DCP Midstream, LP
Q1 2016 Earnings Call Transcript

Published: 5 May 2016

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by, welcome to the DCP Midstream First Quarter 2016 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 follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference Andrea Attel, Director of Investor Relations. Please go ahead.

[Andrea Attel:]

Thank you, Charlotte. Good morning everyone, and welcome to the DCP Midstream Partners first quarter 2016 earnings call. Our speakers today are Wouter van Kempen, Chairman, CEO and President of DCP Midstream and the Partnership; and Sean O'Brien, CFO of both companies. Today's call is being webcast and the slides are available on our website at dcppartners.com. Our discussion today includes forward-looking statements. Actual results may differ due to certain risk factors that affect our business. Please review the second slide in the deck that describes our use of forward-looking statements, and for a complete listing of the risk factors, please refer to the Partnership's most recently filed 10-K and 10-Q. We'll also use various non-GAAP measures which are reconciled to the nearest GAAP measure in the schedules in the appendix section of the earnings slides. Now I'll turn the call over to Wouter.

[Wouter van Kempen:]

Thanks, Andrea, good morning everyone. Thanks for joining us for our first quarter earnings call. Sean and I are looking forward to sharing our results of a strong quarter and providing you an update on how did DCP Enterprise continues to execute successfully on our DCP 2020 strategy and goals. So before I address the quarter's results, I want to recognize all 2,800 of our employees for their contributions to our strong performance and our focus and execution through this challenging environment. Everyone is aligned to supporting our operations team and improving reliability and operational excellence and all with an unwavering focus on safety. And that same focus extends to maintaining strong relationships with our customers to through our re-contracting efforts. I also want to acknowledge our support teams for their leadership on cost management and identifying efficiency. And I'm very proud of collaboration between our operations, commercial and support teams on how they’re answering the call to transform DCP for long-term sustainability. So for me to all 2,800 DCP employees thank you for all your doing. Now moving on, Partnership had another tremendous quarter, can see adjusted EBITDA increased 7% to $173 million [Technical Difficulty] up an impressive 18% to $165 million from the first quarter of 2015. We held our distribution flat at $3.12 per unit annualized and we printed one our highest distribution coverage ratio ever of 1.36 times for the quarter and 1.24 times for the trailing 12 months. So we seized the range early in the year to build a strong coverage platform to proactively prepare for the potential unknown in the current industry environment and we continue to maintain low leverage which stood at 3.2 times. One of the big watch outs from everyone's radar is volumes. From our perspective, volumes are not only holding in, we actually saw an overall uplift both from a quarter over quarter look and in sequential quarter and I’ll cover this in further detail from the next two slides. Let me talk to the two largest segments contributing to a strong first-quarter beginning with natural gas services. As expected in the first quarter, we saw volume growth from the Discovery and DJ Basin systems and this growth was more than offset declines in the Eagle Ford and East Texas. I want to highlight DJ Basin which has set sequential record volumes in January, February, March and April of this year and it is largely due to strong production in the field and our Lucerne 2 Plant and Grand Parkway project being placed into service. Our Lucerne 2 Plant is already at capacity but our DJ Basin system utilization up 10% from the fourth quarter to about 95%. Discovery is up from first quarter of last year due to Keathley Canyon coming online in February 2015 and utilization remained strong at 90%. As expected East Texas is seeing declines primarily due to reduced drilling and while we are still forecasting overall 2016 Eagle Ford decline in the 15% to 20% range, we are very pleased to say that volumes were only down 1% in the fourth quarter. So if you add it all together, our gas throughput increased both quarter-over-quarter and sequentially from last quarter due to the strength and diversity of our asset portfolio. Going to slide 5, the strong volume performance story repeats itself in the NGL Logistics segment where our throughput significantly increased both quarter-over-quarter and sequentially from last quarter. Training up the NGL volume story, Southern Hill’s utilization climbed from 40% to 55% during the first quarter, primarily due to an increase in NGL production from DCP Midstream National Helium plant which restarted in the fourth quarter of 2015. Front Range saw growth in NGL throughput and capacity utilization primarily due to an increase in NGL production from Lucerne 2 being in service and Texas Express is around 50% to 55% utilization. And lastly Sand Hill volumes are up from the prior year due to the laterals that came online in 2015 and NGL production from DCP’s Midstream Zia II platform. Volumes were slightly down sequentially from the fourth quarter due to a third-party plant fire in early December partially offset by DCP Midstream Zia II volumes and additional third-party volume connections. Overall, our NGL pipeline add to strengthen and diversity of our portfolio and they provide us with upside potential from ethane recovery. Now on to slide 6, looking back to the 2016 capital outlook we provided in February, we’ve been proactively managing our capital spent and anticipate that both our growth and maintenance capital will be at the low end of our target ranges. Our growth capital outlook includes a little carryover from the completion of Grand Parkway in the DJ Basin earlier in Q1 and the Panola pipeline expansion in Sand Hills pump station, we see both expected to be placed into service this quarter. All in all, our growth program is substantially complete with a majority of our projects in service and contributing to earnings. Turning to maintenance capital, as a reminder, our maintenance capital includes spending on well connects, system integrity, compliance and safety improvement and on those we will never compromise. We’re incredibly proud to tell you that our assets are running better and our reliability continues to improve even while we are spending less money. Our maintenance capital run rate for the first quarter was quite low and this was predominantly driven by a reduction in well connects and timing of our overall maintenance programs. So with that said, Sean will now cover our financial results and I will come back at the end with highlights of DCP 2020 execution and address how the DCP enterprise is the largest NGL producer will significantly benefit from ethane recovery opportunities.

[Sean O'Brien:]

Thanks Wouter and good morning, I’m very excited to take you through the Partnership results reflecting our strongest first quarter ever. As Wouter said earlier we have build a strong coverage platform early on which positions the Partnership well as we move forward. First quarter adjusted EBITDA was up $11 million or 7% to $173 million. This increase was due to strong utilization on our organic growth projects that were placed into service last year. We generated $165 million of Bcf in the first quarter, up $25 million or 18% resulting in a coverage ratio of 1.36 times. This increase was driven by the growth in fee based cash flow, strong execution on cost controls and lower maintenance capital that Wouter just covered. In our natural gas services segment adjusted EBITDA of $131 million was up 8% from $121 million in the first quarter of 2015. This was largely driven by continued growth from the Keathley Canyon Lucerne 2 project, which were partially offset by lower commodity prices and lower volumes in the Eagle Ford and East Texas. Focusing now on NGL logistic segment, adjusted EBITDA was up $11 million or 28% to $50 million, driven predominantly by higher throughput volumes on Sand Hill’s and Southern Hill’s hired fees from new connections on our NGL pipeline and higher volumes from the Mont Belvieu fractionater. Our Panola pipeline expansion is expected to go into service next quarter. However it's important to note that the Partnership’s 15% ownership interest was effective beginning February 1. This means we began recording and receiving distributions starting on that date. And finally in our wholesale propane segment, adjusted EBITDA of $13 million was down $10 million from Q1 2015, predominantly due to lower propone sales volumes and a favorable LTM recovery in Q1 of 2015, partially offset by higher unit margins. And one thing to note about this business is that we tend to look at it on a heating season basis, which runs from Q2 of one calendar year to Q1 of the following calendar year. With the fourth and first quarters typically being the strongest, if you look back at the heating season ending in the first quarter of 2016 compared to the same heating season ending in ’15, segment EBITDA was actually up about 75% primarily due to the conversion of our Chesapeake terminal to a fee-based butane export facility in late 2014. We are currently averaging about two ships per month providing nice fee-based earnings through the summer months. Now, moving to slide 8, I will quickly hit the highlights regarding our margin portfolio. With our growing fee-based assets, we are forecasting 2016 fee-based margin increase to 75%, up 15% from 2015 and the remaining 25% margin is 55% hedged for the year, weighted heavier to the first quarter. So our 2016 annualized margin is 90% fee-based or hedged. Looking over to ’17, we estimate our fee-based margin decline to 80% or more, which is up more than 50%, just a few short years. This is on the back of the growth in our NGL pipeline, DJ Basin system and Keathley Canyon. And again, we will proactively manage the remaining commodity exposure. And we have been pleased with the upward move in the 2017 forward curve giving us a potential opportunity to put on hedges at solid price levels. I want to also emphasize that our 2017 commodity exposed margin represents the smaller portion of the portfolio. And as our track record has demonstrated, we firmly believe that the Partnership’s diversified and growing fee-based revenue streams, will continue to support our DCF targets and positions DPM well to deliver sustainable value to our unitholders. Now slide 9 highlights DPM’s strong credit metrics, leverage and distribution coverage ratios underscoring our strong balance sheet. The Partnership had approximately $920 million available under its $1.25 billion credit facility as of Q1 2016 and had $2.38 billion of long-term debt outstanding with an average cost of debt of 3.6%, and our next debt maturity is not until December 2017, so we have ample liquidity. Our leverage and coverage metrics remain strong, with leverage ending at 3.2 times, on the low end of our target range. And as mentioned earlier, our coverage ratio was healthy 1.36 times for the first quarter and 1.24 times for the trailing 12 months, all driven by our solid results. All of this positions DPM well entering the second quarter with strong balance sheet, ample liquidity, and healthy distribution coverage. On slide 10, I want to provide a quick update on our counterparties and producers. Our portfolio remains strong at nearly 90% investment-grade or equivalent despite recent actions by rating agencies that have impacted many companies. Contract structure makes the difference, and DPM’s contracts are advantaged. We tend to sell products on behalf of our producers, so we hold the cash, drastically limiting counterparty exposure. Our contracts are generally at market levels and we don’t have any significant minimum volume requirement with any non-investment grade companies that are not being met. And in terms of our concentration levels, no one producer or customer makes up more than 10% of our overall exposure. So at the end of the day, we have an incredible portfolio of customers and producers in a must-run business, coupled with solid contracts and steel in the ground, which has clearly proven out with our record results. Now, before I hand it back over to Wouter, I also want to echo his comments around the monumental performance DCP’s employees are delivering on every day. I am proud of how our employees are making the hard decisions and executing on our promises ensuring the long-term sustainability of our company. And with that, I will hand it back over to Wouter.

[Wouter van Kempen:]

Thanks, Sean. We are very excited about how the DCP 2020 strategy has progressed in its execution, since we began these efforts in 2014. All 2,800 of our employees have embraced our goal to become the most reliable, safe, low-cost Midstream service provider, sustainable in any environment. And this has led to the DCP Enterprise significantly resetting its cost base and breakeven cash flows to levels that will be sustainable and competitive in any commodity cycle and positioned for recovery. Since we provided our outlook in early February, the DCP Enterprise continues to drive down its breakeven NGL price, heading towards $0.30 per gallon, which includes an annualized cost base reduction target of an additional 10% in 2016. We exit on a difficult position in April to reduce our workforce by 10% and in total we are now down about 600 employees since the hype of our growth program. What does this mean? Today, we are running $14 billion of assets with the same number of people that we ran $8 billion of assets in 2010. I am especially proud of the step up in reliability improvement. We continue to operate more efficiently and reliably, which is a win-win for both DCP and our customers, and we are doing this while we are spending less money. We have made strong progress on our contract realignment efforts to convert one-third of our NGL equity length to fee and we have added significant fee-based margins to DCP’s portfolio. We have been diligent managing our capital program with no significant projects remaining. And as always, we will match face with our producer and target future projects with strong returns. With our focus on system utilization, we will continue to optimize and rationalize our systems and that includes consolidating or idling less efficient plants and compressors and potentially selling non-strategic assets. Let me remind you that with the commodity exposure at DCP Midstream, we will monitor first to see the effects of the industry downturn, which prompted us to be very proactive and deliberate. As we have always said, we run the DCP Enterprise as one company, so our DCP 2020 strategy is inclusive of both DCP Midstream and the Partnership. And as the DCP Enterprise operates better, reduces costs and optimize these systems, those strategies benefit the Partnership. Now, let me wrap it up and move to slide 12. Let me give an example of some signpost that are already having an impact on the industry. Looking out on the horizon, the petchem industry expansion and exports advancing so far off in the distance are now clearly in our sights. There are billions of dollars of investments in petchem facilities that are expected to come online in 2017 and 2018 and those crackers crack only one thing, and that is ethane. These expansions along with PDH facilities and exports are anticipated to meet ethane in excess of what is currently being rejected by the industry. And to give you some perspective, over 650,000 barrels per day of ethane are currently being rejected in the Lower 48 and more than half of those barrels are squarely found around the DCP Enterprise footprint and that spells a tremendous opportunity for us. Not only is the DCP Enterprise, the heaviest hitter in NGL production, but also at the top of batting order when ethane recovery begins. And as an integrated Midstream provider, we are greatly advantaged. To incentivize gas processors to recover ethane, the frac spread needs to be favorable to gas prices, which will benefit the overall NGL barrel prices and our commodity exposed gathering and processing margins. And also as one of the largest NGL pipeline operators, we will benefit greatly capturing incremental NGL volumes of our extensive pipeline infrastructure. The economics will tell you that those who are the closest to the Mont Belvieu market will benefit first. So if you start with Mont Belvieu at the nucleus and draw concentric circles, ethane recovery should begin in Eagle Ford, then East Texas [Technical Difficulty] Permian, Mid-Continent, the DJ Basin et cetera, and those are all areas where both the Partnership and DCP Midstream have an extensive footprint. So to wrap it up, DPM had a tremendously strong quarter, with strong coverage buffer and overall volume uplift that sets up well to whether any uncertainties. The execution of our DCP 2020 strategy directly benefits DPM and we see the potential for some nice upside from ethane demand forecast in 2017 and 2018. We will monitor first to feel the effects of the industry downturn, which let us to be proactive and deliberate in our response beginning in 2014. And now both DPM and DCP Midstream are both very well situated to navigate through this environment and to emerge much, stronger on the other side. So I am going to leave you with one final thought. When you’re the first to feel the pain, you’re the first to feel the gain. And with that, I would like to thank you for your interest in the Partnership and hand it over to Charlotte to open the phone lines for any Q&A.

[Operator:]

[Operator Instructions] Our first question comes from the line of Elvira Scotto from RBC Capital Markets. Your line is now open.

[Elvira Scotto:]

Hey, good morning. I think that you guys have mentioned that you still expect Eagle Ford volumes to be down about 15% to 20% in 2016, the volume is only down about 1% in the first quarter. Was that Eagle Ford performance in line with your expectations or were you a little surprised that volumes weren’t down more in the quarter?

[Wouter van Kempen:]

Thank you, Elvira, good morning. I think overall I think they are tracking kind of roughly where we expected things maybe tiny little bit better than we had. There's a lot of uncertainty that continues to be around this area. So I think for us it's prudent at this stage to continue to think about the 15% to 20% decline because that’s only backend loaded for us. So when we talk about the 15% to 20% declines, it really was quarter-over-quarter and an exit rate. The Eagle Ford is interesting. We definitely are going to see industry-wide decline there. At the same time it is a great area and if commodity prices are going to continue to stay constructive, I do think it is an area that has the potential for producers to return to fairly quickly.

[Elvira Scotto:]

Okay, thanks. And then in the DJ Basin, I think you guys had noted that utilization there is 95%. Are you guys going to still be able to take advantage of growth there or are you kind of just bumping up against your capacity or how do we think about that?

[Wouter van Kempen:]

Yeah, good question, Elvira. We are really tremendously happy with the performance that we see in the DJ Basin and it's not only over system improvements that we've made where we see field pressures that have been lowered which really helps a tremendous amount with vertical walls coming online, the overall system is just running really, really well. Our producers continue to be working nicely in that area, you may have seen yesterday by Noble selling a number of their acreage which actually is great thing for us. The acreage that they sold was basically undeveloped acreage for them and they were not really going to develop that acreage now being sold to another company. Virtually all of that acreage is dedicated to us. So we think that is a good thing for us starting 2017. If you then go to the overall kind of where we are with the system, we have some opportunities to offload to other people. What that basically means for us that our volumes can go into other people’s system and from a return point of view that is very nice return, because you basically don’t burden any capital and you do get the margin. At the same time we also hold permits in hand. We have long lead time equipment. So with all that said, we continue to see growth there, so DJ Basin is definitely good. We want to - first area for us where we say we need to do some expansion of capital and see what we can build. But overall DJ Basin is really doing very, very well for us.

[Elvira Scotto:]

Okay, great. And then I just wanted to go to your slide 12 on the ethane recovery opportunity, can you just reconcile these numbers for me. You talk about the 650,000 barrels a day being rejected in the lower 48, 350,000 barrels a day rejected around your footprint, what is the difference between that number and then the 65,000 to 70,000 that's being rejected that BCP Enterprise is rejecting.

[Wouter van Kempen:]

So let me kind of work those back to you. 650,000 is the industry as a whole, so that’s the entire gathering and processing industry. 350,000 is what's happening in our parts of where we play. So for instance, we believe that the Permian is roughly 100,000 barrels that are being rejected in total. The DJ Basin is kind of 100,000. Then the difference between the 650 and the 350 is areas like the Bakken and the Northeast. Then going back to the 350 that is in the entire footprint where we play, DJ, Permian, Eagle Ford, East Texas, Midcontinent, we reject about 70,000 barrels or 65,000 to 70,000 for the DCP Enterprise as a whole. So those are barrels that flow through our systems or gas that comes through our plants. If you take a split between DPM and OMC, it’s probably one-third two-thirds. So one-third of that 65,000 to 70,000 barrels are in plants that are partnership and two-thirds are in the LLC. Does that answer your question?

[Elvira Scotto:]

Yes, that's perfect. That’s very helpful. And then just continuing on the ethane theme, are you guys talking to any of the petchem facilities like would you actually lock-in sort ethane sales like to provide them with the under contracts?

[Wouter van Kempen:]

We are the largest NGL producer as you know. We get a tremendous amount of calls from people everybody who is looking to do something with us be it domestically or internationally to finds themselves to Don Baldridge who runs our commercial department. So we have things going on today where we are able to do deals where we put certain plans into ethane recovery and get ethane to the market center. So there is a variety of opportunities for us directly or indirectly to benefit from this not only in our marketing business, but also in our GNP business and then obviously that has an impact on our pipes as well. So when you think about ethane recovery, I would really think about three ways for us where the enterprise as a whole can make money. On the pipes, on the GMP business that probably is the biggest one of all of them if you think about commodity uplift that LLC can get and then on the marketing business where we can make spreads in our marketing and trading business or in our fractionation business.

[Elvira Scotto:]

Got it. Okay. And then just a last one for me. I just wanted clarify, for the DCP Enterprise, you're working towards an NGL breakeven price, did you say a $0.30?

[Wouter van Kempen:]

That is correct. $0.30, so if you think about where we're sitting today $0.45 NGL prices, we are working to a breakeven price of roughly $0.30. Our job is not to be breakeven, our job is to make sure that we're a very profitable company and that's what we're working towards. There is still opportunities for us to continue to take cost out of the system, to run better, to be more efficient, be more reliable and that is what we're driving towards very hard.

[Sean O'Brien:]

Elvira, this is Sean. In terms of execution I would say that we're at about $0.35 right now and as Wouter has indicated, our stretch goals are to get to $0.30, we say $0.30 or even a little below, so still some work to do, but we're proud that we already at the $0.35 level.

[Elvira Scotto:]

No, that’s great. Is the $0.30 new or were you guys always kind of targeting that $0.30?

[Wouter van Kempen:]

No, when we rolled out all of our guidance in early February and late February we were talking about $0.35, but since then we have continued. You recall January and especially February were pretty tough months. And from a commodity point of view, and we decided to say, yes, there is more that we can do to get all of our teams together and we really started doing that in late December, early January to see other additional things that we can do. And the team is really working hard on the $0.30. Yes, it is a stretch goal, but it is something that we hope to look to deliver on.

[Elvira Scotto:]

Great. Excellent. Thanks for taking all my questions.

[Wouter van Kempen:]

No, problem. Thank you, Elvira.

[Sean O'Brien:]

Thank you, Elvira.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Jeff Birnbaum from Wunderlich. Your line is now open.

[Jeff Birnbaum:]

Good morning, everyone.

[Wouter van Kempen:]

Good morning.

[Sean O'Brien:]

Good morning, Jeff.

[Jeff Birnbaum:]

Thanks for the incremental detail on the slides today, very helpful. I wanted to follow-up on a couple of things. First, Wouter, on your comments about I guess your ability to pass on volumes to third party processors and the DJ if you get, kind of up to or beyond full capacity, I know you mentioned you've got permits for that next DJ plants, but I guess how do you think about the merits of doing that, passing on to third parties relative to building that next facility and sort of given the limited CapEx you have left this year and the strong financial position at DPM, how does the evolving position at LLC factor in to the decision making process?

[Wouter van Kempen:]

Well, I think there is a couple of things, Jeff that you guys think about. First of all, we've seen, call it, six weeks of better pricing environment here and that was not because of good pricing environment, it was just because we were up from pretty dreadful pricing in February. Like we're still sitting at the $0.45 NGL, if you would look back 12, 18 months ago, I don't think anybody would be happy with looking at $0.45 NGLs. So I think everything is relative. So you got to think about that first. We got to continue to see what producers are doing and is this a temporary rally, is it a sustained rally, are producers willing to put capital back into the fields, start producing again. There is still, the rate count is relatively low. So we got to look at all of those things and saying, okay, are we comfortable to make that long term decision. As you know, we are not the builder’s enabled type of company. We always try to manage our capacity and our utilization rates very closely. So what we will look at and we will try to see, can we use some of the, call it, low capital opportunities that we have where we offload to other people and then still make a margin on what we’re doing there and then if we're seeing a more productive environment overall and are comfortable with longer term volume outlooks, that's when you probably want to put new capital to work. So you can fill it up really quickly. Think about what we did with Lucerne 2, that plant came online in the summer of 2015 and is now virtually full. That's the success that we're having and that's the business model that we're trying to achieve. I'm not looking forward to and our teams doesn't look forward to just building a plant for the sake of building a plant and then take two or three years to fill it up. So those are the things that we're all weighing. We have a tremendous amount of flexibility and flexibility is good. We have permits in hand. We have long lead time equipment in hand, we have offload opportunities where we can do so, we've other opportunities to optimize the system and once we've gotten -- taken a look at all of those, combine that with macro environment, that's when we will say, okay, let's go forward and let's build a new plant to put steel on the ground.

[Jeff Birnbaum:]

Okay. Understood. And I guess sort of one additional follow-up, I guess just on the stretch target of $0.30 a gallon, what do you need to get there, I mean what does that involve beyond the cost reduction objectives you've already laid out across the DCP enterprise?

[Sean O'Brien:]

Jeff, this is Sean. The costs are definitely a portion of it. We're looking at, we didn't talk about as of yet about this, but the contract realignment efforts that we're doing, we're definitely stretch going those numbers and I think the most important thing and Wouter talked a lot about this at the beginning of the call was efficiencies. I've been incredibly impressed and we've talked about the employees and how they're delivering on how our assets are running. Wouter talked about all these records in the DJ, we're seeing a phenomenal performance of our assets in the Delaware basin, in the Permian. We're seeing great run times across the board. So I think it's more of really the same levers we've been pushing and talking to you guys about since the beginning, but I think we have a lot of confidence on execution and we're really seeing that we can deliver a little more on those things. That will get us to the $0.30.

[Wouter van Kempen:]

Yeah. Let me put it in four really simple buckets for you. First of all, reliability. When you run better, you run more efficient, that throws money to the bottom line. Second one is your overall cost structure which we continue to effect really hard. Third one, contract realignment which gives us margin uplift, throws money to the bottom line, the last one asset utilization, make sure that you put as much volumes through your assets. If you take those four together, if we execute in all the different plants that we have in each of those category, that's what will get us to the $0.30.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Jerren Holder from Goldman Sachs. Your line is now open.

[Jerren Holder:]

Hi, good morning. Just a question on the costs, looking at the 48 million of operating expenses this quarter, is that a good run rate to use for the remainder for the year, just given that you guys are still targeting additional cost reductions?

[Sean O'Brien:]

Jerren, I think you're thinking about it right as we move in to the year, some of our cost reductions are more back end loaded. Wouter talked about the reduction in force that we had, it's more than just that, we're working on efficiencies across the assets. So I think what we're expecting, what you should expect to see is improvement in our run rate as we get through the year and that's also aligned with the concepts we've heard earlier going from $0.35 to $0.30 on a breakeven.

[Jerren Holder:]

Got it. And in terms of the timing of the additional 90 million margin uplift at the DCP enterprise, how should we think about that breakdown between LLC versus MLP.

[Wouter van Kempen:]

I would think, Jerren, it's Wouter speaking. It's predominantly on the LLC side of the house. To give you some numbers, Jerren, we're 75% there on getting to $90 million for 2016. So it's not an area where the team is executing really, really well. It's predominantly, we were looking at this in the Permian and in the mid-Continent, so most of this will flow to LLC, at the same time, as you and I discussed, and we've always discussed, the stronger LLC means the strong DPM. It means a strong LLC.

[Jerren Holder:]

Thanks. And last question from me, any update on how you guys think about dropdowns, just given that capital markets seems to be improving a little bit here?

[Wouter van Kempen:]

I would look at that as a, we're always targeting kind of growth for growth and you know what, if there is a reason to do dropdowns, because we need to raise capital, then obviously we have a tremendous inventory at LLC that could find itself into the partnership and it is a very, very large inventory as I think you're very well aware of. At the same time, dropping for the sake of dropping, I don't think makes a tremendous amount of sense, you got to figure out what are you going to do with the proceeds. So what we're doing here right now is continue to look at what our options are, we have a tremendous amount of options and optionality and what we're also doing is and this goes back to your contract realignment, we are creating more fee based at LLC, which means that large inventory that we have available for drop is not also becoming MLP friendly. So I think that gives us a lot of opportunity and if we want to go out and do something, we can always choose to do so.

[Operator:]

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. van Kempen for any closing remarks.

[Wouter van Kempen:]

Thank you, Charlotte and thank you everybody for joining us today. If you have any follow-up questions, please contact Andrea, Sean or myself. Looking forward to seeing many of you at the MLP conference in June and have a great day. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.