A midstream company is not obligated to signal its propensity for forward movement by naming one of its pipeline projects Rover, but it can’t hurt.

Energy Transfer Partners LP (ETP) was on track to file a certificate application with the Federal Energy Regulatory Commission (FERC) in January for the Rover Pipeline, which is designed to move up to 3.25 billion cubic feet per day (Bcf/d) of natural gas from the Marcellus and Utica shales to markets in the U.S. and Canada. If FERC issues its approval in December 2015, as expected, gas could start flowing through the line by fourth-quarter 2016.

“We are thrilled to report that Rover gas pipeline … is now fully subscribed to 3.25 Bcf/d,” Martin Salinas, CFO of Dallas-based ETP told analysts during last November’s earnings call. “And I’d also like to point out that agreements supporting Rover are 15- to 20-year binding, fee-based, shipper commitments.”

The company expects the cost for the 820-mile line to land at about $4.3 billion. It will consist of mostly 42-inch pipe, although various segments will incorporate 24-inch, 30-inch and 36-inch pipe.

“Equity owners will pay their proportionate share of the costs,” Salinas said. “And we expect to be in Defiance, Ohio, by December of 2016, and in service to other markets, including Michigan, by mid-2017.”

About 80% of Rover’s main transmission line will be beneath agricultural land, running parallel to existing pipelines, power lines and roads. FERC approval will enable ETP to exercise the power of eminent domain to secure land for construction—but resistance is growing.

Landowners in Tyler County, W.Va., are complaining that the company is offering them compensation well below what they consider to be fair market value. The Intelligencer/Wheeling News-Register reported that landowners want $1 per foot per diameter-inch of the pipe, which in that area amounts to $36 per foot. They claim that ETP is only offering one-third of that and is unwilling to compensate them extra for construction of compressor stations. Those unable to reach an agreement may take their argument to court after FERC approval.

court after FERC approval. In Michigan, the board of Berlin Township passed a resolution opposing construction of Rover, the Times Herald newspaper in Port Huron reported. Farmers are wary of long-term damage to their land and the township is already host to three pipelines—one for crude oil and two for natural gas.

The Street’s view

That wariness toward ETP is not shared by investors. The company’s price per unit swelled by 19% in 2014, a comforting element for analysts yearning for an MLP ray of sunshine to break through darkened energy sector skies.

“When you see MLPs down 10% in the span of a few days, you have to ask if the fundamentals have deteriorated that quickly, and the truth is they have not,” Matt Sallee of Tortoise Capital Advisors told John Dobosz of Forbes in December. Dobosz listed ETP among his five “Prudent Pipeline Plays” that will easily weather the collapse of crude prices.

“All roads (IDRs) lead to Rome [Energy Transfer Equity, ETP’s parent],” declared Baird Energy Research in a recent investor report. “We upgrade ETP on improved forecasts and valuation.”

ETP beat Baird’s earnings estimates for three straight quarters, encouraging the analysts to raise their estimate for 2015 EBITDA to 4%.

“We also take a more aggressive stance on valuation given the progress made at the partnership over the last two years,” said the report. “These changes drive our target price to $77 per unit.”

ETP’s unit price in early January was around $66.

J.P. Morgan’s energy MLP team also took pleasure in its own errant predictions. Its analysts projected third-quarter EDITDA of $1.12 billion—above the Wall Street median forecast of $1.1 billion but well below ETP’s consolidated adjusted result of $1.17 billion. Distributions for the quarter reached $610 million, well above J.P. Morgan’s estimate of $531 million.

The post-merger dropdown of 110 company-operated and dealer-operated retail stores to Susser Petroleum Partners LP, valued at $768 million ($556 million cash), exceeded the J.P. Morgan team’s expectations. ETP’s strategy is to depart the retail marketing business.

Bakken project

In fourth-quarter 2014, Phillips 66 Co. joined ETP and its Energy Transfer Equity (ETE) general partner as a partner with 25% interest in two proposed crude oil pipelines. The two lines—Dakota Access Pipeline (DAPL) and Energy Transfer Crude Oil Pipeline (ETCOP)—will be able to move 450,000 bbl/d initially and, with the addition of several pump stations, could reach a capacity of 570,000 bbl/d. Data from the North Dakota Industrial Commission show total daily Bakken output of about 1.12 million bbl.


Employees assemble part of the Rich Eagle Ford Mainline. The initial line consisted of 160 miles of 30-inch pipe, with expansion adding 60 miles of 42-inch pipe and 37 miles of 30-inch pipe.

The 1,134-mile DAPL, which will begin in the Bakken and terminate at the Patoka Hub near Patoka, Ill., has a projected cost of $3.78 billion and will employ up to 12,000 during the construction phase. At Patoka, DAPL will interconnect with Energy Transfer’s ETCOP pipeline, which is a $1 billion conversion project of an existing 30-inch pipeline from natural gas to crude oil. ETCOP will be expanded from 678 miles to 744 miles and terminate at Nederland, Texas. Together, the DAPL and ETCOP pipelines will provide shippers access to major refining facilities in markets throughout the Midwest, East Coast and Gulf Coast markets.

“Additionally, we expect to have unit train loading facilities near Patoka, Ill., which will enable deliveries to East Coast refineries,” Salinas said. ETP’s timeline has the projects in service by year-end 2016.

The Nederland terminal is operated by Sunoco Logistics Partners (SXL), a sister company of ETP under the Energy Transfer umbrella. Baird’s analysts believe that SXL will ultimately have a stake in the Bakken project, although they were unclear on the role it would play. Eventually, ETE will withdraw from ownership of the pipeline.

“It does not make sense for ETE to own part of that project,” Kelcy Warren, chairman of the board of ETE and ETP’s CEO and chairman, told analysts. “That’s not what we’re trying to do in the family of partnerships.”

What is clear is that SXL’s terminal will enjoy a spike in volume from the pipeline, which will propel growth in its crude business.

“On a long-term basis, we estimate the Bakken pipeline should drive ~6% to 6.5% accretion to ETP’s DCF relative to the $1.39 DCF/unit it posted for 3Q14 once it fully ramps to its estimated run rate level of ~$280MM in 2017,” the Baird report stated. “While the Bakken/SXL transaction was indicated by management to be DCF neutral to ETP in 2015, we increase estimates based on a combination of continued strength in the underlying business, lower interest expense owing to the ETE cash payment, and lower unit count.”

Long-term plans

In the rich gas production areas of the Eagle Ford and Eaglebine, ETP is working on two 200 million cubic feet per day cryogenic gas processing plant projects: the East Texas Plant and the REM Eagle Ford Plant II. Also on the construction checklist is the 70-mile, 24-inch pipeline system, which will feed the East Texas Plant with 200 MMcf/d and be expandable to 400 MMcf/d. Total cost for these projects is estimated between $375 million and $410 million.


Welders assemble a section of Energy Transfer Partners LP’s Rich Eagle Ford Mainline. To investors’ delight, the company is tackling several major pipeline projects.

“These projects are supported by new long-term, fee-based gathering and processing agreements with producers in the ever-growing south and southeast Texas regions,” Salinas said. “Both the East Texas plant and the gathering system are expected to be in service by the fourth quarter of 2015. The REM Eagle Ford Plant II should be in service by June 2015 and is expected to be fully subscribed when it goes online.

“When these three new projects are completed by the end of [2015], ETP will have approximately 1.8 billion cf/d of cryo processing capacity in the Eagle Ford and the Eaglebine play,” he said. “And we expect NGL recoveries to reach 250,000 bbl/d from these areas.”

Positioned to grow

In examining ETE’s business units, Jamie Welch, ETP’s group CFO and head of business development, asked the question on the minds of all involved in the industry: How capable is an MLP of weathering declining crude oil prices?

His answer should put the minds of those following ETP at ease.

“Through our analysis we see each partnership—ETE, ETP, Regency, SXL and Sunoco—all well-positioned for the future,” he told analysts.

Energy Transfer’s board has committed almost $20 billion to organic projects in its pursuit of a best-in-class portfolio. When the company’s Lake Charles LNG project in Louisiana is added, that total surpasses $30 billion.

“Combining this magnitude of organic growth projects with our continued focus on M&A opportunities sets the stage for strong distributable cash flow growth for many years to come,” Welch said.

Ambitious marching orders like those crafted by the ETP brain trust have attracted analysts and investors, even in times of sagging commodity prices. In addition to Baird’s upgrade from “neutral” to “outperform,” Barclays reiterated its “overweight” rating on ETP units bumped its price target to $77 from $74. Stifel Nicolaus reiterated its “buy” rating and raised its price target to $68 from $62. Morningstar gifted ETP stock with a four-star rating.

Expectations are that ETP’s fee-based strategy will keep the money flowing.

“ETP, Regency and SXL all had structured contracts with a strong percentage of their cash flows under feebased agreements,” Welch said. “In addition, the scale and diversification of the overall asset base should bode well, even in the face of the kind of volatility that we’ve been seeing in the market recently.”

Joseph Markman can be reached at jmarkman@hartenergy.com or 713-260-5208.