Enterprise Products Partners LP (EPD) 2007 Q4 法說會逐字稿

Welcome, and thank you for standing by. (OPERATOR INSTRUCTIONS). I would like to welcome you to the EPP and DEP fourth quarter earnings conference call. (OPERATOR INSTRUCTIONS). Today's conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to Randy Burkhalter. You may begin.

Good morning and welcome to the Enterprise Products Partners conference call to discuss earnings for the fourth quarter. Mike Creel, Enterprise's President and CEO, will lead the call, followed by Randy Fowler, the Company's Executive Vice President and CFO. Also included on the call today from Enterprise is Mr. 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 21E of the Securities and 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 in the forward-looking statements made during this call.

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

Good morning and thanks for joining us on this call today. I'm pleased to report another quarter of strong operating results. For the third quarter of 2007 we announced record transportation volumes in our pipelines, and in the fourth quarter we surpassed those numbers by transporting a record 2 million barrels of natural gas liquids, crude oil and petrochemicals, and more than 8.5 trillion Btus per day of natural gas through our integrated network of pipelines.

We also fractionated a record 400,000 barrels a day of natural gas liquids, led by production at our Mont Belvieu and Hobbs facilities. This led to record gross operating margin of $431 million for the quarter. We're continuing to realize increasing cash flows from capital projects that began operations in the latter part of 2007, and we expect these assets will generate significantly higher cash flows in 2008 with a full year of operations.

In spite of our strong performance this quarter the results could have been better. Our Meeker gas processing facility got off to a slow start, hampered by various issues such as faulty valves and flawed engineering designs. The startup of our Pioneer gas processing plant was also delayed due to similar problems. These issues and the delayed startup of both facilities cost the Partnership an estimated $85 million, or $0.19 per unit, in terms of expense and lost revenue opportunities.

We have replaced the defective valves and corrected the engineering design at both facilities, and we're actively pursuing recoveries from the manufactures of the valves and certain of the engineering design firms that worked on these projects. These types of problems are not acceptable to us, do not meet the engineering and operating standards that we have established in over 40 years of developing midstream projects.

I would like to recognize the employees that we have working on these projects in Colorado and Wyoming. They have worked very long and difficult hours in very demanding conditions to mitigate these setbacks. We have seen weather conditions at the very extreme end in the Pioneer worksite with subzero temperatures all day, winds at a time exceeding 50 or 60 miles an hour, and in spite of those conditions our employees have performed admirably.

We recently announced the appointment of Leonard Mallett as Senior Vice President of all of our engineering activities for the EPCO Partnerships. Leonard brings 28 years of experience to this position, and we expect Enterprise to benefit from his exceptional technical and managerial skills. This will be important as we continue to grow our cash flows through our organic growth projects. We have also made other organizational changes in engineering that we believe will lead to better control over projects in the future.

Three of our four business segments reported higher gross operating margin this quarter compared to the fourth quarter of 2006. Two segments reported significant increases with our onshore natural gas pipeline segment reporting a 40% increase in gross operating margins, and our offshore pipelines and services segment posting 174% increase in gross operating margin.

Independence Hub and Trail added $48 million to gross operating margin in the fourth quarter of 2007. And distributable cash flow for the quarter was $262 million, providing 1.05 times coverage of the cash distribution of $0.50 per unit paid with respect to the fourth quarter. Randy will discuss the earnings and cash flow in more detail in just a few minutes.

The Jonah gas gathering pipeline is currently moving in excess of 1.8 billion cubic feet a day of natural gas from the prolific Jonah and Pinedale fields. We expect gathering volumes to ramp up to 2 billion cubic feet per day by the third quarter and to about 2.2 Bcf by the end of the year, primarily as a result of the final portion of the phase 5 expansion program, which involves completion of phase 2 of the Bridger compression project. This project will add 102,000 horsepower of electric compression and is expected to be completed by the end of this quarter. We are currently working with producers for additional expansions of the Jonah Pinedale gathering system.

I'm pleased to report that our Meeker cryogenic gas processing facility is now processing an average of 530 million cubic feet a day of natural gas and extracting an average of 27,000 barrels per day of natural gas liquids, and the gas volumes are expected to increase as production from existing dedicated producers rise and we continue to sign contracts with additional producers.

We have now executed processing contracts with approximately 50% of the top 12 producers in the Piceance Basin, including deals completed with Oxy and Chevron in this last quarter. Most of these processing contracts are 10 to 15 year contracts, with the antenna agreement being for the life of the lease.

We now have contract dedications in place to process from 2.4 to 2.6 billion cubic feet a day of natural gas at our Meeker facility. We expect Meeker 1 to be full by late 2008 and the Meeker 2 facility to begin operations in the third quarter this year, bringing our total processing capacity 1.5 billion cubic feet a day in the Piceance Basin.

We continue to pursue other producers in the Piceance Basin, with proposals to three producers to process up to 400 million cubic feet a day of natural gas. During the fourth quarter there were 736 wells permitted by 21 operators in the Piceance Basin, and of those, 55% were by operators with Enterprise dedications. With our connection to the Rockies Express Pipeline, our Meeker lateral and processing facility, an increased natural gas liquids takeaway capacity on our Mid-America pipeline, we're able to offer producers better optionality and flow assurance, as well as access to the highest value markets for their natural gas and natural gas liquids.

Our Pioneer cryogenic processing plant in the Jonah Pinedale field is in the commissioning phase and expected to begin operations shortly. We are currently processing more than 500 million cubic feet a day through our silica gel plant at that location. After the startup of the cryo plant, this gas will flow through the new plant, which is expected to extract approximately 23,000 barrels per day initially and up to 30,000 barrels per day of natural gas liquids when full.

We have long-term processing contracts with EnCana and Ultra, and we are currently renegotiating a long-term deal with British Petroleum. These three producers account for approximately 85 to 90% of the expected natural gas deliveries to the Pioneer plant.

The Pioneer plant will join Meeker 1, which began operations last quarter, and Meeker 2 which we expect to begin operations in the third quarter, in providing additional natural gas liquids volumes to complement other completed projects that are part of our Rocky Mountain growth initiative, including the 50,000 barrel per day expansion of our Mid-America pipeline and our Hobbs NGL fractionator.

The Hobbs NGL fractionator has been operating at or near capacity, currently fractionating an average of 70 to 75,000 barrels a day of NGLs. This facility provides shippers the flexibility to ship purity products to two major NGL market hubs in the U.S. located at Mont Belvieu, Texas and Conway, Kansas. It also provides access to the local refinery markets in West Texas, the propane markets in Mexico, and an ethylene facility in Odessa. The pipeline from Hobbs to the refinery in Odessa is near completion and expected to be in-service in the second quarter of this year.

Our largest capital project to date, the Independence Hub and Trail, is performing quite well. As I mentioned earlier, the Independence Hub platform and the Independence Trail pipeline contributed a combined $48 million of gross operating margin on average throughput of about 719 million cubic feet a day in the fourth quarter. So far this year volumes on the platform and the pipelines have averaged about 900 million cubic feet a day. The future value of the Independence project was further validated last October with the Gulf of Mexico lease sale 205. In that auction producers paid for rights to explore 80 blocks within a 50 mile radius of the platform.

We're excited about BP's commencement of its Atlantis development in December. That has resulted in an increase in volumes on our 50% owned Cameron Highway oil pipeline to 100,000 barrels per day for the fourth quarter of 2007, compared with 52,000 barrels a day for the same quarter 2006. In January total volumes on Cameron Highway have averaged 151,000 barrels per day, and the pipeline is currently flowing 185,000 barrels per day of crude oil. So a very positive development for our Cameron Highway project.

Construction continues on our Sherman extension pipeline in the Barnett Shale region, which is expected to be placed in service in the fourth quarter of this year. This 178 mile 36 inch pipeline will connect our Enterprise Texas pipeline from Morganville, Texas, southwest of Fort Worth, to Boardwalk's Gulf Crossing pipeline near Sherman, Texas. The combination of our Sherman pipeline and capacity on the Gulf Crossing pipeline will provide producers with multiple market outlets for up to 1.1 billion cubic feet a day of their production originating from the Barnett, Waha and East Texas regions.

Gas production out of the Barnett Shale region is expected to grow from 3.4 billion cubic feet a day currently to approximately 6.4 Bcf per day by 2013; however, in the best case scenario it could be as early as late 2010.

Demand continues to grow for natural gas storage, especially in and around the Gulf Coast. We currently have 27.5 billion cubic feet of natural gas storage capacity at Petal and Hattiesburg, Mississippi, Napoleonville, Louisiana, Mont Belvieu, Texas and at Wilson storage, southwest out of Houston.

With planned additions we expect to have approximately 73 billion cubic feet a day of capacity by the end of 2013. We recently added 1.6 Bcf of gas storage capacity at our Petal facility, increasing its capacity to 13.5 Bcf, and this capacity is fully subscribed. We are currently developing a new 5 Bcf cavern, and expect to place that in-service in the second quarter this year, with about 3.2 Bcf of that capacity committed for an average 7.5 years. We're also developing additional caverns, and expect firm contracts for another 10 Bcf of capacity as a result of a nonbinding open season held recently.

Demand for petrochemicals in December was as strong as it has been in some time, with ethylene steam crackers averaging 92% of operating capacity. The industry benefited from two steam crackers in Southeast Texas returning to service after extended turnarounds. Ethylene output in December increased 8% over the November production, and it peaked for the year at 157 million pounds per day in December. This equates to 57 billion pounds on an annual basis. According to the Hodgson report, ethane feed stocks were a robust 821,000 barrels per day in December, and that compares with an average of 770,000 barrels per day for all of 2007.

The gas to crude oil price ratio averaged about 47% during the fourth quarter, and it currently is about 52%, and that compares with a five-year average of nearly 70%. As a result, ethane and propane have been the preferred feedstocks for ethylene producers, rather than naphtha, which has been relatively expensive due to the price of crude oil.

We're extremely excited about our current capital projects, our backlog of organic growth, and the contributions we expect them to make to our offshore and onshore integrated value chains. The outlook for Enterprise is very promising and is supported by strong fundamentals, increased volumes of hydrocarbons into our pipelines and downstream facilities, and a significant amount of organic growth projects coming online.

We have invested approximately $3.9 billion in capital projects over the last two years. With the completion of the Meeker and Pioneer plants, and given the performance of Independence project, we expect 2008 to be an exceptional year as we begin to generate increased cash flows from these investments for the Partnership and for our partners.

With that, I will turn the call over to Randy Fowler.

As Mike mentioned earlier, Enterprise reported record performance this quarter as new projects began operations and started to contribute to cash flow. The Partnership posted a 27% increase in gross operating margin to a record $431 million on record volumes for our liquids pipeline, onshore natural gas pipelines, and NGL fractionators.

We reported net income of $162 million, or $0.30 per unit, for the fourth quarter of 2007. This is a 22% increase from net income of $133 million, or $0.25 per unit, for the fourth quarter of 2006. After adjusting for unusual or non-recurring items, net income was at $182 million, or $0.35 per unit.

In running through that what we did there, as far as actual costs related to replacing valves or loss on over-hedges, if you would, at Meeker and Pioneer, that was about $29 million, or $0.07 per unit, you would add back. As far as increased cost and volume loss on the Dixie pipeline rupture, that is about $10 million or $0.02 per share. Then subtracting from that recoveries from business interruption insurance, $11 million or $0.02 per share, and then settlements of various imbalances in measurement disputes and other of about $7.5 million, or $0.02. That comes in to that $0.05 adjustment that I just made.

Distributable cash flow was $262 million in the fourth quarter compared to $240 million in the fourth quarter of 2006. DCF this quarter provided 1.05 times coverage of the cash distribution to be paid to partners with respect to the fourth quarter. For the year distributable cash flow was a record $1 billion and provided 1.03 times coverage of the almost $1.95 per unit that we declared with respect to 2007.

A couple of weeks ago our Board of Directors of our General Partner declared the 14th consecutive quarterly increase in the cash distribution rate, up to $0.50 per unit. This is a 7% increase over the cash distribution that was paid with respect to the fourth quarter of 2006.

EBITDA for the quarter was $403 million. This is 26% higher than the $319 million reported in the fourth quarter of 2006. As I mentioned earlier, our record performance this quarter was a result of new capital projects coming on that began to contribute to earnings and cash flow. Consolidated EBITDA, that is EPD and Duncan Energy Partners added together for 2007, after we adjust for actual cast cash distributions received from unconsolidated affiliates, was a record $1,431,000,000.

Since the press release provided a comprehensive analysis of changes in gross operating margin, I would just like to turn now to the remainder of the income statement. Depreciation expense increased to $139 million for the fourth quarter of 2007 from $115 million for the fourth quarter 2006. This is primarily due to new assets that were put into service during 2007, being Independence, Meeker, Hobbs, MAPL, Seminole expansion, and also our new propylene fractionator.

G&A expanse increase slightly to $21 million for the quarter compared to $18 million in the fourth quarter of 2006. The increase was primarily due to increases in accounting and tax services, and then also some non-cash amortization expenses for an employee comp plan that actually EPCO bears the economic liability for.

Interest expense was $92 million for the fourth quarter of 2007. That is an increase from $61 million for the fourth quarter of 2006. This is largely on an increase in average debt balance in the fourth quarter of 2007. Debt averaged about $7 billion for the quarter compared to $5.2 billion for the fourth quarter of last year.

Provision for income taxes decreased $2.6 million for the fourth quarter of '07 compared to the fourth quarter of '06. Largely this is a decrease in corporate taxes with respect to Dixie on lower pretax income. This was partially offset by an increase in taxes with respect to the Texas margin tax.

Capital spending in the fourth quarter of 2007 was approximately $500 million for growth capital project and another $43 million for sustaining capital expenditures.

For 2007 we invested about $2.1 billion on growth projects, and had $162 million for sustaining CapEx. As we look out into 2008, we currently estimate growth capital expenditures to be approximately $1.4 billion, of which $1 billion will be for announced projects or projects already under construction. This is such as the Sherman Extension, which is about a $430 million projects; the Meeker processing plant, the second train of that, which is about $285 million. And then a couple of others are the Exxon central trading facility, and then also the natural gas storage projects that Mike mentioned earlier. Currently our sustaining capital expenditures for 2008 are forecasted to be about $200 million.

At December 31, 2007 we had about $6.9 billion of debt outstanding. This includes 100% of our $1.25 billion of hybrid securities. And it also includes the $200 million of Duncan Energy Partners debt, which is consolidated but EPD does not have the payment obligation for this. We had liquidity at year-end of about $1 billion, and this is comprised of availability under our credit facility and unrestricted cash. Floating interest rate exposure was about 27% at December 31, 2007. And the average life of our debt was approximately 19 years, with an average cost of debt of about 6.4%.

Our leverage ratio in terms of last 12 months consolidated EBITDA -- and again consolidated EBITDA would include both EPD and Duncan Energy Partners -- was about 4.3 times. And this is based on adjusted debt of $6.1 billion, which includes the EP's debt, but is also reduced by 58% of the $1.25 billion of hybrid securities that the rating agencies on average give us equity credit for.

This is an improvement. If you will recall at September 30, 2007, this leverage ratio was 4.5 times. And we expect it to trend toward our target range of 3.5 to 4 times as new capital projects begin operations and volumes ramp up and cash flow increases in 2008. We think this will provide us good financial flexibility on how we finance our growth in 2008.

Before I finish the call today, I would like to make just a few comments about Duncan Energy Partners, which also reported its fourth quarter earnings this morning. Again, Duncan Energy Partners is a consolidated subsidiary of Enterprise. It reported net income of $6.3 million for the fourth quarter of 2007, or $0.30 per common unit on a fully diluted basis.

Duncan Energy Partners reported solid operating results this quarter, with performance from the Mont Belvieu NGL storage facility, the Acadian intrastate natural gas pipeline system in Louisiana, and the South Texas NGL pipeline that was put into service in January 2007. Distributable cash flow for Duncan Energy Partners was $9.4 million for the fourth quarter of 2007. This provided 1.1 times coverage of the quarterly cash distribution.

The Board of Directors of Duncan Energy Partners declared a quarterly cash distribution of $0.41 per common unit with respect to the fourth quarter of 2007, which is $1.64 on an annual basis.

DEP's performance this quarter completes a successful first year for the Partnership, with strong operating results and coverage of it cash distribution. Now I think we're ready to take questions. Randy, I will turn it back over to you.

We're ready to take questions now.

(OPERATOR INSTRUCTIONS). Yves Siegel, Wachovia Securities.

Just a couple of questions. Number one, can you discuss how you are thinking about processing commodity exposure going forward, especially in light of the great environment that we're in? That is number one.

Then the second question was could you also discuss what you are seeing now on costs -- construction costs and the confidence level that you have that you can execute the rest of the expansion program within a reasonable budget and time schedule?

Let me take the second question first, and then I will pass it over to Jim Teague to talk about the processing exposure up in the Rockies. On construction costs, you could tell from the tone of our press release and the conference call that we're not pleased with the results up in the Rocky Mountains. The Meeker plant and the Pioneer plant had both taken longer to build then we expected. Part of that was problems with valve manufacturer, part of it was outside engineering firms and their design work, and frankly part of that was lack of adequate oversight by us.

We are making changes to remedy the internal problems that we had with lack of proper oversight. We think that we have made the proper changes and that we going to have much better control over that in the future. We are pursuing remedies against some of the outside firms that we feel were responsible for the cost overruns and delays in the projects, and working to get those back on track.

Going forward I think we're going to be much more vigilant about providing oversight to third-parties, making sure that we have eyes on what they're doing, that we review their designs, that we do some independent testing. So we don't expect to have the same kinds of problems going forward. We've got a long track record of successfully building projects on time and under budget, and we expect to get back to that position as well.

On the processing environment, I think what you are really alluding to is the fact that in the Rocky Mountains we've got some exposure there. And it was intentional. I will let Jim Teague talk about that.

We have a couple of things working for us besides the fact that we are having record margins right now and processing spreads. First of all, as good things weaken, we're in a better position than anyone, given the value chain we have. If you look at our plants up there we will be going through our own pipelines into our own fractionators with the ability to go to the highest value markets, be they in the Midwest or on the Gulf Coast. So in a sense, we are well-positioned from a value chain perspective to be able to mitigate any processing exposure.

Worse comes to worse, we have spent the kind of money to put -- for these plants to where we have a tremendous amount of extraction flexibility. We can literally turn these 650, 750 million a day train, full extraction, fully loaded to be about 35,000 barrels a day. We can literally really turn that down to 3,000 barrels per day and meet downstream pipeline residue specs.

We understood what we were doing when we got into these deals, and we built the kind of flexibility into the plants to be able to manage that exposure. But we feel pretty confident, given the value chain that we have in terms of our Mid-America pipeline, our fractionation and our distribution pipelines that we're going to be able to manage a lot better than anyone else would.

This is Dan. Let me add a little bit additional color, because we have haven't rehearsed inside what we want to -- what we would talk about. But if you go back to the press release that we sent out, and what Mike talked about I think in the deal, the amount of -- and the [OBDE] I guess is $75 million, $85 million of losses -- well, loss of opportunity in 2007 over into 2008, a lot of that money we will get back.

We went into probably a forward sales type deal in 2007 that, because of lack of productivity coming on at Meeker and Pioneer that cost us some money in 2007, which we will make back in 2008. But the majority of liquid, because of the high prices of liquids relative to the processing side for 2008, we have hedged going forward. We are in a lot better position with these high-priced liquids. Those prices will stay with us all this year. We're not trying to get into the deal of giving forecast on earnings, but we bought it up in what caused us in [2004th quarter downturn -- 2000 4th quarter] -- we also did that in 2008. So based on the value chain that Jim brought up, based on all the things that we have got going for us, we feel we're in very, very good shape in 2008.

If I could just follow-up, last question. Given the terrific processing margins that are out there, and it sounds like you have captured a lot of that upside for 2008, when you think about the distribution and setting distributions going forward, are you allowing for somewhat of a cushion with the expectation that you might have excess cash flow in 2008 because of the environment that may not be repeatable? How do you think about that when you are setting distribution targets right now?

What I think about it, I'm going to pass it back to Mike. Mike has a tendency of saying we're not going to get into a forecasting deal. Mike, it is back to your deal.

We have talked about this before. We are in a very robust processing environment. Conditions are great. We're not going to base our distributions in 2008 on a fairly heavy market environment. We have in fact maintained a fairly disciplined approach towards our distribution growth, retaining cash flows. And we certainly expected to that in 2008, yet still be able to increase distribution to our unitholders. We're not going to give it all away.

Ross Payne, Wachovia Capital Markets.

The first question on natural gas pipelines. You mentioned that there was a measurement issue that was settled. Can you speak to how big that might have been?

That was where we came in on the non-recurring. There were sort of when you add everything up about $7.5 million.

Not a lot there. Certainly it looks like a great '08 shaping up here. You did have some startup costs obviously in the fourth quarter. Can we expect a little bit of the same, although not as large in Q1, or what should we be thinking about there?

We've got Pioneer that has got some startup costs involved, but I don't think you're going to see anything like we had in the fourth quarter. A lot of those costs really were replacing faulty valves and the like, and that was about a little over $6 million.

Cameron Highway looks like it is ramping up nicely. You mentioned that some -- there was some fall off in other production. Can you be a little more specific on that? And are we going to see earnings in that segment pick up notably as well?

This is James. We have seen some declines on some of our pipes in the Eastern Gulf, although we are working on some new deals that probably wouldn't have much impact in '08 but would be positive for '09 to add to those pipes. Central Gulf, Atlantis doesn't only benefit Cameron Highway, it also adds gas production to -- we have ownership in Manta Ray and Nautilus -- and also brings new very rich gas to our Neptune plant. We should see some gas volume ramp up in the Central Gulf.

One final question. I think when you guys were talking about Hobbs you were saying that some of its startup costs were offset by its profitability. Is that also behind you, and what kind of contribution do you expect going into '08?

It is running pretty much at capacity, 70 to 75,000 barrels a day. It seems to be pretty lined out.

Sharon Lui, Wachovia.

These questions are for Duncan. Can you touch upon the sequential improvement in NGL and petchem results for the quarter?

On the petrochemical pipeline results I think what you are seeing there is there are -- with the contracts that we have there with Shell there is some minimal volume requirements. I think some of what you saw in the fourth quarter is just a catch up from lower volumes in previous quarters. And then also we just saw better activity around the NGL storage business.

Turning to sustaining CapEx, do you have a forecast for '08?

We are still finalizing need plan for Duncan Energy Partners for 2008. So at this point we don't have a forecast thus far on maintenance CapEx, but we will be coming back out. Honestly, what we're focusing on is trying to come in and lineup an analyst meeting in late March. We should be giving some save-the-date notices here shortly on that, and we will be able to have more information around that then.

Looking at maintenance CapEx at EPD there is a ramp up from '08 from '07, can you just touch on what is the increase?

I think some of it is just continuing on the pipeline integrity work. We had a few projects that are coming up in 2008 around our Texas intrastate pipeline. Again, that pretty much explains the bump up that we are seeing there, or the largest part of the increase, in 2008. Also then just more assets at work also.

John Edwards, Morgan Keegan & Co.

Can you talk a little bit about how Rockies Express might impact your liquids volumes as that shapes up here?

I don't think it has anything -- any positive impact or negative impact on our liquids volumes. What it really does it is gives producers another outlet for their gas. It changes perhaps the pricing dynamics of natural gas in the Rocky Mountains.

But you're not going to see additional volumes -- because more gas will be flowing, you don't expect more volumes to come through your assets?

To the extent production ramps up because there's more takeaway capacity then clearly there's more gas available for us to produce. Yes.

Can you talk a little bit about on the octane segment what happened there? That came in quite a bit below what we were expecting. Can you talk about that? And then I presume it is going to be back up going forward.

I think a couple of things in the octane enhancement business. One, we had lower volumes in 2007 than in 2006. A couple of things that we benefited from in 2006 that did not, if you would, reoccur in 2007 was we had some hedges in place on that business in 2006 that helped us generate positive operating margin in that business in '06.

We still look for octane enhancement to be somewhat seasonal, with most of the money being made there in the second quarter and third quarter. And I think what you saw in 2007, in the fourth quarter of '07, we just didn't have the opportunities early in '07 to put on the hedges to hedge the profit margins in 2007 like we were able to do in 2006.

Then could you talk a little bit about what in terms of potential upside to your budget for '08, what you would be looking for?

We think our budget for '08 is pretty good, we just haven't made it public. Frankly, we don't give guidance. We do try to make sure that analysts and the public, for that matter, knows what makes our business tick, those external items that can affect our cash flows and profitability. And clearly with the Meeker 1 project that just came on November, Pioneer that we expect to come up very shortly, Meeker 2 later in the year, a number of other projects that we think that 2008 is going to be a very good year for us.

Not only are we having a lot of new organic growth projects coming on line, but they are coming online at a great time in the marketplace. Industry fundamentals are really good, margins are strong. But in terms of guidance we haven't given any guidance and we don't expect to.

Fair enough. Can you talk a little bit about financing plans for the capital spend?

I think right now as we look at the capital budget of $1.4 billion, we really think we have got a lot of flexibility out there on how we finance it. I think, as Mike mentioned earlier, we're not going to distribute out all of our distributable cash flow next year, so if you would, that is the first tranche of equity that we can apply towards it. Plus we have been running probably about $60 million a year in our dividend reinvestment plan. So if you would, there's another chunk of equity.

Then from that I think we will -- again we should continue to see cash flows ramp up from these projects which will reduce leverage, so I think we'll have a lot of flexibility of how we come in and finance next year in terms of debt and equity.

Great. Nice quarter.

Barrett Blaschke, RBC Capital Markets.

Just one quick question, and it is going to be on DEP. Basically as you're looking out on your EPD budget, do you see DEP as being a beneficiary of maybe some drop down to help finance that?

I guess I would approach it two ways. As one, Randy did say that we have got a lot of flexibility at EPD in terms of how we finance our growth budget. But flashing back to February of last year when we were on the road show for Duncan Energy Partners we did say that while there was no promise of future drop downs that clearly it is unlikely that we would have taken Duncan Energy Partners public for a one-off transaction.

I think definitely it is part of the plan for Enterprise going forward to use Duncan Energy Partners to foster its growth, and that would entail drop downs as far as when that might happen, or order of magnitude. But we really don't have much to say about it right now.

Darren Horowitz, Raymond James.

My first question is on the NGL pipelines and services side. With Meeker 1 approximating full and Meeker 2 beginning here in the third quarter, and as you mentioned with Pioneer getting up to service here shortly, when we are trying to get a feel for the operating margin of all three in aggregate based on the forward pricing curve, can you give us a bit of a forecast as to how long do you think it is going to be for all three reach full capacity?

Repeat the question.

He's looking for what the ramp up time is for Meeker 1, 2 and Pioneer, when they might hit full capacity.

We expect to be into Meeker 2 -- I'm looking at Bill -- by September timeframe, meaning Meeker 2. As Mike said earlier, Pioneer will be -- we will have 500 million a day and a 750 million a day train the day we turn it on. We expect that to ramp up and be full I would think by the end of the year. We will be well into Meeker 2. I would expect we will have 300 million a day in Meeker 2 by the end of the year, and the other -- Meeker I and Pioneer both full.

Based on the forward curve today does it still look like all three of those will be about $350 million in operating margin? I think that was the range that was loosely quoted last quarter.

I think you can probably just take a look at the forward curve and come up with the numbers, but that may be a bit conservative.

Then my second question is on the Cameron oil highway, with it being at about 185,000 a day where do you think it is going to be running by the end of this year? I know there is a lot of opportunity for Poseidon and Neptune and [Shapely] to come online, but do you have any benchmark is to where you think you could be at the end of the next 12 months?

This is James. Based on BP and BHP's projections for Atlantis, the Cameron Highway has the potential to be around 300,000 barrels a day by the end of the year.

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

It is [Louis Shammey] from Zimmer Lucas. My question was regarding your growth CapEx for 2007, it seems that $2.1 billion number is pretty much higher than the $1.7 billion that was originally in your publicly disclosed budget. I was just wondering how much of that is due to let's say cost overruns and how much is due to let's say accelerating spending from '08 and beyond, and maybe new projects that were introduced over the course of the year?

I think one thing that you may be missing is the fact that as we progress through the years, we have more and more projects that we hadn't contemplated earlier. If you remember back in the beginning of 2007, I think we started off with a capital budget of about $1.2 billion. It is just that we keep finding more projects as we go on.

In terms of cost overruns, we've had some modest cost overruns at projects, but the biggest ones have been at the Meeker and Pioneer. On average, you are probably looking at cost overruns for the year of about let's call it 18%, and again with most of that being at Meeker and Pioneer. So not a good news there, but on a more positive note, the gross operating margin estimates for 2008 for Meeker and Pioneer are 38% over what we previously thought they were. Even with the cost overruns those assets are going to perform much better than we had anticipated.

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