Enterprise Products Partners LP (EPD) 2015 Q2 法說會逐字稿

Good morning. My name is Kelly, and I will be your conference operator today. At this time, I would like to welcome, everyone to the Enterprise second-quarter earnings conference call.

(Operator Instructions) I would now like to turn the conference over to Randy Burkhalter. Sir, you may begin your conference.

Thank you, Kelly. Good morning, everyone and welcome to the Enterprise Products second-quarter earnings call. Our speakers for the call will be Mike Creel, Chief Executive Officer of Enterprise's general partner, followed by Jim Teague, Chief Operating Officer and then Randy Fowler, Chief Administrative Officer. Other members of our senior management team are also in attendance for the call today. 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 team. Although Management believes that the expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And with that, I will turn the call over to Mike Creel.

Thanks, Randy. This morning we reported solid second-quarter results for what is typically a seasonally weak quarter. We had record NGL, crude oil, petrochemical and refined products transportation volumes this quarter. Crude oil pipeline volumes increased 13% to a record 1.5 million barrels per day. Refined products and petrochemical transportation volumes increased 9% to a record 875,000 barrels per day. NGL transportation volumes increased 4% to a record 3 million barrels per day, which includes an 18% increase in LPG export volumes to a record 288,000 barrels per day. We also benefited from contributions from recently acquired and newly constructed assets that began service during the last 12 months and from lower operating expenses. This led to a 3% increase in gross operating margin and a 5% increase in distributable cash flow over the second-quarter last year excluding proceeds from asset sales.

Earlier this month we announced an increase in our quarterly cash distribution to $0.38 per unit with respect to the second quarter of 2015, a 5.6% increase over the distribution declared with respect to the second quarter of last year. This is our 44th consecutive quarterly increase and the 53rd increase since our IPO in July of 1998. Enterprise generated $988 million in distributable cash flow for the quarter providing 1.3 times coverage of cash distribution. We retained $238 million of our cash flow to reinvest in the growth of the partnership and reduce our reliance on the capital markets. And for the first six months of this year we retained $532 million of distributable cash flow. Gross operating margin from our NGL pipelines and services segment was $651 million for the second quarter of this year compared to $681 million for the second quarter of last year. Gross operating margin from our natural gas processing and our related NGL marketing business decreased $45 million or 17%. Equity NGL production declined 9% from reduced ethane volumes. Fee-based natural gas processing volumes were essentially flat with 4.9 billion cubic feet per day for both quarters.

Gross operating margin from our NGL pipelines and storage business increased $51 million or 19% to $312 million this quarter with $21 million of this increase coming from the NGL export terminal on the Houston Ship Channel and the related channel pipeline. Included in this increase was $14 million associated with assets acquired in the Oiltanking transaction with the remainder of the increase due to higher LPG export volumes as a result of the expansion we completed in March of this year. We are on schedule to add another 7.5 million barrels a month of capacity by the end of the year, which will increase our total LPG export loading capacity to approximately 16 million barrels per month. Collectively, gross operating margin for the Mid-America Seminole and Chaparral NGL pipelines and related terminals increased by $17 million. This was primarily due to higher transportation tariffs and other fees and lower operating expenses. These increases were partially offset by a decrease in gross operating margin from lower transportation volumes, due in part to lower ethane recoveries. Gross operating margin from our NGL fractionation business decreased $35 million compared to the second quarter of last year due to lower volumes and revenues from product blending.

Total fractionation volumes decreased 23,000 barrels per day, primarily due to lower ethane recoveries. Gross operating margin from the crude oil pipelines and services segment increased $52 million, or 28% to a near record $236 million for the quarter. Gross operating margin for this segment included $37 million from assets that were part of the Oiltanking acquisition and a $28 million increase from our ownership interest in the Seaway crude oil pipeline. The new Seaway loop pipeline began commercial service in December of last year. Net to our interest, transportation volumes on Seaway increased 32% to 153,000 barrels per day compared with the second quarter of last year. Our natural gas pipelines and services segment reported gross operating margin of $191 million compared to $203 million for the second quarter of 2014. One of the primary reasons for this decrease was our San Juan natural gas gathering system which had lower gathering fees that are indexed to natural gas prices and reduced condensate and natural gas sales margins.

Gross operating margin from our petrochemical and refined products services segment increased 12%, or $20 million to $181 million for the quarter. Our refined products pipelines and related activities reported a $20 million increase in gross operating margin compared with the second quarter of last year. Our refined products marine terminals at Beaumont and the Houston Ship Channel accounted for $18 million of this increase. These assets include a marine terminal in Beaumont that we reactivated in May of 2014 and marine facilities acquired with the Oiltanking transaction. Gross operating margin from our octane enhancement and high purity isobutylene business increased $22 million due to higher sales volumes and margins. Partially offsetting these increases was an $8 million decrease in gross operating margin from our propylene fractionation business due to increased maintenance expenses and a $13 million reduction from our butane isomerization business which had lower byproduct sales and lower volumes.

We continue to realize synergies from the integration of Oiltanking with our system. We also completed an important transaction in July with the acquisition of the Eagle Ford midstream assets from Pioneer Natural Resources and Reliance Holdings. This transaction expands our relationship with Pioneer and Reliance through long-term volume commitments and acreage dedications in the rich part of the Eagle Ford. We expect additional upside from being able to offer available capacity on these assets to other producers. We closed on the sale of our offshore Gulf of Mexico pipelines and services business to Genesis last week and received $1.5 billion in proceeds. We elected to redeploy capital from the Gulf of Mexico into growth opportunities in the Eagle Ford and the Permian regions that integrate with our system and are expected to bring incremental volumes to our existing downstream assets. We believe we will earn higher returns on capital from this redeployment and it's consistent with our disciplined approach to growth.

In the last three quarters we have completed $9 billion of acquisitions and capital growth projects and we have $8.3 billion of projects currently under construction that will begin commercial operations between now and 2017. This includes $2.4 billion of projects that are scheduled to be completed in the second half of this year. We continue to see many additional growth opportunities, both organic growth projects and acquisitions, and as they advance to the committed stage, we will provide information about them. Our recent acquisitions and announced organic projects provide clear visibility to increased cash flows to support future distribution growth. Since the beginning of the year, we believe for technical reasons the market is has not rewarded us for our efforts. But we will continue to execute our strategies and strive to deliver solid financial results. We're confident that the dedicated team at Enterprise will continue to find and execute new opportunities to grow our partnership and add value for our investors as we extend our strong track record of increasing the quarterly distribution paid to investors. And with that I'll turn the call over to Jim.

Thank you, Mike. As Mike said, this quarter our business has performed well in a pretty tough environment. We continue to benefit from the size of our footprint, our diversity, our focus on both supplies and markets across multiple commodities, flexibility in the type of assets we operate, and last but not least, we continue to benefit from our integrated business model. Having a system the size of ours, as diverse as ours, as flexible as ours requires having people that know not only the markets they participate in but also understand our system�s capabilities to capture what the market offers each day. Consequently, every day at Enterprise starts with a meeting at 8:00 led by our marketing group and including our business units and our operations and distribution teams determining the opportunities on the Enterprise system map that day.

For us that's one meeting, one map and one P&L. We might use trucks or rail to pick up dislocated heavily discounted barrels, we blend in order to achieve full value for the products that we handle, we optimize the batches in our pipeline both in terms of product and direction and we adjust how we are running plants to meet market conditions. In addition to listening to markets and reacting, we anticipate for example, we anticipate and then position ourselves to capture potential opportunities that we think may develop in the future. The classic example is we were well-positioned with our brine, and we did that in advance with our brine inventories that has allowed us to capture quite a lot of contango in this market through the first half of the year. In short, we pay attention to the details. Understanding the details and everybody being on the same page is what helps us to deliver the consistent results.

We own a lot of steel. You hear us calling it a system. It's our people that make all that steel a system. This kind of environment creates opportunities that are different than you're used to. Our people know how to capture those opportunities. We also know that focusing on the longer-term is equally important.

This quarter in the midst of this downturn we announced a large diameter crude oil and condensate pipeline from the Permian to Houston. We announced other gas processing plant in the Permian, this one being built with Oxy as a partner. We announced upgrades and expansions to our propylene pipeline systems. We announced additional commitments for Aegis taking those comments to north of 300,000 barrels a day. And as Mike said, we announced and closed on the acquisition of the Eagle Ford midstream assets. You look at what we announced this year, they include natural gas, natural gas liquids, crude oil and petrochemicals, and those projects are focused some on producers, and some on end-users. This quarter we were able to contract for that new Permian crude pipeline because customers are beginning to realize they need more than a crude line. They know that in addition to crude oil transportation, Enterprise provides them significant flow assurance and market choices with all the tools we have supporting the new pipeline. We were able to offer producers terminals on both ends of the pipe, we can batch and segregate, and we have the critical last mile crude oil distribution system to deliver their barrels to refineries along the Gulf Coast. And finally, we offer them a lot of access to the water.

Also I believe that the sellers of the Eagle Ford assets we closed this quarter wanted them in our hands because their experience with us was that we have the tools that give them reliability and market choices. In addition to the processing plant we announced in the Delaware, construction continues on the south Eddy plants that we announced late last year, along with the gathering and take away. When completed, we'll have 600 million a day of cryo processing the Permian. We like the Delaware Basin. We believe it has tremendous potential relative to stack pays, its favorable location to markets, and a strong producer base. We expect to grow significantly in this area in the future.

Moving to other side of the state, we're making progress on our Panola NGL pipeline expansion near Carthage. That's a joint venture with Western Gas, DCP and Mark West and it should be online at the first quarter of next year. Besides the new crude pipeline out of the Permian, we're close to completing our Rancho II pipeline. This is a 36-inch pipeline from Sealy into ECHO that will have well over 1 million barrels a day of capacity and is extremely strategic to our crude activities in both the Eagle Ford and the Permian as well as on the Houston Ship Channel. With the lower prices US producers are looking further down the value chain, and we're building the systems that allow them to control their own destinies versus the old business model of handing it off to a crude oil pipeline or a group of aggregators. Both of the new of the new large projects we announced this quarter, the Permian and the acquisition of Permian pipe and the acquisition in the Eagle Ford will rely on the new Rancho line as a critical link to our Gulf Coast distribution system.

Work continues on the PDH plant at Mont Belvieu. The major structural work and vessel work is well underway, and the massive piping phase that goes with a project like this has now been started. Completion is still expected in the second half of next year. This project is a good fit and we never hesitate to say it's 100% backed by long-term contracts with investment-grade companies.

Work also continues, as Mike said, on our export -- LPG exports. Another bright spot in the LPG exports subject is the global demand for US butane. We are exporting growing volumes of butane from our docks. US natural gas liquids, not just propane are rapidly evolving to global markets. Our ethane export facility is progressing well and is on schedule for the second quarter of next year. Meanwhile, significant ethane shipping capacity is being built and the world is trying to calibrate to the US now having plentiful ethane available for export. We are 80% contracted for this facility. We have negotiations underway with a number of the parties, and I'm confident that we'll be sold out by the time it comes up.

As Mike mentioned, this quarter we sold our offshore assets to Genesis. Selling assets is not something we do a lot of. And we don't take it lightly, and it's something that we thought long and hard. But for us we haven't been totally satisfied with the level of integration of those assets with our other systems and the long lead times for some of these projects often require significant patience, and we're not real long on patience. Coupled with the level of opportunities we seek onshore, we felt it was appropriate to sell. We sold it to someone that this is part of their core, and we think the assets and the people that support them are in good hands over at Genesis.

In closing, we continue to have a low price environment and frankly, I don't have a clue which way commodity prices are going. We have a lot of smart people come in and tell us why oil prices are coming off, meanwhile other smart people come in and tell us why they're going up, which tells me neither one of them know. We can see valid arguments for each, but it does seem to us that when oil clearly gets below its replacement value, plentiful, cheap money quickly becomes a buyer. You look at natural gas, the amount of natural gas demand coming on over the next three years is undeniable and it's impressive. In NGLs, there's sizable new markets, including petrochemicals and exports are being added. So yes, we're in a tough environment, but we're confident we're going to continue to deliver and we believe that the future is bright. With that, I'll turn it over to Randy.

Thank you, Jim. I'd like to discuss some additional income items for the quarter as well as capitalization. Net income was $557 million for the second quarter of 2015, or $0.28 per unit on a fully diluted basis. Net income and fully diluted EPU were reduced by non-cash impairment charges and related charges of $119 million, or around $0.06 per unit. This included $95 million of charges related to our offshore business and $17 million related to certain legacy segments of TEPPCO's South Texas crude oil pipeline. We had an $8 million benefit from income taxes this quarter compared to $10 million of expense for the second quarter of last year. The benefit was primarily due to a decrease in our deferred tax liability as a result of the enactment of a lower tax rate with respect to the Texas margin tax. Total capital spending in the second quarter of 2015 was $888 million, which includes $61 million of sustaining CapEx. For the first six months of 2015, sustaining capital expenditures were $112 million. We currently expect sustaining capital expenditures for the full-year of 2015 to be in the range of $300 million to $325 million.

Adjusted EBITDA for the 12 months ended June 30, 2015, including EBITDA associated with Oiltanking for that period, was $5.3 billion. Our consolidated leverage ratio of net debt to adjusted EBITDA was 3.9 times, for that period after adjusting for 50% equity treatment for the hybrid debt securities, and this also reduced debt by $550 million for unrestricted cash on hand at June 30, 2015. Based on our construction cycle, we still expect debt to adjusted EBITDA to peak around 4.25 times before returning to our historical range of 3.5 to 4 times after some of these large organic projects are completed and generating EBITDA. In May, we issued $2.5 billion of senior unsecured notes in an offering that generated almost $9 billion of investor demand. Given this level of interest, we were able to upsize the transaction and eliminate our need to access the debt capital markets for the remainder of the year. We thank our debt investors for this level of continuing support.

At June 30, 2015 the average life of our debt is 14.6 years using the first call date for the hybrids, and our effective average cost of debt was down to 4.8%. At the end of June we had consolidated liquidity of $5.6 billion, which included available borrowing capacity under our credit facilities. Adjusted for the payment of the $1.15 billion for the first installment of the EFS Midstream acquisition, and our receipt of $1.5 billion in proceeds from the sale of the offshore business, our liquidity was approximately $6 billion. In addition to the $238 million of retained distributable cash flow in the second quarter, we raised approximately $476 million through our ATM program, distribution reinvestment plan, and employee unit purchase plan also. This included $50 million of net proceeds from affiliates of privately held EPCO where they acquired units through the distribution reinvestment plan. As we indicated in our earnings press release, by redeploying the $1.5 billion of proceeds from the sale of the offshore business, we do not need to raise equity through the ATM program or overnight deals for the remainder of the year based on our current expectations. And with that, Randy, I'll turn it over to you for questions.

Okay. Thank you, Randy. Kelly, we're ready to take questions from our listeners.

(Operator Instructions)

Ted Durbin.

Let's start with the Eagle Ford, please and the assets. I'm just wondering if you can give us a sense of the utilization rate on those assets right now, where you can take that to and how that might impact the multiple that you paid on a cash flow basis?

Into 260, 280, plus our legacy which is 15 so probably (multiple speakers) EFS? I don't know.

We'd have to take a look at that and get back to you. It's different for each of the CGPs but we have spare capacity and we're now actively marketing that the third parties. We're finding that we're probably much better received when we go out to market it to other producers than a producer marketing it to a producer. And we're pretty high on the fact that we're going to bring a lot third-party business into that system.

Okay. I guess we'll wait and see on that one. Shifting over the question on the Midland to Sealy crude line, can you give us an update on the contracting status of that? I realize it's still early days, but of the 450,000 are you half full? How far along are you on that?

We're not quite half full, but we've got about four people we're dealing with. I expect three of those to come across the finish line pretty quick.

And any sense right now on the tariff you might need to make that an economic project?

It's an economic project with what we've got today.

What you've got today? Great. I'll leave it at that. Thanks.

Brandon Blossman.

Couple quick ones. $2.4 billion of projects in service 2015. Any color on the trajectory of EBITDA adds over the next few months or few quarters on that add incremental projects?

I think the easiest way to look at that, we've got presentations on our website that show the amount of dollars going into service for each of the next several quarters. Clearly there's a ramp-up associated with some of those, not all of them. But we also have other assets that are already in service that are ramping up, so not a real easy way to answer your question, but I think you can at least get a sense for the dollar amount of the assets going into service in the third quarter and fourth-quarter.

The two largest projects are the Rancho II pipeline, so we should begin to see a ramp on that beginning later in the third quarter. And then the other big project that will come online is our -- the expansion of our LPG export facility, which that's a year-end completion. So really you will not see that EBITDA come on until 2016 but that should be a fairly immediate ramp up on that.

Okay. Good. That's actually very helpful color. Using LPG as a segue here, just thinking about the propane butane macro, from your perspective, what's the current bottleneck on getting incremental volumes offshore? Is it dock capacity, which that doesn't look like it's the case? Or is it VLGC market, sorry, in terms of day rates, spot day rates being near record highs, will incremental vessels be delivered help with that issue?

This is Jim, and then I'll let Al answer. My experience has been freight rates are feast or famine, and I think we're headed into the famine phase. There's a lot of ships coming online over the next -- Al, how many ships?

I think it's 80 ships coming online for the balance of the year.

So that's a lot of shipping. So that's been the biggest hurdle recently, although we haven't had a single cargo cancel. We're going to be able to load 27,000 barrels an hour. I think somebody's going to have to put a gun to my head to get much bigger than that. That's pretty good. We can do, Mike, 16 million barrels a month? And really, you asked what the constraint was, the constraint is probably low ethane propane or export quality propane. And that's, we've matched up our capability to export, to our ability to produce export quality propane, Al.

Larger growth opportunity with the expansion and with the Oiltanking acquisition is giving us the ability to do significantly more butane. And as we further expand, we will expand our butane opportunities.

Okay. Arguably that's all good news. And then a knock on, it sounds like there's no concerns around specifically propane inventory levels as we move through into the back half of the year?

I think there's plenty. (laughter).

In terms of exceeding capacity in a short term.

No. I don't worry about it exceeding capacity.

Okay. Thank you very much.

Mark Reichman.

Just a few questions. With respect to the onshore crude oil segment, could you please compare and contrast the Permian and the Eagle Ford basins with respect to your outlook for production growth? And associated volume growth on your facilities?

Mark, this is Tony. In our forecast, we have volumes growing for both of those plays through 2025. Obviously the Eagle Ford as far as maturity is ahead of the new horizontal plays in the Permian, but we're excited about both of them. Very excited about both of them. So if you look at -- go ahead.

But South Texas volumes were down a little bit this quarter year-over-year, right?

South Texas legacy system, the older part of the system, was down but the Eagle Ford was actually up year-over-year.

Okay. Okay. That's helpful. Also, it looks to me like there's ample long haul capacity serving the Permian, yet Enterprise is going to add the Midland to ECHO pipeline that'll add 540,000 barrels per day in 2017. In light of current market fundamentals, does that project still appear attractive?

Heck yes. I think there's some differences. One thing is we take them to the heart of the refining market, we don't take them to Nederland. We take them to the heart of the refining market and we take them to places -- how many ship docks are we going to have that can load this stuff out?

15.

15 ship docks, so we give them just unbelievable water access. I think what they see, in a minute, my comments I think what these guys see, we started our terminal in Midland. And people deliver their crude to our terminal. Every gathering system out there wants a connection to our terminal, so we have a strong aggregation position. And then when they look at the markets they can access, we don't -- we dream Midland. I think it's going to be similar to Seaway and Cushing. So we're pretty excited about this pipeline. I think we're going to do very well with it.

Mark, one of the biggest indicators for the need for a pipeline is the willingness of strong companies to sign up for capacity. And with the capacity we have, this is already a very nice project for us and as Jim said, we've got plenty of room to sign up additional shippers and there's a lot of interest.

Okay. And then on the other hand, what's your assessment of the match between inbound and outbound capacity at Cushing and the potential to add capacity out of Cushing?

I have to look at it. Ryan, do you know?

This is Ryan Coleman, I work with Tony in the Fundamentals group. Right now it looks like Cushing's got a little bit of excess capacity with the Seaway lines and with the competitive pipeline out of Cushing. There's going to still be some incremental volumes coming in from the Bakken area and Canada, I saw a press release that Obama is going to decide about Keystone XL by the end of his term. That might impact things as well. It's still up in the air, but right now it looks like Cushing has plenty of capacity to drain. But things are going to change and we're just going to be well-positioned to take advantage of that if Cushing gets long.

Okay. And then lastly, could you talk a little about available and expected growth and capacity of the Port of Corpus? Maybe a contrast between the Eagle Ford JV's planned for a deepwater terminal with other projects in the area. I know NuStar has some projects that are under development. Is there a risk that capacity could get overbuilt at Corpus?

I guess there's always a risk. Our advantage is we -- with Plains, we own the pipeline that has the supply. So we can aggregate the supply to the terminal.

And we control quite a bit of the supply as well.

And we control quite a bit of that supply.

Okay. Great. Well, thank you very much.

John Edwards.

Can you guys comment a little bit, are you seeing, given the commodity price environment we're in, any negatives with respect to contract renewals on various pipes?

John, this is Jim. You've got to be willing to sell the producer what he wants or sell the customer what he wants. What was it Forrest Gump said, if they want vanilla, sell them vanilla. When we started -- for example, when we did our deal in the Eagle Ford, when we built all those assets down there, if you looked at the margins at the time, the smart play would be to do percent of liquids. We chose to do fees. And it didn't look too smart at the time, but it looks brilliant today. As these contracts roll over, I think going out and doing demand fees is going to be more difficult, but in this price environment, you probably would step up and do percent of liquids. Instead of demand fees, maybe you're talking acreage dedication. So you've got to be willing -- in answer to your question, rolling over demand fee, take or pay contracts is not easy. Renewing based on what the customer needs, we will be successful at doing. But you've got to get in front of it and you've got to offer them what they can live with.

Okay. So translating all that, are you thinking it's flattish, slightly --

Hell no. We're going to grow it, John.

Was that?

I said hell no. We're going to grow it.

All right. That's helpful. All right. And then on your natural gas systems, how are you seeing volumes, what's the volume outlook there? If you could comment on -- a lot of those reach into basins where the economics on production aren't the best, so maybe you could comment on that?

I think in general across the systemwide, we've been fairly flat on volumes, are we, Randy?

Area to area it's been a little bit different, I think in Texas maybe up a little bit. Maybe down a little bit in the Haynesville, but all in all, we're pretty flat on the natural gas systems this year.

Are you thinking flattish outlook?

I think that's generally our view.

Okay.

It's our view for the short-term or medium-term. But the thing we're seeing and where we're putting a lot of focus is we're seeing a lot of demand growth that will be coming on over the next couple of years. Where we've been putting our focus is creating connectivity to that new demand, which I think will ultimately increase our volume.

Focusing on things like LNG, new industrials, Mexico, those type of things I think are going to put more volume through our system in the long run if we're successful in getting those projects, which I'm assuming will be.

Okay. That's helpful too. And then if you could -- and you made some opening comments on this, but if you could give a little further insight on the strategy here, you bought the EFS assets at higher multiples than what you sold the offshore. And I get the connectivity argument. Is the expectation here, is then you are going to drive EFS multiple lower and ultimately that becomes a better return on capital? Or otherwise it seems like there was a little bit of a disconnect there and maybe you could comment a little bit. Maybe you can comment.

John, there's a lot of speculation around acquisition multiples and people look at transactions from the outside as a discrete transaction. We look at how it fits with our system. We think it's a really good transaction for us. And provides a lot of benefits that perhaps aren't readily obvious to the outsider.

We've been here before. We've bought systems from producers. And Bill hit on it, a producer to do a deal for midstream service with another producer, typically that doesn't work. We've been in situations where we bought other systems and we've increased the volume because they like dealing with somebody that's independent, somebody that's not a competitor. We think that will be the case. We've already got people out in the field working that hard.

Another thing to think about is that we do intend to ramp up those volumes over time. We paid $1.15 billion, the second installment is not due for a year, so it gives you a little different look on the economics of the transaction.

John, going back to your base assumption, that you thought we paid a higher EBITDA multiple than what we sold at, we would probably debate that.

I guess the other thing about the EFS transaction, I don't know if everybody recognizes is the EFS transaction wasn't just a purchase of those assets from Pioneer and Reliance. It went much further beyond that. We got acreage dedications now for our downstream processing plants, our downstream gas transportation systems and our downstream liquids transportation systems for the next 20 years so our volumes are going to ramp up. I think our condensate volumes in the next three months that we're going to be receiving from Pioneer and Reliance are going to come close to doubling. And then as they have other dedications to other gas processing plants that roll off, some this year, some in the years to come, we're going to get all those dedications to our plants. So, there was a lot of synergy beyond just the EFS transaction itself that somebody's got to take a look at to understand the multiple.

So you're not really looking at the total EBITDA, John.

So basically you're going to be able to touch product in multiple ways, it will give you better cash flow than perhaps what was (technical difficulty) a lot more capital than what they're realizing off of those assets.

A lot of it was gas transportation, gas processing, NGL fractionation and then liquids fractionation and then condensate exports, there's a whole lot more pieces to the puzzle.

As well as getting additional production that currently is going to other assets.

That's correct.

So in short, John the return on unlevered capital on the EFS deal is higher than the return on capital of offshore.

Okay. That's really helpful. And then the last question, in terms of organic opportunity set, what you're seeing now, is it higher, lower, or the same versus say, last year at this time and last quarter at this time?

I think with respect to organic opportunities, it's the same. It's the same as it's been for years. We have more opportunities than we're going to do. So opportunities is not the controlling factor. It's how we approach growth in a disciplined manner and fund it in a way that adds value for our unitholders.

Okay. So around $4 billion a year or so is still a pretty good number for modeling purposes going forward?

Yes. I think we look at it as $3.5 billion to $4 billion.

Okay. Fair enough.

But again, that's what we said last year, look what we've done, we've done that from the organic side but we've done over $6 billion of acquisitions. So there's a lot of different ways to grow.

Absolutely. That's really helpful. Thank you so much.

(Operator Instructions)

Nick Raza.

Could you educate us a little bit more on some of the petrochem and refined products services? Seems like that segment had a pretty good quarter. What was going on there?

Well, our MTBE plant has been running very well. The margins from that business are higher than forecast and normal butane being down so much has given good spreads to gasoline and with naphtha prices being down, it also makes octane very valuable right now. That business is running very well. On the refined products side, our Beaumont terminal that we activated just over a year ago is running at full capacity, 100%. The integration with the Oiltanking Beaumont refined products asset is going very well. We'll be pretty much complete with that in fourth-quarter of this year. So we're already filling out the unused volume available at those assets. And so that integration is really bearing fruit also. Those are the primary factors for us.

Great. And do you expect that to occur in the coming quarters as well? A repeat of better results?

I do.

All right. Fair enough. That's all I've got.

Kristina Kazarian.

Just to follow up on organic growth backlog, can you talk a little bit about the most attractive regions, project types, are you guys seeing customer downstream pull versus producer push? And just start out there?

I think that if you look at our system map, you get a pretty good idea of where we're focused. The acquisition that we did in the Eagle Ford, the Permian pipeline, the crude buildout that we're doing along the Texas Gulf Coast, our export facilities, that's the business that we're trying to grow.

Okay. Just to follow up on that, can you guys give an update on the Marcellus propane takeaway project, the one that links TEPPCO and MAPL?

The guys are out hustling it. They're meeting with people, frankly, we haven't got a deal yet. So I think it's a pretty neat looking project. We'll see if it gets any traction. That is a project that we're going to want demand fees and we're going to want commitments.

And so are those the barriers to getting it done, that we're not seeing as much on the willingness to sign up for demand fees?

It's a little surprising when you think that we picked up propane and railcars over the last three months where they paid us to pick it up. So negative value, you would think somebody would step up.

Great. Thanks, guys.

Jeremy Tonet.

It's actually Andy Bird here for Jeremy. Quick housekeeping question on sustaining CapEx. Based on guidance from earlier this year, it seems like we might be a little bit backloaded. Is this just a timing issue in terms of project or was this always the plan? A little commentary would be great.

I'll take a shot at it, and then I'll turn it over to Graham. I think part of it is if you come in and look at the way we spent our sustaining CapEx in 2014, it was a little backend loaded just because first quarter we don't -- just with the weather, more of it's deferred to later in the year. So a lot of it's backend loaded. Graham?

I think as Randy indicated, backend loaded. We're playing a little bit of catch-up, but we also took a very disciplined approach to our sustaining capital as we went into the year and we're working hard to manage those sustaining capital dollars and looking at where we're getting the best value from it, which is why the forecast is down a little bit from where we were the first of the year.

Okay. So it's more cost saving initiatives and saving money than pushing things back necessarily into next year?

Yes. So we are looking very closely at our cost savings. It's a combination of cost savings and deferrals from weather events earlier in the second quarter.

Great. Thanks very much.

Jeff Birnbaum.

Just wanted to go back to the Permian a bit. With some of the projects that you've already announced this year, some of the comments earlier on it's an area you expect to grow significantly over the next few years, I guess are you thinking about that growth as likely coming organically with the projects you've announced potentially some more? Or do you expect as the market develops you see some more attractive M&A opportunities developing out there?

We're not banking on M&A opportunities. So I guess if you look at our plans today, it would be organic. And I think one of the biggest strengths we have that supports that pipeline is our Midland terminal position. It aggregates a heck of a lot of crude and condensate. I think if we go upstream with that, that's going to be whether we can get a deal that we like, otherwise the position we have in Midland tied to this pipeline is a pretty dadgum strong position.

And the Midland terminal is the pricing point for crude out there. And I think we have a tremendous amount of land, a tremendous amount of opportunity to expand. We've got some expansion ongoing as we speak, we've got expansion that will take place that will be associated with the Midland to Houston pipeline. And then we've got more expansion that's going to take place that's going to be a result of the shippers on the Midland to Houston pipeline wanting to aggregate supplies. So I view Midland terminal as kind of a special place in the next few years.

Okay. Great. Thank you. And I apologize if I'm repeating something, I got knocked off the call earlier for a bit, but Randy, when do you think you expect to hit that peak 4.25 leverage? And when do you think you can get back to a mid-3s leverage ratio? And how do you see that impacting your appetite for deal making or something like that?

One, I don't think it's impacted our appetite for M&A. As far as peak debt EBITDA of 4.25 or so, probably the second half of this year, probably later this year, could be year-end. As far as working that back down into between 3.5 and 4, that's probably going to be more the year-end 2016, getting into 2017. Mike talked about $8.3 billion worth of capital projects coming along. Several of those are second half of 2016. So coming in and working that number down below 4 would happen after those projects ramp up so again, probably by then you're talking about year-end 2016, getting into 2017.

When you talk about year-end 2016, you're starting to look at it on a 12 month trailing basis. The cash flow will come on immediately. So it does change the profile a little bit.

Yes. Okay. Perfect. Thanks so much.

Helen Ryoo.

I had a question about the deal that was in an article talking about besides being --considering investing in shale gas and you guys had signed some agreements with them. Can you talk a little bit detail what kinds of an agreement that is, is it related to LPG export, ethane export or any color you could give would be appreciated.

That story was misleading. That deal is related to ethane export. And the sale of ethane.

Okay. And it was misleading because there was no contract signed or?

The misleading part was a report that came out on the shale gas. It was -- what I meant by that was and there's two reports that came out. First specifically talked about their involvement with Enterprise and shale gas and the involvement was basically with our export arrangement for ethane. And the potential sale of ethane to the customer.

Okay.

I guess in a sense, Helen, it was right because ethane comes out of that shale gas. (laughter).

So I guess they have an agreement with you for the ethane exports. That's the bottom line?

I think the bottom line is that would imply they have an agreement with us.

Okay. Okay. Understood. And then quick follow-up on your comments about the ethane rejection and how it has been affecting your contract volume and NGL pipeline, what are you seeing in ethane rejections now? And what is your expectation on (inaudible).

We think 500,000 to 600,000 barrels a day industrywide. And I think we're seeing the ethane percentage in the Y-grade we bring in at about 30%, 32%. 30%. So there's a lot of potential ethane at the right prices. Somebody wants to build more crackers. But we're not too confident that over the next year that's going to get any better.

There are opportunities to recover ethane from time to time particularly on our variable cost. In fact, on a couple of our large plants we brought up ethane recovery this week. And I don't know how long that will last. If it lasts a week or two, it would be great. If it doesn't, we'll pull it back down into rejection. But we have the opportunity operating on variable costs to capitalize on that, what I call our discretionary keepwhole ethane. If our producers are rejecting we have the opportunity to go in and take it.

And I talked about meeting every morning, that's one of the things we look at every morning on every gas plant, what should we be doing? We may operate these plants down in Texas differently than we operate the plants at the Rockies on a given day and then we may flip. We drive our operations people crazy with the way we'll flip them back and forth. We finally agreed with them that will give them three days' notice before we do anything different.

But overall, you don't see ethane rejection, the level of ethane rejection improving throughout the remainder of the year. Is that fair?

That's it.

Thank you very much.

Charles Marshall.

I just wonder if you could help educate us on the announced project for the PGP and RGP assets down in Texas and Louisiana. Just the market that you're seeing down there and secured by customer contracts, et cetera?

We're expanding our PGP deliveries, both south and east. The key thing to think about is when our 1.65 billion-pound PDH is coming up, that's not replacing our RGP PGP sales. That's incremental volume that we have going out the door. We have PGP contracts that go out that are not PDH based they go out well beyond the startup of the PDH plants. So we're expanding our capability to deliver more PGP. We're also seeing the continued movement of the market in general towards PGP, away from CGP, so there's additional conversions. And then there's a lot of potential derivative talk out there, some announcements and some that haven't been announced yet. And so we're preparing for it.

Safe to say you've got contracts supporting those?

Contracts supporting it, yes.

Thank you for that. One last quick one, it looks like your CapEx on the construction is about $1 billion prior to your last announcement. Can you elaborate on what's in that backlog number now?

Yes. The main additions to it were really around obviously adding in the Midland to Sealy crude oil pipeline. The joint venture that we have with Oxy, but then near term, what we added with RB, with the RGP and PGP pipelines. Those have been the most significant adds. And then there have been a number of smaller projects, but again, smaller.

That's it for me, guys. Thank you.

James Carreker.

Given what's happened in the midstream space recently, I was wondering if you guys could comment on your appetite for large-scale M&A.

(laughter) Nice try.

Like I said, we've done over $6 billion of acquisitions in the last nine months. So we're involved. One thing that we've consistently said about Enterprise is that we don't grow and do M&A just for the sake of getting bigger. We've got to do things that make sense for our investors, and one thing that is relatively unique about us as opposed to the other names that you see in that market is that we've only got one equity security. So we have our common units, we don't have a general partner with IDRs that has different economics. Management, sponsor of the partnership, individuals, our employees and outsiders are all invested in same security. So we're focused on growing the value of those units, so a large transaction that makes us really big may not really create any value, it may actually destroy value. So we look at a lot of things. We do the things that make sense.

Appreciate it. That's all I had. Thank you.

There are no further questions at this time. Speakers, are there any closing remarks?

Kelly, if you don't mind would you give our listeners the replay information for the call today?

Yes. During the call replay beginning at 1 PM Eastern time today to 11.59 Eastern time August 6, 2015. The conference number for the replay is 85121841. Again, the conference ID number for the replay is 85121841. The number to dial in for the replay is 1-800-585-8367 or 1-404-537-3406.

Okay. Thank you, Kelly. I'd like to thank everyone for joining us for our call today and have a good day. This is the end of the call. Thank you. Goodbye.

This does conclude today's conference call. You may now disconnect.