Every month or two, Energy Transfer creates a new PowerPoint presentation to use when it makes a pitch at an investment meeting. The first one for 2021 is now up on the ET website. You can download it here.
Even for a company that has shown itself highly skilled at misleading investors, this presentation reaches new heights, at least where Mariner East is concerned. I felt compelled to point out a few of the misleading statements, the completion dates the company itself knows it will not make, and the outright lies.
I’m not really familiar with ET’s other projects, so I can’t comment on them. But the Mariner issues start on page 14 of the presentation, entitled “Delivering on project backlog.” This is an attempt to show that ET is intent on finishing up the projects it has not completed in recent years. Here are the statements about Mariner East and related Pennsylvania projects.
Mariner East 2
ET’s claim: “Mariner East 2: NGLs from Marcellus Shale to MHIC [Marcus Hook Industrial Complex] ramping up to 280 Mbpd capacity. In partial service Q4 2018 / Expected fully in service Q3 2021”
Actual situation: What ET calls “ME2” was put “into partial service” the last few days of 2018 by connecting some completed sections of ME2 to other bits of old pipe from the 1930s. That is still the situation with ME2 today, more than two years later. At the last quarterly analysts’ call in November, ET’s management said the “real” ME2 would be in operation statewide “by June 2021”. I’m sure they knew better even then, and now they have acknowledged that reality.
The new claimed completion date for ME2 is Q3 of 2021—sometime in July-September. That clearly won’t happen either, and the company knows it. Work on the pipeline is shut down at the Marsh Creek Lake drill site, where a spill of thousands of gallons of drilling fluid polluted the lake back in September. The Department of Environmental Protection is insisting that Sunoco reroute the pipeline away from the lake. Sunoco is fighting that ruling. It is unlikely that the DEP will back down—but it is also unlikely that there will be a definitive resolution for several months at a minimum. If Sunoco must reroute, that section of the pipeline won’t be finished until at least 2022. There are several other unfinished problem sections in southeastern PA.
Mariner East 2X
ET’s claim: “Mariner East 2X: Increase NGL takeaway from the Marcellus to the Marcus Hook Terminal on the East Coast. In partial service Q4 2020 / Expected fully in service Q2 2021”
Actual situation: The claim “in partial service Q4 2020” is stretching the truth. While some parts of the 16-inch pipe were in service as of Q4, that has been true for several years. Perhaps an additional section or two was commissioned in Q4, I couldn’t say. The fact remains that the pipeline is incomplete in many places in southeastern PA. ET could as easily have claimed “in partial service Q4 2019” and been equally correct (or incorrect, if you prefer). In its November analysts’ call, ET claimed “By the end of 2020, ME2X will be in operation across the entire state, carrying highly volatile “natural gas liquids” (NGLs).” That is not true, and in all probability, it won’t be true by the new due date of “Q2 2021”. There are construction and regulatory problems with ME2X at various places in Lebanon, Chester, and Delaware counties, some of which are likely to continue into the second half the year and beyond.
PA Access Pipeline
ET’s claim: “PA Access Pipeline: Convert a portion of ME1 NGL pipeline to refined products service to provide ~20-25,000 bbls/d of refined products to PA and Northeast markets. In partial service Q4 2020 / Expected fully in service Q2 2021.”
Actual situation: The PA Access Pipeline was billed as a scheme to moved refined products, notably gasoline, back and forth between east coast and midwestern markets, taking advantage of pricing disparities. It was assumed that, with the completion of ME2X, ME1 would no longer be needed for NGL transport and could be converted to refined products.
According to the diagram that ET itself includes in the investor presentation (see below) it appears no part of the ME1 NGL pipeline was converted to this service “in Q4 2020”. A different 8-inch pipeline, leaving Philadelphia, is shown connecting to “PA Access legacy pipelines” going to upstate New York. In other words, ET may have managed to launch a refined products service between Philadelphia and upstate New York, but that did not involve the conversion of ME1, and it did not involve the connection of midwestern and eastern markets for gasoline and refined products, both of which were promised in the last analysts’ call.
It’s not even clear that the Philadelphia to upstate NY pipeline connection is “new”, given that the pipelines involved are called “legacy pipelines”. Maybe just the name “PA Access” is new.
If the “real” PA Access pipeline, connecting the Midwest to the east coast, has to wait for the completion of ME2X, it could be a long wait indeed. It most certainly won’t be in “Q2 2021”, as the company well knows.
Revolution
ET’s claim: “Revolution: 110 miles of gas gathering pipeline, cryogenic processing plant, NGL pipelines, and frac facility in PA. Plant and pipeline complete; awaiting pipeline restart.”
Actual situation: I guess “awaiting pipeline restart” is accurate as far as it goes, but it’s misleading. A more honest assessment of the Revolution situation would be “Revolution is in deep, deep trouble with Pennsylvania regulators and ET will be lucky to ever get permission to restart.” It’s no wonder ET didn’t give a restart date for that one.
When is misleading investors illegal?
I’m not sure how badly you can mislead investors without running afoul of SEC regulations, but ET must be testing those limits. Quarter after quarter and year after year, ET has given timelines for Mariner East completions that it clearly knew were impossible to achieve. In some cases (as when it claimed ME2 was “in service” at the end of 2018, and now in claiming that ME2X is “in partial service”) it just lied about what “ME2” and “ME2X” actually meant. It is trying the same trick with the meaning of “PA Access”. In each case, it failed to meet its dates, then renamed something it had already completed, pretending that was what it had meant all along. What about it, investors? Are you OK with that?
I hope one of the analysts on ET’s next quarterly call (mid-February) will be brave enough to ask about some of these issues, but I understand they they have to stay on ET’s good side in order to be invited back.
It seems to me that failing to disclose some of the serious regulatory and legal issues the company faces in Pennsylvania ought to concern the SEC as well. That’s common sense. But I know nothing about SEC disclosure rules, and I’m sure “common sense” is not among them.
A helpful diagram. Later in the January presentation (p. 17), there is a small diagram that provides a more honest picture of what’s going on, if you can understand the information it is presenting. The diagram, reproduced below, lacks any explanation, so I have provided what I hope will be helpful annotations (in red). It shows the arrangement of pipelines from Delmont (in western PA) to the Philadelphia/Marcus Hook area. As it shows, both ME2 and ME2X are still under construction in the eastern part of the state. You can see that what ET calls “ME2X” is actually partly new 16-inch pipeline and partly old 8-inch pipeline. Similarly, what the company calls “ME2” is actually new 20-inch and old 12-inch lines cobbled together. And you can see that the pipelines that apparently comprise “PA Access” are not related to Mariner East at all.
I would be happy to have someone show me where I have this wrong. But if I’m right, ET is simply being dishonest with its investors.
Please consider starting off the new year with a Safety 7 contribution. This case, now pending before the PUC, is the most important opportunity to stop the Mariner East project from putting thousands of lives at risk across Pennsylvania. Your contribution, whether it is $10, $100, or $1,000 is an important way to show your support. Click here to contribute.
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