When gas prices in North Texas’ Barnett Shale collapsed from roughly $8 to $2 per million cubic feet following the 2008-09 financial crisis, Kelcy Warren faced a genuine problem. His company, Energy Transfer Partners, was the country’s largest natural gas transporter and heavily dependent on that single commodity.
Rather than wait out the downturn, Warren and his executives moved fast. The March 2011 purchase of Louis Dreyfus Highbridge Energy’s natural gas liquids assets gave the company its first real entry into a business it had never operated in before. Warren called an emergency board meeting on a Friday night to approve the roughly $2 billion deal in time to announce it at the market’s next opening.
A New Direction
That deal became a turning point. Energy Transfer had been almost entirely gas-driven before the bust; afterward, it built out exposure to oil, natural gas liquids, and refined products so that a downturn in one stream would not sink the whole business. Kelcy Warren later described the shift as a kind of natural hedge, since gas liquids tend to boom when gas prices are weak, and the reverse holds true as well.
The Barnett experience also shaped how Warren thought about opportunity. He has said that nothing about the aggressive acquisitions ever felt reckless to him, even when markets and analysts viewed the moves with skepticism. Critics existed, he acknowledges, but conviction carried the company through.
Two decades after founding Energy Transfer with partner Ray Davis, Warren had transformed a regional gas hauler into a diversified pipeline network moving nearly a third of the nation’s oil and gas supply, a legacy that traces directly back to the choices made during the Barnett downturn.
The Barnett Shale itself had been a major win for the company only a few years earlier, after Energy Transfer acquired the midstream natural gas assets of TXU Fuel Co. in 2004, entering a formation with no competing pipelines nearby. Kelcy Warren has said the play worked out remarkably well in its early years, even though production ultimately declined far faster than anyone expected, falling from billions of cubic feet a day to a small fraction of that volume. See related link for additional information.
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