Introducing Energy Transfer Partners

Energy company seeks further diversification, size, scale with Sunoco acquisition

Energy Transfer Partners

DALLAS -- With its purchase of Sunoco Inc., Energy Transfer Partners LP (ETP) immediately becomes one of the largest convenience store retailers in the country when it assumes Sunoco's 4,900 retail locations (see story in this issue of CSP Daily News). So who is this new force in the industry and why did it purchase the company?

ETP is a publicly traded partnership owning and operating a diversified portfolio of energy assets. ETP has pipeline operations in Arkansas, Arizona, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas. It currently has natural gas operations that include more than 17,500 miles of gathering and transportation pipelines, treating and processing assets and three storage facilities located in Texas. ETP also holds a 70% interest in Lone Star NGL LLC, joint venture that owns and operates natural gas liquids storage, fractionation and transportation assets in Texas, Louisiana and Mississippi.

"This transaction, which will be immediately accretive, represents the next step in Energy Transfer Partners' transformation into a more diversified enterprise with an integrated and expanded footprint," said Kelcy Warren, ETP's CEO and chairman. "As we have said in the past year, our goal is to derive more of our distributable cash flow from the transportation of heavier hydrocarbons like crude oil, NGLs and refined products. With this transaction, we make a major move in that direction, bringing our cash flow mix related to the combined enterprise's pipeline businesses to approximately 70% natural gas and 30% heavier hydrocarbons. At the same time, we will enhance the size and scale of the ETP platform by creating new service capabilities and entering new geographic operating areas."

The transaction has been approved by each company's board of directors and is expected to close in the third or fourth quarter of 2012, subject to approval of Sunoco shareholders and customary regulatory approvals. Following the closing, Sunoco and Sunoco Logistics Partners will operate under the Energy Transfer Equity LP umbrella of companies. By acquiring Sunoco, ETP will own Sunoco's general partner interest, limited partner interest and the incentive distribution rights in Sunoco Logistics Partners.

The key assets for ETP in the deal are Sunoco's 7,900 miles of crude-oil and refined-fuel pipelines, which will give the Dallas-based company a toehold in the Marcellus and Utica Shale regions in Pennsylvania and Ohio, said a Dow Jones report. Those areas are becoming important sources of oil and "gas liquids" such as butane and propane, which fetch higher prices than natural gas. ETP currently has gas-liquids pipelines but not oil pipelines.

With Sunoco's pipelines, ETP will be able to expand its reach past the natural gas markets and into the crude oil and refined products transportation business.

"There are synergies," Global Hunter Securities analyst Sam Margolin told the news agency. "They're wanting to get more exposed to oil, and Sunoco Logistics is certainly an oily MLP."

 Less attractive to Energy Transfer is Philadelphia-based Sunoco's refining business, which has posted losses for the past two years. The refineries have suffered from mechanical problems and their dependence on imported crude, which has been priced much higher than domestic oil refined by competitors in the Midwest and Gulf Coast areas

Several Sunoco refineries have been sold or closed in recent years, while the Marcus Hook refinery near Philadelphia is being turned into a fuel-storage and transfer facility.

The only Sunoco refinery in operation, a 330,000-barrel-per-day facility in Philadelphia, may remain open if the company succeeds in creating a joint venture with the Carlyle Group that would transfer operations of the refinery to the private-equity firm. Carlyle would own a majority of the facility.

Sunoco will continue its plans for the proposed refinery joint venture being discussed with Carlyle, as well as continue plans for exiting the refinery business, an ETP spokesperson told the news agency.

The acquisition continues a run of deal-making for ETP, according to a report by the Associated Press. The company bought Louis Dreyfus Highbridge Energy for $1.93 billion in May 2011. And Energy Transfer Equity bought Southern Union for more than $5 billion in March 2012 and Regency Energy Partners for $300 million in 2010.

The deals will elevate Energy Transfer Partners from the middle-tier of North American pipeline companies, although it's still much smaller than heavyweights such as Kinder Morgan Energy Partners LP and Enterprise Products Partners LP, said AP.

See File Attachments below to find out more about ETP's background, and its acquisition of Sunoco, in an investor's presentation.