Last year, Energy Transfer Partners missed out on the tremendous gains that its industry peers experienced. The partnership's structure was clunky, natural gas prices were killing its bottom line, and it didn't look like a distribution increase was anywhere in sight. How quickly the tide has turned.

ETP units have finally started to rise, and it still packs a lot of potential. That's why we have created a premium report on ETP to lay out what the partnership is, what it has done, and where it is headed in order to guide investors on whether the company merits consideration for their portfolios. 

Following is an excerpt from the report, laying out the company's opportunity. We hope you enjoy it. 

The Opportunity

Over the course of the last three years, ETP made several major acquisitions and launched more than $3 billion worth of organic growth projects. The result of that push is that the ETP we see today barely resembles the ETP we knew back then. In the early going, these acquisitions were just strapped to the back of the partnership as it plowed forward into the next big buy. Now, management has started to reorganize its structure in an effort to simplify operations and increase transparency, which in turn makes it easier for investors to focus on the opportunities that these moves provided in the first place.

The sheer volume of the acquisitions and the organic growth projects does two things for the partnership. First, it increases the diversity of ETP's business mix. Second, it almost guarantees the likelihood of additional distributable cash flow.


For example, last year's acquisition of Sunoco gives ETP (once strictly a natural gas midstream company) access to the crude oil, refined products, and natural gas liquids markets. Between Sunoco and its associated master limited partnership, Sunoco Logistics Partners, ETP now operates 5,400 miles of crude oil pipeline and 2,500 miles of refined products pipeline. Energy Transfer also picked up 40 miles of natural gas liquids pipeline, and one natural gas liquids storage facility in the deal. As a reminder, ETP owns Sunoco, but it does not own Sunoco Logistics; rather it controls a 2% general partner stake, 32.4% of its limited partner units, and all of the incentive distribution rights.

In 2009, 52% of ETP's business was dedicated to intrastate natural gas pipelines. Today, that number is down to 17 %, and the overall makeup of the business is far more diversified than it was even two short years ago. In this way, ETP mitigates any disadvantages that affect one specific revenue stream, while opening the door for more opportunistic growth across the various niches of the midstream industry. As Energy Transfer's business mix continues to diversify, its cash flows will do the same. Right now, roughly 70% of ETP's cash flows are derived from some aspect of its natural gas -- intrastate and interstate -- and natural gas liquids business, and 30% is derived from crude oil and petroleum products.

The best part about many of ETP's new projects is that they supported by fee-based contracts, meaning there is little to no exposure to commodity price risks, creating reliable income streams that lend themselves well to increasing distribution payments.

The other important diversification component that is represented in the Sunoco acquisition is that the buyout expands Energy Transfer's range geographically, as most of Sunoco's pipelines and terminals are located in the Northeast U.S.

Sunoco Logistics pipelines stretch down from New York, across Pennsylvania and Ohio, into Michigan, and ultimately run down to Oklahoma and Texas, giving ETP incredible access to the Marcellus and Utica Shales. The Marcellus Shale is a particularly intriguing play right now. Natural gas and natural gas liquids production in the shale is booming, despite low gas prices, and energy analysts expect output from the Marcellus to climb 78% over the next two to three years.

Another crucial pickup for ETP was its acquisition of a 50% stake in the Citrus pipeline system, which runs from Texas along the Gulf Coast and down into Florida. Florida is a quiet yet significant player in the world of natural gas. Second only to Texas, the state generates at least 62% of its electricity from natural gas, and that number will increase as coal and fuel oil power plants continue to be replaced by natural-gas-powered facilities. ETP's pickup is a smart foray into one of the most crucial gas markets in the U.S.

All of this growth will mean increased opportunities for additional distributable cash flow for Energy Transfer. For example, ETP expects the Sunoco acquisition to bring in 33% of future cash flow. In the first quarter of 2013, ETP's stake in Sunoco Logistics combined with Sunoco's retail business to contribute adjusted EBITDA of $273 million.


Looking for more guidance?
That was just a sample of our new premium report on ETP. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now

The article What's the Opportunity at Energy Transfer Partners? originally appeared on Fool.com.

Fool contributor Aimee Duffy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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