Enterprise Products Partners LP (EPD) 2004 Q4 法說會逐字稿

Welcome and thank you for standing by. At this time all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). Today's conference is being recorded; if you have any objection you may disconnect at this time. Now I will turn the meeting over to Mr. Randy Burkhalter. Thank you, sir, you may begin.

Good morning and welcome to the Enterprise Products Partners conference call to discuss earnings for the fourth quarter of 2004. Dub Andras, our Vice Chairman and CEO, will lead the call followed by Bob Phillips, Enterprise's President and Chief Operating Officer; and Mike Creel, the Company's Executive Vice President and Chief Financial Officer. Also included on the call today from Enterprise are Dan Duncan, our Chairman and co-founder and several members of our senior management team. Afterwards we will open up the call for your questions.

Before we get started let me make a few statements here about forward-looking statements. During the call we will make forward-looking statements within the meaning of section 21-E of the Securities Exchange Act of 1934 based on the beliefs of the Company as well as assumptions made by and information currently available to Enterprise's management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the Securities and Exchange Commission for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.

And now I will turn the call over to Dub.

Good morning and thank you for joining us to review our fourth-quarter results. I'm happy to report that the first quarter, after our merger with GulfTerra, was very successful as we reported record performance. All of our business segments performed very well and we accomplished almost all of the synergies we had planned.

Enterprise earned gross operating margin of $279 million which we estimate would have been $17 million higher if we had not had the lingering effects of Hurricane Ivan. The partnership generated distributable cash flow of $197 million and that provided 1.24 times coverage of the 40 cents per unit cash distribution that we will pay partners on February 14th.

We increased our distribution to partners by 1.3 percent from third quarter of 2004 and by 7.4 percent compared to the distribution rate in the fourth quarter of 2003. Distribution coverage for the fourth quarter slightly exceeded our guidance of 1.2 coverage that we provided in our third-quarter earnings release and exceeded our cash distributions by $34 million.

Since our last call a number of organic projects have commenced operations with Cameron Highway being the most noteworthy and we have had completed a number of small acquisitions. Frankly we're finding these small acquisitions to be more attractive than the high multiples that are being paid for larger businesses with greater perceived business risk.

As a result of our large integrated platform of assets covering some of the largest supply bases in the U.S. like the Deepwater in the Rockies, our partnership has a sizable portfolio of organic growth projects at various stages of development. From adding compression in our San Juan gathering business, which should be completed later in the year, to the recently announced Independence Trail and Hub project.

We believe these organic growth projects will provide our partnership with an attractive cash return on investment, especially on projects which provide incremental value chain economics. And as we work to increase the value of our partnership, we intend to maintain our fiscal financial discipline.

At this point I'll turn the call over to Bob Phillips who will provide a business overview of the combined partnership.

Thanks, Dub. And good morning to all of you, thanks for joining us. We're obviously very pleased with the performance of the partnership in the fourth quarter, the first quarter after we completed the Enterprise/GulfTerra merger. I reflected on the quarter and I think the results clearly indicate that the merger integration plan went very smoothly.

All of our business units made a substantial contribution to the quarter; we're very pleased with that. And again, it highlights the diversification of our business. And we're also very pleased with the business development efforts that got off to a very good start during the fourth quarter as we've recently announced a number of new organic projects and some important acquisitions as well. Dub touched on those; I'll highlight some of those announcements at the end of my review.

Starting with the merger integration process, clearly we hit the ground running in October putting our organization in place and consolidating our systems and processes. I want to compliment all of the people in the back office at Enterprise and GulfTerra for the great job that they did during that first quarter. They did a solid job in consolidating the businesses very efficiently and allowed us to concentrate our efforts on our commercial and business development opportunities. Of course we think we'll see continued operating efficiencies gained throughout the year as more commercial synergies are developed between these two businesses.

Now let me turn to the fourth-quarter results starting with our largest reporting segment, NGL pipelines and services. Clearly making the largest contribution to the quarter with gross operating margin of $142 million or about 50 percent of the total. The segment included $75 million in margin from our gas processing business which did very well in the quarter and I think you're seeing gas processing do very well across the entire sector.

We had strong contributions in the quarter from the recently acquired South Texas plants, the Chaco and Indian Basin plans located in New Mexico which came from GulfTerra and, of course, the traditional Louisiana plant network did very well also. We saw volumes in product prices strong across all regions during the quarter and we also had a very solid contribution from our NGL wholesale marketing and our agency business which has had some growth opportunities and is responding very well in that market also.

Our NGL pipeline and storage business also performed very well in the fourth quarter making a $52 million margin largely due to the significant volumes transported from the Rocky Mountains through our mid America pipeline system and improved volumes on the Seminole Pipeline system which we think clearly indicates the long-term strength of processing in the Rockies and the mid-continent areas.

Just an update for you; in January we filed a new joint tariff on our mid America pipeline and Seminole systems for Rockies volumes destined to the Mont Belvieu fractionators and storage facilities. The effective date for that new tariff is March 1, 2005 and, subject to approval, we think will increase margins by about $10 million per year. So we're excited about the completing that important step to lower the operating cost and improve even further the margin performance of our NGL pipelines coming out of the Rocky Mountains.

Importantly our NGL fractionation business had a very strong quarter. I noted a 22 percent increase in Mont Belvieu frac volumes from the same period last year plus the addition of the South Texas fractionation capacity and the NGL pipeline assets that were brought in from GulfTerra through the merger. I'd also note for you that in recent months our fractionators at Mont Belvieu have been running at or near capacity reflecting what we're seeing as that continued and steady increase in NGLs from the Rockies. And I think that positive trend is clearly -- was a clear indicator that it was time to move forward aggressively on the announced fractionation expansion project at Mont Belvieu which I will discuss later in the report.

Now let me turn to onshore gas pipelines and services. Those assets, as you know, the San Juan gathering, the gas Texas pipeline, the Louisiana Acadian system, all benefited from higher natural gas prices in the later half of the year which led to robust drilling actively. This sector contributed about $72 million in gross operating margin for the quarter; we're very pleased with the performance across all of our intra state gas pipeline assets.

They transported and gathered on a combined basis about 5.6 billion BTUs for the quarter; that's a very strong number and it is right in line with our expectations. The San Juan basin gathering system delivered almost 1.3 billion BTUs per day during the quarter, a slightly higher number than any other quarter over the last four or five quarters so we're very pleased with that. I might also note for you, those that have followed the San Juan gathering system, we did connect 251 new wells in 2004 right in line with our budget expectations of 250 new well connects. I think that's an indicator as to why we're seeing slightly higher volumes move in the San Juan basin.

The Texas intra state pipelines transported well over 3 billion BTUs per day as we continue to receive new volumes from the Barnett shale growth in North Texas and we're starting to see a fairly sizable increase in drilling activity in the South Texas area as well. The Acadian system in Louisiana had a very strong quarter moving around 600,000 -- 600 million BTUs per day. And our gas storage business at Petal, Mississippi and our Texas facility also made a solid contribution to the onshore gas pipelines and services sector in the fourth quarter.

Moving to our third-largest segment, offshore pipelines and services, we had a lot of activity during the quarter in this area. These are the pipelines that largely serve the deepwater trend of the Gulf of Mexico and our platform business where we have invested a lot of capital in the last couple of years. The segment contributed margin of $34 million for the quarter and, of course, the number was reduced somewhat by the impact of Hurricane Ivan.

In the quarter our offshore gas pipelines gathered over 1.8 billion BTUs per day with higher volumes coming from our new Phoenix gas gathering system and increased volumes on our Highland offshore system offset by lower volumes on the Viosca Knoll gathering system which is located in the eastern Gulf of Mexico and, again, was impacted by Hurricane Ivan.

Let me touch on the repaid schedule for Viosca Knoll. As you may remember, we were averaging about 700,000 MMBtus per day through the Viosca Knoll system prior to Hurricane Ivan. The system is currently moving about 300 million cubic feet per day. We completed a number of repairs and our repairs are on schedule and should be completed through the first quarter. We expect by March to the back to about 500,000 Mcf a day with gradual increases back to what we hope was a prehurricane level through the second and third quarters of this year.

Now on the oil side in the Gulf of Mexico, we clearly have been a little bit disappointed in the early performance of the Marco Polo field which averaged about 23,000 barrels of oil equivalent per day in the fourth quarter. As we told you a year ago, we were expecting the field to ramp up to around 40,000 barrels a day at its peak. You also know that area producers have made significant new discoveries in the areas adjacent to the Marco Polo field and that we have been very excited for a year now about the potential subsea tiebacks of the recently discovered K2 and K2 North fields.

K2 is in the process of completing the subsea tieback and we'll be making that interconnect with the platform in the next couple of months. We expect first production from K2 in the second quarter of this year. K2 North -- Anadarko announced earlier this week it is ahead of schedule in terms of their drilling and exploration activities. They're very pleased with the progress that they've made out there. The flow lines will be laid during the second quarter and we would expect to see first production from K2 North in the third quarter of this year. On a combined basis we're still looking for production rates at the Marco Polo hub platform in the range of 100,000 barrels a day by the end of this year, early 2006.

Let me turn to the Petrochemical Services business which also turned in very solid results in the fourth quarter of this year. Gross margin was up 25 percent to $31 million for the quarter led by the butane isomerization system which generated gross margin of about $18 million on very strong demand from the propylene onsite markets. Additionally our propylene fractionation business delivered margin of about $16 million due to very strong domestic and international demand for propylene, solid processing margins in the propylene splitting business and over 90 percent capacity utilization of our facilities. So we're very pleased with how that business ran during the fourth quarter based on very strong industry demand fundamentals.

The results were offset by seasonally weak demand for MTB (ph). As you know, we announced last year a $37 million project to convert the MTB facility in to an iso-octane facility. That project is very much on track for completed in March and will give us the flexibility to make either MTB or iso-octane depending on the economics. So we're pleased with the performance of that segment and that project is very much on track.

Let me turn to the business development side very quickly and touch on some of the highlights that Dub mentioned in his opening statement starting in the offshore area. New oil production came online in the fourth quarter from the Front Runner deepwater field and the Tarantula shelf field with deliveries into our Poseidon oil pipeline system. We were excited about that. Poseidon had completed a lateral out to the Front Runner field. We look for that production to ramp up throughout 2005.

Importantly we also saw first production from two significant deepwater fields in the South Green Canyon area; that's the BP Holstein and Mad Dog fields and that first production started in January -- in December and January into our Cameron Highway Oil pipeline system which we think will make first deliveries of oil to the Texas refinery markets in February.

At the same time, gas production from Holstein and Mad Dog started flowing into our Manta Ray-Nautilus gas pipeline where gas is processed at Enterprise's Neptune processing plant and the NGLs are then fractionated at our Promix fractionator. And I think this project illustrates the very unique integrated value chain that we have at Enterprise. We're excited about the potential growth of the South Green Canyon area and we're, of course, well positioned to capture the oil volumes, the gas volumes, the gas processing and NGL fractionation opportunities from this very prolific region.

During the quarter, of course, we announced our largest organic project to date, a major new platform and pipeline project in the eastern Gulf of Mexico. The Independence Hub platform and pipeline is a $665 million gross capital greenfield project to tap significant new natural gas reserves in the Atwater Valley region of the eastern Gulf.

The project is supported by dedications from five different producers, nine anchor fields have been pre discovered before we made the agreement to build the platform and pipeline, anchoring that project very soundly. The platform is designed to handle 850 million cubic feet per day of natural gas and it will be transported through a 140 mile 24 inch pipeline system which will redeliver the gas to Tennessee gas pipeline for delivery to the markets. Engineering construction is well under way. We've actually cut first steel for the hull of the platform and first production from this very important project is scheduled for 2007.

In the onshore area we also had a number of very important activities in the fourth quarter and just recently we completed a $75 million acquisition of a gas processing plant and gathering system in Texas from El Paso Corporation. The deal is immediately accretive to cash flow, fits very well with our current gas pipeline and NGL infrastructure in East Texas. It's located fairly close to the Mont Belvieu facility and it's located in a very exciting area for future gas developments. We're seeing a lot of deep drilling in this part of East Texas.

We also announced the purchase of an increased ownership at the Promix fractionator in Louisiana which, as I mentioned, is now processing --fractionating natural gas liquids from these two new deepwater fields. Promix is well positioned to benefit from future increased deepwater volumes and we thought that was an important opportunity for us. So we now own a significantly higher portion of that fractionator. It's strategically located and very important to our Louisiana network of pipelines and plants.

And finally, we also recently announced a $34 million expansion project; we'll be increasing fractionation capacity at Mont Belvieu by 15,000 barrels a day and also an important energy savings project which should allow us to lower our energy cost of fractionation at Mont Belvieu. And this is all, of course, to facilitate the increased NGL production that we're seeing from the Rockies. We expect to have this project complete by the end of 2005. The Belvieu fractionators ran at or near capacity for most of the fourth quarter and we expect to continue to see it run at capacity for 2005.

In addition, we also updated you on the significant progress we had made on our 50,000 barrel a day Mid America pipeline system expansion. We of course did recently file the first draft of our environmental assessment with the BLM. We're looking for comments back from them during the second quarter and expect to receive our permit in late third quarter this year so that we can begin construction on that very important project.

And we also talked about our plans to further increase fractionation capacity at Mont Belvieu by another 60,000 barrels a day to handle higher volumes from the fast-growing Rocky Mountain basins where, based on our analysis, we're seeing significant and numerous new potential NGL supply sources over the next several years.

Each of these projects reflects, I think, considerable future growth potential for our cash flows. They offer up some of the new commercial development opportunities that are resulting from this merger and I think clearly fit with the partnership's integrated value chain model.

In summary I'd just point you to two numbers -- transportation of natural gas volumes over 7.5 billion BTUs per day, transportation of NGL and petrochemical volumes were almost 1.6 million barrels per day. Clearly we've established a leadership position in the basins and markets that we serve and we're very competitive. The entire value chain of services that are offered by Enterprise has positioned us very well for growth and we expect to continue to benefit from strong industry fundamentals.

And with that overview of a great first quarter and some significant new development opportunities, I'm pleased to turn it over to Mike Creel to cover the financial review.

Bob has already recapped our gross operating margin, so I'll pick up from there and continue with the income statement. Depreciation expense in the fourth quarter of 2004 was $99.1 million compared with 31.9 million in the fourth quarter of 2003. This increase in depreciation and amortization is primarily attributable to the value that we assigned to GulfTerra's property, plant and equipment and the intangible assets, primarily contracts and customer relationships.

During the fourth quarter we recorded a $15.1 million gain on sale of assets that's associated with the sale of a 50 percent interest in Cameron Highway to Valero. Under the terms of that sales agreement we received a $5 million cash payment in November of 2004 upon completion of construction. At the same time Valero became obligated to pay as an additional $11 million upon the earlier -- the pipeline achieving throughput of 300,000 barrels per day for 30 consecutive days or 12/31 of 2006.

Since the only remaining uncertainty is when we'll receive that payment, under GAAP we're required to recognize the receivable and the gain associated with the $11 million. We did discount that $11 million back to today using a discount rate and coming up with a $10.1 million receivable that we recorded on the books.

General and administrative expense was $20 million for the fourth quarter of 2004 and that compares with $8.7 million for the same period in 2003. Obviously this increase is related to the higher expenses associated with the combined partnership. Interest expense for the fourth quarter of 2004 was $58.8 million compared with $33.1 million in the fourth quarter of 2003. This increase reflects the higher average debt levels in 2004 associated with the GulfTerra merger.

Net income for the fourth quarter of 2004 was $115.4 million or 28 cents per unit and that compares with $34.2 million or 13 cents per unit in the fourth quarter of 2003. At year-end 2004 we had just under $4.3 billion of debt outstanding. Consolidated debt to total capitalization was 44.2 percent. At year end the partnership had liquidity of approximately $400 million between unrestricted cash on hand and availability under our $750 million multiyear credit facility. Floating rate exposure was approximately 36 percent of total debt at the end of 2004.

Enterprise generated $276 million of EBITDA in the fourth quarter of 2004. As defined in our bank credit facility, Enterprise's EBITDA for 2004, pro forma for the merger with GulfTerra as if it had occurred at the beginning of 2004 was approximately $1.014 billion. That resulted in a debt to EBITDA ratio of approximately 4.23 times. This same calculation using annualized fourth-quarter 2004 EBITDA rather than pro forma full year EBITDA results would give you an EBITDA ratio of -- a debt to EBITDA ratio of approximately 3.85 times.

And with that we'll now open the call up for questions.

We're now ready to take questions now.

(OPERATOR INSTRUCTIONS) Ross Payne, Wachovia.

Nice numbers, guys. First of all, you mentioned synergies. Can you guys talk about how much of the synergies you have achieved so far in terms of dollars?

We have about 125 million out of the $140 million that we defined as synergies for the merger.

And the rest of that is --?

The shortage is in the G&A which we will accomplish here in the next couple of quarters.

Okay, very good.

Everything from moving IT and other hardware to moving people around.

Okay, very good. In terms of organic growth on the GulfTerra natural gas system, it sounds like you're hitting some records there. Can you speak just generically about how that's grown across your systems?

Ross, I'm not sure exactly what your question was. If you want me to highlight the San Juan basin gathering system and the Texas pipeline system I can give you some background color on both of those. In the San Juan basin, as I said, we made 251 new well connects in 2004. That was right on plan. We get those numbers from our producers, our big three producers who we meet with at the beginning of each year and they tell us exactly what their drilling plans are for the year and so we are prepared to then make the interconnects to the gathering system and the processing capacity available to them at the Chaco plant. And we have a very good system worked out up there.

What that's allowed us to do by interconnecting more than 250 wells a year is to offset the natural decline of the conventional gas that we gather in the San Juan basin and at the same time add a little bit, 1 to 2 percent per year, on top of that. Now you also may recall that we announced about a year ago a $43 million system optimization project and we are somewhere between 50 and 75 percent completed with that project. The last remaining largest item in the optimization program was to add an additional delivery point to the Transwestern system which we've not yet completed but expect to do that later this year.

What we have done is a lot of work on the system by adding compression and moving liquids around in the system so that we've created an additional 8 to 10 percent more capacity in the system. San Juan basin gathering had been running essentially full out. And so by adding about 100,000 a day or 100 million cubic feet a day of capacity we've given the producers room to ramp up their drilling programs and we expect them to do that and they've told us they're going to do that given the high gas prices that they're seeing in San Juan compared to the low finding and development costs which we understand typically range around 25 to 50 cents per MMBtu for these producers.

So it's a place that they want to drill. The infrastructure capacity is now available for them. We're working with the producers and we expect to see a steady increase in volumes over the next 4 to 5 years from that standpoint.

Texas on the other hand has a very large pipeline, 10,000 miles across the entire state, and we've seen some really unique changes there as South Texas gas volumes declined over the last couple of years largely due, frankly, to El Paso production companies pull back from their previously very aggressive drilling program to the Vicksburg in South Texas. As those volumes have softened a little bit we've seen a significant increase in gas volumes in the northern part of the state from the Barnett shale where we're now gathering more than 400 million a day of new Barnett shale gas which more than offsets a very, very small reduction in Vicksburg and Wilcox volumes that we've experienced in South Texas.

Importantly we have recently seen some significant new discoveries and a lot of drilling activity in the central Texas Gulf Coast and the leader there has been EOG and we've got a very good relationship with EOG. We've picked up I guess most of their new discoveries in the last 12 to 18 months. It's now a significant volume of new gas; I think on the order of about 100 million a day of new production. And that fits us perfectly in that pipeline system because, as you know, the primary market that we serve is the central Texas market, Austin and San Antonio, where we're seeing good, solid demand growth in those areas as well.

So that's a very quick overview of the two major pipeline systems. Happy to answer any other questions, but I think that's what you were asking for.

No, that was very well put there, Bob. Thank you, very informative. Also -- this is for Mike Creel -- any final thoughts on capitalization here in terms of targets for debt to EBITDA or any expectations of adding any equity any time in '05?

Well, Ross -- again, if you look at our fourth-quarter results and extrapolate debt to EBITDA, for the first quarter that we've had the two companies combined you come out with a debt to EBITDA of 3.85 times, debt to cap 44 percent. In terms of what we had laid out for the rating agencies as a permanent refinancing of the GulfTerra merger, we've probably done all but maybe $40 million of equity.

So we're pretty much on top of where we told the rating agencies we were going to be. Now given that we're pretty comfortable with where we are now. We are cognizant of the fact that we have a lot of organic growth and we're going to need to fund that in a prudent fashion. But really not prepared to talk about timing of any equity that we might do or how we're going to fund the capital expenditures for '05. Most of that CapEx in '05 is going to be in the back half of the year.

Obviously that will be increasing your EBITDA. Are there any targets, Mike, that you want to throw out there for debt to EBITDA in general? I mean, obviously the numbers look good on a run rate basis, so any thought on where you want to be long-term?

Not that I'd really like to throw out, Ross. As you know, the rating agencies have a focus on debt to EBITDA interest coverage ratios, those types of things. More than balance sheet metrics and I think that with a debt to EBITDA ratio in the range of three and a half to four times -- that probably gives us the flexibility we need.

Very good, thanks.

Yves Siegel, Wachovia.

Mike or Bob or Dub, what's your CapEx budget for '05? And within that number how much is for sustaining CapEx?

We are in the process of putting our plan together and we're really not quite ready to roll that out. Obviously the Cameron Highway -- I mean the Cameron Higher project is done -- the Atwater Valley project and the Constitution pipelines are the two that are a big focus for this year. And those, as I said, are pretty much back end loaded. We have started making some payments on those but they're pretty modest in the first and second quarter. We do expect to get our operating plan for 2005 finalized here in the very near future and along with that our capital plan will roll out at that time.

Is the $21 million run rate on sustaining CapEx this quarter a good run rate for '05?

I think, Yves -- this is Dub -- I think that's the right order of magnitude and I wouldn't put the 1 on it. But on an annual basis we ought to be somewhere in the range of 80. I'd say 70 to 90 is the range we'll probably be in.

And then maybe more philosophical questions if I could. Is there any change in how you look at the distribution policy going forward? I.e., are you trying to build the coverage ratio and would you like to get into a pattern where you see distribution growth on a quarterly basis? That would be sort of the first conceptual type of question.

And then the second would be in terms of organic growth and maybe trying to put a little bit more flavor on the $2 billion of what's identified. Now you've, I guess, identified a third of it already, but in terms of where the rest of that may come, is it more offshore or whatever more meat you'd like to place on the bones?

And then the last question is just on the view toward acquisitions. It sounds like you made the small ones, which I assume probably have very good rate of returns, but are you still looking at and biding on some of the larger packages that have been out there? Those are the three questions. Thanks.

I didn't count up how many questions that was, Yves, but that's a bunch. Let me try to answer some of them and if I miss any of them just feel free to pull our chain once again.

I think what we see is bidding on acquisitions is, yes, we look at just about everything that comes up to see -- primarily, see if it fits, see if we do get some synergies out of it, do we get some value added downstream, those kind of things. We look at just about all the major acquisitions that are handled and we'll continue to do that in 2005.

You're right in that the smaller acquisitions where we can negotiate a situation that does have good value added for us do give the good returns and that's the area where we're putting a lot of emphasis right now is to make sure we work with folks who aren't getting good economics out of their midstream activities and by tying it and with our facilities we can offer them good multiples. So we'll continue to look at that.

The capital budget that we've got I think of roughly $2 billion over 3 years, we've -- like you said, we've defined the first 600 million in the deepwater. That deepwater, obviously, will go along way towards interconnecting to other facilities that we have and third party facilities and bring some value added downstream. We also have some capital expenditure still from authorized projects that we had previously under construction.

I think Constitution (indiscernible) another $100 million and then Bob can -- $130 million. So we can easily define the first billion dollars and I think instead of getting into the detail of all of these at this time we'll get back with you and go through all that with anyone else who would like to have that information.

Conceptually like the second billion dollars, is that going to be primarily offshore as well or are there other large projects (multiple speakers)?

That's integrated all the way through our value chain. That's everything from the Rocky Mountain's expansion to gas processing facilities that will be on increases in gas volumes that we project both in the deepwater and the Rocky Mountain areas. And then as we've said previously, that will mean more horsepower needed in our pipelines. We'll have to put some additional pumps and compressors on pipes and then the fractionation services that we've got all the way through the value chain right down to pipelines to the ultimate customer for the products.

Yves, let me give a little bit of color -- this is Dan. I think our distribution policy is we want to be consistent annually from now on. Whatever we're going to try to do is make sure we do not have to cut our dividend at anytime in the future. So whether we go quarterly or semi-annually that decision has not been made, but it will be.

If we look at an annual type deal and we decide -- been talking to a lot of you all on which is the best way to handle that type of deal. So that decision is still up in the air, how we're going to operate on that particular deal, but we do look at distribution for the next 3 to 5 years on an annual type basis, then we work back in how we're going to actually initiate the distribution.

There are two different areas to look at. If you're looking at organic growth, this is where you spend money ahead of time and 1 to 2 years later you start getting return on it. Those are multiples that we've got in our numbers and is always in the five to six times cash flow multiples on those types of growth. And this is tied into our value chain as all of our assets.

An acquisitions ideal -- I think most of your larger acquisitions now are probably in the 7 to 9, maybe even as higher, 10 times deal, but those are immediately -- it's not a delayed deal, but like organic growth is you spend the money 1 year or 2 years then you start making a return on it. For the acquisitions you make a return immediately. We think with our 25 percent high (indiscernible) we're even better positioned to -- on either -- it doesn’t matter which way we go -- than any of the other large MLPs (ph) that are usually in the 50 percent (indiscernible).

Some of the new MLPs that are just getting started with a 2 percent deal then they go to a 15 percent deal then 25 then 50, they have the same kinds of advantages on cost of capital as we do, but as they get larger they're going to run into those lines of their 50 percent high split. So we think our cost of capital is in a better position at long-range than any other MLP that's out in the universe other than I guess Valero has capped their deal at 25 percent high split. But I think other people that's looking at the 50 percent high split; if you look 3 to 5 years out then they're going to have a cost of capital cost above our cost of capital which we think we have an advantage.

So if you put all of those three things together, we think if you look 3 to 5 years out, which is what we look at all the time, then we think we're in very, very good shape to compete with anybody.

Again, what about just the coverage ratio? That's my last question. Do you want to maintain it at 1.2 or better or is there a magic number that you're thinking about?

There's not a magic number, but clearly we've been behind the curb with respect to the rating agencies. We have just had the merger completed for a quarter. We want to make sure that we get it put together properly and that we get our balance sheet back to where it needs to be.

In terms of the longer term view, I think we're comfortable at a coverage ratio 1.1 to 1.2. Clearly with the new assets and the combination of Enterprise and GulfTerra we have a much more stable cash flow, much less volatility in our performance and, as a result, I think we need less of a cushion with respect to the coverage ratio.

Thanks.

Yves, this is Bob. Just two follow-up comments. I want to echo what Mike said that in our view, and I think we're all in agreement on this, the quality of the distributable cash flow has improved dramatically in this company. And so just using a statistical benchmark in comparing us against the other MLPs in the peer group I think is inappropriate.

But we'd like for you to just think about our businesses and our assets and the quality and the stability of the cash flows they throw off and the organic growth potential that we have in the business to both grow the business and maintain a relatively conservative coverage ratio and improve our credit metrics. We're trying to do all those things and I think we are well along the way at each of those tasks.

One final comment. You asked about our organic projects. If you would just go to your database and look at all the previously announced organic projects -- on a net to our interest basis it's right at $1 billion of those projects that we are underway on, not completed. That doesn't count Marco Polo, that doesn't count Cameron Highway. Those projects are completed. It counts the projects that both companies, either combined or individually, over the last year have announced. It's over $1 billion right now.

Thanks, Bob. Appreciate that.

Brian Gilke (ph), Allstate (ph).

You mentioned pretty good volumes out of Mont Belvieu. You said you ran into good capacity utilization. You also mentioned that you were expanding that this year and I'm wondering if there's going to be -- I'm wondering if you have to shut down your existing production there or your existing throughput capacity to accommodate the expansion projects?

No, we will continue to operate. You have a short period when you get through with the construction for tie ins, but that's usually a 2- to 5-day outage. But no, there's no long-term outage on that expansion.

We can expect some decent volume in that region to continue through 2005 is what I'm hearing?

I'm sorry, what was the question?

I'm just reaffirming that you expect some good volumes out of that region as a result?

Absolutely, yes.

And then the other question I have is more a philosophical question. If you're looking at -- I guess it was in early November you announced an endeavor to go in to build a natural gas platform in the Gulf of Mexico. And do you have a sense -- at least from my estimation, tends to be a little bit more capital intensive business than your traditional stuff. I'm just wondering if you anticipate doing more of this type of stuff because from where I'm looking at this is the type of thing that probably doesn't necessarily belong in an MLP?

Well, we think it belongs in an MLP. It's a very, very good long-term business. It's feeding our value chain and we feel like it gives excellent return on investment. The only drawback is what we talked about earlier is it takes a long time to get these things accomplished and organic growth in that area. We've got a 2-year program here for the Atwater Valley project and during that time you have capital outlay. So that from a standpoint of an MLP structure is probably a little negative, but that's what we've got to look at.

What we said earlier is we'll look at our multiples here and make sure that we look at our growth and our improvement of cash flows to accomplish that. But we think the growth in the Deepwater Gulf and the Rocky Mountains -- we're going to participate in both of those and try to get volumes into our value chain.

I hear what you're saying. There's a lot of things that offer good returns on capital, but you have to remember that there's things that belong in an MLP and things that don't. And we've seen some negative rating actions from the rating agencies on certain names to get into businesses that may not belong in that stuff. And I'm just trying to get a sense, is this -- these are types of projects that you're pursuing or is this a one off one?

Let me give a little bit of color on that. This is Dan again. What we are looking at and which we've talked to all of you before is everything that we do we start looking at 3 and 5 years out that we want to know where we're going the be 3 years from now, where we're going to be 5 years from now. These type of projects we feel fits our particular MLP structure very, very good and that was the reason we cut our (inaudible) back from 50 percent to 25 percent to give us more room to do these kinds of fundings.

I think on a 50 percent high split they have more trouble doing these types of fundings than we would have going forward on these types of projects. To the same token, we've made another deal when we did the GulfTerra deal we also gave up the -- we gave back 50 percent back to the MLP section at no cost and most of these were done at no cost. The first time from 50 to 25, the second time we gave up to GulfTerra 50 percent -- we gave it back the 50 percent high split and we gave it back to the MLP section and all of those things were done in relation to making these types of projects pay off for our unit holders.

So we look at -- we are looking out 3 to 5 years. We do understand this type of acquisition or this type of organic growth when naturally some of the other type that are out there, especially these (indiscernible) MLPs. But we were small one day too and we just kept growing and got bigger. So it's not something that a small MLP can't overcome. But I think they have to have the discipline not to overdo themselves too fast. So we think if where we are today with our market cap in the 10 billion give or take range that we feel comfortable on doing these types of things. And we think that's the best way for our particular MLP to go.

We're not trying to judge other MLPs on how they want to do things, but that's (indiscernible) and that's where we're coming from. We think if you look at the support that our private company is giving to the MLP, if we go into those types of deals then I'm willing -- I keep willing to bring in support from our private company to make these types of deals go forward and make them stay accretive to the unit holders.

So I think with all that combination we can have these types of acquisitions. Because I think if you look at what I've just bought from El Paso, which it was announced, and what I've invested back in the directly, either secondary or through our (indiscernible) plan, I've put $700 to $800 million of equity back into the MLP or took the El Paso deal out. So I've increased my equity $700 to $800 million (indiscernible) on units coming in or I kept the El Paso deal from selling those in the market. So in the same token we are supporting the MLP unit holders very, very good.

Thanks. Don't forget about the debt holders, too.

That's why I said we're maintaining a prudent financial structure, right?

Thank you.

Barb Chapman (ph), Guardian Life Insurance.

Just to follow up on Brian's comment about the debt holders. When are you planning on meeting with the agencies to go over the 2004 results and outline your plans for 2005? And when also will you be meeting with the Street on your 2005 plans?

We don't have anything set up with the ratings agencies yet. I would expect within the next couple of weeks we will be going up to New York to visit with all three of the agencies. And obviously one of the things that we want to do is put the finishing touches on our 2005 profit plan. Once we have that done, and obviously the rating agencies are our first priority, and then we'll be talking with analysts. I think we will have a meeting for all of the analysts in one spot until probably in the second quarter, but we'll certainly be meeting with analysts one-on-one and when we feel comfortable announcing something on our 2005 plan we'll do that.

Okay. So when you come up in a couple of weeks to talk to the rating agencies you're going to meet with investors then on a one-on-one basis?

No, we'd meet with them throughout the year either when we're in New York or when they're in Houston or on telephone calls. So it's an ongoing process.

I guess the fact that when you meet with the agencies in a few weeks to discuss 2005 -- and you're not meeting at the same time or in the same trip with investors in New York, is it because the rating agencies still may have comments and you want to fine-tune your response to their comments? And I guess that goes on to my next question -- are you concerned about the rating agencies raising the bar, especially at S&P?

No, I think we have a pretty good dialogue with the rating agencies. We have been very open with them and then, in return, have been very open with us. I think that obviously when we sit down with the rating agencies we give them a lot more information, a lot more in the way of projections than we give investors and analysts. It's a much more rigorous process.

And then on the issue of you had made the comment you had done all but 40 million of the equity and I was trying to retrieve my notes from the original announcement. I was thinking that there was more equity to be done in the first quarter. Has something transpired in the fourth quarter that reduces the amount of equity you need to do in the first quarter?

What he had laid out when we announced the GulfTerra transaction was kind of a staging of equity offerings, the offering that we did back in May of last year, the one that we did in August were both upsides and significantly larger than we had planned. We did discuss the fact that we may be going to the market for additional equity in the fourth quarter or the first quarter. In terms of the amount of equity that we've raised relative to what we told the rating agencies, again, we've accomplished all but about $40 million of that.

Thank you.

Sam Brothwell, Merrill Lynch.

Apologies if some of these were addressed in the opening remarks, I joined the call a little bit late. But with respect to the hurricane impact, you indicated in your press release about a nickel of that is -- do you see all that coming back on and in what time frame?

The timing is split between two things. And that 17 million was just the fourth quarter effects. On property damage it's a little easier to get your arms around it and to get those claims settled. We may see some or most of that by the fourth quarter of this year. The business interruption and continued business interruption is a little more difficult to reach agreement on with insurers. And that very likely we'll take into the first or second quarter of next year.

(multiple speakers), he answered when will we get cash settlements back from the insurance companies; I thought your question was when will we not be having any of those reoccurring statements of --.

I was actually after when do you see the volumes (multiple speakers).

Of the $17 million I think our look at January/February/March the first quarter here, we don't anticipate that being near as large. We've gotten gas flows back from most of our business interruption. We still have some property damage that we're working on in the Gulf, primarily one of the platform interconnects and we'll be finishing that up in the first quarter. Bart, is that -- so we'd have that finished in February or March. That gas will be flowing. So we're pretty close to having all the effects of Hurricane Ivan behind us here in the first quarter. We do have one platform that's a third party producer that's probably not coming on until April or May.

So essentially around the end of the first quarter.

Right.

Bob, if you could maybe just comment quickly on -- I know you had some issues of production behind Falcon and Marco Polo, Pioneer and Anadarko. Maybe you could just update us on that. And then finally, are you guys seeing any opportunities for growth with the arrival of LNG in the Gulf?

Yes, Sam, let me touch on the Marco Polo and Falcon first. Marco Polo, as you know, is owned 100 percent by Anadarko. It was from the beginning and remains a fairly small field by deepwater oilfield standards. When we made the agreement with Anadarko now over 3 years ago to build that platform, it was on the basis of the anchor field Marco Polo. A significant essentially guarantee by virtue of the way we structured the contract that we would get back between 60 and 70 percent of our platform cost under a 5-year firm demand charge contract and the significant upside potential that we saw in the area. And at the time they were in the process of drilling what we now know as K2 which is a fairly close offset, it's only a couple of miles away, but it is substantially deeper and it wound up being substantially larger than the shallow 8,000 foot original Marco Polo field.

There was a lot of fanfare about Marco Polo. We had six predrilled wells, but it was always a fairly small reservoir. And what Anadarko has determined and they've told the Street and told us is that there was a higher degree of reservoir compartmentalization and weaker aquifer (ph) support than they had originally expected. Notwithstanding that, the discovery at K2, which is operated by Enower (ph) but Anadarko owns 50 percent of, has been significant.

Then the further discovery a little bit further out and also as deep in the 20,000 to 22,000 foot deep range, these are subsalt discoveries at K-2 North, has not only been much larger than we expected, but after three completed wells they've not found the water contact in this field so they will continue to drill and expand that field as well. In fact, they recently announced that the third development well in the K-2 North field penetrated over 140 net feet of net pay in three different zones and, again as I said, the oil water contact was not found.

So both fields -- Enower, the operator of K-2 and Anadarko, the 100 percent owner and operator of K-2 North -- are in the process of constructing pipe and pipe-flow lines or subsea tiebacks, if you will, back to our Marco Polo -- Marco Polo Hub platform. And that is an indicator back to the question asked by the earlier (technical difficulty) the hub platform business in the deepwater trend. If you are successful in anchoring a platform in a prolific area you will be most competitive in getting all of the discoveries that are made in the area through subsea tiebacks and these things have a life of their own.

And not only are they competitively positioned to get the early fields that are discovered, but they in fact tend to accelerate development drilling of smaller prospects in the particular region. So we have done that. Where we lost some reserves from our original calculation on the anchor Marco Polo field we have significantly gained much greater reserves dedicated to the Marco Polo Hub by virtue of the discoveries at K-2 and K-2 North which were much larger than we risk reserved when we did our original calculation.

In fact, just to give you some benchmarks, we felt like when we originally risked the area we were looking for 100 million barrels equivalent of risk reserves in the area. We now think we're in the range of 250 million barrels of oil equivalent risk reserve for the area and we know that there are a number of other prospects that Anadarko and other producers own in the area and they will expect to drill.

In fact, Anadarko's Genghis Khan field at Green Canyon 652 is also dedicated to the Marco Polo platform and they expect to spud that in the first half of 2004 and, of course, that would be a tieback as well. So back to my original statement, we're still on track for thinking we'll have 100,000 barrels a day of oil flowing across the platform by the end of '05, early '06.

Now quickly to the Falcon area in the Western deepwater trend Gulf of Mexico. As you know, Pioneer did lose a prolific well there. They redrilled that well and made a significant additional well. What they have found through their production experience in that area is that the subsea wells have varying pressures and they have found that it will be more efficient for them in terms of draining the reserves that they discover to produce these wells in a sequential basis as opposed to on a collective or a cumulative or simultaneous basis.

As a result, whereas we reached a high of almost 400 million a day when we had the first four or five wells on, after losing that well and redrilling it they've now brought the production rate down to about 200 million a day and they're indicating to us that they'll maintain that level until the first couple of fields -- the original Falcon field, the subsequently drilled Harrier (ph) field, they also had discoveries at Rafter and Tomahawk -- so they'll produce those sequentially before they bring the last redrill back on.

And I think in the long run we will get greater reserve production out of this area and we're depending on their expertise in that area to maintain production. It is still a fabulously economical investment for us. You'll recall we spent about $50 million on that pipeline and platform and I believe that we have largely made back the majority of that in less than 2 years. So we're very pleased with that platform.

The final question was LNG and I'll cut that very short -- simply say to you that we are actively pursuing a number of different angles on the LNG front. Our Texas and Louisiana gas and gas liquids infrastructure is extremely well positioned to participate in this play to some extent. We're looking at and talking to operators of previously announced LNG regasification facilities in Texas and Louisiana to see what we might be able to do with them in terms of take away capacity on the gas pipelines.

Because, as you know, we have significant gas pipeline capacity in Texas and Louisiana as well as providing natural gas liquids services for them to the extent that the gas comes in rich and needs to be processed and fractionated as well as, we think, significant natural gas and natural gas liquids storage opportunities where we can work with these regasification service providers to provide their customers with a broader range of market services.

We don't have anything fully developed yet, nothing ready to announce. But we're certainly actively engaged in that area and think that's something we're going to be able to participate in.

Thank you very much.

Mark Reichman, AG Edwards.

My questions have been asked and answered. Thank you.

Ron Londe, AG Edwards.

Given Reg FD requirements, I assume that you're going to be letting everybody at the same time know your updated guidance when it becomes available. Also I was just wondering if that new guidance might be available for the publicly traded partnership's coalitions investor conference on February 28th and March 1st, if that would be a good platform for giving out new guidance?

Ron, on the first point you're absolutely correct to the extent we'd give guidance or material information, non public information, to anybody we do it publicly. With respect to our presentation at the MLP conference, we've not yet put that together so I can't tell you what's going to be in there.

The other question I had was recently Shell sold some of their vast holdings of units to Cain Andersen (ph) and I guess they have an option to sell some more units to Cain Andersen. Do you think it's a possibility that any equity offering in the future from the partnership could see some of the Shell units piggyback on that offering?

Under the agreement that we have with Shell they do have piggyback rights to the extent that the underwriters in the offering determine that it won't adversely affect an offering of ours. That's not been the case so far and they've not asked to participate. With respect to their sale to Cain Andersen, I think Cain Andersen is investing in a broad array of MLPs. And since we are the largest in terms of market cap, they felt it was important to have a position in Enterprise. We view that as a pretty positive development.

Okay, thank you.

At this time, sir, I show no further questions.

Do you want to give the replay information, Pam?

Sure. If anyone would like to listen to the replay, the replay will be available after the call. You may dial 866-373-1982, pass code 57953.

Thank you all. Thank you for your interest in Enterprise and have a good day. Goodbye.