EnLink Midstream LLC (ENLC) 2008 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to fourth-quarter 2008 Crosstex Energy LP earnings conference call. My name is Jasmine and I will be your operator for today.

At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Miss Jill McMillan of Crosstex Energy. You may proceed.

Thank you Jasmine and good morning everyone. Thank you for joining us today to discuss Crosstex fourth-quarter and year-end 2008 results.

On the call today are Barry Davis, President and Chief Executive Officer; Bill Davis, Executive Vice President and Chief Financial Officer; and Bob Purgason, Executive Vice President, Chief Operating Officer. Barry will begin our call with some brief introductory remarks and an overview of our fourth-quarter and year-end performance. Then Bill will discuss detailed financial results and Bob will provide an operational update.

Finally, Barry will briefly discuss the outlook for Crosstex. At the end of the call, Barry, Bill, and Bob will answer your questions.

Our fourth-quarter and year-end 2008 earnings release was issued early this morning. For those of you who did not receive a copy, it is available on our website at CrosstexEnergy.com. If you want to listen to a recording of today's call, you have 90 days to access a replay by phone or webcast on our website.

As we begin this morning's call, I will remind you that any statements that might include our expectations or predictions should be considered forward-looking statements within the meaning of the federal securities laws. These statements are based on certain assumptions, based on management's experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate in the circumstances.

These statements include but are not limited to statements with respect to future financial performance and access to capital. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond our control which may cause our actual results to differ materially from those implied or expressed by the forward-looking statements. Factors that could cause actual results to differ materially from their expectations are included in the periodic reports we filed with the SEC.

We encourage you to carefully review and consider the cautionary statements and other disclosures made in those filings, specifically those under the heading 'risk factors'. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

I will now turn the call over to Barry Davis.

Thank you Jill. Good morning and thank you all for joining us on the call today to discuss our fourth-quarter and 2008 year-end results.

As you know, we are experiencing a series of unprecedented events, both in terms of our industry and our economy as a whole. In the last five months our world has changed significantly.

Financial markets have continued to deteriorate. Extremely low natural gas liquids prices have reduced our outlook for processing margins and constrained capital markets combined with low natural gas prices have reduced drilling budgets of producers around our systems. Furthermore, our EBITDA for the second half of the year was negatively impacted by the September hurricanes Gustav and Ike.

Last quarter we outlined three main objectives for our business going forward -- to increase liquidity, reduce leverage and improve profitability. During the fourth quarter we made substantial progress toward meeting these objectives. And although the operating environment remains difficult, we will continue to focus on this strategy throughout 2009.

The partnership continues to produce strong cash flow. Cash flow for the year ended December 31. 2008 was $198.5 million, an increase of $62.5 million over 2007.

Distributable cash flow for the same period was $180.2 million, an increase of $64.2 million over our distributable cash flow in 2007. Distributable cash flow in the fourth quarter and the full-year 2008 includes $38.2 million of proceeds in excess of invested capital on the sale of the partnership's interest in the Seminole gas processing plant and other income of $20 million associated with the assignment of certain contract rights to a nonaffiliated third party.

We have taken action to increase liquidity and deleverage which we recognize is extremely critical in today's environment. On the third-quarter earnings call, we said we were exploring the sale of noncore assets to increase liquidity and pay down debt.

In November, we completed the sale of our interest in the Seminole gas processing plant and sold certain contract rights, resulting in total proceeds of $105 million. We also just completed the sale of our our Arcoma system in Oklahoma, resulting in net proceeds of approximately $11 million.

We will continue to evaluate the sale of noncore assets to improve liquidity and further delever the Company. While it is likely that asset sales will be an important part of our financial strategy moving forward, we want to emphasize that we are looking at this strategically and will only consider the sale of noncore assets at the right prices.

Last November we amended the agreements with our lenders to obtain approval of the asset sales and to adjust our debt to EBITDA and EBITDA to interest covenant levels to address the impacts from the hurricanes. Since then, the collapse of natural gas liquids prices and natural gas prices and their impacts on producer drilling activity and processing business has further reduced our anticipated 2009 EBITDA.

With our revised EBITDA outlook, the terms we negotiated in November would not have been sufficient to allow us to operate during 2009 without potentially triggering a default under our facilities. To address these concerns, we have just completed further amendments to our agreements with our banks and private lenders.

Bill will discuss the details of the amendments, but let me say that we are extremely pleased to have the support of our lenders through this difficult period to give us ample time to strengthen our balance sheet and increase our financial flexibility. We've been working with Goldman Sachs in connection with our credit agreement amendments and asset sales and we will keep their team engaged with us as we work on other initiatives moving forward.

We also announced today that we're suspending our quarterly distribution and dividend until we meet certain conditions under our new lending agreements. Bill will address this in more detail, but we do not foresee paying distribution or dividends in 2009.

We certainly understand that Crosstex's yield has made it an attractive investment for many of you. At this time, it is imperative that we remain focused on increasing liquidity and reducing leverage as we manage our business for the long-term. We believe this is a necessary step given the current state of the markets in which we operate.

In terms of our liquidity position, we have ample liquidity to continue to run our business. In the third quarter of 2008, we said we would have approximately $240 million available capacity under our revolver at year-end.

We actually ended the year with capacity of approximately $335 million available and are focused on maintaining a strong liquidity position. We remain committed to creating value for our shareholders and unitholders and we are actively working to delever our balance sheet so that we can restore our dividends and distributions.

We've also taken a number of actions to conserve cash, as we anticipate that access to the capital markets will continue to be limited through 2009. These include reducing CapEx and costs, which Bill will discuss in further detail later during the call.

We've made maintained our position as a leading midstream Company with a great portfolio of assets in strategic locations and excellent long-term customer relationships. Even though we are reducing CapEx, we are still growing our asset base.

We remain focused on our larger projects in North Texas and Louisiana, where we see the greatest growth in cash flow opportunities. In the fourth quarter, we saw solid growth in our base business, including sustained volume growth in North Texas.

We're continuing to capitalize on strategic positions in the Barnett Shale and the Haynesville shale. This includes robust growth in our treating business, driven by strong demand for plant installations in the Haynesville shale this quarter. Bob will discuss these operational discuss these operational updates in further detail later in the call.

Finally, let me address some changes we made to our Board of Directors during the quarter. The Partnership has appointed Reese Best as Chairman of Crosstex Energy LP.

Reese has served on the Partnership's Board since 2003 and was named lead director in 2008. He has been a tremendous resource to the Partnership Board and our management team over the years.

With his extensive experience in the energy and banking industries, Reese has led companies through challenging business cycles and we look forward to continuing to benefit from his expertise in this new role. In addition, in February, we announced the appointment of Kyle Vann to the Board's audit committee.

Kyle joined our Board in 2006 and will serve as the third independent member of the audit committee of Crosstex Energy GP. In conclusion, we believe that in time, as liquidity returns to the capital markets, commodity prices stabilize and growth in key producing regions accelerates; we will be well positioned to capitalize on our strategic operational advantages.

We believe this business can and will return to normalized cash flow levels. We're happy our lenders have supported us in our work towards these goals. Now let me turn the call over to Bill Davis to discuss the fourth-quarter and year-end financial results.

Thanks Barry. Good morning everyone. As Barry said, we are taking the appropriate actions to address the challenges before us.

As it relates to near-term liquidity, at the end of the fourth quarter we had bank revolver debt outstanding of approximately $784 million and LC commitments of approximately $66 million, leaving the $335 million available under our revolver that Barry earlier referenced. As discussed earlier, one of the more significant events of the fourth quarter was the restructuring of our loan agreements with our banks and our senior lenders. We have just reached a second agreement with our lenders, resulting in a further relaxing of our financial covenants for 2009 and 2010.

The key terms of the amendment are outlined in our press release and a more detailed discussion is included in the 10-K, which will be filed later today. Obviously there are significant costs associated with this amendment, but we feel it gives us room to continue to navigate this challenging environment and preserve the value of our assets until market conditions improve.

We appreciate the support of our lenders as we work through the issues before us. As Barry mentioned, the suspension of the quarterly distribution of dividend is a necessary step until we achieve a significant reduction in our leverage.

Under the terms of our credit agreements, minimum quarterly distributions and dividends will be suspended until our releveraged ratio is below 4.25 to one and other financial tests are met. We do not anticipate events will occur during 2009 that would decrease our leverage ratio to this level. Although cash distributions won't be paid, it is anticipated that the Partnership will continue to allocate taxable losses to the unitholders in 2009 so that no tax expense should be incurred.

As previously communicated, in another effort to improve our liquidity, we've significantly reduced or 2009 capital expenditures and intend to fund only our most important projects. For the fourth quarter of 2008, we reduced our capital expenditures from a budget of $98 million to only $57 million. For 2009 we have reduced our originally budgeted capital expenditures from $434 million to approximately $100 million.

As we stated in our third-quarter call, the startup of the Bear Creek plant will be delayed until 2010. In addition, we have reduced the capital on Phases I and II of the Benbrook project in North Texas to approximately $20 million.

We continue to expect to complete additional other North Texas infrastructure over the course of 2009 for a total investment in North Texas in the year of approximately $55 million. In North Louisiana, we're working on a Phase II expansion of our Red River system at a cost of approximately $35 million which is expected to become operational in the third quarter in 2009. We're continuing to review alternative capital sources to fund other projects, as we did with our Mechanicsburg project in Mississippi, as Bob will discuss later on the call.

We're also focused on cost savings. We have planned for reductions of approximately $6 million in operating expenses during the year.

Preliminary first quarter results indicate that we're exceeding this important goal. We also took the initiative to lower overhead expenses by reducing approximately 10% of our workforce, which we expect will result in a net savings of approximately $7 million in 2009. This was an extremely difficult, but necessary step.

Finally we're pursuing a number of margin enhancement initiatives in both our midstream and our treating segments. Our fourth-quarter 2008 adjusted cash flow was $60 million and our full-year 2008 adjusted cash flow was $243 million.

Distributable cash flow in the fourth quarter was $68.7 million compared to $41.1 million in the fourth quarter of 2007. Distributable cash flow for the full-year 2008 was $180.2 million compared to 2007 distributable cash flow of $116 million.

Onetime items included in the 2008 figures included the loss of approximately $25 million due to the hurricanes, approximately $38 million representing the portion of the Seminole gain that exceeds our invested capital in the asset and $20 million of other income on our assignment of certain contract rights. As you know, we have been impacted by the substantial decline in NGL prices in the second half of the year which resulted from the 77% decline in crude oil prices from their high of approximately $145 per barrel in June to a low of approximately $34 per barrel in December.

As a result, in the fourth quarter 2008, we saw processing margins decline by $37 million from the level we achieved in the fourth quarter of 2007. As a result of both this and the hurricanes, our fourth quarter gross margins declined $28 million to $91 million compared to $119 million in the fourth quarter of 2007.

In 2009 we have hedged approximately 80% of our hedgeable percentage of liquids exposure for the first quarter of the year and approximately 44% of hedgeable percentage of liquids exposure for the entire year, which comes close to what we would consider fully hedged as we defined it for the year. We expect to have, as we have had in the past, significant additional percentage of liquids volumes that are not hedgeable as they're not contractually committed to us over the long term.

Importantly as well, natural gas prices have also declined by approximately 61% from a high of $13.58 in July to a low $5.29 in December and to $4.00 or thereabouts in the early part of 2009. As a result, we have seen a decline in drilling activities by gas producers in our areas of operations during the fourth quarter and as we will see in our guidance, anticipate further declines in 2009.

Industry drilling rig count surveys show a continued decline in rigs in operation early in the year. Partnership gross margin for the full-year 2008 rose 13% to $421 million from $372 million in 2007, despite $60 million in reductions due to the hurricanes and due to lower processing margins year-over-year.

The increase that we achieved was primarily due to greater system throughput on the Partnership's North Texas pipeline and gathering systems and the North Louisiana pipeline expansion. Of the increase, the midstream segment contributed approximately $44 million and the treating segment contributed approximately $5 million.

Operating expenses increased to $169 million in 2008 from $125 million in 2007, primarily due to growth and expansion in North Texas, North Louisiana and East Texas. G&A expenses in 2008 rose to $71 million from $61.5 million in 2007. The increase was related to lease termination fees and additional office rental expenses for the canceled expansion of our corporate headquarters and bad debt expense related to the (inaudible) LP bankruptcy.

Interest expense rose to $102 million in 2008 from $79 million in 2007 primarily due to a charge of approximately $22 million of non-cash marked to market on our interest rate swaps. Other income for the year includes $20 million for the assignment of contract rights discussed earlier in the fourth quarter of 2008 and $7 million associated with the first quarter 2008 settlement of disputed liabilities assumed with an acquisition.

Depreciation and amortization expense rose $24.5 million, primarily the result of additional expansion projects in North Texas and North Louisiana. During the fourth quarter, the Partnership recognized impairment expenses totaling approximately $30 million, primarily related to the Bluewater gas processing plant which was approximately $18 million, midstream goodwill of approximately $5 million and other miscellaneous assets of a little over $7 million. This resulted in the Partnership reporting net income of $10.8 million for the year compared with $13.9 million in 007.

Now turning to Crosstex Energy Inc., the Corporation has a cash balance of approximately $14 million as of February 2009. With estimated annual expenses of approximately 2 to $3 million, the Corporation has plenty of cash to manage its affairs while distributions are suspended.

The Corporation plans to suspend its dividends until the Partnership's distributions are resumed. For 2008 dividends, approximately 31% were qualified taxable dividends and approximately 69% were a non-taxable return of capital.

Turning to guidance, in 2009 we are assuming a continuation of relatively low commodity prices. As a result, we are forecasting lower processing margins than in the prior few years and a general slowdown in producer drilling activities.

For 2009, we're forecasting adjusted cash flow in a range of $184 million to $211 million compared with our previously reported guidance of $250 million to $300 million. We've lowered our cash flow guidance compared with our prior communications, primarily reflecting the expectations for significantly reduced drilling activity, particularly in the North Texas area, consistent with recent announcements by various producers and for continued lower NGL and processing margins.

In giving our guidance, we are assuming our average liquids price will be between $0.58 and $0.75 per gallon, implying a crude price of between $39 and $50 per barrel. We're also assuming average Henry Hub prices of between $4.00 and $4.50 per MMBTU.

Every $0.10 change in liquids prices from our assumptions would equate to a change of about $6 million in margin on a percentage of liquids contracts net of our hedges. We have assumed an NGL to gas ratio of approximately 186% at the high end to around 164% at the low end.

Every 5% change in that ratio approximates $4 million of margin for us on an annual basis. At the low end of that range, we have only forecast approximately $9 million of fractionation margin. And since that margin can't go below zero for us, that is our maximum exposure on the downside.

Now I'll turn the call over to Bob who will review our operations.

Thank you Bill. I am going to review our operations and update you on fourth quarter activities and accomplishments in 2008. I will also give you some insight as to what we see for 2009 when Crosstex as well as many of our customers are operating in a capital constrained environment.

I will begin in North Texas where we capitalized on many opportunities and achieved significant volume and revenue growth in 2008, even with the continued delays in infrastructure development, equipment delivery and right-of-way access in the Barnett Shale play. North Texas pipeline throughput reached its full capacity of 370,000 MMBTUs per day several times during 2008 and our average throughput was approximately 322,000 MMBTUs during the year.

Fourth quarter 2008 throughput for the North Texas pipeline was about 308,000 MMBTUs per day, down 10% from third quarter of 2008. This reduction was primarily attributable to the election by [firmed] shippers to redirect gas to alternative markets where prices were more favorable.

However, the good news is that this reduction had minimal financial impact because we continued to receive full demand charges for the reserved firm transportation capacity even though it was unused. By the way, Crosstex also delivered gas to alternative markets during this time where we took advantage of better product prices as well.

Natural gas processed in the fourth quarter averaged 226,000 MMBTUs per day or 13% above third quarter 2008 volumes. We saw a reduction in the total amount of liquids we can recover from our plans due to NGL curtailments and NGL capacity bottlenecks from the Barnett Shale.

However, we're now currently operating at full levels and recovering liquids without NGL curtailments and new pipeline capacity is coming online the second quarter of 2009. While 2008 throughput on our North Texas gathering system was lower than our initial projections, fourth quarter throughput was approximately 790,000 MMBTUs per day or about 4% higher than third quarter 2008 and more than six times the average volume of 115,000 MMBTUs per day when we acquired the assets in 2006.

Volumes delivered in our gathering systems were higher in the fourth quarter compared with third quarter 2008, however, total 2008 throughput did not meet those forecasts, our initial forecasts. We continued to expand our gathering infrastructure with the addition of gathering lines, compression and treating facilities and early in 2008, we added 22,000 dedicated acres with one major producer.

Fourth quarter 2008 throughput on the North Johnson gathering system was 219,000 MMBTUs per day compared with only 95,000 MMBTUs per day during the same period in 2007. We're adding two large compressor stations that will allow this system to move up to 400,000 MMBTUs per day at a considerable increase from our current capacity of about 235,000 MMBTUs per day. We expect to complete the installation of the new compressors in the second quarter of 2009.

As we said in the third quarter earnings call, we've revised our 2009 production forecast to account for the drilling delays by producers. We were continuing to see producers reduce the number of rigs running the Barnett shale, as many of them have significantly reduced their 2009 capital spending plans and revised their drilling programs.

As of today, we have connected more than 425 new wells to our gathering systems and about 158 of these in 2008. We also have approximately 50 wells that were completed in 2008 and not yet flowing to our system.

This will help continue the volume growth in North Texas. We anticipate growth in West Tarrant County in particular and have had executed agreements to gather and process gas from major producers in the area. We expect these expansion plans will be completed in the first quarter of 2009.

We have previously announced that we're delaying the construction and completion date of the Bear Creek, our fourth cryogenic processing plant, as a part of our capital spending reductions in 2009. Producers have since indicated that they are reducing drilling in the area, which further validates our decision to postpone Bear Creek. We now anticipate plant startup to be no earlier than late 2010.

In North Texas, we continue to leverage our well-positioned assets and solid customer relationships to build our business. Despite our spending limitations in 2009, and the slowdown in the industry operating environment in the region, we remain optimistic about the growth prospects as a result of the development of the Barnett Shale.

Our main producers are lowering capital expenditures and reducing the number of drilling rigs operating in the Barnett in 2009. Several large producers still have what are considered to be a significant capital program to develop acreage this year and much of the gas production will be gathered by Crosstex. We will continue to be to focus on providing quality, cost-effective services for all of our producer customers.

Turning to Louisiana, we continue to see strength in exploration and production around our sizable pipeline and processing assets. LIG, the largest intrastate pipeline in the state, is strategically positioned to provide much-needed takeaway capacity for Haynesville shale gas.

In the fourth quarter of 2008, we experienced lower than anticipated volumes due to the impact of the two September hurricanes. These volumes have since recovered to pre-hurricane levels and LIG is again transporting about 1 BCf a day. Overall, LIG continues to consistently achieve strong operational results.

In Northern Louisiana, activity in and around the Haynesville shale continues to be robust. Last year we added 35 million cubic foot a day of capacity to our Red River pipeline systems as a viable means for producers to get their Haynesville gas to market. We also plan to add an additional 100 million cubic foot a day of incremental capacity which should come online in the third quarter of 2009. We've executed long-term, firm transportation agreements covering 100% of this additional incremental capacity and continue to see increasing interest from producers.

With the additional 100 million cubic feet a day, the Red River pipeline system will be operating at its expanded capacity of 375 million cubic foot per day in the third quarter of 2009. We have also mutually agreed with our current shippers to extend the term covering 75 million cubic foot a day of existing transportation agreements at increased speeds, improving our returns. Overall, the Red River pipeline system continues to give us access to new production that can supply and expand our existing intrastate markets.

In Southern Louisiana, two major challenges affected fourth quarter operations -- the impact of the hurricanes and the dramatic decline in commodity prices. The pipelines upstreaming from our processing plants continue to make repairs and gas volumes are slowly returning to pre-hurricane levels. In addition, reduced frac spreads are compelling some producers with contractual processing options to bypass or restrict processing.

The Sabine plant sustained major hurricane damage and those repairs were completed in January 2009. There's currently about 200,000 MMBTUs per day available for processing at Sabine or about 77% of pre-hurricane volumes.

The pipeline repairs to the High Island Offshore System, or HIOS, that feeds gas to both our Sabine and [Unis] plants were completed in January 2009 and volumes available for processing at Unis are back to pre-hurricane levels of about $450,000 MMBTUs per day. Our Pelican plant is also operating at low volumes as repairs to offshore pipelines that feed the plant is underway but taking longer than originally anticipated.

Pelican plant is running at about 40% of pre-hurricane levels due to pipeline curtailments and delays affecting the reconnections of the Anaconda system that supplies a significant portion of the gas to Pelican. We expect the infrastructure feeding Pelican to be repaired by mid-2009. Now we will turn to treating, as much of our business recent growth is due to the Haynesville shale opportunities.

Our commercial activity remained strong in the fourth quarter 2008 and drove a healthy demand for plant installations. During the quarter, we executed contracts for nine new amine plants and started 11 new amine plants.

Overall in 2008, we installed 42 amine plants and seven [dupoint] control plants for a total of 160 amine plans and 40 [dupoint] control plants in service. We installed more treating plants in 2008 than any year since entering the treating business. And in fact, the fourth quarter of 2008 was our best quarter for plant installations.

We are expecting another great year in 2009 when we expect to meet our current demand for plants almost entirely from inventory which will reduce our capital requirements and is part of our strategy to maintain liquidity and reduce leverage. Treating continues to be a steady cash flow generator and we're capitalizing on the many opportunities around our strong position in Louisiana and look forward to being an active participant in the Haynesville shale. Crosstex treating operation continues to maintain its position as the largest contract amine treating business in the United States.

Income from our Seminole processing plant which was sold in the fourth quarter 2008 has been reported as part of treating in prior periods. But the growth in our base treating business including the Haynesville growth has more than offset the loss of Seminole operating income in 2009.

In closing, our strategy in Louisiana, which encompasses pipeline, processing and treating remains the same despite our reduced spending in 2009. We're confident that the Haynesville shale will continue to offer great opportunities over the long-term and we look forward to being a major service provider to producers in this region.

In Mississippi, we operate the largest intrastate gas pipeline, about 600 miles of 8 to 20 inch lines that travel across the central and southern portions of the state. Wellhead volumes continue to increase on this system and throughput in the fourth quarter of 2008 was approximately 127,000 MMBTUs per day compared with approximately 125,000 MMBTUs per day in 2007.

As part of our plan to find alternative ways to raise capital, we successfully executed an agreement with Southwest Energy to fund the expansion of our Mississippi system. This project will provide gas gathering services to a major producer in the Mechanicsburg field.

The project consists of 16 miles of 8 inch pipeline and should be completed in the second quarter of 2009. We anticipate this project will offer us potential compression and treating opportunities in the future.

Importantly, this project proves that even in the constrained capital environment and with limited capital available to us, we can continue to develop the value of our various franchise positions and we can continue to provide new services to our customers.

Now I'll turn the call over to Barry.

Thank you Bob. When I take a step back, I see that Crosstex is a Company that has clearly been impacted by a challenging environment, but also see a Company with great assets and strategic locations, strong relationships with our customers that are second to none, highly engaged and dedicated employees and a solid track record of success. In other words, I see a Company with the ability to address its challenges head-on.

Renegotiating our bank and lender agreements provides us the time and flexibility we need. So the important question is, what are the next steps for Crosstex?

It's clear that our business has been impacted by factors that are out of our control. But we are and will continue to manage everything we can control as effectively and economically as possible.

We're operating our assets with a sense of urgency -- expanding margins, reducing operating expenses, improving our asset utilization and capitalizing on our strong market positions. We believe the result will be increased cash flow.

We expect to grow our assets in key areas such as the Barnett and Haynesville shale plays, sustaining our firm position in the Barnett and pursuing opportunities expanding in the Haynesville. We will protect our franchise areas for opportunities when activity levels accelerate and processing margins return to normal levels.

We will explore additional asset sales, seek operational efficiencies and take advantage of strategic synergies. We will pursue potential deleveraging opportunities as financial and commodity markets stabilize in the months ahead and we will access capital when it becomes available.

Before we take your questions, I want you to know that our vision for Crosstex has not changed. We want to continue to be a premier midstream energy services provider. We have a solid management team in place with deep experience.

Together with our dedicated employees, we have built a sound Company that is extremely capable of surviving the current business and financial turmoil. We have worked through challenging business cycles before and come out of those cycles well positioned. I believe we will be stronger at the end this cycle too when we will be prepared to maximize profitability.

I want to assure you we're looking toward the future, not the past. We will continue to concentrate on improving credit metrics and our overall return on invested capital.

As we have emphasized today, our goals are to increase liquidity, reduce leverage and improve profitability. So we will be well-positioned for additional growth and success when the markets recover.

Lastly we believe the amendments to our bank and private lender agreements have eliminated some of the risk that has been reflected in our unit and stock price. With the time it has given us, we will aggressively pursue all options available to create value for our stockholders and unitholders.

Thank you. And with that, Jasmine, please open up the lines for questions.

(Operator Instructions) Sharon Lui, Wachovia Securities.

Hi, good morning. Just a quick question on what are your I guess volume assumptions baked into the midpoint of your guidance?

Well that's a region-by-region set of assumptions. And as we said, we have tried to bake in particularly in North Texas the slowdown in drilling that a number of producers have announced. But we still continue to project some level of growth in North Texas.

Okay and what about I guess for South Louisiana, the processing volumes there?

Yes, Sharon, basically we have got forecasts for the Pelican volumes to come up slightly under our historical, but up significantly when the Anaconda system moves forward and our other processing plants at about 80% of last year's volumes overall just kind of relatively speaking.

I was wondering if you could maybe just provide some more color on how the paid in-kind notes work.

Yes, they're simply part of the interest that we will be paying to the senior notes which have principal amount outstanding of about $480 million. We will be paying half of the increase and the interest cost to them in the form of additional debt securities.

So there won't be a cash impact currently on those. There are I think five series of senior notes outstanding. Each one will get additional paid in-kind interest or PIK interest at an equivalent interest rate to the rate that note bears. So the blended average rate on the PIK notes will be approximately 9.25% or so on the PIKs and then the PIKs will be due and payable six months after the refinancing of our revolving credit agreement.

Okay, so the paid in-kind in terms of the actual additional principal, is it just 125 basis points off of that 480, so $6 million or how should we think about that?

Yes, it's about $6 million a year (multiple speakers) half years roughly.

Okay, I guess in terms of some of the relief on the debt covenant ratio, I know that your old ratio was 4.5 times by the end of 2009. What has it been increased to?

The increase is to as much as -- it steps up by period -- I'm going to have to turn to that, Sharon. But it gets to over seven times to give us plenty of room until these markets improve.

Thank you.

That detail will all be in the 10-K that will be filed later today.

John Edwards, Morgan Keegan.

Hi, good morning. Just the volumes then in South Louisiana I mean obviously came in well below what we were expecting. Can you give a little more color then on the prior -- I mean third quarter, I think you were at about 1 BCf a day and second quarter about 1.4 and then you came in at about one-third of that.

John, let me just kind of give you some perspective in terms of fourth quarter and what happens on the processing volumes. There's really two components there.

One is volume availability, which is a function of infrastructure and what is out in the Gulf. And the other is volumes processed which is really a function mainly of margin.

So there may be more gas flowing by the plants, but if there is no processing margin there, unless there is a quality requirement by the pipeline, that gas will just bypass our plant. So you're seeing in the fourth quarter the impact of kind of at once. In the first for the quarter, it was volume impacts from the hurricane. In the second half, it was the margin impact where those volumes were not profitable to process and were therefore bypassed from the plants.

Okay and so I guess you [in effect ethane] rejection notes, you are now seeing it's profitable to process?

In general, it is profitable to process. The worst case, in our [Unis] plant, ethane is about breakeven but the other products are profitable. But we look at that every day given the volatility in these gas and liquid markets.

Okay and then on the -- back to the payment in-kind notes that Sharon was asking about, what is the debt out that is subject to you being able to pay your interest on a payment in-kind basis?

That's the senior notes and the principal amount on those outstanding right now is approximately $480 million.

So you're not having to make it -- so is that -- is all the interest payment in-kind, no cash?

Right. But the 1.25% of the interest is paid in-kind interest. There's a cash coupon on the senior notes tha'ts (multiple speakers) average.

So just the increase?

1.25% of paid in-kind interest and a blended average cash interest on the senior notes of approximately 9.25%.

Okay, that's all I have for now. Thank you.

Darren Horowitz, Raymond James.

Just a couple quick questions, some I'm sure a lot of the debt stuff will hash out in the 10-K. But on the OpEx side, as we're trying to get our arms around how you guys or how we expect you to rationalize OpEx and extract these synergies that you alluded to, can you give us some sort of color as to how you expect OpEx and more importantly maintenance CapEx to unfold? I mean is the $42 million posted number this quarter kind of your base number or do you expect more synergies to be unfolding through the back end of this year?

In terms of what is unfolding, the $6 million that Barry mentioned is probably the right way to think about that. I can tell you we're running a little ahead of that already this quarter, but the $6 million additional is something that I think it is a very conservative number to look at in terms of Op cost (inaudible)

And, Darren, that would be off of the $42 million run rate in the fourth quarter and on a same-store basis before the assets that have been sold.

Barry, a question for you on asset sales. As you look at the market to bid for assets and you try and overlay that with what you deem as 'noncore' in this market, how does the list look?

Darren, first of all, when we're looking at asset sales, we're going to look for the places that we can find some strategic synergy with a potential buyer and we have been able to do that so far. In each of the cases of the assets we transacted to date, we got multiples of the price there that would be good even in a year-ago market.

So they're not reflective of what you probably think as market being today. As we go forward and assets get larger, that becomes more and more difficult to do. Let me just say this though.

I think to answer your question, we believe the absolute core of our properties are in North Texas and Louisiana. And we're going to do everything that we can to maintain our positions there. The franchises are a great asset for the Company and as we continue to look at other sales, certainly anything outside of those two core areas would be considered.

Just one final question for you. On your contract structure for your process and treating volumes, you talked about your hedges under your POL and your (inaudible) but is there any opportunity for you at this point to increase the amount of fee-based exposure that you guys have to kind of get a baseload cash flow?

Darren, you know we do that on a contract-by-contract base. I can tell you some of the contracts we're currently working on, we are working to go to fee on. But that is not always available just from the marketplace. So we certainly are looking to drive that way and we will continue to update our stats as we go.

And just in aggregate terms, what percent of your overall cash flow from processing is fee-based at this point?

It's about 8% of our total cash flow is fee-based processing and that would be actually in terms of our percentage of our total processing margins, about 8% would be -- excuse me while I --.

Just over a quarter of our contracts are fixed fee. On the processing segment of that business itself, about 52% or so -- a little over 50 as a percentage of liquids.

(Operator Instructions) James Jampel, HITE Hedge Asset Management LLC.

Hello gentlemen. I have a question about the GP. If the LPE was sold, let's say at $3.00 or $4.00, would that create -- would that make the GP a taxpayer? And if not, are there any asset sale scenarios where the GP becomes a taxpayer?

We've been looking closely at that and right now believe that any asset sales that we might pursue would not create a cash tax burden for either the limited partners or the GP.

Is that to the sale of the whole LP?

We haven't looked at that possibility, to be honest. But my -- as I do the numbers on the top of my head that you've outlined, it would not create a significant tax burden at the GP.

So as for the future of the GP entity, you just hinted that it would just -- we're just going to wait. Are there any other scenarios that you're looking at that could perhaps de-complicate the structure for everybody at this point?

James, first of all, let me say that we're not in a wait mode. So if you heard that, then we didn't communicate our message well. First of all (multiple speakers)

At the GP side, on the GP (multiple speakers) we're going to burn the cash with the G&A until something happens on the LP side.

Let me say that nothing that we're doing right would we see ourselves in wait mode. We think we've accomplished a very key step in getting the agreements we need with the banks. That then allows us to focus on the other very proactive things that we're going to do, which begins with focusing on running the business with excellence, with a sense of urgency etc.

We think that if we maintain strength there, then we have many other options available to us. But let me say that in anything that we look at, we believe that the GP and the LP will certainly stay well-connected and we do not see a scenario where we would leave the GP stranded from anything that we're doing with the MLP.

Are there any tax scenarios or any scenarios that make sense where the GP would be purchased by the LP? Is that something that can even happen?

Let me broaden the question. First of all, we think the MLP structure is still a great structure. We think that Crosstex today still has the potential to be a good fit for the MLP structure.

But we are and will continue to evaluate all of that as we see things unfold, to the extent that we see that we are not a fit for that. And again, we don't see that today but we always have the possibility of a consolidation there. It's something that others have considered.

We're very aware of in the marketplace, people have considered that in this environment. So we will just have to continue to see how things unfold and what seems to be the right structure for us.

There are no further questions at this time. I would like to turn the call back to Barry Davis for closing remarks.

Thank you guys, everyone for joining the call today. Again, this is incredibly difficult times and we're very focused on navigating through these times and we appreciate your support and the patience that you have to work with us through these times. So again, thank you for the call. We look forward to communicating to you as our plans develop in the future. Have a good day.

Thank you for attending today's conference. This concludes your presentation. You may now disconnect. Good day.