Enterprise Products Partners LP (EPD) 2018 Q1 法說會逐字稿

Good morning. My name is Sia and I will be the conference operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners L.P. Quarter 1 2018 Earnings Conference Call. (Operator Instructions) At this time, I would like to turn the conference over to Mr. Randy Burkhalter. Please go ahead, sir.

Thank you, Sia. Good morning, everyone, and welcome to the Enterprise Products Partners conference call to discuss first quarter 2018 earnings. Our speakers today will be Jim Teague, Chief Executive Officer of Enterprise's general partner. And he will be followed by Bryan Bulawa, Chief Financial 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, 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 it over to Jim.

Thank you, Randy. Our business performed exceptionally well in the first quarter, including records of net income, gross operating margin and adjusted EBITDA. Excluding proceeds from asset sales, distributable cash flow was also a record. Record NGL and marine terminal volumes increased crude oil pipeline transportation, and marine terminal volumes and higher natural gas pipeline transportation volumes led to 3 of our 4 business segments reporting higher results compared to first quarter last year. These results were allowing us to consistently grow our profits, grow our distributions plus make substantial headway towards equity self-funding. With a comfortable 1.5x distribution coverage, we retained over $450 million to put back into our future growth. And Enterprise is probably timed to quit thinking downturn. These results continue to prove that our future has really never looked brighter.

The first quarter, we were still in the ramp-up phase for 2 of our largest projects, our PDH plant and the Midland-to-ECHO crude oil line pipeline. Both projects have now officially been put into service. On April 16, we announced that our Midland-to-ECHO crude -- pipeline moved into full service with an expanded capacity of up to 575,000 barrels per day. Supporting the Midland-to-ECHO pipeline are several strategic supply aggregation projects, including the new 140-mile pipeline from Loving County, Texas to Midland that is expected in service this quarter.

Recent extreme basis differentials for Midland have been a significant source of attention. Pipeline, rail and fracking capacity out of the Permian appears to be very tight for at least the next year. And with no significant additional takeaway expected until the second half of '19, the timing of our new pipeline couldn't have been better. In that regard, our press release notes a large noncash mark-to-market charge for the first quarter.

Throughout 2017, as the Midland basis widened to values that exceeded our committed piece, we felt it was appropriate to take some price risk off the table and began a capacity hedging program. As prices rose and production moved up, that basis began to blow out significantly, which resulted in a large noncash mark-to-market impact. As these hedges roll off in future periods, these unrealized mark-to-market adjustments will be reversed against actual revenues for those hedge periods.

A PDH plant began commercial service in April. Thus far in April, PDH has operated at an 84% average utilization rate. It's been a long time coming, but now it's time to enjoy the benefits of this project's solid supply and demand fundamentals. Substantial fee-based cash flow with upside, the end of some very expensive bridging agreements and it's a great fit in our C3 value chain.

Work on our iBDH is progressing with an expected second half next year start up. As a reminder, half of this plant will fill excess capacity we have in our high-purity isobutylene and MTBE plants, which will allow us to upgrade additional NGLs into higher-value products. The other half is committed to an investment-grade customer through a 15-year fee-based contract on a feedstock plus cost basis.

We have several ethylene projects, including ethylene storage, a new pipeline and our joint venture ethylene export dock, all scheduled for late until 2019.

In NGLs, we started commissioning our first gas processing plant at Orla in the Delaware Basin in April. We also have 2 other processing plants under construction at Orla with completion of our second Orla plant expected in the fourth quarter of this year and our third plant in the first half of 2019. We're also in the process of commissioning our ninth fractionator at Mont Belvieu, which is scheduled to be fully operational this quarter. Obviously, fractionation capacity is in high demand and is a key component in our value chain.

Last, our Shin Oak pipeline is progressing. This pipeline is expected to begin operation in 2019, and we feel strongly that capacity expansions are imminent in order to keep up with the needs of our Permian customers.

Summarizing our NGL projects between new processing plants, pipelines and fractionation, we have a considerable amount of NGL assets under construction, most of them supported by the Permian Basin with growing demand on the Gulf Coast and Mont Belvieu. Reality is as much as we have going on out there, we're really not done finding opportunities in that basin. Besides Midland crude oil basis differentials probably the second most-written-about topic these days is the collapse in ethylene margins. When we announced our expansion into petrochemical midstream last year, we said that we expected price volatility, and it's fair to say that's begun. But don't think of this as a signal to give up on U.S. ethylene producers. Crackers have been running at a 95% rate as most U.S. petrochemicals actually focus on ethane to polyethylene where margins are currently about double that of historical norms. U.S. petrochemicals had extremely positive long-term fundamentals because of rich shale gas, which has given them a significant global advantage.

Industry expansions of this magnitude in the U.S. don't come without opportunities for Enterprise. Enterprise has the premier supply position in the industry to meet this growing feedstock demand, and we're moving further into providing midstream-type services for both domestic and global petrochemicals. The refined products in late 2018, we expect to complete new infrastructure consisting of pipelines, storage and dock upgrades, which will significantly increase our refined products export capabilities at Beaumont as demand for U.S. refined products continue to grow especially in Latin America.

Few words on demand growth. While the new crackers were delayed a little bit by Hurricane Harvey, those projects are now coming online. Petrochemical demand for ethane is currently over 1.5 million barrels a day, and Tony Chovanec believes it could exceed 1.8 million barrels a day by year-end. Also on the topic of new demand, Enterprise liquid hydrocarbon exports continue to increase each month led by increases in demand for U.S. crude. The name of the game for U.S. production is exports, exports, exports, exports of crude oil, natural gas, ethane, LPG, petrochemicals and refined products. As shown again by the results and statistics we published today, we don't think anyone is better situated to serve growing global demand in Enterprise.

Finally, I ended last quarter by saying that we feel really good about 2018 and our long-term opportunities. Obviously, that sentiment remains. Institutional investors and research analysts recently named Enterprise Products as one of the most admired companies in America in the institutional investor annual survey. We want the investor community that follows us to know how much we appreciate the strong support that you continue to show for our company. We all understand that the investment community has broadly shown a strong preference for investments outside of energy, and the midstream sector has been out of favor, admittedly somewhat self-inflicted. Regardless, Enterprise will continue with what we have always done, deliver results, consistent distribution growth and generate long-term value. Obviously, long-term investors in the debt markets recognize the opportunities they have in Enterprise. We feel strong that there will come a time when the equity markets, including the retail community, will quit focusing on the sector we're in and instead focus on the quality company we are. It's kind of like no one -- not one of us can pick the family we're in, but we are responsible for our own performance. We will continue to be responsible for our performance.

And with that, I'll turn it over to Bryan.

Thank you, Jim, and good morning, everyone. I'd like to echo Jim's enthusiasm. We are pleased with our record operational and financial performance. While our first and fourth quarters are typically seasonally strong periods, our operational and financial performance over the last several quarters demonstrates Enterprise is uniquely positioned to integrate its midstream system. We continue to benefit from increasing supply of domestic hydrocarbons and strong demand from both domestic and global markets. The fundamentals surrounding our business are strong, and we are excited about the prospects for continuing growth.

I will now review a few income statement items for the first quarter, reiterate our expectations for our growth and sustaining capital expenditures for 2018 and wrap up with an overview of our balance sheet metrics and equity funding objectives.

Starting with the income statement items. Net income attributable to limited partners for the first quarter of 2018 was $901 million or $0.41 per unit on a fully diluted basis compared to $761 million or $0.36 per unit on a fully diluted basis for the first quarter of 2017. We recognized a noncash $37 million gain in the first quarter of 2018 or $0.02 per fully diluted unit attributable to the March 29, 2018, step acquisition of the remaining 50% equity interest in our 150 million cubic feet per day, Delaware Basin gas processing plant located in Reeves County, Texas. The purchase price for this ownership interest was $150 million. We also recognized a total of $140 million noncash mark-to-market loss during the first quarter of 2018 primarily due to the Midland to Houston and Midland to Cushing basis hedges.

Depreciation, amortization and accretion expenses were $18 million higher compared to the same quarter of 2017 due to the Midland-to-ECHO pipeline and a few smaller capital projects being placed into service since the first quarter of 2017.

Total capital spending in the first quarter of 2018 was $1.1 billion, including $66 million for sustaining capital expenditures. For the full year of 2018, we currently anticipate investing approximately $3.2 billion to $3.4 billion in growth capital expenditures, with this range including the aforementioned acquisition of the 50% interest in the Delaware Basin Gas Processing facility. Further, we expect our sustaining capital exposures for 2018 to be approximately $315 million.

Moving to our balance sheet. At March 31, 2018, our total debt principal outstanding was $25.6 billion. The average life of our debt portfolio was 14.8 years assuming the first call date for our hybrids, and our effective average cost of debt was 4.6%. It should also be noted that over 90% of our debt portfolio is fixed rate, thereby insulating our cost-of-debt capital in a rising interest rate environment.

On February 1, we issued an aggregate of $2.7 billion in the debt capital markets, comprised of $1.25 billion of 4.25% senior unsecured 30-year notes, $750 million of 2.8% senior unsecured 3-year notes and $700 million of 5 3/8%, 60-year, Non-Call 10, junior subordinated notes. Proceeds from the $700 million junior subordinated note issuance were used in March of 2018 to redeem all of the $682.7 million outstanding aggregate principal amount of our 7.034% junior subordinated notes due in 2068. This redemption results in annual interest expense savings of $11.3 million.

Adjusted EBITDA for the 12 months ended March 31, 2018, was $5.9 billion, and our consolidated leverage ratio was 4.1x after adjusting debt for the partial equity treatment of the hybrid debt securities by the rating agencies and further reduced for cash and cash equivalents.

Working capital requirements remained elevated by approximately $475 million which is largely comprised of margin requirements on the exchanges associated with the recent widening of the Midland-to-Houston basis spreads against our executed Midland-to-ECHO and Midland-to-Cushing hedging programs, which is more fully described in today's press release.

When also taking into account the pro forma benefit for contracted growth projects under construction during the quarter, our adjusted leverage ratio was approximately 3.7x.

Our consolidated liquidity was approximately $5 billion at March 31, 2018, which included available borrowing capacity under our credit facilities and unrestricted cash.

Finally, during the first quarter, we retained $458 million in excess distributable cash flow, which alone funded 45% of our first quarter 2018 growth capital expenditures. And just to reiterate Jim's comments in the press release, when factoring in our anticipated retained distributable cash flow for the full year of 2018 and expected proceeds from the distribution of reinvestment program for or our DRIP and the employee unit purchase program or UPP, we do not anticipate any additional external equity needs for this year. For 2019, we continue to anticipate a fully self-funded equity model excluding the DRIP and the UPP participation on an approximate $3 billion growth capital investment profile while preserving our targeted leverage objective of 3.75x to 4x.

And with that, I'll turn the call back over to Randy for questions.

Thank you, Bryan. Sia, we're ready to take questions from our listeners.

(Operator Instructions) The first question will come from Jeremy Tonet with JPMorgan.

Good morning. Congrats on the strong quarter. I was wondering for the Midland pipe how you were -- how were you able to expand it to 575. Was this drag reducing agents? Is this the final level of expansion? Or could this be pushed further?

It was primarily due to drag reducing agents and very little additional upside over what we've announced.

Great. And then just want to go a bit more as far as the growth projects in the future. You guys seem to be having lot of conversations, but just want to see a bit more -- this could be -- what part of your business this could be? Is it more in the downstream petrochemical side? Is it more on the Permian side? Are there other areas that you see growth? Anything that you can share with us there?

I think the answer to your question is yes.

The next question will come from Tristan Richardson with SunTrust Robinson.

Just curious in terms of the CapEx outlook for this year seems to be up a little bit. Is it just pulled forward from current projects that are on plan?

Tristan, it's Bryan. Some of the movement is partially because of the acquisitions that we've already announced with the one I mentioned in the script with respect to the Delaware Basin gas facility as well as, if you recall, we also purchased a land on the Ship Channel. So those acquisitions and then you also had a little bit of scope changes with some existing projects, which have expanded the spending on those projects. But to (inaudible) be clear, that's not a (inaudible) but complete expansion of those existing projects.

That's helpful. And then just in terms of Shin Oak, you guys have talked a little bit recently about anticipating early expansions on that. Just curious sort of what the factors are that are influencing decisions on the initial capacity designed for Shin Oak.

We're seeing more volume. We're building more plants. Toni, you got anything? I mean that's the essence of it. We've been pleased with how much people are wanting to move. I mean, people get nervous about takeaway in the Permian. Tony?

I would say the Delaware Basin part of the Permian really, really continues to exceed. And that's a large reason for the want for capacity. Anything to add, Tug?

Yes. That's exactly what the customer wants. We're seeing very strong interest in it.

The next question will come from Chris Sighinolfi with Jefferies.

Much of the question -- much of the discussion around Enterprise's export activity has centered on the Ship Channel Beaumont and Corpus, but I did see an industry article last week suggesting you guys had a VLCC in Texas City. I thought the draft there was too shallow to permit that caliber vessels, so just curious what you're working on in Texas City. Any color will be helpful.

Sure. This is Jim. First of all, all the press talks about is Enterprise's Texas City dock, and it's really not Enterprise's Texas City dock, it's Seaway's Texas City dock, which is a joint venture between Enterprise and Enbridge. And we work closely on those Seaway docks at Texas City and Freeport. So I was at Monaco, I'd get little irritated seeing Enterprise's Texas City docks. So whoever mentioned, it is -- Enbridge is a partner in that. But the only thing we did is we want to see what's possible, so we brought VLCC in. We didn't load anything on it. All we're doing is taking measurements and seeing if the load arms work and we're evaluating the information we've got so far. Preliminarily, it looks good. You're right about the draft. The concept would be, we'd load a lightering vessel and follow the VLCC up and transload it, so pretty simple concept we think, but we think it may grow legs.

To understand it, Jim, so load -- partially load the vessel at the dock then ferry it out and then fully load it offshore?

Yes, we can probably get, Brent, 1.1 million, 1.2 million barrels on it?

Yes.

And then would have a lightering vessel loaded, say, at the Houston Ship Channel that follow each other out and transload. We're -- frankly, right now, we are just seeing, physically does it work? And then we'll take a look at the economics and we're talking to some people that are in that business to see if we can put legs to this kind of a neat concept.

Yes, it's not part of what I had been considering before. We've heard some other peers talk about offshore activity but not the sort of hybrid option you're talking about. That's interesting. Separately, Jim, I had a question on the Midland-to-ECHO pipe. I hadn't realized there was a 20% outstanding option on that line. Probably just an oversight on my part, but I'm curious if any of the other in-flight expansions include ownership options from third parties we should be paying attention to.

On that pipeline, Jeremy -- is it Jeremy -- Chris, on that -- you mean on Midland, Sealy?

Yes, midland, Sealy. I hadn't realized it was that option, so I was just curious. I guess, 2 questions, one is $200 million roughly the proportional cost of construction? And two, are there other assets that you're building that I should pay or we should pay attention to have buy-in options either by shippers or third party?

What I'm going to do is I'll throw you back to how this company was built. Dan, we've got a number of joint ventures, everything from fractionators to gas plants you name it. And in every case, they brought more than money. They brought production or they brought offtake. So if you see us include a joint venture partner, you can bet he's bringing a lot more than money and it supports our entire value chain. I'm not going to go comment as to whether or not what we're doing that we haven't announced yet.

And Chris, this is Bryan. As far as the proportional, yes, that is representative as the proportional cost.

The next question will come from Shneur Gershuni with UBS.

Just a first off before getting my questions, just want to confirm something that you told to Tristan earlier about NGLs versus crude lines. Are you saying that customers are actually shifted and more worried about crude -- sorry, NGL capacity now and that's why you're not looking at converting the NGL line?

We didn't say we weren't looking at converting an NGL line. I think we clearly have said we're taking a hard look at that and we expect that frankly, I think we'll do it, but I'm not sure what the timing will be.

Great. Got it. Okay. And just sort of shifting a little bit here, I think Bryan had walked through why the CapEx numbers were up a little bit this year. But I was wondering where you're seeing incremental growth opportunities and how large that could be? And I ask that against the context of last year, you had lowered your distribution growth rate to be self-funded, but you've just put up a 1.5x covered quarter and you've got a lot of retained DCF. Do we get back on to a higher growth plane going forward?

Shneur, this is Randy. I guess, the first thing is the largest component to getting to self-funding from an equity standpoint was EBITDA expansion. If you would, the moderating the distribution growth was a very small part of it. And so yes, I mean, we're expecting -- the performance in the first quarter didn't necessarily surprise us. And so with that, as far as growth prospects, I think we were continuing to see good conversations around projects on the demand side. But now you're seeing more projects on the supply side as well, and I really say some of these growth opportunities really hit all 4 segments.

So would it be fair to say that the -- you weren't surprised by the performance in the first quarter that you would expect those type of metrics to continue throughout the year?

Let's not get ahead of ourselves because I think I go back to what Bryan said is our strongest quarters are our first quarters and fourth quarters and just seasonally.

Okay, fair enough. And one final question here. I recognized that you had said at the time when the FERC first put out their decision, not a material impact to Enterprise, but I wonder if it sort of restarted a conversation about the corporate structure for Enterprise? Many have opined recently that ticking the box would not necessarily impact too many unitholders. At the same time giving your CapEx spending ability to expense it, there wouldn't be much of a tax expectation going forward. Has that conversation restarted? Are you thinking about it or talking about it internally?

I don't think anymore so than what we had been in the past. I mean, we look at it periodically. It's a big step and right now, we don't see anything that's compelling, that leads us to come in and check the box. When we come in and look at valuations and things of that nature, there's not anything differentiator between an MLP and a C-corp from that perspective. So right now, I mean, we continue to monitor it. We'll update our evaluation from time to time, but no development on that front.

The next question will come from Colton Bean with Tudor, Pickering, Holt.

I just wanted to kick it back over to Midland and Sealy. With the remaining 30,000 barrels or so of unhedged, uncontracted capacity, are you comfortable with that exposure? Or would you also consider further hedging if the forward curve widens out again?

We always consider everything, Colton. Frankly, we just -- I'm not going to signal commercially what we're going to do.

Got it. And then just in terms of Gulf Coast LPG, it looks like the industry moved nearly 1 million barrels a day out of docks in Q1. Pretty close to nameplate there. So can you just remind us of your optimization activity around the cold storage? And what maybe a time line would be to reach that 35% capacity increase?

You got a good memory. You must have been at the analyst conference, huh? We're working that right now. I think, frankly, I think we have -- Bob's not here. I think we have a couple or three options that we're looking at. So that's one of them. I think what we're going to find is we've got a pretty inexpensive expansion capability. It's just which one do we pick, and what you mentioned is one of them.

Okay. So likely leaving the dock loading rates as is, I'm just figuring out how to optimize to max those out.

We could increase the loading rates.

Understood, okay. And then just a final one, on the fee-based processing, looked like volumes were effectively flat quarter-over-quarter. But you should have had a bit of a tailwind there from South Eddy. So can you just walk us through some of the moving pieces in the different regions?

This is Brad. We still -- we see our Delaware Basin continuing to ramp up. There's been a little bit of a lag from our producers from what we've seen as far as our initial schedule, but that volume is still showing up little bit late. And then in the Eagle Ford, volumes continue to grow and same thing up in the Rockies and Pinedale region. So we're flat and I think it bounces out. Some are little bit later than normal, some are little better than we anticipated.

The next question will come from Brian Zarahn with Mizuho.

On the subject of exports, it seems like crude exports exceeded NGL exports for the first time on your system. So does that trend continue in April?

This is Brent. April, the trend continues. We'll see what happens down the road. We're starting to see -- we had some cancellations in the first quarter, but it was more positive just around crude oil. But going forward, as the volumes on Midland and Sealy increase, obviously, our belief is that this will have to be exported. Then we just have to work on the next project to find more supply for crude oil.

And then sticking in the Permian, any updates on a potential gas pipe project?

This is Brad again. We continue to evaluate it, I'll echo what Jim and Bryan said. We're talking to producers, we're talking to potential partners. So we're doing everything it takes to try to figure out if we're going to make this thing fly or not.

And last one from me. Given the projects here, looking at your backlog, is $3 billion still a reasonable estimate for CapEx next year?

As far as Brian -- as far as what we're looking at, yes.

The next question will come from Matthew Phillips with Guggenheim.

Follow-up on the crude hedging program that you all initiated. I mean, the recovery there, would we expect to see that evenly spread kind of through the lifespan of that through '19? How should we view that?

Daniel, you got that?

I do Jim. This is Daniel Boss. If you look at the total recognized loss during the first quarter on that program and then combine that with what was recognized through December of 2017, we expect about $118 million to reverse in the second through fourth quarter of 2018, an additional $40 million to reverse in 2019.

Got it. And then on the NGL conversion, once you have sufficient commercial interest, how long will that take from when you decide until when it's in service?

Less than a year.

The next question will come from Darren Horowitz with Raymond James.

Jim, my first question, with a lot of the new crackers expected to start up, let's just say in the May, and even in the June if they get pushed back a little. What's your in-house view on regional ethane netbacks? Is there the opportunity if we can soak up some of that rejected ethane and ethane prices get up to about $0.30 a gallon by the middle of this year and maybe build it from there hypothetically on pace to exit in that mid-$0.30 range? Do you guys foresee some regional arbitrage opportunities happening? And what do you think that could mean from an opportunistic process and perspective for you?

Took long enough to get on the phone, Darren. Brent, you want to take a shot?

I mean, in terms of ethane prices, what you're seeing is some competition for the pipe. And so when you see some stranded barrels up in Conway, that leads to potentially some ethane that may not get in the pipe, which lessons supply. I think it's fairly well known that frac space is tight right now and we haven't seen that for a while. So I can create a bullish case for ethane. I don't think it's a long-term bullish case. I think it's probably more of a short-term bullish case. And then once you see pipelines come online and frac space starting to lighten up as the fracs come online, then I think maybe things get back to normal. But certainly in the short term, there's going to be a fight for pipeline space.

I think what he just said is yes, we see arbitrage opportunities. Is that what you said, Brent?

Yes, in more words, though.

Okay, I got it. And then Jim, just kind of a big picture more hypothetical question. It seems like this trade war issue or tariff issue with the U.S. and China continues getting kicked around. And recently, there's been more discussion talking about what that could do with regard to U.S. propane exports, and any thoughts on possibly an issue with reneging on long-term binding contracts. And if that happens, then that could discount barrels to find other markets, and maybe the Chinese demand could be met by a bit of mid-East barrels possibly depressing U.S. product and leaving it stuck at the dock. How do you navigate all this mess? How do you think it plays out?

First of all, I get out of the fetal position in the corner of my office. I'm not worried about it, Darren. First of all, there's been no tariffs imposed. We don't have a single contract -- no, we got one contract with a Chinese company, I think. And if it happens, product flows adjust -- there's a demand for LPG. And it's not just China, it's Korea, it's India just (inaudible). So I don't worry that, okay, China won't import our propane. Well, they're going to import somebody's propane, which is going to leave somebody else needing propane.

Yes. So maybe the better way to think about it is the physical product or price to move?

Yes.

Okay. And then finally from me, Bryan, just one quick housekeeping question. And I guess, we can do the math in reverse, but what's the aggregate value of the Midland-to-ECHO hedges? And more importantly, what's the timing and magnitude as to when they get settled between now and the end of 2019?

I will let Daniel answer that.

So Darren, the aggregate value is $156 million that we recognized through March. And like I mentioned before, if you look at that on the way it rolls off, about $118 million rolls off for the balance of this year and then $38 million for 2019. Now that implies that these valuations are as of March 31. So as spreads continue to widen in April, we continue to see additional losses that materialize. So you might see additional losses in April and in the second quarter, but that will just lead to even larger reversals to the upside from that period and forward.

The next question will come from Keith Stanley with Wolfe Research.

Just a quick one on PDH. Should we expect another material step up in Q2? Or were you already getting most of the run rate contribution in Q1?

Yes. You should see another step up in Q2 because really, we were operating at around 60% of capacity for February and March. And now we're starting out the second quarter where we're approximately 84% in April.

Okay, great. And just a quick clarification as well. We were discussing all the sort of mark-to-market impacts around the Midland Sealy hedges. All of this is stripped out of EBITDA and DCF, so it's not really impacting those headline numbers, right?

Keith, that is absolutely correct.

The next question will come from Barrett Blaschke with MUFG Securities.

Just with the ramp-up that we saw in petrochemical, I know a lot of this is PDH, but how much of this is just pure commodity sensitivity in that business line? And what else is going on that's pushing that?

You mean, in our petrochemicals?

Yes.

One of the things, every pound we produce off the PDH is a bridge pound we don't have to sell. Those bridge pounds were not great deals for us. So every time we produce a pound off the PDH, we sell a pound off the splitters at quite a bit more than we were selling it for. Is that it, Bryan?

Yes, that helps.

The next question is from Vikram Bagri with Citi.

I have one more question on hedging. Can you talk about the extent of hedging on the basin pipeline and what the average hedge price is? Anything you can share on that front? We understand it, as you know, (inaudible) very well, but anything you can talk about (inaudible).

I won't talk in volumes, but we have had some basin pipeline spaced out.

Okay. And any hedge price or do you have a hedge price on that pipeline?

I can't understand him.

Did you ask if there was a fixed price on that.

Okay, yes.

It's not at various levels. I mean, I don't have the number right in front of me what the weighted average is, but it's obviously less than what the market is today.

Okay, The second question I have was on the Seaway pipeline. Any update on that in DRA on this....

Seaway pipeline hedges?

No, DRA on Seaway.

DRAs on Seaway pipeline system.

That's a monthly optimization exercise. We look at running DRA versus running horsepower. But that's just -- it's just an optimization exercise.

I apologize. I'm in a conference room, so I'm going to try to speak loudly. I understand that Seaway Pipeline system can be expanded by 100,000 barrels a day. That was my understanding from your Analyst Day. Is that still the case? Can you expand it by 100,000 barrels a day by adding DRAs?

I'm not -- we can do a little bit, but I don't know about where the 100,000 barrel a day number came from.

Somebody -- maybe there was ships passing in the night because I don't remember us saying that we're expanding it at 100,000 barrels a day.

Okay. I can follow up offline. Thank you very much.

The next question will come from Michael Blum with Wells Fargo.

I just want to go back to your original comments on the ethylene margins and just make sure I understand. So your view is basically that it's a temporary issue and that globally, there will be enough demand to absorb all the derivative products as you this big ramp up and supply in the Gulf Coast? Can you just go back over that?

I'm going to turn it over to Tony in a minute Michael. But our fundamental as we look forward and we -- (inaudible) I tell Tony all the time, (inaudible), he is wrong, but his trend is right. And what we see in ethylene derivatives and propylene derivatives over the next few years is a pretty strong growth in demand. Tony?

And I think to Jim's point earlier, for some reason, the industry has decided to focus on ethane to ethylene margins. But that's not the endgame and really not where the focus should be because that's not where petrochemicals stop.

If you're a merchant producer of ethylene, and I think there's 2 plants in this country that are totally merchant producers, you're probably sweating right now. But if you're are a Dow or an Exxon Chemical, you're looking at ethane to polyethylene margins of $0.50 a pound, Tony?

Yes.

Not bad.

Okay, that's helpful. My second question is, I guess, just in light of some of the issues in the northeast with NGL takeaway on the Mariners systems. Have you seen any renewed interest in shippers looking to maybe rejuvenate that project and try to get an ATEX or another project to move NGLs straight down to the Gulf Coast?

I wish I could say yes, Michael, but I can't.

The next question will come from Dennis Coleman with Bank of America Merrill Lynch.

It's Dennis Coleman. I just have one quick question. Mine have mostly been hit. But Bryan, could you tell us what was the DRIP in the employee purchases for the quarter?

For the first quarter, it's inclusive of the Duncan family's participation. It was $177 million.

So excluding, I guess, the Duncan participation, is that a good run rate for the rest of the year?

It would appear so, yes.

Okay. So I guess, just sort of backing into the strength of the retained earnings not likely to need the public markets at all or even for an ATM this year?

Not at all. That's correct. And Dennis, we haven't touched on the ATM since the first week of July in 2017.

The next question is a follow-up from Chris Sighinolfi with Jefferies.

All my questions were answered. Sorry about that.

Sia, do you want to give our listeners the replay information and -- for this call, I'd appreciate it.

Ladies and gentlemen, today's conference call will be available for replay beginning today at approximately 12:00 p.m. Eastern Standard Time. If you would like to dial in to the replay, that number is (855) 859-2056 or (404) 537-3406. Please enter conference ID number 6796419.

Thank you, Sia. And thanks, everyone, for joining us today for our conference call, and have a good day. Goodbye now.

Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.