DALLAS - Energy Transfer LP (NYSE: NYSE:ET) and Sunoco LP (NYSE: SUN) announced the creation of a joint venture (JV) that will merge their respective crude oil and produced water gathering operations in the Permian Basin. The JV, effective from July 1, 2024, is designed to streamline the companies' operations in one of the United States' most prolific oil-producing regions.
Under the terms of the agreement, Energy Transfer will act as the operator of the JV and contribute its Permian crude oil and produced water gathering assets, excluding its long-haul crude pipeline network. Sunoco will add all of its Permian crude oil gathering assets to the venture. Energy Transfer will hold a majority stake of 67.5%, while Sunoco will retain a 32.5% interest.
The combined infrastructure of the JV will include over 5,000 miles of pipelines and storage facilities capable of holding more than 11 million barrels of crude oil. The partnership is expected to be beneficial for both parties, as it is anticipated to be immediately accretive to distributable cash flow per limited partner unit for Energy Transfer and Sunoco.
Financial advisory services for the transaction were provided by Intrepid Partners, LLC to Energy Transfer's conflicts committee and by Guggenheim Securities, LLC to Sunoco's special committee. Legal counsel was offered by Potter Anderson & Corroon LLP and Richards, Layton & Finger, P.A. for Energy Transfer and Sunoco respectively, with Vinson & Elkins LLP and Akin Gump Strauss Hauer & Feld LLP also advising on legal aspects of the deal.
Energy Transfer owns and operates a significant network of energy assets across the U.S., while Sunoco is a key player in energy infrastructure and fuel distribution. The formation of this JV signifies a strategic move to optimize their assets in the Permian Basin, a region that remains a focal point for U.S. oil production.
In other recent news, Energy Transfer has been making strides in the energy sector with significant developments. The company recently raised its price target to $20.00, according to Mizuho, following the announcement of its acquisition of WTG Midstream for approximately $3.25 billion. This acquisition is expected to increase distributable cash flow by about $0.04 per unit in fiscal year 2025 and $0.07 per unit in fiscal year 2027.
The company has also priced its offerings of senior and junior subordinated notes totaling $3.9 billion. The proceeds from this offer will be used to finance the acquisition of WTG Midstream Holdings LLC, refinance debt, and redeem outstanding Series A preferred units.
In terms of analyst views, Goldman Sachs maintained a neutral rating on Energy Transfer, while Barclays Capital kept an overweight rating. These ratings reflect a positive outlook on the company's potential, despite a rise in capital expenditure guidance.
InvestingPro Insights
In light of the joint venture between Energy Transfer LP and Sunoco LP in the Permian Basin, investors may find the following insights from InvestingPro particularly relevant. Energy Transfer, a prominent player in the Oil, Gas & Consumable Fuels industry, has a market capitalization of $55.23 billion and maintains a strong dividend tradition, having paid dividends for 19 consecutive years. The current dividend yield stands at an attractive 7.75%, reflecting the company's commitment to returning value to shareholders.
InvestingPro Tips for Energy Transfer indicate that analysts have revised their earnings upwards for the upcoming period, which could signal confidence in the company's financial prospects following the joint venture. Additionally, the company's stock generally trades with low price volatility, providing a degree of stability in an investor's portfolio.
The following InvestingPro Data metrics offer a snapshot of Energy Transfer's financial health:
- P/E Ratio (Adjusted) for the last twelve months as of Q1 2024: 14.13
- Revenue for the last twelve months as of Q1 2024: $81.22 billion
- Gross Profit Margin for the last twelve months as of Q1 2024: 17.65%
The joint venture is expected to be immediately accretive to distributable cash flow per limited partner unit for Energy Transfer, which aligns with the positive outlook from analysts. For those interested in a deeper analysis, InvestingPro offers additional insights and tips. To explore further and take advantage of these resources, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. There are 9 more InvestingPro Tips available for Energy Transfer at https://www.investing.com/pro/ET, which could further inform investment decisions regarding this key industry player.
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