Enterprise Products Partners LP (EPD) 2003 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. And welcome to your El Paso Energy Partners first quarter 2003 earnings conference call. At this time, all parties have been placed on listen-only mode and the floor will be open for questions-and-answers following the presentation. It's my pleasure to turn the call over to your host, Sandra Ryan, Director of Investor Relations. The floor is yours, ma'am.

Good morning and tank you for joining us for our first quarter 2003 conference call. I want to open this morning with a few regulatory related items. First, our EBITDA number, as we're reporting it now, is the same number that we used to call adjusted EBITDA so there is continuity in our reporting. Second, a reconciliation of consolidated EBITDA to cash flows from operating activities is incorporated in the release and it's posted along with our release and operating statistics on the foreign investors page of our website at www.elpasopartners.com and it is through a link entitled non-gas reconciliation. Also on this link is a reconciliation of performa balance sheet items and debt ratios that Keith will refer to later in the call. And now I wish to make you aware that this call will include forward-looking statements and projections made in reliance in the Safe Harbor provisions of The Private Securities Litigation Reform Act of 1995.

El Paso Energy Partners has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable and complete. However, a variety of factors could cause results to differ materially from the anticipated results or rather expectations expressed during this call. Including, oil and gas prices, continued drilling activity in the United States and areas of the Gulf of Mexico serviced by El Paso Energy Partners and successful negotiation and customer contracts on our pipeline, platforms plants, and storage facilities. While the partnership makes these statements and projections in good faith, neither the partnership nor its management can guarantee that the anticipated future results will be achieved. Reference should be made to El Paso Energy Partners' and its affiliates' SEC filings for additional important factors that may affect actual results. I'm now going to turn the call over to Bob Phillips who is our Chairman and Chief Executive Officer. Bob?

Thank you, Sandy and good morning to all of you. Thank you for joining us.

We are extremely proud to report another excellent quarter of performance for our partnership with EBITDA more than $100 million per quarter for the first time in the history of the partnership. I think these outstanding results indicate the benefits of having a very broad set of complimentary midstream assets and businesses and as you know this management team has worked hard over the last couple of years to acquire assets and build assets in all the right places, and to achieve a level of competitive position and market leadership in a number of the markets that we serve. You're beginning to see the financial benefits of that strategy. Just to touch on a few of the segments, our natural gas pipeline volumes were very strong across all the regions in the San Juan, in Texas, and in the Gulf of Mexico. Our processing plants were full during the first quarter and higher NGL prices led to a big contribution from that segment. Our oil pipeline business in the Gulf of Mexico improved in the first quarter as deepwater volumes begin to come on stream.

Our gas storage business hit its full stride in the first quarter due to a record winter that we experienced in the industry, particularly in the eastern and the southeastern part of the United States, where our storage business serves those customers. It was only our natural gas liquid fractionation business that was off a little bit. And that was clearly due to difficult processing economics isolated in south Texas which led to lower natural gas liquids through put. I think the importance of examining each of those segments is to show the real value of a diversified business mix, and it indicates to our investors how the sustainability of our cash flows even during volatile times. And I think that the market will begin to give us credit for this significant set of industry-leading assets that we put together here in this partnership. Moving on, in the governance area, we've announced a name change to Gulfterra Energy Partners effective May 15th. We're very proud of this. This is an important event in the lifetime of this partnership. Which by the way is recognizing its ten-year anniversary this year.

The name represents, to us, a partnership that has the best set of diversified midstream assets in both the offshore and the onshore energy industry, as well as the best set of growth prospects in the entire NLP sector. Now we've made, in addition to the name change, we've made significant changes to our GP structure, that we think will benefit our investors and as you know we're in the process of expanding our board of directors to include even more independent members of the board. And these are all serious steps to delink the partnership from our indirect general partner the El Paso Corporation from a credit standpoint and we think this will allow our investors to more clearly distinguish the partnership's businesses and its unique growth opportunities. We had a very good quarter in the capital area. We turned out some acquisition debt at a good price by selling $300 million in senior subordinated notes. We've completed a very successful $103 million common equity offering.

In April, our units, as you might have noticed, traded up nicely since the beginning of the year, and we're now one of the leaders in the NLP sectors in year to date total return to unit holders. I think the capital markets have been very positive on our growth story, particularly with respect to the projects that we have ongoing in the Deepwater Trend of the Gulf of Mexico. In closing, I want to brag on our management team a little bit. I'm very proud of the team that we put together. We have a very deep bench of experienced veterans with good solid supervision and oversight by an independent board of directors. I want to point out that we have worked aggressively over the last couple of years to acquire assets and build a substantial platform for growth. We're now in the development phase. We have a world class set of opportunities building out midstream infrastructure in the Deepwater Trend of the Gulf of Mexico, which will provide some of the higher return projects we've had an opportunity to invest in, in a number of years, and add significantly to our cash flows later this year, and in 2004. Our short-term future is set by virtue of the significant capital projects.

Our balance sheet is developing nicely. We are on pace to deliver some very strong credit metrics by the end of the year. This management team is very focused on the partnership's business. We're doing all the right things in the governance area. I think we're headed for a very successful 2003. I'm going to turn it over to Mark Leland who is our Chief Operating Officer to give you more detail on our governance changes, and the operating performance of our midstream assets in the first quarter. Then Keith Forman our Chief Financial Officer will cover the balance sheet and our capital activities during the quarter and recently.

James Lytal, our President will update you on our Gulf of Mexico projects our significant progress that we're making out there. New projects that came on stream during the quarter and progress on those that will come on stream later in the year. And finally David Ergal will wrap it up with a very short review of our new expansion project out in the San Juan Basin. What that, I turn it over to Mark Leland.

Thank you, Bob. Before I highlight the partnership's financial performance, I want to overview the progress that we've made in implementing the governance and independence initiatives that we have been discussing on recent calls, as well as highlighting in our 10-K. In addition to announcing our new name last week, we've taken important steps to strengthen the partnership's governance model, our general partner interest has been moved into a newly formed Delaware Limited Liability Company, that has a special purpose entity with the sole purpose of owning the GP, essentially the bylaws of this LLC require it to have no assets other than its -- those interests in the partnership, have no operations other than those relating to our operations, have no debt other than obligations those owed to us, or our creditors, no liens, and no employees.

Essentially this is those sorts of -- this is the type of entity that you might say is bankruptcy remote, we believe. In addition, we've modified our partnership agreement to eliminate El Paso's voting rights with respect to certain actions regarding the general partner, in particular, with respect to the removal of the general partner, and with respect to filing a voluntary bankruptcy. Also, in the quarter and I think most importantly, of all of these issues, we reduced our margin which is revenues less cost of gas and NGLs purchased generated through transactions with El Paso or its affiliates to about $15 million in the first quarter of this year, compared to $61 million in the fourth quarter. In addition we received credit assurance in the form of LCs that cover a significant portion of our ongoing business. Significantly reducing our related party exposure in all of those categories. Now, turning to partnership performance. Before I go over the operating highlights, I want to point everybody to our website, at ElPasoPartners.com.

We have our detailed operating statistics there, as well as the reconciliation of some of the non-GAAP financial measures we'll discuss and those will be reconciled through the appropriate GAAP approvement measures. With regard to our operating performance as you read in our press release and as Bob mentioned we reported net income cash flow from operations and EBITDA, net income was $42.2 million, up 121% from the first quarter of 2002. Cash flow from operations was up 31% to $71.4 million and EBITDA was $105.9 million, more than double last year's first quarter. Each of our operating segments performed very well and on track with our expectations for the year. I'm going to highlight in a little more detail our largest segment which is our natural gas pipelines and plants because that's our major business these days, and it contributed $77.8 million of EBITDA. This was up substantially from last year due to the acquisitions we made in 2002. Our pipeline volumes were solid across the board.

All experiencing higher volumes compared to the third and the fourth quarter of last year. Our offshore pipelines, including the HIOS system were strong as well. HIOS moved -- had throughput of 751,000 decotherms for the quarter. This is up due to increased drilling success and activity in the gulf or in the western gulf. VK throughfoot average 688,000 decatherms a day as canyon express volumes continue to increase. In addition in the third quarter, we expect throughput for the system to further increase as as result of the Medusa and Matterhorn fields coming online. Our permeum volumes were steady at around 320 million decotherms a day, which is essentially flat with what we expect and what has been occurring in recent quarters. And in addition, San Juan throughput was somewhat -- was 1.1 dcf a day, roughly. That's off a little bit from what we expected and that was as a result of some unforeseen compressor maintenance that occurred in February and January. EBITDA, however, was right on track with expectations, as we had solid NGL prices, and we were able to mitigate the volume impacts through lower expenses.

The Texas intrastate throughput was strong at 3.4 million decotherms a day. The was up as a result of the cool temperatures in central Texas. Actually cold winter in central Texas of which in February and January, throughput was very strong to meet heating needs. EBITDA for the Texas system was lower than we expected, and this was as a result of the high fuel costs and imbalance revaluations on that system. The high fuel costs were driven by the increased fuel utilization as a result of the higher throughput and due to the fact that gas prices peaked at over $9 an mcf or mnbtu in February. Offsetting the Texas performance was the stellar performance of our plants. Very strong volumes both at Chaco and at Indian Basin, coupled with that was high NGL prices which were more than 12 cents higher than -- per gallon higher than the previous quarter, more than offset the Texas asset performance. Our oil and NGL logistics segment, as Bob mentioned was right on track.

We had good Poseidon volumes. We had better EBITDA contributions from the NGL assets that we acquired in the San Juan transaction what we call the CLP assets in south Texas. That more than offset the lower EBITDA contribution by our NGL T&F business due to the poor throughput as a result of poor processing economics in south Texas. Storage was up substantially as a result of the good, solid quarter with the new expansion. Our platform business was right on track and will continue to even -- we believe to exceed expectations as Falcon comes on line for a full quarter this coming quarter. Capital expenditures for the quarter were $80 million, 14 of which were maintenance, 66 million related to maintenance capital expenditure was a little higher than we expected as a result of higher well tide activity and compressor maintenance identified in San Juan.

So when you sum it all together, we had our diversified portfolio of assets proved very solid this quarter. We had good performance in all of our segments and look forward to a good rest of the year. Let me just tell you - a lot of news recently about acquisitions and accounting for acquisitions. As you all know in 2002 we acquired $1.5 billion worth of assets. The EPN -- or the Texas Intrastate acquisition and the San Juan Basin acquisition, all of those -- in all of those acquisitions we had appraisals to allocate the purchase price, and in none of those acquisitions did we have any goodwill. With that, I will turn it over to Keith, who will highlight our capital-raising activities in the ending balance sheet.

Glad to be here, and be now the Chief Financial Officer of my third New York Stock Exchange company without having changed an office, essentially. As you would expect, as progress continues to be made on the construction and installation of our Greenfield projects and as progress is made in our goals of improving the balance sheet. The first part of the year was an active one for us in the capital markets. In March we were able to sell $300 million of senior subordinated notes with a maturity in 2010 with a coupon of 8.5%. We felt pretty good about this deal. The debt capital markets were more receptive to our story in March than they were in November when we issued debt with a similar term, costing us 225 basis points more per year.

The proceeds were used immediately to repay the senior acquisition term loan we used to help fund our acquisition of the San Juan asset package in November of last year. Aside from retiring senior debt, that had a maturity in mid 2004, another positive result was that to have the effect of lowering the borrowing spreads on our revolving credit and one of our two remaining term loans by 175 and 125 basis points respectively. While we were pleased with this offering of senior subordinated notes the buyers of the notes should be even more pleased. They were issued at par and are currently trading at 108 in the range of 6 and 7/8% on a yield to worth basis. Far be it for me or for that matter any of us here at the partnership to take credit for this improved market response to our security

our common units, as well as our debt. But I have to believe somewhere someone is taking note of the progress we are making in integrating our newly acquired businesses, recognizing the additional and in many cases above expectation EBITDA, and earnings being generated by these businesses, realizing that coming off a record year of EBITDA in 2002, that it looks like our EBITDA guidance of the year of $420 million is more than achievable, recognizing that we are committed to reducing our leverage and deal positively with lingering rating agency concerns and recognizing our commitment to fully implement our corporate governance and unique identity initiatives. We were able to sell some equity as well recently, albeit not in time to be reflected in our balance sheet at the end of the first quarter. We sold $3.45 million common units at $31.35 raising a net total of $103 million in proceeds. Just like our bond holders the purchasers of this equity should feel pretty good as the unit prices increase to just below $35 at the moment. As Bob mentioned, a unit holder at year-end has realized a total return since January 1st of over 25%. Let's take a look at the balance sheet and some credit statistics. At the end of the first quarter, our debt-to-total capital was essentially unchanged from year end 67.6% to total capital versus 66.7%.

At the end of both periods, our revolving credit availability was around 100 million dollars, 109 at year end and 98 at the end of the first quarter. Making adjustment to the balance sheet for the issuance of the common unit equity, just after the quarter ended would reduce our debt to total capital to 64%, and reduce our debt to annualized EBITDA to 4.4 times from 4.6 times. And left us with unused capacity under our revolving credit of $188 million. That's a substantial improvement in our liquidity just by that asset -- that modest sized equity offering. So here on May 6th, 2003 I feel confident saying we have committed capital available to us now to complete all of our remaining planned growth capital expenditures for the year. That being said we remain committed to funding our growth with an equal balance of equity and debt capital and to reduce our debt-to-capital ratio of a close proximity of 60% by year end. Lastly I would like to give you an update on our project financing.

As you know we have been using our non-recourse Deepwater gateway project loan to fund expenditures on the Marco Polo platform. Outstandings on that loan were $67 million at the end of the quarter. The outstandings on our non-recourse Poseidon revolving credit were $127 million which was down from more traditional $150 it has been for the last few years and last week we had a meeting with the prospective lenders on our Cameron highway project. Our partner Valero was a participant as were our Leader Rangers who have made conditional commitment to the financing of half of the $325 million that we seek to non-recourse debt finance on this project. We expect the financing to be finalized in the first part of June and I would like to pass it now to James Lytal.

Thank you, Keith. As Bob mentioned we began to receive production from pioneer stock and field on our platform and pipeline in mid-March and the field is currently producing over 190 million cubic feet a day. Pioneer has recently announced they are going forward with another development in the area called Harrier. Harrier will be connected back to our Falcon Nest platform via a new subsided pipeline. They won't utilize the Falcon line. This will be a new line tying back to our platform. Pioneer expects Harrier to be flowing around the 1st of 2004 and the anticipated flow rate from Falcon and Harrier combined is 275 million cubic feet a day.

With the second flow line pioneer will have capacity to flow close to 400 million cubic feet to our platform. Pioneer plans to drill two additional prospects in the Falcon area in 2003, and has a multi year inventory of prospects on the 32 blocks it owns in the area. EPN receives a per mcf and per barrel commodity fee for separating the oil, gas and water on the platform, and a commodity fee for gathering the gas to the central Texas gathering system. We also will receive a monthly demand payment for a five-year period. With the performance of Falcon, and the addition of Harrier, this investment is already performing beyond our expectations.

On Marco Polo, the new tension leg platform is on schedule to be shipped from South Korea in mid-June for arrival in the Gulf of Mexico in mid-August. Our installation contractor,Paramod is scheduled to mobilize in early September to begin the installation of the TLP. Installation is expected to be finalized mid to late November and we should begin receiving revenues on the Marco Polo project on December 1st, 2003. Anadarko is finished drilling on their six Marco Polo production wells and the results have been better than expected. First flows from those wells is anticipated in the first quarter of '04. We continue to see tremendous activity in the area of the TLP. There are currently six new discoveries in the area and eight additional prospects that are planned to be drilled. With this activity and our ongoing discussion with several producers we have elected to expand the capacity of the TLP from the original 100,000 barrels of oil per day and 250 million cubic feet per day to 120,000 barrels of oil per day and 300 million cubic feet.

New tiebacks to the platform will not only benefit the platform, but will also get additional -- we will also get additional revenue from gathering the oil and gas through our Marco Polo oil and gas gathering pipelines. We believe our concept of third-party platform ownership has been well received by the industry and we are currently working on new platform projects in other areas of the Gulf. Our Cameron highway oil pipeline remains on schedule. We have received some of the pipe already and expect to have all the pipe delivered by August of 2003. We expect to begin laying the bay area portions of the pipeline late in the second quarter of this year with the offshore installation to begin in the third quarter of '03. The onshore installation will begin the first quarter of '04, and commissioning of the pipeline that's anticipated late in the second quarter of 2004. We are currently finalizing our partnership agreements with Valaro and expect that transaction to close in the very near future. The Marco Polo platform and pipeline and the Cameron highway pipeline are significant investments but we absolutely believe they are investing our capital in the right area.

This southern Green Canyon area has proven to be a significant oil basin with numerous major discoveries over the past two to three years. Since we announced our Cameron highway Marco Polo projects, there have been nine new discoveries and the BP-operated Atlantis field which is dedicated to Cameron highway has almost doubled in size. There are also numerous new wells that are planned for this area. The most recent announcements from this area are the appraisal of Chevron Texaco's Tahiti field which ChevronTexaco estimates contains 400 to 500 million barrels and the announcement by Kerr McGee of their Constitution discovery and the delineation of their Hornet discovery. We believe we are well-positioned with our platform and oil and gas pipelines to provide the infrastructure services this area will require for many years to come. One last project we mentioned in our press release is our three-year optimization project for a San Juan Basin midstream assets. I'm going to turn it over to David Ergal who's our Vice President of the Western Region to discuss the project.

Thank you, James. As James just mentioned, we are pleased to announce a $43 million capital expenditure to optimize and expand the San Juan Basin gathering system. We intend to spend the $43 million over a three-year period with approximately 10 to 12 million dollars being spent in calendar '03. The ultimate optimization should realize as much as $130 million a day of increased gathering capacity on our existing system. One of the primary aspects of the expansion will be that we will be adding compression at our 100% owned Chaco processing plant to increase the capacity at that facility, and we will also be adding a new interconnect to a major interstate pipeline at the tailgate of the Chaco plant to give our customer shippers increased flexibility as they market their gas downstream of our gathering and processing facilities. The reason it is timely for this expansion is that effectively, the San Juan Basin gathering system is full at this time, and we continue to see extremely robust drilling activity from our producers in the basin, the State of New Mexico is cooperating with the producers in the basin and downspacing the sizing of the amount of acreage that is needed to drill a well, giving them literally thousands more locations on our system, and we anticipate for the foreseeable future to be connecting in excess of 200 new wells per year in this robust environment.

This is Sandy Ryan again and I want to remind everybody that on May 15th, we will be officially Gulfterra Energy Partners. Our ticker symbol is going to be GTM on the New York Stock Exchange as in gas transportation midstream. Our new web site will be www.Gulfterra,.com and if you go to our existing web sit you'll be transferred to our new web site which I'm sure you'll want to save as a favorite place. Our General Partner is going to be Gulfterra Energy Company and we're also changing the names of our assets and subsidiaries. In addition Gulfterra's annual report will be in the mail within the next 10 to 15 days and if anyone wants one of those and are not already on our list to get one, please give me a call. And with that said, I will now open the call for questions and I'll turn it back over to you JT.

Thank you. Ladies and gentlemen, if you do have a question or comment at this time, please press the numbers 1, followed by four on your telephone keypad. If at any point you wish to withdrawal your question, please press the pound key. We do ask that when posing your questions that you pick up your handset to provide optimum sound quality. Please hold while I poll for questions. Our first question is coming from David Fleischer with Goldman Sachs. Your line is live.

All right, thank you. And I guess the first thing I would say is that after repeating a number of times Gulfterra is actually starting to sound better and decent already. I think it will be a good name for you.

That's how we feel about Fleischer! [ laughter ]

Thanks. First question I want to ask you is the -- you know the statement you made here about the 1.5 billion assets that you acquired and that there was no goodwill allocated in those. I just want to ask you presume that you've had no contact with the SEC, can you confirm that the SEC has not asked you about any such issues or really any issues having been disclosed previously?

David, this is Mark, we have not been in contact -- or the SEC has not contacted us regarding this or anything.

We've been talking to them about how to comply with Reg G but they have not initiated contact with us.

My comment was not in response to being asked by anybody other than I figure that it would come up in the call and I thought I would just hit it off in the beginning. Okay.

Secondly, in your comments, Bob, at the beginning, you did great earnings here, cash flow and you did point to some of the factors, and I was wondering if we could get a little help in maybe quantifying how much of a benefit the NGL prices were to you, and how much you were helped by the winter and -- as far as gas storage over your plan there and if you could help us understand the source of that, was it the volumes or was it price? And then as far as the offset, you said that gas fractionation was off a bit and others were hit pretty hard on the fractionation side. I would like to get a better understanding why you were not hurt more by having to leave liquids in the gas stream there.

Dave, this is Mark. I will try to hit all of those as much as possible. The gas plants were up substantially and that was due to volumes, but also significantly due to prices. And I think that was probably -- I think that was something in the order of net around $10 million. After you consider the impact on the Texas pipelines, which was off due to the - even though we had good volumes, overall costs were higher as a result of the higher natural gas prices. So they really kind of offset each other significantly, and the net NGL price pickup was roughly $10 million. The rest of our business was really pretty much on track with what we expected. NGLs were down a little bit, and the reason our impact wasn't larger is that it's just not that big business for us. It is a nice business, but it's not - a couple million dollars in that business downturn isn't going to impact us significantly because we have a substantially larger portfolio of assets that have upsides then downsides. Storage was up primarily due to the - not necessarily the interruptable volumes or what have you, but it was really just due to the full quarter of demand charges in that segment.

Okay. Okay. And third very specific question, is there any other benefit from the special purpose entity that El Paso is setting up, besides making it bankruptcy remote?

No.

Okay. Thank you. Good quarter.

Thank you. Once again, ladies and gentlemen if you do have a question or comment at this time, please press the numbers one, followed by four on your telephone keypad. Our next question is coming from Yves Siegel with Wachovia Securities. Your line is live.

Good morning. Two questions. One is in terms of the initiative to -- on separation, Bob, anything else that needs to be done? Specifically what I'm thinking about is you still have an executive title with El Paso Corp. Any sense of - is that consistent with the longer term plan. And then the second question would be you guys have so much on your plate in terms of grass roots projects going forward, great organic growth. What's your thought process in terms of potential for future acquisitions and how may that also dove tail with Keith's goal in terms of maintaining and getting the balance sheet a little bit stronger here? Thank you.

Yves thanks for the question. The first one, I think, specifically is do we have any current plans to entirely and exclusively separate and segregate our management team from the El Paso Corporation and the answer is, no, we don't intend to entirely do that. El Paso, as you know, has been a strong supporter of this partnership by virtue of the couple of billion dollars in assets that El Paso has agreed to sell to the partnership. The El Paso employees manage the partnership's assets. There remains a small but still very important set of assets on El Paso Corporation's books, which are owned 100% by El Paso Corporation. Those are largely processing fees. They are processing plants that are strategically important to a number of El Paso Energy Partners assets. Particularly so in south Texas where the processing plants sit on the Texas pipeline system, and the natural gas liquids produced from those plants go into the partnerships, transportation, and fractionation business. We have a continuing management responsibility of those assets. That responsibility is both to the El Paso Corporation, and we think equally so to the partnership because of the strategic importance of those assets to the partnership's business. In many respects in a perfect world, I think we would be able to consolidate all of these assets into the partnership, but as you know, processing is inherently volatile and we have chosen strategically over the past couple of years to keep those assets, because of their inherent volatility separate from the partnership. We'll continue to operate it that way. And it will operate for the benefit of both the corporation as well as the partnership. So we have, therefore, no plans to specifically transfer all of the management team. What we have done, however, is reorganized internally. So that we will have a field services processing division, if you will, separate from the commercial activity of the partnership. And that separate organization provides us with all of the separation that we need internally to ensure that our partnership assets are exclusively managed by a specific set of employees within the midstream group. And we think that is the best structure available to us and until there comes a time in which we would agree to transfer all of the midstream employees over to the partnership, we think this is a very satisfactory arrangement and gets us the best of both worlds in the management of these assets. As far as expanding our business through continued acquisitions, as you know, our core strategy for this year was to digest last year's acquisitions and we mean that operationally. We mean that with respect to the back office, and we mean that with respect to the balance sheet. And I think you're seeing progress in all of those areas. The assets are performing better, commercially and financially than we thought. I'm very pleased with our financial reporting. I think you will see the quality of that if you examine carefully our 10-K and look at our 10-Q that will be coming out and you will see that Keith Forman has done a great job from the capital standpoint in moving us along nicely towards the investment grade credit metrics that we stride for by the end of the year. Having said that, we are constantly on the lookout for new acquisition opportunities and/or growth opportunities. James Lytal mentioned that we're sneaking up on some other investment opportunities in the Deepwater Trend. We've established a leadership position there. We have a model that works that the lending institutions have become very comfortable in lending on those projects. We have the technical staff here second to none. So we're going to continue to follow those opportunities and I think we will continue to invest dollars in those type of projects. On the acquisition front, as you know, the market is still robust with acquisition opportunities. We're looking at a number of those. We do not intend to aggressively pursue large scale acquisitions from El Paso Corporation at this point in time. That's not to say that we wouldn't look at another opportunity to acquire a solid qualifying asset from them, but we have no plans to do that now.. With respect to third parties we have continued to look at a number of options. There are some really nice assets out there. We don't see anything on the horizon that would be a large that would conflict with our goal towards being an investment grade credit by the end of the year. And I think we would have a healthy respect for our balance sheet and the commitment that we've made to our equity holders and debt holders before we move forward with another significant acquisition. We're very happy with the portfolio we have today.

Can I ask just one quick follow-up, Bob? And that is on the processing business, at the El Paso level, is there initiative underway to try to move that to more fee-based to minimize the volatility?

You're absolutely right. In fact, our processing asset managers are under strict orders not to enter into any new key-hole type contracts. In fact one of the reasons why the partnerships' natural gas liquids fractionation business, I said it was off. It was off only slightly. The volumes were lower. The reason why they weren't even lower, as compared to comparable midstream companies is that the corporation south Texas processing plants were in a conditioning mode for a large part of the quarter so we did see liquids production. We just didn't see it to the full extent that you might if you were working under a full recovery mode. We don't like the current processing business. We don't like the business model where processors take an extraordinary amount of financial risk. We've been working throughout the industry. Both with producers who need processing services, or conditioning services and petrochemical and refinery market customers who need the gas liquids as feed stock for their operations. We've been working with them to come up with a broad-based solution to getting paid for that service on a fee basis. Take the volatility out, that would then enable most of these critically important processing plants to start moving into the master limited partnership sector. We think we are going to be successful but it's going to continue to take some time and it's not something that's imminent in 2003. But we're certainly working very hard on that to reduce the volatility of the cash flows associated with that critically important processing business.

Thank you very much for your answers.

Thank you. Once again ladies and gentlemen, if you do have a question or comment at this time, please press the numbers one, followed by four on your telephone keypad. Our next question is a follow-up from David Fleischer with Goldman Sachs. Your line is live.

Hi, I'd like to go back and ask another question. You reminded us that you are moving towards investment grade credit metrics by the end of the year and I guess my question to you is, do the rating agencies say they will rate you on your own merits with El Paso owning the G.P and significant units or does something else have to happen on that score for you to actually get that investment grade rating?

Well, David, we think that the credit agencies will rate us on our own merit. We have a few more things to complete in our independence initiative and I think that will get them over the hump there. But we do definitely need to get the statistics and that's what we're focused on most.

Okay. Right.

Rest assured we didn't get the watches on our credit rating and then not have in continual contact with the agencies and we've made a list of things that we're trying to accomplish with them and you know we'll roll that out and I think the press release you will see on this will come from them saying pursuant to their actions and these points we've delinked to the extent we historically linked the two ratings and that's what we're trying to go for here. I really don't feel comfortable, and I don't think any of us feel comfortable talking about each specific item there, because we haven't accomplished every one of those yet and I wouldn't want to put them in a box to say publicly that if we check every column we get where we want to go but I think that's ongoing but it's near the end of what's been a three-month process.

Okay. Thank you.

Thank you. Once again, ladies and gentlemen, if you do have a question or comment at this time, please press the numbers one, followed by four on your telephone keypad. Our next question is coming from Gabriel Moreen with JP Morgan. Your line is live.

Good morning, everyone. You mentioned in some of your previous filings that you had received third party interest in some of your natural gas storage assets. I was just wondering if you had an updated thought process on where you stand in terms of that.

This is Mark Leland. We have received interest in those storage assets. We've some discussions. Nothing has come of those discussions. And we're always on the lookout to increase our position in certain assets. We'll decrease our position in certain assets if we get the right value and that's really the result of that philosophy, was that essentially the comment we made in our previous -- I guess it was in our K or 8k.

Thank you.

JT?

Thank you. At this time, there appear to be no further audio questions from the phone lines.

Thank you all for joining us and we look forward to talking to you after our next quarter's release as Gulfterra Energy Partners. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect lines at this time and have a wonderful day.