Greetings and welcome to Energy Transfer's Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Tom Long, Chief Financial Officer. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone and welcome to the Energy Transfer's second quarter 2021 earnings call and thank you for joining us today. I'm also joined today by; Mackie McCrea and other members of our senior management team, who are here to help answer your questions after our prepared remarks. Hopefully you saw our press release we issued earlier this afternoon, as well as the slides posted to our website. As a reminder, we will be making forward-looking statements within the meaning of Section 21E of the Security Exchange Act of 1934. These statements are based on our current beliefs, as well as certain assumptions and information currently available to us, and are discussed in more detail on our quarterly report on Form 10-Q for the quarter ended June 30th, 2021, which we expect to be filed this Thursday, August the 5th. I'll also refer to adjusted EBITDA and distributable cash flow or DCF, all of which are non-GAAP financial measures. You'll find a reconciliation of our non-GAAP measures on our website. I'd like to start today by looking at some of our second quarter highlights. We generated adjusted EBITDA of $2.6 billion and DCF attributable to the partners of ET as adjusted of $1.4 billion. Our excess cash flow after distributions was approximately $980 million. On an incurred basis, we had excess DCF of approximately $625 million after distributions of $414 million and growth capital of approximately $355 million. The increased results over the second quarter of 2020 were primarily due to higher earnings in the midstream, intrastate and NGL and refined product segments. Switching gears to an update on the acquisition of Enable Midstream Partners, which will provide increased scale in the Midcontinent and Ark-La-Tex regions and improved connectivity for our natural gas and NGL transportation customers.…

Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Shneur Gershuni with UBS. Please proceed with your question.

Hi. Good afternoon, everyone. You know, maybe to start off, just given all the comments that you made about capital allocation and so forth. When I sort of think about your guidance for this year, all the debt that you paid off during the most recent quarter, there were some preferred offering as well too. It sort of suggests that you'd be below your $4.5 billion for leverage in the third or fourth quarter of this year. What are your priorities in terms of returning capital to unitholders? You know, just sort of looking at your current trading levels, does buybacks become the priority? Or is there some other things that you're considering?

Good afternoon, Shneur and definitely appreciate the question here. As you know, we got the four different options that we look at. We're very excited that we've been able to pay off as much as we have this year with the $5.2 billion. We're still not providing guidance as to exactly timing from that standpoint, but I will say that the debt has clearly been our focus at this point, but I will say the distribution and/or unit buybacks as well as the CapEx, we're going to continue to look at it from an economic standpoint as to what makes sense. But it's great to be in this position and have this question right now. So, keep in mind that, not putting that in any one order, but we clearly had the debt as the top. And we've made great progress on that. So you can appreciate the distribution and unit buyback as we've worked diligently to stay very disciplined on the CapEx front.

You know, that makes sense. And maybe that's a good transition to my follow-up question. You've sort of maintained the growth capital outlook for both '22 and '23 in fact 700 million per year. And I recognize that a lot of that is kind of in the FID bucket already. Kind of interested in the sort of the discussion you had in your prepared remarks, you talked about a bunch of different Carbon Capture projects that you were looking at some with sequestration, some within the oil recovery and so forth. Are those projects also included in kind of that outlook that you have for the next two years in CapEx? If not, do you have a sense around the price tag on that, and so - and how we could think it could potentially move as you move to FID on those types of projects?

Yeah, Shneur, this is Mackie. As we have expressed as Tom Mason and his team are leading, we're looking at a lot of stuff around ESG and as we have said anything that makes sense, economic sense on rates of return, we're going to pursue it. Right now, there's really nothing on the horizon that has any kind of significant material, capital costs to it that we're looking at any serious way. For example, we made the announcements on the silver front, we're really - we're not investing anything, we're just a buyer of inexpensive electricity. Some of these other Carbon Capture projects that we're looking at going to require a lot of capital, and/or the Partner that we're teaming up with will provide more of the capital. So right now, we don't have really anything in there materially. And we even have a little bit of a cushion to help grow our Midstream business, as these rigs begin and then have started moving in and as far to gather opportunities and things like that. So no, we don't have much in there at all from a cost standpoint for ESG project.

Okay, really appreciated it. I'll respect the two questions that I have a ton more. So I'll jump back in the queue. Thank you and have a great afternoon.

Our next question comes from the line of Jean Ann Salisbury with Bernstein. Please proceed with your question.

Hi. With the double expansion being up, are you seeing or expecting more flows? Or since there's excess pipeline out of the Bakken. Should we think of it more like new MBCs will start so you'll get paid? But we may not see the flows right away?

This is Mackie, again. Yes, we have seen for August, this significant increase in nominations and we're seeing the flows begin. And also, yes, to your question around MBC, the MBC on the optimization commitment did kick in on August 1st.

Perfect, thanks. And then as you noted, the Intrastate segment was down sequentially, data contract expirations on Tiger and Fayetteville pretty materially. Is that kind of the end of the original contracts? I think maybe there's a little - there's one more in Fayetteville Express next year, but for this year, is there any more expiration coming in the back half? Or is this kind of the new base?

We're seeing the bottoms. As you mentioned, there's one small one of the PP over next year or the end of this year, but now we're kind of, you know, 10 years passed by pretty quickly. And we are, but we're seeing so much growth around some of these pipelines in North Louisiana and excited about being able to move a lot of that gas out really both ways, but also adding back in the Texas into our Intrastate system. So we believe we've seen the bottom of the barrel there, and we'll see more growth. A quick example around Intrastates we recently have sold out the vast majority of our capacity from West Texas to California through our DW system for the next two years at Max tariff rate, not sure why we had a company come in that believes the value for gas in California must be on the way up. So we're seeing some positives. And we've said that a while around TransWestern well, where when contracts roll off, we actually add new contracts at higher fee. So, there are some pluses also the Intrastate's more seasonal. This is not a - the second quarter's not a high throughput necessarily for our Intrastate system. But we do pretty much the upside for here.

Great, thanks so much.

Our next question comes from the line of Keith Stanley with Wolfe Research. Please proceed with your question.

Hi. Good afternoon. Maybe I could follow-up on Enable some. Just on feedback and questions you've gotten from the FTC. Has anything been surprising to-date or has the process been as expected and just want to confirm next steps in the process? It sounds like you still have to respond to their second request? Is that right?

Yeah, this is Mackie again. That's correct. We are responding to their second request, we're a little surprised. We thought that, that after extending it 30 more days from initial 30 days that we would resolve all their questions and issues. But we remain confident that we will be closing in the not too distant future. And we've been and we'll continue to be very cooperative with FTC. And feel real good about getting the finish line sooner than later.

Great. A separate question just on the Crude segment. So Crude EBITDA was down year-over-year and that's from the second quarter of '20. You mentioned that you're hoping things are kind of close? Or I guess, should we think of this as close to a bottom for that segment? I think there was a reference to the majority of the contracts now rolling off. So, should we think of EBITDA on crude is bottoming? And is there anything that can kind of turn that segment around?

Yeah, this is Mackie, again. Well actually the segment has been turned around. We give you an example. On majority of our pipelines, we were at about 2.5 million barrels a day, pre-pandemic, and we're back up to about 50,000 barrels less than that. So our volumes have recovered almost 95% to 90% from where they were, these are the volumes across Texas and at the Bakken. So a lot of really good things happen to crude as far as volumes, we can really control the spreads, the spreads per part of the quarter widened out a little bit, they've narrowed, they kind of go back and forth, it's clearly a fact there's too much crude capacity across Texas. So we continue to look at repurposing things and also providing more value than just point A to point B through our systems. But our Crude team has done a fantastic job. Just started in January till now we've added about 500,000 to 600,000 barrels a day of crude cross all - we didn't have at the beginning of this year, albeit at much tighter spreads and margins than what we saw a year, a year and a half ago. But we can only control what we can gather and transport for customers. And the spread will be where they'll be. So and I guess final out are to complete the question. Yeah, we feel like we're kind of at the bottom, we think that we're going to continue to keep our volumes where they are or grow, we of course are, have kicked in the NBCs for optimization project. That's new revenues that are coming in. So, similar to Intrastate, which you know the two at most struggling segments, we all hit on. All the other, please ask about. We're pretty excited about those now and the future. But anyway, we similar to Intrastate, we feel like we've been at the bottom and everything's kind of up from here.

Thank you very much.

Our next question comes from the line of Pearce Hammond with Simmons Energy. Please proceed with your question.

Yeah. Good afternoon and thanks for taking my questions. My first is, two years ago, you announced the office in Beijing and not just to build business in China, but also throughout Asia. And you highlighted earlier the success you're having with the Orbit JV. So I'm just curious, you know, what's your line of sight to other opportunities in Asia for Energy Transfer? And, you know, how do you see that market evolving over the next few years?

It's Mackie again. We are extremely excited. The pandemic really put a kind of a pause on not only LPG and ethane, but also crude, it kind of slowed everything down and everything is or by now the economy around the world, especially in the US, but China's coming back. We have pages of companies that we're talking to different sizes from both ethane and LPG expansion projects. We are - we very much expect over the next year, if not sooner, within six months to get to FID on another expansion, whether it's at Marcus Hook or at The Nederland that we've always kind of been proud of the fact that we're the only company in the country that can export both from the Gulf Coast and from Nederland infrastructure - I mean, Gulf Coast and from Marcus Hook. And we're able to structure and negotiate these deals with a lot of these Chinese companies and give them that option, but also give us an option, which makes our assets more reliable and gives both of those terminals significant benefits. So that's a longwinded answer too. Yes, it's picked up in a big way. We're in conversations with numerous companies in China as well as many others around the world. And we couldn't be more excited about what we've done from an export build out capacity for ethane and LPG and crude oil. For that matter and where the future is going to be to around the world, we're exceptionally well situated to meet the market demands in future.

Well thank you, Mackie for that. And then my follow-up pertains to the Panama announcement. I know it's super early. But just curious from a high level, what do you see Energy Transfer bring into Panama? What would be the advantages to Energy Transfer? Just for a high level thoughts on what could be in the country?

Yeah, we're really excited about that. What a great group of people, everybody we've met with there, and the government has been just a pleasure to work with. And we're really excited about where all that's gone. What do we bring to the table, if you look back over just the last, not that many years, we've gone from kind of nothing to now as you heard on Tom's remarks, the export NGLs in the world? So that kind of says something, just made a statement about the two terminals that we have. And what this terminal provide is the Country of Panama to benefit from moving barrels that are much in need throughout the world, to the Pacific side of their country and become a major hub for the Asian markets as well as for the South American market. So we bring the expertise, we bring - we will be able to bring the barrels, we're going to be able to operate at really in effect four terminals, a hub on the Atlantic side, Pacific side and the two that we have today. So we're very excited. As you mentioned in the very early part of this, we look forward to where this is going. And hopefully getting the FID in a not too distant future.

Thank you, Mackie.

Our next question comes from the line of Jeremy Tonet with JP Morgan. Please proceed with your question.

Hi, good afternoon. Just wanted to start off with the EBITDA guidance, if I could here, because it seems like you've already completed a good portion of it over half year-to-date. And so just wondering if there's something that you're expecting to show up in the back half of the year, that would be a headwind relative to the beginning of the year or anything else to think of here is it really just kind of conservatism with not raising the guide at this point, just trying to understand drivers within the range a bit better?

Listen, I'll start off with it. Good afternoon, Jeremy. We think our guidance is really down the middle of the fairway, you know, the $12.9 billion to $13.3 billion. And you know, you're right, we've had a great start to the year with the first six months. But when you really look at it, and you kind of look at the forward curves that we've used for the pricing, which have stayed right in line with that for all the various commodities. And you've heard Mackie talk a lot about the volumes, et cetera. That's the reason why we've kept the range in a little bit wider. But once again, we feel very good about this. We don't really feel like there's any headwinds on this. We're very excited about the next - the last half of the year, next two quarters. And I don't know I'm looking to Mackie to see if he'd like to add anything more to the answer here. But we do feel very good. We do not see headwinds.

Yeah, I guess what I'll add is, I kind of joked a minute ago about on the top, no questions yet around the Midstream or Intrastate or NGLs. But we're so excited about what we're seeing, we've said that last time, the rigs are moving in, they're moving in in a big way. We've seen our volumes in our Midstream just in the first quarter of this year to the second quarter of this year go up by 8%. And if you look at just the Permian alone, it's up 15%. So we're extremely well situated to where these rigs are, as everybody knows, you bring the gas to the plant and connect to these plants are residue an Intrastate systems and our NGL systems. So if you look at what kind of feeding into our NGL system, both our Lone Star Pipelines and our Mont Belvieu fracks. We're now fracking about 900 - a little over 900,000 barrels a day. If you look back a year ago, we first brought on frack seven, I think we did about what 920,000 or 930,000 barrels was our high. But that's a little misleading, because when we brought on fracks, we weighed a bunch NGLs and laggards and storage. So we're kind of feeding from the field, from the plant plus, out of storage. It's different today. We're filling of our fracks today from the field, from the tailgate of all the plants. In fact, we're actually injecting some raw grade into storage. So we, the NGL segment is just unbelievably exciting. We can't say enough about our team and all the effort we put together at the end of 2020, beginning of '21 around getting the Orbit project completed online and finalizing all this LPG growth and buoy, are we incredibly well situated benefit from that all the way from the wellhead through the fracks and then on to the export market. So pretty excited about that. And that'll kind of help feed into our EBITDA the last half of the year.

Got it, that's really helpful there. And then pivoting over here, it seems like a number of studies out there have talked about given the density of CO2 emissions off the Gulf Coast, there's really a good opportunity for kind of CO2 hub concepts on the Texas Gulf Coast, particularly as it relates to Houston there between PetChem and heavy industry emissions. And just wondering over time, especially if these DC initiatives pass that would support CCUS economics, what role do you see for EP here over time. And do you believe that CO2 storage sequestration is more of an offshore or onshore solution over time just given you know, the pros and cons of each side here?

This is Mackie, again. Well, first thing I'll say is that, if you look kind of along the Gulf Coast, there's nobody that has more pipelines of all different sorts than us. So, as we look to repurpose pipelines, if there's opportunities to repurpose into lube, CO2 or flue gas from some of these, but industry is along the coast, there's nobody probably better situated than us. But we're not really out chasing, say, a CO2 sequestration project down in the Gulf or out in Timbuktu, what we're doing is looking at projects that are related to our assets, and doing what we can to work with third-parties to figure out a way to either capture that or to process it or wherever the case may be. So, as I mentioned earlier, Tom Mason put a great team together, we're evaluating numerous opportunities and we'll certainly move forward on those that make good economic sense.

Got it. That's helpful. I'll leave it there. Thanks.

Our next question comes from the line of Michael Blum with Wells Fargo. Please proceed with your question.

Thanks. Good afternoon. Wanted to ask on Mariner East 2X. Now that you're, you know, just about less than two quarters away from finally getting this project fully done. I wondered if you can give us some clarity in terms of you know how much the project ultimately cost? What the economics could look like? And would you expect to sign additional shippers up once the pipeline is fully up and running.

Michael, I'll start and Tom if to add anything. It cost a lot, I'll start with that, around the volumes, we - today, we can move out 220,000, 225,000 the next phase which will be completed, we feel really good about sometime in September will put us north of 260,000 and by the end of the year we'll be north of 280,000, possibly approaching 300,000 barrels a day. So really excited about getting that whole franchise through the end, Tom. There are you know, you got to kind of have the outlet and then the volumes come, but volumes are there. There's enormous reserves of NGLs, in the Marcellus and Utica there's nobody positioned to be able to get that out besides us every other [technical difficulty] kind of pull. And so we do have the opportunity to expand, we'll be able to move as we said about 280,000 to 300,000. But we can expand at 450,000 by pumps. We also have enormous capability to increase our chilling and storage on the acreage we own there at Marcus Hook and also have enormous capabilities expanding our dock capacity. So we're extremely well situated to handle and to be the pipeline and across that you know provider of choice for all the barrels out of that basin and we're pretty excited that we're almost there.

Got it, thank you. My other question was just on the Permian. Clearly there's a lot of excess crude pipeline out of the Permian right now. And it seems like there will be need for a natural gas, another natural gas pipeline or expansion at some point in the next couple of years. Just wondering if that's something a potential conversion of a crude line to natural gas is something that you would all look at or do you feel like your crude line there are basically falling, they're not - it's not the best to use? Thanks.

Mark, I think the best way we'll answer that is, there's nothing off the table. So we will continue to look at all of our pipeline assets to see if some other product would be more profitable and more efficient for our partnership. So, you know right now our team has done, as I mentioned earlier, a fabulous job of kind of recovering our volumes in short period of time this year. We have a group - a kind of a new group that's working diligently to continue the momentum. So we'll see how things go. No doubt, the crude pipeline industry is so good at this, it overbuilding and the crude, us and all of a sudden have overbuilt, but we feel pretty good where we're at, we wish spreads were a little bit lighter, but we will continue to analyze and look at every opportunity. As far as gas, you know, we've got the ability to move quite a bit of gas from West Texas, we have some of these contracts falling off in four or five years now, you know, some fairly significant volumes. So we welcome everybody to just look into expand - or look into secure a space in '24 or '25 I want a new pipeline, we certainly can accommodate a new pipeline, but also can accommodate with capacity that we'll have available as well today. So anyway, we'll continue to look at everything and whatever makes the most sense will convert it or keep it in that service.

Thanks, Mackie.

Our next question comes from the line of Gabe Marine with Mizuho. Please proceed with your question.

Hey. Good afternoon, everyone. Someone beat me to the Panama question, so I want to ask that and I want to get out. But maybe I can ask about the Enable FTC saga here. And I think you're surprised they're getting so many requests. Just thinking from a bigger picture if you think the FTC may be raising the bar here a little bit on consolidation? I don't know whether it's an energy here just in general. Do you think that changes your approach at all to future M&A or consolidation within the sector, which I think as you mentioned in previous questions, too much capacity out there which I think we'd all agree is needed?

Yeah, I can start and one of - then Tom can follow-up, I guess. But I don't know how to characterize it. I guess it could say, you know, we did a lot of looking at this as we were announcing it, and we just don't see any issues. There's so much competition out there. Everywhere we'll enable as pipelines, we really don't see any issues. So we were a little frustrated and disappointed with the second request. However, we do feel like we're working very well with the FTC. We're doing what they've asked or working with us around the timing. And so right now, I'd say we're pretty confident, as we said earlier, that we're going to provide them with everything that they've asked for. And that will - we'll be able to close in a not too distant future.

Hey, Gabe I'll chime in here, and this is Tom. We still feel very strong that consolidation is the right path to go in, in the Midstream space. And therefore we won't let our foot off the gas pedal here. We think there's a lot of good drivers to bringing, you know, bringing assets together a lot of optimization that can be done. So yeah, no plans to really led off on our efforts toward consolidation.

Got it. Thanks, Mackie. Thanks, Tom. And maybe kind of a follow-up to that. You know, you didn't mention M&A related to that as sort of a capital allocation option. Although I assume it's still would be an option. I think there were some media reports about potentially being interested in going downstream and looking at petrochemicals. So I was wondering if you can maybe comment on those - on that. And then maybe also related to another deal where the FTC is interfered, there's some Intrastate gas pipelines out there. I was wondering if you know, those types of assets might be of interest, even if they don't appear to offer any synergies to existing asset base?

All right, well why don't I start off with the first part of your question and then [technical difficulty] to Mackie for the second part. We are very much interested in moving downstream. We think that's a natural fit. For all the things that we've talked about today, all the things that you've seen that we've been doing, we think it's the perfect situation to our natural situation, if you will, a natural path for us to go down to look downstream. So yes, we are continuing to have dialogue and it is something that we remain very interested in.

Okay. Thanks, guys.

That concludes our question-and-answer session. I'd like to hand it back to Tom Long for closing remarks.

As always, we appreciate all of you joining us today. Thank you for your support, and we look forward to talking to you in the near future.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.