Energy Transfer (NYSE: ET) has been a steady grower over the years. The master limited partnership (MLP) has grown its earnings before interest, taxes, depreciation, and amortization (EBITDA) from $9.5 billion in 2018 to more than $13.5 billion this year, or by over 40%. That earnings growth has given the midstream giant the fuel to pay a massive and growing distribution that currently yields 9.4%.
The MLP’s earnings should continue to rise in the future. One factor driving that view is its ability to expand its already massive midstream platform. The company recently secured a major customer for a large proposed project, which could give it more fuel to grow its earnings and high-yielding distribution in the future.
Energy Transfer recently announced that it signed a non-binding agreement with TotalEnergies for its proposed Blue Marlin Offshore Oil Port. The European energy giant’s offtake agreement would be for 4 million barrels of oil per month. That contract is a crucial step in commercializing the proposed offshore oil export facility.
The midstream giant has designed Blue Marlin as a best-in-class offshore port that could load one Very Large Crude Carrier (VLCC) per day. Those vessels can typically carry up to 2 million barrels of oil. Most onshore-based U.S. oil export terminals can’t load VLCCs because of their massive size. They typically need to use smaller lightering vessels to carry crude from the port to VLCCs anchored offshore.
Energy Transfer is one of several midstream companies that have proposed building an offshore oil port capable of loading VLCCs. For example, fellow MLP Enterprise Products Partners has been working to develop its proposed Sea Port Oil Terminal (SPOT) for several years.
Canadian energy infrastructure giant Enbridge also worked on a rival offshore port (COLT) before joining forces with Enterprise Products Partners with SPOT in 2019. SPOT would be able to simultaneously load two VLCCs at a time and has already secured oil giant Chevron as an anchor shipper.
However, the companies have faced delays due to lower oil prices and environmental concerns. Because of that, they have yet to make a final investment decision on the project, which would take several years to build.
Energy Transfer hopes to avoid the delays facing SPOT by taking a different approach. It plans to leverage existing underutilized offshore infrastructure to support Blue Marlin. That would result in a lower environmental impact and a faster project completion time frame.
Blue Marlin is one of many potential expansion projects Energy Transfer has under development. It’s working on several smaller projects to expand and optimize its existing assets.
Meanwhile, it has a few larger-scale opportunities under development, including a long-delayed liquefied natural gas export facility (Lake Charles LNG), carbon capture and sequestration projects, and blue ammonia projects. Securing these projects is crucial to the company’s future because it would give the MLP the fuel to continue growing its earnings and distribution.
Energy Transfer expects to invest $2 billion to $3 billion annually in expansion projects. It anticipates its investment spending will be slightly below the low end of that range this year.
Given its currently approved projects, capital spending could again be toward the low end in 2024. However, the company’s investment spending could ramp up in the future if it’s able to secure the customer contracts and government approvals needed to move forward on needle-moving projects like Blue Marlin and Lake Charles LNG.
Those future capital projects would help give the MLP the fuel to continue increasing its distribution. It expects to grow its payout by 3% to 5% annually. Meanwhile, it can supplement organic growth by continuing to make accretive acquisitions.
The company has already spent nearly $1.5 billion to buy Lotus Midstream and $7.1 billion to acquire Crestwood Equity Partners this year. Future deals would further grow its earnings and ability to increase cash distributions to investors.
Energy Transfer continues to make progress on its project development pipeline. Projects like Blue Marlin are crucial to its future because they’ll provide more visibility into its ability to grow earnings and distributions. Because of that, investors should keep an eye on the progress of the company’s development pipeline.
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Matthew DiLallo has positions in Chevron, Enbridge, Energy Transfer, and Enterprise Products Partners. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Chevron and Enterprise Products Partners. The Motley Fool has a disclosure policy.
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