Hello, and welcome to the Energy Transfer First Quarter 2022 Earnings Conference Call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct the question and answer session. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to Tom Long, Energy Transfer's Co-CEO. And Mr. Long, you may begin.

Thank you, operator. Good afternoon, everyone, and welcome to the Energy Transfer first quarter 2022 earnings call. 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 the 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 Securities 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 in our quarterly report on Form 10-Q for the quarter ended March 31, 2022, which we expect to be filed tomorrow, May 5. I'll also refer to adjusted EBITDA and distributable cash flow, or DCF, both 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 first quarter highlights. We started the year off with a strong first quarter, where we generated adjusted EBITDA of $3.3 billion and DCF attributable to the partners of Energy Transfer, as adjusted, was $2.1 billion. This resulted in excess cash flow after distributions of approximately $1.5 billion. On an incurred basis, we had excess DCF of approximately $1.1 billion after distributions of $618 million and growth capital of approximately $390 million. On April 26, we were pleased to announce a quarterly cash distribution of $0.20 per common unit or $0.80 on an annualized basis, which represents a more than 30% increase over the first quarter of 2021. As a reminder, future increases to the distribution level will be evaluated quarterly with the ultimate goal of…

[Operator Instructions] And from Bernstein, we have Jean N. Salisbury. Please go ahead.

I just have a couple of questions about Lake Charles. Exciting that you're targeting FID in fourth quarter of 2022, can you just kind of walk us through besides getting contracts, the other things that would need to happen for that? I think there was an engineering review going on. I think you need a FERC extension, getting a partner, but all of the stuff around reaching FID.

Yes. This is Tom Mason, I'm in charge of our LNG project, and we're really excited about where we are today. We've got really strong demand from really high-quality customers. We're really confident about reaching FID. Of course, the marketing and the offtake agreements is key to getting a deal done. The other things that you mentioned are underway that the update on the EPC bid process, bid refresh is underway. We filed an application for an extension of our construction deadline with the FERC. We understand that's in process, and we're confident that we'll receive approval of that in the near future. So I think things are going well, and we're really excited about it.

Okay. So you see the contracting as sort of the time-critical path, I guess?

Yes. Yes. And we're -- world's kind of gone upside down with what's going on in Ukraine and it's kind of accelerated the demand. But yes, the contracts are the gating item that we're really making good progress.

This is Mackie. Let me add just one thing, if I could, Jean, sorry about that. I was listening to Tom Long and listened to Tom Mason and they're pretty even keeled laid back. And I don't think they're excited but they don't really show how excited we are in this LNG project has really taken off. It's sad it took a travesty like what's going on in Ukraine to wake up the world. It certainly has woken up Europe and Asia and China. Hopefully, they'll wake up some of our administrators, but Tom has done a fantastic job, and we've got an enormous amount of interest, as you can imagine, and we are shocked if we don't get to FID by the end of this year and look forward not only to get that project down the road and signed, but also look forward to all the upstream pipeline transportation business will come with that project.

Well, that's a lot of excitement. I'm also excited. And then just as a follow-up to that, can you kind of comment on whether you're actually seeing European utilities sign contracts? It seems like there's been a lot of contracts recently, but not really from them. Do you see that as going through the marketers? Or just any commentary that you can provide on that would be helpful.

Well, it's an interesting question because the utilities are kind of struggling with trying to satisfy their immediate and near-term demand for gas, as you could imagine. But for long-term contracts, they're still interested. I think there's been kind of some issues with financial matters based on the high price of demand for natural gas currently. And so there could end up being some government guarantees for some of the longer-term offtake contracts, so we're certainly in contact with them. But you're right, there's kind of been a lack of real commitments for long-term contracts at this point.

From JPMorgan, we have Jeremy Tonet. Please go ahead.

I just want to start off with the EBITDA guide uplift here. I want to dive in a little bit for what's happening in 2022 here. If you could break down the drivers, being it better-than-expected volumes? Or is it better-than-expected price that's the driver here? And if I look at the first quarter results, and I annualize that, granted, there's some seasonality in the business, so it would kind of point to over the high end of the new range. So just wondering what some of the puts and takes could be there?

This is Tom Long, Jeremy, I'll take off with that. Clearly, the first quarter, we're very, very excited about. We've got great results out of the optimization team. When you look at our assets, even as we went through, I think you'll note the intrastate segment. But as you look out through the rest of the year, we've been pretty conservative on pricing, which was another, obviously, a big component of it is we took the guidance up. And we've -- we were very intentional on staying conservative on that. So we'll see how the rest of the year really plays out. But I would say that the first quarter, you can see the amount we're up, and that's really basically the amount that we took the guidance up overall as the run rate. If you were really looking at that first quarter from a result standpoint, probably in the range of maybe $225 million to $250 million, you could put into the they call it the onetime type bucket, but not nonrecurring type. But at the same time, we do have a fantastic team and a great asset base. So optimization is something that will always play a big role in our results.

And as I think about the CapEx uplift there, -- just wondering, is that really just related to the Permian gas project? Are there other -- are there other projects to call out there for the CapEx raise? I'm just wondering, is '23 moving around as well higher? Just any kind of thoughts on the cadence of CapEx here would be helpful.

Yes. This is Mackie again, Jeremy. There are -- we've got a lot of moving parts, as you can imagine, to our partnership, where as you know, we're building GreyWolf, we have decided we are going to build another plant and try and figure out exactly where that's going to go. We have a lot of gathering opportunities. Most of our large projects, multibillion-dollar projects are built out, and that's really to earlier question, as we go into this year into future years, we're able to bring a lot of volume and a lot of revenue in those assets that we've already completed. But for the most part, it is -- we do have or in there, we do have GrayWolf and the portion of [Indiscernible] and do have GreyWolf and then this other plant that we've talked about expanding here in the near future.

From UBS, we have Brian Reynolds. Please go ahead.

Maybe just as a follow-up to CapEx and maybe looking out a little bit further to 2023. We've seen some recent tractive capacity get added by peers. And your comments in the prepared remarks about reaching record frac volumes. I was just curious about how -- I mean your transfer is thinking about frac A at this point, just given that I believe it's half complete at this point. And potentially one of the CapEx needs left to complete that project?

Yes, Brian, that's a great question. As we speak, we're moving more volumes out of the Permian and more volumes out of the Eagle Ford than we've ever moved NGL volumes. So we are going to have to make that decision sooner than later. We're at our full max capacity right now running around 960. However, we don't want to move forward until we have secured long-term commitments for that net frac. We do anticipate that happening possibly in the next quarter-or-so, maybe sooner. But we're going to -- as we've done, we're going to be prudent around our capital and we'll spend that capital when needed, but we do anticipate making that decision in the not-too-distant future.

So just to clarify that could just be upside to '22 CapEx? Or is that mostly 23?

It'd be mostly in '23.

And then as my follow-up, a lot of progress on the LNG front with the recent flurry of contracts. Just kind of curious if you could provide some thought process around the ultimate ownership structure and potentially bringing in partners, whether that's a financing partner or a strategic partner, just given the ultimate interest in LNG and ultimately, how that would fit in the ultimate Energy Transfer portfolio?

Yes. This is Tom Mason. We -- as we previously announced, we plan to do some portion of equity sell down to primarily infrastructure funds. There's lots of money that are looking for high-quality, long-term cash flow from a project like this. So we think that's going to be a really good way of financing it. We expect that we keep at least 25% of the project, haven't made final decisions on that yet, but it's going to be -- there's just a lot of interest in the equity side of this project.

From Wells Fargo, we have Praneet Satish. Please go ahead.

Just sticking on Lake Charles. I guess if you didn't move ahead with the project, can you quantify how much of a gas demand pull this could have on your existing pipes? I guess it would be Trunkline and Gulf Run that feeds into it. How much spare capacity do you have on trunk line? Would you have to expand either Trunkline or Gulf Run because of Lake Charles?

Yes. This is Mackie, Praneet. Absolutely, we'll be looking to expand Trunkline, we'll be looking to expand Gulf Run as we talked about on this call, and we'll continue to pursue the project in West Texas, that will also -- we anticipate feed into this. So the beauty about our pipeline network, both intra and interstate, unlike most of our competitors, we can aggregate the large volumes from multiple basins and bring it to points like this to Henry Hub into Lake Charles. So we mentioned on -- when Tom started out and his reading is that we will be probably going out for an open season on golf run here sometime the latter part of May. We think there will be a significant amount of interest. But at the end of the day, we will be anticipate transporting up to 2.5 to 2.7 Bcf a day into Lake Charles into additional markets in that area through our pipeline network.

And then I think you noted Haynesville production has really started to pick up the last few months. Are you seeing any interest for long-term contracts on your pipes in the region? And I guess, specifically, I'm asking about Tiger. Is there a path to maybe contract this pipe up? Or is it more kind of interruptible volumes that are flowing on it right now?

Well, as was mentioned earlier, we are almost at full capacity. A lot of that is month-to-month. However, we have even recently contracted up. I'll give you an example, we contracted up a producer that will ramp up to 550,000 a day that will utilize both Tiger capacity, Gulf Run capacity and capacity through our intrastate pipeline network in Carthage. So we just cater to whatever the producer looks for as far as what they're trying to get to on the Gulf Coast. And we -- our issue right now is we got to go find more capacity. Haynesville is growing faster or as fast as any other basin, and we will play an integral part like we already are in finding a way out of that area in Gulf Run, there's 1 major outlet along with our other intrastate pipelines and frontline.

From Credit Suisse, we have Spiro Dounis. Please go ahead.

A few cleanup questions on Lake Charles, if we could. Just a multipart question here, but just curious how you guys are thinking about expected project returns? And maybe what sort of CapEx we could think about going forward? Is this a pretty typical midstream return, maybe 6 to 8 multiple? Or can you do better than that? And then as you think about getting to FID, is there a level of capacity you're trying to contract first? What does that look like? And then finally, some that you're talking to several partners here on this ultimately, how much of this project are you kind of willing to sell down? Is there a target number in mind?

This is Mackie. Sure. Tom may follow up on this, but we have a lot of projects in the capital to pursue those projects. We've got to be prudent about that. So there are certainly thresholds, and we certainly will make sure that we meet those thresholds. A lot of the revenue that we anticipate receiving from the LNG project is really from the pipeline infrastructure from bringing -- transporting natural gas to this facility. So at the end of the day, we'd have no problem on it as low as 25%. We'll operate it. We will bring all the volume in there, and we will be more than happy with that level. As far as what level to get to FID, as we've mentioned, we probably have twice the interest that we have capacity for right now in our 15 million tonnes, so we are highly optimistic that we will fully contract this out, but we'll certainly make that type of business decision as we get closer, especially as we get closer to the end of the year and get all these contracts lined up to when we'll move forward. But we'll make the right business at that time. But as we say, we're highly optimistic that we'll have this fully contracted by the end of the year.

Second one, on CapEx. You always talk about the sort of long-term CapEx run rate range of $500 million to $700 million for the growth side. And I haven't seen that reference in a while. And obviously, that was before Enable and really before this current environment. It sounds like you've got a lot in the hopper, a lot of exciting things to talk about. But just curious how you're thinking about that run rate going forward, especially as you're growing the distribution. What sort of CapEx annually should we think about you guys spending on forward to maintain your sort of capital parameters?

This is Tom Long. You've clearly touched upon the fact that we've got a lot of great projects here, no doubt. We haven't got any of them to FID. So the $500 million to $700 million that we put out, we're probably not prepared to put out 2023 at this stage. I will tell you as we go through the year and as these projects get approved, we probably will go ahead and update that. But at this time, this is -- we really don't have another further update other than these projects as we move forward to getting them to FID.

From Goldman Sachs, we have Michael Lapides. Please go ahead.

I have two, they're kind of unrelated. One, just in the Northeast, how are you thinking -- I know you just got Mariner East online. I know it's finishing up 2 and 2x and I know it's been a lengthy process. How are you thinking, though, about the potential to expand if there is potential to expand 2 times and 2x, or the broader kind of West to East system? And how do you think about it if there's opportunity to expand Marcus Hook?

Mike, this is Mackie. Gosh, we are so happy to be at the end of the road on Mariner after all these years. We've built an incredible north there of 3 different pipelines that can move a variety of products. We have enormous capability by just adding pumps to significantly increase the throughput on that. It's really where additional costs will come in for any storage or chilling type assets that we'll have to build at Marcus Hook. As we alluded to earlier on this call, we have sufficient volumes for another ethane expansion at Marcus Hook. We're not sure if that's best suited or if it's better to expand at Nederland next, we'll be making that decision over the coming weeks, but we certainly expect over the next year or 2 to be expanding Marcus Hook in a big way. As I said, we built quite a franchise with a lot of money, a lot of time, a lot of effort and a lot of stress. We're past all that. We've got an enormous amount of customers around the globe. We're talking to as many as 600,000 barrels a day of NGL markets out there. So there's plenty of markets out there. And so our job from a commercial standpoint is to go secure more commitments, which we have done, and we'll be moving forward on expanding Marcus Hook and Nederland over the next several years.

And then one follow-up, totally unrelated to that. Can you -- we talked about it on multiple earnings calls and at multiple conferences. Can you give a little more detail on the potential project in Panama? Just -- I'm trying to get my arms around size around a little bit around kind of the terrain of route you're thinking about the complexity of construction. Is this kind of a multiyear construction process that could be a difficult construction process? And I'm trying to think about kind of a ballpark range of kind of dollar commitment on your end and whether you want to be the full owner of that type of project?

Yes, Mike, we're still pretty early in this process. We couldn't be, like a lot of this, more excited about the relationships that we built down there and the operating for that. It's premature to begin talking about capital or even the exact routes for a number of reasons. We're going through a process that's required in that country. But we're very excited. We think, at the end of the day, this could be a very significant international hub for the world, not just for the Caribbean or the Western Coast of North and South America, but also, of course, for Asia. So it's a little bit preliminary to get any major details, but we remain very excited about that.

From Wolfe Research, we have Keith Stanley. Please go ahead.

I wanted to start on the distribution. So you've now had 2 quarters where you raised it pretty quickly and pretty steadily. What factors are going to govern sort of the pace of increases going forward? And if the balance sheet is on track, I mean the business is doing very well. Is there any reason to think it won't be more of the same of what we've seen in the past 2 quarters until you get back to that $1.22 goal?

Yes. Keith, it's -- you probably touched upon one of the most commonly asked questions here right now. It's -- we really don't want to get out in front of the board. I know that we've been saying that we'll evaluate this quarter by quarter. Clearly, a great start to the year with the first quarter results and what we've seen. So let us kind of get through each quarter and have the discussion with our Board on this as we move forward. There's other things that are factored in here when we talk about our capital allocation, and that's a lot of these great projects that we're talking about here today. And likewise, just to continue to look at the leverage metrics. But I do want to reiterate what you said. We have made great progress toward moving toward our target of that 4 to 4.5. As you know, each agency calculates that a little bit differently. So I encourage you to reach out to each of them to see kind of where they're at. But we're getting closer to the 4.5, so let all those -- let us look at all those factors quarter-by-quarter as we move through the year, and that will go into that decision each quarter.

And sorry, I have more on Lake Charles. First, just confirming, I mean, it's -- it sounds like 3 trains. I think, Mackie, you referred to 2.5 Bcf a day and the 15 Mcba capacity figure. So you're thinking 3 trains. And then second, I'm just thinking if you sold down the project to only a 25% ownership interest, just given the economics around that, what in your equity sort of investment need in the export facility then be an extremely small number?

Yes, this is Tom Mason. Yes, it would be -- obviously, we would expect to have some promoted interest from the -- on the equity side. So our capital requirements would be relatively small and of course, spaced over a 4-year period-or-so. So the returns can be quite good based on -- with little capital being deployed.

And this is Tom Long, I'll chime in a little bit more. I'll just add a little bit more to that. It's a little bit early to try to put a number on that. We haven't really -- other than having some inbounds, we really haven't started a lot of discussion on the equity until we move through the contracting phase. So it's one of those that over the next couple of quarters as we continue to -- Tom and his team continue to make great progress on the contracting that we will be able to put our thumb a little bit more on that number.

And 3 trains is the right way to think about this at this point?

Yes, correct.

From Tudor Pickering Holt, we have Colton Bean. Please go ahead.

So just jumping back to the base business. Tom, you mentioned the optimization earnings and interest rate. I think when we look at the Waha to Katy spread, it was actually relatively flat quarter-on-quarter, but you all still saw a pretty significant step up there. So just wondering if you can update us on what the dynamics were that drove that optimization opportunity.

Yes, this is Mackie. There's a number of things, and we've said it before. It happened during Uri. We have such an extensive pipeline system throughout Texas. We have an incredible amount of storage strategically placed well in the Houston area and also in the DFW area. We're connected to the vast majority of the power plants either directly or indirectly, will connect to every major LDC in Texas. And so any time there's any kind of volatility or price movements, we're really able to capture that as well as spreads from day to day. There were times in that quarter where the spreads were higher from a going from East Texas to West Texas, there was a period of days where the basis spread was, gosh, I think $1 higher for at least a day-or-so higher in Waha and Katy. So it's just our optimization team optimizing our assets and our pipelines and our storage at every opportunity that we have. And with the assets we have, those opportunities arise quite often in a really cold weather times, high demand and also high heat days.

And then just on the Enable now that you have the majority of operations integrated. Can you update us on the level of synergies you were able to realize in Q1? And when you'd expect to hit that $100 million run rate?

We have quantified it for the year of 20 -- about this year of 20 -- of $75 million is what we've put out there. As far as the first quarter, don't really have a specific number at this point for that number broke out. But I think overall, we still expect to hit that 75 this year. But I will say that we feel very good about the $100 million run rate annually as we look out. I think it's also just worth noting overall that all the results, we have moved very quickly on getting all these integrated, but I will tell you that all the results that have has come in even through the first quarters we've integrated have been above and beyond any of the projections that we had run in the merger as we were going through putting those numbers into the S1. So we're very, very excited about this transaction, and it's turning out to be a very, very good project for us. So acquisition.

From Mizuho, we have Gabriel Moreen. Please go ahead.

Maybe I can ask on the proposed petchem cracker project. I just was wondering, clearly, it would exceed your cost of capital. I'm just wondering to what extent that project would, I guess, integrate with some of your other assets, whether NGL pipelines, whether you kind of be looking for commitments, further upstream with that project or whether it's really just a stand-alone -- view it as a stand-alone project?

Gabe, this is Mackie. No, absolutely not a stand-alone. It would be like we do all of our business. We look for synergistic benefits and revenues, both upstream and downstream. So the project that we're targeting and gaining a little momentum with a lot of very high-quality customers would give us access to what we believe will be very inexpensive or less expensive gasoline components a year from now when maybe gasoline demand will start kind of leveling out some. At some point, we do believe that some of the feedstock for this particular cracker that we're designing would be very advantageous to feed this. In addition to that, along with our Spindletop asset that we just bought and our plans to kind of connect the dots between Louisiana and Houston with an ethylene system and a propylene system. This petchem also have access downstream to not only our pipeline network and our storage network, but also have access to our export business for international deliveries. So no, we're looking -- yes, we're looking for a project very similar to LNG, where we'd probably be a minority interest with some promoted partners in that and would have it fully contracted with significant both upstream and downstream revenue as part of that branch.

And maybe if I could just follow up. Another Mid-Con processor this morning talked about the expectations for growth in '23. I'm just wondering if in any of your secondary basins you kind of concur with that expect in any of your secondary basis, you'd concur with expectations for growth in '23. And to the extent that that's the case, whether you'd be running out of space or you need to spend any CapEx there?

Yes. Let me do this just quickly go. So we talked about the Permian Basin, we're building a plant there. We're going to build another plant. We'll continue to evaluate that. In Haynesville, we'll continue to evaluate new pipelines out of that area. Eagle Ford, we're sitting pretty good, at least for the next year or 2, we've kind of built out, but we will be looking toward the end of this year of whether or not we need to expand that or not. So really stepping up in the Mid-Con in Oklahoma. We are -- we have seen the rigs move back in. We're getting our arms around the enabled assets. Our team is very excited about what's going on there. Our commercial team is working very hard on synergizing those plants and how to be more efficient and profitably operate those. Of course, ultimately, we will be bringing those NGLs into our system. But right now, we don't contemplate adding any additional cryogenic plants up in the Mid-Continent or in Oklahoma, we certainly watch that closely and make sure we stay ahead of that once they're needed.

From Bank of America, we have Chase Mulvehill. Please go ahead.

I guess one question, I guess, related on the pet chem side. You talked about M&A opportunities in the pet chem space. So I don't know if you could talk about what part of the petchem value chain that you're targeting specifically here on the M&A side? And whether you're kind of looking to build scale in the petchem space? Or are you looking for maybe minority ownership so you can work closer with a petchem partner?

This is Tom Long. I'll take off and then Mackie may add a little bit more. But we have been evaluating various acquisition opportunities. We still feel like that's a good way to enter it. But at the same time, we've got a very good team and we're quite comfortable with starting with a greenfield type project. So we're going to continue to look at those. And yes, it would -- it could be a partial joint venture, if you will. We're quite open to that in order to be able to step into the skill set that it takes to move into this or it could be a total acquisition. So we're looking at basically all the above as we evaluate this, including a greenfield build.

Yes. I think the only thing I'd add to that is with Kelsey's desire to get into pet chem, we're going to look at everything that comes available, take any opportunity. And if once something looks attractive, we'll go after it.

That's the Kelsey disclaimer. A quick follow-up, sorry to come back to Lake Charles. But when we think about the permitting on like -- sorry, the contracting on Lake Charles, are you looking -- are these contracts just tolling fees? Or do they actually have some commodity upside exposure as well?

They're basically a liquefaction charge, but there is a component like most of the contracts on the Gulf Coast that are tied to Henry Hub plus a percentage above that. So there's -- the higher natural gas prices are there is room for additional cash flows from that.

Yes. And this is Mackie, I'll add 1 thing to that. We intend to contract out about 15 million tonnes. But as you know, that's nameplate, and there's fairly significant volume above that, that we'll be able to take advantage of as time goes on when we see a blowout in prices between the U.S. and Europe and Asia.

We will now turn the call back over to Tom Long for closing remarks. Mr. Long, you may proceed.

This is Mackie, and before Tom does that, let me just say one thing. We've done this from time to time, but I kind of joked a little bit earlier how excited we are, and we are. We're excited about the assets that we have. We're excited about the employees that we have. And if you just kind of walk through real quickly, just in this quarter, our interest rate volumes were up 17%. Our interstate volumes were up 15%, our midstream volumes were up 14%. Our NGL's record volumes, as I alluded to earlier, were up 17%. We try to make a decision around our next frac in the next probably 6 months, really proud about our crude. We've grown over 20% from quarter-to-quarter in a very tough crude environment where there's not as many barrels available out there in the Permian and our team has done an excellent job there. And we've also really gained a lot of traction through our terminals and increased that by 17%. So as I mentioned earlier, what's happening with Ukraine, we hope will wake up our country and wake up our leaders to how important natural gas is and natural gas liquids are not only because of affordability, reliable and all that, but for security, not only for the U.S. but also for the world. So hopefully, we wake up because we need our leaders to.

All right. Well, thank all of you for joining us today, and we look forward to any follow-up questions you might have.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for joining. You may now disconnect.