Energy Transfer Flexes Dry Powder in Lotus Midstream Acquisition

The Daley Note: April 4, 2023

Energy Transfer (ET) plans to acquire Lotus Midstream for $1.45B ($900MM cash), raising the midstream giant’s profile in crude oil transport from the Permian Basin. East Daley Analytics estimates ET paid a 7.5x EV/EBITDA multiple based on our forecast for the Lotus assets in 2023.

The Lotus Midstream purchase was announced last Monday (March 27). The deal comes a little over a month after ET’s 4Q22 earnings call, when management mentioned it will continue to look at acquisitions and target leverage on the lower end of the 4.0-4.5x range to keep some powder dry.

Lotus will give ET an extensive Permian crude gathering system, the long-haul Centurion Pipeline from Permian to Cushing, 2 MMbbl of Permian crude storage capacity, and a 5% stake in the massive 1.05 MMb/d Wink-to-Webster (W2W) pipeline to the Gulf Coast.

Using East Daley’s market analytic tools, we can derive an initial estimate and forecast of Lotus Midstream’s EBITDA to understand the deal metrics.

From East Daley’s Energy Data Studio, we can pull financials and volumes for the Centurion LP assets from Federal Energy Regulatory Commission (FERC) filings, and forecast future pipeline volumes using our Crude Hub Model. From our Plains All American (PAA) Financial Blueprint, we also can estimate rates and utilization for the Lotus storage assets and W2W.

Taken together, we estimate Lotus’ earnings to be ~$170MM in 2022. Earnings could grow to ~$195MM this year due to Permian supply growth, increased Oklahoma volumes from ET’s Cushing-to-Nederland project, and a ramp-up in minimum volume commitments (MVCs) on W2W. That equates to a 7.5x EV/EBITDA multiple for 2023 (see figure).

Our ET Financial Blueprint shows the acquisition will have a negligible impact on ET’s leverage and is accretive to DCF/unit, in line with expectations laid out in the company’s 4Q22 earnings. Leverage remains near the 4.0x target, preserving ET’s dry powder for additional growth opportunities.

ET only includes projects with a final investment decision (FID) in its $1.6-1.8B growth capex guidance, but it has a slew of potential projects that could be added to that number, including the Warrior pipeline, Lake Charles LNG, a petrochemical facility, and other acquisitions similar to the Lotus deal.        

We see the strategic rationale for ET’s purchase. The company already had a joint tariff with Centurion through its Cushing-to-Nederland project, and now can directly ship crude from the Rockies and DJ Basin to Nederland, TX. In addition, the Permian crude gathering assets could help support volumes on ET’s Permian crude egress pipelines.— Ajay Bakshani, CFA Tickers: ET, PAA.

Request Access to Energy Data Studio

East Daley Analytics has launched Energy Data Studio, a platform for our industry-leading midstream data and commodity production forecasts. All clients have been given access to the new client portal. If you have not yet logged in, please fill out the form to request a registration email be resent.

Energy Data Studio leverages our G&P data set for insights into midstream assets across every major oil and gas basin in North America. Users can navigate detailed visual dashboards by region, pipeline, or individual asset to understand crude oil, natural gas and NGL supply at the most granular level.

Energy Data Studio is available through data downloads from the visual interface, in Excel files, or as a direct feed delivered into subscribers’ workflow via secure file transfer. To learn more about Energy Data Studio, please contact insight@eastdaley.com.

Review the Year Ahead in Dirty Little Secrets

The 2023 Dirty Little Secrets is Now Available! Is Midstream on the cusp of another infrastructure wave? Find out in our new annual report.

Dirty Little Secrets reviews the outlook for Midstream and commodity markets in 2023 and the years ahead. East Daley discusses the outlook for crude oil, natural gas and NGLs and the impacts to midstream assets in our 2023 Dirty Little Secrets annual market report. Click here for a copy of the 2023 Dirty Little Secrets report.

The Daley Note

Subscribe to The Daley Note (TDN) for midstream insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.