Good afternoon. And welcome to the Energy Transfer Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would like to turn the call over to Tom Long. Please go ahead.

Thank you, Operator, and good afternoon, everyone. And welcome to the Energy Transfer's fourth quarter 2023 earnings call. I'm also joined today by Mackie McCrea and other members of the 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 upon our current beliefs as well as certain assumptions and information currently available to us and are discussed in more detail in our Form 10-Q for the full year ended December 31, 2023, which we expect to file this Friday, February 16. 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 financial measures on our website. Let's start today by going over our financial results. For the full year 2023, we generated adjusted EBITDA $13.7 billion, which is up 5% over 2022 and is a partnership record. DCF, attributable to the partners of Energy Transfer, as adjusted $7.6 billion, which resulted in excess cash flow after distributions of approximately $3.6 billion. Operationally, we moved record volumes across all of our segments for the year ended 2023, which included record volumes on our legacy assets before including contributions from assets acquired in 2023. In addition, we exported a record amount of total NGLs out of our Nederland and Marcus Hook of terminals in 2023. For the fourth quarter of 2023, we generated adjusted EBITDA of $3.6 billion compared to $3.4 billion for the fourth quarter of 2022. In our base business, we had…

[Operator Instructions] The first question comes from Jeremy Tonet with J.P. Morgan.

Hi, good afternoon. I just want to start off if I could, maybe some of the drivers that feed into the guidance here. We have seen a bit of volatility in commodity prices and the environment overall. Just wondering, I guess, latest expectation for producer activity in the Haynesville, what have you, how that factored in, or any other key drivers you call out for the upside versus the low side of the guidance?

Hey Jeremy, this is Mackie here to start. Yes, with the lower gas prices in North Louisiana, certainly if they get any lower, we probably will see a slowdown, but right now we haven't seen it. Out in the Permian Basin, where we have a tremendous amount of assets, we see growth even in the lower gas price environment. With the higher oil prices, we continue to see growth and we are projecting modest, if not fairly significant growth out of the Permian Basin. Other areas, it varies, midcontinent, relatively flat, and other areas where our assets are pretty stable.

Jeremy, this is Tom, I think in addition, the pricing that you brought up in your question just then. We've used the forward curve in this. So this is the kind of latest forecast we have, we always stay kind of down the middle of the road with the range that we put out at the beginning of the year. So anything that we've seen, even here in the first quarter, et cetera, this would be our latest forecast, everything included. So feel good about it and look forward to another great year.

Got it. Okay. So, it sounds like kind of a conservative outlook on producer activity given where this trip is there. Maybe pivoting a little bit towards capital allocation, even with the capital program that you guys laid out as it is, it seems like there's going to be a significant amount of surplus cash flow. And now you've kind of hit stronger credit metrics, getting to BBB. Just wondering how you think about this surplus cash flow, what's the, I guess, priority ranking for the capital allocation at that point?

Well, it's probably pretty consistent to where we've been. The main difference is that we have got to the lower side of our 4 to 4.5. And like we said before, it wouldn't even hurt to go a little bit lower if it gave us a little bit more dry powder to be able to continue to look at growth opportunities, et cetera. So if you kind of move through that, you go into the growth capital that we've talked about. We're obviously very disciplined on our projects and how we approve them and get them to FIDs. We're going to continue to focus on that likewise. And then we're going to look at the, of course, the distribution growth also that we put out there, 3% to 5%, which is the equity side of the equation. Based upon the CapEx spend and what we're seeing out there, remember we're always looking at this long term. We're not just looking at numbers that we're reporting for the quarter. But where we will continue to evaluate is of course unit buybacks, along with the distribution growth. So let's see how everything continues to play out. We couldn't agree with you more there a lot of free cash flow is when you do the math on the guidance, we've given out there. And with the other capital allocation topics that we've talked about here. So very good question. Thank you.

Got it. So buybacks are not off the table at this point. Is this how to think about it?

Oh, no, that's exactly right. Absolutely. They definitely are on the table.

Our next question comes from Jean Ann Salisbury with Bernstein.

Hi. Would it be possible to get a dash more detail on the projects in the CapEx budget for this year? I think I'm good on the NGL export projects. But could you talk a little more about the new NGL pumping capacity that you described the processing plants, like how many and where? Apologies, if I missed it during the prepared remarks.

Hey, Jean, this is Mackie. I think I can cover that question. If you're looking at, if you're talking about our upgrade on some of our 200, 000 day cryos out in West Texas into the Delaware, we can very optimally and at a low cost compared to, adding a new processing plant at 20, 000 to 40, 000 UCF per cryo. So we are looking at that. We can move quicker on that. It's just adding compression in some cases, treating or dehas. We also have already done that in the Eagle Ford. We've already added about 50, 000 or 60 ,000 a day at very low cost. And then if you're on some of the other CapEx, if you're looking at our expansion at Nederland, we're looking at the ability, as Tom said, in his opening remarks of doubling our propane capacity and increasing our butane capacity by 33%. So even though the market's going to be really tight for the next 18 months, we have a tremendous amount of capability of increasing our export volumes starting about mid-2025. And not only are we excited about that, but the international market is very excited about that. And a lot of that that we've already, that we're in the process of expanding has already been sold out for three to five years once those projects come online. So we're doing the best we can to improve or have within our capital and meet the needs of our customers and obligations that we have.

Great, thank you for that. And as a follow up, I believe that some of the original DAPL contracts roll this year. Can you discuss if you're blending and extending those or anything you can share? about that re-contracting process?

You bet. This is Mackie again. As you can imagine, that's a very sensitive question from the standpoint of competition. But as far as when contracts fall off and kind of what our approach is, but I will answer it this way. We are very confident that we will keep our pipeline full and increase the volumes through time, certainly if the volumes grow in the Bakken. For the best outlet out of there, we can, at the best cost, we can feed all the refineries, or many of the refineries in the Midwest. We come down to the Gulf Coast, of course, and feed all the refineries in the Port Arthur area. And of course, through our Bayou Bridge Pipeline, we can, well volumes all the way to St. James. So there's no other pipeline that's even close, no other options than ours we feel really good about as contracts roll off, we'll do very well on re-contracting or selling on a spot basis.

Our next question comes from Steve Stanley with Wolfe Research.

Hi, it's Keith. First question, you made some progress on repaying some of the preferred equity and you mentioned another series to take out in May. How are you viewing the preferred stock right now over the next few years and how do you kind of weigh using excess cash to repay that versus other uses?

Yes, listen, we're actually very excited at the fact that we're able to start bringing some of that back in as far as the perpetual prefers. I think you're going to see us to continue to look at those and as we look at even cash flow and where our cost of that is, it makes a lot of sense for us to continue to bring those back in. So I think that's how you'll see us kind of prioritize when you look at our deck, told you that, you'll see us working on those first going forward. It's probably worth mentioning that even with the Crestwood acquisition, as you know, we had some more come in with that. We're going to continue to be opportunistic on those. When they make sense, economic sense, we'll look at calling those, but we always are very diligent in looking at the math on those and as soon as they make economic sense, we will jump.

Great, thanks. Second question, one of your peers recently said they think one to two new Permian gas take away projects move forward this year. I might have missed it, but I don't think you mentioned Warrior today. So my question is, do you agree with the view that one to two pipelines probably move forward and any updates on Warrior and how optimistic you are on moving that forward kind of with or without Lake Charles?

Yes, this is Macky. I'll answer that. I guess an update on Warrior is we love to say where at FID we're sold out for 10 years, demand charge, and ready to go, but that's not where we're at. We have sold about 25% of our goal. We're in negotiations with about 1.6, 1.7 BCF of additional customers. All of them are looking for, or a lot of them are looking for different places to take the gas. There's no project that's even contemplated. It's anywhere close to Warrior where it provides access to almost every major city gate in the state of Texas. It goes to all the major hubs, Carthage, KD, et cetera. It also goes to a lot of the power plants either directly or indirectly were connected to the majority of power plants. So it's by far the best project that's out there with the pause from the DOE. There is a customer that was looking at that. That's going to pause a little bit. However, we continue to push forward. We're not saying that FID is imminent. We do think there will be another pipeline needed in the next two and a half years. And if that were to happen, we do believe it will be ours.

Our next question comes from Brian Reynolds with UBS.

Good afternoon, everyone. Maybe to follow up on some of the guidance on the EBITDA side relative to the S4 guide. I assume if you could just talk about maybe some of the differences between today's guidance and the S4. I assume a lot of it's related to some underlying growth CapEx assumptions that were in the S4, along with maybe some marketing that was included there. So it'd be great if you could just provide us an update on and maybe your expectations for marketing, which I believe you need to typically exclude from the guide. Thanks.

Yes, listen, I'll definitely start off here, and then if Mackie you want to add something more, you can. By far the largest driver on the difference between the S4 was the commodity prices. I think when you look at what we used back then when that was filed, we are substantially lower now with our commodity prices. So and then also deferring -- maybe deferring some of the capital, I think is another piece of that that you'll see in the difference between that S4 and now. So those are probably the two largest drivers.

Great, makes sense. And as a follow-up, just touching on M&A, Sonoco made a large acquisition over the past month. So kind of just curious from an ET value perspective, are there other opportunities to optimize ET system with additional access to different types of assets, whether it's crude or NGLs or refined products? Thanks.

Obviously, a great acquisition by Sonoco. It's a very, very good fit for them. And I will say there's not been discussion Sunoco. This was a Sunoco transaction and they are doing a great job of proceeding through getting all the approvals and even moving a little bit into the integrations. But I wouldn't say there's been any discussions on that.

Our next question comes from Jackie [inaudible] with Goldman Sachs.

Hi. Good afternoon. First, I just want to start off on exports. It looks like for NGL exports continue to be strong, though slightly down a little bit quarter-over-quarter and how do you view exports going into ‘24? And do you see any upward pressure on margins as that dock capacity remains tight until you see those expansions online in mid-25?

Yes. Jackie, this is Mackie. What a great business we have with our export at Nederland and at Marcus. We're very excited about what we've built and what we're building out. However, there's a lot of issues that are involved, especially with shipping. And so there's issues with Panama Canal or through the Red Sea, the timing of ship. Some months we may see direct basis and some months less. So every month, every quarter kind of have it’s up and down. But overall, we see our steady where we've been and our slight growth pretty much completely fill up, our entire export capacity in the short term over the next 18 months, we believe we're going to see some very, very good margins for that business. For the spot business that we have available today, there's a significant overdemand in the international market than what the U.S. is capable of exporting, and we are positioned very well in the next 18 months to capture that upside. And then, as I mentioned earlier, we're very excited about bringing old projects that will bring in significant revenue for our export business.

Got it. Great. Thanks. It makes sense. And then, just as a follow-up, we saw some partial contributions from the Crestwood acquisition this quarter. Wondering if you would be able to quantify what synergies you were able to capture for the remainder of ‘23, and if you see any additional opportunities at this point beyond that $80 million annual cost synergies disclosed and the potential timing of when you expect to see that downstream gain from the acquisition.

Yes. After you get a chance to start going through all the various costs in an organization, we always try to be fairly conservative. We're doing it with what information we have at the time, meaning public information. But after you get really further into these things and start looking at organizations, et cetera, I think you'll find that a lot of times you're always hopeful that you can't find more. So the $80 million run rate that we've talked about from a call standpoint is something that we feel very comfortable with and putting that number out there. And, of course, $65 million is what we put out for 2025. But when you start looking across its systems and all the other type of costs that are buried sometimes that, once again, you can't see when you're middle of these things are early in the process of them. It's always good to be able to find those, and I want to make sure we stop for a moment and give a huge complement to our team, who I know we've said before, is no one is better out there at integrating these companies than we are. We've had a lot of experience at it, and we move quickly, efficiently, and effectively as we go through it. But as mentioned in the prepared remarks up front, we've remained on multiple fronts, very excited about some of the commercial opportunities. I don't know, Mackie, you want to add anything more to that, what we said?

Other than what you've did in the opening script, we're still digging in. Every acquisition that we do, we discover more and more under the rocks that we turn over to elaborate a little bit more on his opening remarks. We are seeing significant logistics and maybe even deferred on some cost, fully utilizing all of the assets when combined with the new Crestwood assets in the Delaware Basin. There are also some things we can do in the DJ Basin that we're looking at. Up in the Bakken, a lot of those barrels haven't found their way to our pipeline. We think now they will. So we think that will also bring more business to our total pipeline out of North Dakota and then the Northeast. We see some or starting to see some real commercial advantages to working together with that team and doing two things. One, helping that business grow distribution with propane and butane that Crestwood built and then on the other side where they can bring in volumes with their contracts and with their relationship into our Mariner franchise for deliveries to Marcus Hook. So as Tom said, we're just getting started but pretty excited about the things that we're already seeing.

Our next question comes from Michael Blum with Wells Fargo.

Thanks. Good afternoon, everyone. So I know you have a growth CapEx target of $2 billion to $3 billion but you also discussed quite a few potential projects in your prepared remarks today, some of which could be quite large. So I'm wondering if that’s $3 billion is hard cap or would you consider going above that range, if the returns make sense?

Yes, listen, I'll start and then you go with Mackie. No, there's not a hard cap as we look at these. Once again, we'll evaluate projects that make economic sense and when we pull it all together, as recently gave the range of the 2.4 to 2.6 and keep in mind that that did include $300 million of rollover from 2023. That didn't make it into service at the time, so those got rolled into 2024. So make sure you bake that in there. But is there any more details on that with Michael, as far as your question here?

No, that covers it. I appreciate it. Maybe my second question, I just wanted to ask, obviously, you were very active in 2023 on the M&A front. So I wanted to just get your thoughts on what the landscape looks like in 2024 for you, and are you still kind of in digestion mode, or are you kind of ready to roll with the next deal present itself? Thanks.

Ready to roll. Michael, no, that is a good question. I think we've been saying for some time, we've been very consistent on our M&A discussions with everyone that we felt like it made a lot of sense in the midstream space, and you're seeing it. You're seeing it now. And we're going to continue to evaluate opportunities, but the other thing that's worth highlighting here is that we are staying very disciplined with these acquisitions to even doing someone with no premium, just doing at the market. And you can see the results. They're accretive. They're deleveraging. And it's the reason why we've ended up with the continued growth in our distributions at the same time that our balance sheet is strengthening, and it's showing in our ratings, et cetera. So it's one of those where it makes sense and where it's FID. And remember, as large as we are, there's a lot on the FID side. So we'll continue to evaluate and we'll continue to look at opportunities.

This concludes our question and answer session. I would like to turn the conference back over to Tom Long for any closing remarks.

Well, once again, I want to express a lot of appreciation to all of you for joining us today. We always thank you for a lot of really good questions, good dialogue, and as you can see, we've got a lot of really good things to talk about. And therefore, we look forward to continuing dialogue even after this call with anyone. So thank you, everyone. You all have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.