DAPL Denied: Energy Transfer's Useful Rage

(Bloomberg Gadfly) -- There is method to Energy Transfer's madness. And by madness, I mean rage:

The Administration’s statement today that it would not at this time issue an “easement” to Dakota Access Pipeline is a purely political action – which the Administration concedes when it states it has made a “policy decision” – Washington code for a political decision. This is nothing new from this Administration, since over the last four months the Administration has demonstrated by its action and inaction that it intended to delay a decision in this matter until President Obama is out of office.

That was the just the opening of Sunday night's response from Energy Transfer Partners LP and Sunoco Logistics Partners LP to news that the U.S. Army Corps of Engineers wouldn't issue the final permit needed to complete a pipeline bringing oil south from the Bakken shale basin.

Despite the heightened emotion, Energy Transfer was careful enough to mention "administration" three times alone in the opening paragraph. The not-so-subtle implication is that once the current occupant of the White House departs in January, the Army Corps will rediscover its liking for the pipeline's current proposed route. In case anyone missed that, further down the release, the companies state baldly that they:

Fully expect to complete construction of the pipeline without any additional rerouting in and around Lake Oahe. Nothing this Administration has done today changes that in any way.

That may well be the case, but it isn't a slam dunk from the market's perspective: Energy Transfer Partners dropped as much as 7 percent overnight (though it's currently down by just 3 percent).

DAPL Denied: Energy Transfer's Useful Rage

While president-elect Donald Trump's administration would almost certainly try to ease the pipeline's path, it's just possible the nature of the decision this weekend complicates the timing, as Kevin Book at ClearView Energy Partners points out in a report published on Monday.

The Army Corps didn't block the pipeline per se, but rather said further study on alternative routes is required. This could entail nothing more than a delay of just over a month. Alternatively, if it lets pipeline opponents get a further injunction against the current proposed route, then a longer delay or even a costly re-routing cannot be ruled out entirely.

What makes this uncertainty particularly acute is Energy Transfer's own current vulnerabilities.

There is of course a penalty to having any growth project potentially delayed, as eventual profits get pushed further out in time. But the more pertinent issue here is cash.

As demonstrated by the recent surprise announcement of a merger between Sunoco Logistics and Energy Transfer Partners, which contained a stealth dividend cut, Energy Transfer is focused on reducing leverage within the group of companies. Since the deal was announced, and despite promised synergies, the combined value of the two partnerships had dropped by $3.7 billion, or 12 percent -- even before this weekend's setback.

And the two partnerships were expecting to receive $2 billion by the end of the year for selling roughly half their 75 percent stake in the pipeline project to Marathon Petroleum Corp. and Enbridge Energy Partners LP.

It isn't clear if that payment has been made already -- in which case the acquirers might ask for it back until things are clearer -- or will simply be delayed. Neither situation would be helpful. Hence, repeating the role of the current, soon-to-be-gone administration's role in Energy Transfer's frustrations doesn't just vent spleen. It also serves a role in trying to reassure investors that help will arrive soon from Washington, D.C.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Liam Denning in New York at ldenning1@bloomberg.net.