After reporting a successful 3Q2015, Energy Transfer Equity LP (NYSE:ETE) is now preparing itself for analyst day, due to be held on November 16 and 17. Investor interest in the stock would be highly dependent on this meeting. Currently, ETE is expected to issue distribution growth guidance, update on LNG economics and an update on the Williams merger, during the meeting. Furthermore, the company also plans to provide an update on the future capital expenditure figures and growth projects.
Future Growth Prospects
ETE has been focusing on the Lake Charles LNG export project, but a Final Investment Decision with BG is yet to be reached. The delay is possibly due to the recent acquisition of BG by Shell, but this should not affect the expected outcome of the deal. ETE has already made plans to begin debt financing for the project and will actively pursue the project, once the FERC authorization has been received.
Since the BG Shell merger would not take place until early 2016, investors can expect to reap the benefits of this deal during the next year. ETE clarified the reasons to pursue the Lake Charles project, during its 3Q2015 earnings call. As per the announcement, ETE expects the project to be economically viable. Added to this, the company believes that the global demand for LNG would soon register an increase, allowing ETE to improve its position.
Apart from the prospective earnings during the FY2016, ETE will also see an improvement in its capital position. This is due to a reimbursement to ETE for investment made by one of its MLPs in the Bakken project. The returns are expected to add $382 million to the company’s cash reserves. However, ETE would probably use this advantage to acquire Philadelphia Energy Solutions. ETP, an MLP of ETE, has shown interest in the PES refinery. Analysts expect ETP to make a move forward during the 1H2016, with an expected value of $400 million. It should be noted here that PES was expected to go forth with its plans for an IPO, but reiterated on that decision, following unfavorable market conditions.
Renewal of Contracts
ETE has also taken into account the poor financial position and supply shortfalls of contractors, working on company pipelines. Hence, ETE has announced that it would be renegotiating with such contractors in order to gain a positive outcome of these contracts. As per the reports from the company, the new contracts would benefit the producer, but also ensure its neutrality over ETE gains. This also includes the option of reducing rates by ETE, in return for the contractor to improved daily volumes.
ETP Capital Demands
However, ETE MLPs, especially ETP, have been demanding immense capital expenditure from the group, for which the company needs to look towards debt options. By the end of the 4Q2015, ETE expects itself to have invested an estimated $6 billion in ETP projects alone. Additionally, the company has set a target of lowering this figure to $5 billion in FY2016. However, analysts expect this number to be somewhere around $6.5 billion. Furthermore, analysts believe that ETP would need an estimated $2 billion in debt and $4.5 billion from ETE to meet this criterion.
Energy Transfer Equity LP (NYSE:ETE) is expected to keep within the price target of $28-$30, but these figures are based on improved commodity prices. During its meeting with the investors, the management would have to focus on excessive spending in ETP projects, while continuing to grow in the coming year. This would be a difficult task, given that ETE missed analyst earnings estimates of $0.33 for 3Q2015, by $0.02. Additionally, Shell is yet to provide an update on what it plans to do with the LNG fields in Lake Charles. However, the chances of a positive outcome with Shell are bright.