EnLink Midstream LLC (ENLC) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2006 Crosstex Energy earnings conference call. My name is Cheryl and I will be your audio coordinator for today. At this time, all participants are in listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I would now like to turn our presentation over to your host for today's call, Mr. Barry Davis, President and CEO. Please proceed, sir.

Thank you, Cheryl, and good morning, everyone. Thank you for joining us today to discuss Crosstex's third-quarter 2006 results. Bill Davis, our Executive Vice President and Chief Financial Officer, is on the call with me today.

We will conduct the call like we have in the past, as I will make a few introductory remarks and then Bill will discuss highlights of our third-quarter financial results. Then I will provide an overview of our operations and the status of our major projects. And then at the end of the call, Bill and I will answer any questions you may have.

Our third-quarter earnings news release was issued early this morning. For those of you who didn't receive a copy, it is available on our website at crosstexenergy.com. For those of you who want to listen to a recording of today's formal remarks, you have 30 days to access a replay by phone or webcast on our website.

For legal purposes, I must remind you that some of the statements made in the call are forward-looking statements and as such are subject to many factors that could cause actual results to differ materially from our expectations as reflected in the forward-looking statements. These factors are described in our SEC documents, and we undertake no obligation to publicly update or revise the statements.

As we end our third quarter, we are solidly on plan for our overall business results. We have seen several of our operating regions perform well above plan, making up for the previously communicated and continuing underperformance of our South Louisiana processing region.

In addition to good current results, this has been an extraordinary growth year for us, as we have set up several years of organic growth with our strategic position in the Barnett Shale play of North Texas, and we have continued our organic growth in Louisiana and in our treating business. As we look forward, the outlook is even brighter than ever, reaffirming that our growth strategy is working and we are meeting our objectives.

During the third quarter, we made progress on several fronts. Beginning with North Texas, our organic buildout plan is proceeding as planned and the volumes we are transporting on our gathering systems are on target. This is a direct result of wells coming online with higher initial flowrates and new wells drilled and completed by producers in the area, including Devon Energy, the most active E&P company in the Barnett Shale and one of our key strategic partners in the region. Devon continues to pursue an aggressive drilling program, even more aggressive than what we have indicated prior to our purchase of the Chief assets.

Additionally, our extensive Parker County expansion, which complements the Chief assets we purchase last spring, is on track. During the third quarter, we also began construction of a $90 million pipeline expansion project in Northwest Louisiana. And in early October, we expanded our treating business with another strategic acquisition.

We recently announced increases in our dividends and distributions, further confirmation that Crosstex's business strategy and successful growth are paying off. This quarter, we increased the distribution for Crosstex Energy, L.P., for 14 consecutive quarters and the dividend for Crosstex Energy Inc. for 10 consecutive quarters.

Lastly, as you've come to appreciate from our past discussions, we understand clearly that nothing good happens without the people that make it happen. And when you have the kind of growth that we have been experiencing, it is vital to expand your employee base to accommodate the ramp-up in activity.

Since July 1, we have selectively added about 50 people to the Crosstex team, bringing our total number of employees to more than 600. I'm happy to say that we are in great shape, in a hyper-competitive environment for people, to carry out the plan that we have for Crosstex.

Now I would like to turn the call over to Bill Davis, who will update you on our third-quarter financial results.

Thanks, Barry, and good morning, everyone. As Barry said, we are pleased to report that our results for this quarter are on plan for the year. We are also pleased that the results support our ability to continue to raise the distribution, which we have done 14 consecutive quarters, from $0.25 per unit to $0.55 per unit, a 120% increase. And we have increased the dividend from Crosstex Energy Inc. from $0.30 at its IPO in January of 2004 to $0.64 for this quarter, a 113% increase in 10 quarters.

The increase in the distribution of $0.01 per unit from the first-quarter level -- from the second-quarter level by Crosstex Energy, L.P., increased distributions to Crosstex Energy Inc. on its limited partner units by $100,000 and increased its share of the general partners and incentive distributions payments by almost $300,000, which allowed it to make an increase in its dividend of $0.02 per share for the quarter.

The partnership's distributable cash flow of $21.1 million in the quarter provided just over 1.04 times coverage to the partnership's payout of $20.3 million in distributions for the quarter. We are comfortable with our level of distribution increase and the payout of a high level of distributable cash flow than we normally do because we have had such strong historical coverage and we also see coverage for anticipated payout growing in the next few quarters.

We see a continuing ability to build on the distribution in the fourth quarter and in 2007 as the volumes on our Barnett Shale gathering system and on the North Texas Pipeline continue to grow. We will also benefit from the startup during the first quarter of 2007 of the Northlake expansion. With all this growth coming and our historical strong coverage, we are comfortable with the temporary tightness in our coverage levels.

We continued to be challenged in the third quarter by low volumes in the South Louisiana processing business, a result of the 2005 hurricanes. In order to achieve our planned cash flows, the volume shortfall in South Louisiana was overcome by strong volume growth, primarily in LIG in Mississippi, and stronger processing margins throughout the Company.

The partnership reported net income for the quarter of $900,000. After an accounting allocation of $4.1 million of income to the general partner, reflecting its incentive distribution rights of $5.2 million payable for the quarter, less a portion of stock-based compensation attributable to the Corporation's long-term incentive plan of about $1.1 million, the loss allocated to the limited partners is $3.2 million.

This allocation makes the accounting net loss per unit reported for the limited partners $0.12 per limited partner unit. I think most people now understand this accounting entry, but if there are questions on this, I will be happy to answer them during the Q&A session.

On a separate but perhaps somewhat similar note, for tax purposes, the partnership's distributions for the next couple of years are expected to be largely tax deferred, also due to allocations of expense to the limited partners for tax purposes.

As we have in the last two quarters, we are reflecting a new item in our calculation of distributable cash flow, which is the amortization of the net cost of the puts bought to hedge the commodity risk of the South Louisiana processing acquisition. We had a net cost in these puts of $14 million, of which $4 million is being amortized against distributable cash flow this year and $10 million will be charged next year. The increase next year reflects the premium paid for the longer-dated puts versus the shorter-dated puts this year. We have discussed this in the past, but if it is still confusing anyone, we will be happy to take further questions on it during the Q&A session.

Maintenance capital expenditures continued at a low level when measured against guidance. One reason for this is that we are continuing to see fewer treating plants coming off duty for refurbishment, which cost we consider a maintenance capital expenditure. It appears that the current relatively strong gas market is allowing producers to maintain plants on-site for longer than they might otherwise in a weaker gas market. We have also not experienced the level of maintenance requirements due to such things as pipeline washout and compression overhauls that we had anticipated in the plants.

Now turning to Crosstex Energy Inc., as we have discussed in the past, Crosstex Energy Inc.'s financials are largely the product of a consolidation with the MLP. Its statements in accordance with generally accepted accounting principles, or GAAP statement, complicate the fact that it is simply the owner of partnership interests of various kinds and simply receives the cash from the partnership and pays out the cash to its stockholders as a dividend, net of its separate G&A and income taxes.

As you know, Crosstex Energy Inc. should not pay any significant income tax this year or in 2007. We continue to hold back some cash as we set the dividend, although we are not holding back the full 23% of the distribution amount we did before the CEI stock offering for the Crosstex Energy Inc. stock offering to support the Chief acquisition in June.

Since we increased the shares outstanding in Crosstex Energy Inc., but do not yet have an increase in distributions from the Chief acquisition, in order to maintain our dividend growth, we have reduced the tax holdback. This is consistent with our plan at the time of the acquisition.

As to its cash balance, Crosstex Energy Inc. used $9 million of its cash to maintain its 2% interest in the MLP in the Chief transaction. After it receives its distribution from the MLP on November 15 and pays its dividend out of that money, its cash balance will increase by about $1 million to approximately $10 million.

Crosstex Energy Inc.'s stockholders approved the proposed increase in authorize shares at the special meeting recently. We'll announce the timing of the three-for-one stock split that we have been contemplating after paying the dividend next week, assuming market conditions continue to warrant doing so.

By way of summing up, as Barry has said, it was another good quarter, consistent with what we had previously communicated. We anticipate the rest of the year continuing as we have communicated as well.

I will now turn the call back to Barry.

Thank you, Bill. Now we'll spend a few minutes to update you on our operational activities and discuss our recent achievements and plans and expectations as we move into 2007.

First, I want to talk in detail about our activities in the Barnett Shale gas play in North Texas. We connected 50 wells to our gathering system in the third quarter since our acquisition, which includes 39 wells for Devon Energy, our strategic alliance partner in the Barnett Shale. Devon and other producers have drilled and completed an additional 45 wells that await connection to our gathering system.

The 95 wells represent about 70 to 80 million cubic feet a day delivered into our gathering system. A majority of this gas is either flowing or will flow into our North Texas Pipeline downstream of the gathering. As a result of the Chief acquisition and the new construction we have done, we hold a secure competitive position in the Barnett Shale, which is the largest natural gas play in the United States.

You might recall that we had renegotiated terms of a transportation agreement with a producer to increase firm volume commitments on our North Texas Pipeline in exchange for reduced rates. The volume commitment will increase as of December 1, so our North Texas Pipeline committed volumes and cash flow will double to about $18 million per year beginning in the first quarter of 2000, which is consistent with our original plan.

The current capacity of the North Texas Pipeline is 250 million cubic feet a day, and today we're transporting about 100 million cubic feet a day, which will grow, as I have said, to over 200 million in December. We are expanding the North Texas Pipeline's capacity to 375 million cubic feet a day, with additional compression, which is a project that should be completed in the first quarter of 2007.

Moving over to Parker County in the same area, we previously communicated about our $50 million expansion project that includes more than 77 miles of 24-inch pipe, 16-inch and 6-inch pipelines, and two major processing plants, with an aggregate capacity of 85 million cubic feet a day. We have now expanded the project to be $130 million of total investment to include a 200 million cubic feet a day processing plant that will be operational in 2007. These assets in Parker County will gather and process Barnett Shale gas produced in Parker and Johnson Counties and in other counties in the vicinity.

Our go-forth processing plant in Parker County came online in March 2006 with a capacity of 30 million cubic feet a day. Our second Parker County processing plant, located near Azle, Texas, is scheduled to come online next week on November 15. The Azle plant will have a capacity of 55 million cubic feet. And the additional 200 million cubic feet a day processing plant will be operational in 2007. This will bring our total processing capacity in Parker County's system to 285 million cubic feet. The Parker County expansion ultimately ties into our North Texas pipeline in Southwest Denton County.

In addition, we are currently expanding our gathering system of more than 250 miles not only in Parker County, but also in Tarrant, Wise, and Johnson Counties, which was all part of the Chief acquisition and buildout plan.

Further, as we look at the transmission capacity that will be required to move gas out of the gathering systems and the producing basins to major market areas, we clearly see the need for more transmission capacity away. As a result, we are working diligently with key producers on a project to ensure that capacity will be built in the time we need it.

As you can see, the Barnett Shale will be a major growth driver at Crosstex over the next several years. Just to put this in perspective, to date, we have invested about $700 million in the North Texas Barnett Shale play. Over the next couple of years, we expect to increase our investment to well over $1 billion, which equals the total amount of capital we have invested in all of the other assets in the entire Company.

As such, we expect that by the end of 2008, more than half of our cash flow will come from the North Texas Barnett Shale area. This represents the realization of a key strategy we began to pursue in 2002, as we saw the potential of the Barnett Shale, which has now become the largest gasfield in Texas and clearly the hottest play in the United States.

As expected in a newly emerging producing area with the potential to produce 3 to 4 billion cubic feet a day, which would represent 7% to 8% of the daily U.S. production, the development of the midstream infrastructure and the transmission of that gas to market will be vitally important to producers and consumers.

Moving over to South Louisiana processing, or SLP, as we call it, processing volumes remain challenged by the aftermath of the 2005 hurricanes and the effect they had on gas production from the Gulf of Mexico.

As you might recall, we acquired the SLP assets from El Paso in November of 2005, just two months after the Hurricanes Katrina and Rita. As I mentioned in our second-quarter call, we have developed a plan and mobilized a team to focus on creative solutions to the shortfall. Our goal is to close the gap in volumes and cash flow caused by the hurricanes and the disruption to production.

Our team is pursuing the plan with a sense of urgency and is now making things happen. Some of the key elements of the plan are an expansion of our prospecting efforts to include more onshore sources and some not-so-obvious offshore opportunities that we have not worked in the past; additionally, the potential for consolidation of efforts with other underutilized plants in the area. We'll also look at the execution of synergies with our onshore Louisiana intrastate system. And lastly, we will pursue closer working relationships with interstate pipelines and upstream gathering systems in the area to maximize the efficiency of our plants.

Previously, we said that we expected this volume challenge in Southern Louisiana to continue throughout the end of the year. Right now, I can tell you that we feel like we have stabilized the gap, but need to do more to close it. It is taking longer than we expected to do this, so we don't anticipate any significant improvement from these assets until at least late 2007.

The good news in South Louisiana is that the hurricane season was mild this year and no storms hit the coastal area, which has allowed producers to work without interruption, and maybe more importantly, has restored producers' confidence in the area. As we have discussed the situation with key operators in the Gulf and listened to their third-quarter communications, we hear a renewed optimism.

Recent major oil and gas discoveries in the Gulf of Mexico also demonstrate that the Gulf is a major resource that will be developed. It is just a matter of time. Remember that when we bought these assets, we did it to gain long-term exposure to this major resource play, which we have.

Also, in our Louisiana area, I would like to focus on our Louisiana Intrastate Gas system, which is the largest intrastate pipeline system in the state. It has continued to perform well above expectations in the third quarter, with higher pipeline and processing volumes and improved margins. LIG's quarterly results offset the shortfall in South Louisiana, and we are proud to count LIG as part of our key asset base.

In the area, we began construction of a $90 million pipeline project in North Louisiana so that we can bring gas being produced and developed near Shreveport, Louisiana, to better markets accessible off of the LIG system. The pipeline will consist of 65 miles of 24-inch diameter line and nine miles of 16-inch diameter line and will have a capacity of 200 million cubic feet a day. The pipelines will travel through three parishes and connect with our existing 16-inch and 24-inch LIG lines near Nacogdoches. We anticipate this project will be completed in the first quarter of 2007 and are excited about the opportunities it will offer Crosstex and our customers.

As mentioned in the opening, we have several other regions and assets that are performing better than planned. A highlight is our Mississippi system, which is the largest intrastate gas pipeline in the state of Mississippi, with 600 miles of 8- to 20-inch pipeline that traverses the Northwestern portion of the state, running through cities such as Vicksburg, Jackson and Hattiesburg. This system continued to perform well above our plan in the third quarter, with increased volumes and margin.

Now I'm going to spend a few minutes on our treating business. We are now at over 200 amine and dewpoint control plants in operation. In early October, we acquired 12 dewpoint control plants and eight amine-treating plants from Cardinal Gas Solutions. This was a relatively small transaction, but it is synergistic with our operations -- another confirmation of our strategy to grow through acquisition and consolidation in the treating business.

Cardinal's plants that we acquired are located in Texas and Oklahoma, markets that we serve currently, so their operations are synergistic with our existing operation. About 50% of the plants are in service and the rest of the plants are in inventory. The purchase allows us to expand our treating services and improve our market responsiveness.

The Cardinal acquisition brought our amine-treating plants to 168 and our dewpoint-control plants to 37. Even before the acquisition, we led the industry with the largest number of treating plants in operation. Our treating division is a grassroots business and a consolidation play. We literally started from the ground up in 1998 when we made our first treating acquisition. Since then, we have purchased six treating companies, most of which were relatively small, like Cardinal, except for the $50 million acquisition from Hanover Compression Company in January of this year.

Our treating division contributes more than $30 million annually to cash flow, so it is a vital operation to us. The third-quarter 2006 results for treating were strong, exceeding aggressive benchmarks that we set for the business. The primary reason for these positive results was a dramatic growth in the number of treating plants in service. Today, we own and operate approximately 160 amine plants, compared with 111 plants at the end of the third quarter of 2005, about a 45% increase.

Now, to move to a couple of nonoperational areas, first, as Bill mentioned, we are anticipating a three-for-one stock split after the GP pays its next dividend on November 15. The Corporation's stock price is a leading indicator of our market reception. We wanted to make the benefits of investing in the Corporation more accessible to retail investors.

Lastly, as I mentioned in our last call, this year marks Crosstex's 10th anniversary. We celebrated this benchmark recently by ringing the NASDAQ opening bell on Friday, October 20. 14 deserving Crosstex employees from Dallas, Houston and several of our field offices attended the event after they won a Crosstex history trivia contest.

Our NASDAQ market opening was broadcast around the world via CNN, CNBC, Bloomberg, Fox and other major new services. We think it was a fitting, emotional tribute for a company that began operations only 10 years ago with nine employees.

We are pleased to have reported another successful quarter for Crosstex. Our operating results are on plan and our growth plan is on target. We are undergoing tremendous organic growth, so much that growth through large acquisitions is not a requirement at this time. However, we remain prepared if the right opportunity arises.

As employee-owners, we enjoy the benefits that our positive results and accomplishments bring us and our investors. Likewise, we enjoy the challenges we face as well because they encourage us to think like bold entrepreneurs and come up with innovative solutions to solve problems and create value.

We started Crosstex as an entrepreneur's dream only 10 years ago. We became a strong competitor in the midstream industry in less than a decade. And we have tripled in size since just this time last year. Our employees and their enthusiasm to not only get the job done, but to get the job done right, are the essence of Crosstex. I wouldn't be on this call today if it weren't for my teammates, who think like owners, make independent decisions and act with urgency to solve problems and create opportunities. They play a vital role in developing and maintaining our Company values, ethics and culture. I would like to congratulate them on making Crosstex what it is today.

Now I would like to turn the call back to our operator, Cheryl, who will facilitate our question-and-answer session. And Bill and I will be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS). Yves Siegel, Wachovia Securities.

Could you just review what the CapEx dollars that you think you will end up spending in the fourth quarter, and then what 2007 is going to look like?

I think by the time we finish the year, and let me get our [cume] here, we will have spent just under $400 million total. And the fourth quarter's dollars will be focused on the North Louisiana expansion, which is going to be an aggregate project of almost $90 million. I think about $10 million of that had been spent by the third quarter, and then continuing expansion in Parker County, as well as the Chief buildout.

The aggregate of all of those in the fourth quarter, just looking at how much has been spent year to date, is probably going to be on the order of $130 million that we'll spend in the fourth quarter completing those.

And then as we look out into '07 with projects that we have got in hand, that is continuing the Chief buildout, continuing with the North Texas Pipeline expansion that we discussed, the Parker County processing -- expanded processing that we discussed here recently, we will probably have -- those will probably have an aggregate CapEx in '07 of on the order of $140 million or so.

And then, as Barry said, we are working to try to, with certain producers, to try to identify the way to expand the transport capacity out of the Barnett Shale. So that could result in a significant additional expansion of the growth CapEx that we have got in '07.

Have you finished procuring all the pipe that you need?

For the North Louisiana?

Yes.

Yes.

Yves, we, on each of these projects, one of the first things we do is to secure the pipe to make the cost of steel a certainty. And in fact, anything that we have mentioned today, basically we have either made a purchase or created an option and fixed the price of the steel. So we are in good shape there.

And Barry, what type of returns are you thinking about on the expansion projects?

Typically, Yves, what we're seeing here is something that is in the high teens -- the mid- to high teens returns on a base case, with upside -- typically, we are looking for some upside above that if things go really well.

So in essence, they're not getting eroded with competition.

No, we really haven't seen that yet. Certainly there are more people looking at organic opportunities today than they have in the past. But we are still seeing the economics really being -- still remain very good.

And then just last two questions -- on the processing plants that you are building now, what type of contracts are you offering? Is it fee-based, keep-whole, POPs?

Mostly fee-based with a mix of some percent of proceeds that allow us to participate in some of the value of the liquids. But no keep-whole -- we're staying out of the frac spread business.

And then finally, when you think about the distribution for the fourth quarter, what are the factors that you are going to take into consideration going into the fourth quarter? Because I think way back when, you had a target out there. So I'm just wondering if you might look at '07 to support the decision for the fourth quarter.

We always look out several quarters whenever we set the distribution and take into account what we think is going to be happening over the next four to six quarters in terms of project development, cash flows and so forth.

Our guidance early in the year was that we would have a distribution of between $2.10 and $2.20 this year. We are at $1.62 thus far with what we paid through the third quarter. So to hit the middle of that range would get us -- would require us to get to -- actually, another $0.55 would, I think, get us to $2.17.

We've talked in terms of perhaps getting as high as $0.60, which would put us at $2.22 for the year. I think we are going to bracket somewhere in that range. And where exactly we land, I think we will just have to wait and see exactly how the quarter plays out before we make a final determination.

And just on the share count as well for the quarter, how are you accounting for the special units that you issued earlier in the year? Is that not being used in the calculation?

No, because we've got a net loss per unit, those become anti-dilutive in the loss per unit calculations. So they're not a factor after that GP allocation of income.

Ron Londe, A.G. Edwards.

Curious in the operating data, where does the Chief volumes come in? Is that in the North Texas number? And what part of that number is Chief at this time?

Yes, they are in there. And as Barry said, we have currently got around 100 million a day on that system -- actually, about 130 million a day on that system, which has grown since the acquisition by 15 million, 20 million a day. We have got -- and then of that amount, the bulk of that, but not all of it, 60% or more of it, is going into the North Texas Pipeline at this point in time.

Actually, Ron, I am going to say to Bill, I think -- we don't separate out the gathering versus the transmission system. What you see there really is the total of what is going through the gathering system. And it doesn't separate out what actually goes into the downstream transmission. I think with the quarter end, we are running at around 135 million a day in the gathering systems and ramping up quickly. I will say that it is ahead of plan. At our acquisition just three months ago, we were already well ahead of plan on what we thought would be moving through the gathering systems.

And that volume is ramping up daily, basically. So that is why you see a number for the three months of somewhat under the 130-odd that we're talking about being on the system today.

You said earlier that you didn't have any exposure to the processing business, especially keep-whole. Is there any exposure at all? Or is it just minor at this point, or can you give us --

Let me clarify, Ron, my answer. I think the question that Yves asked was as you put together these new processing contracts for the new plans that we talked about, so let me just clarify that it is the new contracts. We do have processing exposure on the historical plants that we have in contracts that are in place, including a limited amount of frac spread contracts or keep-whole contracts. In fact, with that, do you want to re-ask your question, I guess, to make sure we focus on the rest of it?

Yes, can you focus on the rest of it?

Specifically what, Ron? I'm not sure I was clear on --

Well, the Corpus Christi area, the Gregory system.

Gregory has virtually -- it might have 1% of its volume with keep-whole still.

And in Louisiana and other parts --

In Louisiana, we've got some gas where we have what we call a keep-whole opportunity. We don't have keep-whole exposure. In good processing markets such as we have had this year, we can take that gas and process it and create the processing margin. If the margin gets to where we don't it, we can bypass the plant and take that gas directly to market.

And other areas in South Texas?

That is all the keep-whole that we've got.

Ted Gardner, Raymond James.

Just a quick question for you on the Devon agreement that you guys entered into last quarter as far as the reduced fee for additional volumes. Can you guys comment on what kind of impact that might have had on total gross margins during the third quarter?

Yes. It probably reduced the margin in that quarter -- give me a second to cheat here; I will get a precise number -- it is around $1 million.

[Sarah Pidwell], White River Partners.

I have a question, back to the one about the North Texas pipeline and the Chief assets -- are you still expecting the Chief assets to contribute about $10 million in cash flow for 2006?

Once again, I am going to cheat and go to my notes. I think that was a 12-month number. And for the second half of the year, yes, we will see it at that annualized rate or a little higher than that, actually, from an annualized rate. But the $10 million that you have seen talked about there was a 12-month 2006 number.

And have you seen any updated drilling schedules from Devon recently?

We have. They are consistent with what we saw prior to the acquisition, which is what we based all of our forecasted throughputs on. No changes, really, and in fact, just very solid optimism from Devon's perspective on the Chief transaction, and just feel like everything is on plan or above plan.

And do you have any concerns that if we have a warm winter or it's not as cold as expected that you will see a decrease in any drilling throughout your system?

Well, that is certainly a much-discussed subject in the marketplace right now. And I would say that we're happy that we are where we are as far as the operating areas. We think that they are some of the lower-cost areas for drilling and development.

And in particular, I'll focus on the North Texas Barnett Shale area being in the core of the play. We believe that the economics will remain solid at any price forecast that we anticipate. We also think that it is important to have people with a long-term view line Devon and other key producers that we are working with there that will, we believe, drill through any short-term decrease in gas prices. And they have certainly indicated in any comments that they have made publicly that they would intend to do that.

So we feel good about it. If you saw an extended downturn in gas prices, then you've really got a different situation than we expect. So we remain optimistic that the gas prices will support the activity needed in these key areas.

And one last question -- do you have any major new pipeline projects in the work, or anything on the drawing board right now?

Really, I think most of what we would want to talk about we mentioned in the call. All of the gathering and expansion that we have in the Barnett Shale area, the Louisiana area, and then as we mentioned, we are very focused on additional transmission takeaway capacity out of the Barnett Shale. We think that it is insufficient to meet the needs of where we will be three to four years from now. And now is the time that we have to start making that happen. So we are very focused on that as well.

(OPERATOR INSTRUCTIONS). Yves Siegel, Wachovia.

Just a quick follow-up -- would you guys contemplate a pipeline JV? Or would you pretty much want to go it alone?

We are open to all opportunities. If there is a project that makes sense and there is a partner that brings something to the table that is additive to the project, then we would be all for it. And in fact, I would tell you that we are currently having some discussions about that, and there could be some real strategic partners that we would look at working on projects with.

Thomas Stern, Chieftain Capital Management.

It is actually Glenn Grennberg for Tom. I wonder if you could comment on where you stand in terms of undedicated acreage in the Barnett Shale in your discussions with producers and so forth, and where that stands relative to your estimates of where you would be, looking out over the next year or two.

Absolutely, and you recognize the importance of that component of throughput that we projected at the time of the Chief acquisition. We basically broke it into three categories -- Chief, or now Devon, throughput anticipated on the pipelines, and then dedicated acreage from third parties, and then the third increment being the undedicated third party, which is basically what we will compete for and are competing for in the marketplace.

We feel good about the progress that we have made to date. There's several other very key operators in the Barnett Shale. And you are familiar with all of those players, I am sure, as you keep up with the Barnett Shale -- the Quicksilvers, XTOs and others -- EOG. We see those guys as driving significant volumes in the future out of the Barnett Shale. And we are working very closely with them.

I think what we want to do is probably develop a metric sometime in between now and the next call to give you a better feel for what is happening there. Today, what I would simply say is that we are on plan. We are contracting for those third-party undedicateds, as we expected, seeing the relationships evolve the way we expected. So we feel good about them becoming -- realizing that third-party undedicated portion of throughput.

One follow-up question -- what kind of discount do the producers in the Barnett Shale get on their gas because of perhaps inadequate takeout capacity?

Well, if you look at it right now, if you compare it to, say, gas that is produced in North Louisiana or East Louisiana, which is where transportation takeaway is trying to get it is basically into those markets areas of East Texas, North Louisiana and Eastern Louisiana, the range of differential is somewhere between $0.40 and $1.

And so what you are doing is trying to provide some transportation linkage by building pipelines to essentially bridge that span and get a higher netback for the producers. And our North Texas Pipeline does that. We are providing a netback to the producers; it's probably somewhere in the $0.20 to $0.30 better than they would have realized if the pipe would not have been built.

Some of the things that we are looking at now could also add as much as $0.50 to $0.60 better netbacks to the producers than what they are realizing today, if we can get the gas over into some of the key market hubs that access the Eastern United States. So the dollar that they're seeing differential today to, say, a basis on the East Coast could be squeezed to be half of that in the future.

So if you could save that kind of money for producers on future projects, would it be fair to assume that you can get higher margins because you'll be able to keep some of that differential yourself?

Well, the nature of these projects is that you are dealing with large anchor shippers that are basically trying to lock down the transport rate. And those transport rates kind of drive a rate of return that is acceptable to us on a kind of a baseload basis or a low-risk basis, with the producer really keeping the majority of the upside, if you will, that would come from closing that differential.

Now, we will have excess capacity on the North Texas Pipeline. And if we were to have another transmission line out of there, we will have some capacity above the base contracted volumes. And we would certainly have the opportunity to arbitrage, if you will, across those pipelines to realize a greater percentage of the differential.

[Garrett Lasky], RBC Capital Markets.

Just one quick question -- could you go into maybe a little more detail on the Southern Louisiana processing, kind of what the plans might be for that?

I think it's -- in fact, we kind of debated on how much we really wanted to say about that, because certainly it is an area that others are dealing with the shortage of supply for all of the plants in that area. I would just simply say that what we are doing is we are adding additional resources, more people, to focus on the challenge of getting volumes into the plants and making plants operate more efficiently, looking at consolidations, etc. I don't think I really want to be any more specific than that. But generally, those are the types of things we are focused on.

(OPERATOR INSTRUCTIONS). Alex Meyer, Zimmer Lucas Capital.

A quick question -- in terms of the Parker County expansion project you talk about, that is not included in the base cash flows projections you provide for the Chief acquisition, right?

Right.

And also, in terms of the timing, when will that plant come online, do you guys think?

Well, the capacity will be operational in '07, but it will be a process of building volumes on it. We see the volumes getting up close to capacities sometime in '08.

(OPERATOR INSTRUCTIONS). And ladies and gentlemen, this concludes our question-and-answer session. I would like to return the floor to management for any closing remarks.

Cheryl, thank you for facilitating, and then also to everyone on the call today, we continue to be thankful for your support and your interest in Crosstex. As always, your support is what allows us to continue to do what we love doing, which is building a great company. And we look forward to reporting to you at year end and after our fourth quarter. Thanks again for being on the call today, and we look forward to talking to you soon. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes our presentation. You may now disconnect. Good day.