Enterprise Products Partners LP (EPD) 2006 Q1 法說會逐字稿

Good morning. At this time, all participants are currently in a listen-only mode. After today's presentation, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections, you may [disconnect].

I'd now like to turn the meeting over to today's host, Mr. Randy Burkhalter. Sir, you may begin.

Thank you, Ed, and good morning, and welcome to the Enterprise Products Partners conference call to discuss earnings for our first quarter of 2006. Bob Phillips, Enterprise's President and CEO, will lead the call, followed by Mark Creel, the Company's Executive Vice President and CFO. Also included on the call today is Dan Duncan, our Chairman and Founder, and other several senior members of our management team. Afterwards, we will open the call up for your questions.

During this call, we will make forward-looking statements within the meaning of section 21E 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 Enterprises management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can make 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 with those in the forward-looking statements made during this call.

And with that, I will turn the call over to Bob.

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

We're very pleased to report what we think is a great quarter to start a very strong 2006. I have been -- I continue to be impressed with the cash flow stability of our assets, notwithstanding conditions in the quarter, certainly the first quarter of this year was one where we saw significant price volatility and a continued rebound from the hurricanes of last year.

I think as we examine our quarter, we're also impressed with the consistent earnings power of our base businesses, those that form our midstream value chain. And really, that is the real story for this quarter -- the strong contribution of our base businesses. And we continue to see them grow and perform as we expect. So that should be your takeaway.

As we review our segment performance, I think you would come to agreement with us that we enjoy a very strong competitive position in each of the businesses that we operate. We talked about our gathering business, processing, transportation, fractionation, and storage, and the competitive position that we have in each of those businesses. Leveraging off of that size and that market position, as you know, Enterprise has recently announced a premier set of organic growth projects. And when we say premier, we think the best set of organic projects in the MLP sector.

We encourage our investors to compare the quality of our projects to those of some of our competitors or our peer group. And we would ask you to compare those on the basis of producer support, long-term dedications, fee-based contracts, growth profile in the basins that we operate in, and of course our real cost of capital, which is a unique advantage that we have here at enterprise.

And when you do that, we think that you will agree that Enterprise's growth plan offers the most visibility in the MLP sector, will generate very attractive returns and additional cash flow over and above what is obviously a growing set of base businesses, and will create more long-term value for our MLP's.

So the takeaway should be, and the real story is for this quarter great consistent earnings, growing power of the base businesses, and a very highly visible, high-quality set of organic growth projects.

We're going to change the format a bit here, in Mike Creel is going to review the first-quarter performance in some detail. And then I'll come back and update you on our projects, our business development activities, and the outlook for the remainder of 2006. Mike?

Thanks, Bob. We're very pleased with our first-quarter results. Enterprise delivered a strong operating performance and recorded distributable cash flow in excess of $210 million for the fifth consecutive quarter, even though our offshore assets in some of our Gulf Coast plants continue to be impacted during the quarter by reduced throughput resulting from last year's hurricanes. The last of our major onshore and offshore facilities affected by the hurricanes have now returned to service, and we expect to see improved contribution from them starting this quarter.

Revenue for the quarter increased $700 million from $2.6 billion in the first quarter of last year to $3.3 billion in the first quarter of '06. Total gross operating margin for the first quarter of 2006 increased 14% to a record $313 million from $275 million in the same quarter of 2005. Our onshore natural gas and NGL pipelines, as well as our butane isomerization and propylene fractionation businesses, benefited from strong demand during the quarter. Gross operating margin for the first quarter was 3% higher than the fourth quarter of 2005, primarily due to our pipelines, gas processing, and [isom] business.

NGL pipelines and services segment posted a solid quarter, with gross operating margin increasing 12% or $18 million to $171 million. Our NGL pipelines and storage business accounted for substantially all of this increase. This business earned $70 million during the first quarter of 2006, an $18 million increase over the same period last year.

Many of our pipelines and storage facilities reported increases in gross operating margins. Highlights include a record volume of 60,000 barrels per day through our NGL export terminal on the Houston Ship Channel, and increased volumes on (technical difficulty) NGL pipeline. Our NGL storage facilities, including those assets we acquired from Ferrellgas in September of last year benefited from higher volume and fees. And we also benefited from consolidating the Dixie pipeline for a full quarter this year.

Natural gas processing was essentially flat with first quarter of last year at $86 million, compared with 84 [million] for the first quarter of 2005. [Putting] NGL production declined by 32%, and fee-based natural gas processing volumes were down 10% from the first quarter of last year reflecting the lingering effects of last summer's storms on the Gulf of Mexico production.

On a brighter note, however, the industry has made substantial progress in restoring production at damaged infrastructure. (technical difficulty) [This can] be seen by comparing first quarter of '06 with the fourth quarter of '05. Gross operating margin from gas processing increased by 15% from last year, and equity NGL production was up 49%. Fee-based natural gas processing volumes were up 14%. So you can see that volumes are coming back, and have come back substantially since the fourth quarter.

Gross operating margin from our fractionation business was $16 million in the first quarter of '06, $2 million less than the $18 million we recorded in the first quarter of 2005. And that was primarily because our Norco fractionator remained down for most of the first quarter. Norco fractionator has now returned to service late in the first quarter, and our Louisiana fractionators have been operating so far this quarter at volumes substantially higher than pre-storm levels.

Our onshore natural gas pipelines and services business made a strong contribution in the quarter, with throughput increasing to 6.1 trillion Btus per day in the first quarter of '06 compared with 5.7 trillion Btus in the first quarter of last year. (technical difficulty) significant volume increase (technical difficulty) heating and gas pipeline systems and our [federal] natural gas storage facility compared with the first quarter of last year.

In addition, the San Juan Basin gathering system completed a record 109 well connects in the first quarter this year, benefited from higher natural gas sales prices with its [percent of index] gathering agreements.

Gross operating margin from onshore natural gas pipelines and services was (technical difficulty) million dollars, an increase of $17 million quarter (technical difficulty) primarily due to higher volumes on our pipeline (technical difficulty) margins from our San Juan gathering system due to higher natural gas prices.

The offshore pipelines and services segment was lower in terms of volumes and gross operating margin compared to the first [quarter] last year, (technical difficulty) [affecting] the continued effects of Hurricanes Katrina and Rita. Offshore natural gas pipeline volumes were 1.5 trillion Btus per day lower than the (technical difficulty) 2005 and essentially even with the fourth quarter of last year. Offshore crude oil pipeline volumes were down 10% from the prior year, totaling 113,000 barrels per day (technical difficulty) volumes.

Constitution oil and gas pipelines were completed below budget in late 2005, and began receiving initial flows from Kerr McGee's 100%-owned Constitution field and Kerr McGee and Noble Energy's 50/50 owned Ticonderoga field in the southern Green Canyon. These pipelines are currently transporting approximately 31,000 barrels per day of crude oil and 35 billion Btu per day of natural gas from two Ticonderoga wells and one Constitution well. (technical difficulty) We expect five additional wells to begin flowing from Constitution (technical difficulty) [again] this year. Our Phoenix gas gathering system returned to service this month, and is expected to return to pre-storm levels this (technical difficulty) [quarter].

Overall, gross operating margin from offshore pipelines and services decreased $6 million (technical difficulty) to $17 million. First quarter of 2006 included the $2 million recovery on business interruption insurance related to Hurricane Ivan.

In our petrochemical services segment, butane isomerization volumes increased 27% over the first quarter of last year. Iso to normal butane spreads increased from $0.023 per gallon in the first (technical difficulty) [quarter] of last year to [$0.073] (technical difficulty) [2006]. Our propylene fractionation volumes and petrochemical pipeline transportation volumes declined slightly for the quarter. This was more than offset by higher finished product sales margins. Our octane enhancement facility was down most of the first quarter due to a scheduled turnaround.

[Post] operating margins (technical difficulty) million dollars for the first quarter of 2006 compared to $19 million in the first quarter of last year. $[10 million] of the increase resulted from the increased volumes on our (technical difficulty) fractionation margins (technical difficulty) partially offset by a $2 million decline at our octane enhancement facility, which again was down for most of the quarter.

Operating income for the first quarter of 2006 increased [18]% to $194 million compared with $165 million in the first quarter 2005. (technical difficulty) [lingering] impact of last summer's storms reduced operating income for the first quarter of 2006 by approximately (technical difficulty) dollars although this was partially offset (technical difficulty) recovery during the quarter on business interruption related to Hurricane Ivan.

(technical difficulty) 2006 (technical difficulty) dollars, and that compares with $101 million in the first quarter of 2005. (technical difficulty) higher property, plant (technical difficulty). The G&A expense was about $14 million in the first quarter of '06 compared with $15 million in the first quarter of last year and $20 million from the fourth quarter of (technical difficulty) after the GulfTerra merger.

Interest expense for the quarter of 2006 was 58 million. And that compares to (indiscernible) million last year in the first quarter. It's primarily due to higher debt levels outstanding and increases in interest rates. Our average (indiscernible) [debt] outstanding was $4.7 [billion] in the first quarter of '06 compared to $4.3 [billion] (technical difficulty) in '05.

Net income for the first quarter of '06 was $134 million compared to $109 million for the first quarter of last year, an increase of 22%. Distributable cash flow totaled 218 million in the first quarter of 2006, [resulting] in a distribution coverage ratio for the quarter of approximately 1.1 times. In the (technical difficulty) [six] quarters since the GulfTerra merger, we've retained $213 million of distributable cash flow. And since our IPO, we have retained $453 million for reinvestment in our businesses.

For the first quarter of 2006, we received net proceeds of approximately $430 million for the sale and lease (technical difficulty) that includes the [overallotment] exercise. We use those proceeds to repay our revolving credit facility.

(technical difficulty) [Sustaining] CapEx for the quarter totaled $30 million. For the full year 2006, (technical difficulty) sustaining CapEx to be about (technical difficulty) dollars. That includes [$12 million] in (technical difficulty) 66 million for sustaining CapEx and 36 million for pipeline integrity.

[Spending for] pipeline integrity in the first quarter of 2006 totaled $19 million, with $6 million of that recorded as an operating expense and 13 million of it being capitalized. We expect our net cash outlay for pipeline integrity program expenditures, both capitalized and expensed, to approximate $46 million for the remainder of 2006.

At the end of the first quarter, we had just under $4.4 billion of debt outstanding. Consolidated net debt to total capitalization was 41.6%. And we had [the] liquidity of approximately one (technical difficulty) $[5 million] of unrestricted cash on hand and amounts available under our $1.25 billion multiyear credit facility. Our floating-rate exposure was approximately 26% of total debt at the end of the quarter, including project financings.

EBITDA for the first quarter of 2006 was a record $301 million. (technical difficulty) Last [12] months EBITDA through March 31, 2006 is defined in our credit facility (technical difficulty) dollars, which resulted in a [debt] to last 12 months EBITDA at quarter end of approximately 3.7 times.

We recently announced an increase in our quarterly cash distribution rate from an annualized $1.75 per unit to $1.78 per unit, with respect to the first quarter of 2006. This represents a 9% increase over the annualized [dollar sixty] (technical difficulty) first quarter of 2005.

With that, I will now turn it back over to Bob for an update on our [progress] business development activities and (technical difficulty). Bob?

Thanks, Mike. That is a great report. And I [would] consider us to be financially strong. We've got a lot of momentum right now, and the trendline looks good on all of our businesses (technical difficulty).

Turning to our project update, let me start in Rocky Mount region. In recent months, as you know, we have unveiled a series of new greenfield projects and expansions in the Rockies that will position Enterprise to become a major midstream player in this region. In the first quarter, we completed the purchase of the Pioneer silica gel conditioning plant at Opal in southwest Wyoming, along with processing rights for a significant portion of the natural gas production from the prolific Jonah and Pinedale fields. Construction of the expansion of that silica gel plant to a nominal 550 million a day started in the first quarter. It should be finished in mid to third quarter of this year.

To handle future production growth from the Jonah and Pinedale area, we are in the process of constructing a new 650 million a day cryogenic plant next to the Pioneer silica gel plant. We are in the detailed engineering phase. We have ordered long leadtime equipment. We filed permits, and we should start construction of this cryo plant in the second quarter of this year.

Additionally, as you know, we announced signing a letter of intent to form a joint venture with TEPPCO to expand the Jonah gas gathering system, which feeds the Pioneer plants. On the Jonah gas gathering system, Enterprise is going to be managing this project and then managing the gathering system. This expansion project will include the addition of 100,000 horsepower of new compression at Jonah and a 75-mile pipeline system from Jonah to Opal -- again, as I said, to feed the expanded silica gel conditioning plant and the new Pioneer cryogenic plant.

The project up in the Jonah/Pinedale area is designed to increase capacity and lower field pressures in the Jonah/Pinedale fields, and it looks a lot like what we have successfully done in our San Juan gathering system over the past few years. So if you're familiar with this type operation -- lowering pressures to increase production, and we're working well with our producers there. We expect to receive a BLM permit for this expansion project in May and start construction in June.

Moving south to the Piceance basin in western Colorado, we announced during the quarter a long-term agreement with EnCana, the largest producer up in the Piceance, to build a new Meeker plant, a new 750 million a day gas processing and treating facility to handle increased volumes from this growing and important unconventional gas play there on the western slope. We're currently working with additional producers to secure their dedications, which may lead to an expansion of the plant. And as we announced earlier in the quarter, EnCana also has a optional or an election to expand the plant as well.

We have started construction of the Meeker facilities, and should start the 50-mile, 12-inch pipeline interconnecting the Meeker plant with our Mid-America pipeline system. We will start that sometime in the late second quarter.

The Pioneer and Meeker plants -- those projects and the related pipelines are scheduled to be fully in service by mid 2007. And that of course coincides with the Phase I expansion of our Mid-America pipeline system. This 50,000 barrel a day expansion is well underway. We just recently received our BLM permit approval for the project. Design work on the pump stations is more than 50% [complete]. The actual pipeline construction on the looping project will start in May, and should be finished in October, resulting in incremental capacity increases by year end and significantly more capacity available as we complete the pump stations (technical difficulty) towards the [end of] next year.

Now, the increased NGLs that we expect to produce from the Rockies and processed in our new facilities will be transported down the Mid-America pipeline to Hobbs, New Mexico, (technical difficulty) [the] location where we're building a new 75,000 barrel a day fractionator. And that project was announced in mid 2005. The Hobbs fractionator is strategically located to provide us with finished products which we can sell locally or transport to either Mont Belvieu or the Conway markets. Site permits have been received for this project, long leadtime equipment has been ordered, the Hobbs fractionator is on track and on budget, and should be in-service in August of 2007.

We have recently completed a new pipeline connection from our Mid-America pipeline to the NGL storage facility that we acquired from Ferrell last year. It's located at Hutchinson, which is a point near the Conway market or the Conway hub. And it provides additional storage capacity for our products from [hub]. So that's an important feature of this strategy as well.

And we have a future expansion of the Mid-America pipeline system (technical difficulty) increase capacity from the new Hobbs fractionator up to the Conway market. That's planned for the spring of 2007. And it will enable Enterprise to link all of these projects into a fully integrated NGL business strategy where we're gathering gas in the Rockies, processing in new plants, transporting it down our expanded Mid-America pipeline system, fractionating at Hobbs with storage capacity and expanded access to the Conway market, all by mid 2007. So that's a powerful combination of projects that will significantly add to and drive our cash flow increases in the future.

Now in the interim, we expect to have increased NGL volumes from the Rockies to San Juan and the Permian Basin, where we're seeing a lot of drilling activity and increased volumes in our gathering systems and plants. And we're prepared to handle those increased NGL volumes at our recently expanded Mont Belvieu fractionator. That 15,000 barrel a day expansion which was announced last year -- we completed that in early April, and it provides us with more frac capacity at lower energy costs than our fractionation (technical difficulty). [Mont Belvieu], as you know, is the world's largest NGL storage facility, and the preferred destination for both domestic supplies as well as international LPG cargoes, due, of course, to its proximity to petrochemical and refining customers along the Gulf Coast.

Now, Mike mentioned that we had a record export (technical difficulty) and increasingly over the last several quarters, we have been seeing increased demand for import capacity there. And that's due largely to increased demand for NGL products and services from our market customers as well as increased availability of international [cargoes to] import into the Gulf Coast market.

So because of all this increased activity expanding our storage capability at Mont Belvieu by drilling two [new] prime production wells and increasing our [blind fit] capacity by more than 10 million barrels -- the projects should be completed in 2006, and as I said, are supported by a significant increase in international cargoes through our import/export facility.

Increases in LPG [contract] -- LPG production around the world have also encouraged long-term contracts like the one we announced in late 2005 with Statoil. And as you may know, Enterprise owns 55% of the U.S. import market. So we're probably the best-positioned company to take advantage of this trend by expanding our import facility here in the Gulf Coast. So that is something we're keeping a keen eye on, and should be moving forward with.

Additionally, in Mont Belvieu, we also announced during the quarter the construction of (technical difficulty) increased capacity there by more than 1 billion pounds per year, and also the expansion of our refinery-grade propylene gathering systems to support that splitter expansion. What is driving that is stronger demand for polymer-grade propylene coupled with greater refinery-grade propylene supplies from the announced refinery expansions on the Gulf Coast. And this project should be in service by late 2007. So we've got a lot going on at Mont Belvieu, which is going to support all of these activities we have out on the field to bring additional products into the Belvieu hub.

Turning to the Gulf of Mexico and Louisiana, as Mike stated, all of our major facilities affected by last year's hurricanes (technical difficulty) Phoenix offshore gathering system placed in service last week (technical difficulty) processing plant returned to service in April and the (technical difficulty) Norco fractionator commenced operations in March as processing volumes at Toca, Venice, and Yscloskey increased. And the rest of our assets in Louisiana are ramping up production from both offshore and onshore supply sources.

In the South Green Canyon area offshore, as Mike said, our Constitution oil and gas pipelines received first production from Kerr McGee's Constitution and Ticonderoga fields in April. (technical difficulty) across the board, our ramp-up projections are on track through the first quarter of this year.

The Marco Polo platform and pipeline volumes are improving, currently running about 36,000 barrels a day with production from K2 to K2 North. Anadarko's Genghis Khan discovery is currently being connected to the Marco Polo platform (technical difficulty) third quarter and we continue to expect to do 100,000 barrels a day by fiscal year end.

We are excited about some of the new discoveries in the South Green Canyon area (technical difficulty) [combination] to us that this is a world-class oil basin, and it highlights the value of our strategically located Cameron Highway system and (technical difficulty) Poseidon oil pipeline, Cameron Highway currently running about 75 to 80,000 barrels a day; Poseidon (indiscernible) [135,000] barrels a day (technical difficulty)

Our largest offshore project is the Independence Hub and trail serving the eastern Gulf of Mexico. This is a gas basin out there, one of the largest new gas discoveries in the last decade. That project is on schedule and on budget. In the first quarter of this year, we announced an expansion of the project from 850 million a day to one Bcf a day due to three new field discoveries in the Atwater Valley region. That (technical difficulty) pipeline (technical difficulty) for the first five years by Anadarko, Devon, Dominion, Kerr McGee, and Spinnaker. And we have over 2 Tcf of dedicated reserves to support this project.

(technical difficulty) is complete, and it will be transported from Singapore to Corpus Christi in early May. The topsides, which are being constructed at Kiewit in Corpus Christi are 92% complete, and will be mated to the hull when it arrives. Construction of the 134-mile, 24-inch gas pipeline has commenced. In fact, it started last week, and should be completed by the third quarter of this year. The project (technical difficulty) is on track and on budget (technical difficulty) both platform and commission the pipeline in the fourth quarter 2006 for first production (technical difficulty) 2007.

Let me quickly turn to the business outlook for the rest of 2006. It looks very promising to us in all of the businesses that we operate. (technical difficulty) [processing] margins are strong now, and look to continue throughout the year with oil and gas prices as they are presently. Petrochemical demand is clearly up, and operating rates continue to improve from the disruptions of last year. Ethane and propane continue to offer the best value for [flexitrackers], so we think demand will continue there throughout the year. [Butanes] and heavier products are now in demand again by refiners as we move into the motor gasoline season, all of that providing strong demand for our natural gas liquids products and services.

Our [beat] facility, our octane enhancement facility is running at max rates currently. It's producing isooctane, which appears to us to be a high-value replacement for MTBE. And we're pleased that that should make a significant contribution throughout the rest of this year.

On the natural gas side, as we have talked about a number of occasions, drilling activity (technical difficulty) [continues to be] robust in the San Juan/Permian Basins, Barnett Shale of North Texas, and across all of Texas, including South Texas, where we have the largest gathering system down there. We think that means higher gas pipeline volumes throughout the rest of the year, ramping up to a certain extent. In fact, when we look at a snapshot today, we're currently moving about 6.8 TBtu, which is significantly above our first quarter average. So just a snapshot, but we think indicative of where our total onshore volumes are. And of course, in the offshore, as we said, we expect to ramp those volumes back up throughout this year as well.

Looking at all of the projects that we have going across the United States, there have been some people that express concern about (technical difficulty) internal resources to execute project development plan. I think this is a good opportunity to speak to that. At this point, we have complete engineering teams in place to handle all of our major projects. So we are well past the staffing-up stage. Many of these projects have been in the engineering and design phase for up to 18 months.

Our (technical difficulty) transactions. Though the timeline on the deals is much longer than it may appear, substantial work was already done by the time that we announced these projects. In most cases we have ordered (technical difficulty) vessels, long leadtime equipment, and (technical difficulty) [locked in] the vast majority of our material costs. We have see labor costs increase by about 5% over the last 18 to 24 months, but that is well within our project contingencies. So we believe that our economics on these deals remains solid, and they have been confirmed.

On the operations side, we already have a strong presence in the western United States with our large San Juan gathering system, our extensive Mid-America pipeline system, and our present operations in Hobbs and Conway as well as TEPPCO's Jonah/Pinedale gathering system. We have already assigned plant managers to the new Pioneer and Meeker projects up in the Rockies, and will continue to supplement personnel as construction (technical difficulty).

(technical difficulty) expansion projects in the offshore and the Gulf Coast area are largely incremental, and therefore will not require significant additional personnel. And speaking of operations, I'd like to highlight that we had an outstanding safety record in the first quarter, with a zero lost time incident rate, which is virtually unheard of for a company (technical difficulty). O&M costs were well below budget due to lower fuel costs. And maintenance capital, as Mike said, was well on budget.

So in summary, let me wrap up by saying we're very pleased with our first quarter performance -- a record in several metrics. Three of our four core businesses operated very well, and indicated strong growth. Executing on our growth plan very efficiently; the fundamentals and the outlook look solid for the rest of the year. And with that overview, I'm pleased to open it up for questions. Randy?

Ed, we're ready to take questions now.

(OPERATOR INSTRUCTIONS) Ross Payne.

First question I have got is -- can you speak just real quickly to the volumes on Mid-America? I imagine it was doing fairly well, but I might have missed that a little bit earlier.

Yes, Ross, volumes were generally flat year-over-year. I think we calculated and rounded to down 1% on a quarter-over-quarter comparison. That was largely due to -- as you remember, January was the warmest January on record. And so that did impact both our propane deliveries in the mid-continent, which is always an area where we have been extensive seasonal amount of business. And it did in fact impact our gas volumes on our gas pipelines as well, even though we were gross -- we were net up on gas volumes, we were flat to down 1% on the Mid-America pipeline system. Don't forget that we added a full quarter of Dixie, and Dixie had reasonably good volumes. By comparison, it was a little bit colder in the Southeast than it was in the mid-continent. So the propane deliveries they were kind of on track or up a little bit.

Okay, thank you. Also, on Marco Polo, is the expectation now still that they're going to be close to full capacity on that facility by year-end?

That remains our expectation. Anadarko continues to say publicly they expect the platform to be full for oil production. That's 120,000 barrels a day. I think conservatively we would be happy with 100,000 barrels a day. Genghis Khan subsidy flowlines are actually being interconnected as we speak. And I think -- [Brad Graves], you're on this call. If you have anything to add there, please do. But we have a steady ramp-up schedule -- additional wells from K2 and K2 North, Genghis Khan coming in by the third quarter. We should be close to that 100,000 barrels of oil a day by the end of the year.

Great -- I don't know if he has anything to add; sorry.

No, that is correct, Ross.

Okay, very good. One final question is obviously, volumes were down due to the hurricanes and production in the Gulf. Any expectations on what that might have cost you? And you know, expectations also from the insurance companies in getting compensated for any of that, and potentially what the upside is as that production comes back as we look to the second half of the year?

Sure, Ross. For our assets in the whole they were negatively affected by the hurricanes about $22 [million], maybe a little bit more than that. Somewhat offsetting that, we did have about $10 million of recoveries on business interruption related to Hurricane Ivan -- back in 2004. We have not had any recoveries on Katrina and Rita, although we do expect to start seeing some recoveries from those storms in the latter half of this year.

Okay, very good. So we should see some nice pickup there in the second half, I would imagine, as progress is made in the --

And as we also pointed out, Ross, while the first quarter was still affected, we have got more plants back online now. And so you should see some benefits in the second quarter from that as well.

Ross, just to reiterate, all of our major facilities are back up and running. It was important that Norco fractionator got back up and running in 1Q. And that was directly attributable to volumes at Toca, Venice, and Yscloskey increasing to a point. And those are all -- I would say they are largely offshore producing sources. So that is indicative of the ramp-up that's taking place out there. And our value chain will benefit from that ramp-up of offshore production.

[Josh Levine].

My question is about the new ethanol mandate we have in this country. My understanding is that if you want to transport ethanol in a pipeline, it has to be a dedicated ethanol pipeline. Have you explored the economics of building an ethanol pipeline? Is that possible in the foreseeable future?

Josh, this is Gil Radtke. I think that it's possible to do some of those pipelines. But the majority of this is moving by unit trains and trucks right now. I think it's fair to say we have not looked at that specifically. I mean, if there's a project out there, obviously we would. But at this point most of those ethanol producing plants are up in the Midwest. And most of the consumption is going to be in places that are probably better served by railcar and truck at this point.

Just a quick [adder] there -- we're actually participating to a limited degree. We are actually selling NGL products to ethanol producers to blend so that they can transport their products across the country. And we're looking at how we might be able to expand that service.

(OPERATOR INSTRUCTIONS) Yves Siegel, Wachovia Securities.

I have two questions. One is, can you just review one more time the dynamics on NGLs on the Gulf Coast as it relates to the export and import market? And then the second question is where do you stand in terms of talking with Williams as it relates to perhaps their contract moving NGLs down?

This is Jim Teague. In terms of the dynamics of the import/export market, I mean, typically, historically the U.S. Gulf Coast has been a market that was effectively a market of last resort. We saw a lot of imports come in in the summer period due to the ability to store here, low demand times in Europe and the Far East.

The change we have seen recently is with growing production in West Africa, North Africa, the [A.G]. We're seeing producers want to lock up long-term import contracts where they will commit minimum volumes, cancellation fees, [take-or-pay] characteristics. And we've been very successful in signing four rather large term contracts for imports that are anywhere from two to 10 years, more actively negotiating three more.

In terms of the export, it's much the same dynamic. Whenever there is demand in other parts of the world, the market that is at the margin is the U.S. Gulf Coast market. When that product is exported, that's where they come to export at the margin. The first quarter, with the weather in Europe and other parts of the world, we had a record first quarter export market. And what we're beginning to see now is that turn and see a lot more imports coming this way. We expect that to grow. We expect to sign at least three more contracts in the course of this year.

Yves, let me speak to the second question, and that is the Mid-America pipeline expansion versus the announced Williams project from the same part of the world. I think we talked openly last quarter that we were in negotiations with all of our shippers on the Mid-America pipeline system. We're very pleased with the progress we're making, and we continue to be very bullish about not only our Phase I expansion, but the possibility of a Phase II or a Phase III expansion in the out years, as production continues to grow. We're having good discussions with those shippers over some long-term contracts. I think that's going to have a favorable outcome for us.

It is not a bad strategy for Williams while they're negotiating with us to announce another project. That's not inconsistent with what people typically do when they're negotiating a long-term shipper agreement like this. And it certainly makes us aware of their options just to speak specifically to their project. They did announce that they have filed for a permit, but it's pretty clear to us that their project would only take their barrels, which we think are about 60,000 barrels a day, to Conway, Kansas. And we don't think that that is a market that is large enough to basically accept all those barrels on a consistent basis.

So we think we have a much better plan for our producers, our shippers from the Rockies -- we give them much more flexibility to come to either the Conway market or the Belvieu market to provide so many more support services and fractionation storage distribution to the actual customers that we're not very concerned about that. And I think, Dan, do you have a comment on that?

Yves, this is Dan Duncan. Let me [add] a little more color to that. And we have talked with Williams, and we continue to talk to them. But the main thing is if Williams decided to go (technical difficulty) rather than go to (technical difficulty), which -- I personally think they're probably going to go (technical difficulty) -- but that means if we would have to go in what we call either Phase II or Phase III expansion, Rocky Mountain system -- if we put that total expansion cost of that [particular] (technical difficulty) tie it in to the Williams volumes that they talked about (technical difficulty) [overland] express, [what] we make about a 12 or 13% return on that additional capital, we would have to expand (technical difficulty) compete with the [Williams] oil pipeline since (technical difficulty) express.

So whether Williams would come with us or not come with us, or if they did come with us, the impact on the enterprise financial deal would be very nominal on any condition. If they don't come with us our pipeline, is basically (technical difficulty) that was the reason that we went into that area out there, to fully integrate our own value chain without relying basically on third-party volumes. [We figured] the Enterprise assets -- all assets that hits the Enterprise value [chain] (technical difficulty) basically, most of them that we have the majority of [product] that moves through those assets -- (technical difficulty) [all we do it] under a long-term contract with other (technical difficulty) companies in the major independent (technical difficulty) producers.

So if we did make a deal with Williams, that return on that capital would be in the 12, 13% range. If we don't make a deal with Williams, we have plenty of capital projects that we feel have equal or better economics than putting money into that particular deal.

Eric Conklin, Credit Suisse First Boston.

I may have missed this in the press release. I didn't see it, and I know you usually put it in. In terms of the offshore segment, the breakout in gross margin between gas, oil, and then platform treating? I think I saw the total, but -- I might be wrong, but I think you all usually put that in there?

Well, yes, give us just a second and we will get it for you.

Second question was just another housekeeping item. The total recovery from business interruption insurance was 6 million for the quarter?

No, it was a little over 10.

Okay, you ready for this breakdown, Eric?

Shoot.

Okay, total gross operating margin for the segment was 17.3. Offshore gas pipelines were 7.2, offshore oil pipelines was 1.6, and offshore platforms was 8.5.

Great, thanks.

That's rough, but that's directionally correct.

Dennis Coleman, Bank of America Securities.

Could you talk a little bit -- we've talked a lot about insurance. Could you talk about insurance costs, or the numbers that you are seeing? We're hearing a lot of anecdotals -- information that rates are much, much higher in the future.

Rates are higher -- not a big surprise. A lot of the -- in fact, most of all the major insurers had big losses in 2005. What we're seeing is in the offshore area in particular prices for insurance are up. They are not up nearly as much onshore, and certainly with our geographic diversity, we're going to see a blended rate increase across our insurance portfolio.

We do have some economies, in that we have a insurance program at TEPPCO that covers several entities in a wide variety of assets. So it's still a bit early. We're not through our insurance renewal program, so I can't tell you what the insurance costs are likely to be for the next year. But in the grand scheme of things, they're not going to be material to our overall results.

So it's not going to be to a level that, say, you would choose to self-insure or something along those lines?

Well, certainly we're not going to self-insure 100%. We, like most other large companies, self-insure to a limited extent. We're looking at our deductibles. We're looking at the level of coverage that we've had in the past. We're looking at where we may need to increase coverage or reduce coverage, just depending on the prices and what makes economic sense. Every year, when we look at prices for insurance, we've weighed the relative benefits of higher or lower deductibles. In some years, it really doesn't pay for us to increase deductibles. In some years, it does. So that's one of the variables that we take into consideration.

Mark Easterbrook, RBC Capital Markets.

Yes, just a quick follow-up on that -- on the insurance claims that you think are going to come in in the second half of the year, do we have any idea of how much that might be roughly speaking?

Mark, we really don't. We don't expect to recover everything in 2006. Some of it's going to obviously fall over in 2007. You can see right now we are still collecting on Hurricane Ivan that occurred in summer of 2004. They are big numbers -- obviously, you can see the impact that it has had our facilities. We're just now getting some of the last assets back up in operations.

So they are big numbers, but I don't have a real breakdown yet as to when we might see those recoveries, and what they might be.

And then secondly, with the Norco facility being down in the first quarter, is it safe to assume that maybe the second quarter we could see gross margins for that segment beat the $170 million that was reported in the first quarter?

It wasn't $170 million, was it --?

Maybe I was looking at the wrong segment but just wanted (multiple speakers) with the Norco facility coming back online, how much of an impact is that throughout the whole quarter?

Yes, it should have a very positive impact. Norco is very important facility for us. And if you followed it, you know that we've received part of our fractionation service fee in kind by receiving product in kind. And product prices are high. So that certainly is going to be an important contributor to the second quarter. Jim?

What we're seeing at Norco right now -- we're running about 41,000 barrels a day. We came up in mid-March. The two big contracts where we take in-kind (technical difficulty) [liquids] are Toca and Yscloskey. Toca has been up and running fairly strong. Yscloskey has been in a conditioning mode. That plant will come back up in full extraction by the end of this week is what is scheduled. So we will see a net gain of 12, 13,000 barrels a day in that facility, and put us up between 52 and 55 with the two big plants that we get in kind frac fees on, both online and fully operational and full recovery. So yes, we should see a dramatic uptick in the second quarter from Norco.

Mark, just to follow-up on that, we're seeing increased [wide-grade] volumes almost across all of our fractionator assets. So I would expect fractionation to have an improved contribution in the second quarter. It was down slightly year over year, but it should be a highlight for us going forward.

Paul Sankey.

Deutsche Bank. A couple of high-level questions for you -- firstly, the hurricane season -- a lot of people seem to be thinking it will be just as bad this year. Is there any reason to think that we may be more defensive against hurricanes? Are we better organized this time? Do you think it could be easier for us to ride the hurricanes this year? I just wondered what your perspective was on that particular potential threat.

And the second one -- again, fairly high level -- and I suspect you may have short answers here. But do you see any political threat this year to your MLP from the fact that we're in an election year? Is there any concerns there that may be shifts in regulations or other things that we're not aware of that could present a threat?

Well, I'll answer the first questions, since it's operating; I will let Mike answer the juicier political question.

From an operating standpoint, we learned a lot of lessons last year. I thought that we actually evacuated our facilities and redeployed people and had equipment under contract about as well as anybody else did. It was clearly a big factor in our ability to get our assets back online again and serve our producer customers out in the Gulf and serve our petrochemical and refining customers onshore as quickly as we did. So we're going to continue to look for opportunities to improve on that kind of performance.

We are well-positioned for another hurricane season. We're starting our construction on Independence Hub this month. It's already started, as I said. We started laying pipe last week. We expect that to be completed within the next 75 to 90 days largely, and should be out of the Gulf without any major construction projects occurring during the bulk of the hurricane season.

We will continue to be prepared onshore to have products and services available for our customers. In the event you have another hurricane that comes onshore and damages or shuts down petrochemical and refining customers, we'll have products from other parts of the country available to get them started back up again because of our extensive value chain, and that is exactly what we did last year. And we'll be prepared to do that again for our customers.

So I think -- I appreciate the question. We don't have any better weather forecasting skills than you guys do. We see the same reports you do. We're going to be ready. We're prepared for it. Hopefully, it won't be as big a factor for our operating performance going forward as it was last year. Mike?

Paul, with respect to any election year issues, I think there's certainly a lot of noise today about the price of motor gasoline. Fortunately, it's not a business we are in the business of. We are a midstream energy company. We are not a big oil company that is reaping extreme benefits from E&P. Although there have been a couple of E&P MLPs done, they are pretty small in the grand scheme of things.

I think the more important thing is that we are in a bit of a quandary with respect to energy in the U.S. And the last thing that the government should want to do is to mess with the companies that are providing the majority of the new infrastructure that's being built. I think that we provide a significant service. We have certainly not seen any action at the federal level to tinker with the federal income tax laws to change the [attributes] of MLPs. And I think that would be a foolhardy thing for politicians to do.

I mean, it seems in fact there isn't a tremendous amount of political [strat], precisely for the reasons that you outlined.

Well, and I will tell you another reason is that many of our unitholders are retirees. And certainly, I don't think politicians want to get them angry with them. This is a vehicle that has been in place for years. Tax code in the mid '80s allowed for it, specifically with respect to energy and natural resources. And you have seen a tremendous amount of capital raised and put to work through MLPs.

So are you worried, by the way, about the level of institutional penetration that you are achieving -- [It just looks] like it's going to extend the question? Or do you think you will get there eventually kind of thing?

We're actually seeing more and more institutional demand. And I think with the market cap of all the MLPs combined, it's kind of a hard thing to ignore, particularly with the performance that we've had over the last three or four years. It's been a very good investment for retail investors. And I think that institutional investors are coming on quick.

Let me [venture on] an area that only the guy way up in the sky probably has control of, and these are the hurricane effects. If you really look at the major damage that the hurricane that affected all of the people in the (indiscernible) Gulf of Mexico, probably more than 50% of the damage was done to the pipeline laying on the bottom of the Gulf of Mexico. Basically those pipelines were affected more by anchors dragging across them than the actual on top of the water deal than the usually -- effect of the hurricane, which is wind.

The only major platform is the [Mars deal] and maybe one of the other major platform in the deepwater that got affected. [Chevron deal] had a platform that turned upside down. And I don't think that was hurricane related. They think it was a ballast-related deal.

So I think the industry itself is addressing the problem of the damages between the 2004 Ivan and the 2005 Katrina and Rita. And more than 50% of the damage -- probably 60 to 70% of the long-range damage for this long range of the year was more affected by offshore pipelines being (indiscernible) than the actual onshore pipelines that got affected by it. So that part is [has] to be addressed by the end [of the year].

Paul, just to be clear about that, we will have the majority of our construction done before the really middle part of the hurricane season. And then we will come back at the end of hurricane season to finish up what we're going to be doing on Independence Hub. So I want to be clear that we had that hurricane window in mind when we set that construction schedule.

Yes, that clearly -- the key point.

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