(Idea) Energy Transfer - Kelcy Warren Risk Is Back In Focus
By: Jon Costello
Energy Transfer, LP (ET) common units have more than doubled in both price and distributions since we bought them for our HFI Research Energy Income Portfolio in December 2020. With the units now trading around our estimate of fair value, downside risk is greater than it has been throughout our holding period. We must therefore be careful not to let our gains cloud our view of ET’s risks.
From the get-go, we’ve considered the brash approach to business espoused by the Company’s Chairman, Kelcy Warren, to be one of the main risks to ET unitholders. When we wrote up our initial thesis, we described Warren as follows:
Warren typifies the hard-charging, empire-building oil and gas executive, more commonly found in the E&P space than midstream. He was the driver of ET’s reckless capital allocation policy, pursuing acquisitions that nearly ruined the company.
Warren enriched himself at his unitholders’ expense through his ownership of IDRs, but even more egregiously through self-dealing transactions.
During his tenure as CEO, he ruffled the feathers of virtually every Energy Transfer stakeholder at one time or another, including unitholders, regulators, Native American tribes, local communities, environmental groups, and other midstream companies. Warren’s aggressive approach to expansion may have been acceptable twenty years ago, but it is out of step with today’s operating reality.
Recent events indicate that Kelcy Warren’s aggressive tactics may be putting ET unitholders at risk once again.