Enterprise Products Partners LP (EPD) 2015 Q3 法說會逐字稿

Good morning. My name is Jennifer and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners third-quarter 2015 earnings call. (Operator Instructions).

I will now turn the call over to Randy Burkhalter. Sir, you may begin.

Thank you, Jennifer. Good morning, everyone, and welcome to the Enterprise Products Partners third-quarter 2015 earnings conference call.

Our speakers today will be Mike Creel, Chief Executive Officer of Enterprise's general partner, followed by Jim Teague, Chief Operating Officer, and then Bryan Bulawa, Chief Financial Officer. Other members of our senior management team are also in attendance for the call today, including Randy Fowler, Chief Administrative Officer, who is calling in from the road.

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, it 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.

Thanks, Randy.

While we reported solid third-quarter financial results again this quarter, our performance might lead some people to believe we are boring and predictable, while others might say we're consistent and produce good results because our business model, which has withstood the test of time, actually works.

Key components of our model include a simple company structure, a low cost of capital with no GP IDRs, a supportive general partner, distributable cash flow growth driven by a portfolio of integrated assets with strong distribution coverage, and a prudent use of financial leverage. Our willingness to sell non-core assets and retain cash flow to reinvest in opportunities that offer higher returns on capital has served us well. We've been able to access capital markets as needed in any business cycle, given our consistent track record of growth, our investment-grade credit ratings, and our long history of distribution increases to our unitholders.

Sometimes our approach seems underappreciated. However in challenging times, such as now, we tend to get more credit for being responsible stewards of our investors' capital.

Our third-quarter results include record liquid transportation volumes, which were up 13% from the third quarter of last year. This includes crude oil pipeline volumes, which increased 21% to a record 1.5 million barrels per day; refined products and petrochemical volumes, which increased 12% to a record 904,000 barrels a day; and NGL transportation volumes, which increased 10% to a record 3.2 million barrels per day. Included in NGL transportation volumes was a 33% increase in LPG export volumes to a record 320,000 barrels a day.

We also benefited from contributions from recently acquired and newly constructed assets that began service during the last 12 months.

Earlier this month, we announced an increase in our quarterly cash distribution to $0.385 per unit with respect to the third quarter, and that's a 5.5% increase over the distribution declared with respect to the third quarter of last year. This is our 45th consecutive quarterly increase and our 54th increase since our IPO in July 1998.

Excluding proceeds from asset sales, we generated $970 million of distributable cash flow this quarter, which provides 1.3 times coverage of the cash distribution that will be paid on November 6. Including the $1.5 billion of proceeds from the sale of our offshore business, we retained $1.7 billion of distributable cash flow this quarter to reinvest in the growth of the partnership and reduce our reliance on the capital markets.

For the first nine months of 2015, we retained $2.3 billion of distributable cash flow, including proceeds from the sale of assets.

Gross operating margin from our NGL pipelines and services segment was $696 million for the quarter, down slightly from the $712 million for the third quarter of 2014. Gross operating margin from our natural gas processing and related NGL marketing business decreased $88 million. Lower processing margins led to a $99 million decline in gross operating margin from our gas processing plants, and that was somewhat offset by a $12 million increase in gross operating margin from our NGL marketing business.

Equity NGL production increased 25% on higher recoveries of ethane at our South Texas and Louisiana plants. All fee-based natural gas processing volumes were essentially flat at 5 billion cubic feet a day for the third quarters of both 2015 and 2014.

Gross operating margin from our NGL pipelines and storage business increased $88 million or 32% to $366 million for the quarter, with $33 million of this increase coming from the NGL export terminal on the Houston Ship Channel and the related pipeline.

LPG export volumes increased 33% or 79,000 barrels a day, primarily as a result of the expansion we completed in April this year. Also included in this increase was $17 million associated with assets acquired in the Oiltanking transaction.

Collectively, gross operating margin for the Mid-America, Seminole, and Chaparral NGL pipelines and related terminals increased $24 million, primarily due to higher transportation tariffs and other fees and lower operating expenses.

Gross operating margin from our ATEX and Aegis ethane pipelines increased $8 million in the third quarter of 2015 compared to the same quarter of last year, due to a combined 42,000-barrel a day increase in transportation volumes. Gross operating margin from our NGL fractionation business declined $17 million this quarter compared to the third quarter of 2014, primarily due to lower revenues from product blending and other fees at our Mont Belvieu facilities.

Total fractionation volumes increased 14,000 barrels a day, primarily due to higher volumes fractionated at our Louisiana plants.

Gross operating margin from our crude oil pipelines and services segment increased $64 million or 33% to a record $255 million for the quarter. Gross operating margin for this segment included contributions of $41 million from the EFS Midstream assets that we acquired in July this year and $36 million from assets that were part of the Oiltanking transaction.

Gross operating margin attributable to our interest in the Seaway crude oil pipeline increased $17 million, primarily due to contributions from the new loop pipeline that began commercial service in December 2014. Net to our interest, transportation on Seaway increased 34% or 161,000 barrels a day in the quarter compared with the same quarter of last year.

The South Texas Crude Oil Pipeline system reported an $18 million decrease in gross operating margin from the same quarter of last year, primarily due to a 32,000-barrel a day decline in transportation volumes. Gross operating margin from crude oil marketing and related activities decreased $23 million from the third quarter of last year, primarily due to lower margins and higher operating expenses.

Results from our natural gas pipelines and services and petrochemical and refined products and services segment were essentially flat with the third quarter of 2014.

We closed on approximately $8 billion of acquisitions during the last 12 months that integrate with our existing footprint and generate additional distributable cash flow. We also completed construction and began commercial operations on $900 million of capital projects during the first nine months of this year and we currently have another $7.8 billion of major capital projects under construction that are supported by long-term contracts that should begin commercial operations by the end of 2017. Most of these projects focus on meeting the needs of our demand-side customers, such as petrochemicals, refineries, and international businesses.

We continue to evaluate other organic growth opportunities and, from time to time, acquisitions. We're certainly not lacking for opportunities. We believe our acquisitions and organic growth projects provide clear visibility to increase cash flows that support future distribution growth.

As 2015 winds to an end, we begin to look at 2016 and we believe the current low commodity price environment may last through at least the first half of 2016. Given this lower price environment, we believe Enterprise is well positioned to manage, adapt, and prosper through this cycle, as we did through the 2000, 2008, and 2009 cycles. Our business model has withstood a number of commodity price cycles and we are confident in our ability to produce solid results while maintaining financial flexibility consistent with our BBB-plus/Baa1 investment-grade debt ratings. And we continue to provide healthy distribution coverage.

Finally, we are confident that our dedicated team of employees will continue to find and execute new opportunities to grow our partnership, add value for our investors, and extend our strong track record of increasing our quarterly distributions.

And with that, I will turn the call over to Jim.

Thanks, Mike.

This quarter, our people continued to perform in a tough environment. Obviously, margins have suffered from lower prices, but because of the integration within our system, there also continues to be opportunities in other areas, things like our storage assets and our marketing activities.

Our results are because our people are not satisfied with just being toll collectors. They use creativity and drive to capture value that is not readily apparent.

An example is our relentless focus on variable costs. Rather than just focusing on throughput, they focus on efficiency. In other words, our first question used to be, how much more can you move? Can you run the units harder? Our first question now is, how efficiently can we move the product? Is it really necessary to run certain units to accomplish our goals?

Another example is how we approached storage this summer during the inventory build season when we stored barrels at satellite locations at Petal, Mississippi, Hobbs and Conway, Kansas, in order to save brine capacity at Mont Belvieu so that we could take full advantage of the contango opportunity. Tug Hanley's creativity meant we didn't have a brine containment issue at Mont Belvieu, like many others. We didn't have to pass on a single contango opportunity.

Another is why we use the dehy on Dixie Pipeline when you produce 225,000 barrels a day of dry propane off your fractionator, feed the pipe off the frac, save the cost of running the dehy. If normal butane and isobutane are selling on top of each other, why split them and feed the normal to the isoms. Instead, speed the mixture and only process once instead of twice.

Sometimes we use the markets to accomplish a goal. Don't pump or process it if you can buy it or sell it below your operating expenditure.

While you may not understand the specifics of these examples, understand the message. In a tough environment, our folks are driven to find the opportunities that are invariably created during chaos. The DNA of Enterprise people is summed up in three words -- creative, driven, and teamwork. They take pride in meeting the challenge of delivering results in every market environment. Combine this with the steady stream of new assets that we are building and the result that should be expected is that we generate excellent coverage ratios.

Meanwhile as to this market, while I am not a price guru, all indications are that demand is responding to low prices, a trend that we believe will continue in 2016 and one that will help the global oversupply situation that began in 2014.

Moving on to a review of our projects, we are looking forward to several key projects coming online between the fourth quarter of this year and next year. We spend a lot of time and our money on projects that support new demand and most of the comments today will be around demand-oriented projects.

In December, we will be bringing up our 11,000-barrel per hour LPG export expansion, taking our total export capacity to 27,500 barrels per hour. This capacity is fully contracted and we continue to add customers out past 2020. Our customers know that we have the export-quality LPG and they know our record for delivery, which speaks to our ability to keep adding commitments in the out years as space frees up.

Work is also continuing on our ethane export terminal, which will be up and running by midyear next year. We have the majority of this capacity contracted and we expect to execute another contract next week. With customers in Asia, Europe, and South America, this demand pull project plays an important role in creating new global demand for US ethane. Our folks are working with another Asian company and I would expect to see us sold out by spring.

Sticking with NGL demand projects, we now have over 300,000 barrels a day of our Aegis Pipeline capacity contracted and we have a very strong interest in the remaining 100,000 barrels a day. We are in discussions with four companies about the remaining capacity. Their aggregate demand is around 300,000 barrels a day.

The last big demand pull project for NGLs is our PDH plant. We now have all the major structures set and are well into the massive piping phase that goes with a project of this size. You will recall that this is structured as a fixed-fee agreement that's 100% backed by long-term contracts with investment-grade companies. We are looking forward to a fourth-quarter commissioning.

For crude projects, we're in the process of commissioning our Houston Ship Channel distribution system and expect to start taking nominations in November. In addition, the Midland to Houston oil pipeline project is progressing. All the major environmental permits have been received. The long lead items, including the pipe and valves, have all been ordered and we look forward to midyear 2017 to start that up.

In the Permian, we are constructing two new processing plants and incremental NGL takeaway. When completed, the new plants will increase Enterprise's natural gas processing capacity in the Permian to over 600 million a day.

As a quick reminder, there are still 233 rigs running in the Permian. That means 30% of all the rigs in the US are in the Permian, with producers targeting a different -- a dozen different zones. This is a basin with staying power. Advantaged by its proximity to market, similar to the Eagle Ford, production from this huge oil and rich gas basin are a great fit with our systems, and frankly, you can expect to see us adding more assets as this basin continues to develop.

The last demand project I want to cover relates to our Houston Ship Channel terminal. We have realized immediate synergies with the combination of our supply systems and the Ship Channel terminal. A year into the acquisition, things have moved so fast that I can't imagine our system without these assets.

We are also doing a considerable amount of work in Beaumont, where we will have a combined -- we've combined five ship docks. All fundamentals indicate that exports of US refined products will continue to grow. We're going to get our share in our Beaumont terminal.

That's a summary of our major projects.

My last comments today are personal. This will be the last earnings call that Mike will lead. Mike came to Enterprise when Dan acquired Shell's midstream business. One of the things I appreciate about Mike and have always admired is he has been the key player in every acquisition we have made. Watching Mike lead negotiations for an acquisition is magical. He is the best I have ever seen at it.

However, the most important thing Mike has contributed is something that will be here long after he's retired. He has been key in cementing the culture of high expectations built around respect. If you think about what we have become since Mike arrived in September 1999, he deserves a lot of credit for who we are today. He might be leaving, but his DNA is a part of the fabric of our Company.

With that, I will turn it over to Bryan.

Thank you, Jim.

I will cover a few additional income items for the quarter, as well as an overview of our capitalization. Net income attributable to limited partners was $649 million for the third quarter of 2015 or $0.32 per unit on a fully diluted basis.

Net income and fully diluted EPU were reduced by non-cash charges of approximately $39 million or $0.02 per unit. This included nonrecurring asset impairment charges of $27 million and a $13 million charge primarily related to our July 2015 sale of the Gulf of Mexico offshore business.

Depreciation, amortization, and accretion and operating costs and expenses for the quarter increased $28 million, primarily due to new assets placed into service, including the Oiltanking and EFS acquisitions, and was partially offset by the divestiture of our Gulf of Mexico offshore business.

Interest expense increased $14 million to $244 million for the quarter, primarily due to higher average debt balances. Our weighted average debt balance for the third quarter was $22.5 billion, compared to $18.8 billion in the third quarter of 2014.

Total capital spending in the third quarter of 2015 was $2.1 billion, which includes the $1.1 billion first installment payment for the EFS acquisition in July and $84 million of sustaining capital expenditures. For the nine months of 2015, sustaining capital expenditures were $196 million. We currently expect sustaining capital expenditures for the full year of 2015 to be approximately $300 million.

Adjusted EBITDA for the 12 months ended September 30, 2015, was $5.3 billion. Accordingly, our consolidated leverage ratio of net debt to adjusted EBITDA was 4.1 times, after adjusting for 50% equity treatment for the hybrid debt securities. Based on our current construction cycle, we continue to expect our leverage ratio to trend towards the 4.25 times area before returning to our historical range of 3.5 to 4 times after some of our large-scale organic projects are completed and begin generating EBITDA.

In September, we enhanced our liquidity position by increasing the aggregate capacity of our bank credit facilities from $5 billion to $5.5 billion and also lowered our facility fees by $250,000 per annum, inclusive of the $500 million increase to the overall borrowing capacity. The bank credit facilities consist of a $4 billion multiyear revolving credit facility that matures in September 2020 and a $1.5 billion 364-day revolving credit facility that matures in September 2016.

We are pleased with the additional financial flexibility attained through this transaction and the continued support of our bank group. At the end of September, we had consolidated liquidity of $4.7 billion, which included available borrowing capacity under our credit facilities and unrestricted cash.

Also during the third quarter of 2015, we opportunistically executed several open-market repurchases of our 2066 and 2067 junior subordinated notes, or hybrids, totaling a notional principal amount of $57.5 million, resulting in an approximate $8 million reduction in principal and interest.

At September 30, 2015, the average life of our debt was 14.4 years, using the first call date for the hybrids, and our effective average cost of debt was 4.8%.

In addition to the $1.5 billion of proceeds from the divestiture of our offshore business and $209 million of retained distributable cash flow from recurring operations, we raised $68 million of equity through the distribution reinvestment program and the employee unit purchase program. There were no units issued through the ATM in the third quarter.

Finally, affiliates of privately held Enterprise Products Company have stated their intention to purchase another $50 million of EPD common units through Enterprise's distribution reinvestment program in November, bringing their total investment in EPD common units this year to $200 million.

With that, I will now turn the call back over to Mike for some final comments.

Thanks, Bryan.

It's a Wonderful Life is a 1946 film produced and directed by Frank Capra that has become traditional viewing during the Christmas season. The film stars Jimmy Stewart as George Bailey, a man who has given up his dreams in order to help others. His guardian angel, Clarence, shows George all the lives he has touched and how different life in his community of Bedford Falls would be if he had never been born.

I wonder what Enterprise would look like today if Dan Duncan had never been born. Of course, that is somewhat rhetorical since Dan was a Founder of Enterprise, but humor me for a minute. What if Dan and his family had not have the vision to cap the Enterprise incentive distribution rights in 2002 and eliminate them altogether in the third quarter of 2010? Enterprise would have paid more than $6 billion to its general partner under the IDRs since the fourth quarter of 2010 and our distribution this quarter would be 0.7 times instead of 1.3 times, and that assumes that we would've had the same growth trajectory, the same cash distribution, and the same credit ratings and that's a big assumption.

Without the Duncans' support for important transactions, which acquisitions would not have been possible? The Shell Midstream acquisition in 1999 that was the launching pad for what Enterprise is today? Dan gave Shell 30% of the general partner to make that transaction happen.

Could we have completed the 2004 GulfTerra acquisition that gave us a head start in the Eagle Ford shale? The Duncans' private company paid about $460 million to an El Paso affiliate to subsidize the cost of that acquisition.

What about the TEPPCO acquisition in 2009 that began our expansion into crude oil? In that transaction, the Duncans' private company received Enterprise Class B units that were not entitled to receive any cash distributions for 16 quarters following the merger.

The Duncan family supported the merger of our publicly traded general partner into Enterprise in 2010 by waiving $322 million of cash distribution they were entitled to receive over a five-year period. That merger resulted in the elimination of the remaining IDRs.

Without those transforming acquisitions, we would not be the same partnership we are today, nor would we have been able to provide the same total returns to our investors. So when people look at our strong distribution coverage and wonder why we don't increase the cash distribution to achieve short-term price appreciation, it is because of the long-term vision of Dan Duncan and his family. Their belief in our long-term objectives is the gift that keeps on giving and our investors are the beneficiaries.

It was not an accident or just luck; it was carefully calculated long-term planning and execution. We believe our long-term unit holders have received far more cash distributions and capital appreciation than if we had kept the IDRs in place and distributed out all our distributable cash flow, as many other partnerships have done. Our debt investors can be assured that the partnership is looking out for their interests as well and our customers can take comfort in doing business with a Company that has a long-term vision and a strong sense of purpose.

And with that, I will turn it back over to Randy.

Thank you, Mike. Jennifer, we are ready to take questions from our listeners now.

(Operator Instructions). Brandon Blossman, Tudor, Pickering, Holt.

I guess first question, LPG throughput. As you bring on incremental capacity here in the fourth quarter, any thoughts on the actual volumes that move against those contracted rates? And I guess probably more pointedly, where are those volumes going to come from on an incremental basis?

Are you talking -- Brandon, are you talking about exports?

Yes, LPG exports.

Well, when it comes on, it is full. It needs to come on on time or we are overfull. (laughter). We expect to have the thing up and running mid-December, Al? Graham? And it is fully contracted next year.

Where will it come from? We've got about 700,000 barrels a day of fractionation capacity in Mont Belvieu that we can supply all the low ethane, propane, export-quality LPG that we have the ability to do it internally. So, we're not worried on storage. We've got one heck of a lot of storage. Al, you want to add something?

There is almost 100 million barrels of propane in inventory.

By the way, we don't have 100 million barrels. (laughter).

Good to know. All right, so you expect to see some drawdowns of inventory over the next 12 months, understood. Perhaps related a little bit, any incremental thoughts around -- or conversations around Centennial as a project?

We continue to work with our partner Marathon on Centennial. I think the recent announcement on the combination of them and MarkWest, and MarkWest's position in the Marcellus, there might be some light at the end of the tunnel on putting that -- I think we have been fairly public about this, about putting that thing in NGL service coming back to the Gulf Coast. That light at the end of the tunnel might be a freight train, I'm not sure, but I think we are beginning to see some things that we might be able to sink our teeth into.

Okay. I guess that's an interesting teaser.

And then, just on the capital side, any interest or willingness to comment on why no issuance under ATM during the quarter? I think it's probably obvious, but I'd just like to hear your thoughts there.

Brandon, this is Bryan. With the -- as we mentioned in the second-quarter call, with the sale of the offshore business, it really eliminated the need to go to the equity markets for the remaining part of 2015.

Okay, fair enough. All right. Thank you, guys.

Matthew Phillips, Clarksons.

Mike, congrats on your tenure and accomplishments there and thanks for putting up with us all these years.

Jim has a way of exaggerating, by the way.

A couple of questions on the NGL segment. Processing and NGL marketing margins are off pretty significantly over the past 12 months, down around 30%. Can you break that down on a fee-based component versus commodity exposure on the NGL marketing, and where do you see these margins stabilizing?

Do you want to talk about how we operate the plants using our variable --

Yes, we operate the plants looking at the variable cost of transportation and fractionation. To recover additional ethane doesn't cost any more in the plants. Our variable cost as far as transportation and fractionation is very, very low, so we tend to recover a lot more ethane in those times that puts a burden back on the plants because they have to eat to subsidize the downstream, so to speak. So I think that may be what you are referring to.

Yes, and it kind of goes to the comments that I made earlier. At Enterprise, you really -- our people don't really care where the money is made, so if you're looking at value-chain economics, and across the value chain from the pipeline to the frac to the storage you can afford to recover ethane because you are making money relative to your variable costs, you're going to do that, but the hit is going to go against the processing plant.

Correct.

So that's why -- so the processing plant is effectively subsidizing the value chain.

Okay, so the processing --

It is called teamwork.

(laughter). Okay. So is that part of the reason that fractionation margins have held up better than processing margins?

Absolutely.

Okay. And related to that, over the past year or so propane production overall in the States has flattened out and rolled here a bit recently. Has anything changed with your long-term view with regard to NGL production? And, obviously, the gas price isn't doing anyone any favors. Do you see this in the future weighing on NGL volumes on your system?

Michael, this is Tony. We're in the process of redoing our forecast. We will be publishing in the first quarter, but I will tell you that, surprising to many as we look at the numbers, we don't see NGL production coming off a whole lot.

And the other thing I think that supports that here of late is the really, really low natural gas prices. So, producers are still incented to drill rich natural gas versus dry at this point.

Okay, great. Thanks for the color. That's all I have.

Sunil Sibal, Seaport Global Securities.

Good morning, guys, and congratulations on a good, solid quarter. So a couple of questions from me. First, in terms of the project backlog, I was curious in this current commodity price environment what kind of opportunities you are seeing specifically, say, in Eagle Ford? And also if you could remind us, you have crude pipeline from Midland to Houston. How much of that is currently contracted?

I'll take the first part of that. With respect to our backlog, the $7.8 billion that we have under construction has already been announced and disclosed, so that is easy to see.

The other projects, opportunities, that are not yet fully baked, we don't disclose those until they are, but you can look at our track record over the last five years or go back however far you want. We see a lot of opportunities in this environment, just as we have in other periods where markets have been disrupted.

Yes, on the Midland to Houston pipeline, I think we have got just over 200,000 barrels a day and we're working with four customers, and I have said publicly before that when that thing comes up, I expect we will have between 300,000 and 350,000 barrels a day flowing.

That's helpful. And then, just one housekeeping for me. It seems like your distribution from unconsolidated affiliates during the third quarter was off a little bit. Anything which drove that in the third quarter?

Sunil, this is Randy Burkhalter. No, I am not aware of anything like that, but I will tell you what. We will check that and I will get back to you off-line. But I'm not aware of any material differences.

Randy, the only (multiple speakers) offshore.

(multiple speakers). Well, okay, that's true. Yes Cameron Highway, Poseidon. Okay.

So, basically, the offshore assets that you sold, that impacted that dynamic?

Right, right, Cameron Highway, Poseidon, some other joint ventures that we have as part of those assets that we sold.

Okay, that's all I had. Thanks, guys.

Kristina Kazarian, Deutsche Bank.

So you guys alluded earlier in the call to ample M&A opportunities in 2016, and I know you had a really active last 12 months. Maybe you can provide some sort of color on how we all should be thinking about this. Magnitude and pace similar to the last 12 months? Just color on your general appetite would be great.

I am sorry. You're asking about the CapEx, growth CapEx, for 2016?

No, I said M&A opportunities in 2016.

M&A. If we haven't announced it, we're not going to talk about it today.

There is nothing huge that we are looking at. We look at opportunities that come around and there is a lot of them floating around out there. I couldn't tell you whether any of them are actionable or not. Even if there are, I can't imagine that there is anything that is significant, but who knows what is unsold.

Sometimes these things move pretty quickly, but for us it has to be something that fits our system. It has to be at a price that makes sense, and if there is a credit field with a lot of people that don't have other alternatives, they're probably going to get the deal.

Yes, so when I just think about magnitude and pace versus the last 12 months, which were very, very active, similar opportunity set, greater?

The last couple of deals that we have done were very unique. If you look at Oiltanking or you look at the Eagle Ford Shale assets, those were assets that don't come around every day.

And so if you look at our acquisitions over the last 15 years, they tend to be fairly lumpy and they are when assets that are very attractive to us come around at prices that make sense. I wouldn't place high odds on that happening in 2016. And as Jim says, they have to be strategic. We don't just buy things to get big.

Great. And then, you guys have a really attractive coverage at 1.3 times for the quarter. Given the tighter capital markets that a lot of people talk about, can I just get your thoughts on longer-term coverage levels; what you guys are just thinking here, looking at your business from a fee-based perspective and thinking about how investors should be thinking about volatility in this number; and what longer-term rates might look like?

Yes, let me start off, then I will turn it over to Bryan. But if you look at what we have said about distribution coverage over the last eight, nine years, we tend to deliver the same message. And when times are good and everything is working for all the MLPs and most MLPs are floating around with 1 times coverage, we get the question, why don't we lower our coverage and distribute more cash flow?

In times like this, investors say, you know, it makes sense for MLPs to retain more cash flow, take the pressure off the equity markets, and now people seem to be drifting more towards our model, which has been very consistent over time. So if there is one thing about us is we are consistent.

Yes, I don't have much to add to what Mike said. I think what you will see is that, as Mike had made in his prepared comments as far as being more appreciated for having that coverage and actually having a solid balance sheet and not actually facing the same pressures that are probably hitting the headlines of recent, we're not really facing those same headwinds, given our leverage and our higher, much higher, investment grade relative to much of the headlines that have been out there.

All right, and last one for me, guys. I know you guys participated in the IRS hearings down in DC earlier this week. They seemed positive - receptive to me, but I'd love your thoughts and potential impact for EPD.

I think the -- it is a wild card what the IRS does. I think from our standpoint, we're pretty comfortable with our position. We think there have been some proposals that have been floated that make absolutely no sense and I think that the testimony in Washington is showing the problems with that.

Certainly to the extent that the IRS has expanded the scope of qualifying income over time, they may be trying to change that, but when they start trying to change the original legislation, that seems to be problematic. The end result is we don't think there is going to be any significant impact on us, but, again, this is your government at work.

Sounds great. Thanks, guys. Nice job today.

Darren Horowitz, Raymond James.

Before I start, Mike, on behalf of Raymond James, I just want to congratulate you on your accomplishments, helping EPD evolve to what it is today, and we certainly wish you well.

Jim, shifting gears over to you, I would like if we could go back to your comment on efficiencies, and I'm thinking more about asset optimization efficiencies, maybe, through this quarter and into the first quarter of next year. And I am certainly not asking you to open up the playbook, but you are coming into your two seasonally strongest quarters, so theoretically you should get the benefit of a better seasonal arbitrage between normal and isobutane, so hopefully we see a pick up in butane isom sales and maybe the high-purity isobutylene sales continue, hopefully, at a bit better margin. But I think there is also a release -- there should be pretty good opportunity for more refined product across your docks on the Ship Channel and Beaumont, especially middle distillates, so I would love your outlook there.

Probably some of what we are looking at doing I can't say on this call. But you are right about one thing. Our refined products exports over in Beaumont have -- that dock we built before we acquired Oiltanking, that dock has now sold out, and I guess -- is RB in here? -- I guess for the next five years and we're tying into our refined products pipeline system, we're tying that into the Oiltanking docks. We're building two docks there and we are already loading refined products at that dock.

So we see refined products as something that we're going to grow. In terms of middle distillates, we see length and we would love to have a hell of a lot more storage because we see contango.

Okay. And then last question for me, shifting gears a little bit, and just because we get this very, very frequently and I am sure you all do as well, but as you are having discussions with certain producers out of certain basins where their netback economics might be challenged, what is your propensity to work with them to the extent that maybe they end up getting a little bit of margin or tariff relief on the front end of those contracts, but maybe to make you whole on the back end you either get longer contract durations or you pick up an incremental life of lease or area of dedication or even acreage, allocation type deal.

So that way, you've got the transparency, the contract duration gets extended, and the producers have a little bit more flexibility in the short term.

You know, yes, Darren, I'm glad Randy isn't here -- I'm glad I can't see him because he'd laugh at what I'm going to say.

I spent a lot of time at Dow Chemical and I have been on both sides of that table. I have been in situations where we paid $0.40 a gallon fixed price five years for ethane in a $0.12 market, so I know what it's like from that side of the table.

We look at these things and we say, their problems can be our opportunity. A lot of the kind of things you said is exactly what we will look at doing. We have got a whole menu of things that we try to implement. We believe that if you help your customer win, ultimately you win big time.

Frankly, it is Dan's model. There was a time when I asked him for price relief, and in spite of the fact Al Martinez didn't want to give it, Dan did. So, you nailed it. Some people's problems create opportunities. We do not -- and we don't wait for them to call us.

Thanks, Jim.

Ted Durbin, Goldman Sachs.

Thanks, and I did want to say to Mike congratulations and best of luck in retirement.

Thanks, Ted.

Just coming to the Eagle Ford acquisition, you mentioned the $41 million of gross margin there. I guess can you just give us a little sense of is that a good run rate here? I know we have talked about growing that. How much of that is just based on the minimum volume commitments you have or how much of that is actually filling up the plants and the pipes more?

I'll take a shot. That does not include what we see as upside, and upside being getting other producers other than Pioneer on those systems. While we haven't signed any deals yet, we're pretty close with a couple. So, some of the upside we expect off that system is from other producers who wouldn't necessarily want to be on a producer's system.

Where would you say utilization is running right now on that system?

Bill, do you know?

I really don't. We have a lot of spare capacity on that system.

Oh, yes, we have got spare capacity, but I'd say that it is running at what we expected it to, given the production of -- Pioneer's production, but we got capacity existing that we can go sign up other people.

Ted, one of the things we need to do, we made that acquisition in July. There is still some things we need to separate that business from Pioneer, so there is some costs that we are incurring to build that out, but we think that those costs should be lower as we finish that separation and plug it into the Enterprise model.

It makes sense. And then, just the only other one for me was just the maintenance capital number. I think I heard it is now down to $300 million for the year. It feels like it has been trending lower all year. Is this the low point in the cycle? As we look forward to 2016 and 2017, should we see that number tick up or is this a better run rate to look forward with?

Graham is saying he thinks it's probably a current run rate. It is somewhat cyclical during the year, but it is probably not a bad place. Part of it is weather dependent. It depends on where we are.

All right, I will leave it at that. Thanks.

Faisel Khan, Citigroup.

Mike, congratulations on your retirement. Our team here at Citi certainly appreciates your insights into the business over the years.

Thanks, Faisel.

I was wondering if you guys could discuss any change you have to your outlook for the global LPG trade and the vessels that are being delivered in order to satisfy your customers' need and move that volume off of your docks. Is the trade as good as it was in the second quarter, better, the same, or worse?

Just to give you an update, year to date in 2015, 24 new VLGCs have been delivered. There is nine left to be delivered in the fourth quarter of 2015, and 2016, there is an additional 48 VLGCs coming into the fleet, and in 2017, an additional 21 VLGCs to support the LPG exports.

So it is always -- the arbitrage is always a function of our cost and shipping cost, and shipping costs have been unbelievably high. What Al just quoted you, it's coming down.

To further that, in July, July 15, multigrade was around $137, Houston to Flushing around $100 a metric ton, and Houston into the Far East was $288 a metric ton. Today, it is at $73 a metric ton, Flushing $59 a metric ton, and into the Far East $143 a metric ton.

Okay, great.

As Jim said, they have come down significantly.

They'll come down further.

Yes.

Okay, got you. Fair enough, and then on the gathering and processing side, this is the level for you guys. Can you talk about what you're seeing in terms of volumes? I know producers have come out and talked about what they might see for next year in terms of potential declines, but if you could just frame what you are seeing in the field versus what you guys laid out or thought at your analyst day earlier this year.

I think we are seeing a little bit of a mixed bag. We get a lot of producers that we talk to that are hedged out through 2016 at some pretty reasonable prices and we got others who aren't so far hedged out. We're still seeing a little bit of growth, and will that turn over, I think, is yet to be seen. It is going to depend on what prices do.

Okay, is it -- are you pretty much in the ballpark of where you guys thought things would be at the beginning of the year when you had your analyst meeting or is it things getting a little worse? How has your outlook changed at all, if any?

I don't think it's changed very much to where we are at today. Going forward, I think it's still yet to be seen.

Okay, got you. And then, where are total propane -- where is the capacity on the propane inventory side? I thought we had reached that level a while ago, but somehow the volumes keep moving up.

Well, obviously, we're approaching 100 million barrels as an industry stored. There is not an exact number, but it is not like people were talking about at Cushing eight months ago that we're going to reach tank tops. Markets see this is a massive number and propane is pricing itself accordingly to go. It is really that simple. It has to go. It's going. Does that make sense?

Yes, yes, it does. And then, just going back to your previous comments on looking to work with your producer customers, so are you saying that we -- when would we see this movement? You guys have laid out, obviously, a capital budget over the next couple of years with a backlog. Could we see that backlog change sooner rather than later, or are we -- or is it too soon to say?

I think the projects that we have are pretty much on target, so I think the outlook would really maybe affect things that we haven't announced yet that we are still working on.

Okay, but nothing for this year?

No.

Okay, got it. Thanks, guys, appreciate the time.

Michael Blum, Wells Fargo.

Thanks, and I will echo everyone's sentiments, Mike. Congrats and we will certainly miss you.

Just following up on Faisel's question, maybe -- and I apologize if I missed it, but do you have a sense of what 2016 growth CapEx is going to look like, in rough numbers?

I think we're somewhere in the $3.2 billion to $3.5 billion.

That would be inclusive -- that would be inclusive of sustaining capital.

Okay, got it. And then just, Bryan, back to your comments, you talked about maybe temporarily getting up to about 4.25 on a debt to EBITDA basis and then trending back down to your normalized range.

Can you just talk about any kind of sequence or timing that you can provide around that quarterly or yearly basis? And then, are you -- given what is going on in equity markets now and where your stock price is, are you thinking to lean a little heavier on the debt side versus equity in the near term to fund some of these projects? Just want to get your thinking on how you are financing growth in this type of market.

Yes, Michael, this is -- really what I had mentioned is really a continuation of what we have been talking about. It began at the late stages of some of these large-scale projects. You have a little bit of an elevated leverage level. However, it is consistent with what we actually laid out with the rating agencies the earlier part of this year.

As far as when you -- we don't really talk about this and I know many others do, but when we look at the pro forma of these projects that are fully contracted, then we are still in that range of the 3.5 to 4 times and that is really what certainly the rating agencies are focused on. So that's what we are focused on as well.

And so, we look at the market to make sure that we are keeping within that range and not pushing that level. So no, we are not really looking to lean on leverage.

And Michael, when you look at leverage just using the numbers that are in the earnings release, you tend to not see that we have got big projects that are coming online that have chewed up capital for a while. Once those come online, it takes a full 12 months for it to show up in the income statement, the cash flow statement, a full 12 months of cash flow. The rating agencies tend to look at it a little differently.

Okay, so just to be clear, when you were talking earlier about getting up to 4.25, that was only just a straight trailing 12-months calculation and not with the pro forma credit?

That is correct.

Okay, got it. Thank you.

Chris Sighinolfi, Jefferies.

Good morning and, Mike, I echo all prior words of congratulations and appreciation.

I just want to pivot quickly and, Jim, you had made comments on the export side, both ethane and LPG, about contract additions being added in the out years and there was an earlier question as to where the volumes were potentially coming from. I guess two questions related as a follow-up to that and I don't know if this is for you or for Al.

But broadly speaking, what types of players are adding contracts in those out years, and do you think that's something that is occurring broadly across the companies with export facilities now or is that something you think is really unique to EPD?

And then the second question is not where are the volumes of propane coming from, but more where do you envision them going? What sort of regional or global end market do you think is an area of incremental growth as you look at that market?

Yes, this is Al and I will try to keep this as simple as possible.

Looking at our customers, we have, I will say, close to 30 different export contracts in play on propane and butane in combinations. About -- most of our customers we align with, and again, they are varying. We have consumers, trading companies. But most of our customers are aligned with end-use consumers.

And about 54% of the volume or over 50% of the volume that moves out of Enterprise goes into the Americas, into the Mexico, Caribbean, South American markets for domestic consumption. We have our next largest percentage going into the Asian markets and it is somewhere a little bit north of 30%, and then the balance is going into northwest Europe against both domestic and petrochemical demand.

So, a lot of -- like I said, a lot of our markets are going to -- I mean, what we see with our exports, are going directly to consumers or aligned with consumers.

And Al, you have featured in your slide presentations those breakdowns of end-market deliveries for a couple of years now. Do you think, broadly speaking, that the breakdown is going to remain rather static or do you envision, for example, the Asian market taking more? Are the Americas saturated yet or is there still a deep opportunity in Central and South America, Caribbean, and Mexico?

We are seeing growth in those domestic markets for domestic consumption. We do -- we are seeing the Asian market continually increase with the continuing development of their petrochemical demand.

We are signing contracts and we are close to one that is rather large with an Asian company, but we are seeing more and more contracts signed with Asian companies, Al?

Yes, sir.

And is the VLGC profile of deliveries that you talked about, is that what's making people more comfortable in these foreign markets, signing for supply, or is it just the end-market need that they are looking at, or is it both?

I think it is also they love the idea of diversifying their supply sources to the US Gulf Coast when they are traditionally -- where we have price transparency. Traditionally, they've pulled out of the Middle East at a posted price, which frankly was never predictable, I don't think, Al.

So they used to. They tied the posting to crude oil and there was predictability. I don't know that it's tied to anything now, other than their view of supply and demand.

But what we see, and I think we are seeing it on our condensate, we're definitely -- is that Asian companies love the idea of diversifying their supply to a market that has price transparency.

And I think something important to note is look at who is basically building or buying the new vessels. You're looking at going all the way to consumer, these vessels are being built to -- in anticipation of new demand.

Okay, great, thanks so much for the color on that.

If I could add one more, just pivot quickly to the onshore crude business performance in 3Q, it looks like ex EFS this segment would have been down a touch, maybe 9% or so quarter on quarter. I am just wondering what the drivers of that were on a more granular level, and then what perhaps expectations for those drivers might be in 4Q and into 2016. Sorry if I went too fast.

I think a large part of that is probably the spreads between Cushing and the Gulf Coast and the Seaway and what we are doing with our transport on the Seaway and what other people are doing with their transport on the Seaway. The LLS WTI has just come in quite a bit and so the spreads aren't there, so that's probably a large contributor to this.

Okay, perfect. Thanks a lot, guys.

Robert Balsamo, UBS.

My questions have actually been answered at this point. Thanks, guys.

Helen Ryoo, Barclays.

Just following up on Mike's question about the leverage, and Bryan, you said pro forma for the project you are already at 3.5 to 4 times, so does this mean that next year you don't really need to do any significant equity or asset sales to meet your leverage target for next year?

Helen, I would tell you with -- it always depends on -- so we are going through the 2016 planning process right now, so it is a function of that excess distributable cash flow as well.

But as far as -- I would say that it is going to be relatively similar to previous years. So I don't think you're going to see a spike at all. And it might actually be a little bit lighter equity lift than you have seen in the past.

Okay, and then you will be using, I guess, a combination of ATM and overnight or are you (multiple speakers)

It is dependent -- it is always depended upon market conditions.

Got it, okay. And then just a quick follow-up on the -- I guess Jim's comment on Aegis. I think Jim said 100 remaining to fill that up and the customers you're talking with need 300, so could you remind us if that project is -- that capacity is expandable at a pretty reasonable cost?

It is probably not that expandable, is it, Leonard? Not to that degree, anyhow. It is called a high-class problem, Helen.

Sure.

We have got other pipe between there. We may very well -- not all of this capacity will come on. It is four companies looking at ethylene plants. I guess all of them in Louisiana, Tony? And will all of them be built? No, but will a couple more be built? Jim Teague thinks so. And we probably got a couple of pipelines over there that we could -- would be willing to repurpose to get more of that volume.

Okay, got it. All right, thank you very much.

Jennifer, this is Randy. We have time for one more question.

Gil Alexandre, Darphil Associates.

My question has been answered. Mike, all the best wishes on your retirement and really thank you for your help over the years.

Thanks, Gil, appreciate it.

It has been refreshing hearing all you guys congratulate Mike. From the Enterprise people, he is getting best wishes, but no congratulations. (laughter).

I am leaving it in good hands. There's a lot of good people here. Seriously, it won't miss a beat.

Okay, thank you. Jennifer, if you would give our listeners the replay information and we will close. Then the call will be ended. Thank you.

Absolutely. A replay of this call will be available from today, October 29, 2015, at approximately 1 PM Eastern until Thursday, November 5, 2015, at the night. To access this replay, please dial 1-800-585-8367 or 404-537-3406 and enter the passcode of 60430685. Again, those phone numbers are 1-800-585-8367 and 404-537-3406 with the ID number of 60430685.

Thank you, Jennifer, and that ends the call for today. Thank you for joining us. Have a good day. Goodbye now.

Thank you for your participation. This does conclude today's conference call and you may now disconnect.