The past year for Energy Transfer Partners LP (NYSE:ETP) has certainly been filled with drama. Perhaps the most pivotal event was the failed merger with Williams Companies Inc (NYSE:WMB). The main reason was that ETP could not get a tax opinion. It also didn’t help that energy prices continued to languish, making it tough to sustain valuations.
So it should be no surprise that ETP stock has taken a hit. The shares are off a grueling 39% from the 52-week high. In fact, there has been a general bear move with MLPs. For the year so far, the Alerian MLP (NYSEARCA:AMLP) is off about 10% for the year so far.
OK then, what now? Perhaps ETP stock is an opportunity? Or should investors continue to be cautious?
Well, I think ETP stock does represent an interesting value — yet there still remain notable risks.
Keep in mind that the implosion of the deal for Williams did not blunt the deal-making appetite for Energy Transfer Partners. Note that the company has recently closed a $21.3 billion merger agreement with Sunoco Logistics Partners LP.
Overall, it looks like a spot-on move — and should be a nice driver for ETP stock. The deal is expected to be immediately accretive for distributable cash flow per common unit and there will be a boost to the balance sheet. Oh, and yes, ETP expects to realize sizeable cost synergies, which are anticipated to exceed $200 million per year by 2019.
In terms of the strategic benefits, ETP will get more scale and diversification for its platform. Consider that SXL brings its substantial natural gas liquids business. What’s more, both ETP and SXL have invested about $15 billion in new projects during the last five years.
And the good news is that these projects are showing traction. During the first quarter, the Comanche Trail and Trans-Pecos pipelines have gone online and are generating fee income. As for the second half of this year, there are a spate of new projects that will come online, including the following:
- Permian Express 3 Project: The capacity is 100,000 barrels per day of crude.
- Bayou Bridge Pipeline Project: This involves a major deal with Phillips 66 Partners LP (NYSE:PSXP).
- Mariner East System: The project is focused on the Marcellus Shale for natural gas, with a capacity of 275,000 barrels per day.
- Revolution System Project: This involves 110 miles of gathering pipelines.
- Marcellus/Utica Rover Pipeline: This includes 712 miles of pipeline with a capacity of 3.25 Bcf/d.
Of course, the project that is getting the most attention is the $3.8 billion Dakota Access Pipeline, which became operational on June 1st. The pipeline has a capacity of 520,000 barrels of oil and it stretches 1,172 miles.
According to InvestorPlace contributor Richard Saintvilus: “And, with industry analysts projecting on the Dakota Access Pipeline to unlock the nation’s economic potential and lead to the creation of jobs, there are many stakeholders betting on the pipeline’s success, not the least of which is the White House.”
The Dakota Access Pipeline got a boost from President Donald Trump’s executive order. Yet there have been nagging issues. In mid-June, ETP got hit with the adverse judgment from a federal judge, who rejected an environmental study from the U.S. Army Corps of Engineers.
When it comes to the energy industry, the regulatory environment is fairly onerous. But ETP has a long history of dealing with such knotty issues. Besides, the company has indicated that it will be able to resolve the matter.
But then again, Wall Street has been pricing in this risk as well as accounting for the weakness in the energy markets. Let’s face it, the bad news already seems to be baked in.
So for those investors with a long-term bent, ETP stock does look attractive, especially in light of its impressive set of projects and the benefits of the SXL merger.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.