Energy Transfer 2015 Annual Report Download - page 47

Table of Contents
Our midstream facilities and transportation pipelines are attached to basins with naturally declining production, which we may not be able to replace with
new sources of supply.
In order to maintain or increase throughput levels on our gathering systems and transportation pipeline systems and asset utilization rates at our treating and
processing plants, we must continually contract for new natural gas supplies and natural gas transportation services.
A substantial portion of our assets, including our gathering systems and our processing and treating plants, are connected to natural gas reserves and wells
that experience declining production over time. Our gas transportation pipelines are also dependent upon natural gas production in areas served by our
gathering systems or in areas served by other gathering systems or transportation pipelines that connect with our transportation pipelines. We may not be able
to obtain additional contracts for natural gas supplies for our natural gas gathering systems, and we may be unable to maintain or increase the levels of
natural gas throughput on our transportation pipelines. The primary factors affecting our ability to connect new supplies of natural gas to our gathering
systems include our success in contracting for existing natural gas supplies that are not committed to other systems and the level of drilling activity and
production of natural gas near our gathering systems or in areas that provide access to our transportation pipelines or markets to which our systems connect.
We have no control over the level of drilling activity in our areas of operation, the amount of reserves underlying the wells and the rate at which production
from a well will decline. In addition, we have no control over producers or their production and contracting decisions.
While a substantial portion of our services are provided under long-term contracts for reserved service, we also provide service on an unreserved basis. The
reserves available through the supply basins connected to our gathering, processing, treating, transportation and storage facilities may decline and may not
be replaced by other sources of supply. A decrease in development or production activity could cause a decrease in the volume of unreserved services we
provide and a decrease in the number and volume of our contracts for reserved transportation service over the long run, which in each case would adversely
affect our revenues and results of operations.
If we are unable to replace any significant volume declines with additional volumes from other sources, our results of operations and cash flows could be
materially and adversely affected.
We are entirely dependent upon third parties for the supply of refined products such as gasoline and diesel for our retail marketing business.
We are required to purchase refined products from third party sources, including the joint venture that acquired Sunoco, Inc.’s Philadelphia refinery. We may
also need to contract for new ships, barges, pipelines or terminals which we have not historically used to transport these products to our markets. The inability
to acquire refined products and any required transportation services at favorable prices may adversely affect our business and results of operations.
The profitability of certain activities in our natural gas gathering, processing, transportation and storage operations are largely dependent upon natural
gas commodity prices, price spreads between two or more physical locations and market demand for natural gas and NGLs.
For a portion of the natural gas gathered on our systems, we purchase natural gas from producers at the wellhead and then gather and deliver the natural gas to
pipelines where we typically resell the natural gas under various arrangements, including sales at index prices. Generally, the gross margins we realize under
these arrangements decrease in periods of low natural gas prices.
We also enter into percent-of-proceeds arrangements, keep-whole arrangements, and processing fee agreements pursuant to which we agree to gather and
process natural gas received from the producers.
Under percent-of-proceeds arrangements, we generally sell the residue gas and NGLs at market prices and remit to the producers an agreed upon percentage of
the proceeds based on an index price. In other cases, instead of remitting cash payments to the producer, we deliver an agreed upon percentage of the residue
gas and NGL volumes to the producer and sell the volumes we keep to third parties at market prices. Under these arrangements, our revenues and gross
margins decline when natural gas prices and NGL prices decrease. Accordingly, a decrease in the price of natural gas or NGLs could have an adverse effect on
our revenues and results of operations.
Under keep-whole arrangements, we generally sell the NGLs produced from our gathering and processing operations at market prices. Because the extraction
of the NGLs from the natural gas during processing reduces the Btu content of the natural gas, we must either purchase natural gas at market prices for return
to producers or make a cash payment to producers equal to the value of this natural gas. Under these arrangements, our gross margins generally decrease when
the price of natural gas increases relative to the price of NGLs.
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