Williams Partners (WPZ)

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1 MLP Looking Better Than Energy Transfer Partners

By Investopedia | April 27, 2015 AAA |

Energy Transfer Partners (NYSE: ETP) is a behemoth among natural gas pipeline MLPs. The partnership is currently the second-largest natural gas transporter in the U.S., and the largest MLP transporter, as 22% of the country's natural gas production is transported through its pipelines.

Moreover, it will soon be the nation's third-largest gathering and processing company as well as the third largest NGL producer. However, fast on its heels is Williams Partners (NYSE: WPZ), which is not only a large natural gas pipeline company in its own right, but it has an astounding $30 billion in potential growth projects through the end of the decade. It's that visibility into the future that makes it look a lot better to investors than Energy Transfer.

Bringing the family together
Energy Transfer Partners owns and operates one of the nation's largest natural gas transportation systems as the company operates 35,000 miles of natural gas and NGL pipelines. That number will soon expand, as it's in the process of acquiring an affiliated company, which would bring in another 25,700 miles of natural gas gathering and transportation pipelines. Once combined, Energy Transfer Partners will be the second largest MLP in America. Given the importance of scale in the energy sector, there is certainly something to be said about owning one of the sector's largest players.

That said, in one sense, Energy Transfer is just following in the footsteps of Williams Partners; it also recently combined with one of its affiliates, which turned it into one of the largest MLPs in the country. In fact, it's a behemoth in its own right as 30% of U.S. natural gas volumes touch its system in one form or another each and every day.

However, while recent acquisitions helped to consolidate these already-large MLPs into real giants, the next step in their growth will likely come from another source. It's that source that seems to favor Williams Partners.

It's all about the pipeline
Organic growth will really be what drives these two companies in the future. That's where Williams Partners really shines, as it sees the potential for upward of $30 billion in organic growth projects that could be completed by the end of the decade. About a third of that capital is already locked into the company's current growth capital forecast through 2017, meaning these projects are on target to be in service over the next three years.

However, the company has growing visibility beyond those projects due to either what's under negotiation or future expansions that it sees will likely be needed down the road. Further, this won't be growth just for the sake of getting bigger. Williams sees these project completions driving robust cash flow growth, which will be returned to investors via its distribution that it expects to grow by 7%-11% annually through 2017.

For Energy Transfer, the long-term project pipeline isn't as visibly robust. The company currently expects to spend $4.9 billion on growth capex this year and sees upwards of $20 billion of growth projects in the future; however, some of those projects will be built in other affiliated MLPs.

Meanwhile, Energy Transfer doesn't yet have the visibility to clearly project future distribution growth. That said, the company is at least growing its payout now, which was something that, until 2013, the company hadn't done in five years.

Investor takeaway
Williams Partners' future growth is so much more visible than Energy Transfer Partners' growth. That visibility makes it a much more appealing MLP to own for investors looking to hold for the long term, as Williams' clear visibility into the future has it in a better position to outperform Energy Transfer through the end of the decade. Though, of course, that is if everything actually does go according to plan.


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