EnLink Midstream LLC (ENLC) 2015 Q4 法說會逐字稿

Good morning and welcome to the Q4 and full-year 2015 EnLink Midstream earnings conference call and 2016 guidance.

(Operator Instructions)

Please note that this event is being recorded. I would now like to turn the conference over to Jill McMillan of EnLink Midstream. Please go ahead.

Thank you, Dan, and good morning, everyone. Thank you for joining us today to discuss EnLink Midstream's fourth-quarter and full-year results for 2015 and 2016 guidance. For this quarter's call we will utilize a new format than we have previously. Our prepared remarks will be shorter so we have more time to address your questions.

We issued our fourth-quarter and full-year 2015 earnings and 2016 guidance release and operations report yesterday evening. And we will file the 10K later today. To accompany today's call we posted the earnings release and operations report on the homepage and investor relations page of our website.

We recommend that all listeners review the operations report as it gives greater detail on our 2015 accomplishments and the outlook for our business in 2016. If you would like to listen to a recording of today's call you can access a webcast replay on our website.

Participating on the call today are Barry Davis, President and Chief Executive Officer, and Mike Garberding, Executive Vice President and Chief Financial Officer. Additionally Steve Hoppe, Executive Vice President and President of the gas business; Mac Hummel, EVP and President of liquids business; and Ben Lamb, SVP of Finance and Corporate Development will be available in the Q&A portion of the call.

I will remind you that any statements about the future including guidance information, our expectations, and our 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 available on the investor relations page of our website at www.enlink.com.

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, and good morning, everyone. Thank you for joining us today. There is no doubt that 2015 was a year of challenges and change for industry. We recognize the pressures these headwinds have put on companies in our sector.

While the challenges have continued into 2016 we all know this is a cyclical industry. In fact our industry has seen five significant cycles in the past 30 years, and you could say we have been here before. The big difference with this down cycle is that it is the one we are currently in and possibly the most significant we have seen.

At EnLink we didn't predict this type of lower-for-longer commodity environment, but we were certainly prepared for it. We are executing on the plan we laid out and completed and financed approximately $4.5 billion of acquisitions, drop-downs, and growth projects, primarily focused in Oklahoma, the Permian, and Louisiana.

We have best in class assets positioned in the core of the core across the most attractive plays in the country. And we remain confident in our ability to execute on future opportunities from our strong platform of assets and services. We have stable cash flows from our contracts with Devon and other high-quality investment-grade customers. And we have a team of employees that are focused and committed to delivering results.

And finally we have a proven business model that has delivered solid results since the creation of EnLink due to our financial strength and the disability of our platform and assets. I am confident we will emerge from this cycle well-positioned to seize on the opportunities we've created.

Today we are focused on the disciplined execution of our plan. We consistently benefit from stable cash flows supported by fee-based contracts with minimum volume commitments and have minimal direct commodity exposure. We maintain a diversified and integrated business model and remain confident in our long-term strategy to be one of the premier midstream companies in the nation.

Let me highlight three reasons that are the basis for our confidence. First we have been here before. We have a seasoned management team that is taking lessons learned and applying them today to ensure we remain well-positioned for the long-term.

Second we know this year will require focus and execution. We've identified several core strategies to further strengthen our foundation and navigate industry headwinds. First we are maximizing cash flows from our assets and working to reduce costs by increasing operating efficiencies, renegotiating service fees, benefiting from lower materials, equipment and construction costs, and cutting unnecessary expenses wherever possible.

Second we are focused on executing on growth in our core areas of operation which include Louisiana, Oklahoma, and the Permian. Production areas like the Permian, STACK, and Cana-Woodford remain active, and our core demand center in Louisiana has continued to grow. We have stable cash flows from fee-based contracts with minimum volume commitments from Devon energy and other producer customers. And we continue to focus on those areas that will drive long-term growth and deliver enhanced value for our unitholders.

Third we are committed to delivering best in basin competitively priced services and are working with our customers to drive value for not only them but for us too. For example in the fourth quarter of 2015 we brought on an additional 100 million cubic feet of gas in a two-week period at our Cana plant to support Devon's production. This region was then impacted by severe weather and our Cana facility was one of only a very few plants operating during this challenging time.

We had record volumes in November through January due to the hard work of this team. The flexibility of our operations and our ability to operate when our competitors were not. And the final reason we remain confident in EnLink is because of who we are. Challenging times like this create opportunities to improve upon the things we already do well. They remind us of why we do what we do.

We have 1,500 employees that wake up every morning focused on excellence and safety, deepening our relationships with customers to drive value for them and for us, and remaining true to our core values, which differentiates us from our peers. By improving upon these competitive advantages we're confident we will emerge as a premier midstream company in the industry.

In summary the fundamentals of our business are good. And we have a sense of urgency and focus on the key strategies we will execute this year. We remain committed to maintaining our financial strength and flexibility, and our strong balance sheet and proven track record will enable us to capitalize on the opportunities that come from cycles like this.

We remain confident that we can perform and execute to create value for our unitholders and our customers with stable fee-based contracts, strong customer relationships, diversity of basins and services, and a strong partnership with Devon. I will now turn the call over to Mike to review the financials.

Thank you, and good morning everyone. Before I discuss the 2016 guidance and expectations I'd like to quickly review 2015 results. I am proud of our overall business performance considering the challenging year for our industry. I don't believe 2016 will be any easier. However, we are focused on executing on our plan, maintaining a strong balance sheet, and adhering to our core values.

We have positioned ourselves well with a strong balance sheet which started with the creation of EnLink. We issued around $4.8 billion in equity to Devon with very little impact to overall debt when EnLink it was created. Subsequent to then, each one of our acquisitions was financed with the same approach. We consistently match the duration of the assets and liabilities through the utilization of equity and long-term debt.

We also utilized equity to manage the risk of the asset and our overall balance sheet. For example the majority of Tall Oak acquisition was financed with equity through the convertible preferreds and the ENLC equity issued to the sellers. This strategy had allowed us to be in a good position from a balance sheet perspective and gives us the stability we need to navigate in today's environment.

In 2015 our full-year annual consolidated adjusted EBITDA was approximately $728 million which was within 2% of our annual guidance of approximately $740 million. The partnership's annual distributions increased by approximately 5% and achieved distribution coverage of approximately 1.0-times.

The general partners' annual distributions increased by approximately 16% and achieved distribution coverage of approximately 1.2-times. That represents solid distribution coverage in a difficult year. Furthermore we financed approximately $4.5 billion worth of acquisitions or drop-downs. We also ended the year with $1 billion of liquidity on our investment-grade balance sheet and a debt to adjusted EBITDA ratio around 4.0-times. This is a testament to the stability of our business and our ability to execute.

Turning to 2016 we expect EnLink to generate consolidated adjusted EBITDA of $770 million which represents our base case for guidance. We believe the guidance range of $720 million to $800 million around our base case shows the business has good stability during a difficult time. This guidance range is based upon crude pricing from approximately $27 per barrel on the low side to approximately $60 per barrel on the high side.

We don't expect significant upside of our base case primarily due to the timing between commodity price improvements and producer actions to take advantage of a better environment. The majority of the upside for 2016 represents improvements in our commodity-based contracts which represent a small piece of our overall consolidated cash flow.

During 2016 we expect to maintain flat ENLK and ENLC distributions with distribution coverage at or above 1.0-times of both entities. In addition we're expecting debt to adjusted EBITDA by year-end of 2016 of approximately

4.2-times based on our current financing plans. We are also very focused on maintaining our strong balance sheet. EnLink currently has around $1.3 billion of available liquidity on its revolving credit facilities at the partnership of the general partner. We currently have no marketed equity or debt needs in 2016 and no debt maturities until 2019.

We also have significant optionality to finance our growth capital. This includes delaying certain capital projects, issuing additional preferred equity for Tall Oak growth, and selling non-core assets. We expect consolidated growth capital expenditures to be around $445 million to $570 million for 2016 which will be spent on our core growth areas.

From a general partner cash tax standpoint we expect to only pay around $2 million for 2016. And finally from a credit rating perspective we've started the process of getting an additional rating Fitch.

We understand that there are significant challenges in our industry this year but we are well-positioned and committed to address them. These challenges include credit risk related to deterring credit quality of certain customers. More than 90% of our revenue comes from customers with an actual or implied investment-grade credit rating, our top customers are companies like Devon, Dow, Williams and Marathon, great counter-parties. Commodity risk related to direct commodity exposure contracts. Around 95% of our gross operating margin comes from fee-based contracts.

Volumetric risk related to commodity impacts on existing customers' drilling plans. More than 75% of our gross operating margin from the gas business unit is supported by contracts with minimal volume guarantees or firm commitments and financing risk associated with unstable financial markets.

Despite this challenging environment, EnLink has more than $1 billion in available liquidity for 2016 with no marketed equity or debt needs in 2016 and no debt maturities until 2019. We are confident that EnLink's business structure is well-positioned to withstand difficult times as we are experiencing today.

We are hyper-focused on executing in our core growth areas. In Oklahoma we see many opportunities to expand and grow. We expect to spend approximately $180 million to $210 million of growth capital in Oklahoma in 2016 by extending our system south into the Scoop play and consolidating the Cana-Tullock systems to optimize capacity utilization among our plant super-system and minimize capital spending. We originally projected to spend approximately $350 million in 2016 when we announced acquisitions, but we were able to lower this estimate by integrating our assets, postponing certain capital expenditures, and taking advantage of lower construction costs.

The Permian basin continues to be one of the best oil and gas regions in the country accounting for about 32% of all rigs operating in the United States today. We are focused on executing on the opportunities we see in this region as producers remain active despite current commodity prices.

We expect to spend approximately $120 million to $140 million of growth capital in Texas, the majority of which will be spent in the Permian basin. This includes the completion of two processing plants that will add 220 MMCF per day of capacity in the Midland and Delaware basins. The $100 million a day rip-vibe plan in the Midland basin is scheduled to come online in the first half of this year.

We recently began construction on the Lobo-2 plan in the Delaware basin which will utilize equipment we are had in inventory. This new plant will add up to $120 million today of capacity and include the construction of additional Gaven pipelines in Lubbock County in Texas and Eddy and Lea counties in New Mexico. We've executed a contract with a large investment-grade counter-party who will serve as the anchor customer on Lobo-2, which is scheduled to come online in the fourth quarter and will have initial capacity of $60 million a day.

In Louisiana we have a market driven platform that is well positioned in an area characterized by increasing demand for natural gas and NGLs. Our combined platform allows us to capitalize on serving the needs of new and expanding customers that we couldn't serve before the acquisition of Chevron's natural gas pipeline and storage assets.

We expect to spend approximately $60 million to $70 million in growth capital on opportunities from our premier natural gas and NGL platforms, including capturing both on opportunities from our Cajun-Sibon system, activating our gas storage assets in Napoleonville, constructing the ascension pipeline and connecting transmission pipeline to a new industrial customer who is expected to require 150 million of MMB2 per day of contracted demand volumes.

In summary we have a strong balance sheet, good contract structures, great counter-party in Devon, and limited direct commodity exposure. I will now turn the call back to Barry for closing remarks.

Thank you, Mike. As I stated earlier we remain confident that we can perform and execute to create value for our shareholders and our customers with stable fee-based contracts, strong customer relationships, diversity of basins and services, and a strong partnership with Devon. We will focus on strong execution in 2016 through our diversified and integrated platform which will allow us to continue to operate from a position of financial strength and flexibility with limited credit risk.

With that I will turn it over to our operator, Dan, and you may open the lines for questions, and I ask that we limit the amount of questions to one per caller please. Thank you.

(Operator Instructions)

T.J. Schultz, RBC.

I guess I will just ask a question on Tall Oak and some of the CapEx moving around. So for 2016 CapEx as I think about the lower spending around the Tall Oak assets this year, you all mentioned some of this is from integration of assets and some is from deferrals.

So maybe if you could just discuss your view of the Tall Oak transaction now, your position in the scoop, and how you envision that cash flow evolving, where you previously see a path to maybe $300 million of EBITDA by 2018, but just now trying to figure out how to think about that ramp in the context of some of this integration and then that deferral of certain projects given where Devon's spending.

Hello, T.J., it's Ben. Firstly let me just tackle the part about the CapEx. At the time we announced the acquisition we said we thought we had about $350 million in CapEx to follow on with this year and now that number is down to more like $180 million. Where that came from is a few places. One is deferring the second Chisholm plant out in time, and the reason that we are able to do that is by integrating our systems. We're going to be able to take advantage of capacity that we expect to have available at our existing Cana facility later this year.

That is the biggest piece of the capital change. The rest of it is to do with, we're carefully timing the extension of the gathering system and realizing cost benefits on labor and materials just like Barry said in his opening remarks. As far as our view of the asset it really hasn't changed. Certainly acknowledge that there are headwinds in the market that affect every basin, but this continues to be one of the very best resource plays in the country and we continue to see very robust levels of activity around the system.

One thing the you mentioned in your question was the extension south into the scoop. If you look at page 14 of our operations report and you see the little dotted line extending south in Grady County, the little square at the top of that line is our Anthem compressor station we expect on in April. And that is going to bring on a whole new area of the system that has been very prolific over the last couple of months in terms of drilling activity and well results. So we continue to feel very, very good about where we are with Tall Oak asset.

T.J., this is Barry. I would just add onto that I think Ben referred to page 14 of our operations report, I think Devon did a terrific job this morning of covering their thoughts around the Felix position and the STACK. So I would refer you also to that.

What we are seeing is continued increasing performance of the wells in that area. And as Ben said we like the rock, we like the play more every day that we're involved with it. Thank you for your question.

Okay, great thanks, Barry.

Helen Raiu of Barclays.

Thank you, good morning. My question is around your balance sheet. I think Mike you mentioned that you expect to end the year at 4.2-times debt to EBITDA based on your current financing plans, could you maybe elaborate what that is. I think you also mentioned that there is no marketed debt or equity needs, so maybe if you could if you could talk about how much of ATM equity is in their or not even that.

And then the other thing about your funding as laid out in the presentation is that you may do some asset sales and maybe there if you could talk a little bit about what that M&A market looks like, whether -- we hear about a lot of private equity monies in the side-line, maybe asset sale wise, how much you think could be done? Thank you.

Good question, Helen. I think the first thing is really to highlight ending the year at 4.0-times debt to EBITDA, we think is a great thing. And then exiting the year what we believe is around a 4.2-times again is a great thing and a testament to how we finance the business and what we've done here.

So when you think about what we've done the big thing would be the Tall Oak acquisitions where we used almost all equity to finance the $1 billion we paid ultimately in January of this year. And that was a great thing for our balance sheet. So when we think about the year to come the levers we have like I mentioned are capital, so we have a capital range of in general terms $450 million to $570 million and we can think about the timing and spending of that and when we spend that.

Another lever is the preferred, we have a capability to issue additional preferred for the Tall Oak capital, and we have asset sales plus again as you mentioned we have an ATM our equity. When you look at that overall spending we believe we have equity needs less than $200 million for the year to achieve what we laid out here. Which we think is very achievable with the options we have. I will let Barry walk through the asset sales.

Helen, let me just say asset sales is obviously a part of the capital program that we would look at. We are doing all the things that you would want to be doing to be sure that we have optionality around the potential for any asset sales. But we really haven't come to any conclusions, wouldn't want to talk about any specifics around what those assets might be. But certainly that's a part of what we are evaluating.

You acknowledge the private equity in the marketplace. I would say that, that is true. We agree with you that there is private equity available whether it be for a potential asset sale that we might look at or even some opportunity that we are able to identify in this down cycle that might work from a joint venture or something using private equity. And great relationships in that part of the capital sector. And we will continue to have dialogue around that.

Thank you very much.

Ethan Bellamy of Baird.

Good morning, everybody. Mike, I want to dive in to the guidance a little bit. You've got a pretty massive commodity price range on there that I appreciate. I would love it if we got to the top end of the guidance but I don't think we will. Can you talk about how that guidance is constructed?

Does that include just commodity price sensitivity holding all other factors equal or does that include range of volume expectation based on prices? And then secondly you've got some customers that are on the MP side in fairly dubious condition. And I'm curious if you've done an in-depth counter-party credit risk analysis, and if you have in the downside of your guidance the potential for some customer bankruptcies in there and obviously, that is a big question for the industry.

I would just love to hear how you guys think about the viability of your customers and what that does to volumes.

That is a good question. So you got around Barry's statement on one question by asking the one question with four parts. Let's start with guidance. It's good just to lay out an overview of it and then I'll turn to Mac and Steve to give a perspective from the business units.

but when you think about guidance, again we start with really what we think our base case is, and base case under what we laid out for you guys today was the $770 million consolidated adjusted EBITDA based on a average crude price deck of $40 and average gas price deck of $250. That is sort of the center point. And again we are trying to be realistic given the environment we're in today when we work through that.

Then when we think about upside and downside, step one of that is the commodity piece. Or is moving crude to $60 or moving below $30. When you think of the upside you really only have a $30 million upside. We project that to be conservative because our belief is if you're going to see really that growth in the commodities cycle, it's likely we will see value back on our contracts but it probably will take some time for producers to get rigs back out there when we see volume, so as I mentioned in our guidance, we probably see limited volume upside really with regard to this guidance.

On the downside again it's the price risk you'd see and there we do take into consideration some further deterioration in volumes. So that is why you see a broader downside. I will turn it over to Steve and Mac to talk about that.

Ethan, this is Steve. So just to kind of give you a little more color on the Permian, we definitely have some upside associated with our POP contracts in the Permian. That's part of what is factored into the upside. As Mike said, we also see some opportunities for little bit of increased volumes in the Permian if prices improve. When you look at our Oklahoma position, really what we're seeing there is an opportunity on well performance.

I will refer you to Devon's operating report where they have shown such a significant increase in just recent well completions. As we continue to see drilling and prices improve we think that we'll get the benefit of those enhanced completions in Oklahoma and also in the Permian. We are very optimistic about how producers are managing their business. And how they are reducing costs and delivering better results with their wells.

Ethan, this is Mac Hummel. Just to jump on to what Steve and Mike have talked about. Likewise in the LBU the price upside is on -- the upside is primarily oriented around price like Mike talked about. It's hard to see increased prices soon enough and significant enough that, that results in activity that really manifests itself in 2016.

That is probably more of a 2017 opportunity for us. But we entered the basins we did because we felt like they were the right basins to be in. We felt like they were resilient, they were areas that would see drilling in times when we were struggling as an industry which we clearly are today. And when the price environment becomes more constructive we think we are in a great position in those basins to participate as the market recovers.

So Ethan, maybe four parts to the answer to your question. And I will pile on with these comments. I think we look at our guidance there is a bias to the downside. We are giving you a forecast of $770 million with a $50 million down to the $720 million on the downside and then only $30 million to the upside. I think that is reflective of the environment that we're in.

We've seen a lot of headwinds and so our bias to the negative is partially out of conservatism and just kind of the negative sentiment in the market. But we feel good about the $770 million forecast that we put in front of you.

Just around that and then I will address credit. So we do have the commodity different prices that we use for the upside/downside but a $40 to $50 commodity price deck is incredibly good for the basins we are in, like Mac said. So it's not saying we need a $60 commodity price to return from the growth, it's not the case there.

From a credit perspective, I point you to page 7 of the operations report. The key to credit is customers. And for us 90% of our revenue is from investment-grade customers. That is what is key, right? Is who are the customers driving the value, the Marathons, the Dows, the Devons, that's the first part.

The 10%, the key there is not having any big customers that represent a large piece of that. So we don't feel we have a large credit risk from a noninvestment-grade counter-party. And lastly, it's what type of services are you performing for them. We feel good about the services we are performing for them, the majority of it is gathering transmission -- or gathering and processing -- there is some transmission in there.

But we feel good about the type of services we're pouring in, and the rates we're charging. So right now we feel good about the portfolio we have from a credit perspective.

Okay, I appreciate that. And then one more. I think the jury is out on whether IDRs are permanently disabled for MLPs or not, but nevertheless dislocations in the GP stock prices certainly provide some opportunity for further compression trades bearing in mind that hasn't always been the most successful outcome for investors.

Have you guys seriously considered compressing C&K together here, and then I will take the rest of that answer off-line, but just want to say thanks for the shortened call format and for the sensitivity in guidance. That's very helpful.

Ethan, this is Barry. What I would tell you is we still believe that MLP GP model works. We think it's a good model. It's traded over a long period of time. But it works.

So we don't think the model is broken. But what we would say is that the capital markets we're in today we do think are broken. And we think that the market is lost its ability to value the MLP and it's related GP.

We are having to think about things that in all parts of our business that we would not have had to think about six months ago or a year ago. And so we will think that through and we will watch the evolution of the capital market as well as the MLP GP model. I think you'd see us be proactive if something changes there.

Thank you much.

Jerren Holder, Goldman Sachs.

Good morning. Switching over to drop downs, what's the outlet there? I know Devon has outlined that they want to sell mission assets, that's maybe access pipeline in the first half. Is their right of first offer. How are you guys thinking about financing that just given the capital markets? Where your bonds trading, where the equity's trading and how does that impact what you can price may be preferred if that is an option, too.

Hi, Jarren, it's Ben. On access pipeline you're right, Devon has indicated that they want to sell that in the first half and first let me say it's a very good asset. We've done a lot of work on the access pipeline to understand the opportunity there. At the same time, as Barry just said, we are living in capital markets for the MLPs today that are broken, and as a result we have to be very selective and deliberate about where we allocate our capital dollars this year.

And we are more focused on our core areas of growth in Oklahoma, the Permian, and Louisiana. And that is because they are fundamentally a bit more strategic to us than a more isolated asset in Canada, as great of an asset as it is. So while we remain in the room with Devon on the opportunity, I think it's become more less likely that we become the owner of that asset, but we continue to explore our flexibility that we have along the lines that you said with preferred equity and other sources of financing if things changed. And again if it made sense for us to own the asset.

Okay, thank you very much.

Darren Horowitz, Raymond James.

Mike, in your discussion around high-grading growth CapEx can you quantify how you leverage internal rate of return threshold may have changed? What your new target is, and how much additional growth CapEx that may not be committed could be further adjusted or deferred if this current, as you said, broken capital environment continues?

It's a great question. So how we look at capital is we go from bottoms up on each business and then rank and sack it based on priority like Ben said with where its location is and secondly really from risk return standpoints. When we look at capital return, we look at an un-levered return from an asset where historically you probably saw something in maybe the 12% to 15% rate, and you see that or higher today is what your expectations are. And how do you do that? You can do that sort of two was.

You can do that ultimately through the contract and the cash flows or you can do that through the capital of your spending. So an example I'll give you is the Lobo-2 plant in the Delaware basin. You've taken a plant that was in inventory, you are minimizing capital as much as possible to serve the customer but leaving yourself a lot of optionality to grow that asset.

So we've really focused on both pieces of that equation to ensure that we are getting the returns that we need on that capital. Another piece would be like the ascension pipeline and max business unit. That is a great example really. It won't give much cash flow to 2016, but from 2017 and long-term it's a great asset.

Thank you.

Darren, this is Steve. I will add onto that. One of the questions you asked was is there any continued capital reductions that we could see going forward in the year. And I would just like to point out that we are seeing a reduction in construction costs.

We are seeing reductions in pipe and steel materials so we are definitely going to be very aggressively pursuing reducing those costs and our new projects going forward. So we expect to see some improvement.

This is Mac. I might point out one other thing here. As I think about the current environment we're in and the diligence people are placing on capital these days, that is not a new discipline for us. I need only think back to last year when we were pursuing the condensate pipeline in our Ohio River Valley business.

And we looked at it, we looked at the environment, we looked at the level of drilling there and made the decision even before this-- the current cycle we are in, or the depths of the cycle we are in, and made the decision that it just wasn't prudent for us to spend that money. So I think what you're seeing now is just a continuation of the same discipline that we have applied in the past.

Mirek Zak, Citi.

Good morning, everyone. I know this might be a little bit early, but I just wanted to see how you're looking at 2017 at this point regarding crude price estimates, drilling activity expectations, simply considering you're going to have about 1.0 times coverage at ENLK for this year assuming roughly a $44 crude price. And considering some pics converting this year and the Tall Oaks preferreds converting next year, what needs to happen or what kind of options and flexibility do you have around that to meet distributions for next year and have coverage above 1.0 time?

Let me start with -- in times like this you've heard us talk about focus and execution in 2016. So I want you to clearly hear that we are very focused on today in executing the plan in 2016. Helen acknowledged it earlier and that is the limited or what I would say is the absolute minimum contribution we're getting from some of the things we've been most recently.

And we still believe it doesn't take much of an improvement in price to see significantly higher activities in the central Oklahoma around the Tall Oak and around our Cana position, similarly in the Delaware and the North Midland basin. Those are three of the absolute best places to be and we are in the core of the core there. So we're going to see benefits from that.

As you get into our crystal ball for 2017 it is no better than anybody else's. What I would tell you though is that we think you're going to see an improvement in the second half of this year that would drive increased activity into 2017 and we would benefit quickly from that in our key growth areas.

From a financing standpoint, Merik, you are correct we do have the Coronado picking that's converting this year and that is taken into consideration in our guidance. And the second piece was the preferred units on Tall Oak ultimately converting really in the third quarter of next year. But if you remember they convert and they have a cap on cash pay. We tried to be really thoughtful in the sense of how we structured this to certainly protect it against the downside and it gave great opportunity for the upside. I would leave it again like Barry said from a productive crude price we think that $40 to $50 range.

Chris Signielcy of Jefferies.

Good morning, guys. Mike, just a point of clarification for me. With regard to the guidance. The Delta between the ENLK EBITDA and consolidated EBITDA, is there anything more in that spread than just ENLC's ownership of Tall Oak.

No, that is just a 16% of Tall Oak is all it is.

Okay, and have you just as another point of clarification -- is that assumed flat at 16%? I know in the December call you had mentioned obviously the Tall Oak acquisition lends itself to maybe some drop-down opportunities. I just want to better understand if that's held constant at 16% in a guide.

It is. Right now we don't have -- we've not assumed any drop-downs from ENLC to ENLK. It just assumes ENLC.

Okay perfect. Final point on Tall Oak for me is just, I know that there was an option for the second installment of the payment to further defer 50% of it for another year. When you were talking with Helen about the leverage and the financing guidance portions of the presentation is that assumed that you would exercise that option?

Yes, we would always exercise the option to push capital out, so right now that is $250 million due in January of next year and then $250 million due in the January the following year.

Perfect. Thought so but just wanted to confirm. Appreciate the time.

Jeremy Tonet of JMP Securities.

Hello, good morning, this is Neal on for Jeremy. So I guess you've been executing pretty quickly on Tall Oak with all three systems interconnected by next quarter. But given the new $180 million spending this year, how is the three-year $650 million expected CapEx and the growth trajectory changed if at all?

I would say that if you think about the big buckets that I laid out earlier in terms of the reduction from $350 million to $180 million, most of that is a deferral out of 2016 into future periods.

Now, what could change that would be our Oklahoma express project, because if we were to construct the Oklahoma express project that would connect own Oklahoma assets to our North Texas assets, that would be in lieu of continuing to expand processing capacity up in Oklahoma and would give us and our producers the benefits of better residue markets and NGL markets we have a North Texas. But most of that is a deferral into future periods.

When you think of capital really to, like Ben said is really, you're pushing capital ultimately more into 2017 and 2018 from a timing perspective. And then if you think about associated EBITDA as far as expectations, we are right now not projecting to be too far off with where our initial projections were, and we think that is going to be driven a lot by what we're seeing from the well results ultimately, that producers are seeing.

Barrett Blaschke of MUFG Securities.

I know we got into the issue of potential bankruptcies, but just also as far as on contracted parties, but I guess, the other thing is what happens in terms of your rating if we start seeing basically the percentage of your contracts that are, I guess, non-investment-grade counter-parties? Have the ratings agencies given you an clarity on that?

So again the percentage of contracts we have a revenue standpoint is only 10% and there is no one counter-party that represents a material portion of that. So from a credit perspective we feel very good, the position we are in. So again, I personally don't see that as a ratings issue.

Okay, so if that were to increase from 10% if you were starting to see downgrades at the EMP side, that doesn't have an impact on you?

No. In the sense that the main customers are the ones I pointed out. So it all depends on where they ultimately end up and which rating agencies rate them at what level. You see the top customer and there's a lot to that. Right now we feel very comfortable on that.

Okay. And just wanted to follow up. Is there anything you could quantify as far as the cost declines and the average build-out multiples when we are seeing labor and materials costs coming down?

Proportionally what we're seeing right now is anywhere from a 10% to 30% reduction in our construction costs. And that represents probably half of the cost of the project and then probably a 30% to 40% in materials costs. I will caution you that on that a little bit because when you look at some projects where we are re-using some existing inventory of assets, those costs would still come in at some old prices so on our Lobo project for example, we've got costs associated with that was its original purchase price.

And some of the pipeline we have acquired as inventory for projects we're utilizing that as well. It's kind of a mixed bag but I would say overall we're probably in the 20% to 30% range of opportunity cost coming down associated with projects.

Okay, thank you.

Jeff Birnbaum of Wunderlich.

Good morning, guys. Mike, just a couple folow-up questions on the balance sheet, most of my other questions have been answered. I guess starting with the equity, if you decide to go the route of issuing additional preferred, obviously you have the access to another $500 million. Do those funds need to go to Tall Oak investment or is it up to you to which investments you can directed that toward?

And are the terms of that preferred -- are those up for negotiation or do they are they effectively locked in at the same terms of the existing preferreds? And then I guess just on the debt side, you mentioned you are engaging Fitch for additional ratings and I guess I appreciate your guidance on the leverage, but I guess I'm wondering where you're comfortable taking leverage with an eye towards your IG ratings if you're not satisfied with the options at your disposal to fill those $200 million in equities that you mentioned.

So good question. The first one on the Tall Oak preferred, we do have a right to additional -- to issue an additional $500 million preferred and that would be for Tall Oak capital or for Tall Oak deferred payment. So that is limited ultimately to what we are doing on Tall Oak. From a structure standpoint that would be all negotiated except for price.

We have mutually agreeable terms on how we look at the price of those but otherwise the terms would be the same as the existing preferred GT. But again that is just one piece of it, right? So as I mentioned we think we have equity needs less than $200 million, so you have a lot of leverage to do that, as well as Barry mentioned, looking at other nontraditional sources to fund capital in certain areas. We don't feel it's difficult even in this kind of market to find capital to do the level of capital we're trying to do. So we feel comfortable on that.

From an agency standpoint on leverage we've always held the market we like to be between 3.5-times to 4.0-times. That is where we think we need to be from a balance sheet perspective and that's where we've worked to get our balance sheet. Times like this to where you have a complete dislocation of capital markets are interesting but we have prepared for it and we feel comfortable with our options.

Not having to go to the capital markets and not having any maturities and having a lot of liquidity that is really what you want times like this. So we will continue to manage our leverage in and around those areas because we think that is where we need to be.

Thanks.

Noah Lerner, Hartz Capital.

Good morning, everyone. You touched on it a little bit. Thanks. Other than the impact of possibly not ending up owning the access pipeline, I was curious what other thoughts you might have to Devon's announcements as far as their looking to sell the non-core assets. I don't know if it would include any production that might actually diversify your counter-party. I was just wondering what kind of internal thinking you guys have around those lines.

Noah, this is Barry. I will start. Let me say that first of all, we know what Devon is in the middle of today. It is really tough times to do the things that you need to do in a tough cycle like this.

But as tough as it is, it's the right thing to do and they are making some very tough decisions around getting costs down, becoming more competitive, becoming more focused. In the long-term those are very positive things for us. A strong Devon means a strong relationship, a strong sponsor for us. And so we're glad to see that. Having a little bit of insight into what we read and what we're seeing there, what we would tell you is we are encouraged that the assets that they've identified for sale they will be successful on some or all of those which are necessary to fund their capital program.

And again that is good for us. And so we think they're doing the right things, as far as the ultimate impact on that to the extent any of those assets are behind the facilities that we currently own. We think that is probably a positive, they'll be in the hands of folks that don't have the STACK or don't have the Delaware don't have the Eagle Ford, the three places that Devon is primarily going to spend its money. We see what they're doing as a very positive, but tough times.

A little bit detail. One asset that is on the divestiture list that is most relevant to EnLink is their 15,000 acre position in Martin County which is almost entirely undeveloped and dedicated to EnLink. And just as Barry said, for a company like Devon 15,000 acres fairly isolated relative to the rest of their portfolio is unlikely to attract capital dollars. So we think there's a decent chance that asset ends up in the hands of a very focused producer in that area.

You have to look very far to see what diamondback RSP and others have paid for acreage in that area. It's very, very good stuff. It's just stuff Devon has not gotten to and maybe now someone else will.

And I presume that obviously, your contract stays intact and would follow the assets with the divestiture of that asset?

That's correct.

Thanks and good luck steering us through this mess.

Ladies and gentlemen that concludes our question-and-answer session. I would like to turn the comments back over to Barry Davis for any closing remarks.

Thank you, Dan. In closing this morning I just want to remind you and I hope you leave this call today understanding that we are focused on the key strategies that we've laid out and we will execute on those strategies this year. We remain committed to maintaining our financial strength and executing on the opportunities that will come from a cycle like this.

So we appreciate your support, we appreciate your patience as we work through this cycle and we look forward to communicating as we have the opportunity in the future. Thank you and have a great day.

And thank you, the conference has now concluded.