Energy Transfer Equity L.P.ETE

Morningstar Rating

Stock Research and Analysis

by Jason Stevens

We're big fans of Energy Transfer Partners ETP and think that its general partner, Energy Transfer Equity, presents an attractive opportunity for investors who are interested in natural gas pipeline plays and are looking more for growth than yield. Read more

Bulls Say

ETE's ownership of ETP's incentive distribution rights results in an increasing claim on total distributions paid out by ETP over time, providing leveraged returns to ETE's investors from ETP's growth.

We think Energy Transfer is taking the next step, broadening its Texas hydraulic model into interstate markets, which we believe will foster continued high returns and new project opportunities.

Energy Transfer Partners is building Texas' largest-diameter natural gas pipelines, connecting the Barnett Shale with points east, and will soon boast more subscribed takeaway capacity than recent estimates indicate the Barnett will be able to produce.

The Midcontinent Express and Fayetteville Express Pipelines will increase the value of Energy Transfer's existing pipeline network to shippers because of the additional market flexibility and access to the best going rate for natural gas.

The Tiger Pipeline will provide needed takeaway capacity to Haynesville shippers, and much of the total capacity is already reserved with long-term, firm transportation contracts, providing clear cash flow visibility for years to come. Read more

Bears Say

Unitholders have few rights and little say in management decisions; they're pretty much just along for the ride. And the general partner's limited call option exposes unitholders to risks beyond standard equity offerings.

Energy Transfer is not a simple tollbooth operator. In some cases it takes possession of the natural gas, exposing it to both commodity price risk and counterparty credit risk.

Much of the partnership's valuation depends on strong production out of the Barnett Shale and east Texas. Should geology or demand not pan out, Energy Transfer may find itself sitting on a bunch of expensive excess capacity.

The midstream business is sensitive to the spread in prices between natural gas and natural-gas liquids. A significant change in the spread could damp profitability.

Owning units in a limited partnership can greatly increase personal tax-filing complexity. Read more

Strategy

Energy Transfer seeks to grow rapidly by building or buying natural-gas gathering and transportation assets that connect to its network and to emerging production areas such as the Barnett Shale. Because Read more

Management

Despite a labyrinthine ownership structure involving multiple levels of limited and general partnerships, Energy Transfer is ultimately the brainchild of Ray Davis and Kelcy Warren, who until Davis' retirement in 2008 were co-CEOs and cochairmen of Read more

Profile

Energy Transfer Equity LP owns the general partner interests, incentive distribution rights, and about 38% of the outstanding limited partner interests of Energy Transfer Read more

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