Martin Midstream Partners LP (MMLP) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Martin fourth-quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn conference over to our host, Bob Bondurant. Sir, you may begin.

Thank you, Shannon. Let everyone know who is on the call today, we have Ruben Martin, Chief Executive Officer and Chairman of the Board; Wes Martin, Vice President of Business Development; and Joe McCreery, Vice President of Finance and Head of our Investor Relations.

Before we get started with the financial and operational results for the fourth quarter, I need to make this disclaimer. Certain statements made during this conference call may be forward-looking statements relating to financial forecasts, future performance, and our ability to make distributions to unit holders. The words anticipate, estimate, expect, and similar expressions are intended to be among the statements that identify forward-looking statements made during the call.

We report our financial results in accordance with Generally Accepted Accounting Principles, and use certain non-GAAP financial measures within the meanings of the SEC Regulation G, such as distributable cash flow and earnings before interest and taxes, depreciation and amortization, which we call EBITDA. We use these measures because we believe it provides users of our financial information with meaningful comparisons between current results and prior reported results, and it can be a meaningful measure of the Partnership's cash available to pay distributions.

Distributable cash flow should not be considered an alternative to cash flow from operating activities. Furthermore, distributable cash flow is not a measure of financial performance or liquidity under GAAP, and should not be considered in isolation as an indicator of our performance. We also included in our press release issued yesterday a reconciliation of distributable cash flow to the most comparable GAAP financial measure. Both our earnings press release and our 2010 10-K are available at our website, www.martinmidstream.com.

Now I'd like to discuss our fourth-quarter performance. For the fourth quarter of 2010, we had net income of $6.5 million or $0.30 per limited partner unit. In the fourth quarter, because of certain commodity and interest rate hedges that did not qualify for hedge accounting, our net earnings were negatively impacted by $4 million or $0.23 per limited partner unit. So disregarding this net non-cash negative impact on our financials, our earnings would have been $10.5 million or $0.53 per limited partner unit.

As with other MLPs, we believe the most important measure of our performance is distributable cash flow. Our distributable cash flow for the fourth quarter was $22.2 million, a distribution coverage of 1.53 times. And for the 2010 year, our distribution coverage was 1.16 times. Based on our current $0.76 quarterly distribution, and yesterday's close price of $38.88, our LP units are currently yielding 7.8%.

Now I would like to discuss our fourth-quarter performance by segment compared with the third quarter. In our Terminaling segment, our cash flow, which is defined as operating income plus depreciation and amortization, but excluding any gain on the sale of assets, was $8 million in the fourth quarter compared to $8.7 million in the third quarter. Of this $700,000 decrease in cash flow, approximately $600,000 was in our Specialty Terminal division. The decline in Specialty Terminals was primarily a result of a reduction in asphalt through-put volumes caused by a seasonal decline in demand for asphalt in the fourth quarter.

Looking forward to 2011, we anticipate growth in our annual cash flow of our Terminaling segment. This will be primarily driven by the new cash flow from our shore-based terminals, which are associated with the drop down transaction of the L&L terminaling assets from our general partner. This transaction closed on January 31, 2011. The purchase price of these assets was $36.5 million, and is accretive to our unit holders as we purchased the assets at an approximate 7 to 8 times multiple to cash flow. We now have 27 shore-based terminals, and we consider ourselves to be one of the largest providers of fuel and lubricant services to the Gulf of Mexico offshore drilling and production industry.

In our Natural Gas Services segment, we had operating income before asset sales of $2.5 million in the fourth quarter, compared to $400,000 in the third quarter. In the fourth quarter, we had a $150,000 non-cash commodity hedging mark-to-market loss in the fourth quarter, compared to a $14,000 non-cash mark-to-market loss in the third quarter. So excluding the non-cash mark-to-market adjustments, we had operating income of $2.6 million in the fourth quarter, compared to $0.4 million in the third quarter. Complementing our Nat Gas Services is our cash flow from unconsolidated entities, which is primarily our 50% owned operating interest in the Waskom Gas Processing Plant. Also, Waskom owns 100% of Waskom Midstream, which is the acquisition Waskom Gas Processing made in January of 2010.

For the fourth quarter, our cash flow generated from our unconsolidated entities in the form of distributions was $2.9 million compared to $5.4 million in the third quarter. So excluding the impact of non-cash mark-to-market adjustments, and including our distributions from our unconsolidated entities and adding back depreciation and amortization, our Nat Gas Services cash flow for the fourth quarter was $6.9 million compared to $7 million in the third quarter. During the fourth quarter, our average processing volume at the Waskom plant was 296 million per day compared to 298 million per day in the third quarter. Waskom's current processing contract mix is 42% of liquids, 39% fee-based, 16% of proceeds, and 3% keep-whole.

A year ago, 34% of our processing contracts were fee-based, so we continue to make efforts to increase our percentage of fee-based processing contracts in order to reduce our commodity price exposure in this business. We currently have 45% of our 2011 volumes hedged, and 14% of our 2012 volumes hedged. For 2011, when factoring in our current hedge volumes, a $1 change in natural gas pricing affects our cash flow $400,000 per year, and a $10 change in oil pricing affects our cash flow $700,000 per year.

Looking forward to 2011, we anticipate growth in our cash flow of our Natural Gas Services segment. One of the biggest providers of cash flow growth in this segment will be from the Darco Gathering System, which was purchased in November of 2010 for $25 million. This system is dedicated to gathering Haynesville gas in Harrison County, and was purchased at an approximate 8 times cash flow. Also we are seeing somewhat consistent horizontal Cotton Valley drilling in and around our systems in northeast Texas. This is good for us, as Cotton Valley gas typically has stronger natural gas liquids content, which feeds our Waskom Gas Plant.

Now on our Sulfur Services segment, our cash flow was $10.6 million in the fourth quarter compared to $800,000 in the third quarter. Our cash flow on the fertilizer side of the business was $5.4 million in the fourth quarter compared to $2.1 million in the third quarter. Although our fourth-quarter fertilizer volume was down slightly, our gross margin per ton expanded 122% due to strong fertilizer demand. We see a continued strong demand for fertilizers in 2011, as agricultural commodity prices are at or near all-time highs. Also, we anticipate our new ammonia sulfate plant to be on-line within the next two weeks, which should increase our overall fertilizer margins. This is primarily because this plant will be able to upgrade a previously discounted waste stream into a fully-valued fertilizer cut. Also with this new plant, our maintenance costs should be significantly reduced.

On the pure sulfur side of the Sulfur Services segment, cash flow for the fourth quarter was $5.2 million compared to a negative $1.3 million in the third quarter. Third-quarter cash flow was negatively impacted by a $50 per ton sulfur decrease, as we experienced margin compression in the third quarter. In the fourth quarter, the opposite happened; the sulfur market rose $65 per ton and our margins expanded. Because we have experienced, and we continue to see, a much more volatile sulfur market due to swings in fertilizer demand, we have restructured our most significant sulfur sales contract effective January 1, 2011. This contract is now tied to our actual supply costs of sulfur, plus a margin. This removes any significant cash flow volatility from quarterly sulfur price changes. As a result, our pure sulfur cash flow should be much more stable on a quarterly basis. We believe the structure change in this particular contract should increase our annual cash flow by $5 million to $6 million on the pure sulfur side of the Sulfur Services segment when compared to 2010.

In our Marine Transportation segment, we had cash flow of $6 million in the fourth quarter compared to $8 million in the third quarter. The decrease in cash flow was primarily on the offshore side of the business, as two of our offshore vessels have come off charter. These vessels were previously employed in the BP oil spill clean up. Looking forward to 2011, we believe our marine transportation cash flow will decline approximately 10% to 20% compared to a very strong 2010, as the benefit of the BP oil spill clean up work will be gone. We are expecting the two offshore vessels that worked full time for the BP oil spill to be utilized 50% to 60% of the time during calendar 2011, as they are currently in the spot market.

The inland side of the business remains fairly tight for our equipment, as we have significantly improved our fleet age. Because of this, we anticipate approximately 95% utilization in 2011 on the inland side of the business. We also believe pricing has floored, and has begun to slightly strengthen year-over-year.

Now I would like to turn the call over to Joe McCreery, who will speak about our liquidity and capital resources, and some of our newly planned growth projects and recent acquisitions.

Thanks, Bob. Let's start by walking through the debt components of the Partnership's balance sheet, and then highlight further details from the recent acquisitions that Bob mentioned, our capital markets activities, followed by a discussion of the opportunities that lie ahead for MMLP. On December 31, 2010, the Partnership had funded debt of approximately $374 million. This consisted of approximately $197 million of senior unsecured notes, $163 million drawn under our $275 million revolving credit facility, a long-term note payable for marine equipment of approximately $7 million, and $6 million of capitalized lease obligations. Thus, the Partnership's available liquidity at December 31 was approximately $112 million.

For the quarter ended December 31, our bank compliant leverage ratios, defined as senior secured indebtedness to adjusted EBITDA, and total indebtedness to adjusted EBITDA, were 1.8 times and 3.7 times, respectively. Additionally, our bank compliant interest coverage ratio, as defined by adjusted EBITDA to consolidated interest expense, was 3.2 times. Looking at the balance sheet, our total debt to total capitalization was 58.7%, up when compared to the September 30, 2010, quarter due to multiple asset purchases I will discuss momentarily. In all, at December 31, 2010, the Partnership was in full compliance with all bank covenants, financial or otherwise.

Now I would like to discuss some of the growth initiatives during the fourth quarter of 2010 and the first quarter of 2011. First, going back to November, as Bob mentioned, MMLP closed an acquisition through our wholly-owned Prism Gas subsidiary of approximately 20 additional miles of gathering lines in Harrison County. This purchase was a natural addition and a tuck-in to the gathering acreage of our Waskom Gas Processing facility, of which we own 50% and operate, also located in Harrison County. We paid $25 million for this asset, which we call the Darco System in our public filings, and used availability under our revolving credit facility to fund the purchase. We expect incremental cash flow from this system of approximately $3 million.

Moving to December of 2010, MMLP closed a single marine asset drop down with MRMC, the privately held owner of our general partner. The Partnership paid $17 million for this asset, $10 million of which was funded by the revolver and $7 million of which was an assumption of a long-term note. The M 6000 is a 60,000-barrel clean product offshore barge we call the M 6000, and the vessel plays an integral role in the supply chain of our shore-based terminals that supply fuel and lubricants to the offshore oil and gas industry. The M 6000 is under a new long-term charter with MRMC, and we expect incremental cash flow from the asset of approximately $1.8 million annually.

Finally, I would like to discuss the recently closed acquisition from earlier this quarter. At the end of January, MRMC purchased all the membership interests of L&L Holdings, LLC. Simultaneous to that closing, MMLP purchased 13 shore-based marine terminaling facilities and one specialty terminaling facility from MRMC through an asset drop down at a cost of approximately $36.5 million. This acquisition, with MMLP's assets and MRMC's newly branded Martin Energy Services, makes us one of the largest fuel and lubricant distribution systems on the Gulf Coast. A long-term fee-based through-put contract will provide incremental cash flow of approximately $5 million to the Partnership.

As you can see, it's been an active 90-plus days for MMLP. The net effect of these three acquisitions, coupled with the previously discussed drop down of two shore-based marine terminals during the third quarter of 2010, significantly increased our revolver balance and overall indebtedness outside of the range where we feel the Partnership performs most effectively. That range, as we previously have mentioned, is between 3 and 3.5 times debt to EBITDA.

Immediately after the L&L drop down, our credit facility showed peak borrowings of approximately $197 million. As a result, the Partnership issued additional units through a follow-on offering solely for the purpose of repaying outstandings in our facility. We believe the offering was well received by the market, as for the first time ever during a follow-on offering for MMLP, the underwriters exercised their green shoe over allotment option, and those additional units were also sold the same day the deal was launched. This is the strongest demand for MMLP units we have ever seen at or immediately following a follow-on offering. The Partnership received net proceeds of $71 million, as mentioned, all of which was used to pay down the credit facility. Giving pro forma effect to the acquisitions I just mentioned, and the February 2011 equity issuance, our credit metrics improved to the following. Our senior secured leverage is now 1.4 times, and our total leverage is 3.3 times. Currently, outstanding indebtedness under the revolving credit facility is $135 million, thus our gross availability is now $140 million.

Moving on, I would like to address several opportunities ahead for MMLP. In addition to those previously mentioned on other calls, we recently announced that we've added two additional contracts for prilling capacity at our Neches facility in Beaumont, Texas. These new reservation fee contracts with major integrated refiners will add approximately $2.5 million of cash flow on an annual basis. Also, during the second quarter we will start construction on a third priller at Neches at a cost of approximately $4 million. This capacity is necessary given that a third new contract with a third separate major is scheduled to commence on January 1, 2012.

We can't emphasize enough that this long-term fee-based cash flow with excellent credit quality counter-parties is ideal for the continued growth of our Partnership. Also in our in our Sulfur Services segment, we will be bringing a new ammonium sulfate production facility on-line during the second quarter of 2011. At a cost of just over $5 million, we anticipate approximately $2.5 million of additional cash flow, and significant improvement in the production quality at our Plainview, Texas, facility.

Now, a quick update on the progress of several organic growth projects previously announced. First, at our Cross lubricant processing facility in Smackover, Arkansas, our vacuum tower project is scheduled to be completed with a 2012 planned turnaround and on-line in the late first quarter of next year. We now anticipate this project will cost $22 million. This is $5 million more than previously forecasted, as additional structural requirements are necessary given the size of the tower itself. Even with the incremental cost, the project remains affordable at approximately 7 times cash flow. As previously discussed, the long-term (inaudible) agreement between MRMC and MMLP will be amended to compensate for the additional cost of construction based on a scale driven by incremental lubricant yield.

Within our Natural Gas Services segment, two projects at Waskom discussed during the third-quarter earnings call are both underway, and tracking for scheduled completion in late 2011. Those projects, again, are an NGL railcar loading facility, which we believe will give us access to markets beyond the regional petrochemical buyers, and the planned expansion of our Waskom facility from 285 million cubic feet a day to 320 million cubic feet a day. The combined cost of both of those projects at Waskom is approximately $26 million at a 5.5 times multiple, as you may recall.

Finally, in flipping back to capital raising, opportunistically, MMLP plans to embark upon entering into a new 5-year revolving credit facility during the second quarter of 2011. We believe the current bank market conditions are ideal for us to achieve a larger facility with longer-term and reduced pricing. Reducing our interest expense line item is obviously a benefit to our distributable cash flow, and in our unit holders best interests. We anticipate the execution of this new credit facility by the end of next month.

Shannon, that concludes our prepared remarks this morning. We would now like to open the lines for a question-and-answer session. Thank you.

(Operator Instructions) James Wang with Raymond James.

Good morning. First off, congratulations on a great quarter.

Thank you.

Yes, I just have a couple of quick questions. First, could you quantify the magnitude of average day rate increases that you have seen in your inland Marine segment?

I would say on a percentage basis, they are probably up 5% to 10%; that's a rough percentage. And that's as contracts are (inaudible) over. So you are coming off some term contracts, but it's rateably over time, so you don't see that on day-one type thing.

I see. And over the next year then, what percentage of contracts will be rolling over?

I would say probably 30% to 40%, I'm guessing.

Okay, great. One more quick question. I noticed that interest expense had a notable jump in 4Q 2010. Now I imagine most of it is just due to the acquisitions that you made. Going forward, would maybe somewhere between like a $34 million run rate for interest expense be reasonable for 2011?

Well, one of the big deals in the fourth quarter was the fact that our interest rate swap moved against us. On the cash basis, it didn't move against us, but it's an 8-year swap and it moved against us. So there is this non-cash charge in interest expense of almost $4 million that hit. So on a -- let's think about it. We have $200 million of bonds that are at 8.875%, and I would say our average [burn] on a revolver would be, on an annual basis, would be in the $150 million range. We are currently at LIBOR plus 400, but beginning in, probably in May, that should drop to LIBOR plus 250. So that would be the true cash interest expense of the Company. Plus you have, $13 million or so of other debt that averages -- I don't know, 7%, let's call it.

Okay. Thank you very much.

You're welcome.

Thank you. Ron Londe with Wells Fargo.

Yes, could you give us some more insight into the contracts, and I guess we will call it a cost plus contract with regard to the Sulfur Services business?

I'm going to let Ruben take that one.

Ron, I think the big thing is to remember that in those contracts, the refiners that were -- had the expansions and had, refining the heavier crude, making a lot more sulfur, and there's a lot of projects that were coming on with additional capacity. So on a couple of them we increased that capacity, on another one we got two new contracts. And so basically, these were just additional contracts for our Neches facility.

And basically we added another priller over the last, what, about a year ago, and that gave us the capacity to handle these people, and now we are going to start getting paid for it because they contracted for the capacity, but until they started getting that capacity, they weren't paying for it. It's just a fee. When we run, we actually make a little bit of money because our operating costs over our variable cost fee is a little bit lower than the variable cost fee that we started, but we don't care if they run it or not.

Ruben, why don't you talk about the CF contract, as well.

Yes, okay. And then the CF contract, historically we've always delivered them sulfur [basis of Tampa posted.] And we had like a 30-day lag. Back in the old days, when sulfur moved, it moved $5 or $10 a ton, was all it moved. Well, in the last couple of years we've seen anywhere from $60 to $300, $400 movements in one quarter. So what we've done is restructured that contract so all of the product with very designated suppliers comes into the system, and that is billed out to CF at our cost. So we have no inventory exposure. We have no lag exposure. We have no exposure whatsoever. It's basically a straight pass-through, and we charge them for the system that we utilize to get the product to them. Does that answer your question?

Yes. And also, you said in your press release that given the current conditions in the oil refining business, that that would be good for your inland fleet in 2011. Are you talking about higher margins in refining resulting in higher activity? Is that where you are coming from?

Yes, that's right.

Yes, I think the answer is that any time refineries run at higher percentages or rates to capacity, you get inefficiencies in the systems, and they have to move product by water in between all of the refineries. So some refineries may be running at a max and be excessing a vacuum power ore or something that doesn't quite fit their system as they go down the chain of their processing. So what happens is, we end up moving those oils. Now granted, in the inland, most of the increases that we've seen have been in the hot oils and the black-oil type business. We are not seeing much in the diesel or the finished products increasing, but all of that is used basically for our own diesel fuel system. We are staying busy, from the black-oil standpoint we've seen the rate increases, and the 5% to 10% is a good number, but at least we've seen it floored. We don't see it going any lower. It's starting back up. The finished products have basically -- still pretty soft, but all of our finished product barges are used internally anyway.

Okay. Also, during the first quarter, there were a lot of conditions in Texas that were aggravated, I guess, by the cold weather. Did you see any freeze-ups of wells that might be connected to Waskom, or any power disruptions that might have affected your operations during the first quarter?

I would say -- go ahead, Ruben, I'm sorry.

Well, the only place that we saw some was sulfur supply to our acid plant in West Texas. I think that was about the only thing that I remember. And so we had to scramble around and haul some sulfur in from some pretty far places to keep our sulfuric acid plant running. But all of our stuff kept running and was fine. I don't believe we saw much at Waskom. Somebody else might could add to that. I don't remember Waskom getting much supply problems.

No, and I think our Waskom volumes in the first quarter have maintained their run rate. So I don't believe that happened, Ron.

Okay. And on the propane side, on the wholesale propane side, did you see any benefit from the cold weather in Texas?

The volume side slightly, but it was more the margin side. I think really through the southeast, we sell off the Dixie pipeline all the way to Georgia, and they have some dislocations, is the right word, some inventory dislocations that spread our margins for awhile because there was such demand, and supply getting over there wasn't that strong. So we saw good margins on the eastern side of our market area. And then we really have a significant presence in north Louisiana and south Arkansas, and we saw strong margins there, and then back into Texas, as well.

Okay. Thank you.

Yes.

Thank you. James Spicer with Wells Fargo Securities.

Hi, good morning, guys. Got a couple of questions for you. It seemed like there was a decent decrease in sulfur tons between Q3 and Q4. I was just wondering what that was attributable to?

I think a lot of that was mostly plant supply. We had some turnarounds in some plant supply, wouldn't you say? That's what I'm remembering.

That's a part of it on the pure sulfur side, and the fertilizer side, volumes were down -- I don't know what the percentage was -- but they are down. In the colder winter months, the fertilizer demand is less, but the margins were better. So the combination of what Ruben described and the fertilizer volumes, between the two that was probably it.

Okay. And then just trying to understand these sulfur contracts a little bit better, and I think I understand how you're mitigating volatility in that you are not using the -- the price isn't based on the Tampa posted pricing, but it's more of a cost-plus arrangement. You also made the comment that with these new contracts, you thought the cash flow would increase $5 million to $6 million versus 2010. I'm trying to figure out where that increase comes from?

We were able to improve our pricing relative to where we were. So it's a relative pricing concept. We communicated with the customer the cost of our system, and they were willing to go up to compensate us for that.

Okay. And then just in terms of CapEx for 2011, you talked about a lot of the different projects that you're spending money on. When you add all that together, what do you get for a total growth CapEx in 2011?

Total growth CapEx -- go ahead, I'm sorry, Wes.

I was going to say if you look at it now, what's been approved by the Board, we are a little north of $60 million. We also have probably an additional $10 million to $20 million of CapEx programs that are in development right now and have not been approved by the Board. But excluding the L&L transaction right now as a CapEx item, we are really looking at about $60 million approved.

And if you have -- think about that $60 million plus some additional amounts that might get approved by the Board, do you think that you are going to be able to fund that all within operating cash flow, or do you think you might need to borrow some more on the revolver?

We will be borrowing on the revolver. A portion could be operating cash flow, but it would primarily be on the revolver.

Do you have much in the way of LCs?

No, zero. I think we have one little $120,000 to some state agency for something.

Okay, great. And then last question is, I think you mentioned in your press release potential increases in the distribution, given your strong coverage metrics. Do you have any more to say on that?

Yes, I think we have been pretty public, James, with our comments that the target metric for us has always been 1.15. Obviously, we reached that, achieved that for the year end, and obviously that's something that's evaluated on a quarter-by-quarter basis with the Board, but I think more or less that is still the metric we will look at.

Okay. That's helpful. Thank you.

Thank you. Selman Akyol with Stifel Nicolaus.

Thank you, good morning.

Good morning, Selman.

Kind of an odd question, I guess, but I want to talk about something on the balance sheet. Can you guys talk a little bit about what's going on with other assets? It looks like it was the first quarter you guys actually broke that out, and it was a sizable jump when you backed the debt issuance costs out of there.

Yes, because the debt issuance costs have become a significant number, we chose to back it out. I'm kind of flipping right now trying to find the balance sheet. Hang on. Other assets, $24 million. The biggest piece was probably, with our Darco acquisition, was -- and that's probably the whole change, almost all of it. We allocated $15 million from our Darco acquisition to a contract, a life-of-lease contract that all of the drilling this particular company does is dedicated to that Darco System. So of the $25 million acquisition, $9 million was to -- almost $10 million was to plant equipment and $15 million was to this contract, and that's where it showed up.

And that's going to lead me into my next question. As you take a look at Waskom, isn't their policy to distribute all the cash back out to the respective parties, so it's not self-funding? And so my question then really is, on the $25 million, did you guys have to write the check for that? That was your 50% piece, and then you wrote a check down to Waskom?

The Darco was owned 100%. It wasn't in the Waskom group. The earlier acquisition in January of 2010, the Waskom Midstream, that was a 50% deal. And our investment in it was $25 million and CenterPoint's was $25 million. Oh, I'm sorry, $20 million each. And that would have showed up in investment and unconsolidated entities.

Okay, thank you.

You bet.

Thank you. (Operator Instructions) Sean Wells with RBC Capital Markets.

Good morning, guys.

Hello, Sean.

Yes, I hate to ask you this question again. I think it's been covered, but I missed it. I wanted to know if you could break out the impacts of the commodity and interest rate swaps on the total non-cash derivative loss for the quarter?

The non-cash derivative loss was right at $4 million, and $150,000 was commodity related, and $3.85 million was interest rate hedge related.

Okay. That's helpful. And I was also wondering about the gas stream that's flowing to the Waskom, is that continually getting richer as we move through these quarters?

Basically, right now it's pretty much the same. We are still seeing increased -- there is a lot of volume and people are still drilling, but we are starting to see, because of the liquids content in the dry gas, we are starting to see some people come back to the Cotton Valley. I don't think we've seen a big increase in the liquids per million at the plant, but I think it's definitely floored.

Yes, it's flat. It's not improving but it's not getting worse. I think our mix of Haynesville and Cotton Valley is kind of at a set situation. But I talked earlier about, we are seeing some horizontal Cotton Valley's planned to be drilled this year. Hopefully, that will improve that over time.

So that expansion at Waskom, that's directed at getting those Cotton Valley volumes, correct, the richer volumes?

I think it's directed at just any volume that's coming through the plant. Increased volume -- still, as you go away -- remember, we are not doing make holes here. We are charging a fee for this processing. It still has to be processed to a certain level, and we have a good ethane market now in our pipeline going to Texas Eastman. So there is still, it still needs to be processed.

Okay. So you said those volumes are directed at fee-based business?

Yes, I think most of the new contracts, as we come through there, are more of a fee-based business.

That's been the design because of the Haynesville that's going on in our area.

Yes.

Okay. And one more question. When we try to think about maintenance capital expenditures for 2011, given the drop-off in 2010, how should we model 2011?

Yes, you do need to show an increase. To give you a little background, our maintenance CapEx was just short of $5 million for the year. And that was primarily because all of our Marine Transportation offshore vessels were fully employed. So all five of our offshore vessels are going into the shipyard this year. We are going to see an increase in maintenance CapEx.

I would model in about $14 million for 2011. But when you stand back and think about it, on a two-year basis, $14 million in 2011, you did about $5 million in 2010. The sum of those two is $19 million, so the average, it gets back to the annual average of about $9.5 million, which is, we believe, kind of the right run rate on an annual basis. So we benefited this year, we are going to have to pay the piper a little bit in 2011.

Bob, I will also add that we have about $1 million of that is maintenance CapEx with respect to the L&L acquisition.

Yes, that's correct.

Okay. And I'm sorry, I have one more question that has to do with your comments about Marine Transportation. I don't know if I caught it correctly, did you say that cash flows for 2011 are coming down 10% to 20% overall, or was that just for offshore?

Yes, that's our anticipation, I think they cash flowed about $22 million, or just north of $22 million, Marine did, in 2010. And we expect a little bit of a drop-off.

The delta really being the modeling of what we perceive to be half, or 50% utilization on the offshore fleet, which is kind of what we had going into 2010, as well. But obviously those vessels were employed with the BP macondo tragedy. In this case, we are backing it to where we were and taking off time, of course, for the dry dock process, that those are going through the maintenance CapEx increases that Bob had mentioned.

Yes, even though we modeled them only in at 50%, there is a couple of transactions out there that could improve that, but for conservative -- that's what we modeled.

Okay. Thanks a lot. That's all I have.

You bet.

Thank you. I'm showing no further questions at this time. I would now like to turn the conference back over to Joe McCreery.

Thank you, Shannon. Well, again, from our perspective, a very strong fourth quarter, and that did bolster the year. We were very pleased to get back to distribution growth for the end of 2010 and then the most recent quarter here. From our perspective, we are very well-positioned with both good liquidity and a solid backlog of low-cost multiple organic growth opportunities. As I mentioned also, we expect to have a larger, longer-term, more cost effective credit facility in place the next time we convene on this call.

As always, your support and interest in our Partnership is greatly appreciated. We thank you.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.