DCP Midstream, LP
Q1 2015 Earnings Call Transcript

Published: 12 May 2015

[Operator:]

Welcome to the DCP Midstream Partners' First Quarter 2015 Earnings Call. My name is Cynthia and I will be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Please note that this conference is being recorded. I will now turn the call over to Andrea Attel. Ms. Attel, you may begin.

[Andrea Attel:]

Thank you, Cynthia. Good morning everyone and welcome to the DCP Midstream Partners' first quarter 2015 earnings call. We'd like to thank you for your interest in the partnership. Our speakers today are Wouter van Kempen, Chairman and CEO of both DCP Midstream and the Partnership; and Sean O'Brien, CFO of both companies. This call is being webcast and the slides for today are available on our website at dcppartners.com. During our call today we'll be making forward-looking statements. Please review the second slide in the deck, noting that our business is subject to a variety of risks and uncertainties that could materially impact our actual results. For a complete listing of these and other risk factors, please refer to the Partnership's most recently filed 10-K and 10-Q. We will 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. With that, I will turn the call over to Wouter.

[Wouter van Kempen:]

Thanks Andrea and good morning everyone. Before we jump into the results I want to call out my appreciation to our friend and colleague Bill Waldheim who just retired as President of DPM. Bill has led an esteemed 37 year career with DCP and our predecessor companies and he has played an integral role in executing on our strategy of providing long term sustainable value to our unit holders. Knowing Bill, he's probably listening in, so I want to say Bill, thank you Kathy we will miss you and wish you the very-very best. On today's call Sean and I will discuss how we performed during the first quarter and towards the end of [touching] our long term strategy. Before getting into the quarterly results you've heard that DCP's owners Phillips 66 and Spectra Energy are evaluating various solutions for the DCP enterprise, and we're making great progress on that. And while I appreciate that it's of great interest to all of you, real plan discussions are still taking place. So we will not be discussing this on today's call, but we will follow up with details when we finalize our long term strategy. Now onto the first quarter, another strong quarter with great results, adjusted EBITDA was up 17% to $162 million and DCF was up 15% to $ 140 million. These results were driven primarily by the continued strong fee based growth associated with a ramp up of our NGL pipelines and strong results from our wholesale propane business. And our long term growth projects the Keathley Canyon connector was placed into service in the DJ Basin, we're near on completion on the Lucerne 2 Plant and we began construction on the Grand Parkway gathering project and the Panola pipeline expansion project is on the way in East Texas. On Slide 4 let's take a look at DPM's distribution history. During the first quarter we held our distribution flat at $0.78 which is 4.7% over the first quarter of 2014 and now it stands at $3.12 annualized. For those of you who've been tracking us from our beginnings, you'll appreciate we've never cut DPM's distribution. Since DPM's IPO in 2005 we have increased Partnership distributions in about 75% of our quarters and health distribution steady for only other period in our history, during the 2008-2009 financial crisis and we're proud of that record of sustainable value. In this current environment of low commodity prices and sharply declining rate counts we expect to hold our distribution flat through the remainder of this year with an expected distribution of $3.12 per unit for 2015, ensuring our eye is on making financial decisions in the near term that will be sustainable in the long term. Again, that's always been our focus, long term sustainable growth for our unit holders. Now let's move on to the capital update on Slide 5. We're on track to meet our organic growth forecast of approximately $300 million during 2015 which includes predominantly fee based projects that are all in flight. We also have numerous opportunities around the footprints that could materialize depending on producer activity such as additional plants in the Eagle Ford and DJ Basin areas. I've always said that we are not a 'build it and they will come, type of company, what we do is we build and we fill which is evidenced by our 85% of utilization rate on our plants. We have a strong comparative advantage in our ability to quickly ramp up when needed. We [hold], we're in the process of securing new plant permits and we've access to long lead time equipment, all of which can reduce the total plant build cycle by up to 18 months, providing us with optionality and speed when a recovery comes and given this good line of sight to future growth opportunities. Now for a quick update on our capital projects and let's step through them by segment. To begin with our gas services segment. The fee based Keathley Canyon 440 million a day deep water gathering system was placed into service in the first quarter. Keathley Canyon is supported by life of lease agreements with minimum throughput commitment and is already filling up very quickly. In the DJ Basin, our Lucerne 2 Plant is under construction and expected to be placed into service on time and on budget in the second quarter and we expect volumes to ramp up quickly from pent up demand in Wattenberg Field. Also on the DJ we began construction on a 100% fee based Grand Parkway gathering project, which will lower field pressures and increase volumes from the system. This is a $55 million project with the portion of the pipeline already in the ground. Let's move over to our NGL logistics segment. Our two in-flight Sand Hills bolt-on projects, the Lea County and Red Bluff Lake laterals, are expected to go into service here in the second quarter. And these laterals will open up needed pipeline capacity in the Delaware Basin and in Southeast New Mexico, where DCP Midstream is completing its Zia II plant. With this growth, we're in the process of expanding capacity of Sand Hills. Work is underway on additional pump stations, the first of which is targeted to come on line in the middle of 2016 and will add an additional 40,000 barrels per day of take away capacity from the Permian area. In east Texas, the Panola NGL pipeline expansion project operated by enterprise and owned 15% by DPM, began construction during the quarter and includes the installation of additional 60 miles of pipe. This project will increase capacity by 50,000 barrels per day and has an expected in service date in the first quarter of 2016. And then lastly, our Marysville liquids handling project in Michigan will improve our ability to receive and deliver NGL products at facility via truck and rail. And that one has an expected Q2 in-service date. All of these are great fee-based growth projects. Next on Slide 6, I'll provide a quick operational update on our segments. In the natural gas services segments, both gas volumes and NGL production are trending in the direction we like to see, both up compared to the first quarter of 2014. And is primarily driven by Keathley Canyon going into service, the O'Connor plants in our DJ basin system which is run virtually full and DPM's acquisition of an additional 20% ownership of the Eagle Ford system last year. And the Eagle Ford is a great area for us, continuous to see very strong production due to its economic cost of drilling and location relatively to the Mont Belvieu market. In the first quarter our Eagle Ford system volumes were down slightly from last quarter due to some temporary operational challenges that have been resolved. We also had a third party outage but that's not expected to have a material impact to our forecast. In the NGL Logistics segment we see volumes up 160,000 barrels per day from the first quarter of last year. Sand and Southern Hills coming into the partnership is a big contributor to that increase. In the first quarter, Sands Hill averaged close to its initial 200,000 barrels per day capacity. I'm very excited that the team has been able to increase the actual capacity of Sand Hills to about 240,000 barrels a day through asset optimization. And with the addition of the new pump station and other optimization efforts, we'll further increase this capacity to an estimated 280,000 barrels per day by the middle of 2016. And lastly we also see volumes ramping up nicely on the Front Range pipeline, servicing our DJ production. Finally, volumes in the wholesale propane segment were flat to the last year. But as you recall 2014 was one of the coldest winters ever, so seeing continuous strong demand in 2015 is something that we're very pleased with and the teams did a great job this winter working through some of the hardest operating conditions we've ever seen. In summary, our business segments are doing very well, and with a strong footprint and our assets located in the core area of key basins, we expect to continue to fill nearly constructed capacity across our systems. With that I'll turn it over to Sean to review the financials.

[Sean O'Brien:]

Thanks Wouter, good morning and thanks to everyone for joining us today. On Slide 7, I'll discus our first quarter 2015 results. As you just confirmed Wouter, DPM has delivered a great quarter driven by strong growth from drop down and the solid execution on our growth opportunities. In the first quarter, our adjusted EBITDA was up $24 million or 17% to $152 million and we generated a $140 million of DCF, up 15% from the first quarter of 2014. In our largest business segment, natural gas services, adjusted EBITDA up $121 million was relatively flat to the first quarter of 2014. If you exclude a onetime $11 million favorable settlement from the first quarter of 2014, 2015 was up slightly due to higher volumes and growth from our fee-based plants. This growth more than offset lower commodity prices which were partially offset by hedges and lower unit margins on our storage assets compared to last year. In our NGL Logistics segment adjusted EBITDA was up $22 million, more than double to $39 million. This increase driven primarily due to growth from dropdown of Sand and Southern Hills pipeline in March of 2014 and the ramp up of the Front Range pipeline. As a quick reminder, all of these NGL investments are accounted for using equity method accounting which drives higher DCF rather than EBITDA. And finally, in our wholesale propane segment, we reported adjusted EBITDA up $23 million up $10 million which included a partial recovery of a lower of cost to market inventory adjustment that was recorded in the fourth quarter of 2014, coupled with higher unit margins. Now moving to Slide 8, I'll quickly recap our financial position at the end of the quarter. Despite the uncertain environment we continue to maintain strong liquidity in credit metrics. DPM's average cost of the debt was about 3.8% and we have about $1.25 billion of liquidity available under our credit facility. DPM's debt to EBITDA at the end of the quarter was 3.3 times on the lower end of our target range and our first quarter coverage ratio was 1.1 times for the trailing 12 months well within our target range. Therefore despite the recent ratings downgrade we have solid leverage in coverage metrics and we firmly believe that DPM will continue to have sufficient access to capital to fund our growth. So DPM’s balance sheet provides the DCP enterprise a solid platform for growth and the partnerships diversify and growing fee based should supports our DCF target all together driving sustainable growth to the unit holders. Now let’s move to slide nine, I’ll get some highlights and development regarding our margin portfolio and commodity sensitivity. We manage our commodity sensitivities on a portfolio basis with a multiyear hedging program with 90% of our 2015 margins either fee based or hedged. So we have very limited exposure to commodity prices in 2015. During the first quarter the hedges with DCP Midstream were transfer to a strong investment grade bank in our credit facility. Now making the majority of DPM’s hedges with third-party, counter parties and we are currently seeing opportunities to add on to our 2016 and 2017 hedge positions. More details to come as we continue to execute on our hedging strategy. We’ve been very successful on adding fed based investments in contracts to DPM’s portfolio with fee base margins of about 60% up 5% from 2014. We expect DPM’s fee base revenue stream to grow, demonstrating our track record and highlighting our commitments to driving and growing sustainable cash flow. We will proactively manage our commodity sensitivities through continued fee base investments and our strong hedging program. With that I’ll hand it back over to Wouter to wrap things up.

[Wouter van Kempen:]

Thanks, Sean. AS you all know DPM is an integral contributor to the overall DCP enterprise and while we have some headwind for commodity prices at DCP we’re very confident in the long-term fundamentals for the DCP enterprise in the industry as a whole. We have a long history almost 90 years of prudently managing through all commodity environments and remember this is a must run business with over 75% of the gas produced in the United States requiring some level of processing and the DCP enterprise is the largest gas processor in the country with over 10% of the nation’s gas supply coming through our plants. So I’m going to talk a little bit about our long-term strategy, which internally we call DCP 2020. It’s a framework of all of our 3,200 employees are squarely focused on to position the DCP enterprise for long-term sustainability and profitability through all commodity cycles. At the core is a foundation of operational excellence with three key principals risk management, efficiency and reliability which align everything we do. Our priorities, our decision making and all with an eye for being sustainable for the long-term in any cycle. So first risk management. We take a broadest view of risk beginning of course with operating safely and responsibly. The derisking the DCP enterprise also extends to our contract and working towards preserving and increasing margins and finding the optimal balance between fee base and commodity base contracts. And derisking can mean increasing investments in fee base projects and also protecting cash flows through our active hedging program. Next part efficiency. Earlier this year we reduced our cost base via right sizing and streamlining our organization. We began to rationalize our systems to ensure they are profitable through any commodity environment and this could mean shutting down all the facilities, upgrading plans or time to gather integrating systems, all with the goal of driving sustainable cost reductions. And lastly reliability, which really drives profitability and gives us the right to grow. Reliability is a must have and our customers demand it and we invest a lot of resources to optimize asset performance and drive efficiencies. Our focus on operational excellence [indiscernible] sure to DCP enterprise delivers value to our unit holders and our shareholders in all commodity cycles, in all business environments. So that means making smart capital decisions, being disciplined and controlling what we can control. So all in all we feel that the DCP enterprise will be stronger and fitter company in the future and DPM continues to be very well position in the current business environment of 2015 and beyond. With that I’d like to thank you for your interest in partnership and Sean and I are now available to take your questions. Cynthia, please open the line for Q&A.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gabe Moreen with Bank of America. You may begin.

[Gabe Moreen:]

Good morning everyone. Couple of questions from me, first, on the hedge novations to the third-party, can you just talk about kind of the rational for that and what and what prompted that at this time?

[Sean O'Brien:]

Gabe, this is Sean. Good morning. Bottom line the hedge novation is a win-win for the enterprise as a whole, as I mentioned it was novated with an investment grade bank in our facility and quite frankly it derisks the volatility of cash flows for the enterprise as a whole; obviously partners DPM still has the hedges which obviously keeps their cash flow very stable. So win, win for the company. Investment grade counter partner was really a good think I believe for both companies.

[Gabe Moreen:]

Sean, can you talk to the cost of the DCP level to doing, was there -- I mean there must have been a cost to doing that?

[Sean O'Brien:]

I would say the positive gains at the end of day is that the markets were there to basically lay it off and the cost were really de minimis at the end of the day. We’re pleased to see that we could get those positions novated for LLC at a very de minimis price.

[Gabe Moreen:]

Okay. And then final question on that, should we read into that in terms of the willingness of the parent to backstop future commodity risk for DPM in future after those hedges expire.

[Wouter van Kempen:]

Gabe, good morning, it’s Wouter. I wouldn’t read anything into that at all I think what Sean mentioned it was a good opportunity for us to -- no wattage to the strong counter party, reduce the overall volatility for the enterprise and do that at a price level that were below de minimis.

[Gabe Moreen:]

Okay. And then in terms of future hedging you mentioned Sean trying to layer on additional stuff and I assume that means for ‘16 and ‘17, can you just talk about is there -- you’ve got a little bit of coverage to work with, presumably you got some sea based growth coming online that should help you in ‘16 but can you talk about I guess, what sort of pricing levels you’re looking at to strike additional hedges on how aggressive you think you’re going to be with that for ‘16 and ’17?

[Sean O'Brien:]

I would say this Gabe and I think you get some really good points, obviously we’ve got, Wouter talked about a lot of projects that recently come online, will come online their fee base. So to your point good line to sight of fee based earnings cash flows, around the hedges we are seeing in the out periods and I think that’s existing in ‘15, ‘16 and ‘17 so good moment around some of the commodities they run some of our open position commodities that we can get out there and we believe put some hedges in. In terms of pricing I won’t give exact pricing but I would tell you that we are -- as we look to execute our strategy it would be above -- to be honest the above price level that we had in our thought process when we are putting our budgets together last year. So we like what we are seeing and it is aggressive our goal is to get that percentage up in ‘16 and ‘17 it looks like we are having the opportunities to it so we’re excited about that.

[Gabe Moreen:]

Great. Then on the G&A count word came in for the first quarter I know new organizations been aggressive in terms of targeting cost saves, but there is also the rework to the [Omni] plus agreement in terms of cost sharing with a parent is about 1Q G&A and where that came in is that about or you think it going to be run rate for the year?

[Wouter van Kempen:]

Wouter again, I think that’s a reasonable run rate and you mentioned what we’re doing at the enterprise level looking at taking $70 million of cost out, but we in January executed on a reduction enforce we were probably one if the first ones in the industry, reduced our overall cost base and [indiscernible] overhead by about 20%. So fairly aggressively there is some differences in the services agreement as you mentioned and the way you got to look at that is the tremendous growth that we’ve had at the partnership both from drop down as well as organic growth. We don’t let any employees at the partnership as you know. So all those services are done by midstream and we just needed to make sure that all the growth that we have done, all the dropdowns that we’ve done that they were kind of in line with cost support that we needed. But overall look at that 40 enterprise some pretty significant cost reductions and we’re well underway feeling good about those.

[Gabe Moreen:]

Okay. And then last question from me, is just you talked about risk management on the enterprise basis I think you made previous comments talking about trying to take POP contracts and convert them to sea base and also trying I guess price your services properly with producers. Can you just talk about where you are in that process, how much headway you’ve may be made in the first quarter and there is number that you can share about that?

[Wouter van Kempen:]

Yes, I probably don’t want to share too many numbers but I think we spoke in February in New York at the Spectra Analyst Day, spoke about some of the things that we are doing for instance on contract that are in evergreen I think we’ve been successful about that, that effort was really around making sure that we get an adequate return from services that we provide. So we’ve gone aggressively after that. We are also looking at by the opportunity exist transferring from some POPs to fee base contract and we really look at that on an opportunistic basis, making sure we get the right balance between POPs and between fees. We really look at that on an opportunistic spread on the POP today the producers are not willing to go to what is needed at these commodity levels to get the right type of return. So from a POP that can make it difficult. At the same time we do see some very attractive fees that we can strike on in the market. So more need, more possible and where there is the right opportunity we’re converting some of our contract into a fee base contract with other auxiliary service that we put on to [indiscernible].

[Operator:]

And our next question comes from James Carreker with US Capital Advisors, you may begin.

[James Carreker:]

I was wondering if you guys could comment on your natural gas services volumes, both on the gas throughput and NGL production. It looks like they have been declining for the last two quarters. Can you just talk a little bit about where volumes are now and how you think about those for the remainder of 2015?

[Wouter van Kempen:]

James, its Wouter here. Let me take this kind of at two different levels. Let me kind of start at a much broader level around the DCP Enterprise. As you know we're in all the major basins and shale plays here in the country so we have a pretty good insight if you look at it from DCP Enterprise' point of view where things are going. Rate count is down call it 60%, so obviously that is going to have some type of impact over the next number of quarters, what the impact is going to be exactly I think that's too soon to tell, there will be productivity from the producers. The other things that the producers will do is they are moving to more of their core areas. I've always spoken with all of you about midstream gathering and processing is a real estate game, location really matters. We've always been in the core areas of these basins and shale plays and I think in a time like this that plays to its advantage. The other thing -- and I mentioned it in my prepared remarks, we are not a "build it and they will come" type of company. There are people who did a lot of spec building, they probably don't feel very good right now. We have 85% of our new capacity that we brought, 85% capacity utilization on all the new plants that we've put into service over the last couple of years. So that feels pretty good. We do see a lot of kind of new building growth coming online, Keathley Canyon, you know it's come online very-very hard so it came online a little bit later than expected so that's part of why you're seeing the growth in the first quarter not being as much as we've expected, but what we're seeing today in [indiscernible] we feel really good about that. Lucerne 2 coming online here in the next quarter, feeling pretty good about that. So, that's kind of at a high level. If you look at it at a smaller, kind of more individual level for DPM Eagle Ford and kind of the South area we had some issues in the first quarter, we had some operational issues with our own plants that are resolved right now. We had some issues around weather with freeze offs, those obviously are resolved, and then we has a third party pipeline provider that has been curtailing us so all of those together gave us a little bit of less throughput in the first quarter. If I take a look right now and I compare like April 2014 over April 2015 or even April '15 over the first quarter '15 in the south area we're up in volumes. So I feel good about it, the producer activity is still there in the south area, so I say overall feel good about it at this stage. If you go to the DJ Basin, even a better story to be perfectly honest. Growth Q1 '14, Q1 '15 up very significantly, sequential quarters growth up, the volumes up significantly, April '15 over first quarter '15 volumes are up so we've run four out of last five months we had record volumes in the DJ Basin, so we continue to see strong volumes there as well.

[James Carreker:]

Thanks. I certainly appreciate that color. And then, also, just stepping back a bit. I know you have got a -- guys have taken this drop-down to [TBD] versus your prior billion-dollar drop-downs a year. What -- how are you thinking about what you would need to see in order to reignite your drop-down story going forward?

[Wouter van Kempen:]

Well James, I think you really got to take a look at it together with what we've announced with the overall look at the DCP Enterprise. So the solutions that we're working towards and you've heard [Greg and Greg] talk on their earning calls about we're kind of trying to finalize these solutions here over the next couple of months, between kind of you know May today and October and the drop down story is really part of that overall story, so stay positive and we'll keep you posted once we have something to announce there, but we'll get the whole package for you ready then.

[James Carreker:]

Okay, no, I appreciate that. And then just last question, just on the lower of cost or market charge in the propane segment, can you guys quantify that? And then, also in that same segment, have you guys talked about what the impact is of that butane export facility?

[Sean O'Brien:]

Two things James, this is Sean. Propane was up quarter-over-quarter almost double right, and about half of that or little less than half of that would be LCM adjustment, we're up about $10 million. In terms of the butane export we were -- I would tell you that those results were in line with our forecast and our expectation. What we really saw was better unit margins; I know Wouter alluded to it being a very severe winter, actually very concentrated into Q1 which is a little different. A lot of the weather happened over those three months. So about half of the good guide was related to the LCM, the other half I would say is predominantly better margins that we saw on butane basically at our expectations on that export.

[James Carreker:]

Thanks. That’s all from me.

[Operator:]

And our next question comes from Faisel Khan with Citigroup. You may begin.

[Faisel Khan:]

Good morning. It is Faisel from Citi. Just a question on the new projects that have ramped up and are also ramping up in the second quarter and yearend 2015. What do you guys estimate is the total EBITDA contribution on an annualized basis from all these projects?

[Wouter van Kempen:]

Faisel, we haven’t given very detailed guidance I believe around that. So, let stay posted on that one.

[Faisel Khan:]

Okay, got you. And then, if I look at you guys maintenance CapEx guidance for this year, $50 million to $60 million, can you talk a little bit more in granularity in terms of what that covers? Is that only just to keep the plants running or does it include maybe potentially some refurbishment of older plants as some of those older plants have a lower cut of NGLs?

[Sean O'Brien:]

Yes, for DPM specifically Faisel, this is Sean. It’s predominately what it takes to keep flat, not that we don’t -- the composites of the assets for the partnership are relatively newer plants and then obviously a lot of NGL logistics investments which have the lower maintenance capital profile. We had about 7 million for the quarter. We’re still sticking to our 50 to 60 guidance for the year but the reality is most of our work is estimated to occur in Q2 and Q3 which is pretty normal. If you look at last year, we were pretty light in Q1, get through the winter and get a lot of our work done in the spring.

[Faisel Khan:]

Okay, and then you were talking about most of the plants at the Partnership level, I guess, are relatively new compared to the aggregate entity. What would you guys estimate is the average tenure or age of your processing plants within the Partnership?

[Wouter van Kempen:]

Faisel, Wouter. I don’t have that here in top of my head I’m sure we can take a look at that, but I think your general statement is correct that partnership has some fairly large significant and new assets, if you take a look at O'Connor, Lucerne coming in, [Eagle] plant, so there is lot of pretty new plants that are in. May be going back to your prior question around what kind of type of margin would expect from these new projects. The guidance we’ve always given you is 5x to 7x by the multiple sale. You have the growth or the capital number so you can do your math in the models around but roughly will bring back.

[Faisel Khan:]

Sure. And then just on Lucerne 2, do you expect that to be completely accretive to volumes or do you think that it will cannibalize some volumes on some parts of your system? Meaning, will you see some parts of your system take volumes into Lucerne 2? How is that going to work out?

[Wouter van Kempen:]

That’s two things, what you always want to do in this business, you always want to direct your volumes to your guide and if your best and most efficient plants. New plants tend to be the best and most efficient. So there is definitely some volumes that are going to go to Lucerne 2 because we’re just getting overall a better cut out of that plant. But secondly I think more importantly I spoke about how we have a number kind of month over month we’re continuing to see these records and what’s interesting here in DJ Basin as you may know there -- that the well [half] there is heating and that takes up a lot of gas in the system, going here into the spring and summer season does well, heavy heaters are coming off. So that’s going to bring some additional volumes in the system. The other thing that we’re seeing is we’re seeing continues high pressures overall in the system. So bringing Lucerne 2 up is going to take those pressures down that should get to the place where some of these older vertical wells or even some of the older horizontal start to flow or start to flow better and that’s also why we’re doing the Grand Parkway project again take those overall pressures in the field down and getting some of these older wells to flow again or start to flow better. So we absolutely see some, expect to see some good chunk of additional volumes coming into the system.

[Faisel Khan:]

Okay, appreciated. Thanks for the color.

[Operator:]

And our next question comes from Jeff Birnbaum with Wunderlich. You may begin.

[Jeff Birnbaum:]

Good morning guys. Just in case he is listening, I will congratulate Bill again as well on his well-deserved retirement. So, just a few questions from me Wouter, thanks for the color earlier on volumes and what you're seeing in the Eagle Ford versus the DJ. Can you quantify how much the DPM manages and third-party curtailment around the Eagle Ford impacted the quarter?

[Wouter van Kempen:]

We are not giving that exact detail out, but I think the way you got to look at it, is again, if you're looking at now kind of April over the first quarter and like where we're up and we continue to see and believed it will have a positive trends going forward.

[Jeff Birnbaum:]

Okay. And I was curious, could you -- if you could talk a little more as well about the performance you saw on Black Lake, you called that out in the slides, is that primarily being driven by the success you're seeing from customers have in northwest Louisiana and is that an area where you're looking at any incremental investment opportunity?

[Wouter van Kempen:]

You know Jeff, I might -- we've definitely seen volumes up on Black Lake but if you take a look at the overall margins we haven't seen margins go up much, so it's an area where we probably are going to do a little bit of wait and see.

[Jeff Birnbaum:]

Okay. And curious, have you had -- just on the hedge novation, have you had any conversations with the rating agencies on how they view that and the impact that that will likely have on how they view the enterprise overall?

[Sean O'Brien:]

Jeff, this is Sean. Yes, the answer is yes, obviously the rating agencies are well aware of the hedge novation, you know really from an LLC perspective but I think to your point they yield, as I mentioned it's a win-win across both enter -- both companies and I think they view it that way. So I think they view it as a positive any time we can take some risk and some volatility out of the enterprise our underwriting agencies are going to -- the cash flow, the RAs are going to really like that and as we mentioned to do that as efficiently as we did was a big positive so I would tell you they are viewing it very favorably.

[Jeff Birnbaum:]

Okay, that makes sense. Thanks. And then, Sean, one last just kind of follow-up on your comment on hedging earlier. You mentioned you are seeing some opportunities to hedge additionally in 2016 and 2017. It doesn't seem like you have added much for 2016 over the last couple quarters, so just confirming, basically, you haven't really changed your approach to hedging in the out years and, I guess, whether you are considering any potential changes now or as part of a restructuring with the LLC.

[Sean O'Brien:]

Well I can't speak for the latter yet but regarding right now Jeff, couple of very good positive trends right, we went from -- we increased 5% on our fee based which is nice and I believe we in the current trajectory we believe that will grow every year so that's a positive now if you think about the hedging on top of that, with no change to the strategy I think we’ve put some positions on last year you know for '16 a little bit for '17 and again the good news and what we're excited about it, that we see opportunities in the current environment as we sit here to continue to add on to those positions and we'll definitely -- we want to get through that strategy when we get through this period Jeff, and I think we'll have an update for you, my hope is that NAPEP or something like that we can tell where we're at, around the hedging.

[Operator:]

And our next question comes from Selman Akyol with Stifel, you may begin.

[Selman Akyol:]

I appreciate all the clarity that you have been giving and I just want to go back to the 2016 hedging. So I heard you loud and clear that you are seeing opportunities to add in 2016, but have you done any adding yet as of this date?

[Sean O'Brien:]

You know I would tell you Selman, this is Sean, good morning, we are in the process of executing so I would leave it at that. We're looking at it pretty hard, you know it's a -- back to Jeff's point there's been no shift in our strategy so our risk department or our execution arm is constantly looking at these opportunities and if you obviously follow '16, '17 there's been some strength in some of the commodities recently so. Again we’re excited, we see some really good opportunities and we'll get you up, when we get through sort of this opportunity we'll come back and give you some revised numbers down the road on '16 and '17.

[Wouter van Kempen:]

Yes. Selman this is Wouter, when you saw all of you in March in New York I'm like, we had a lot of discussions around the hedging and we told you that we didn't like what we saw on the out years for '16 and '17 and over the last I would say week or two things have definitely started to look a little stronger in the out years so that means you will start to look and say hey, are there some opportunistic ways to start taking some risks off in the out years so that's what we're doing right now and taking a hard look at.

[Selman Akyol:]

Okay, great. I appreciate that. And then, I just want to go back to Lucerne and follow up on Faisel's questions. So do you expect that plant to fill fairly quickly, then, after it comes online? If you're bringing in some volumes from other plants and make sure we expect it to be completely full within 90 days or so?

[Wouter van Kempen:]

No, I think that would be bit opportunistic, I'm like 90 days to fill a 200 million a day plant that would be fairly significant but you know we do expect to see fairly strong growth in that plant as a whole, filling up a 200 million a day in 90 days is a little bit too much to ask for, but overall I feel pretty, pretty good about it.

[Selman Akyol:]

All right, thank you very much.

[Operator:]

Our next question comes from Becca Followill with U.S. Capital Advisors.

[Becca Followill:]

To go back to the hedges, is the goal with the layering on at these additional hedges in order to maintain the distribution or is it to be able to grow the distribution post 2015?

[Sean O'Brien:]

This is Sean, let me put it in this context, and I kind of alluded to it Gabe was answering the question earlier. Obviously we lay out, we've got a poor hands and then we look at the growth in our businesses that we have and so forth, so I would tell you that the opportunities we're seeing today to layer on some of these hedges are incremental in terms of pricing to what we would have been modeling just back in November or October even last year. So we see that as a positive sign. I would tell you, if you want to take -- if you want to translate that into your comment, I would say better cash flows obviously stable for the enterprise is a good thing and for DPM is a good thing around distribution coverage.

[Becca Followill:]

I guess I'm looking at it in context of where your hedges are now, which are above where they were in November, and if you look at the quarter, those hedges covered about $61 million of cash flow or about 43% of your distributable cash flow. So are these prices that you are seeing for the incremental hedges, they are obviously below where you are right now. So I'm just trying to get a feel for can you get to -- if these hedges expire in 2016, will you be able to grow the distribution?

[Sean O'Brien:]

Yes, a couple of things, we've modeled them and we've been talking about [elaborate stage] that a lot of growth in projects, some of which are just coming online like Keathley. So will see increased cash flows as that ramps up and year-over-year increase cash flows, same thing on products like [indiscernible] and even the pipelines, you know Wouter spoke about the Sand Hills, expanding the capacity already and the opportunity to take it more. So we see continued good growth in our cash flows from our fee based businesses that's what we've modeled going forward. In terms of the drop from today's hedge prices, to what we could lock in, we have been modeling lower prices and that’s was sort of I was eluding to before in the past and we're actually seeing the opportunity to increase those cash flows based on what we're seeing in the markets today and our ability to hedge that. So we feel pretty strongly about our ability and our cash flows going forward, both from growth from projects that we have in flight or just coming into service. And now to minimizing that spread between today's hedged pricing and where we can hedge at in '16 and '17.

[Becca Followill:]

Thank you.

[Operator:]

And we have no further questions at this time. I will now turn the call over to Wouter van Kempen for your closing remarks.

[Wouter van Kempen:]

Great. Thanks, everybody, for your interest in DPM. If you have any follow up questions, please contact Andrea and all of us will make ourselves available and have a great day and see you all later this month in Florida at NAPTP. Thanks

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.