Enterprise Products Partners LP (EPD) 2008 Q1 法說會逐字稿

Good morning and thank you all for holding. I would like to remind parties that your lines have been placed on a listen-only mode until the question-and-answer session of today's conference call. The call is also 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. Thank you, Sir. You may begin.

Thank you, Holly. Good morning and welcome to the Enterprise Products Partners conference call to discuss earnings for the first quarter in 2008. 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 Dan Duncan, our Chairman and Founder, as well as other members of our senior management team. After the call we will open -- 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 and Exchange Act of 1934, based on the beliefs of the Company 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 the call.

With that, I'll turn the call over to Mike.

Good morning and thanks for joining us today as we discussed our first quarter results. It was another record quarter in terms of operating and financial performance. Our new assets, Independence Hub and Trail, the Meeker and Pioneer gas processing facilities, the Mid-America pipeline expansions and the Hobbs fractionator, as well as most of our other assets, had an exceptional quarter.

For the second consecutive quarter our pipelines transported in excess of 2 million barrels per day of natural gas liquids, crude oil and petrochemicals led by our Mid-America and Seminole pipelines, which transported more than 1 million barrels per day of NGLs. Our natural gas pipelines transported a record 9 trillion BTUs per day, 6% more than last quarter's previous record throughput of 8.5 trillion BTUs per day.

Also for the second quarter in a row we fractionated more than 400,000 barrels per day of natural gas liquids. These strong operating results contribute to record gross operating margin of $522 million, record adjusted EBITDA of $505 million and record distributable cash flow of $383 million. Distributable cash flow which increased 73% over the first quarter of 2007 provided 1.6 times coverage of the $0.5075 per unit that we declared with respect to the first quarter this year.

Each of our four business segments reported higher gross operating margin this quarter compared with the first quarter of last year. Our NGL Pipelines and Services segment benefited from strong overall demand for natural gas liquids from the petrochemical chemical and refining industries and from more normal winter weather in the Midwest and a corresponding increase in NGL prices. This segment reported a 52% increase in gross operating margin in the first quarter of 2008 to $290 million.

NGL demand for petrochemical production in the first quarter was strong with ethylene steam crackers producing at an annual rate of 54 billion pounds or an average operating rate of approximately 86% in the first quarter, despite a number of facilities being down for annual turnarounds. This high operating rate coupled with natural gas priced at about 47% of crude oil on a BTU basis resulted in ethane and propane continuing to be the preferred feed stocks.

According to the Hodgson report, ethane feed stock consumption by the U.S. ethylene industry increased 10% to an average of 800,000 barrels per day in the first quarter of 2008 and that compares with 729,000 barrels per day in the first quarter of last year. Ethylene production is currently running at about an annual rate of 56 billion pounds.

Our Meeker cryogenic gas processing facility was in operation for the entire quarter, extracting an average of 30,000 barrels per day of natural gas liquids. Our pioneer cryo gas processing facility began operations in February of 2008 and averaged 8,000 barrels per day of NGLs for the quarter while it was in the process of starting up.

Repairs to Pioneer from a small fire at the end of March were completed late last week and at the end of the week it was producing around 5 -- or processing around 580 million cubic feet per day of natural gas and extracting as much as 20,000 barrels per day of NGLs.

Together Meeker and Pioneer generated approximately $33 million of gross operating margin in the first quarter. This is after expensing the $5 million insurance deductible associated with the fire at Pioneer. As we said at our analyst meeting last month, we expect these two state-of-the-art facilities to generate significant gross operating margins in cash flows in 2008.

NGL pipelines volumes increased 14% or 223,000 barrels per day to 1.8 million barrels per day and American Seminole accounted for 190,000 barrels per day of this increase. These pipelines benefited from an increase in NGL production from the Meeker and Pioneer facilities and greater demand on the North System for propane used for commercial and residential fuel.

We just completed commissioning a new 68-mile 10-inch NGL pipeline that is now delivering ethane and propane from our Hobbs fractionator to an ethylene facility in Odessa, Texas.

Our Onshore Natural Gas Pipelines & Services business reported a 43% increase in gross operating margin to $110 million for the first quarter of this year. Most of our natural gas pipelines reported improved results from the first quarter of 2007. Gross operating margin for the Texas intrastate system was up $9 million. The San Juan system increased $4 million. Our share of the Jonah gas gathering system was up almost $5 million and the Akkadian, Permian, and [Insenol] systems were each up about $2 million to $3 million.

Natural gas storage reported an increase of $5 million on new capacity and pipeline fees at [Petal] and our Wilson's storage facility also showed improvement as it began to return to service.

In August of last year we increased capacity at our Petal Natural Gas storage facility by 1.6 billion cubic feet by converting an existing NGL storage cavern to natural gas service. This new capacity is fully subscribed and we expect to have another 5 bcf of storage capacity available in June of this year, as we near completion of converting an additional cavern at Petal.

Approximately 3.2 billion cubic feet of this capacity is leased. And arrangements are being finalized on the remaining capacity.

We filed an application with FERC in January of this year, seeking authorization to develop two additional 5 bcf storage caverns at Petal. We plan to connect our Petal storage facility with three new major and natural gas pipelines with an aggregate transportation capacity of 4.2 bcf per day when they become operational. The Southeast Supply Header this summer, the Gulf Crossing Southeast Expansion Pipeline in the second quarter 2008 and the Midcontinent Express Pipeline in March 2009. This will provide access to Barnett and [Woodford] Shale supplies and the markets into Florida.

Repairs are complete on the natural gas storage caverns at our Wilson's facility southwest of Houston and we expect it to return to its full working capacity of 6.4 bcf by mid 2008. Plans are underway to develop another storage cavern at the Wilson's facility that will add an additional 5 bcf of capacity by the second quarter of 2010. Over half of this capacity is under contract to Centerpoint. This project involves the construction of a new 30-inch pipeline that will provide an additional 400 million cubic feet a day of capacity into Enterprise's pipelines.

We have decided not to pursue the development of gas storage caverns at our Mont Belvieu facility to natural gas service, due to the expected increase in cost to develop those facilities. Our Offshore Pipelines and Services segment posted a 310% increase in gross operating margin this quarter to primarily to the Independence Project which accounted for $51 million of the $62 million improvement. This segment also benefited from higher tariffs on our [Ohio] system and increased crude oil deliveries by our Cameron Highway Oil Pipeline.

As you know, operations at Independence were suspended on April 8 due to a lead detected at the top flange of the flex joint that connects the pipeline to the platform. Repairs are ongoing and it is our expectation that the platform and pipeline will resume operations by mid-May. Based on the volumes that were flowing through the pipeline and the platform before it was suspended, we estimate the impact to gross operating margin to be about $400,000 per day due to the loss of volumetric fees. We will, however, continue to collect the monthly demand fee of $3.6 million from the producers.

Our Petrochemical segment turned in another good quarter with an 8% increase in gross operating margins of $41 million. Our butane (inaudible) business continued to perform well, aided by near-record volumes and a value of NGL byproducts. During the quarter we successfully accessed the capital markets raising $1.1 billion of five- and ten-year senior unsecured debt with an average coupon of 6.2%. We believe these financings, combined with cash flow retained for reinvestment, equity proceeds from our distribution reinvestment plan, and increased year-over-year cash flows from our new investments helps to insulate us from potential disruptions in the capital market as we fund our $1.6 billion growth capital expenditure budget for 2008.

As I said earlier, we are very pleased with our results for the first quarter and the contributions our new assets have made. The outlook for 2008 continues to look favorable for our services to both producers and consumers. We have a steady stream of new assets that are expected to begin operations during the remainder of this year and 2009; and we are already planning additional growth projects for 2010 and beyond.

With that I'll turn the call over to Randy Fowler for a financial review for the quarter.

Thank you. Good morning. As Mike mentioned earlier, Enterprise had another quarter of record performance supported by contributions from new capital projects that had been put in service in the last six months, as well as solid performance from most of our other assets.

In turning to the income statement, depreciation expense for the first quarter of 2008 increased to $134 million from $119 million for the first quarter of 2007. This is primarily due to increased Property, Plant and Equipment in service during the first quarter of 2008 compared to the first quarter 2007. When comparing back to the $139 million of depreciation expense for the fourth quarter 2007, we did see a reduction. This decrease is due to a change in the useful life of various assets, the largest being the Texas Intrastate Pipeline System.

In terms of G&A, G&A increased to $21 million this quarter from $17 million in the first quarter of last year. The increase was due primarily to the reclassification of some G&A expense for certain salaries that were previously a component in calculating gross operating margin. Now they are out of gross operating margin and actually included in G&A expense.

Also we saw part of the increase is due to the timing of the cost for the preparation and production of the K-1s, both for Enterprise products and, given the consolidation, for Duncan Energy Partners as well. This accounted for about $2 million of the increase.

G&A expense if you also note was about $21 million for the fourth quarter 2007. $80 million is probably a good annual run rate for 2008.

Interest expense this quarter was $92 million. This is up from $63 million for the first quarter of last year. Average debt outstanding including 100% of our Hybrid Securities was $7.2 billion for the first quarter of 2008, compared to $5.4 billion for the first quarter of 2007. Capitalized interest decreased about $2.5 million this quarter compared to the first quarter 2007, due to a decrease in the amount of expenditures in construction work in progress, as a result of the start up of projects such as Independence, Hobbes, and the Meeker and Pioneer cryo plants.

As Mike mentioned earlier, we did successfully complete accessing the capital markets in March by pricing $400 million of five-year senior notes at 5.65% coupon and $700 million of 10-year senior notes at a coupon of 6.5%. We used to proceeds from this offering, which closed on April 3, to temporarily reduce the balance outstanding under our multiyear $1.75 billion credit facility.

Looking at provision for income taxes, this decreased $5.1 million in the first quarter of 2008 versus the first quarter 2007. Corporate tax accruals decreased for the Dixie and Seminole pipelines due to lower pretax income; and deferred tax accruals for the Texas margin tax decreased due to a lower apportionment factor attributable to the state of Texas, which lowered the estimated expense.

We spent $600 million in growth capital during the first quarter and $25 million in sustaining capital expenditures for the quarter. The majority of the growth capital spent during the first quarter 2008 was attributable to the Sherman extension pipeline. The Meeker Two cryogenic plant to finish the construction of the Pioneer plant that began service in February and for the Shenzi oil pipeline that is on track for completion in 2009.

We expect to invest about $1.6 billion in growth capital projects in 2008.

Even though maintenance capital expenditures for the first quarter of 2008 were approximately $25 million, we still expect maintenance capital for the full year of 2008 to be approximately $200 million.

At March 31, 2008, we had $7.5 billion of debt outstanding, including 100% of our $1.25 billion of hybrid securities and consolidating $188 million of debt attributable to Duncan Energy Partners. EPD had liquidity of $1.6 billion after adjusting for the proceeds of our $1.1 billion of senior note offerings. Our floating interest rate exposure was approximately 12% at the end of the quarter after adjusting for the proceeds from the note offerings, and terminating about $450 million of fixed to floating swaps. The average life of our debt was approximately 18 years, and our average cost of debt is approximately 6.1%, and this includes 100% of the hybrid securities.

As Mike mentioned earlier, our adjusted EBITDA for the first quarter was a record $505 million. This is comprised of the EBITDA that was reconciled in our press release of $491 million and adjusting it by adding $14 million for the difference between the actual cash distributions and the equity earnings from unconsolidated affiliates. For the last 12 months, adjusted EBITDA for EPD and [DEP Consolidated] was $1,620,000,000.

Our consolidated leverage ratio of debt to last 12 months EBITDA at March 31, 2008, was approximately 4.16 times. This is based on consolidated debt at Enterprise and Duncan Energy of the $7.5 billion; and the Duncan $725 million for the average equity content described at a hybrid debt securities by the rating agencies.

We have improved this ratio from 4.3 times at the end of 2007. We expect our debt to EBITDA ratio to return to its normal range of 3.5 to 4 times as we realize a full 12 months of cash flow from our new capital projects.

Finally, we generated $383 million of distributable cash flow for the first quarter 2008 which provided 1.6 times coverage of our cash distribution for the quarter. We retained $126 million of distributable cash flow or about one-third of total distributable cash flow to reinvest back in the growth of the partnership, through investing in growth capital expenditures, and also to reduce debt.

Before I finish the call today, I would like to make a few comments about Duncan Energy Partners, a subsidiary of Enterprise. DEP reported net income today also of $6 million or $0.29 per unit for the first quarter 2008. The partnership reported the highest quarterly gross operating margin since its IPO in February of 2007, which was supported by increased natural gas volumes and sales margins on its [Acadian] natural gas pipeline in South Louisiana.

DEP's NGL and petrochemical storage business also benefited from higher storage fees and volumes. Distributable cash flow was $8.9 million for the first quarter 2008 which provided 1.05 times coverage of the quarterly distribution. The Board of Directors declared a quarterly distribution of $0.41 per unit with respect to the first quarter. DEP's commercial businesses continue to deliver solid results and we look forward to another successful year for this partnership.

Now I think we are ready to take questions.

[Holly], we are ready to take questions now.

(OPERATOR INSTRUCTIONS). Darren Horowitz.

Good morning. Darren Horowitz with Raymond James. Randy, my first question is on Independence hub. Based on your prepared remarks you had said that your expectation now is for mid-May which would peg the hub being down for about 45 days. As it relates to the demand charge, is there any clause that we should be aware of if it takes longer than that 45 days, like a force majeure where the potential for that demand charge could be suspended?

This is James Lytal. No, there isn't.

And just kind of doing the math, that really comes out, if it were as late as mid-May that would be 37 days. But we think that may be an outside date.

Okay. I appreciate it. Then switching gears over to Pioneer if I could. That was processed at about 550 Mmcf today before the plant went down due to the fire. And I know that a lot of those volumes were diverted to your silica plant so it's not really a matter of anything being lost, but more or less being deferred revenue.

Is there going to be any sort of impact there that we should expect in the second quarter surrounding Pioneer, as it relates to your overall operating margin?

I think with respect to the overall operating margin, comparing Pioneer being down for repairs versus it being up in full cryo and the downstream effect on Mid-America, you made the looking at $8 million or $9 million. But if you are comparing or trying to compare the second quarter with the first quarter, also bear in mind that that plant didn't even come up until February 1. So it was only up for two quarters and while it was in start-up mode it only averaged 8,000 barrels a day for the quarter.

Sure. Okay. Then my final question is on the NGL pipelines and services. At this point looking at where your processing margins are, can you help with a little bit more clarity as to quantifying what percentage of your gross operating margin is now exposed to commodity price or spot market volatility? I would imagine it's probably pretty low given your hedges, but can you just refresh our memory?

I tell you what, for the quarter I think we were looking at Meeker and Pioneer together were about $33 million of gross operating margin for the quarter.

I mean those are the really the two facilities where the majority of it is looking at keyhole processing. And then we've got as far as for the remainder of this year at Pioneer and Meeker, a good bit of that hedge (multiple speakers). Yes about 70, 75% of the margin hedged at those two facilities.

Thanks, Randy. I appreciate it.

Sharon Lui.

Good morning. It's Sharon Lui from Wachovia. These questions relate to DEP. Given that I guess you guys are not pursuing the conversion of the Mont Belvieu storage to natural gas, I was wondering if there is any potential organic growth opportunities at DEP?

As far as -- Gil, you want to handle as far as on the NGL storage side? What you are seeing there?

Yes. I mean, we're not totally giving up on storing other products out there. We are just saying that right now the natural gas doesn't fit for us because the capital cost has gotten out of hand for those kind of projects. We do see some smaller type projects that would be storing new products like refined products out there that would allow us for some organic growth.

I think there are also some projects on the Louisiana Intrastate Pipeline System that we are working on that should be beneficial.

Also I guess looking at potential drop-down, given the capital needs that EPD and DEP's higher cost of capital, what are your thoughts on potential drop-downs in '08?

I think that the benefit that we got from having issued the debt earlier in the year and from having the significant amount of retained cash flow and our balance sheet with these new assets coming online, we are actually in a position where we have got a lot of flexibility. I think with respect to drop-downs, we evaluate those from time to time and if it makes sense at some point in the future, we will consider it. But we are not in a position where we have to do something.

I think you are right with the -- the DEP price seems to have been beaten up unfairly and we think it is undervalued, but hopefully that is a short-lived phenomenon.

Okay. Thank you.

Leo Larkin. Please state your company name.

Leo Larkin with Standard & Poor's Equity Research.

I would just like to clarify the guidance for CapEx. Will total CapEx be $1.8 billion with $1.6 billion in growth and $200 million in based CapEx, as I understand that correctly?

Yes that's about right.

All right, and any guidance for DD&A for the full year?

Bear with me just a minute. I think what you are looking at for the first quarter, you can assume that it is going to increase from there with Meeker 2 coming online in the third quarter and some additional assets. But, yes, I think probably something in the $550 million to $560 million range for the full year.

Thank you.

[Noel Lerner].

Thank you. [Harts Capital]. Two real quick questions, in the press release talking about the equity NGL production where it increased by 31 million barrels per day or 1,000 barrels per day. It also goes on, it says that 30,000 were from Meeker and 8,000 from Pioneer which would seem to me that the legacy production fell by 10% or 7,000 barrels a day.

I was wondering if that is correct and if so if it is permanent? Or if something caused that and if it's permanent is that the beginning of a slide down in that production or is it just a step down?

No. The decrease that we sought in the first quarter was principally out of the South Louisiana assets.

And, Jim, if you have got any comment as far as --.

I think you had built some downtime on some of the offshore. I thought I remembered seeing some (multiple speakers) on some of the offshore flows that would come back. And that's right and then there was a turnaround at Pascagoula that was down quite some time, but it is back up now.

Okay so it is a temporary decrease?

Yes.

The other question I have and this is more long-term, relating to Meeker. I see that TransCanada is contemplating building, I think they call it the Pathfinder pipeline to take natural gas out of the Rockies starting from Meeker. I was just wondering if that creates any kind of opportunity for the Company for expansion out there if they decide to go ahead with that project?

I think the short answer is that any additional takeaway capacity for natural gas out of the Rocky Mountains encourages producers to produce more and that obviously gives rise to an opportunity for us to process the gas. It's hard to tell what the timing of that Pathfinder project is, and whether it in fact will be successful, but we certainly would like to be able to take advantage of it.

Okay, great. Thanks a lot.

(OPERATOR INSTRUCTIONS) Michael Blum. Please state your company name.

Wachovia. Good morning. Couple of questions, in the NGL business, it talked about strong petrochem demand and refinery demand, and I guess given the fact that we are in an economic slowdown and there have been issues with refineries and the crack spread, can you just reconcile the results that you are seeing in your business with what, perhaps, others are seeing across the economy?

We will let Jim [Teague] field this one.

Let's speak to the petrochemicals. I think that given that they use about 56% of the NGLs produced, the big driver, I think what you've seen is with a gas to crude -- what did we say it was in the first quarter? 47%? (multiple speakers)

47%, yes.

And the weak dollar, you are seeing a lot of exports out of petrochemicals that you would not expect under normal circumstances. Those exports have been fairly robust and have been supportive of the business.

And then, I think no one might answer this or asked this, but you saw -- you had mentioned some declines and offshore with [Viosceno], Phoenix, and Falcon. Can you just comment what is going on there and if that's a permanent decline or is there something else happening?

At Viosceno, we have seen declines on existing fields, but I can tell you we are working on deals that would backstop pretty much the declines we've seen here recently. So -- but a lot of those fields have been on for over 10 years and we are starting to see the declines at the end of the life of the fields.

But we are seen additional growing around Viosceno at Phoenix. We are seeing some declines although I know the producers are going to do some work to get the volumes back up. And Phoenix also is in an area where we see a lot of upside for the future because of some drilling that is going on in deeper waters to the south of Phoenix.

Let me give a little bit of color to the answer that Jim Teague gave you. You go back to the deal, metro gas liquid relative to crude oil and natural gas. The slowdown in the economy of petrochemicals, I think, is definitely going to happen. The slowdown in the economy of refined products probably I think that is definitely going to slow down too. The demand for natural gas liquid because of its price then, based relative to natural gas, relative to crude oil there will not be a slowdown that we see right now in natural gas liquid.

The amount of money that the petrochemicals can make off of natural gas liquid mainly butanes and propanes and ethanes is a lot higher than they can make off a derivative of crude oil. So when you are talking about the 86% capacity that petrochemicals used in first quarter, they used over 105% capacity on a natural gas liquid and they are using probably in the 70% capacity of what we call the heavy crackers.

That's also the same on the (inaudible) products, motor gasoline and the products that you get from the refineries. The amount of money that the refineries and petrochemicals can make off of natural gas liquid is a lot higher on utilizing 100% of all natural gas liquid, relative to using the same derivatives on crude oil. So maybe when you put your numbers together, add those two factors to the deal.

Thank you. That's very helpful.

John Edwards. Please state your company name.

John Edwards with Morgan Keegan & Co. Great quarter. Congratulations. Just, Randy, quickly can you -- what's the amount you've got available on your revolvers now?

After you come in and adjust for the proceeds from the $1.1 billion in the notes offering between unrestricted cash and availability under the revolver, we are at about $1.6 billion at the end of the quarter.

So that's your -- that's the capacity unavailable?

Yes.

And then remind me what is the total? What's that total line?

Yes, the total credit facility is $1.75 billion.

Maybe Mr. Duncan could share his thoughts on distribution growth given how strong the coverage was this quarter, and given how much retained cash against your goal should -- could we --? I mean is it safe to assume that you will accelerate distribution growth later in the coming quarters?

In the press release we've that our objective is to currently end the year at a run rates of $2.12 on an annualized basis. We hate to get too ahead of ourselves. We recognize the benefit of retaining some of this cash flow for reinvestment to limit our need to go out to the equity markets, particularly in a market that is uncertain, as this one is.

But as we go through the year and look at what we expect to see in 2009, we will evaluate what the appropriate level of distribution should be.

Okay, all right. It's just that you are obviously well on your way to meeting that target. That was the context I was asking on.

(inaudible).

That's all I had. Thank you very much. Great quarter.

[Peter St. Denis]. Please state your company name.

Yes, sure. [Markson] International. On the gathering side how much do you guys make on average per Mcf? Then I have a question about processing.

It really depends on the area. We've got gathering offshore. We've got gathering in the Rocky Mountains. We've got it in Texas, New Mexico, Louisiana to some extent.

But I mean, do you have an average?

There's not a general rule of thumb that you can use across all of our systems.

This is James Lytal. It varies depending on the service we provide. A system like San Juan Basin where there's a lot of compression, we provide a very low-pressure system and we -- and it is one that has been performing well. A lot of the transportation is based on a percentage of the price. So with the higher price we are getting higher fees, and on a portion of it we get a percentage of the liquids for processing. But a system like that tends to have higher fees because of all the services you provide.

And that is kind of what I'm getting at. Like how much do you benefit from higher prices on the gathering side? I mean, when you talk about you get a percentage of the price or a percentage of the liquid, I mean what sort of is your leverage on a gathering side to higher natural gas prices?

Well, we've talked about that on other calls and one thing to bear in mind is that, while we do benefit on the gathering side, we also have higher fuel costs and [BTR] costs for our plant. Those two positions largely offset each other and that is why we've talked in the past about having this natural hedge with the respect to natural gas.

And that's where you know, as far as on the gathering side we may be long 42 to 45 million cubic feet a day but as Mike said when you look at the fuel for our pipelines and some of our plants, it runs about 40 -- 40 million today. So at the margin we may be net long, but net long about 5 million a day.

How about on the processing side? What percentage of your contracts are service fees versus percentage of proceeds, equity ownership?

Here we go. This is Jim Teague. I think as Randy stated earlier that our processing plants in the Rockies are all [keep] whole. If you remember we've built a lot of extraction flexibility in that to be able to manage and mitigate that risk. But that's all keep whole. That is about 1.3 bcf a day today.

And our plants in south Louisiana, they are by and large a hybrid. It has got a keep whole component with a floor and a cap where we don't have any downside risk. We give up part of the upside opportunity. Other than -- and then we have some modest keep whole contracts in south Texas. The big exposure is in Meeker and Pioneer in the Rockies.

And we have talked about the exposure there. We knew going in we were building those plants that we had keep whole contracts and that is white we've built those plants to be extremely flexible. So for the two plants, we can extract as much as 30,000 to 35,000 barrels a day of natural gas liquids. But we can also, if the economics aren't attractive, we can dial that down to something closer to 1500 or 2000 barrels per day per plant. So we have ways to mitigate that exposure.

Okay. Guess that's it. Who -- and on the gathering side where do you see the most growth I guess on the processing side as well?

Obviously we think it is in the Rockies seen as how we are spending quite a lot of money up there. We are expanding the Jonah gathering system. We will have that up to 3.3 bcf a day, billed by the end of the year.

2.4 going to 2.6.

Okay and then of course we've bought the Piceance Creek Gathering System. We are running about 550 a day on that right now. It has got a capacity of [B and a half] and we are adding contracts as we speak. Those are the two [Q1s], I can't speak to (multiple speakers).

And then on the -- in terms of the processing we will soon have a 200 million a day conditioning plant that we are building to support our Exxon contract in place by the end of the year. By the end of the year we will have another 650 million a day trained with our Meeker 2. So all in, we will have in the Rockies -- just over 2 bcf a day of processing capacity ordered by the gathering in Piceance Creek and Jonah.

Let me add also the [chairman] extension to one of our long haul pipelines. That would be completed, I think, in fourth quarter of this year. That's a $400 million plus or minus pipeline so, and the expansion of our Petal storage that we allowed probably a pipeline from our Petal storage up to tie in more people. We think long-range, if you are talking about the expansion capability, it's the general projects that we have on our value chain of natural gas liquids but also one of our goals is we have been going for the last two or three years is get in more and more into long haul pipelines.

Our import export terminal, we've doubled it this year. So we can -- we will have a lot of products coming in. You bring on more gas in the Persian Arabian Gulf area. I think when the Tokyo -- when they had their earthquakes in Tokyo two years ago, those -- I think those nuclear plants will be back on in early 2009. That will put a lot more LNG back on the market over here and in effect I think we get a lot of natural gas liquids from the international market, that would basically come into the United States at that time.

The natural gas liquids in the United States is a kind of a last resort deal. If the rest of the world doesn't want an NGL then they come to the United States and that is also true of natural gas. So we see a lot of growth into our long-range business plans when we are talking international and all the different facilities that we're in.

Okay. Thank you.

Lewis [Shammie].

It's Lewis Shammie from Zimmer Lucas Partners. Excellent quarter. My question was regarding the frac spread in the Rockies on your Meeker and Pioneer plants. I was just wondering how that compares to the spread that you had locked in with your hedge -- with your hedging? Whether that -- whether you outperformed that hedge number or not?

What we locked in and this will be adjusted for composition. What we locked in looking forward in the second quarter I guess it's okay -- is a composite margin of about $0.565 adjusted for the fact that you that ethane at 60 -- around 58% of the stream. The market today would suggest that that's going for something close to $0.65. It narrows as you get toward the end of the year.

I think from our standpoint we've always maintained a pretty conservative position. The margins were very attractive when we lock them in. We are happy with them. We've extended some of those hedges expanding out into 2009. So we hate to be pigs and try to get that last nickel. We would much rather be conservative and make sure that we have a prudent financial structure.

Great and just to confirm it, when you are doing that you are locking in both the NGL price and the gas price on equivalent volumes?

Right. We are locking -- we are doing the margins. We are buying the gas and selling the liquids.

just to get a picture of the operating expenses on Meeker and Pioneer, I guess on a per gallon or maybe it makes more sense on a per Mcf basis, how does that ramp up as you increase production?

I don't think we are prepared to talk about margins at specific plants, but, obviously, the more throughput you've got, the lower per unit costs on the fixed costs.

That makes sense. Thank you.

Thanks for joining us on the call today. As you can tell, we've got a pretty exciting story. We've talked to you for some time now about all of the new assets that we had that were going into service. We still have more to come. But certainly with the first quarter you can start to see the results in terms of cash flow. We are pretty excited about the balance in 2008 and, again, we are very excited about the project we have that will be going into service in 2009 and beyond.

So we think we've got a great story. And with that, Randy, do you want to wrap it up?

Yes. Holly, would you give our participants the replay information, please?

Yes. If you would like to dial into the replay you may dial 866-360-7726. International participants should dial 203-369-0178.

Okay. Thank you, Holly. Thank you for joining us today and have a good day.

Thank you. This does conclude today's conference call. You may disconnect at this time. Have a great day.