s massive existing footprint, along with recent acquisitions, give the company room for numerous bolt-on acquisitions.
Strategic Energy Transfer Acquisitions
The company has been on a bit of an acquisition spree recently to continue to expand its portfolio.
The company closed its major acquisition of Enable Midstream Partners in December 2021, and closed another acquisition Woodford Express in 2022. In 2023, the company managed to close 2 additional acquisitions. These are not small acquisitions, for a company with a valuation of almost $100 billion, the Crestwood Equity Partners acquisition alone was $7 billion.
Energy Transfer Capital Allocation Strategy
All four of the company’s recent acquisitions were accretive on a DCF / unit basis and the company earned $2 billion in DCF in the most recent quarter.
The company is illustrating what happens with $7.5 billion in DCF, but it’s worth acknowledging that the company’s current annualized run-rate for DCF is more than that. The company is currently spending roughly $4 billion on its dividend contributions.
Examining the Thesis Risk
The largest risk to the thesis for the company is a lack of adaptation to climate change. The company is continuing to move full steam ahead with oil and natural gas, and in the immediate term we expect the company to benefit. However, in the longer term we expect volumes to go down, and the core of the company’s business, volumes, will decline.
Final Thoughts on Energy Transfer
Energy Transfer is an energy giant, one with an enterprise value of almost $100 billion. The company is committed to both continuing its growth and shareholder returns. The company has a dividend of almost 9%, one that it can comfortably afford, with just over 50% of its DCF, and one that it’s committed to growing at 4% over the long-term.
