Enterprise Products Partners LP (EPD) 2006 Q4 法說會逐字稿

Welcome to the Enterprise Products Partners fourth-quarter earnings conference call. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections you may disconnect at this time. Now I will turn the meeting over to Mr. Randy Burkhalter, Director of Investor Relations, and sir, you may begin.

Thank you, Laurie. Good morning and welcome to the Enterprise Products Partners fourth-quarter conference call. Bob Phillips, Enterprise's President and CEO, will lead the call today, followed by Mike Creel, the Company's Executive Vice President and CFO. Also included on the call today from Enterprise is Dan Duncan, our Chairman and founder, as well as other members of our senior management team. Afterward we will open the call up for your questions.

During this 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, it 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 and the forward-looking statements made during this call.

With that, I will turn the call over to Bob.

Thank you, Randy, and good morning to all of you. Thanks for joining us. We're very pleased to announce another strong quarter for Enterprise and the completion of an exceptional year for our partnership. We're pleased to be able to detail that for you today.

At the outset I would like to reemphasize that we think a key to our success this year was our Midstream value chain strategy; that continues to pay off. It was driven by higher oil and gas and natural gas liquids volumes and very healthy margins throughout many of our value chain business units, including -- we will point out record margins in the processing and fractionation area.

Also contributing was strong demand for finished products and services from the refining and petrochemical sectors throughout the year. And we believe that that was a critical element in our success. As we executed our strategy throughout 2006, this led to record financial and operating performance during the year, and Mike Creel will detail that for you later in the call.

As I look forward, Enterprise is very well positioned in all of our business segments. We continue to be the industry leader in natural gas liquids transportation fractionation storage and import/export services. We have become a major gas gatherer in Texas, the San Juan Basin, the Permian Basin, and we added the fast-growing Jonah Pinedale area in the Piceance Basin of the Rocky Mountain region to our portfolio in 2006.

We remain the industry's second-largest processor but we are adding to that business with several new gas processing plants in our growth portfolio. We continue to be the leader in offshore infrastructure serving the deepwater trend, which we continue to believe is a critical new supply source for oil and natural gas to the United States. And we are also building on our leading position in the Petrochemical Services area as well. So, we are well positioned for the future.

Reflecting back on 2006, a big part of our success was due to our financial position and our condition. It's never been stronger and also our disciplined investment approach is beginning to pay off for us as we have invested in solid projects over the last several years since the merger with GulfTerra. Enterprise's very large footprint across the United States and our competitive position in each of the major energy growth areas or markets continues to provide us with an impressive set of high potential organic projects. And I'm proud of the job that Mike and his financial team have done to continually and effectively expand our access to capital so that we can execute these growth plans. And I think it is important to note that our credit metrics continue to improve as well and that was evidenced by the recent ratings upgrade by S&P.

Now I'm going to turn it over to Mike, who will give you the details on the fourth quarter and the full year 2006 and then I will come back to wrap up, covering some achievements in '06 and some highlights in '07.

Thanks, Bob. We had a solid fourth quarter in 2006, led by our NGL offshore and octane enhancement businesses and these strong results have contributed to an exceptional 2006 performance year with records set in many categories, such as revenues, gross operating margin, operating income, EBITDA and net income. Revenues reached a record $14 billion for 2006, 14% higher than 2005 and operating income increased 30% to $860 million for the year.

Gross operating margin rose 20% over the prior year to $1.4 billion and 2006 EBITDA of $1.3 billion was 21% higher than the $1.1 billion recorded in 2005. Net income for 2006 increased 43% over the prior year to a record $601 million. So a strong 2006 -- very proud of the year we had.

For the fourth quarter 2006, distributable cash flow was $254 million, which was 20% higher than the $212 million earned in the fourth quarter 2005 and it provided 1.1 times coverage of the cash distributions paid to limited partners. Last week we announced an increase in the quarterly cash distributions rate to partners to $0.4675 per common unit or $1.87 per unit per year. That represents a 7% increase over the distribution rate paid with respect to the fourth quarter of 2005. This is the tenth consecutive quarterly increase in our cash distribution rate.

Distributable cash flow for the full year was a record $992 million providing 1.2 times coverage of the cash distribution. During 2006 we retained approximately $112 million of distributable cash flow for reinvestment in the growth of the partnership.

Turning to the business segments, the NGL pipelines and services segment posted another strong quarter with a 33% increase in gross operating margin to $203 million versus $152 million for the fourth quarter of last year. Our NGL pipelines and storage business posted a record $90 million of gross operating margin in the fourth quarter of 2006 compared with $61 million in 2005. $18 million of this increase came from the Mid-America and Seminole pipelines, which benefited from lower fuel costs and a 64,000 barrel per day increase in volumes in spite of lower demand for propane due to seasonally warmer weather. Our Dixie pipeline had an $11 million improvement in gross operating margin, primarily due to lower pipeline integrity costs and the settlement of claims for contaminated propane that was injected into the system in 2005.

Gross operating margin from the South Texas NGL pipeline system was up $5 million for the quarter compared to the prior year, primarily due to a 43,000 barrel per day increase in transportation volumes and increased storage revenues at Markham and Almeda.

The natural gas processing and related marketing business reported a $17 million or 23% increase in gross operating margin to $91 million for the fourth quarter of '06. Strong demand for NGLs, a favorable processing environment and higher levels of offshore natural gas production available for processing, led to increased equity NGL production and fee-based processing volumes in the fourth quarter of 2006 compared with the prior year.

Equity NGL production increased 64% to 64,000 barrels per day in the fourth quarter of 2006 while fee-based processing volumes increased 39% to 2.2 billion cubic feet per day for the most recent quarter. Compared to the fourth quarter of 2005, the higher gross operating margin for our natural gas processing facilities in Louisiana, Texas and Wyoming more than offset the reduced gross operating margins at the Chaco gas processing plant in New Mexico. Our NGL marketing business had lower gross operating margin for the quarter versus the fourth quarter of 2005, primarily due to reduced demand for propane as a result of warmer than normal weather, as well as the increase in regional demand in the fourth quarter of 2005 following the hurricanes that occurred in that year.

Fourth-quarter 2006 gross operating margin from our NGL fractionation business increased 30% over 2005 to $22 million. Fractionation volumes from our Louisiana facilities increased significantly to 107,000 barrels per day for the fourth quarter of 2006 compared with 30,000 barrels per day for the fourth quarter of last year. And that has resulted in a $12 million increase in gross operating margin quarter over quarter. Fractionation volumes for our Louisiana facilities were at or above prehurricane levels.

Total NGL fractionation volumes were a record 344,000 barrels per day for the fourth quarter of 2006 compared with 236,000 barrels per day for the fourth quarter of '05. That's a 46% increase.

Our onshore natural gas pipelines and services segment generated $72 million of gross operating margin in the fourth quarter of '06 compared with $95 million in the fourth quarter of the prior year. As you know, our San Juan natural gas gathering system has some gathering contracts where fees are based on the San Juan natural gas price index. Natural gas prices averaged $6.56 per MMbtu in the fourth quarter of '06 compared with $13 per MMbtu in the fourth quarter of '05. As a result of the decline in gas prices, we saw a $20 million decline in gathering revenues on the San Juan system. And while this negatively impacted San Juan, other parts of our business benefited from the lower fuel costs.

Gross operating margin from the San Juan gathering system decreased to $26 million for the fourth quarter of '06 and that compares with $56 million in the fourth quarter of 2005.

Volumes on the San Juan system were essentially flat for both quarters at 1.2 trillion BTU's per day. Our Texas intrastate pipeline system partially offset this decrease with a $9 million increase in gross operating margin to $29 million for the quarter, primarily due to lower expenses and higher transportation fees.

Volumes on the Texas intrastate pipeline were 3.2 trillion BTU's per day for the fourth quarter of 2006, down slightly from 3.5 trillion BTU's for the same quarter in 2005. Total natural gas transportation volumes for this segment were 5.9 trillion BTUs per day for the fourth quarters of both 2006 and 2005.

Gross operating margin for our offshore pipelines and services segment increased 80% to $27 million in the fourth quarter of 2006. Gross operating margin from the offshore oil pipelines increased 133% to $7 million for the quarter, led by the Constitution oil pipeline that began commercial operations in the first quarter of 2006, as well as volume increases on the Marco Polo and the Poseidon oil pipelines.

Total offshore oil transportation volumes were 164,000 barrels per day in the fourth quarter of 2006, 50% higher than the fourth quarter of 2005. Gross operating margin from our offshore natural gas pipelines increased 80% to $9 million for the fourth quarter of '06. The Constitution gas pipeline, which also went into service in the first quarter of '06, provided more than $2 million of that increase. The Phoenix gas gathering system, which had no volumes in the fourth quarter of 2005 following the hurricanes, had volumes of 120 billion BTUs per day in the fourth quarter of 2006 and had gross operating margin almost $3 million higher than the prior year. Total offshore natural gas transportation volumes were 1.5 trillion BTUs per day for the fourth quarters of 2006 and 2005.

The offshore platform services business generated gross operating margin for the quarter of $11 million compared with $8 million during the fourth quarter of 2005. A 16,000 barrel per day increase in crude oil volumes processed on the platforms, primarily the Marco Polo platform, accounted for most of this increase.

Our Petrochemical Services segment had gross operating margin of $37 million for the quarter compared with $41 million for the fourth quarter of the prior year.

Propylene fractionation reported gross operating margin of $12 million for the fourth quarter of 2006 compared with a record $21 million in the fourth quarter of 2005. If you will remember in the fourth quarter of 2005, the industry demand to rebuild the depleted inventories following hurricanes Rita and Katrina led to higher prices for polymer grade propylene, leading to those record gross operating margins. Our petrochemical pipeline transportation volumes increased 82% in the fourth quarter of '06 to 109,000 barrels per day and that is largely due to the Texas City refinery grade propylene pipeline that was placed into service in the first quarter of 2006.

Gross operating margin for the butane isomerization business increased 7% to $16 million for the fourth quarter of 2006 and our octane enhancement business generated $9 million of gross operating margin for the quarter compared with $4 million in the prior year. That's primarily due to the successful execution of a strategy to lock in margins on some of our isooctane sales contracts through the end of '06 as we discussed in an earlier conference call.

Operating income for the fourth quarter of 2006 was $206 million, that's a 16% increase over the fourth quarter of 2005 and represents the second highest in the history of our partnership. Only the third quarter of 2006 had higher operating income and that quarter also included $50 million of cash proceeds from business interruption claims.

Depreciation expense increased to $115 million for the fourth quarter of '06 compared with $109 million in the fourth quarter of the prior year, primarily due to increased property plant and equipment.

General and administrative expenses was $18 million for the fourth quarter of 2006. That's a $2 million increase over the fourth quarter of 2005 and that is primarily due to $2.3 million of outside professional services costs due to the FERC rate filings for both the Mid-America pipeline system as well as our Enterprise Texas pipeline system.

Interest expense for the fourth quarter of 2006 was up $1 million over the fourth quarter of 2005, $61 million for the fourth quarter. Average debt outstanding, including 100% of our hybrid debt securities, was $5.1 billion during the fourth quarter of 2006 and that compares with $5 billion on average for the fourth quarter of 2005.

Provision for income taxes increased $5 million in the fourth quarter of 2006 to $9 million. That primarily is a result of higher corporate taxes on the Dixie pipeline system. Those taxes increased $4 million.

Net income increased 22% to $133 million for the fourth quarter of 2006. That compares with $108 million in the fourth quarter of 2005. Net income for the quarter was the third highest in the partnership's history and almost tied for the second highest -- only 7/10 of 1% below the first quarter of 2006.

The standing CapEx for the quarter totaled $24 million and $119 million for the full year. In the quarter we spent about $10 million for pipeline integrity costs. Half of that was recorded as an operating expense and about half of that was capitalized. For the full year 2006 we spent about $65 million in pipeline integrity costs, net of indemnifications from third parties.

At the end of the year we had $5.3 billion of debt outstanding and that includes 100% of our hybrid debt securities, which totaled $550 million. Consolidated debt to total capitalization adjusted for the average equity content assigned to those hybrid securities was 41.8% and we have liquidity of approximately $860 million, including cash on hand and the availability we had under our $1.25 billion revolving credit facility.

Our floating-rate exposure was approximately 28% of total debt at the end of the year. That includes our share of project financings. And, important to note the average life of our debt was approximately 15 years and the average cost of that debt is approximately 6.1%, and that includes the cost of 100% of our hybrid securities.

EBITDA for the fourth quarter of 2006 was our second highest ever, $319 million. That is a 12% increase over the prior year. The last 12 months EBITDA through December 31, 2006, and this is as defined in our credit facility, was approximately $1.3 billion, and that resulted in the last 12 months EBITDA to debt ratio of 3.58 times.

As I said earlier we have recently announced our tenth consecutive increase in our quarterly cash distribution rate to our common unit-holders, raising it from an annualized $1.84 with respect to the third quarter 2006 to $1.87 for distributions paid with respect to the fourth quarter of 2006. We have now increased the quarterly distribution 19 times since our IPO in July of 1998 and increased it 7% over the last 12 months.

I would also like to mention that Standard & Poor's raised its corporate credit rating on us last month to BBB- with a stable outlook. They also raised their rating on our junior subordinated notes -- our hybrid securities, as we call them, to BB flat.

And in their press release they said the upgrades reflect the partnership's improved credit protection measures, a greater diversity in its business mix and that Enterprise has performed above expectations both operationally and financially since the GulfTerra merger in September 2004. They also noted that some of our major capital projects are expected to begin generating cash and earnings in 2007. With this upgrade we are now rated investment grade by all three of the rating agencies.

Before I give the call back to Bob, I would like to say a few words about Enterprise GP Holdings. Enterprise GP Holdings' fourth quarter net income was up 31% year over year at $25.8 million or $0.29 per unit on a fully diluted basis and for the full year 2006, net income rose 80% to $99.5 million or $1.12 per unit on a fully diluted basis. Enterprise GP Holdings announced last week that it increased its quarterly debt distribution to partners to $0.35 per common unit or $1.40 per common unit on an annualized basis. This distribution represents a 4.5% increase over the distribution paid with respect to the third quarter of 2006 and a 25% increase over the $0.28 per unit paid with respect to the fourth quarter of the prior year.

Enterprise GP Holdings' distributable cash flow was $31.8 million for the fourth quarter of 2006, providing 1.02 times coverage of the distribution to be paid. With that, I will turn the call back over to Bob.

Thanks Mike. That was a good overview of a very successful year for us, great operating performance from all of our business units, strong financial condition and well-positioned for the future.

Now, let me, if you will, highlight some of Enterprise's 2006 achievements and our 2007 projects. Some of this was covered in the press release, as you will note, but I also want to give you some additional background color on some of these very important projects. Let me start in the Gulf of Mexico where, in 2006, we spent most of the year rebuilding facilities and volumes from the '05 hurricanes. Clearly, our performance during the year indicated improved results at our downstream assets in Louisiana and continues to validate the value chain strategy that we employ here at Enterprise.

Turning to our most important project in the Gulf of Mexico, Independence Hub and Trail project is well on its way. The pipeline has been completed as we have previously announced. Platform installation process is set to commence on January 28 with the tow-out of the platform from Corpus Christi, Texas out to Mississippi Canyon 920. Platforms should be on-site around February 4 to 5. It will be met there by the heavy lift vessel, The Balder, and they will start the installation of the mooring system, which should take about 30 days.

We expect the platform to be mechanically complete by early to mid-March. We will turn it over to the producers. Anadarko was the operator on behalf of the Atwater Valley producers group and we will begin to receive monthly payments of about $4.6 million per month beginning April 1. Now, following that, the steel catenary risers, which have been preconstructed and they are laying on the seabed floor, will be connected to the platform once it is installed with the mooring system. All of this is post mechanical completion. The SCR lift and the connection should be completed by mid-April. We will then start to commission the Independence Trail pipeline. We will do that by hydrotesting it, by dewatering it and commissioning it. That should be completed by early June.

At the same time and then subsequent to that the producers will begin to commission both the topsides of the platform as well as the flowlines that they have already laid out to their wells and we expect that to be completed by late July or early August.

I might note that production tests from these dedicated fields looked very promising and we are excited about that. I would also note for you that Congress has recently approved leasing new acreage in the eastern Gulf of Mexico that is very close to -- it's approximate to the location of this platform, and we think that adds a lot of long-term value to this project as well.

As a reminder, before I leave Independence, in addition to that monthly payment, we said this in the press release but I want to be clear about it. Enterprise will receive a platform processing fee on a cents per Mcfe basis and a pipeline transportation fee on a cents per million BTU or million dekatherm basis. So, that's a volume times a rate payment and that begins once production begins. So we want to be very clear about that. We have substantial upside to cash flow generation from this project once it gets on and the volumes ramp up in the second half of 2007.

Let me move to the onshore Gulf Coast area. During the year we conducted several successful open seasons for the expansion of our gas storage facility at Petal, Mississippi. We had a 1.8 Bcfe NGL cavern conversion project. That went very well. It was fully subscribed and it is on track to be placed in service in mid 2007.

We also announced a 5 Bcf new cavern expansion project. We are calling that Petal No. 8. We have signed up two very good long-term customers to that project. There's a lot of interest for the remainder of the capacity. We are moving forward with that project. We've completed drilling and we are now in the leaching process. And that project is scheduled for in-service date in 2008.

On the natural gas liquids and petrochemicals side we made very good progress throughout the year on a number of our projects and contracts with customers. I would like to highlight progress on our propylene splitter expansion at Mont Belvieu and our import/export expansion projects in the Houston ship channel area. Both of those are on schedule, on budget, and will be placed in service in 2007. Very pleased with the job that our NGL marketing group did in 2006. They signed up some new long-term supply contracts with great customers that have been customers of ours for years -- Dow and Valero to mention a couple. [Enios], the former BP chemical company, we also signed a long-term contract with them. At the Mont Belvieu area, where we have the industry-leading position in natural gas storage, we commenced a program in 2006 to improve the utilization of our storage wells there at Mont Belvieu.

And also, I would like to highlight that we completed a very important connection to TEPPCO's mainline systems so we will be able to provide storage services to those customers as well in the future. We also announced late in 2006 that we completed our South Texas corridor strategy. That was tying in and integrating all of our South Texas NGL assets back to Mont Belvieu. The processing plants in South Texas, fractionators in the Corpus Christi area, the NGL pipelines that we got from GulfTerra as well as those that we acquired throughout the year from Exxon, we hooked all of those up to be able to have the ability to bring those South Texas natural gas liquids back up to Mont Belvieu to provide new supplies for our Gulf Coast petrochemical and refinery customers. So we are very pleased with how that strategy was executed.

Let me turn to the Texas natural gas market. We had a very big year there as well. Texas is important to us -- it's important to the nation. 46% of the nation's drilling rigs are working in the state of Texas right now. And as you know, we have one of the largest gas pipeline systems, one of the largest set of processing plants. We are well positioned in Texas to benefit from this significant push for new natural gas supplies in Texas. We successfully integrated our midyear acquisition of the Cerrito gathering system located in South Texas into our Texas pipeline system and our processing plant system. We also, throughout the year, had several new contracts.

I would like to highlight the new relationship we created with CenterPoint here in the Houston area. We will begin to serve about 20% of the Houston metropolitan area natural gas flow starting in 2007. That's a very exciting contract and an opportunity to grow the demand side of our system here in Texas.

We also have recently come to agreement with the City of San Antonio, which is our largest customer, on our Texas pipeline system. We will be extending our existing contract for a much longer term to provide San Antonio with transportation and storage services. So we are excited about extending that contract as well. The big news for the year in the Texas gas market was the Barnett shale area. As you know, we recently announced a new pipeline expansion of our North Texas system through the Barnett shale region. That project was supported by long-term contracts with Devon. Devon is the largest producer out of the Barnett shale and we were excited to be able to come together with them and put that project together. There's also the opportunity to participate in a downstream interstate pipeline project to the eastern markets. Both of those will be major projects for Enterprise in 2007 and should begin to contribute to our bottom line in 2008.

Moving to the West, to the Permian Basin, construction of our Hobbs fractionator, which as you know will be supplied with new natural gas liquids from the Rockies, is on schedule for mid-2007. Importantly, we just recently signed a new exclusive long-term contract with Huntsman Chemical for offtake of ethane and propane from that Hobbs fractionator. We are excited about that. We have a pipeline to lay. That service is expected to begin in the second quarter of 2008, I think again, validates that value chain strategy that we employ. New natural gas liquids from our processing plants in the Rockies through our expansion of [Mapple], down to the new Hobbs fractionator and out to one of our customers for a long-term exclusive offtake contract.

Drilling around our Permian system gathering areas was robust in 2006. We had a record number of well connects out there on our Carlsbad and Waha systems. And we also added a dew point plant on the Carlsbad system in late 2006, which will help us extract liquids from that part of the world.

Moving to the San Juan Basin, that is an important asset for us. It was an eventful year up there as well. We signed new long-term gathering contracts with two of our major producers -- two of our top three producers up there. Importantly, the San Juan gathering system completed over 400 new well connects during 2006. That's a 20% increase over the prior year so we are pleased with our producer activity and that continues to keep strong volumes on our system.

I want to point out to you that volumes at the Chaco processing plant were down a little bit in the fourth quarter and they are going to be up significantly in the first quarter of this year, beginning January 1, 2007. Our Chaco processing plant will be base loaded at roughly its capacity of about 650 million a day. That's about 15% higher than the inlet volumes we saw in the fourth quarter of '06. And that is due to the year-end expiration of a 20-year processing agreement with the San Juan plant up in that area. So we are excited about the additional contribution that Chaco may have for us in 2007.

Moving up to the Rockies, we had a number of significant achievements and some important milestones along the way in 2006 that are worth mentioning. Starting with the Mid-America pipeline system, the engineering team has done a great job in moving that construction project along. We are largely complete with the pipeline looping portion of that project. We have started the pump station installation. It is on schedule. It ought to ratchet up in the spring of '07 and we are looking for a July 1 completion date on that 50,000 barrel a day Mid-America pipeline expansion project. That will be very timely because we are expecting to see some new liquids come on here in the first quarter to start to absorb some of that expansion capacity.

Also importantly during 2006 we signed new long-term dedication agreements with all of our shippers on the Mid-America pipeline system except for one. We are excited about that. It secures our volumes for the future along with the two processing plants that Enterprise is building in the Rockies that will largely eat up a lot of the expansion capacity that we're building.

In the Piceance Basin of western Colorado we're on track, on schedule for our [Meaker] processing plant, which will be placed in service in the third quarter of 2007. We had a lot of activity in the Piceance Basin. As you know, we announced a 30-year agreement with Exxon for gathering and treating and dew point services there beginning in 2008. At the end of the year we announced a strategically important gathering system acquisition from EnCana, who is our largest producer in the Piceance Basin. That acquisition will be immediately accretive to our bottom-line and also give us a very solid competitive advantage for gathering new supplies that are being developed in the southern part of the Piceance Basin to our Meaker processing plant. So we are excited about building grass-roots infrastructure in the Piceance Basin. It's one of the fastest-growing natural gas developments in the United States.

Moving north to the Jonah-Pinedale area of Southwest Wyoming, during the year we acquired an interest in and assumed operations of the Jonah gas gathering system, one of the largest in the industry from TEPPCO. We have completed the pipeline portion of the Phase 5 expansion of Jonah. We put that in service in the fourth quarter and that has already begun to effectively lower wellhead pressures and we're seeing an immediate uplift in production from that project. We will continue to develop that project with the installation of compression in the first half of 2007 and that should further lower pressures and we expect to see additional uplift and increases in production as we move out of the winter and the producers get back to drilling again.

Importantly we doubled the size of our Pioneer silica gel plant at [Oppal]. During the year, Mike mentioned that that contributed as well to increased earnings on the NGL side. And we're on track, on schedule with our new Pioneer cryogenic processing plant project at Oppal for the third quarter of 2007. So we will be processing those supplies that are now going through the silica gel plant and getting full deep cut extraction. Those liquids will be going into our expanded Mid-America pipeline system and then on down to the Hobbs fractionator.

All these projects together, I want to point out, provide very attractive returns to Enterprise on a stand-alone basis. But again, as has been our theme and is our unique business strategy here at enterprise, when you combine those stand-alone returns with the downstream economics of our value chain, it presents strong drivers for future growth here. And we're very excited about how our strategy is playing out as we execute and implement each one of these projects.

I want to mention our operations and engineering groups. They had an equally impressive year. We felt real good about operating costs. They largely held those in check. They maintained our timelines for our major projects and as we look back we owe them a debt of gratitude for their hard work throughout the year with this major portfolio of organic growth projects. We continued to maintain our systems through very successful pipeline integrity programs and we are on schedule to be in compliance by 2008 with those state and federal regulations. We saw improved run times and efficiencies at many of our plants, particularly those that were placed back in service in 2006 in Louisiana after the hurricanes. Our guys did a great job there and we did all that while delivering a very solid safety record. So we are proud of our people and their commitment to safety.

So finally let me just recap 2006. We think it was a great year for Enterprise, possibly the greatest year the partnership has ever had. It was great for our employees and for our investors. Everybody contributed. We think we delivered on our promises. We executed the strategies that we laid out for you back when we merged with GulfTerra. And again, when we set the table for 2006 we enhanced our assets throughout the year. We grew our portfolio. We improved our organization and we expanded our customer relationships. Those are the foundations for success and we think we hit on all those points.

We also think 2007 presents the same opportunities for growth and improvement and so that is where you should set your expectations. With the many new projects that are coming on we think '07 will be a time year of timing and execution. We did well in '06 and we expect to do similarly well in 2007.

Important to us as each new project is placed in service it provides our commercial people with a fresh opportunity to optimize that investment and generate those important downstream value chain returns. I think this is the real strength of enterprise and we think it is beginning to really shine. I would also say that we continue to add new investment opportunities to our portfolio that will drive growth in 2008 and 2009. And a large part of our commercial and development efforts are focused on those out years. We think that the environment looks equally well for those out years for new organic investment opportunities.

Finally, let me say through Mr. Duncan's continuing leadership and on behalf of our very strong management team here at Enterprise we remain committed to creating long-term value for our investors. We appreciate the support of our investors throughout this year and we look forward to a great 2007.

So, with that, Randy, I think we are prepared to answer questions.

Laurie, we are ready to take questions now.

(OPERATOR INSTRUCTIONS). Mark Reichman, A.G. Edwards.

It was a very good year in '06 and it appears that there are many new projects coming online in '07. But I thought if you could just give us your outlook for your base business, both on the NGL side and the Petrochemical Services I would just be interested in hearing kind of your outlook for demand for petrochemicals and natural gas liquids into '07.

I think that's a great question, Mark, because it is central to many of our value chain businesses. I'm going to ask Jim Teague, who is our Executive Vice President of the NGL business, to answer that question and then Gil Radtke, who runs our Petrochemical Services business, will answer that question. Jim?

Yes, you know what we are seeing in 2007 is, we expect continued strong demand from petrochemicals. Consequently a pool for the products we produced -- look in December, petrochemicals were running at about 90% of capacity and by petrochemicals I mean the ethylene manufacturers. In combination with that, as long as we have gas prices relative to crude at the levels that we have been seeing over the last year and what we expect this year we will have a strong -- that strong pool will be enhanced by the fact that our products will be preferred as a feedstock to those crackers relative to crude derived products like naphtha. So from a petrochemical perspective, we expect to see continued strong demand. Gas to crude will enhance that demand. From a refining sector with the pool of motor gasoline we expect to see the products we produced that are used as blend stocks and motor gasoline to continue to have strong demand.

The only thing I would add to what Jim said there is really what we are seeing on the propylene side is that the US market surprisingly is one of the cheapest sources for propylene right now and so we are seeing a lot of activity on the export market. And we have the capability to get into that export market. So you know in addition to running at high rates -- the ethylene crackers running at high rates, their propylene extraction is also high and some of that is going offshore, which is good for us. Then on the octane enhancement side, I think you know the price of gasoline continues to rationalize here, I guess is the way to put it. There's a lot of volatility on the NYMEX but great prices for gasoline in a lot of areas are below $2.00 a gallon. And I think that is going to indicate to some pretty good demand, especially during the summer driving season. So our expectation is, we will have as good a year in octane enhancement in 2007 as we did in 2006.

Samuel Arnold, Credit Suisse.

I was just wondering if you guys could comment on how the open season went for the Sherman extension and if you could comment and state any producers that you signed up thus far?

I'm sorry, I didn't catch your first name.

This is Sam.

Sam. Yes, we did not have an open season on the Sherman extension. That's an intrastate pipeline system and you are not required to have an open season.

Right, right, well not -- yes but as far as just getting shipping shipper indications (multiple speakers)

Right. As you know, we announced -- when we announced the project we announced long-term contracts with Devon and they are the largest producer in the field. Additionally, Devon has an option on additional capacity. We have had ongoing conversations with all of the major producers in the Barnett shale region as well as the major gatherers and processors in the Barnett shale. In fact our pipeline route will be one that ties into most of the existing and almost all of the recently announced new gas processing plants that are going to be located in the Barnett shale. So we will be a tailgate pipeline for most of those processing plants. We've seen almost universally a high degree of interest in signing up for capacity and/or using the pipeline system. It is an area that has been short export capacity and so we're bringing that solution.

Additionally, I would like to mention with respect to the intrastate demand for that capacity that a large part of our strategy was to reach back on our North Texas pipeline system and go all the way to the Permian Basin to a point called Waha, which is an index trading point out there in West Texas and be able to ship gas through our North Texas line from Waha to a point in the Barnett shale area just south of Fort Worth and then up through our new pipeline and into this area in North Texas, where a new intrastate pipeline is going to be built from there to the eastern markets. And we have had a number of conversations with the Waha area producers and shippers and there is a tremendous amount of demand and excitement about that project there as well. So we're making good progress.

We have actually moved forward with the project. We have ordered pipe and so we're very excited about that. As far as the interstate piece goes, that is where the actual open season was conducted. That is a FERC regulated project -- one that Boardwalk announced in concert with our announced intrastate project, which is upstream of that. They have conducted the open season and it is really inappropriate for me to give any specific information about that open season since it was their open season. They are the operator of that pipeline and at this point in time they are the owner of that pipeline project. So I will defer to Boardwalk for comments about that.

Having said that though, we know there is a tremendous amount of excitement by producers in North Texas to be able to move gas to the eastern markets, specifically as far east as Transco Station 85, which is in Alabama, because that has historically been a big premium pricing point for producers. So we're pleased with how the project is proceeding. We think that we are on schedule as we outlined to Devon when we reached agreement with them to have export capacity for them available in mid to third quarter 2008 and we feel like we are on track with that project.

How much capacity is Devon signed up for? Is it the 1.1 billion Bcf a day pipeline, correct?

I think that we did not announce that and I think the reason for that is, we are under a confidentiality agreement.

I guess my question is, do you guys feel like you are going to be able to fill up the line because you have capacity commitments that you signed up for on Boardwalk's line and there is competition coming from Kinder Morgan energy transfer with their Mid-Continent Express? And that is kind of the crux of my question.

And I will respond directly to that. We are very comfortable with our commitments. We have ongoing negotiations going with both producers as well as marketer type shippers that will be bringing gas from a number of different locations on our Texas pipeline system to be transported through the Sherman extension and into this interstate pipeline and we feel very comfortable with that at this point.

Michael Cumming, Morningstar.

I think most of my questions were just answered by that last one. But let me just add one more. I'm wondering if you could talk about sort of the long-term implications of having both your project and the Kinder Morgan energy transfer project as far as being able to potentially increase capacity or tie in with other systems further down the road?

I think the obvious implication is that both project sponsors believe very strongly that there is more than enough gas in North Texas, eastern Oklahoma, West Texas in the Waha area and gas coming from the Rocky Mountain region through back hauls that producers and shippers are going to be willing to pay for a pipeline system that is going to be built from North Texas to Alabama. Both shippers -- all the parties involved are very substantial companies. We are all very experienced in this part of the business. And we all feel very strongly about the commitments both that we have and those that we feel like we will get in the future. So I think it indicates to me that there is room for two projects based on the commitments that people have.

Alex Meier, Zimmer Lucas Capital.

I just wanted to ask about the [rofer] that exists on the Gulf crossing project. I think you have the opportunity to buy it at cost for 49% interest. Can you talk a little bit about what you're thinking is about when you could potentially exercise that, if you would?

Alex, I can't divulge information that is confidential between us and Boardwalk. We did think it was important to disclose that under a certain set of circumstances that we would have the right to acquire a portion of that project. At this point in time we feel like we're going to do that. We like the interstate pipeline business. This is a charge that Mr. Duncan has given us to look for these type business opportunities because of the long-term investment profile -- the long-term and stable cash generation profile from these FERC regulated projects. So he has challenged us with being able to find those projects that fit within our value chain concept and this one certainly does. It starts with an extension of our existing North Texas pipeline and then we tie into that physically to this project. So it would make very much sense for Enterprise to be an investor in a downstream interstate pipeline project that fit our integrated value chain concept, and I think this one does.

I can tell you that we have some time yet to go before we have to make that decision, and to the extent we do, we will announce that because that would be a meaningful project for us.

When does the rofer expire? Does it expire when the pipeline comes online if it does?

Because of confidentiality I'm not prepared to answer that. I would say that at some time in the future we have plenty of time to make that decision.

John Edwards, Morgan Keegan.

Bob, could you just review -- you may have already gone over this before -- where do you stand now with your backlog of organic growth projects and what is your capital spend plan for 2007?

I'm going to let Mike have the first shot at that because we have historically not provided that kind of guidance until we actually have our annual analyst meeting where we can provide a little bit more detail in terms of our backlog. It is also important that I think -- we have given indications to the rating agencies as we typically do at our year-end meetings as to what our expected capital spending level for the subsequent year are. And so Mike, I will let you talk about that first and then maybe I will come back and talk about some specifics.

Sure. We have talked in the past about kind of our capital spending. Certainly for 2006 and the projects that we had and the amount that it was going to take to finish them up, I think we have indicated that we thought that 2007 would probably be in the range of $1.5 billion to $1.6 billion, and I think we are on track for that.

As Bob said, we are planning on having an equity analyst meeting at the end of the first quarter. And what we would expect to do -- the same thing we did last meeting that we had is to kind of lay out our various projects and the CapEx for those projects and when we expect them to come online.

I don't think -- if you look back at our previous schedule, there's no big surprises. As Bob said earlier in his comments what we are really focusing on more now in terms of adding to our backlog are projects more in the 2008, 2009 time frame.

Yes, that -- just point of fact, Randy, and you can research this -- we have that information out and it is public in one of our slide presentations. We gave a three-year look '06, '07, '08. And so, that information is out there. I can say that if you go look at that I don't know of any material changes to that. There have been a couple of additions but I think the number Mike threw out -- the $1.5 billion to $1.6 billion is kind of where we are and where we are looking right now absent any significant changes.

And that is a number, by the way, that we are very comfortable with in terms of raising the capital. That was the point that I was making in the early comments. Mike and his team have done a great job of providing us with a number of different avenues to access the capital markets and so we are very comfortable with that.

Ted Gardner, Raymond James.

A quick question for you in the NGL processing business. Knowing that natural gas prices and crude prices have converged and put a little bit of pressure on the processing margins and knowing too that you guys have a relatively complex contract structure in several of those contracts, I was just trying to get a feel for what type of sensitivity you guys might have now to the processing margin fluctuations out there.

Ted, let me take a shot first and then I am going to turn it over to Jim for a little bit more background because he is the expert here. The way we view our processing portfolio is in fact it is a portfolio. As you mentioned -- I'm not sure we have a complex processing structure. I think we have a very large, diversified processing structure. As you know because we have reported to you many times that we have very few traditional keep-whole contracts in our processing portfolio. In fact, Enterprise, pre GulfTerra merger, did a great job of renegotiating most of those contracts into what we call margin band, which limits our upside to a certain extent but also limits our downside when prices either converge or go upside-down. And we have operated under those margin band contracts in Louisiana for the last several years and we think done so very successfully. You can look at our performance and see that relative to indicative processing spreads, we get a large part of that spread without the downside exposure in the event the markets ever turned upside-down for an extended period of time. Having said that, we have also entered into two new processing agreements on these large projects in the Rocky Mountain area -- the Meaker processing plant and the Pioneer processing plant and those have a keep-whole feature to them and we -- I think that we have done a very good job of insulating ourselves physically by installing facilities up there at those plants that allow us to bypass those plants and not extract natural gas liquids when and if prices get upside-down. And we are under no contractual obligation to do that. Now, having said that, I think the environment for gas processing remains very solid for us.

And Jim, I am going to turn it over to you to kind of look out to 2007 and tell our investors what you think will happen for processing.

One of the things -- and Bob nailed it on the margin bands -- most of our -- any keep whole we have is keep whole as it relates to a band, whereby we're not going to -- there is a floor under which we won't go. Yes, the crude gas prices are converging to some extent today. We still have a strong position within that margin band. If it went up real high we don't realize the benefits from it anyhow as it is passed on to the producer in order to get the floor. The prices have converged -- well, we are in the middle of the winter. You would expect them to converge. As we come out of this winter given the storage overhang that we expect and the growing production that we see coming out of the Rockies and other places we fully expect the gas to crude spread to get back to what the kind of levels we saw last year.

Ted, just as a follow up, remember we have talked about this before. The current gas spread ratio is probably in the range of high 70s to 80% right now. That's only up marginally from the fourth quarter and it is only due to this very recent just in the last few days drop in crude prices and very recent increase in gas prices due to the weather. So, as Jim indicated, our outlook for the full year is back to more of a high 60s low 70s type gas to crude ratio. Importantly for us though is the absolute price of natural gas liquids because, to finalize this answer, a large part of our portfolio is percentage of liquids contracts. We get paid for the processing service by receiving an equity portion of the liquids that we extract and selling those in the open market at absolute prices. We still feel very comfortable with NGL prices. Ethane currently in the mid-'50s to high $0.50 per gallon range. Propane still at the $0.90 per gallon range. Historically, these are very high prices and I think that will have a large part to do with our success in processing in 2007 as well.

(OPERATOR INSTRUCTIONS). Alex Meier, Zimmer Lucas Capital.

One more follow-up. Just in terms of your capital budget for '07, you talked about $1.5 billion to $1.6 billion. Can you talk about kind of the options available to you to finance it just in terms of hybrids, using DEP to finance as well as equity and debt?

Alex, this is Mike. When we laid out -- back in September I think we laid out kind of a CapEx schedule showing the CapEx we expected to spend in '06, '07 and even '08. And we talked about this a bit in our equity offering that we did in the third quarter of last year. As I said, the CapEx numbers for '07 really haven't changed from that time. When we did that equity offering we have said that one of the things that we had done with the hybrid securities we had already issued, with the equity that we did in the third quarter of '06 was that we had actually pre-funded a lot of our CapEx for '07. And at that time, given our CapEx and our CapEx schedule we didn't expect to be back in the traditional equity markets for the next 12 months. And that is still true.

In terms of the way that we can fund our growth going forward, clearly we have got assets coming onstream in '07 that are going to start generating additional cash flow. And so, from a debt to EBITDA perspective, that is going to help us out. We still have the ability to hit the traditional debt markets. We've got the ability to issue hybrid securities. As you mentioned with DEP, we're going to have cash proceeds that will help us fund this capital growth. So we think we are in great shape for 2007.

(OPERATOR INSTRUCTIONS). I am showing no further questions at this time. Before we do end today's call, I would like to give out the replay number. For a replay you will dial 1-800-372-5608. Again, that is replay number 800-372-5608 and that replay is available until January 31, 2008 at 5 PM Central time. I will now turn the call back over to the speaker.

Thank you Laurie, and thanks, everybody, for joining us today, and have a good day.

And that does end today's conference. You may disconnect at this time.

Good job, Mike and Mike.