Energy Transfer Partners to Offer Common Units - Analyst Blog

Energy Transfer Partners L.P. (ETP) -- a natural gas and propane gas master limited partnership (MLP) – commenced an underwritten public offering of 8 million common units representing limited partner interests. The partnership also intends to provide the underwriters with a 30-day option to purchase up to 1.2 million additional common units to cover over-allotments, if any.   

Energy Transfer plans to use the net proceeds from this offering to pay back the outstanding debt under its revolving credit facility, to finance capital expenditures associated with pipeline construction projects and for general partnership purposes.

Dallas, Texas-based Energy Transfer owns and operates a diversified portfolio of energy assets. It is engaged primarily in two businesses: 1) the gathering, processing, storage and transportation of natural gas, and 2) the distribution of propane.

Earlier this month, the partnership announced weak second quarter 2010 earnings per unit of 3 cents, well below the Zacks Consensus Estimate of 28 cents and last year's 38 cents. The quarterly results were adversely affected by the Intrastate Transportation and Storage segment’s performance, coupled with higher operating expenses. Also, the partnership’s quarterly distribution of 89.375 cents per unit ($3.575 per unit annualized) remained unchanged from the year-earlier quarter and the previous quarter’s distribution.

(Read our full coverage on this earnings report: ETP Misses Zacks Estimates)

Notwithstanding the weak results and unchanged distribution, Energy Transfer remains a premier MLP with strategically-positioned assets, serving major North American natural gas-producing basins. We like the partnership’s robust organic growth profile, stable fee-based operating income and strong liquidity position.

However, we believe that the near- to medium-term outlook for Energy Transfer’s natural gas gathering and processing business remains weak. The partnership’s seasonal propane business also remains a major liability, in our view. 

As such, we have a Zacks #3 Rank (short-term 'Hold' recommendation) on Energy Transfer units. We also reiterate our long-term Neutral rating.