Morningstar

Energy Transfer Earnings: Management Announces New Data Center Agreements and Crude Oil Project

We think Energy Transfer stock is undervalued.

In this photo illustration, the Energy Transfer logo is displayed on a smartphone screen.
Cheng Xin via Getty
Securities in This Article
Energy Transfer LP
(ET)

Key Morningstar Metrics for Energy Transfer

What We Thought of Energy Transfer’s Earnings

New projects target Energy Transfer’s ET underutilized Dakota Access Pipeline, or DAPL, upsized natural gas pipelines, and gas supply agreements with Oracle and CloudBurst. Maintaining utilization while executing on new growth opportunities highlights the strength of the diverse asset base.

Why it matters: Bakken producers may be able to maintain production, but certainly not grow without much higher oil prices. This leaves the 750 thousand barrel per day DAPL in a tough position, facing contract resets in 2027 with 200mb/d of spare capacity in 2025.

  • DAPL North envisions higher utilization by linking to Canadian infrastructure to move up to 250mb/d. Canadian producers have been hungry for any new egress, and the pipeline offers a cost-competitive option.
  • DAPL and ETCOP, which together connect Bakken to the Gulf, have been running well below their capacity, while Enbridge’s Mainline has exceeded 90% utilization. More Canadian barrels flowing through these assets is a win for all involved and increases access to Gulf Coast refineries and export terminals.

The bottom line: We are maintaining our $21 fair value estimate after incorporating the results. Units look undervalued, trading in 4-star territory.

  • Natural gas currently offers the best growth opportunities for the partnership, and we expect further announcements.
  • Our no-moat, Medium Morningstar Uncertainty, and Poor Capital Allocation Ratings are unchanged.

Coming up: The Desert Southwest pipeline, announced in August, may already be in line for an upsize. The open season attracted more bidders than available capacity. New gas supply agreements will provide in basin demand as data centers increasingly move into producing basins.

  • The intrastate system derives a substantial portion of its profit from selling cheap natural gas from the Permian to out of basin consumers. While it will certainly benefit from more fixed capacity agreements, differentials narrowing may have an outsize impact.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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