EnLink Midstream LLC (ENLC) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the EnLink Midstream first-quarter 2015 financial results conference call.

(Operator Instructions)

Please note this call is being recorded today, Wednesday, May 6, 2015 at 10 AM Eastern Time. I would now like to turn the meeting over to Ms. Jill McMillan of EnLink Midstream Partners.

Thank you, Keith. Good morning, everyone. Thank you for joining us today to discuss EnLink Midstream's first-quarter 2015 results. On the call today are Barry Davis, President and Chief Executive Officer; Mike Garberding, Executive Vice President and Chief Financial Officer; Steve Hoppe, Executive Vice President and President of the Gathering, Processing and Transportation Business; and Mac Hummel, Executive Vice President and President of the Natural Gas Liquids, Crude and Condensate Business.

We issued our first-quarter 2015 earnings release this morning and we will file the 10-Q later today. To accompany today's call, we have posted the earnings release on the Investor Relations portion of our website. If you would like to listen to a recording of today's call, you can access a webcast replay on our website.

I will remind you that any statements about the future, including our expectations or predictions, should be considered forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements, and we undertake no obligation to update or revise any forward-looking statements.

We will discuss certain non-GAAP financial measures. And you'll find definitions of these measures, as well as reconciliations of these non-GAAP measures to comparable GAAP measures, in our earnings release. We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors.

I will now turn the call over to Barry Davis.

Thank you, Jill. Good morning, everyone, and thank you for joining us on the call today. Before I discuss our results for the quarter, I'd like to quickly address the commodity price environment and why EnLink is well positioned for stability and growth. As you know, our industry is experiencing challenging market conditions with a downturn in oil and gas prices, which has impacted producer activity and production levels.

In the last eight months, crude processes have dropped by approximately 60%. Gas prices have dropped by approximately 30% and rig counts have fallen by approximately 50%. In an environment like this, no company is immune. While we expect the commodity environment will be challenged over the near term, longer term we believe we are well-positioned for growth.

We purposefully created EnLink to ensure stability of cash flows regardless of the market environment. Approximately 95% of our gross operating margin is fee-based which limits our direct commodity exposure.

We have a strong investment grade balance sheet that provides us with a low cost of capital. And Devon's strong sponsorship, which includes 100% fee-based contracts with minimum volume commitments, accounts for a little over 50% of our gross operating margin.

Additionally, we recently made a number of acquisitions near our existing asset footprint, which include the Gulf Coast natural gas pipeline assets that expand our franchise position in South Louisiana, as well as our recent acquisitions in West Texas and South Texas that are located in the core of the Permian and Eagle Ford Shales. These assets have only been under our control for a few months and have yet to realize their full earnings potential as we integrate them into the business.

EnLink is a strong vehicle for sustainable growth with well-positioned assets and a strong financial foundation that allows us to successfully compete in times like these. When we do come out of this downturn, we are confident in our ability to capture additional upside and opportunities quickly. We have a proven track record of organic growth, asset dropdowns, and successful acquisitions. And we will continue to take advantage of the opportunities from our growing asset base, increased financial capacity and unique sponsorship with Devon.

Now let me turn to our recent accomplishments and first-quarter results. We are continuing to execute on our growth strategy and have performed extremely well in our first year as EnLink. We are utilizing each of our four avenues of growth to create value over the near and long term, and have completed approximately $3.7 billion of dropdowns, growth projects, and strategic acquisitions. This includes the completion of $1 billion of organic growth projects in South Louisiana and the Permian Basin.

We've also completed $1.3 billion of dropdowns which include the Victoria Express system in the Eagle Ford, 25% of EnLink Midstream Holdings, and the E2 assets in the Ohio River Valley. We're in development on over $500 million of new growth projects with Devon and third parties in the Permian, Ohio River Valley and South Louisiana. And we've closed on $935 million of acquisitions, which include the Chevron assets in Louisiana Gulf Coast and LPC crude oil marketing and Coronado midstream in the Permian Basin.

We remain optimistic about the future and are focused on executing on our four avenues of growth, which position us to reach our goal of doubling the size of the Company by the end of 2017.

Now I will quickly address first-quarter results. During the quarter our combined adjusted EBITDA was $168 million, which was in line with our expectations. We raised distributions by $0.005 to $0.38 per unit of ENLK and we increased distributions by $0.01 to $0.245 per unit of ENLC.

I will now turn the call over to Steve followed by Mac, who will discuss the gas and liquids business unit in greater detail. And our CFO Mike Garberding will then provide an update on our financial performance. Steve?

Thank you, Barry, and good morning, everyone. We're pleased with the gas business unit's first-quarter performance. We're confident in our abilities to grow this portion of business through strategic location of our assets and by leveraging our relationship with Devon.

In North Texas, our first-quarter results were consistent with our expectations. As a reminder, a large majority of our income from the region is supported by long-term fixed-fee contracts with significant volume commitments from Devon for gathering and processing services, which helps to insulate us during times like these.

North Texas system volumes were slightly ahead of expectations for the quarter. This is because of our optimization efforts and Devon's refrac program in the region. Last quarter, we said that Devon was focused on high rate of return vertical refracs from legacy wells in the core of the play. In the first quarter we benefited from Devon's success in this program as they refracked 50 of the 200 wells they plan to complete in 2015.

In addition, we connected 17 new wells and have been able to reduce pressure at 11 compressor stations, which has contributed an estimated 1% reduction to the 10% decline rate that we previously announced in North Texas. Devon's refrac program is just getting started, and we believe there is potential from Devon and other producers for additional volumes not only in North Texas but also in some of our other business areas including the Haynesville and Eagle Ford where producers are applying this technology to older wells.

We continue to work closely with our customers and we're focused on offsetting declines through the connection of new wells, the refrac of existing wells, pressure reductions on our pipeline, and consolidation opportunities. I would also like to mention that we have exposure to Quicksilver's filing for Chapter 11 reorganization of approximately $5 million to $7 million in 2015, but we are working to mitigate this anticipated negative impact.

We remain confident in our North Texas assets where we have a significant platform that positions us for long-term growth and stability. As a reminder, 86% of our income in North Texas is supported by long-term fixed-fee contracts with Devon for both gathering and processing services. This gives us a significant advantage. Although activity in the area remains slow today, we believe that our customers have a great future potential to resume drilling the thousands of rich gas locations around and dedicated to our North Texas assets once commodity prices recover.

Moving to Oklahoma, we are pleased with our performance in Oklahoma and we have begun executing on the expansion of the Cana-Woodford gathering system. This expansion supports Devon's drilling activities in the region and will add 75 million a day of gathering capacity by the fourth quarter of this year. As we stated on our last earnings call, we expect the volumes to increase in the second half of 2015 as Devon continues their drilling program, which includes approximately 75 wells in 2015, of which a portion will be connected to our Cana gathering system.

We're also very excited about the growth potential from Devon's plans in the Meramec. Devon announced yesterday that they have derisked 60,000 net acres in oil and liquids window of the play, which is a 70% increase from their previous estimate. They have drilled or participated in 12 wells already and plan to drill or participate in 30 more in 2015. Much of this acreage is within EnLink's dedication from Devon.

Before I move on to our West Texas results, I'd like to address an operational issue that we experienced last month at our Cana plant in Oklahoma. We had a heat exchanger at one of our two plants that cracked. We did attempt to repair it but unfortunately, the unit must be replaced. Until we have the new unit, the plant cannot operate and we are unable to process approximately 110 million cubic feet a day of gas from our Cana gathering system.

We anticipate the plant will be off line for approximately three to four months and the financial impact could be approximately $3 million to $5 million in operating income and $2 million to $3 million in maintenance capital expenditures. We expect these costs to be incurred in the second quarter. We're working hard to resolve this issue and return to normal operations as quickly as possible.

Additionally, we are working to potentially mitigate these losses through our insurance coverage. Overall, though, we are very pleased with our position in Oklahoma and continue to see its long-term growth potential.

Moving on to West Texas, but before I discuss the operations in Permian, I'd really like to welcome Andy Deck to the EnLink leadership team as the Senior Vice President of Permian Basin. Andy was previously the CEO of Coronado Midstream and we are very excited to have him onboard, and are going to benefit from his expertise and experience in the region. The Permian Basin is a key growth area for EnLink. And despite current commodity prices it continues to serve an economic play for many producers.

As you know, the acquisition of the Coronado and LPC assets allow us to further expand our footprint and enhance our service platform. These assets are located in the core of the North Midland Basin where economics are among the most favorable of all oil-producing plays in the US. Mac will provide you more details on how LPC is performing in just a bit, but overall these assets are in the right neighborhood, with dedicated volumes from strong and active producers.

We've been working hard integrating our West Texas assets in the newly acquired Coronado system. We just completed the transaction in March and we're excited about the opportunity to grow our midstream platform by leveraging our expanded service offerings in the region.

Our system is supported by focused and active producers such as CrownQuest, Reliance, Diamondback and RSP Permian and, includes dedications of over 245,000 acres. We've created a multi-county, rich gas gathering and processing system that offers extensive low pressure gathering services, cryogenic processing and multiple delivery points for marketing our customers products. Right now, there are approximately 14 rigs operating on EnLink-dedicated acreage in the Midland Basin, and we are working to expand our system capacity to accommodate this activity.

As part of the Coronado acquisition, we acquired Riptide plant which is currently under construction, and when completed in the first half 2016 will add 100 million a day of processing capacity. We are also expanding our gathering system capacity to 285 million a day by adding compression at four existing compressor stations. And we have approximately 40 miles of high and low pressure gathering lines at various stages of construction. These expansions will allow us to connect new supplies of gas and provide gas take away solutions for constrained producer customers in the region.

Overall, we remain confident that our growing midstream platform in the region will be an integral part of EnLink's success in the future. I'm going to now turn the call over to Mac Hummel who will give you an update on our natural gas liquids, crude and condensate business.

Thanks, Steve, and good morning. We're pleased to announce to report a strong quarter for the liquids business unit as we continue to work towards the completion and integration of several transactions.

In Louisiana, our gas transmission volumes were approximately 1.4 Bcf a day, a record quarter, largely due to the successful integration of the former Chevron pipeline assets. We also had our highest quarter for NGL volumes as the Cajun-Sibon pipeline volumes averaged approximately 120,000 barrels per day.

I'd also like to quickly touch on our joint venture pipeline with Marathon that is expected to be in service in the first half of 2017. The project's budget has been confirmed and formally approved by the parties. We've begun acquiring right-of-way and we filed the Corps of Engineers' permit in early April. To date, everything is proceeding as expected on the project.

Next I'll discuss our crude and condensate businesses, which is a new segment for EnLink. We historically reported performance for the Ohio River Valley, or ORV, as its own segment. We've now combined ORV, LPC Crude Oil Marketing, or LPC, in the Permian Basin, our Louisiana crude terminals and the Victoria Express assets in the Eagle Ford to create a new crude and condensate segment.

The first quarter of 2015 was transformative for this segment. In December, we were moving about 25,000 barrels per day in our crude businesses. Today, that number has increased to nearly 150,000 barrels per day, demonstrating strong growth and great success in building this segment.

In ORV, we experienced a solid quarter and increased earnings. The increase from 2014 earnings was due in large part to the natural gas compression and condensate stabilization facilities installed for Antero and Eclipse. We continue to believe that the primary growth vehicle for our ORV business will be condensate services when drilling activity recovers.

The open season for the ORV condensate pipeline ended in mid April, and we continue to work with interested parties in bringing volumes to the pipeline. As we continue those discussions, we will develop more clarity on the timing of the pipeline, which we believe is the right solution for the industry.

When pipeline construction has commenced we are well-positioned, having already received our Corps of Engineers' permit, having acquired approximately 95% of the right-of-way, and having cleared nearly 100% of the timber on critical pass sections of the pipeline. And in the interim we remain well-positioned to continue providing services for increased condensate volumes due to our existing truck fleet, storage assets, and barge and rail loading facilities.

Moving to the Permian Basin, our LPC acquisition is a great example of how we've expanded our platform and service offerings in areas we know well. Overall, LPC performed well this quarter, moving sustained volumes of approximately 70,000 barrels per day of crude compared to about 60,000 barrels per day when it was acquired in January.

In addition to LPC's traditional customer base, this business provides us with opportunities to grow into the Delaware Basin and expand our service offerings to support Devon and other customers. On that front I'm pleased that we have begun moving Devon crude volumes out of the Delaware Basin, and we expect those volumes to grow over time.

Moving to the Eagle Ford and the VEX pipeline, VEX became an area for growth for EnLink once we completed the dropdown on April 1. These assets give us a new platform in the Eagle Ford, allowing us to provide high-quality services to producers and marketers in the area, including Devon.

We are working to integrate the VEX assets and complete the pipeline and storage expansion projects before year-end 2015. Current volumes are in excess of 50,000 barrels per day, of which 30,000 barrels per day are received into the pipeline and the balance is received at our truck-loading terminal and storage facilities at the Port of Victoria.

The investments and progress we made in our liquids business Unit are well aligned with EnLink's long-term strategy. We've built strong assets in good locations and we are confident the liquids business unit will continue to drive growth for EnLink moving forward.

I will now turn the call over to our CFO Mike Garberding to review our financial results. Mike?

Thanks, Mac. Good morning, everyone. Before I get into updates on our financial performance for the quarter, I want to remind everyone of one financial reporting issue that is consistent with what we have said in the past. The combination of Crosstex and Devon Midstream Holdings was treated as a reverse acquisition, which means that Devon Midstream Holdings is acquirer in the transaction because its parent Devon obtained control. Since the reverse acquisition closed on March 7, 2014, first-quarter year-over-year comparisons still don't provide much insight or relevance for analysis, but this will start changing next quarter

As Barry mentioned, we are competing in a challenging commodity environment and we are very focused on providing stable cash flows while still growing the business. The first quarter was a very active period for EnLink on the acquisition front as the Partnership has completed approximately $1.8 billion in dropdowns and third-party acquisitions to date.

These include LPC, which closed on January 31 for $100 million; the first EnLink Midstream Holdings dropdown, which closed on February 17 for $925 million; Coronado Midstream, which closed on March 16 for $600 million; and the VEX dropdown which closed on April 1 for $180 million excluding follow-on capital. These acquisitions were made possible by a strong balance sheet, our strategic footprint, our sponsorship with Devon, and excellent project execution from many teams at EnLink. Some of these opportunities also came about because of the current commodity environment. The majority of these acquisitions have only been under our control for a couple of months and we have not yet realized their full earnings potential as we are still integrating them into our business.

Moving to the first quarter, EnLink realized adjusted consolidated EBITDA of $168.2 million, which is down approximately $9.5 million compared to the fourth-quarter 2014 results. Consolidated gross operating margin for the first quarter of 2015 was approximately $278.9 million, which is a decrease of approximately $20 million compared with the fourth quarter of 2014. The decrease in gross operating margin was largely due to a $24 million non-cash gain on derivative activity in the fourth quarter and anticipated declines in North Texas, which offset growth in Louisiana and the Permian Basin in the first quarter 2015.

The Partnership declared a distribution of $0.38 per unit for the quarter which resulted in a 0.88 times distribution coverage ratio. This coverage ratio was consistent with our expectations for the quarter discussed during our year-end call, and was impacted by a variety of items, including one-time transition costs in the Chevron acquisition; the issuance of 6.7 million common units for the Coronado acquisition, while only receiving a partial month of March operating income from the assets; the issuance of 338,000 common units for the VEX acquisition while receiving no operating income from the asset; limited impact from our other acquisitions we have just closed, which include LPC and Chevron; and reduced operating income from our North Texas segment.

From a balance sheet standpoint, our leverage remains in line with our expectations as debt to adjusted EBITDA was about 3.8 times at the end of the first quarter. This leverage ratio should be reduced to around 3.5 times with final dropdown of EnLink Midstream Holdings, which we still expect to happen in the second quarter. The dropdown will provide significant additional unlevered cash flows to the Partnership in return for ENLK units to our general partner. As we mentioned in our last earnings call, we do not expect any marketed equity issuances this year with our current plans we have announced.

We expect our second-quarter consolidated adjusted EBITDA to grow modestly due to the recent acquisitions and dropdowns, providing full-quarter contributions, but that growth will be partially offset by the previously mentioned issues, including the downtime in our Cana processing facilities and Quicksilver's Chapter 11 filing. We currently expect the second-quarter distribution coverage ratio at the Partnership to be less than one times, due in large part to these events. However, we expect the Partnership distribution coverage ratio to be about one times for the year.

The general partners' cash available for distribution was $52.1 million for the first quarter of 2015, which was down approximately $14 million from the fourth quarter of 2014. This reduction was primarily due to ENLC's reduced ownership interest in EnLink Midstream Holdings because of the first phase of its dropdown. This results in a 1.29 times coverage ratio on the declared distribution of $0.245 per general partner unit. Note that the Partnership's first-quarter distribution of $0.38 per unit surpassed the highest level of incentive distributions, which has a $0.375 per unit threshold.

As we look ahead, EnLink is well positioned within this commodity environment. We maintain a strong balance sheet with the financial strength to withstand these challenges. We have fully funded our $1.8 billion in acquisitions and we see lots of opportunities with these new businesses.

Furthermore, we remain focused on taking advantage of additional opportunities that arise in this down cycle. And we see significant upside to our business when commodity prices improve. We also have a strong partnership with Devon that is enhancing our growth.

I'll now turn the call back to Barry for closing remarks.

Thank you, Mike. As I've stated earlier, we are prepared for and in fact built for all business cycles. We are well aware of the impacts that the current operating environment has on our business. However, we're confident in our ability to withstand this cycle with stable fee-based contracts, outstanding customer relationships, diversity by basin and assets, and a strong financial position backed by Devon as our partner. With these key strategic advantages we are well-positioned to continue to create value for our equityholders and our customers well into the future.

With that, our operator Keith will open the lines for your questions.

(Operator Instructions)

The first question comes from Darren Horowitz with Raymond James.

Good morning, guys. Barry, a couple questions for you this morning. The first going back to the comments that you made around Devon. When you guys think about their ability to refrac existing wells and incremental volume growth there to help offset the organic decline curve, in addition to them derisking that 60,000 net acres that you discussed, and how much additional volume growth that could add, has there been any change to throughput expectations in the back half of the this year or expectations around the first half of 2016?

Darren, it's a great question and you bring up something that we're really beginning to understand better, as Devon understands it better. But we are excited about seeing something that looks like essentially a renewal of activity in an area like that in the Barnett.

I think you can look at what Devon has done in the Cana to see what the potential might be for the Barnett. There's actually been some pieces written about that and the potential that exists in those older fields where the technology was less advanced at the time they were developed. So, we're excited about the potential.

Specifically to your question -- have we begun to put numbers on what the potential might be -- I think it's too early to do that. We did highlight that this quarter it offset about 1% of the 10% decline that we forecasted for the Barnett, for example. And we would expect that potentially that will continue going forward. And, as you will, we will be watching closely to see how that will impact our volumes there in the Barnett.

Steve, do you have any comments on the 60,000 acres?

I think that what you're seeing is that the through 12 wells that Devon had drilled, and their commitment to add 30 more on that Meramec this year, is very positive. And if you recall, in their last quarter they were at 35,000 acres of prospective, and that's grown now to 60,000. I think that just indicates the results they had with those 12 wells being very good.

Okay. And then for my final question if I could just shift over to the Permian. Obviously through the drill bit, that's been an area where I think Devon has had some great success. And correct me if I'm wrong but I still think their production year over year should be up at least 20% if not closer to 25%. And I know from a capital allocation perspective that could consume $1.3 billion or better in terms of CapEx going into the ground.

And I'm just curious, in terms of the opportunity set, as you guys see it unfolding for infrastructure development there, obviously there could be meaningful volume growth. I think you've got 245,000-plus acres dedicated to infrastructure. So, obviously a lot of throughput enhancement for you. And it seems that from a capital allocation or return perspective that area and maybe South Texas might be the best two bangs for your buck.

So, I'm just wondering, with the movement in crude seemingly off the bottom here, and a more constructive forward curve, how are you thinking about capital deployment? And has anything changed when you're discussing with Devon? Darren, let me begin that with some thoughts. First of all, as we've seen the relationship with Devon continues to provide opportunities, and we're really capitalizing and taking advantage of those.

The Permian is a real big area for us. We're all just more and more excited about what we're seeing with the team coming together, with our Northern Midland Basin opportunities that we see. I think you specifically highlight the capital investment they're making in the Delaware.

We're encouraged by having the first increment of that service being the logistics business that we're providing for them there. And I'll ask Steve to comment over longer term what we might be able to do in the Delaware.

Long term in the Delaware we're working closely with Devon. We think there's a lot of opportunities not only with Devon, but we're also looking to get a position in that area, much the same way we did in the Midland Basin. We started with a small position and we're able to grow it. So, we're employing that same tactic. And we think that there will be opportunity with Devon and also a lot of other customers and potential customers in that area.

Let me add, Darren, just to be realistic. We have highlighted before that much of Devon's acreage in the Delaware is dedicated under prior contracts to other midstream providers in that area. So, we'll have to be creative, we'll have to work around those things. But we do think that Devon can be helpful and additive to what we will be able to do in that Basin.

Thanks, Barry.

Thank you. The next question comes from TJ Schultz with RBC.

Hi, good morning. I think, first, just back to North Texas, if you could just expand on some of the consolidation opportunities if there's anything at advanced stages here or just how do you view your stance on consolidating that area given the limited activity?

Yes, TJ, let me say there's a reason you asked us that question about the consolidation and that is because we're the largest operator in the North Texas or Barnett shale area. And we certainly are in a great position to consolidate it. We know a lot about the Basin, both from a geologic standpoint with the relationship with Devon. We operate a large infrastructure there.

We do think that that's going to be an opportunity. We are reaching a maturity state in that play where you think consolidation is going to make sense. But we will stop there because it's not clear at this point what the first opportunities will be. But we still feel confident that we'll see some consolidation opportunities that will accrue to us and our position in the field.

Okay, good. And then following up on some of Devon's Meramec success, does that have any impact? Or just generally where do you stand on the potential that you've talked about to link the Cana and North Texas systems?

That's still, as we stated in our Analyst Call, early in development. But I think that if you look at those results from the Meramec, and continued success that Devon has in Cana, that's just going to further support projects like that. So, we continue to be very optimistic about that opportunity.

The ORV condensate pipe, just moving to that, is that a matter of when and not if? Or if you could frame the customer discussions and maybe the competitive landscape to get that done.

Yes, we continue to work on the ORV condensate pipeline. As we've discussed before, the drilling activity is down in the area and it has led to some uncertainty with the producers with regards to their ability to commit volumes to the pipeline.

We continue to discuss it with producers. We continue to work with interested customers to bring barrels to that pipeline. We continue to believe it's the right answer, the right industry answer for the area to move those barrels via pipeline versus truck.

But in the interim, as we said in our earnings announcement, we continue to be well-positioned to provide service for those barrels prior to a pipeline being in service. As we sit here today, we do expect it's when, not if. But we're going to continue to look at that landscape and continue to look at the supply availability and then we'll make the decision.

Okay, thanks. And, just lastly, in South Louisiana, at the Analyst Day you guys certainly did discuss some repurposing of the pipes and some optimization efforts. I think about $350 million of potential projects. Just an update on those efforts, when that money is starting to be spent, and how we should think about upside to that project basket. I think there was another $350 million of potential projects coming out of there.

We continue to work hard on those projects. There's really a large inventory of projects we've got there. We talked about the number of projects we had during our Analyst Day.

And we put them into four buckets, if you'll recall. We talked about those that are supply oriented, we talked about those that are market oriented, we talked about those that are optimization oriented, and then storage oriented. And we continue to work on the projects across all of those buckets.

Some of those projects have already come into service and have already been executed. We expect others to start rolling in within the next month or two. So, I think it's great news. I think we identified the right opportunities and I think we're executing on the right opportunities.

TJ, I'll just add that some of the larger bolt-on opportunities that we've spoken of clearly are going to be longer in development. And it really is responding to what we think will be as much as 10 Bcf a day that comes into Louisiana. And we're taking advantage of the infrastructure and, in some cases, the redundancy of infrastructure, to essentially provide market access for that volume that comes into the state.

And then obviously, there's still a lot of crude and a lot of NGLs that are trying to get into the Mississippi River corridor area, the St. James market. And we're in the middle of those discussions. But they will take more time.

Perfect, thank you.

Thank you. The next question comes from John Edwards with Credit Suisse.

Good morning, everybody. Just following up TJ's question in terms of potentially consolidating in the Barnett. As far as timing on that, do you think it's a next 12 months type opportunity or is it more like a next couple of years type event in thinking about that?

Let me comment on that. I'd say, first of all, that there are a number of small consolidation type activities that could be nearer term, some of the larger consolidations. Those things take time and they're really hard to achieve in this industry.

So, we don't want to over-promise on being able to achieve consolidations even where it's obvious that it would make sense, that there would be synergy with the consolidation. I think near term we could see some steps that will begin but probably I would look into 2016 for anything that is of significant size.

Okay, that's helpful. And then you mentioned, Barry, in your comments in terms of there's potential upside as commodity prices improve. Do you have a way, just so we can benchmark that, say, for every $1 or $10 in crude, however you look at that, or every, say, $0.10 in NGLs, what approximately that impact might be? Do you have like a table like that? Or maybe you could just directionally on a percentage basis give us an idea so we can help benchmark our own forecasts.

Yes, John, let me start and then I'll hand it to Mike to try to put some numbers, some context to that. But let me just say that if you go back and listen through this call, which I know you do and you decipher everything that we've said, I think what you're going to see is all of the unrealized potential that exists in the things that we've done over the last 12 months. Those are the things that we're most excited about, when we really see the benefit of the infrastructure that we've added, all of the bolt-on opportunities, fully integrating and transitioning the things that we've done.

And then the second really significant area of upside for us is just pure commodity opportunities. Again, I'll just say that we're excited about that. We think right now, I've said that I think the business, just financial performance, this is not at all the best that it could perform, and you'll see that improvement as you see some industry activity and commodity prices up there. Mike, if you could add any context to the numbers, that would be great.

When you think about it, John, we always tout the 95% fee-based. So, from a direct commodity exposure opportunity it's smaller. We used a number in the past when we said -- okay, at year-end we thought we had about $50 million of margin directly related to processing that had gone away from us with the price decline. And that was just processing. So, not a big number but just an opportunity we have that's not there today.

You can see from our disclosures that about 95% of our processing margin today is fee-based, so very little opportunity in processing. The bigger piece for us, like Barry mentioned, is really the volume opportunity, and use Permian as an example.

So you use Diamondback, a big producer on us, if they're getting returns anywhere from 50% to 100% of $50, you're sitting at crude today, like someone mentioned at $60 or north, it's a very different factor of what they're thinking from a return component. That's where we see the tremendous upside is the producers re-looking at what they're doing and increasing activity, and us moving it, whether by LTC on truck or whether by moving on our Permian footprint. That's where we see the value to the business.

Yes, because you have touted the 95% issue quite a bit. So, basically, Mike, it sounds like what you're saying is that, given this potential volume opportunity, maybe that mix moves a little bit as a result of commodity prices. So, maybe your 95% fee, would it be fair to say it might move to something like 85% or 90% just because of the volume impact that you might see from a move up in commodity prices? Is that the right way to think about this?

Yes, we believe with our mix of business we're probably somewhere between probably that 5% to 10% of commodity exposure even in an upward commodity market because we do have some additional commodity contracts that we had with the Coronado acquisition. But overall we still believe the business will be about 90% fee-based even with the increase in prices.

Okay, great. Thank you very much.

Thank you. (Operator Instructions)

The next question comes from Craig Shere, Tuohy Brother.

Good morning, guys. Picking up a little on John's questioning regarding commodity sensitivity, when things imploded a little in the industry, and volume growth was in some question, you all pulled back slightly on the growth projects assumed to feed into that year-end 2017 target, and emphasized that there might be some M&A opportunities in the low energy market environment that could fill in. As we now see $62 WTI pricing, mid $60s for next year, can you give a sense for both what this might mean in terms of longer-term volumes, new development projects, and the bid-ask spread on M&A markets?

Craig, let me begin by just saying that we continue to be confident in our ability to reach our objective of the $1.4 billion by the end of 2017, and just acknowledging the four different ways, the different valves that we have or outlets that we have for growth. Exactly how that mix will be over the next couple of years, I think, will be dependent on where we see commodity prices and what opportunities that drives in a higher commodity price environment. Certainly we're going to see more organic and simple growth behind our existing platforms.

We are seeing, continuing to see, and seeing development every day of more M&A opportunities as people have become less optimistic about the future. We're seeing those opportunities, we're vetting those opportunities.

But I'll remind you that we think that we're in a great position. We don't have to do the M&A, so it's a great position to be in as we see opportunities come to us. And we'll continue to be disciplined about trying to add things, add things that are really strategic bolt-ons, maybe a step into a new area if we see the right opportunity.

I would say the bid-ask certainly has come in line. We could say on a couple of transactions that we are very familiar with today the bid-ask is much tighter today than where it would have been 90 days ago. So, we think there will be some things that get done, whether by us or by other parties. I'll just say we think M&A activity is more likely going to get done.

That's very helpful. Mike, you commented that a lot of the acquisitions didn't contribute much but you'd had dilution and costs associated with them. Can you comment about G&A and OpEx trends through the rest of the year?

Yes, if you look you see G&A, you'll see G&A increasing in the first quarter. And then ultimately if you look on the DCF EBITDA reconciliation you'll see an add-back. There was deal costs embedded in the first quarter and there's some other non-cash costs embedded in the first quarter, so that will look higher to other quarters during the year from a G&A standpoint. OpEx, again, should be about running the same range as far as what we see on OpEx, other than the addition of the new businesses that will step in over time.

Great, thank you.

Thank you. The next question comes from Jeff Birnbaum with Wunderlich.

Good morning, everyone, how you doing? Sorry if I missed it but did you say Cana plant downtime began in the first quarter or was that in April?

It began in April.

Got it, okay. And you commented just on trying to get some of that back from insurance fees since the losses you were expecting there. Would that be just on the operating income foregone, replacement costs, or potentially both that you'd be trying to get back there?

Again, we have opportunities on both, but as everyone knows insurance is a lengthy process so we'll just continue to work with them to get to a good answer.

Okay. If the Cana plant wasn't a hit in the first quarter, it looks like on holding the annualized run rate was about $390 million in EBITDA in the first quarter. And I was just wondering if you could perhaps comment on where you view potential upside/downside from there. Obviously that's been trending lower, but given some of the MVCs you've gotten, some of the refracs and new drilling potentially coming in the second half, how you're viewing that.

Just think from a pure add-them-up, because again LPC was partial first quarter, Coronado was partial March, VEX was not included in the first quarter. So, if you just think of the additions on that and then take the base business and look at what's happening on the base business and use Cana as an example. Devon is really ramping up drilling in the second half, so we'll see that increasing in the second half. I'm not sure that the first quarter's a good proxy for thinking about the direction of the entire year.

Okay. Another way of asking, if volumes didn't come on as expected, is there substantial downside from where we are today, just a few million dollars in downside, if current volumes didn't recover as you're expecting?

Again, we're necessarily saying volumes recover as expected. We're saying based on the activity that we know. So, you can look to what Devon said their expectations on Cana is, and the others are, go to LPC volumes that Mac talked about where we didn't get a full quarter of operations and we're still integrating that business into expanding services to parties like Devon. So I'm not sure if volumes return to expect or really new volume opportunities that we're working on to bring into the business.

Jeff, this is Barry. I would add that, as we stated in our prepared remarks, we are not changing our guidance outlook at this time. Our view into the second quarter is a modest increase on an EBITDA basis. So, when you take all those things into consideration, and certainly we're looking at our expectations for volume, that's the way we feel about the business going forward.

Okay, thanks, everyone.

Thank you. As there are no more questions at the present time I would like to turn the call back over to Mr. Davis for any closing comments.

Thank you, Keith. In closing, these are exciting times for us here at EnLink. We are positioned for long-term sustainable growth in the key basins.

Our relationship with Devon continues to create abundant opportunities. We have strong business relationships with our key customers that make us the provider of choice. And we have the right people.

We appreciate you joining us today and all of the support that you give us. We'll look forward to seeing you on the road or on this call in the next quarter. Thank you and have a great day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.