Energy Transfer LP (ET) Earnings Call Transcript & Summary

Good day and welcome to Energy Transfer's Q2 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tom Long, CEO. Please go ahead.

Thank you, operator, and good morning, everyone, and welcome to the Energy Transfer Second Quarter 2026 Earnings Call. I'm also joined today by Mackie McCrea, Dylan Bramhall, 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 morning. As a reminder, our earnings release contains an update to guidance and a thorough MD&A that goes through the segment results in detail, and we encourage everyone to look at the release as well as the slides posted to our website to gain a full understanding of the quarter and our growth opportunities. 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 details in our Form 10-Q for the quarter ended June 30, 2026 and which we expect to follow later this week. 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. Let's start today with going over our financial results for the second quarter of 2026, we generated adjusted EBITDA of approximately $5.1 billion compared to approximately $3.9 billion for the second quarter of last year. DCF attributable to the partners of Energy Transfer, as adjusted, was approximately $2.6 billion compared to approximately $2.0 billion for the second quarter of 2025. These results were supported by strong performance in all of our business segments, including record midstream gathering volumes, NGL transportation volumes, NGL export volumes and crude oil transportation volumes for the quarter. And for the first half of 2026, we spent approximately $2.6 billion on organic growth capital in the intrastate, midstream, NGL and refined products and interstate segments, excluding SUN and USA Compression CapEx. Turning to our 2026 adjusted EBITDA guidance. Given our continued strong performance in the second quarter across all of our segments, we now expect our full year adjusted EBITDA to range between $18.8 billion and $19.1 billion, which is up approximately $0.5 billion at the midpoint compared to our guidance range provided on last quarter's earnings call. Let's go to the organic capital guidance. We now expect our 2026 organic growth capital expenditures to be between $5.6 billion and $5.9 billion, excluding SUN and USAC. Our growth capital spend remains aligned with the major themes driving our business today, including the increasing demand for natural gas and natural gas infrastructure to support the growing needs for power generation, growth in the Permian and the growing global demand for natural gas and natural gas liquids. As a reminder, the majority of these growth projects are contracted under long-term commitments and expect it to generate mid-teen returns and considerable earnings growth over the next decade or more. Beyond these projects, we have a significant backlog of opportunities that are expected to support future growth. Now turning to our results by segment for the second quarter. I'll start with NGL and refined products. Adjusted EBITDA was approximately $1.3 billion compared to approximately $1.0 billion for the second quarter of 2025. This increase included record exports out of both our Nederland and Marcus Hook terminals in the second quarter, in part driven by new chilling capacity placed into service last year at Nederland. In addition, we saw a record throughput across our NGL pipelines related to higher grade and NGL throughput as well as higher throughput at our Mont Belvieu fractionators. Results for the second quarter also included an increase of $212 million from higher premiums from the sale of NGLs for both export and domestic supply as well as increased margins from our product optimization and blending operations. This also included gains related to our NGL and refined products inventory hedges of which we anticipate will be offset in the fourth quarter of this year. For midstream, adjusted EBITDA was approximately $884 million compared to approximately $768 million for the second quarter of 2025. This was due to record volumes in the Permian Basin which increased 5% as a result of new processing placed into service and improved plant utilization. In addition, we saw an approximate $88 million increase due to higher NGL prices compared to last year. For our crude oil segment, adjusted EBITDA was approximately $834 million compared to approximately $732 million for the second quarter of 2025. During the quarter, we saw continued growth across several of our crude pipelines, terminals and gathering systems. Results also included an increase of $106 million related to favorable market conditions, including pipeline and export arbitrage. Higher crude oil prices and strategic petroleum reserve activity at our Nederland terminal. As a reminder, in the first quarter of this year, we had a benefit of approximately $60 million related to our crude inventory value that was offset by hedge losses in the second quarter. In the Interstate Natural Gas segment, adjusted EBITDA was approximately $481 million compared to approximately $470 million for the second quarter of 2025. This increase was primarily due to increased parking, storage and liquids revenue as well as higher contracted volumes and utilization on several of our pipelines, including Panhandle Eastern, Transwestern and Florida Gas Transmission. And for our Intrastate Natural Gas segment, adjusted EBITDA was approximately $377 million compared to approximately $284 million in the second quarter of 2025. This was primarily due to an increase of approximately $113 million from wider basis differentials as well as an increase of approximately $17 million from early volumes during the commissioning of the Hugh Brinson Pipeline. This quarter's results once again demonstrate the quality of energy transfers asset base and unique operating model and further strengthen our belief that the market fundamentally underappreciates the value of our business. Turning to an update on some of our major growth projects and starting with the natural gas side of our business. We are pleased to announce that our Hugh Brinson Pipeline is now in commercial surface with progress being made toward placing the full Phase 1 capacity of 1.5 Bcf per day in service. Hugh Brinson shipper contracts are coming online in stages based upon the contractually specified effective date in each agreement. We anticipate that Hugh Brinson will be capable of flowing the full Phase I capacity by September 1, 2026, assuming pipeline commissioning activities continue to progress as scheduled. We continue to expect Phase 2, which include additional downstream compression to be in service in the first quarter of 2027 and to come in under budget. In addition, during the second quarter, we completed another 14-mile lateral of the Hugh Brinson Pipeline in Abilene, Texas and is now ready for service. During the quarter, we also entered into an agreement with Crusoe to construct the facilities required to provide natural gas to support previously announced 900-megawatt expansion at the AI factory campus in Abilene, Texas. Separately, we expect to see additional growth opportunities materialize in the region. Next, we are making good progress on our Desert Southwest Pipeline project. FERC recently completed 6 in person and 2 virtual sculpting meetings along the proposed pipeline route throughout Texas, New Mexico and Arizona. In addition, as a continuation of our comprehensive stakeholder engagement program, our teams continue to actively engage with elected officials, county leadership, landowners and associated communities along the route with discussions remaining very positive. On our last call, we announced the Springville Lateral, which is an approximately 120-mile extension of our existing Transwestern Pipeline and is expected to be in service in the fourth quarter of 2029. This 30-inch pipeline will have a capacity of approximately 625 million cubic feet per day and extended south to natural gas power generation that is expected to replace 2 coal-fired plants. We have now locked in pipe and compression costs and outreach is underway with trial, state and federal stakeholders. In Oklahoma, the first of our 4 connections to serve new power plant loads went into service earlier this year. The next 2 are ready for service with the remaining expected to be in service in the fourth quarter of 2028. In total, these will provide approximately 300 million cubic feet per day of new demand growth. In addition, we are finalizing negotiations to serve approximately 250 million cubic feet per day of new power plant demand in Oklahoma. Overall, we're now seeing interest from customers in increasing the commitments that they had previously made for our natural gas services to large data centers and power plants at or near these sites. This includes 2 customers in Texas who recently added a combined 100 million cubic foot per day to their contracts. We expect this trend to not only continue but grow in scale. We're highly confident in our ability to reach FID on many more of these type of opportunities and remain in advanced negotiations with customers to provide significant volumes associated with our natural gas business in Texas, Oklahoma Arkansas, Louisiana, Ohio, Illinois and many other states along our pipeline network. Now looking at the Permian processing expansions. Our Mustang Draw I plant was placed into service in June, and we are already running near capacity for our Midland Basin processing complex. We continue to expect our Mustang Draw II plant to be surfaced in the fourth quarter of this year. Looking at our liquids business. In June, we announced approximately 240,000 barrels per day ethane export expansion at our Nederland Terminal to meet additional customer demand. The project will also provide an incremental 55,000 barrels per day of LPG capacity. In addition, we'll be expanding our Mont Belvieu to Nederland pipeline system to service the increased refrigeration capacity and 2 additional NGL ship docks. The project is expected to be placed into service in stages beginning in 2028 with the docs expected to be in service in mid-2029. 100% of the ethane export capacity has been committed under long-term agreements running into the 2040s and 80% of these volumes are expected to be delivered to markets in Asia that are outside of China. Growth capital for the project is expected to be slightly over $1 billion and this 2026 capital expenditure was previously included in our growth capital guidance. In the second quarter, we completed upgrades to our Lone Star Express NGL pipeline, which provides more than 90,000 barrels per day of Permian NGL takeaway capacity on the pipeline system and led to record wide-grade volumes out of the Permian for the second quarter. As a result of our total deliverability into Mont Belvieu is now more than 1.3 million barrels per day and our Permian NGL takeaway pipelines are currently approximately 95% utilized. Also in the second quarter, we signed long-term transportation and/or fractionation agreements for upwards of approximately 300,000 barrels per day on a wide-grade assets that extend into the 2030s. And at Mont Belvieu, our fractionators remained fully utilized in the second quarter. We expect volumes on our new frac 9 to ramp up quickly upon its anticipated in-service late this year. Results for the second quarter were better than expected, with market volatility contributes into significant upside in addition to the record volumes and strong base business performance. As we have previously said, additional upside to our forecast is expected to be dependent upon the duration and impact of market disruptions, and our business is uniquely positioned to capture these benefits should they continue. We continue to expect the ramp up of Mustang Draw, Hugh Brinson and other projects to contribute to additional growth in 2026. With Hugh Brinson now capable of commercial service and the full Phase 1 expected to be ready ahead of schedule, we expect it to provide significant future upside and further establish energy transfers natural gas pipeline business as the premier option for customers seeking dependable natural gas supply with a large slate of growth projects under construction, we are extremely focused on project execution, as evidenced by Hugh Brinson. Completing these projects safely, on time and on budget remains among our top priorities. We also remain very focused on capital discipline, targeting a long-term annual distribution growth rate of 3% to 5% and maintaining our leverage target of 4 to 4.5x EBITDA. Our unmatched connectivity allows us to move energy from ever major support basin to make our trading hubs, power plants, data centers, city gates, industrial complexes and other downstream markets throughout the U.S. as well as to international markets through our export terminals. This concludes our prepared remarks. Operator, please open the line up for our first question.

[Operator Instructions] And today's first question comes from Theresa Chen with Barclays.

First, I'd like to congratulate Mackie on his retirement. Thank you, Mackie, for your many years of leadership. Looking at the fundamentals, if you wouldn't mind elaborating more on the drivers of the volumetric outperformance demonstrated across your segments in the second quarter? And how this outperformance helps frame the expectations into 2027 or second half of 2026 as well as 2027 plus, taking into account recent commentary from producer customers? And as we think about the remainder of this year, going back to Tom's comments about the factors that could drive the low to high end of guidance, can we get more color on the impact and duration of these market disruptions and which key variables are you looking at as you determine the effect of the disruptions on the remainder of the year?

Thanks, Theresa. This is Dylan. And let me -- let me try to address all that by taking us back and looking at the full first half of the year. So as most of you know, we increased guidance in the first quarter by $750 million, and that was really related to approximately $600 million in Q1 results and $150 million from just stronger performance that we saw continuing through the balance of the year on our business. In this quarter, we're increasing another $550 million. Majority of this is strong beats across almost all segments this quarter. Midstream intra crude, we're all about $100 million roughly beats and NGL over $200 million as we really saw just strong activity across the board on the NGLs, everything from stronger export and domestic sales, higher fees across the docks, stronger blending margins. And so this is all setting up for a stronger second half of the year. Now when we look at the plan, we expect the base business to remain strong. We expect volumes to pick up and grow across all our segments as we go through the back half of the year. There are a number of projects obviously coming online here that are going to help drive this. The early start to Hugh Brinson, is super important to us. Very pleased to get that online coming online as we are looking at that coming online early and under budget, which we think is really important because you need to remember, this is the same team. These are the same folks that are going to be working on Desert Southwest. So we think this is -- this is a great precursor to what we're going to deliver on that project as well. But those contracts, those are going to step up here as we go through the balance of the year. And so we're really going to see the majority of that impact really starting January 1 as we get to for all the Phase 1 contracts so it will be kicked in by then. Mustang Draw I and II. Mustang Draw I is on. We're hitting new records in the Permian almost daily there as we really push these assets to full. And so we'll see that impact through the balance of the year. That will flow through also into our NGL volumes. Mustang Draw II will come on late in the year. We'll expect that to fill up very quickly, but pretty limited impact to 2026. That will be a big '27 push same as the Hugh Brinson pipeline. And then Frac IX additionally, late this year, once again, we expect that to start filling up pretty quickly when that comes online, but it's happening late in the year. So limited 2026 impact there. So when you look at all these, the base business is strong. We expect that to continue through. Going over to the volatility we've seen, the wider spreads, the higher commodity prices that we all saw happen through Q1 and Q2, we don't really have much of that in our plan for the back half of the year. The more of this that continues to play out, I think, is setting us up to where with some of this volatility, we can very easily achieve that high end of the guidance range. Mackie, please.

Theresa, I'm sorry to interrrupt, this is Mackie. Thanks for your nice comments. But let me summarize a little bit what he just said. First half of this year shows the stream benefit and value that our assets have in every condition. Our ability to move gas through our intra interstate pipelines west east, east and west, all major hubs, our ability to chill less ethane, more ethane, more propane, more butane. I think what happened, of course, the war had a lot to do with it, but there's always weather variables, whatever but I think it really showed the diversity of our assets and our ability to pivot and benefit from whatever is happening, either domestically or internationally in a big way. And I think our assets and our people proved that in the first half of this year. .

And just to clarify, Dylan, in relation to the commodity price environment, the volatility that we've seen over the past few months, is your -- is the takeaway that without a significant uptick in volatility, your revised guidance is very achievable. And if we were to see this volatility persist or tick higher, that would be additive to the updated range.

Yes, absolutely. .

Great. Turning to your dry gas assets, great to see the progress on Hugh Brinson Phase 1 really coming in ahead of your own expectations, it sounds like. Can you provide some more color on how Desert Southwest is progressing, including permitting and overall project execution. And given the scale and visibility of this project, how has that development process progressed relative to your own expectations? And as you think about maximizing the value of that corridor in general, what opportunities exist to add incremental demand through laterals, power generation connections, data center load and so on, off of Desert Southwest and Transwestern over time?

Theresa, this is Mackie again. Yes, we were excited about Hugh Brinson and we're equally as excited about DSW. It's going to be a game changer, especially for that part of the world. It remains to be seen how much new markets developed even yesterday, we had a call from utility in Southern Mexico wanting to tie to us. So we'll see kind of upside through to Mexico, but there's enormous growth in the Phoenix area and in Arizona. Grant and his team have done a great job on government relations getting out in front of this to all stakeholders, all constituents, whether it's the indigenous folks, which are many different in that state and then all the both local and state and federal agencies were on top of that on a day-to-day basis. As far as our expectations, we're probably a little ahead of our expectations on survey permission and on making progress on getting this pipeline built, everything is going exceptionally well. As everybody knows, the steel is ordered a long time ago. The compression was a long time ago, we've got the same team, as Dylan mentioned, with Mike and what his team has done on Hugh Brinson, we expect the same on DSW. So it's going to be a great benefit for our assets, for our partnership for the Southwest portion of the United States, and we're very excited and expect to bring that on time in the latter part of 2029.

And the next test comes from Jean Ann Salisbury with Bank of America.

Are you surprised that Waha basis has narrowed so quickly? And do you believe that there's still stranded gas in the Permian waiting to come online. And again, congrats on getting Hugh Brinson online early.

Yes. I mean, I think it goes without saying that Waha has been hurting and producers have been hurting. They've been hurting for quite a while, and we've been -- everything has been bottled up there and boy, Hugh Brinson has unleashed it. And I know there's another pipeline also that's coming online not already. So common sense when you have all of a sudden, the Bcf growing to maybe 4, 4.5 Bcf by the first quarter of next year, things are going to get better and that's already proven itself. So this is not unexpected. It probably has narrowed quicker than we thought, which goes to the second part of your question, there's a lot of pent-up volume, a lot of shutting gas, a lot of DUCs that bring online and producers have been holding back. And this is really going to unleash production in a big way, oil for sure. But on the gas front and the NGL front, volumes are going to grow exponentially. Who knows. We can really fill up 4.5 Bcf in the next year, we'll see. But we're pretty excited about -- very excited about bringing that on now our customers are as well.

Very clear. And congrats on the recent ethane export expansion. Can you talk about how you expect that capacity to ramp? I know you talked about when the docs are coming in. But are there other limiters like VLEC builds or just the time for the international ethane crackers to come online? I don't know if there are new international ethane crackers, but any more you can give on how you expect that to ramp would be helpful.

Yes, this is Adam. So we timed it to where we expect the unit to start up in mid-'28 and then continue to ramp through mid-'29, that coincides with what our expectation is from our customer, which these are new build crackers. So there will be a ramp reflective of them bringing 2 units online.

And the next question comes from Keith Stanley with Wolfe Research.

First want to go to -- there's a reference in the release to expecting new gas pipeline announcements later this year for power customers. Are you referring to larger backbone type projects you're making progress on or more laterals for data center demand?

All of the above. We've got numerous opportunities, some of you all aware of, some you're not on laterals that are less than 18 or 20 miles, some just a few miles. And then yes, we are working on another at least one large intrastate pipeline, and we're also working on another interstate pipeline. We're a little premature to talk about that. Very optimistic we'll get those to the financial line. And hopefully, we can talk more about those in November.

Okay. Great. Second question, so the Green Chile project for Project Jupiter for Oracle, is the plan now to reroute around the New Mexico state lands and then looking forward for Desert Southwest? Can you talk about regulatory strategy for New Mexico and how the process for Desert Southwest should be different than what we saw with Green Chile?

Keith, this is Adam. I'll take the first half and let Mackie jump in in the second half. But on Green Chile without getting into specifics, we've been very focused on that project and won't go through exactly kind of what the process from here on is, but we do and have been working with both the FERC and the BLM and all stakeholders that are involved and are very confident that they understand the importance of these data center projects and the importance on the ability to execute through the regulatory process to be able to bring these these projects, which are very important to our industry and the country online. And so we're in constant communication with them and are very confident this pipeline will be put into service and will be ultimately successful.

Yes. And I'll answer the second part of that. The answer is no. We don't anticipate any similar type challenges on DSW, primarily what the issue is, it's a data center. And as we know in this country for years and years, there's been all these false beliefs about climate change. The world's coming to an end and a lot of that -- those same environmental activists are also shifting over and now they're trying to stop data centers. So it's kind of become a 4-letter word. We think Oracle has done a much better job of getting out the facts of how these are closed-loop systems. They're not using near as much water as being advertised. This particular case, they've actually gone to bloom technology, which is a lot less emissions. So this, we believe, is much more of a data center focused kind of protest activity. But as Adam just said, we're confident we're going to get there, maybe the late a little bit from where we first anticipated, but we're going to get there. And as I said, DSW moving along very well.

And the next question comes from Jeremy Tonet with JPMorgan.

Mackie, you wish you the best of luck in retirement. I appreciate all your perspectives over the years. Just want to go back to the Permian a little bit more, if we could, and as it relates to Hugh Brinson 2, if you could just like help us think through, I guess, the rate of ramp there. Just trying to think of when that's going to be fully capable.

Yes. We really haven't changed Phase 2. We still anticipate being on probably mid-first quarter maybe as late as March 1, but it could go sooner. Like I said, Mike and his team have done such a great job. We don't put anything past in being early, but right now, kind of mid-second quarter -- I mean, I'm sorry, in the first quarter.

Got it. But this could take commissioning flows in the fourth quarter, early like what we've seen with the Phase 1?