ETP: Positive Outlook Unchanged

MICHAEL BLUM, Wells Fargo (08/10/2010)
"ETP reported Q2 adjusted EBITDA of $336MM, which was slightly below our estimate of $344MM as lower interstate pipeline results more than offset higher cash intrastate pipeline results. . .With basis differentials in Texas widening, we anticipate intrastate pipeline volumes could improve over the balance of the year. The differential between gas prices in Katy and Waha has widened to $0.24 per MMBtu in Q3 (QTD) vs. $0.10 per MMBtu in Q210 and $0.05 in Q110. Management attributed the recent widening of basis to (1) a disparity between weather in East Texas (warmer than normal) and West Texas (cooler than normal) and (2) an oversupply of natural gas in the Mid-Continent region, which ultimately pressures pricing in Waha. Importantly, the partnership anticipates basis will remain wide over the balance of the year.

ETP is poised to resume distribution growth in 2011 supported by a ramp up of fee-based cash flow from new growth initiatives. In the meantime, investors are paid to wait with ETP providing a secure and robust yield of 7.5%, even given the current weak environment for natural gas fundamentals. About 80% of ETP's distribution is tax deferred."

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