Enterprise Products Partners LP (EPD) 2009 Q1 法說會逐字稿

Welcome to the Enterprise Products Partners and Duncan Energy Partners first-quarter earnings conference call. All participants will be in a listen-only mode until the question-and-answer session at the end. (Operator Instructions).

Today's conference is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Mr. Randy Burkhalter, Vice President of Investor Relations. Sir, you may begin.

Thank you, Becca. Good morning, and welcome to the Enterprise Products Partners and Duncan Energy Partners conference call to discuss first-quarter earnings. Mike Creel, President and CEO of Enterprise's General Partner, will begin the call, followed by Hank Bachmann, President and CEO of Duncan Energy Partners' General Partner. Hank will discuss Duncan Energy's first-quarter results.

Also in attendance for the call today are other members of our senior management team, including Dan Duncan, Chairman and Founder, and Jim Teague, our Executive Vice President and Chief Commercial Officer. Afterward, we will open the call up for your questions.

During this call will make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, based on the beliefs of the Company, as well as assumptions made by and information currently available to 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 it over to Mike.

Thanks, Randy, and good morning. Thanks for joining us today. Enterprise is off to a good start in 2009, with record gross operating margin and adjusted EBITDA in the first quarter supported by our record pipeline throughput. This record performance led to strong distributable cash flow of $343 million for the quarter, which provides 1.2 times coverage of the distribution declared with respect to the first quarter and enabled us to retain $56 million of cash flow in the quarter. Distributable cash flow this quarter was negatively affected by approximately $38 million for lost business and property damage repair expenses as a result of Hurricanes Gustav and Ike.

The recently declared quarterly distribution of $0.5375 per unit is 6% higher than the first quarter of last year and is our 19th consecutive distribution increase. We reported these strong results in spite of the tough economic environment and the lingering impacts of last year's hurricanes.

Enterprise set records in the first quarter of last year in terms of operating and financial performance, making the quarter-to-quarter comparisons all the more impressive.

We reported net income of $225 million, or $0.41 per unit, this quarter compared to $260 million, or $0.51 per unit, for the first quarter of last year. Net income for this quarter was negatively impacted by an estimated $21 million or, $0.05 per unit, due to business interruption related to the hurricanes. As I mentioned earlier, we had record gross operating margin of $549 million this quarter. Our NGL Pipelines & Services and Onshore Natural Gas Pipelines & Services segments posted increased gross operating margin this quarter compared to the first quarter of last year, supported by record pipeline throughput of 2.2 million barrels per day of NGLs, crude oil and petrochemicals and 9.5 trillion BTUs per day of natural gas.

We intend to continue our disciplined approach to maintaining adequate liquidity and funding of capital projects, debt service and distribution growth as we look forward to 2009 and beyond. Our liquidity at the end of March was approximately $940 million. We spent $373 million on growth capital projects in the first quarter, leaving about $500 million of growth CapEx to be spent during the remainder of the year. Our remaining major capital projects for this year are the Trinity River Basin lateral and the Barnett Shale and the Marathon gas-gathering pipeline and the Collbran Valley gas pipelines upstream of our Piceance gathering system in Colorado.

We have a number of attractive investment opportunities given our large geographic footprint and diversified business mix, and we intend to be deliberate in our approach to prudently funding our growth while maintaining an investment-grade balance sheet.

In March and April, we announced the completion of approximately $1.2 billion of capital projects, and of this, about $1.1 billion was spent prior to 2009. The Meeker II cryogenic gas processing plant began operations in February, while the Sherman Extension gas pipeline began commercial operations in March. And in April, we announced the completion of the Shenzi Oil Pipeline located in the Green Canyon area of the deepwater Gulf of Mexico.

The Meeker I and II plants are currently processing over 800 million cubic feet a day of natural gas and extracting approximately 45,000 barrels per day of NGLs. We expect the gas processing volumes to increase to over a Bcf in the third quarter as expansions to our Piceance Basin pipeline system are complete and the gas that is currently being produced -- gas that is currently being produced is delivered to our plant.

We completed the commissioning of the remainder of the 48,000-horsepower compression on the Sherman Extension Pipeline, which is currently flowing about 300 million cubic feet a day of natural gas. When the Gulf Crossing Pipeline is put into full service, we expect to begin increasing volumes to near a Bcf a day. We have long-term agreements with shippers for a Bcf a day of capacity on our Sherman Extension.

The Shenzi Oil Pipeline is currently flowing 30 to 35,000 barrels per day of crude oil from the BHP-operated Shenzi field. This 20-inch pipeline with 230,000 barrels per day of capacity connects to our Ship Shoal 332B platform, providing Shenzi producers access to the Cameron Highway and Poseidon pipelines.

In the second half of this year, we expect to begin operations on additional expansions to our Piceance Basin and Texas Intrastate Pipeline Systems, totaling approximately $500 million of capital.

Now I would like to take a few minutes to review some business highlights for the quarter. Our NGL Pipelines & Services segment performed very well this quarter, reporting gross operating margin of $343 million, 18% higher than the $290 million reported in the first quarter of last year. All three businesses in this segment reported higher gross operating margin, with the largest increase coming from our NGL Pipelines & Storage business. Gross operating margin from this business increased 40% to $120 million compared with $86 million in the first quarter of last year.

Higher volumes on the Dixie and Channel pipelines and Enterprise's NGL import/export facility located on the Houston ship channel, as well as lower NGLs import/export -- lower fuel costs on the Mid-America and Seminole Pipelines accounted for $17 million of the quarter-to-quarter increase in gross operating margin.

We also benefited from higher tariffs that went into effect in mid-2008 on the northern portion of the Mid-America Pipeline, and our increase in ownership in the Dixie pipeline to 100% effective August 2008 also helped.

Volumes associated with the NGL Pipelines & Storage business were a record 2 million barrels per day in the first quarter of 2009 compared to 1.8 million barrels per day in the same quarter of last year.

Our Gas Processing business reported gross operating margin of $195 million compared with $178 million for the first quarter of 2008. The majority of the 10% increase in quarter-to-quarter gross operating margin was from our Meeker and Pioneer natural gas processing plants. Higher sales margins from these plants, in part provided by our hedging activities and increased NGL production from the Pioneer plant, which began commercial operations in February of last year, were the primary reasons for the improvements.

Currently we have hedged approximately 79% of our 2009 Rockies equity NGL production and approximately 52% of our percent of proceeds production. Demand for NGLs and the operating rates of the ethylene industry have steadily increased since the effects of Hurricane Ike and the inventory destocking that took place in the fourth quarter of last year. Domestic ethylene production has increased to an annual rate of about 51 billion pounds, for an operating rate of 84%, according to April data published by the Hodson Report. This is a marked improvement from the 34 billion pounds and the 56% operating rate in December. For reference, annual ethylene production in 2008 was 51 billion pounds, and it was running at 79% of capacity, while rates for 2006 and 2007 were 55 billion pounds and 85% of capacity.

Ethane is still the preferred feedstock of ethylene crackers, followed by propane. Last month, ethane consumption averaged 756,000 barrels per day, with three ethylene crackers totaling 4.2 billion pounds per year of capacity temporarily shut down. Ethane demand increased to an estimated 829,000 barrels per day in April of this year.

Gross operating margin from our NGL Fractionation business increased to $29 million in the first quarter of 2009 compared with $25 million in the first quarter of 2008. This was primarily due to increased volumes and lower fuel costs at our Mont Belvieu and Hobbs fractionators.

Our Onshore Natural Gas Pipelines & Services segment reported gross operating margin of $116 million compared to $110 million for the first quarter of 2008. Our Natural Gas Marketing business reported a $31 million increase in gross operating margin this quarter compared to the first quarter of last year, primarily from higher sales volumes. This is our first winter season since we expanded this business. We began offering expanded services in the last few months to targeted customers, with an emphasis on higher-value winter-peaking services, which are seasonal in nature. The majority of the gross operating margin in this business is typically earned in the first and fourth quarters, so you shouldn't expect this same kind of performance in the second and third quarters.

Also contributing to the improvement in gross operating margin for this segment were higher volumes on the Piceance Basin gathering system and increased revenues from our Petal natural gas storage facility in Mississippi. A new storage cavern with 4.2 Bcf of subscribed capacity began service in the third quarter of last year.

Partially offsetting these increases was a $24 million decrease in gross operating margin from the San Juan gathering system due to lower revenues from transportation fees, index and natural gas prices and lower condensate sales. San Juan natural gas prices averaged $3.54 per MMBtu this quarter compared with $7.25 per MMBtu in the first quarter of last year.

Total Onshore Natural Gas transportation volumes increased 14% to a record 8 trillion BTUs per day, 1 trillion BTUs per day higher than the first quarter of 2008 and surpassing the previous record of 7.8 trillion BTUs per day set last quarter.

Our Independence Hub platform and trail pipeline contributed a record $56 million of gross operating margin to our Offshore Pipelines & Services segment this quarter on average gas throughput of 922 MMBtu's per day. That is $2 million higher than the first quarter of 2008, when we had average throughput of 867 MMBtu's per day. Independence has averaged more than 900 MMBtu's per day of throughput since last fall.

We estimate lost business from continuing effects of hurricanes will be in the range of $10 million to $15 million in the second quarter, before any recoveries from business interruption insurance. As you know, we have a 60-day and a 75-day deductible under our business interruption insurance with respect to windstorm damage to our onshore and offshore assets, respectively. We estimate that our potential claims under our business interruption insurance will be approximately $30 million as of the end of the first quarter 2009.

With that, let's review some financial items for the quarter. Depreciation and amortization expense and operating cost expenses for the first quarter of 2009 increased to $154 million from $134 million in the first quarter of last year, and that is primarily due to increased property plant and equipment from the additions of the Pioneer processing facility and the new Petal natural gas storage cavern in 2008, as well as the Meeker II processing plant, the Exxon treating facility and the Sherman Extension pipelines in the first quarter of 2009.

Also included in DD&A expense this quarter was approximately $6 million of nonrecurring charges from the increase in our asset retirement obligation liability for the abandonment of offshore pipeline laterals in the Green Canyon area and the Ship Shoal 331 platform.

G&A expense increased to $23 million this quarter from $21 million in the first quarter of last year, primarily due to a separation payment to a former employee.

We recorded $120 million of interest expense this quarter compared to $92 million in the first quarter of last year. Average debt outstanding increased to $9.2 billion this quarter from $7.2 billion in the first quarter of 2008 due to debt incurred to fund growth CapEx and working capital. We also had capitalized interest this quarter of $12.1 million compared with $18.1 million of capitalized interest in 2008.

The provision for income taxes increased to $15 million for the first quarter of 2009 from $4 million in the first quarter of last year. This increase was primarily due to higher corporate taxes for Dixie pipeline and higher Texas margin tax accruals.

We invested approximately $373 million in growth CapEx in the first quarter of this year and spent $20 million in sustaining CapEx. There were no large single project expenditures, just a number of smaller projects, including the Sherman Extension pipeline, the Meeker II project processing plant, both of which went into service this quarter; the Trinity River basin lateral; the Marathon gathering pipeline; the Pinedale pipeline; and the Shenzi Oil Pipeline.

As of the end of the first quarter of this year, we had $9.2 billion of debt, and including 100% of our $1.23 billion of hybrid debt securities, and it also includes our -- the $470 million of Duncan Energy Partners debt. We had liquidity of $940 million at the end of the quarter, which included availability under our credit facilities and unrestricted cash. We also had $245 million of restricted cash at the end of the quarter, primarily associated with our natural gas processing hedges.

Our floating interest-rate exposure was approximately 21% at the end of the quarter, and the weighted average term to maturity of our debt is approximately 14 years, with an effective average cost of about 5.6%.

Our consolidated debt at the end of the quarter totaled $9.25 billion. Adjusted EBITDA for the 12 months ended March 31, which is EBITDA minus equity earnings plus actual cash distributions received from unconsolidated affiliates, was $2 billion. Our consolidated leverage ratio of debt adjusted for 50% equity content in the hybrids to the last 12 months of adjusted EBITDA was 4.3 times at the end of the first quarter.

Leverage was negatively affected by approximately $144 million for hurricane effects in 2008 and the first quarter 2009. Excluding those impacts, the pro forma debt-to-adjusted-EBITDA would have been four times. Our leverage ratio is somewhat elevated due to debt balances reflecting a significant amount of capital costs for Sherman Extension, the Meeker II processing plant and Shenzi, which were completed in the first quarter, but not yet contributing meaningful EBITDA as of March 31.

We are pleased with the solid results and the strong cash flows generated by our assets this quarter, and we look forward to the remainder of 2009 as we continue to ramp up volumes and generate incremental cash flows from new projects put into service this quarter, and begin operations on smaller expansions to our Piceance Basin and Texas Intrastate Gas Pipeline Systems. These challenging times highlight the importance of having quality assets, a diversified business mix, a conservative financial approach, and, in our unbiased opinion, the best employees in the business.

And with that, I will turn the call over to Hank Bachmann to discuss Duncan Energy Partners' quarter.

Thank you, Mike. With a 50% increase in earnings and a 231% increase in distributable cash flow for the first quarter of 2009, Duncan Energy Partners is also off to a good start in 2009. These increases in net income and cash flow are primarily attributable to the midstream businesses that DEP acquired from Enterprise in December 2008.

For the first quarter of 2009, we reported net income attributable to DEP of $19.9 million, or $0.34 per common unit, on a fully-diluted basis, compared to $13.3 million, or $0.29 per common unit, on a fully-diluted basis for the first quarter of last year. Distributable cash flow increased to $29.5 million for the first quarter of 2009 compared to $8.9 million for the first quarter last year, primarily as a result of $21.6 million of cash distributions received from the midstream businesses acquired from Enterprise in December 2008.

On April 15, 2009, the Board of Directors of DEP's General Partner declared a quarterly cash distribution of $0.43 per common unit, a 4.9% increase from the $0.41 per common unit paid in the first quarter of 2008. Distributable cash flow for the quarter provided 1.2 times coverage of the increased cash distribution, which will be paid to our partners on May 8, 2009.

Now, I would like to briefly discuss the performance of our segments for the first quarter of 2009. As we discussed in our call last quarter, as a result of the midstream businesses acquired from Enterprise in December 2008, the financial and operating results for the partnership have been recast for reporting periods prior to the date of the December 2008 acquisition to include results from those midstream businesses for the entire reported periods, even though the partnership only owned these businesses since December 8, 2008.

For the first quarter of 2009, our Onshore Natural Gas Pipeline business segment reported gross operating margin of $38.3 million compared to $40.8 million for the first quarter of 2008. This quarter-to-quarter decrease was primarily attributable to a $3.4 million decrease in gross operating margin from the Acadian pipeline system as a result of lower sales margins, and $500,000 of hurricane-related property damage repair expenses.

This decline was offset in part by our Wilson natural gas storage facility, which had increased gross operating margin of approximately $800,000 due to higher storage reservation fees and the Partnership's Texas Intrastate Pipeline System, which reported an increase of $300,000 in gross operating margin from higher transportation volumes and fees.

Natural Gas Pipeline volumes increased 13% to 5.1 TBTUs per day compared to 4.5 trillion BTUs per day in the first quarter of 2008. As Mike mentioned earlier, our Sherman Extension began limited commercial operations in the first quarter, and we expect significant ramp-up of volumes and revenues when Boardwalk's Gulf Crossing pipeline is placed in service.

Our NGL Pipelines & Services business segment had gross operating margin of $22.1 million for the first quarter of 2009, up slightly from the $21.9 million earned in the first quarter of 2008. These numbers include an operational measurement loss of $1.3 million in the first quarter of 2009 compared to a measurement gain of $800,000 in the first quarter of 2008, both from the partnership's Mont Belvieu NGL storage complex. These operational measurement gains and losses are allocated to Enterprise, and reflected on our financial statements as an adjustment to noncontrolling parent interest.

The quarter-to-quarter increase in gross operating margin was primarily due to higher storage revenues as a result of increased excess throughput storage fees and volumes. The Partnership's fractionators in South Texas also reported an increase of approximately $100,000 in gross operating margin due to lower operating expenses.

NGL transportation volumes were 115,000 barrels per day in the first quarter of 2009 compared to 137,000 barrels per day in the first quarter of 2008. And NGL fractionation volumes were at 79,000 barrels per day for the first quarter of 2009 versus 82,000 barrels per day in the same quarter last year.

Construction on the expansion of our Shoup NGL fractionator in South Texas is progressing on time and is expected to be completed on budget by the end of the second quarter this year. This expansion will increase the fractionator's capacity by 10% to 77,000 barrels per day, which should also increase volumes on our South Texas NGL pipeline.

Sustaining capital expenditures on a 100% basis were $10.4 million for the first quarter of 2009 compared to $9.2 million for the first quarter of 2008. For the year, we estimate that we will spend approximately $55 million on sustaining capital expenditures, which compares to $54 million spent in 2008.

Interest expense increased $1 million to $3.8 million for the first quarter of 2009 due to higher average debt outstanding as a result of Duncan Energy's borrowing of $282 million to fund the cash portion of its December 2008 acquisition. Total debt principal outstanding at the end of the first quarter increased to $470 million from $188 million at the end of the first quarter last year as a result of the December borrowing.

We had total liquidity of approximately $133 million at March 31, 2009, which includes availability under our $300 million revolving credit facility, as well as unrestricted cash.

In closing, we are off to a good start in 2009, reporting solid distributable cash flow in the first quarter that provided strong coverage of the cash distributions. I'm looking forward to a successful 2009 for our partnership in terms of operational and financial performance.

Randy, we are now ready to take questions on Enterprise or Duncan Energy.

Okay, Becca. I think we are ready for questions now.

(Operator Instructions) Darren Horowitz, Raymond James.

Good morning, guys. Congratulations on the quarterly results. Mike, first question for you. From a CapEx standpoint, I know that the original budget was between $700 million and $800 million. And, as you mentioned, you spent about $370 million in the first quarter.

Now that TOPS was canceled, and I think that frees up about $200 million that you were going to spend this year, can you give us some more insight as to how the CapEx profile looks now? And more importantly, as you're looking to put that liquidity to use, what is highest on your priority list in terms of returns?

Really, the spending for TOPS this year was -- we thought was going to be close to $200 million -- maybe $180 million. But as we got closer to 2009 and the timeline started to slip, the CapEx number actually was much smaller, probably about half of that.

We do have a couple of other projects that we are pursuing we've not announced yet, so that is why our total CapEx is pushed up a bit. In terms of the returns on these projects, we really don't talk about returns on discrete projects. Suffice it to say that in this kind of an environment, we would expect that new projects would demand a higher return simply because of our cost of capital has gone up. We are also seeing somewhat less competition for some of these projects, which also helps.

Okay. From an acquisition standpoint or distressed asset standpoint, does anything look more attractive to you now relative to three or six months ago?

Well, relatively speaking, they are starting to look better, but still not attractive enough to attract a lot of attention. There are some distressed assets out there. It is not clear that the sellers realize what the clearing price might be for those assets. And frankly, with the capital markets the way they are, we've got a lot of projects on our slate to look at and to pick and choose from. And sometimes our organic growth projects, even in this environment, may be more attractive to us.

Okay. I appreciate it. And then just switching gears over to the NGL side of the business for a minute. Jim, for you, can you give us a little bit more insight as to what you are seeing in the NGL market? Do you get the sense that the petrochem industry bottomed in the fourth quarter? I mean, if you look at, as you talked about, just capacity utilization, it would certainly indicate so. But can you give us a little bit more insight as to the demand trends now? And taking that a step further, when you look at the fluctuations in the dollar, it looked like some of that import/export balance at the Houston Ship Channel helped you out this quarter. So any additional detail there would be helpful.

Yes, what we have seen -- and Mike stated it in his comments -- ethane, by far and away preferred feedstock relative to naphtha. I think the last time I looked, it was in the neighborhood of somewhere between $0.10 and a $0.15 a pound cheaper or lower cost of production of ethylene from methane. Consequently, you are seeing -- and Mike cited it again in his comments -- is the amount of ethane consumption we are seeing.

We are also seeing a lot of heavy crackers make moves to convert those furnaces to ethane rather than naphtha. Incidentally, this isn't unheard of. We've been here before. Same thing happened back in the early '80s. So I would expect that trend to continue.

From an ethylene perspective, what we've seen is polyethylene rates running extremely strong. And of course, those are for disposables, wraps, and what have you. I guess I am looking at -- is Jerry in here? And I guess on the propylene side, we are seeing some increase, but not like we've seen on the ethylene side. Is that fair?

Yes. Durable goods orders are -- our propylene orders are good, but not excellent.

So polyethylene driven, ethane preferred. And even when we were in the midst of December at the low operating rates -- historically, if you look at the trough periods for the ethylene industry, the trough is around 80%. Everything we put together this year, we put on our planning, was around an 80% run rate, with NGLs preferred, I guess, with a little north of 80% today.

We are pretty optimistic that ethane will remain preferred. We think in this 80% to 85% operating rate range, that is probably what we expect for the balance of the year.

Okay. Are you seeing anything different from the export docs in terms of fees per gallon? Are you still around $0.075, $0.08, or has it been better than that?

I think as we've gone into April, I think we are pushing $0.07. We've had to back off just a little bit, because seasonally, you've had -- we shouldn't be exporting anything right now. And in fact, we continue to export, not at the rates we did in the first quarter, but at strong rates compared to what we would have traditionally been. But I think we are probably in the $0.065, $0.07 a gallon range in terms of export fees.

Okay. I appreciate it. Thank you very much.

Ross Payne, Wachovia.

First question, it sounds like volumes are doing quite nicely on the NGL side of things. What percentage of capacity are you currently on Mid-America and Seminole?

Seminole is full. Mid-America on the Rocky Mountain system coming in, with a couple new plants ramping up over the next 30 days, we will probably be in the 250 range coming into Hobbs.

That is 250 out of a capacity of 275, Ross. And I think you heard Jim say Seminole is full.

Any impact from Texas Intrastate? Some of the other pipeline companies have talked about a modest decrease there.

You broke up, Ross.

You're breaking up, Ross.

Okay, a few of the other pipeline companies have talked about Texas Intrastate dropping off somewhat. Have you guys seen much of that? Natural gas volumes.

We haven't seen much decrease yet on our Texas Intrastate side. In fact, our volumes are ahead of a year ago, and we're expecting a slight increase -- late in the first quarter, the Sherman lateral started, which helped increase our volumes. But we expect those to continue to increase here in the second quarter and be in full service by late second quarter up to the Bcf a day of capacity and reservation fees.

Okay. Absent Sherman, is it pretty stable, though?

Yes, it has been very stable. In fact, we had about 90 million a day of firm roll off here in the first quarter, and it all got renewed. So we are not expecting to see any drop-off, even on the go-forward, on our firm contracts that did expire.

Okay, thanks. And Mike, hedging for 2010, any update there? Are you doing anything there?

On the NGL side or the interest rate side?

NGL side.

(Multiple speakers). We've got our model put together, Ross, and we are beginning the process of taking a hard look at 2010. I think we've done a little bit, but we are not in full swing yet.

Okay.

And I'm glad we aren't, because as demands have increased, we've seen margins expand pretty good over the last six weeks.

Okay. So no huge need there, potentially, to hedge like you did in '09. Okay. One final question. You mentioned $21 million of hurricane impact for this quarter. From a distributable cash flow standpoint, it was $38 million. Can you help us ascertain the difference there? Can you hear me?

17 was the cash expenditure --

Ross, we have $17 million of actual cash expenditures for property damage -- included in the -- that is the difference in your 21 and your 38.

Got you. Okay, guys. Great job. Thanks.

Michael Blum, Wachovia.

Good morning. As a couple of quick questions. One, can you give us what your average hedge price is in '09 and if you did that by discrete component?

No, Mike, we don't do that either -- but it's a good try.

Higher than it is today, Michael.

Also, did you experience any ethane rejection in the first quarter at all?

No, none.

Zero. Okay. And then can you just -- obviously, we all saw the press release, but can you speak a little bit about the decision to pull out of TOPS and the potential legislation that is out there? Thanks.

Really not a whole lot more to say that's in the press release. Frankly, we didn't believe that we would be able to get the necessary authorizations through commercially reasonable efforts. There was probably a difference of opinion among the Partners, and we elected our right to withdraw from the Partnership.

Okay. Thank you.

Sharon Lui, Wachovia.

Good morning. I guess Boardwalk this morning in their conference call, they indicated that they are operating at reduced throughput for Gulf Crossing. I was wondering if that impacts the Sherman Extension at all.

Sharon, this is Chris. Yes, it's a direct impact to us. Our major delivery point flowing north out of our Sherman Extension, which is the direction we aim the pipeline, is in the Gulf Crossing. So we are experiencing the same startup delays that they are. As of today, I think we are flowing about 250 million cubic feet a day off of the Sherman lateral into Gulf Crossing.

I didn't -- obviously, I didn't hear their call, but in talking to them behind the scenes, they think they are going to be more or less ramping up every month from here to somewhere during the first of June, we should be up at full operating capacity.

Okay. And I guess for DEP, what was the growth CapEx number for the quarter and the expectation for the year?

I'll have to get back to you, Sharon, on that one.

Okay. Thank you.

Steve Maresca, Morgan Stanley.

Good morning, gentlemen. A lot of my business questions have been touched upon, but just quickly, on the financing side, if we could just quickly go over it. You have $940 million of liquidity and you said you had $500 million of growth CapEx left for '09. Is that correct?

Yes, that's correct.

Are there any upcoming -- what is upcoming in term of debt maturities, whether '09 or '10?

The only thing that we really have is $500 million in -- October, we've got that debt maturity.

October of this year, right?

Right.

Okay. And then I guess what are your views on financing going forward, just sort of keep doing what you are doing, which has been successful? Or maybe you can touch upon that a little bit.

Yes, obviously, it is going to depend on our CapEx. To the extent that we are just funding what we see on the current horizon, I think we are in pretty good shape. We've got probably over $300 million that we will raise through our DRIP this year, and that includes the amount that TEPPCO is likely to invest. We've also got, based on the first quarter, we could have upwards of $200 million of retained cash flow. So we are in pretty good shape.

Got you. Okay, thanks a lot.

John Edwards, Morgan Keegan.

Good morning, everybody. Just on the sustaining CapEx number, this quarter, I think you spent $20 million. And what are you expecting for the full year? Are you still expecting around $180 million?

Yes, that's about right.

Okay. And I thought I heard you say thatin natural gas marketing that you had $31 million. Is that right?

Increase.

It was an increase of $31 million over first quarter of last year.

Okay, so what was the contribution from natural gas marketing?

It was $35 million, I think, give or take a little bit there.

What kind of run rate are you expecting there for the rest of the year then?

We don't give that kind of guidance. But bear in mind that the gas marketing group has only been together for less than two years. And a lot of the early months after their formation was spent getting systems in place, policies, procedures, getting the organization put together. So they are starting to produce some good results.

Yes, I would certainly put that in the category of good results.

And what you are not seeing, I think, from that number is the impact they are having on our physical assets and the volumes that are going through our pipes.

The number was $34 million, to be exact, for the first quarter. And as Mike said, the vast majority of that income will be in the first and fourth quarter. We do expense our storage facilities ratably over the 12 months and book the revenues in when we get the gas out of the ground in the first and fourth quarter. So don't take that number times four.

Okay.

And then the other side of the coin, when Mike talked about we did generate over $14 million in transportation revenues for our affiliated pipelines, on top of that number.

Okay. And then obviously, just going back to some of the questions I think Darren had on NGLs, so you are expecting then demand to stay around these current levels. I think you said 89% to 85% of capacity. Is that -- that seems surprisingly strong, given the headwinds facing industry.

I'm going to look to Jerry to help me. This is Jim. Look at what they are producing, though. They are producing polyethylene, which is plastic wraps and such as that. So I think Jerry said, while we see propylene demand increasing each month, what is really driving these crackers from my perspective is the demand for polyethylene, which are things like wraps, which are non-durables. And that is not necessarily in conflict with the headwinds of the economy as it --.

So is that -- are you expecting -- so I guess, in terms of mix and so on, is that what you would expect at this point in the cycle?

This is Dan Duncan. Let me give one color on that, too. If you go back about five years ago, the chemical industry was operating at 80% capacity, but the [heavy] cracker was running at 105%. And you can do that up for a year or 18 months, where the light-end crackers at that time was running about 60%, 65% capacity.

What you are seeing right today is your light-end crackers is running in excess of 100% of their capacity. The heavy-end crackers are now running at the 60%. And then the ratio of heavies versus light-end crackers, it is close to 50% to 60% either way. And it has some swing where you can move back and forth.

But what we're seeing right now, the light-end crackers are operating over 100% of capacity, and we think that -- and Jim and his people think that that will hold at least through 2009, and dependent on the ratio, here again, of crude oil versus natural gas, today you've got 10, 11, 12 times ratio. Anytime you are above a 7 ratio, the light-end crackers are going to go all out; the heavy-end crackers will back off.

Okay, so effectively, you are seeing the volumes flow through your system, because it is cheaper to source the ethanes from natural gas than it is from oil-based product.

That's correct.

Okay. All right. Fair enough. Appreciate the clarification on that. Thanks.

Louis Shamie, Zimmer Lucas.

Great results, everybody. My questions were regarding the Rockies business and Meeker and Pioneer plants. Just wanted a sense -- what was the realized frac spread at those plants in Q1?

Sorry, we don't give that out either. But you can take a look at kind of market data and calculate it. Bear in mind the fact that we had hedged a lot of our first-quarter production, though.

Got it. Do you disclose what the GOM was from those plants?

Not by plant, no.

Okay. And then if we look out to the remainder of the year, are the hedges at approximately the same level that they were struck for Q1?

Yes, pretty much.

Great. Okay, and that's all I have. Thanks.

Brian Zarahn, Barclays Capital.

Good morning. Just -- so to verify, you are saying that the drop in rig count is not really impacting your business too much. And you don't expect it to really impact the business in 2009.

Where we've seen drops in rig counts in the Rockies, we've still got quite a few wells that are waiting on our pipe to get there. In addition, we are doing some consolidation work, taking gas that are going through dew-point plants or whatever and redirecting that into our cryo plants.

I'm not going to tell you that dropping rigs is not going to change the amount of production. What I will tell you is that we've got gas waiting on us, and we are taking steps to ensure that our plants run by doing some diversion and consolidating.

Looking at the M&A front, this year we've seen some initial steps towards consolidation with Magellan and Legacy. Can you give your thoughts as to do you think consolidation may ramp up this year and next year, or we may just see more asset sales?

I certainly think that asset sales are likely, just given the number of packages that are out there today, and the number of distressed MLPs and C-Corps that are out there that you will see more and more of that.

With respect to consolidation, kind of the same tune that we've talked about before, is it is difficult to make those transactions work. Not to say they never -- you don't see any, but it is -- I wouldn't expect to see a wholesale consolidation of the MLP space.

I think the other part that you will see coming up is we have begin -- the industry has begin to see a log of your big, independent gas producers and crude oil producers -- not the major companies -- actually start in to doing some of their midstream business themselves, laying some pipelines, gathering lines, and even, to some extent, getting involved in takeaway pipelines.

I think now, with everybody's cost of capital going up, the margins have gone up, the majors probably will not go into doing any midstream assets if they feel they can get someone else to do it. I think at the same token, your big independents and your small independents on gas and crude oil, they won't take any of their money and go into midstream assets. So I think the midstream asset as a whole would have more opportunities for our gathering lines and long-haul pipelines than we had the last couple of years.

Appreciate the color.

(Operator Instructions) Gabe Moreen, Bank of America.

Hey, good morning, guys. Question for Chris, I think, following up on the natural gas marketing stuff. I was wondering in terms of the $35 million, whether there is sort of a ballpark breakout between how much of that was, let's say, asset optimization, storage roles, (inaudible) physical differentials versus, let's say, marketing supplier, producer gas, or more fee-based recurring activity.

I will say $29 million of that relates to our storage and transport activity. As you saw in the earnings, the vast majority of that income this month was cash earnings for the quarter, I mean -- very little mark-to-market impact. So we are running -- we are not running a spec book. We are not running a fixed price to outguess the market book. It is good old-fashioned blocking and tackling and making sure we keep the pipelines full as much as we can.

Okay. And then in terms of spreads widening here, going into the next storage-fill season, just trying to gauge kind of how big a commitment you are making and how much capital you are willing to invest here. Whether -- I don't know if you can give me a ballpark sense of how much storage you control, how much gas you have in storage. Just something to help me think about the magnitude of what your potential earnings are here.

I'll give you some ballpark numbers. We are going to have somewhere between 9 billion and 10 billion cubic feet of storage capacity. We are less than -- we're right about half full coming out of April. So you can kind of do the math to figure out what the working capital needs are on that.

And we are very attracted to the $2.40 spreads we are seeing to the back of the board, which aren't in any of our numbers yet. So we are very comfortable. Remember, like I said, we expense monthly, so second and third quarters will be pretty lean for us. They'll come back to fourth quarter and first quarter should be big numbers again, with the $2.40 contango spreads at the back of the board.

And you don't need as much storage here as you might somewhere else.

Right. The storage -- the hard storage is -- for us, we are not going to lease a lot of third-party storage. We've got -- between what we have and the use of how we use our storage, if we get to 15 Bcf, which is kind of where we have the Company aimed at over the next two or three years, so this isn't going to be a large capital intensive business.

Okay. Appreciate that color. And just following up on Dan's comments, I think earlier, in terms of some of the further opportunities in midstream -- midstream opportunities. Are you in discussions -- are you seeing a lot in the way of producers coming to you guys, saying, hey, look, we need some capital. Gas prices are low. We would be willing to have an arrangement here, outsource essentially our infrastructure systems. Just wondering if you are seeing an uptick in that activity, given how low gas prices are.

Yes, Gabe, you are seeing some of that. But we are also seeing opportunities for us to be a little bit more proactive going into some newer areas and try to get on the leading edge of some of these deals.

If you take a look at our CapEx profile for the rest of 2009 and really looking into 2010, it is much more heavily weighted towards the gas pipeline side of the business.

Got it. Thanks, Mike.

At this time, there are no further questions.

Okay, Becca. Thank you. Becca, would you give our listeners the replay information, please?

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