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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
August 8, 2017
Date of Report (Date of earliest event reported)
 
ENERGY TRANSFER, LP
(Exact name of Registrant as specified in its charter)
 
 
 
Delaware
1-11727
73-1493906
(State or other jurisdiction of incorporation)
(Commission File Number)
(IRS Employer Identification No.)

8111 Westchester Drive, Suite 600,
Dallas, Texas 75225
(Address of principal executive offices) (Zip Code)

(214) 981-0700
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨





Item 7.01. Regulation FD Disclosure.
On August 8, 2017, Energy Transfer Partners, L.P., the parent of Energy Transfer, LP, issued a press release announcing the financial and operating results of both entities for the second quarter ended June 30, 2017. A copy of this press release is furnished as Exhibit 99.1 to this report and is incorporated herein by reference.
In accordance with General Instruction B.2 of Form 8-K, the information set forth in the attached exhibit shall be deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. In accordance with General Instruction B.2 of Form 8-K, the information set forth in the attached Exhibit 99.1 is deemed to be “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act.
Exhibit Number
 
Description of the Exhibit
99.1
 
Energy Transfer Partners, L.P. Press Release dated August 8, 2017





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
ENERGY TRANSFER, LP
 
 
 
 
 
 
By:
SXL Acquisition Sub LLC,
 
 
 
its General Partner
 
 
 
 
Date:
August 8, 2017
By:
/s/ Thomas E. Long
 
 
 
Thomas E. Long
 
 
 
Chief Financial Officer





EXHIBIT INDEX
Exhibit Number
 
Description of the Exhibit
99.1
 
Energy Transfer Partners, L.P. Press Release dated August 8, 2017



Exhibit


https://cdn.kscope.io/f293e3f52b35ee10ea7879d049514e24-etplogoa01a01a11.jpg
ENERGY TRANSFER PARTNERS
REPORTS SECOND QUARTER RESULTS
Dallas – August 8, 2017 – Energy Transfer Partners, L.P. (NYSE: ETP) (“ETP” or the “Partnership”) today reported its financial results for the quarter ended June 30, 2017. For the three months ended June 30, 2017, net income was $292 million and Adjusted EBITDA was $1.60 billion. Adjusted EBITDA increased $229 million compared to the three months ended June 30, 2016, reflecting significantly higher results from the midstream and crude oil transportation and services segments, as discussed in the segment results analysis below. Net income decreased $180 million compared to the three months ended June 30, 2016, primarily due to a non-cash loss recorded on the Partnership’s investment in Sunoco LP related to Sunoco LP’s anticipated sale of its retail business, as well as a one-time deferred tax impact resulting from the merger of Energy Transfer Partners, L.P. and Sunoco Logistics Partners L.P. (the “Sunoco Logistics Merger”). On a pro forma basis for the Sunoco Logistics Merger, Distributable Cash Flow attributable to partners, as adjusted, for the three months ended June 30, 2017 totaled $990 million, an increase of $175 million compared to the three months ended June 30, 2016, primarily due to the increase in Adjusted EBITDA.
In April 2017, Energy Transfer Partners, L.P. and Sunoco Logistics Partners L.P. (“Sunoco Logistics”) completed the merger transaction in which Sunoco Logistics acquired Energy Transfer Partners, L.P. in a unit-for-unit transaction. At the time of the Sunoco Logistics Merger, Energy Transfer Partners, L.P. changed its name from “Energy Transfer Partners, L.P.” to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” For purposes of maintaining clarity, the following references are used herein:
•
References to “ETLP” refer to Energy Transfer, LP subsequent to the close of the merger;
•
References to “Sunoco Logistics” refer to the entity named Sunoco Logistics Partners L.P. prior to the close of the merger; and
•
References to “ETP” refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the close of the merger.
In July 2017, ETP announced that it had entered into a contribution agreement, whereby the Partnership will receive approximately $1.57 billion in exchange for a 49.9% interest in the holding company that owns 65% of the Rover pipeline. The transaction is expected to close in October 2017, subject to customary closing conditions.
In July 2017, ETP announced a quarterly distribution of $0.550 per unit ($2.20 annualized) on ETP Common Units for the quarter ended June 30, 2017.
As of June 30, 2017, ETP had approximately $3.2 billion outstanding under its aggregate $6.25 billion revolving credit facilities and its leverage ratio, as defined by the legacy Sunoco Logistics credit agreement, was 4.47x.   
An analysis of ETP’s segment results and other supplementary data is provided after the financial tables shown below. ETP has scheduled a conference call for 8:00 a.m. Central Time, Wednesday, August 9, 2017 to discuss the second quarter 2017 results. The conference call will be broadcast live via an internet webcast, which can be accessed through www.energytransfer.com and will also be available for replay on ETP’s website for a limited time.
Energy Transfer Partners, L.P. (NYSE: ETP) is a master limited partnership that owns and operates one of the largest and most diversified portfolios of energy assets in the United States. Strategically positioned in all of the major U.S. production basins, ETP owns and operates a geographically diverse portfolio of complementary natural gas midstream, intrastate and interstate transportation and storage assets; crude oil, natural gas liquids (NGL) and refined product transportation and terminalling assets; NGL fractionation; and various commodity acquisition and marketing assets.  ETP’s general partner is owned by Energy Transfer Equity, L.P. (NYSE: ETE). For more information, visit the Energy Transfer Partners, L.P. website at www.energytransfer.com.
Energy Transfer Equity, L.P. (NYSE:ETE) is a master limited partnership that owns the general partner and 100% of the incentive distribution rights (IDRs) of Energy Transfer Partners, L.P. (NYSE: ETP) and Sunoco LP (NYSE: SUN).  ETE also owns Lake Charles LNG Company. On a consolidated basis, ETE’s family of companies owns and operates a diverse portfolio of natural gas, natural gas liquids, crude oil and refined products assets, as well as retail and wholesale motor fuel operations and LNG terminalling. For more information, visit the Energy Transfer Equity, L.P. website at www.energytransfer.com.

1


Forward-Looking Statements
This news release may include certain statements concerning expectations for the future that are forward-looking statements as defined by federal law. Such forward-looking statements are subject to a variety of known and unknown risks, uncertainties, and other factors that are difficult to predict and many of which are beyond management’s control. An extensive list of factors that can affect future results are discussed in the Partnership’s Annual Report on Form 10-K and other documents filed from time to time with the Securities and Exchange Commission. The Partnership undertakes no obligation to update or revise any forward-looking statement to reflect new information or events.
The information contained in this press release is available on our website at www.energytransfer.com.
Contacts
Energy Transfer
Investor Relations:
Lyndsay Hannah, Brent Ratliff, Helen Ryoo, 214-981-0795
or
Media Relations:
Vicki Granado, 214-840-5820

2


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(unaudited)
 
June 30,
2017
 
December 31, 2016 (a)
ASSETS
 
 
 
 
 
 
 
Current assets
$
5,386

 
$
5,729

 
 
 
 
Property, plant and equipment, net
54,536

 
50,917

 
 
 
 
Advances to and investments in unconsolidated affiliates
4,228

 
4,280

Other non-current assets, net
707

 
672

Intangible assets, net
5,443

 
4,696

Goodwill
3,919

 
3,897

Total assets
$
74,219

 
$
70,191

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
Current liabilities
$
6,989

 
$
6,203

 
 
 
 
Long-term debt, less current maturities
32,029

 
31,741

Long-term notes payable – related company
—

 
250

Non-current derivative liabilities
201

 
76

Deferred income taxes
4,498

 
4,394

Other non-current liabilities
1,066

 
952

 
 
 
 
Commitments and contingencies
 
 
 
Series A Preferred Units
—

 
33

Redeemable noncontrolling interests
21

 
15

 
 
 
 
Equity:
 
 
 
Total partners’ capital
25,616

 
18,642

Noncontrolling interest
3,799

 
7,885

Total equity
29,415

 
26,527

Total liabilities and equity
$
74,219

 
$
70,191

(a)
The Sunoco Logistics Merger resulted in Energy Transfer Partners, L.P. being treated as the surviving consolidated entity from an accounting perspective, while Sunoco Logistics (prior to changing its name to “Energy Transfer Partners, L.P.”) was the surviving consolidated entity from a legal and reporting perspective. Therefore, for the pre-merger periods, the consolidated financial statements reflect the consolidated financial statements of the legal acquiree (i.e., the entity that was named “Energy Transfer Partners, L.P.” prior to the merger and name changes).
The Sunoco Logistics Merger was accounted for as an equity transaction. The Sunoco Logistics Merger did not result in any changes to the carrying values of assets and liabilities in the consolidated financial statements, and no gain or loss was recognized. For the periods prior to the Sunoco Logistics Merger, the Sunoco Logistics limited partner interests that were owned by third parties (other than Energy Transfer Partners, L.P. or its consolidated subsidiaries) are presented as noncontrolling interest in these consolidated financial statements.

3


ENERGY TRANSFER PARTNERS, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per unit data)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016 (a)
 
2017 (a)
 
2016 (a)
REVENUES
$
6,576

 
$
5,289

 
$
13,471

 
$
9,770

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of products sold
4,742

 
3,630

 
9,934

 
6,598

Operating expenses
425

 
374

 
804

 
722

Depreciation, depletion and amortization
557

 
496

 
1,117

 
966

Selling, general and administrative
120

 
74

 
230

 
155

Total costs and expenses
5,844

 
4,574

 
12,085

 
8,441

OPERATING INCOME
732

 
715

 
1,386

 
1,329

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense, net
(346
)
 
(317
)
 
(685
)
 
(636
)
Equity in earnings (losses) of unconsolidated affiliates
(61
)
 
119

 
12

 
195

Losses on interest rate derivatives
(25
)
 
(81
)
 
(20
)
 
(151
)
Other, net
71

 
27

 
97

 
44

INCOME BEFORE INCOME TAX EXPENSE (BENEFIT)
371

 
463

 
790

 
781

Income tax expense (benefit)
79

 
(9
)
 
134

 
(67
)
NET INCOME
292

 
472

 
656

 
848

Less: Net income attributable to noncontrolling interest
93

 
102

 
133

 
167

NET INCOME ATTRIBUTABLE TO PARTNERS
199

 
370

 
523

 
681

General Partner’s interest in net income
251

 
223

 
457

 
520

Class H Unitholder’s interest in net income
—

 
85

 
98

 
164

Class I Unitholder’s interest in net income
—

 
2

 
—

 
4

Common Unitholders’ interest in net income (loss)
$
(52
)
 
$
60

 
$
(32
)
 
$
(7
)
NET INCOME (LOSS) PER COMMON UNIT: (b)
 
 
 
 
 
 
 
Basic
$
(0.04
)
 
$
0.07

 
$
(0.04
)
 
$
(0.03
)
Diluted
$
(0.04
)
 
$
0.06

 
$
(0.04
)
 
$
(0.03
)
WEIGHTED AVERAGE NUMBER OF COMMON UNITS OUTSTANDING: (b)
 
 
 
 
 
 
 
Basic
1,021.7

 
752.4

 
922.5

 
743.9

Diluted
1,021.7

 
753.9

 
922.5

 
744.4

(a)
See note (a) to the condensed consolidated balance sheets.
(b)
The historical common units and net income (loss) per limited partner unit amounts presented in these consolidated financial statements have been retrospectively adjusted to reflect the 1.5 to one unit-for-unit exchange in connection with the Sunoco Logistics Merger.

4


SUPPLEMENTAL INFORMATION
(Dollars and units in millions)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017 (a)
 
2016 (a)
 
2017 (a)
 
2016 (a)
Reconciliation of net income to Adjusted EBITDA and Distributable Cash Flow (b):
 
 
 
 
 
 
 
Net income
$
292

 
$
472

 
$
656

 
$
848

Interest expense, net
346

 
317

 
685

 
636

Income tax expense (benefit)
79

 
(9
)
 
134

 
(67
)
Depreciation, depletion and amortization
557

 
496

 
1,117

 
966

Non-cash unit-based compensation expense
15

 
19

 
38

 
38

Losses on interest rate derivatives
25

 
81

 
20

 
151

Unrealized gains (losses) on commodity risk management activities
(34
)
 
18

 
(98
)
 
81

Inventory valuation adjustments
58

 
(132
)
 
56

 
(106
)
Equity in earnings (losses) of unconsolidated affiliates
61

 
(119
)
 
(12
)
 
(195
)
Adjusted EBITDA related to unconsolidated affiliates
247

 
252

 
486

 
471

Other, net
(47
)
 
(25
)
 
(69
)
 
(41
)
Adjusted EBITDA (consolidated)
1,599

 
1,370

 
3,013

 
2,782

Adjusted EBITDA related to unconsolidated affiliates
(247
)
 
(252
)
 
(486
)
 
(471
)
Distributable cash flow from unconsolidated affiliates
123

 
116

 
267

 
260

Interest expense, net
(346
)
 
(317
)
 
(685
)
 
(636
)
Amortization included in interest expense
(2
)
 
(5
)
 
(3
)
 
(12
)
Current income tax expense
(12
)
 
(13
)
 
(13
)
 
(12
)
Maintenance capital expenditures
(107
)
 
(78
)
 
(167
)
 
(137
)
Other, net
14

 
3

 
30

 
6

Distributable Cash Flow (consolidated)
1,022

 
824

 
1,956

 
1,780

Distributable Cash Flow attributable to PennTex Midstream Partners, LP (“PennTex”) (100%) (c)
—

 
—

 
(19
)
 
—

Distributions from PennTex to ETP (c)
—

 
—

 
8

 
—

Distributable cash flow attributable to noncontrolling interest in other consolidated subsidiaries
(57
)
 
(9
)
 
(80
)
 
(17
)
Distributable Cash Flow attributable to the partners of ETP
965

 
815

 
1,865

 
1,763

Transaction-related expenses
25

 
—

 
32

 
2

Distributable Cash Flow attributable to the partners of ETP, as adjusted
$
990

 
$
815

 
$
1,897

 
$
1,765

 
 
 
 
 
 
 
 
Distributions to partners (d):
 
 
 
 
 
 
 
Limited Partners:
 
 
 
 
 
 
 
Common Units held by public
$
589

 
$
492

 
$
1,156

 
$
965

Common Units held by parent
15

 
2

 
30

 
4

Class H Units held by ETE
—

 
—

 
—

 
—

General Partner interests
4

 
4

 
8

 
7

Incentive Distribution Rights (“IDRs”) held by parent
396

 
319

 
773

 
622

IDR relinquishments
(162
)
 
(109
)
 
(319
)
 
(143
)
Total distributions to be paid to partners
$
842

 
$
708

 
$
1,648

 
$
1,455

Common Units outstanding – end of period (d)(e)
1,092.6

 
981.5

 
1,092.6

 
981.5

Distribution coverage ratio (f)
1.18x

 
1.15x

 
1.15x

 
1.21x


5


(a)
For the three and six months ended June 30, 2017 and 2016, the calculation of Distributable Cash Flow and the amounts reflected for distributions to partners and common units outstanding reflect the pro forma impacts of the Sunoco Logistics Merger as though the merger had occurred on January 1, 2016. As a result, the prior period amounts reported above differ from information previously reported by legacy ETP, as follows:
•
Distributable cash flow attributable to the partners of ETP includes amounts attributable to the partners of both legacy ETP and legacy Sunoco Logistics. Previously, the calculation of distributable cash flow attributable to the partners of ETP (as previously reported by legacy ETP) excluded the distributable cash flow attributable to Sunoco Logistics and only included distributions from legacy Sunoco Logistics to legacy ETP.
•
Distributable cash flow attributable to noncontrolling interest in other consolidated subsidiaries includes amounts attributable to the noncontrolling interests in the other consolidated subsidiaries of both legacy ETP and legacy Sunoco Logistics.
•
The transaction-related expenses adjustment in distributable cash flow attributable to the partners of ETP, as adjusted, includes amounts incurred by both legacy ETP and legacy Sunoco Logistics.
•
Distributions to limited partners include distributions paid on the common units of both legacy ETP and legacy Sunoco Logistics but exclude the following distributions in the prior periods on units that were cancelled in the merger, which comprise the following: (i) distributions paid by legacy Sunoco Logistics on its common units held legacy ETP and (ii) distributions paid by legacy ETP on its Class H units held by ETE.
•
Distributions on General Partner interests and incentive distribution rights are reflected on a pro forma basis, based on the pro forma cash distributions to limited partners and the current distribution waterfall per the limited partnership agreement (i.e., the legacy Sunoco Logistics distribution waterfall).
•
Common units outstanding for the pre-merger periods reflect (i) the legacy ETP common units outstanding at the end of the period multiplied by a factor of 1.5x and (ii) the legacy Sunoco Logistics common units outstanding at the end of the period minus 67.1 million legacy Sunoco Logistics common units held by ETP, which were cancelled in connection with the closing of the merger.
(b)
Adjusted EBITDA and Distributable Cash Flow are non-GAAP financial measures used by industry analysts, investors, lenders, and rating agencies to assess the financial performance and the operating results of ETP’s fundamental business activities and should not be considered in isolation or as a substitute for net income, income from operations, cash flows from operating activities, or other GAAP measures.
There are material limitations to using measures such as Adjusted EBITDA and Distributable Cash Flow, including the difficulty associated with using either as the sole measure to compare the results of one company to another, and the inability to analyze certain significant items that directly affect a company’s net income or loss or cash flows. In addition, our calculations of Adjusted EBITDA and Distributable Cash Flow may not be consistent with similarly titled measures of other companies and should be viewed in conjunction with measurements that are computed in accordance with GAAP, such as segment margin, operating income, net income, and cash flow from operating activities.
Definition of Adjusted EBITDA
We define Adjusted EBITDA as total partnership 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, losses on extinguishments of debt 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). Adjusted EBITDA reflects amounts for less than wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on our proportionate ownership.
Adjusted EBITDA is used by management to determine our operating performance and, along with other financial and volumetric data, as internal measures for setting annual operating budgets, assessing financial performance of our numerous business locations, as a measure for evaluating targeted businesses for acquisition and as a measurement component of incentive compensation.
Definition of Distributable Cash Flow
We define Distributable Cash Flow as net income, adjusted for certain non-cash items, less maintenance capital expenditures. Non-cash items include depreciation, depletion and amortization, non-cash compensation expense, gains and losses on

6


disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt and deferred income taxes. Unrealized gains and losses on commodity risk management activities includes unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). For unconsolidated affiliates, Distributable Cash Flow reflects the Partnership’s proportionate share of the investee’s distributable cash flow.
Distributable Cash Flow is used by management to evaluate our overall performance. Our partnership agreement requires us to distribute all available cash, and Distributable Cash Flow is calculated to evaluate our ability to fund distributions through cash generated by our operations.
On a consolidated basis, Distributable Cash Flow includes 100% of the Distributable Cash Flow of ETP’s consolidated subsidiaries. However, to the extent that noncontrolling interests exist among our subsidiaries, the Distributable Cash Flow generated by our subsidiaries may not be available to be distributed to our partners. In order to reflect the cash flows available for distributions to our partners, we have reported Distributable Cash Flow attributable to partners, which is calculated by adjusting Distributable Cash Flow (consolidated), as follows:
•
For subsidiaries with publicly traded equity interests, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiary, and Distributable Cash Flow attributable to our partners includes distributions to be received by the parent company with respect to the periods presented.
•
For consolidated joint ventures or similar entities, where the noncontrolling interest is not publicly traded, Distributable Cash Flow (consolidated) includes 100% of Distributable Cash Flow attributable to such subsidiary, but Distributable Cash Flow attributable to partners is net of distributions to be paid by the subsidiary to the noncontrolling interests.
For Distributable Cash Flow attributable to partners, as adjusted, certain transaction-related and non-recurring expenses that are included in net income are excluded.
(c)
Beginning with the second quarter of 2017, PennTex became a wholly owned subsidiary of ETP.  The amounts reflected above for PennTex relate only to the first quarter of 2017, and no distributable cash flow has been attributed to noncontrolling interests in PennTex subsequent to March 31, 2017.
(d)
Distributions on ETP Common Units and the number of ETP Common Units outstanding at the end of the period, both as reflected above, exclude amounts related to ETP Common Units held by subsidiaries of ETP.
(e)
Reflects the sum of (i) the ETP Common Units outstanding at the end of period multiplied by a factor of 1.5x and (ii) the Sunoco Logistics Common Units outstanding at end of period minus 67.1 million Sunoco Logistics Common Units held by ETP, which units were cancelled in connection with the closing of the merger.
(f)
Distribution coverage ratio for a period is calculated as Distributable Cash Flow attributable to partners, as adjusted, divided by net distributions expected to be paid to the partners of ETP in respect of such period.

7


SUMMARY ANALYSIS OF QUARTERLY RESULTS BY SEGMENT
(Tabular dollar amounts in millions)
(unaudited)
 
Three Months Ended
June 30,
 
2017
 
2016
Segment Adjusted EBITDA:
 
 
 
Intrastate transportation and storage
$
148

 
$
149

Interstate transportation and storage
262

 
278

Midstream
412

 
298

NGL and refined products transportation and services (1)
391

 
341

Crude oil transportation and services (1)
279

 
124

All other
107

 
180

 
$
1,599

 
$
1,370

(1) 
Subsequent to the Sunoco Logistics Merger, the Partnership’s reportable segments were revised. Amounts reflected in prior periods have been retrospectively adjusted to conform to the current reportable segment presentation for NGL and refined products transportation and services and crude oil transportation and services.
In the following analysis of segment operating results, a measure of segment margin is reported for segments with sales revenues. Segment Margin is a non-GAAP financial measure and is presented herein to assist in the analysis of segment operating results and particularly to facilitate an understanding of the impacts that changes in sales revenues have on the segment performance measure of Segment Adjusted EBITDA. Segment Margin is similar to the GAAP measure of gross margin, except that Segment Margin excludes charges for depreciation, depletion and amortization.
In addition, for certain segments, the sections below include information on the components of Segment Margin by sales type, which components are included in order to provide additional disaggregated information to facilitate the analysis of Segment Margin and Segment Adjusted EBITDA. For example, these components include transportation margin, storage margin, and other margin. These components of Segment Margin are calculated consistent with the calculation of Segment Margin; therefore, these components also exclude charges for depreciation, depletion and amortization.
Following is a reconciliation of Segment Margin to operating income, as reported in the Partnership’s consolidated statements of operations:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Segment Margin by segment:
 
 
 
 
 
 
 
Intrastate transportation and storage
$
202

 
$
188

 
$
384

 
$
353

Interstate transportation and storage
207

 
234

 
442

 
493

Midstream
571

 
460

 
1,084

 
874

NGL and refined products transportation and services
523

 
448

 
1,080

 
879

Crude oil transportation and services
369

 
319

 
614

 
586

All other
76

 
86

 
178

 
179

Intersegment eliminations
(114
)
 
(76
)
 
(245
)
 
(192
)
Total Segment Margin
1,834

 
1,659

 
3,537

 
3,172

 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
Operating expenses
425

 
374

 
804

 
722

Depreciation, depletion and amortization
557

 
496

 
1,117

 
966

Selling, general and administrative
120

 
74

 
230

 
155

Operating income
$
732

 
$
715

 
$
1,386

 
$
1,329


8


Intrastate Transportation and Storage
 
Three Months Ended
June 30,
 
2017
 
2016
Natural gas transported (MMBtu/d)
9,254,999

 
8,659,255

Revenues
$
753

 
$
541

Cost of products sold
551

 
353

Segment margin
202

 
188

Unrealized gains on commodity risk management activities
(21
)
 
(7
)
Operating expenses, excluding non-cash compensation expense
(46
)
 
(41
)
Selling, general and administrative expenses, excluding non-cash compensation expense
(5
)
 
(6
)
Adjusted EBITDA related to unconsolidated affiliates
18

 
15

Segment Adjusted EBITDA
$
148

 
$
149

 
 
 
 
Distributions from unconsolidated affiliates
$
14

 
$
13

Transported volumes increased primarily due to higher demand for exports to Mexico, along with the acquisition of an intrastate pipeline in northern Louisiana. These increases were partially offset by lower production volumes in the Barnett Shale region.
Segment Adjusted EBITDA. For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our intrastate transportation and storage segment decreased due to the net impacts of the following:
•
a decrease of $20 million in transportation fees due to renegotiated contracts resulting in lower billed volumes;
•
a decrease of $13 million in storage margin (excluding net changes in unrealized amounts of $7 million related to fair value inventory adjustments and unrealized gains and losses on derivatives); and
•
an increase of $5 million in operating expenses primarily due to higher maintenance and project related expenses of $6 million as well as higher compression fuel expense of $2 million, partially offset by fewer allocated expenses and lower capitalized overhead; partially offset by
•
an increase of $29 million in natural gas sales and other (excluding changes in unrealized gains of $4 million) primarily from higher realized gains from pipeline optimization activity due to more favorable market conditions;
•
an increase of $4 million in retained fuels (excluding changes in unrealized gains of $3 million) primarily due to higher market prices. The average spot price at the Houston Ship Channel location increased 53% for the quarter ended June 30, 2017 compared to the same period last year; and
•
an increase of $3 million in adjusted EBITDA related to unconsolidated affiliates due to the Trans-Pecos and Comanche Trail pipelines that were placed in service in 2017.


9


Interstate Transportation and Storage
 
Three Months Ended
June 30,
 
2017
 
2016
Natural gas transported (MMBtu/d)
5,299,099

 
5,363,658

Natural gas sold (MMBtu/d)
17,035

 
21,539

Revenues
$
207

 
$
234

Operating expenses, excluding non-cash compensation, amortization and accretion expenses
(67
)
 
(75
)
Selling, general and administrative expenses, excluding non-cash compensation, amortization and accretion expenses
(7
)
 
(11
)
Adjusted EBITDA related to unconsolidated affiliates
128

 
128

Other
1

 
2

Segment Adjusted EBITDA
$
262

 
$
278

 
 
 
 
Distributions from unconsolidated affiliates
$
52

 
$
58

Transported volumes decreased primarily due to producer maintenance and production declines related to the Sea Robin pipeline.
Segment Adjusted EBITDA. For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our interstate transportation and storage segment decreased due to the net effect of the following:
•
a decrease in revenues of $21 million on the Panhandle, Trunkline and Transwestern pipelines, including a $14 million decrease in reservation revenues and a decrease of $7 million in gas parking service related revenues on the Panhandle and Trunkline pipelines, primarily due to lack of customer demand driven by weak spreads and mild weather. In addition, revenues decreased by $3 million on the Tiger pipeline due to contract restructuring and $2 million on the Sea Robin pipeline due to producer maintenance and production declines; partially offset by
•
a decrease in operating expenses of $8 million primarily due to lower allocated costs and system gas activity; and
•
a decrease in selling, general and administrative expenses of $4 million due to refunds associated with legal fees, insurance premiums and franchise taxes.
The decrease in cash distributions from unconsolidated affiliates is due to higher Citrus cash taxes and Fayetteville Express Pipeline LLC debt settlement, partially offset by increased distributions from Midcontinent Express Pipeline LLC.

10


Midstream
 
Three Months Ended
June 30,
 
2017
 
2016
Gathered volumes (MMBtu/d)
10,961,338

 
10,037,648

NGLs produced (Bbls/d)
473,699

 
468,732

Equity NGLs (Bbls/d)
28,083

 
31,638

Revenues
$
1,615

 
$
1,330

Cost of products sold
1,044

 
870

Segment margin
571

 
460

Unrealized gains on commodity risk management activities
(3
)
 
—

Operating expenses, excluding non-cash compensation expense
(152
)
 
(155
)
Selling, general and administrative expenses, excluding non-cash compensation expense
(11
)
 
(13
)
Adjusted EBITDA related to unconsolidated affiliates
7

 
6

Segment Adjusted EBITDA
$
412

 
$
298

Gathered volumes and NGL production increased primarily due to recent acquisitions, including PennTex, and gains in the Permian and Northeast regions, partially offset by basin declines in the South Texas, North Texas, and Mid-Continent/Panhandle regions.
For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our midstream segment increased due to the net effects of the following:
•
an increase of $45 million in non-fee based margin due to higher realized crude, NGL and natural gas prices;
•
an increase of $1 million (excluding unrealized gains of $3 million) in non-fee based margin due to higher benefit from settled derivatives used to hedge commodity margins;
•
an increase of $18 million in non-fee based margin due to volume increases in the Permian, partially offset by declines in the South Texas, North Texas, and Mid-Continent/Panhandle regions;
•
an increase of $20 million in fee-based revenue due to minimum volume commitments in the South Texas region, as well as volume increases in the Permian and Northeast regions. These increases were partially offset by declines in South Texas, North Texas and the Mid-Continent/Panhandle regions; and
•
an increase of $24 million in fee-based revenue due to recent acquisitions, including PennTex; partially offset by
•
a decrease of $3 million in operating expenses primarily due to lower outside service costs and capitalized overhead; and
•
a decrease in general and administrative expenses due to a favorable impact of $11 million from the adjustment of certain reserves that were recorded in connection with contingent matters, partially offset by an increase of $2 million in shared services allocation, a $1 million increase in insurance allocation, and a $3 million increase due to additional costs from the PennTex acquisition.


11


NGL and Refined Products Transportation and Services
 
Three Months Ended
June 30,
 
2017
 
2016
NGL transportation volumes (MBbls/d)
835

 
741

Refined products transportation volumes (MBbls/d)
643

 
556

NGL and refined products terminal volumes (MBbls/d)
791

 
773

NGL fractionation volumes (MBbls/d)
431

 
345

Revenues
$
1,768

 
$
1,487

Cost of products sold
1,245

 
1,039

Segment margin
523

 
448

Unrealized (gains) losses on commodity risk management activities
(4
)
 
10

Operating expenses, excluding non-cash compensation expense
(129
)
 
(107
)
Selling, general and administrative expenses, excluding non-cash compensation expense
(17
)
 
(15
)
Adjusted EBITDA related to unconsolidated affiliates
18

 
16

Inventory valuation adjustments
—

 
(11
)
Segment Adjusted EBITDA
$
391

 
$
341

NGL transportation volumes increased in the major producing regions, including the Permian, Louisiana and the Eagle Ford, but declined slightly in North Texas. Refined products transportation volumes increased due to increased throughput from certain Midwest and Northeast refineries.
Average daily fractionated volumes increased 25% for the three months ended June 30, 2017 compared to the same period last year primarily due to the commissioning of our fourth fractionator at Mont Belvieu, Texas, in October 2016 which has a capacity of 120,000 Bbls/d, as well as increased producer volumes as mentioned above.
For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our NGL and refined products transportation and services segment increased due to net impact of the following:
•
an increase in storage margin of $4 million primarily due to increased volumes from our Mont Belvieu fractionators;
•
an increase in transportation margin of $34 million primarily due to higher volumes on our Texas NGL pipelines and the ramp-up of volumes on our Mariner East system;
•
an increase in fractionation and refinery services margin of $23 million (excluding changes in unrealized losses of $2 million) primarily due to higher NGL volumes from most major producing regions, as noted above;
•
an increase in terminal services margin of $2 million due to higher terminal volumes from the Mariner NGL projects; and
•
an increase of $8 million in marketing margin (excluding changes in unrealized gains of $16 million) primarily due to the timing of the recognition of margin from optimization activities; offset by
•
an increase of $22 million in operating expenses primarily due to increased utilities costs associated with our fourth fractionator at Mont Belvieu and the Mariner project ramp-up at the Marcus Hook Industrial Complex of $3 million, higher ad valorem tax expenses of $6 million from our Lone Star Express pipeline beginning service in 2016, and higher employee expenses associated with assets placed in service of $10 million, project related service expenses of $2 million; and
•
an increase of $2 million in selling, general and administrative expenses due to higher allocations and lower capitalized overhead resulting from reduced capital spending.


12


Crude Oil Transportation and Services
 
Three Months Ended
June 30,
 
2017
 
2016
Crude Transportation Volumes (MBbls/d)
3,484

 
2,639

Crude Terminals Volumes (MBbls/d)
1,921

 
1,497

Revenues
$
2,586

 
$
1,989

Cost of products sold
2,217

 
1,670

Segment margin
369

 
319

Unrealized gains on commodity risk management activities
(2
)
 
—

Operating expenses, excluding non-cash compensation expense
(116
)
 
(63
)
Selling, general and administrative expenses, excluding non-cash compensation expense
(32
)
 
(14
)
Inventory valuation adjustments
58

 
(121
)
Adjusted EBITDA related to unconsolidated affiliates
2

 
3

Segment Adjusted EBITDA
$
279

 
$
124

 
 
 
 
Distributions from unconsolidated affiliates
$
6

 
$
5

Segment Adjusted EBITDA. For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our crude oil transportation and services segment increased due to the following:
•
an increase of $66 million due to the impact of LIFO accounting; and
•
an increase of $129 million due to improved results from our crude oil pipelines, joint ventures and terminal activities, which was primarily attributed to expansion projects and the acquisition of Vitol Inc.’s crude oil assets in the fourth quarter of 2016, resulting in an increase of $109 million, as well as increased volumes and lower operating expenses from our existing crude pipeline and terminal assets resulting in an increase of $20 million; partially offset by
•
a decrease of $21 million due to lower results from our crude oil acquisition and marketing activities; and
•
an increase of $18 million in selling, general and administrative expenses driven largely by merger-related expenses and legal and environmental reserves.



13


All Other
 
Three Months Ended
June 30,
 
2017
 
2016
Revenues
$
870

 
$
711

Cost of products sold
794

 
625

Segment margin
76

 
86

Unrealized (gains) losses on commodity risk management activities
(4
)
 
15

Operating expenses, excluding non-cash compensation expense
(34
)
 
(16
)
Selling, general and administrative expenses, excluding non-cash compensation expense
(29
)
 
(19
)
Adjusted EBITDA related to unconsolidated affiliates
76

 
85

Other
21

 
24

Eliminations
1

 
5

Segment Adjusted EBITDA
$
107

 
$
180

 
 
 
 
Distributions from unconsolidated affiliates
$
40

 
$
39

Amounts reflected in our all other segment primarily include:
•
our equity method investment in limited partnership units of Sunoco LP consisting of 43.5 million units, representing 43.7% of Sunoco LP’s total outstanding common units;
•
our natural gas marketing and compression operations;
•
a non-controlling interest in PES, comprising 33% of PES’ outstanding common units; and
•
our investment in Coal Handling, an entity that owns and operates end-user coal handling facilities.
For the three months ended June 30, 2017 compared to the same period last year, Segment Adjusted EBITDA related to our all other segment decreased primarily due to a decrease of $27 million in Adjusted EBITDA related to our investment in PES. In addition, the three months ended June 30, 2017 experienced lower segment margin from the mark-to-market of physical system gas related to our marketing operation, and higher general and administrative expenses and operating expenses related to the termination of the management fees received from ETE as well as higher transaction-related expenses.

14


SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES
(In millions)
(unaudited)
The following is a summary of capital expenditures (net of contributions in aid of construction costs) for the six months ended June 30, 2017:
 
Growth
 
Maintenance
 
Total
Intrastate transportation and storage
$
23

 
$
13

 
$
36

Interstate transportation and storage
979

 
27

 
1,006

Midstream
560

 
45

 
605

NGL and refined products transportation and services
1,096

 
33

 
1,129

Crude oil transportation and services
231

 
21

 
252

All other (including eliminations)
70

 
28

 
98

Total capital expenditures
$
2,959

 
$
167

 
$
3,126


SUPPLEMENTAL INFORMATION ON LIQUIDITY
(In millions)
(unaudited)
 
Facility Size
 
Funds Available at June 30, 2017
 
Maturity Date
Legacy ETP Revolving Credit Facility
$
3,750

 
$
2,066

 
November 18, 2019
Legacy Sunoco Logistics Revolving Credit Facility
2,500

 
827

 
March 20, 2020
 
$
6,250

 
$
2,893

 
 

15


SUPPLEMENTAL INFORMATION ON UNCONSOLIDATED AFFILIATES
(In millions)
(unaudited)
 
Three Months Ended
June 30,
 
2017
 
2016
Equity in earnings (losses) of unconsolidated affiliates:
 
 
 
Citrus
$
30

 
$
28

FEP
13

 
12

PES
(20
)
 
7

MEP
10

 
11

HPC
5

 
7

AmeriGas
(6
)
 
19

Sunoco LP
(110
)
 
23

Other
17

 
12

Total equity in earnings (losses) of unconsolidated affiliates
$
(61
)
 
$
119

 
 
 
 
Adjusted EBITDA related to unconsolidated affiliates:
 
 
 
Citrus
$
88

 
$
87

FEP
19

 
18

PES
(10
)
 
17

MEP
21

 
23

HPC
12

 
15

Sunoco LP
83

 
68

Other
34

 
24

Total Adjusted EBITDA related to unconsolidated affiliates
$
247

 
$
252

 
 
 
 
Distributions received from unconsolidated affiliates:
 
 
 
Citrus
$
22

 
$
27

FEP
10

 
13

AmeriGas
3

 
3

MEP
20

 
18

HPC
13

 
13

Sunoco LP
37

 
36

Other
14

 
10

Total distributions received from unconsolidated affiliates
$
119

 
$
120


16