歐尼克 (OKE) 2014 Q4 法說會逐字稿

Good day and welcome to the fourth-quarter and year-end 2014 ONEOK and ONEOK Partners earnings call. Today's conference is being recorded.

At this time I would like to turn the conference over to Mr. T.D. Eureste. Please go ahead, sir.

Thank you and welcome to the ONEOK and ONEOK Partners fourth-quarter and year-end 2014 earnings call.

A reminder that statements made during this call that might include ONEOK and ONEOK Partners expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor Provisions of the Securities Acts of 1933 and 1934.

Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

Our first speaker is Terry Spencer, President and CEO of ONEOK and ONEOK Partners. Terry?

Thank you, T.D. Good morning and many thanks for joining us today and for your continued interest and investment in ONEOK and ONEOK Partners. On this conference call is Derek Reiners, our Chief Financial Officer. Also with us and available to answer your questions are Rob Martinovich, who was recently appointed Executive Vice President and Chief Administrative Officer responsible for Human Resources, Corporate Services and Information Technology.

During his years with the Company, Rob has served in a number of key leadership roles and without exception performed at a high level. Once again, Rob will step in to provide needed leadership in another important role for our Company. I, along with our employees will continue to rely upon his deep industry experience and leadership in this new role.

Also on the call is Wes Christensen, our Senior Vice President of Operations; Sheridan Swords, our Senior Vice President of Natural Gas Liquids; and Kevin Burdick, Vice President Natural Gas Gathering and Processing.

On this morning's call, Derek will start with a review of our 2014 financial results and then I will elaborate on our 2015 outlook and discuss ONEOK and ONEOK Partners revised financial guidance.

Before I hand the call over to Derek, I would like to discuss ONEOK and ONEOK Partners accomplishments in 2014 and more importantly, review our 2015 outlook and financial guidance.

At ONEOK Partners, our 36,000 mile integrated natural gas and natural gas liquids pipeline network generated record EBITDA of $1.56 billion in 2014 which is the result of completing a significant number of capital growth projects and acquisition since 2006. Additionally, all three of our segments experienced double-digit operating income growth compared with 2013.

Our most recent fourth-quarter 2014 distribution declared represents a 98% increase since April 2006 when ONEOK became the sole general partner of ONEOK Partners. Since that time our industry has experienced a wide range of market conditions, both headwinds and tailwinds, and regardless of the conditions the Partnership is facing, we continue to believe it is in the Partnership's and our unitholders' best interest to manage responsibly every dollar that comes in and goes out of the business.

As we leave 2014, I believe the Partnership with its significant platform of fee-based business and growing basins in major market areas is well-positioned to weather the current uncertain commodity price environment.

At ONEOK, we successfully completed the separation of our natural gas distribution assets and became a pure play general partner and provided ONEOK Partners management and resources to execute on its growth strategies. In April of 2014, the Board approved a 40% dividend increase clearly demonstrating the benefit of becoming a pure play general partner. We remain committed to paying out the majority of our cash in the form of dividends but we also intend to continue making prudent financial decisions that are in the long-term interest of ONEOK and its shareholders.

Derek now will review ONEOK's and ONEOK Partners' financial highlights. Derek?

Thanks, Terry, and good morning. Fourth quarter 2014 net income attributable to ONEOK was approximately $95 million or $0.45 per diluted share. 2014 net income attributable to ONEOK was approximately -- I'm sorry -- 2014 net income attributable to ONEOK was approximately $314 million or $1.49 per diluted share which includes a loss of $5.6 million or $0.03 per diluted share from discontinued operations.

ONEOK continues to benefit from its pure play general partner strategy with $633 million in distributions declared by ONEOK Partners in 2014, a 16% increase from the same period last year. Cash flow available for dividends for the fourth quarter was $142 million providing 1.13 times coverage of the ONEOK dividend. 2014 cash flow available for dividends was $621 million providing 1.28 times coverage.

ONEOK increased its quarterly 2014 dividend for the fourth quarter 2014 by $0.015 per share to $0.605 per share, 51% higher than the fourth quarter of 2013.

Moving on to ONEOK Partners, fourth-quarter net income attributable to ONEOK Partners was approximately $263 million or $0.67 per unit. The full-year 2014 net income attributable to ONEOK Partners was $910 million or $2.33 per unit. As Terry mentioned, all three of our business segments experienced significant operating income growth in 2014 compared with 2013. Operating increased in the natural gas gathering and processing segment by nearly 40% benefiting from higher natural gas gathering and processing volumes.

Natural gas liquids increased 26% benefiting from higher-margin NGL volumes from new natural gas processing plant connections and natural gas pipelines increased 19% benefiting from increased natural gas volumes transported. Distributable cash flow was $306 million for the fourth quarter providing coverage of 1.06 times and approximately $1.17 billion for the full year, an increase of 23% providing coverage of 1.10 times.

The Partnership's fourth-quarter distribution increased to $0.79 per unit, an increase of approximately 8% from the fourth quarter of 2013. In the fourth quarter, approximately 3.5 million units were issued through our at-the-market equity program generating net proceeds of $157 million. For the year, approximately 21.8 million common units were issued generating net proceeds of approximately $1.1 billion including approximately 7.9 million units issued through the at-the-market program.

The Partnership has a strong balance sheet and we are increasing our liquidity and financial flexibility as we notified our lenders of our intent to exercise the option to increase the size of the Partnership's revolving credit facility to $2.4 billion from $1.7 billion pending lenders approval which we expect to finalize in the next few weeks.

At the end of 2014, the Partnership had $1.1 billion of commercial paper outstanding and no borrowings outstanding on our credit facility, total debt to capitalization ratio of 54% and a debt to adjusted EBITDA ratio of 3.7 times as calculated under the terms of our credit facility.

As discussed in yesterday's earnings release, we significantly reduced our debt and equity financing needs in 2015 by reducing planned capital expenditures to approximately $1.2 billion from our previous estimate of $2.8 billion. Terry will provide more color in a moment but this reduction in capital expenditures reflects slower production growth outlook by our producer customers than originally planned.

We expect to continue financing our capital expenditures with debt and equity through the use of our at-the-market equity program, overnight equity offerings, long- and short-term debt while targeting a 50-50 debt to equity capital structure over the long term. These multiple sources of liquidity enable us to be prudent and opportunistic from a timing perspective as we look to access the equity and debt markets. We continue to remain confident in our ability to raise the necessary capital to fund the capital needs at ONEOK Partners.

Terry, that concludes my remarks.

Thank you, Derek. That is a good set up to begin discussing our 2015 outlook and guidance.

Our previous 2015 financial forecast and guidance was developed in November leading into our investor conference in early December. Since then, natural gas liquids prices are lower by nearly 40%, natural gas is down 13% and crude oil was down nearly 38%. This reduced commodity price environment has significantly impacted our producer customers' 2015 capital expenditure programs and has created less clarity into 2016 and beyond.

Additionally, the lower natural gas and natural gas liquids prices have impacted the Partnership. Accordingly we have lowered our ONEOK Partners 2015 adjusted EBITDA guidance approximately 14% to a range of $1.15 billion to $1.73 billion. Our updated 2015 financial guidance is based on a $0.54 per gallon NGL composite price, a $3.50 per MMBTU for natural gas, and $50 per barrel for WTI crude oil.

We expect ONEOK Partners earnings to grow significantly in the second half of the year relative to the first half due to continued volume growth in the natural gas gathering and processing and natural gas liquids segments. A significant ramp up in natural gas gathering volumes across our systems is expected to occur especially in the Williston Basin as we connect additional wells and complete field compression projects and in the mid-Continent as a key Oklahoma producer drills wells in the first half of the year and completes those wells in the second half of the year.

We also revised our expected Partnership distribution growth rate to 3% to 5% or a range of $3.16 per unit to $3.22 per unit in 2015 from the previous 8% with an expected coverage ratio of 0.87 to 0.97 times in 2015. Although the Partnership has slowed the expected distribution growth rate in 2015 to reflect the current market conditions, we will continue to closely monitor market conditions and our operating performance and reevaluate our distribution growth outlook each quarter.

Additionally while our prospects for volume growth continue to look favorable, due to the current uncertain commodity price environment we will not be providing financial forecasts beyond 2015. While we continue to have a long-term view and perspective, we believe it is prudent to shorten our time horizon and communicate our financial forecasts, distributions and guidance only for the current year until stability returns to the commodity markets.

We will discuss our longer-term thoughts on volumes in a moment.

Our track record of disciplined growth continues and we are adjusting our capital spending to reflect our producer customers' needs and their reduced volume growth expectations. We have suspended our Demicks Lake, Bronco, and Knox natural gas processing plants in the Williston Basin in North Dakota, Powder River Basin in Wyoming, and the Mid-Continent region of Oklahoma, respectively. We expect no more spending on these capital growth projects until market conditions improve and when they do, we will quickly reestablish completion dates.

As a reminder, all three of those plants were originally scheduled to be completed at the end of 2016.

Our completed growth projects and our capital projects in progress will allow us to meet the current growth expectations of our producer customers in the basins where we operate and continue to provide us with growth opportunities.

In the Williston as we outlined at our Investor Day, our producer customers are focusing their drilling in their most economic areas. In addition, December production statistics showed statewide flaring was approximately 360 million cubic feet per day and there was an estimated 750 wells waiting on completion services. We expect 2015 Williston Basin natural gas gathered volumes to increase 39% over 2014, only 3% lower than our previous expectations.

In the Williston basin, we have 3 million acres dedicated to us with approximately 1 million acres in Northeast McKenzie, North Dunn and Southern Williams Counties, which are considered core areas for many producers in the Williston. We expect to complete our 200 million cubic feet per day Lonesome Creek processing plant and the additional field compression needed to take advantage of increased processing capacity at our State Line I and II plants and the Garden Creek I, II and III plants in the fourth quarter 2015. This additional 300 million cubic feet per day in processing capacity is expected to help meet the flaring targets of 23% by January 1, 2015 and 15% by January 1, 2016.

The Powder River basin is a more challenged basin in this lower commodity price environment but some of our producers are incentivized to drill to avoid losing their leases. While the Powder River Basin development is in the early stages and not currently providing significant natural gas or natural gas liquids volumes to our systems, we remain excited about the potential of this integrated opportunity.

Similar to the Bakken, producers in the Mid-Continent are concentrating their drilling in their most economic acreage. We expect natural gas gathered volumes to be down approximately 4% in 2015 compared with our previous volume guidance with well completions weighted more heavily toward the back half of the year.

Producers are concentrating drilling in the best-performing areas of the Cana-Woodford, Stack and SCOOP plays. Additionally, improved well performance and better well completion results are positively impacting producer drilling economics.

Now for our longer-term thoughts on volume. In the Williston based on dialogue we are having with our producers, we are expecting natural gas gathered volume growth of 27% in 2016 over 2015. For the natural gas gathering and processing segment, we expect natural gas gathered volume growth of 16% in 2016 over 2015.

Now for a quick update on our recently acquired West Texas LPG pipeline system. While it has only been a few months since we closed the acquisition, we are making progress with our shipper customers in the development of future system expansions. As a reminder, this pipeline was essentially full when it was acquired. Based upon discussions with our shipper customers, our expectations have not changed to reach a 6 to 8 times EBITDA multiple between 2017 and 2020.

Now a brief outlook on the NGL markets. The current ethane rejection by natural gas processing plants connected to our NGL system is approximately 155,000 barrels per day. Current ethane demand is nearly 1.1 million barrels per day and is expected to push ethane inventories lower through June.

The Conway-to-Mont Belvieu location price differentials for ethane is under $0.02 per gallon in favor of Mont Belvieu and we expect these narrow differentials to continue for the rest of this year. Propane exports are steady study and we are seeing more propane buying in Conway for winter demand. As a result, we expect propane location price differentials between Conway and Mont Belvieu to be in the minus $0.02 per gallon to plus $0.06 per gallon range for the remainder of 2015.

At ONEOK, we revised our expected dividend growth rate to 4% to 8% in 2015 or $2.42 per share to $2.52 per share from the previous 14% and slightly lowered guidance midpoint for cash flow available for dividends to $610 million from $620 million. In these uncertain times, we believe it is prudent to retain additional cash.

I would like to briefly touch on cost reductions. Regardless of the environment we may be operating in, we are always focused on managing our costs and operating safely and efficiently. On an ongoing basis, our employees are constantly challenging themselves to find new ways to be more efficient and reduce costs while maintaining safety, reliability and environmental responsibility.

While the current market conditions creates challenges, it also presents opportunity. Recently we have seen decreases in service rates, reduced chemical costs, lower fuel prices, reductions in third-party contractor costs and other lower service rates.

Before I close, I would like to welcome and introduce Walt Hulse. Walt, who I have known and worked with for many years, brings a tremendous amount of investment banking and energy industry experience to our Company. As Executive Vice President of Strategic Planning and Corporate Affairs, he will add tremendous value as we identify and assess strategic opportunities as well as enhance our relationships with the investor community. Walt is very familiar to the ONEOK story and has provided counsel to us on a number of strategic acquisitions. The most recent was the separation of the distribution business into ONE Gas. Walt and his family will soon be relocating to Tulsa from New Jersey. We would like to welcome Walt to the ONEOK family.

In closing, this is not the first time that our experienced management team and skilled employees have faced a challenging and uncertain market environment. We have been here before with our assets, experienced people, financial flexibility and discipline and our legacy of doing the right things to create value for our customers. We are confident that we will emerge a better and stronger Company, continuing to deliver value to our shareholders and unitholders.

Finally, I would like to thank our many dedicated and hard-working employees for delivering on the many accomplishments achieved throughout 2014 and in particular, many thanks for conducting our business in a safe, reliable and environmentally responsible manner each and every day.

Operator, we are now ready for questions.

(Operator Instructions). Timm Schneider.

Good morning. It is Timm Schneider with Evercore ISI. A quick question for you guys and appreciate the color on some of the 2016 volumes. In terms of thinking about the integrated nature of your system, should we kind of think of this processing volume increase as running through on the NGL side as well? What I am basically saying is does that show up and NGL volumes and fractionation volumes?

Timm, that is exactly the way to think about it. As we increase volumes, particularly from our gathering and processing segment, that will positively impact volumes that we fractionate and volumes that we transport through our NGL network.

Okay. Can you talk a little bit about the contract structure of that? Is that mostly under the bundled contracts that you have had in the past?

Yes, most of those are contracted under the NGLs that we transport out of our affiliated plants as well as third-party plants. They are fee-based contracts, they are bundled. We refer to them as exchange contracts and in those contracts we provide the fractionation, gathering and transportation services to the market hubs.

Got it. Last question for me. With respect to coverage, obviously dominant OKS, incrementally higher on OKE. I was just wondering what the thoughts were around that that you are running negative coverage at OKS and why not -- you know maybe get support OKS with bringing the coverage down a little bit at the OKE level?

Yes, Timm, we do. We think about those things. As we think about 2015 from a coverage standpoint at OKS, we are going to below a 1 or (inaudible) below a 1 in the early part of the year. But as we actually move through the year, we expect the coverage to be well above a 1. So the reason why we are carrying -- reported a negative coverage is we don't think we are going to be in a below 1 coverage for an extended period of time.

Okay, got it. Thank you.

Carl Kirst, BMO Capital Markets.

Thank you and good morning, everybody. I think Terry, you actually hit kind of on the question that I was going to get to and I think you perhaps answered it and so -- but I guess as you look at sort of philosophically longer-term if headwinds were to continue, the tension between resetting distributions, running sort of sub one times coverage versus perhaps using OKE and IDR waivers, should we basically just think of it that you are willing to go under 1 times coverage but really only for very short periods of time.

I think that is fair. That has been in the past. We have been comfortable keeping our coverage below 1 at the Partnership but really for relatively short period of time. I think that is fair.

And a couple of other questions just from a base case standpoint. With respect to OKS and equity requirements with a much lower CapEx, should we still be expecting sort of a use of the ATM or is it down to where you think you don't even need equity for 2015 or any more color there would be helpful.

Carl, I will let Derek take that question.

Carl, this is Derek. We do expect to continue to use the ATM program as we have done in the past. It has certainly been a program that has worked well for us in the last year and as we still do have $1.2 billion or so of capital in 2015 plan, we do expect to need to issue some equity.

Derek, did you have a target range with respect to that $1.2 billion or should we think of it as roughly on par with 2014 as far as the ATM equivalents?

I think we will continue to look at our credit metrics much the way we have in the past. Of course maintaining investment grade credit ratings is extremely important to us at OKS so that really will be our guide as to how much we would plan to issue either under the ATM or in an overnight for that matter.

Okay. That is helpful. Maybe last question if I could, just with respect to -- and I think these are smaller numbers but still want to make sure I have a sense of the colors. If we look at the maintenance capital spend for OKS, there is a 20% reduction. Is that something that is more reflective of the lower service costs you are seeing and thus is a new baseline or is that more sort of project deferrals that will just be done at a later date?

I will make a couple of comments and then Wes Christensen if he has anything to add will chime in. But in our maintenance capital, the short answer is yes, we are seeing some impact from the lower cost environment. But also there is always a tranche of projects in our maintenance that are kind of more discretionary and so I think you are seeing some of those projects that are not really related to asset integrity. We will from time to time particularly in an environment like this, we've got those discretionary projects that we can dial out the maintenance capital on. I think that is what you are seeing. Was, do you have anything else to add to that?

No, I think that is accurate, Terry.

Great. Thank you, guys.

Craig Shere, Tuohy Brothers.

Good morning, guys. Terry, in your prepared comments you said that you thought it was prudent to retain cash at the OKE level with more conservative dividend coverage ratio. I know you have already had a question or two on this but wonder what purposes you might foresee cash and available balance sheet capacity at OKE? Is it simply a backstop if necessary in worst-case scenario to support OKS or are you keeping your mind open for other things?

Craig, yes to what you inferred as far as OKS. But yes we are keeping our minds open to other things. Obviously we will have that cash available to issue dividends in the future potentially. Obviously we have a cash tax load that could be coming down the road that cash could be used for. OKE share repurchases is a possibility. The OKS support as you inferred and you may have opportunities. It seems like in times like these, there is always opportunity that presents itself. There may be some very compelling asset acquisitions that might present themselves and certainly that would provide us some liquidity for that.

Of course obviously you could potentially reduce some debt. So those are all the things you could conceivably do and all the levers that we could potentially pull at OKE with that cash.

Great. Assuming full capacity utilization, I understand there is a question as to how quickly the growth CapEx portfolio when online will ramp up given the flaring in market conditions. But assuming full capacity utilization at current commodity pricing, what kind of updated EBITDA to CapEx multiples do you -- or CapEx to EBITDA multiples do you see for the ongoing projects?

In this environment from the stated multiple range for all of these projects that we have historically indicated was a 5X to 7X and we are probably now north, if you looked at what the average multiple would be on these projects in this environment, you would be a bit north of a 6 times. So still very viable projects but from a multiple basis, they have been affected somewhat.

Okay, that is good to hear. Are there any specific sign posts or market changes you would be looking for before restarting the three deferred projects?

Probably a bit more fundamental is we would really like to see some meaningful industry crude oil supply reductions. And if and when we really start to see that then I think we could feel like the foundation for higher crude prices is much more viable. If we see prices pop in that $65, $70, $75 a barrel range here as we move into the 2016 timeframe, it is very possible we could fire those projects back up. I think if we see those kind of markers out there, our confidence is going to be much improved and certainly that will drive more communications with the producers and certainly and hopefully increase drilling activity over and above what we are already hearing.

Great. Last question. Obviously suspending the long-term guidance probably makes some sense given the uncertainty. But the market always hates to not have a good roadmap. If things do recover in that range you said, the mid-$60 to $70 oil and CapEx spending in the industry kind of gets back to more of a steady state, from this reduced 2015 level, can you provide some color as to what we could see in terms of rolling back towards or close to the prior 2017 targets?

Yes, Craig, I think if we could see prices in that $70 to $80 a barrel range and consistently in that range, we could very well head back toward that and get back toward that dividend and distribution guidance range, kind of get back on that old growth dividend growth and distribution growth target range.

Great. I appreciate it.

Thank you, Craig.

Christine Cho, Barclays.

Good morning, everyone. Thanks for all the color. So if I look at your operating income guidance for the NGL segment, it looks like it went down $60 million from original guidance. Would you be able to give us an idea of roughly how much of that is from your own equity volumes being revised down at the G&P segment and flowing through your NGL assets versus how much is from third parties?

Also, how did you guys determine how much to reduce third-party volumes? Are you going by customer forecast or have you haircut it further? Any color there would be helpful.

Christine, I'm going to let Sheridan take that question.

On the answer about how much of the $63 million is attributable to our own equity volume, I would say it is a little bit more than half. And then as we look at volumes going forward, that is multiple ways that we look at. A lot is talking to the producers and the gathering and processing segments out there, determine what they are seeing and we also look at what we are seeing through our own plants in the same region to be able to determine what we think is a fair volume forecast for those plants.

Okay, thank you. And then just continuing on the NGL segment, you guys previously expected about 12% of the margin to come from marketing and optimization. Is that still what you are expecting with the revised guidance?

Christine, I think it is closer to 15%.

If you include the isomerization I think.

If you include the isomerization adds -- Sheridan, go ahead.

Its marketing and optimization is still around 12%.

So if you include the isomerization, where does that put you?

14%.

14. There you go. That is the number I was trying to say.

Okay. So I understand why processing plants in the SCOOP and Powder River would get pushed out but I was a little surprised that Demicks Lake was also in there just given McKenzie County has the lowest breakevens in the Bakken. Can you talk about the slowdown you are seeing and even the sweet spots and what are the utilizations at Garden Creek and State Line plants? Are they full or is there some capacity left there to accommodate any volumes that would have gone to Demicks Lake?

Christine, clearly it is a function of the drilling plans of the producers in that Demicks Lake area and some of those wells are out on the edge and not quite in the sweet spot of the play. And I will let Kevin add some color.

Yes, Christine, we definitely have seen a movement of rigs into the core as we kind of premised back in at our Analyst Day. As far as capacities and utilizations, we still have available capacity in our existing plants. And then as we add like Terry referenced, additional compression throughout 2015 and then with Lonesome Creek coming on at the end of the year, that provides us with an additional 300 million a day of capacity that we will be able to handle the continued drilling and the completions that are being worked in the first half of 2015 and will give us some headroom for growth on into 2016 as well.

Okay, great. Thanks. And then last question for me. Can you remind us if you have any minimum volume commitments on any of your assets? If so, are you expecting any payments tied to that this year?

Christine we do have some. We refer to them as MVAs in the gathering and processing segment. Most of those I think have run their term. Then of course in the NGL business we've got those -- we don't refer to those as minimum volume agreements, we refer to those as just firm shipper pay or firm fracker pay agreements and we have certainly those in the NGL segment. Most of those contracts were entered into to support many of the capital investments that we have made, the new fractionation, this new Sterling pipeline and what have you.

And are you guys expecting any payments tied to that this year?

Yes, we are. I don't know how granular we are going to be able to get on that.

Okay, thank you.

Becca Followill, US Capital Advisors.

Just wanted to clarify the change in guidance on gathering and processing volumes, I think it was up 17% and now it is up 10% and 8% respectively. Yet you said that Williston basin was only down 3%. Can you reconcile that change, where that is coming from?

Kevin? I will let Kevin.

It is coming from obviously the other basins, both the Mid-Continent we saw some additional pullback there in our volume forecast and then also some coming out of the Powder.

Okay, I will follow up to get some more specifics. And then in the guidance for volumes up 16% in 2016, it just seems kind of contrary to the rig count reductions that we are seeing. Can you help us get to how you get to that increase of 16% in 2016?

Becca, just at a high level and I will let some of these other guys address your question as well, but when we think about what is happening, the producers are pulling into these much higher and much more productive areas. Certainly you are seeing the impact of that. I think the other thing that you don't always hear about is the fact that they are enhancing -- they are continuing to enhance their completion techniques and getting more production per well. I think that has got to be a key. Any of you guys got anything else you want to add to that? That pretty well covers it.

And I've got three more quick ones. You talked about the flow-through of gathering to the frac yet I think you guys are looking at basically flat frac volumes in 2015 versus 2014 versus the gathering and processing volumes up 8% to 10%. So do we look at it as a multiple or are you looking for some uptick in frac volumes in 2016 that may be different than the pattern in 2015?

Becca, the reason you are seeing your frac volumes flat between 2014 and 2015 is that we had quite a few spot frac contracts that we did in 2014 that we are not predicting we will do again in 2015 so they were just frac only contracts. And so a lot of the gathering volume they will now reflect a gathering fee plus a frac fee as we continue to go forward. So that is why you are seeing the flat volume there.

Okay. And then the second half pickup that you are looking at where the coverage ratio is going to get thicker, are you assuming a pickup in commodity prices?

No, pretty flat prices throughout the year, that $50 scenario.

Got you. And then the last question, is the $0.54 composite NGL barrel -- I know in the wording it just seemed ethane rejection but you've got a portion of your barrel of roughly 10% that is ethane. So built into that $0.54, does that include some ethane in there?

Yes, there would be a small amount of ethane. Kevin, do you have anything else you could add to that?

No. Is just a small amount of ethane that is (multiple speakers).

Less than 10%?

Around 10%-ish.

Wonderful. Thank you, guys.

Ted Durbin, Goldman Sachs.

Thank you. A question on the OKE cash tax rate down in 2015 but as you look forward to 2016 with the lower CapEx at OKS plus maybe the impact of bonus depreciation, I am just wondering if you can give us some help on where the 2016 cash tax rate is shaping up especially I think guidance before was around 20% to 25%.

That is right. We actually I think had guided 18% to 24% in the future years but since we are not forecasting out the OKS distributions, providing financial guidance, we really can't give you any more color beyond that. Of course bonus depreciation as you know was passed for 2014 which rolled into 2015 for us as we carried over our net operating loss. So we don't expect to be a cash tax payer in 2015. If bonus depreciation were to be enacted again, that would certainly favorably impact 2016's cash taxes.

Got it. Next one for me, just coming back to these three plants that are being suspended, I guess were there contracts associated with those? What was the old versus the new that changed such that you are no longer moving forward with those plans? What are you maybe giving up in case a competitor tries to come in and build over top of you?

First of all, we don't believe we are giving up anything by suspending these projects until market conditions improve. From a contractual standpoint, it is the same contracts that have been out there for some time. These large acreage dedications, they are part of this 3 million acreage dedication that we continually talk about. So those contracts are in place. It is just now a matter of when is the drilling going to occur, when are they going to get this production out of the ground and so it is a timing issue.

So how you have to think about the suspension of these projects is not a cancellation but a push to the right, a shift to the right of the curve if you will. It is really all about timing. We all believe that the commodity price environment is going to improve and as it improves and as these producers provide more clarity about their drilling activity, we are not giving up really anything by suspending these projects.

Got it. The percentage of fee-based margins now that you are looking at in 2015, I think before you had said 66%. Where does that shake out now with new guidance?

They're going to be more in the 75% range fee-based.

Got it. Thank you. And then last one for me is just really kind of the same question in terms of the backlog. You had the on and off backlog of $4 billion to $5 billion. Should we assume that is the similar size but just takes longer to implement or does that actual backlog come down?

No, that is exactly right. Those projects are all still viable projects and really as you indicate, it's more a function of timing. The curve being shifted to the right a bit as these producers get more confident in their drilling and provide more clarity on their forecasts, these projects will come back into the fray.

Perfect. I will leave it at that. Thank you.

Thank you.

(Operator Instructions). Carl Kirst, BMO Capital Markets.

Just two quick follow-ups. One, I didn't know if there were any G&P price hedges for 2016 we should be aware of. And I also just wanted to confirm if we let the current slate of projects play out, what does that imply 2016 growth CapEx to be?

I guess to both of those questions, Carl, first of all on the hedging, no updates for 2016. And then as far as CapEx for 2016, we have not guided in the out years as far as capital spend. Pretty much when we do guide we guide in the current year and we are going to remain with that policy.

Is there a way to ask just what is left to be spent at the end of this year on just those projects?

I don't know if we could get --

I don't have that number in front of me and I don't think we'd really guide to that at this point.

Okay, appreciate it.

Thanks, Carl.

Elvira Scotto, RBC Capital Markets.

Good morning. On the three plants that have been suspended, have you spent any capital on those plants yet? And if you did want to kind of bring them back, how quickly could you kind of turn them on I guess?

Elvira, I am going to let Wes Christensen take that question.

Each one of the plants were in different phases but as we put them kind of into a parked position we have spent some money for long lead time items for Demicks and for Knox. But we will have them all positioned so that when the timing is right for them to be restarted that we will be well prepared to do that.

Okay, great. Thanks a lot.

Jeremy Tonet, JPMorgan.

Good morning. Thanks for all of the color this morning. Very helpful. I was just curious if you might be able to comment at all, you have seen a competitor out there that collapsed the GP and LP structure for different reasons. I was just wondering if that is something that you guys had looked at at all and if you see any benefit or how you think about the give and take on that type of a transaction?

Jeremy, this company as we saw last year, was willing to entertain and execute on structural changes and it is no different here. We are certainly thinking about structural alternatives and we will continue to think about it. From a timing standpoint, we are not ready to do anything like that yet so we will just continue to look at it. It definitely has some merit and it made sense for that party to do it and certainly we have to determine if it makes sense for us. We are not at that point yet.

Great. Thank you for the color.

Andy Gupta, HITE Hedge.

Good morning. Just wanted to follow-up on the previous question. Have you guys run any numbers on the taxes if you were to consolidate the GPLP and particularly with the OKS unit sell at OKE, how does that play into your thinking?

Well, we have run numbers but as far as trying to provide you some indication, numbers probably would not be a good thing at this point in time.

Understood. Okay, thank you.

Craig Shere, Tuohy Brothers.

On the last two questions picking up on that, I think that industry competitor that was referred to was paying a very high tax even on distributions from the retained LP units of at least one of their large MLPs. Are you still in a position for the foreseeable future that almost all of the OKS LP distributions up to OKE are tax-deferred for still some years to go?

Yes, correct, there is still a fair amount of shield there. We have been pretty well 100% shielded for a number of years and given that large capital that you have seen us employ over the last several years, that carries forward for a while. Of course the GP, the IDRs are fully taxable at the corporate rate but the LPs do have that shield.

Right, I understand that but a lot of your peers pay a lot more than zero on their LP distributions and retained units.

Since this particular industry competitor was brought up, they also happened to make a $3 billion acquisition in the Bakken right in your territory, perhaps a little more spread out than what you have got in terms of those concentrated 3 core county areas and it is also a little more focused on oil. So the fact that somebody was willing to make an acquisition in this troubled market in your home turf or backyard kind of speaks to some value. But could you talk about your competitive strength and maybe the advantages of being in gas processing and gathering in the Bakken versus primarily oil if volumes were to fall off from even the current levels?

From a natural gas perspective, we have a lot of backlog and that is one of the advantages and one of the things that provides us energy through this downturn or momentum if you will through this downturn. So you don't have quite that same phenomenon with the oil. This flaring backlog is inventory, it is well connect inventory. Now you've got all these -- in addition to that, you've got all these uncompleted wells so it just gives us a lot of energy and momentum as we move into 2016.

With our size, we have got tremendous scale and so we cover a wide area and certainly there are others in the G&P business and you indicated one; there are others there. Most of the asset footprints though have their own core acreage dedication that they are very focused on. And so we do have some overlap but when you look at the dense part of each one of our systems, we kind of have our own areas so of speak, our own backyards if you will.

We actually tend to collectively actually work together to take advantage of capacity on our gathering systems that might be available at certain times of the month where we will offload gas between companies to help reduce the flares. We actually work together solving problems so it has really worked well. I don't see the landscape changing significantly as a result of the acquisition that you indicated. Primarily because I think with those assets, we have had a pretty darn good relationship.

Last question. I am sorry for taking so much time. But you had mentioned, Terry, the possibility which is I think the first in a while at least since separation of the utility business of buying back shares at OKE. There's a lot of M&A and people talking about M&A in the market now and some deep pocketed people out there. If somebody came along and offered an immediate 20% bump in the value to OKE off current market, would you see that as attractive? How do you view value for the Company right now?

I think if somebody came in and offered an attractive value we certainly would have to -- the prudent thing is to consider it. Certainly we would have to be open-minded. Our focus remains on organic growth in this Company and the best way to create value is to continue to prudently and appropriately deploy this capital and earn as high a return on invested capital as we possibly can and structure the business and manage the business with reduced commodity price exposure and what have you.

So those are the ways in which we really -- those are the things we can control and those are the things we remain focused on but if somebody were to come in here and put an attractive number on the table, the prudent thing is we would have to look at it.

Great, thank you.

Timm Schneider, Evercore ISI.

Just one quick follow-up. In terms of the margin guidance, the lowered margin guidance, how much of that is from volume declines versus are you baking in any reductions in tariffs or any renegotiations with your E&P customers? Are they pushing back on you guys a little bit?

At a high level I will say this, Timm, we are really not having any pushback. If anything, we are thinking about restructuring our contracts with certain of our customers. There are some customers who want to go more to fee-based types of structures. And so yes, we are having some discussions.

Lastly for me, did you guys take a look at Highland?

Can't really comment. We generally, Timm, don't comment about our participation or nonparticipation in processes.

Okay, got it. Thank you.

There are no additional questions at this time. I will turn the conference back over to our speakers for any additional or closing remarks.

Thank you for joining us. Our quiet period for the first quarter starts when we close our books in early April and extends until earnings are released after the market closes on May 5 followed by a conference call on May 6. We will provide details on the conference call at a later date. Thank you for joining us.

Ladies and gentlemen, that does conclude our conference for today. We thank you for your participation.