Energy Transfer 2015 Annual Report Download - page 77

Table of Contents
The current constraints in the capital markets affect our ability to obtain funding through new borrowings or the issuance of Common Units. In addition, we
expect that, to the extent we arrange new financing, we will incur increased costs. In light of the current market conditions, we have taken steps to preserve
our liquidity position, including, but not limited to, reducing discretionary capital expenditures, maintaining our cash distribution rate and continuing to
manage operating and administrative costs to improve profitability. With the expected closing of the previously announced dropdown of the remaining
interest in Sunoco, LLC and the legacy Sunoco retail business to Sunoco LP in late February, the outstanding balance of ETP’s $3.75 billion revolver will be
close to zero. As a result, ETP does not expect the need to access the fixed income market in 2016. In addition, with our reduction in discretionary capital
expenditures and with other related asset sales, we do not anticipate the need for ETP common equity issuances in 2016.
Current market conditions also indicate that many of our customers may encounter increased credit risk in the near term. In particular, our transportation and
midstream revenues are derived significantly from companies that engage in exploration and production activities. Many of our customers have been
negatively impacted by the recent declines in commodity prices, as well as current conditions in the capital markets. We continue to evaluate the financial
condition of existing counterparties, monitor agency credit ratings, and implement credit practices that limit exposure according to the risk profiles of our
counterparties.
With respect to commodity prices, crude oil and NGL prices have declined sharply and are at decade-long lows, and we expect prices to remain challenged
for the foreseeable future due to general oversupply. The addition of several ethane crackers and export projects (Marcus Hook and Nederland) currently
under construction should help to volumetrically balance this market by 2018. Other factors such as reduced wet gas extraction will also help to balance this
market and positively impact prices. Natural gas pricing is expected to remain within a range similar to recent history as increased supply continues to
outpace demand. New demand has occurred in several areas such as exports to Mexico and Canada, LNG exports, nuclear power plant de-commissioning, as
well as continued coal to gas switching for power generation, will help pricing; however, supply is continuing to increase. Exports to Mexico are expected to
exceed 2 Bcf/d by the end of 2016, compared to zero in 2014.
We believe that we are well-positioned to benefit from changes in natural gas and NGL supply and demand fundamentals. While we continue to increase our
presence in domestic producing basins, we have also recently focused on projects that will position the Partnership as a leader in the export of hydrocarbons.
In particular, we currently are undertaking projects involving natural gas exports, including the Rover pipeline project (to Canada), the Trans-Pecos and
Comanche Trail pipelines (to Mexico), and waterborne NGL exports, as well as our participation in the Lake Charles LNG liquefaction project. We are also
developing the Bakken pipeline project to transport crude supply from the Bakken/Three Forks production area.
We also continue to seek asset optimization opportunities through strategic transactions among us and our subsidiaries and/or affiliates, and we expect to
continue to evaluate and execute on such opportunities. As we have in the past, we will evaluate growth projects and acquisitions as such opportunities may
be identified in the future, and we intend to continue to maintain sufficient liquidity to allow us to fund such potential growth projects and acquisitions.
Results of Operations
We report Segment Adjusted EBITDA as a measure of segment performance. We define Segment Adjusted EBITDA as earnings before interest, taxes,
depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the
allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges,
loss on extinguishment of debt, gain on deconsolidation and other non-operating income or expense items. Unrealized gains and losses on commodity risk
management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market
adjustments). Segment Adjusted EBITDA reflects amounts for unconsolidated affiliates based on the Partnership’s proportionate ownership.
When presented on a consolidated basis, Adjusted EBITDA is a non-GAAP measure. Although we include Segment Adjusted EBITDA in this report, we have
not included an analysis of the consolidated measure, Adjusted EBITDA. We have included a total of Segment Adjusted EBITDA for all segments, which is
reconciled to the GAAP measure of net income in the consolidated results sections that follow.
In accordance with GAAP, we have accounted for the Regency Merger as a reorganization of entities under common control. Accordingly, ETP’s
consolidated financial statements reflect the retrospective consolidation of Regency into ETP beginning May 26, 2010 (the date ETE obtained control of
Regency).
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