S&P Raises ETP’s Outlook to Stable – Analyst Blog

Standard & Poor’s Ratings Services (“S&P”) has revised its rating outlook on natural gas and propane gas master limited partnership (“MLP”) Energy Transfer Partners L.P. (ETP), to stable from negative. The rating agency has affirmed its “BBB-” corporate credit rating on Energy Transfer.

 

The upgrade reflects S&P’s increased confidence in the partnership’s ability to improve its key financial metrics to levels appropriate with the BBB- rating. Notwithstanding weak natural gas prices and narrow basis differentials, the expected rise in cash flows from demand fees supporting the Fayetteville Express Pipeline and Tiger Pipeline, together with Energy Transfer’s recent public offering that raised approximately $500 million, should lead to credit profile improvement. 

 

In particular, the Fayetteville Express Pipeline (a 185 mile 42-inch interstate pipeline originating in the Fayetteville Shale and extending through Arkansas and into Mississippi) and the Tiger Pipeline (a 175 mile 42-inch interstate pipeline originating near Carthage, Texas and ending near Delhi, Louisiana) are expected to benefit Energy Transfer’s unitholders by providing significant distributable cash flows in 2011 and the subsequent years. Both the projects, though under construction, are ahead of schedule and below original cost estimates.

 

The Fayetteville Express Pipeline – a 50/50 joint venture with Kinder Morgan Energy Partners L.P. (KMP) – is anticipated to be fully operational by the end of 2010, while the 100% Energy Transfer owned and operated Tiger Pipeline is likely to have its initial capacity of 2 billion cubic feet per day in service during the first quarter of 2011.

 

Dallas, Texas-based Energy Transfer owns and operates a diversified portfolio of energy assets. It is engaged primarily in two businesses: 1) the gathering, processing, storage and transportation of natural gas, and 2) and the distribution of propane.

 

Energy Transfer units currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.