Enable Midstream Partners, LP
Q3 2016 Earnings Call Transcript

Published: 2 Nov 2016

[Operator:]

Welcome to the Enable Midstream Partners Third Quarter 2016 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and this floor will be opened for questions following the presentation. [Operator Instructions] Today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the floor over to Enable's Senior Director of Investor Relations, Mr. Matt Beasley. Sir, you may begin.

[Matt Beasley:]

Thanks, Erica. Good morning and welcome to Enable Midstream Partners’ third quarter 2016 earnings call. I am joined on today's call by our President and Chief Executive Officer, Rod Sailor; and our Chief Financial Officer, John Laws as well as other members of management. Statements made during this call that include Enable Midstream’s expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from our projections and the discussion of factors that could cause actual results to differ from our projections can be found in our SEC filings. Also, please see the appendix of the presentation for a reconciliation of non-GAAP financial measures. With that, we will get started and I will turn the call over to Rod Sailor.

[Rod Sailor:]

Thanks, Matt. Good morning and thank you for joining us on our third quarter call. Before I begin I would like to take this opportunity to welcome Greg Harris, who was recently named as Enable's Executive Vice President and Chief Commercial Officer. Greg comes to us with an impressive track record of commercial success and significant experience in the energy industry, most recently serving as Senior Vice President of Business Development & Marketing at Columbia Pipeline Group. We're excited to have Craig join the Enable team and look forward to his leadership of our commercial efforts. Now moving to Slide 4 of our presentation, Enable Midstream had another solid quarter performance. Our net income, our adjusted EBITDA and distributable cash flow all increased in the third quarter compared -- in the quarter compared to the third quarter of 2015. Year-to-date we're pleased to note that we have delivered a debt-to-EBITDA ratio of 3.78 times, a coverage ratio of 1.26 times and a $48 million reduction in our O&M and G&A expenses, compared to the first nine months of 2015. We remain focused on cost reductions and deploying our capital efficiently. Enable also announced the third quarter 2016 cash distribution of $0.318 per unit on all our outstanding common and subordinated units and the third quarter cash distribution of [$0.825] per unit on our partnership Series A preferred units. The common and subordinated distribution and the Series A preferred distribution remains unchanged from previous quarters. Additionally we are excited to announce two major commercial successes, a new 10-year gas gathering and processing contract with one of the most active producers in the stack play and the extension of transportation contracts that were expiring in 2017 with Laclede Gas Company we have extended those through 2020. We continue to see increased utilization of our transportation system and increased rig counts on our gathering and processing footprint. Turning now to Slide 5, the new STACK contract replaces an existing contract with the proceeds processing arrangement. It increases our acreage dedication in the play by 61,400 gross acres, reduces our commodity exposure and provide returns to support continued capital deployment in this prolific play. Our Laclede contract extension increases the average contract life on our team, continues our 87-year relationship with Laclede and contributes to Enable's significant firm fee-based business. Moving to Slide 6, we continue to hold a market-leading position in the SCOOP and STACK plays in terms of processing capacity and dedicated rig count. The rig activity in these plays in addition to the increased rig count and the architects has resulted in an increase to our quarterly natural gas gathered volumes for the third consecutive quarter. The rigs contractually dedicated to us in SCOOP, STACK and Haynesville also continue to represent a percentage of the total active rigs in these plays with 42% of all SCOOP rigs dedicated to Enable, 33% of STACK rigs dedicated to Enable and 29% of all Haynesville rigs dedicated to Enable. We are seeing renewed activity in the Arkoma Basin with one new rig that is contractually dedicated to us in the basin. Turning now to Slide 7, total system utilization continues to increase across our Interstate pipeline systems, including deliveries of power generation and all system interconnects. In the SCOOP and STACK plays, our interstate pipeline systems continue to be growing residue gas transportation with significant residue takeaway capacity and the ability to facilitate residue gas flows to on-system markets and off-system interconnects, outside of Oklahoma, our Perryville hub remains a simple market hub at the intersection of growing Oklahoma and Marcellus production and drilling Southeast and Gulf Coast demand market. In addition 96% of year-to-date transportation and storage segment gross margin is derived from fee based contracts and over 65% of the segment's revenues are from investment-grade customers. So I would now like to turn the call over to John to discuss our third quarter results and present to you our 2017 outlook.

[John Laws:]

Thanks Rod. Turning to the operating statistics, natural gas gathered volumes for the third quarter of 2016 were relatively flat compared to the third quarter 2015. Sequentially however, the third quarter 2016 marks the third consecutive quarterly increase in our overall natural gas gathered volumes, primarily driven by the Anadarko and Ark-La-Tex basin. Natural gas processed volumes decreased 5% for the third quarter 2016, compared to the third quarter of 2015. The decrease in process volumes was primarily due to lower Ark-La-Tex volumes as a result of production declines in the area. Sequentially we've seen growth in the Anadarko Basin as expected and a decline in the Ark-La-Tex area. Gross NGL production decreased 7% for the third quarter 2016, compared to the third quarter 2015. The decrease was primarily due to NGL production declines in the Ark-La-Tex and Anadarko basins. Crude oil gathered volumes increased by over 7,320 barrels per day for the third quarter 2016, compared to the third quarter 2015. The increase was driven by the continued connection of new wells to Enable's Bear Den and Nesson crude gathering systems. In our transportation and storage segment, total transportation volumes increased by 4% in the third quarter 2016 compared to the third quarter 2015. The increase was a result of increased demand for all systems deliveries on EGT and from power burn customers. Interstate firm contracted capacity increased by 3% in the third quarter 2016 compared to the third quarter of 2015. The increase here was primarily related to the completion of EGT's Bradley lateral in the fourth quarter of 2015 to now transporting volumes on a firm basis that were previously transported as interruptible volumes on Enable's intrastate transmission system. Finally intrastate transported volumes decreased by 6% in the third quarter of 2016 compared to the third quarter of 2015 which was primarily associated with the Bradley lateral mapping and service. Moving on to our third quarter financial results on Slide 9 and 10, I'll cover a few of our key metrics and variance explanations, a more detailed and comprehensive overview can be found in our 10-Q which we filed this morning. Revenue was $620 million for third quarter of 2016 a decrease of $26 million compared to the third quarter of 2015. The decrease in revenues was primarily related to lower average gas prices, lower natural gas volumes sold and changes in the fair value of condensate and NGL derivatives as well as one-time project reimbursements for the third quarter of 2015. The decreases were partially offset by higher average NGL prices, changes in the fair value of natural gas derivatives and increased billings under minimum volume commitments and higher gathered volumes in the Williston basin. Our gross margin of $352 million for the third quarter of 2016 was a decrease of $7 million compared to the third quarter of 2015. The drivers for the gross margin decrease include those that drove the decrease in our revenues along with the corresponding change to cost of natural gas and natural gas liquids. Our operation and maintenance and general and administrative expenses decreased by $22 million compared to the third quarter of 2015. The decrease in operation and maintenance and general and administrative expenses was primarily a result of lower payroll-related expenses, reduced materials and supplies costs and lower costs related to integration and other contract services. Turning to Slide 10, net income attributable to limited partners was $119 million for the third quarter of 2016, compared to a net loss of $985 million for the third quarter of 2015. The $985 million net loss attributable to limited partners in third quarter reflected the non-cash impairment of $1.1 million resulting from $1.08 million non-cash impairment of goodwill and an $18 million non-cash impairment of long lived assets. Adjusted EBITDA for the quarter was $244 million, which was an increase of $22 million compared to the third quarter of 2015. The increase in adjusted EBITDA was primarily a result of the cost reduction efforts that have lowered operation and maintenance and general and administrative expenses. Distributable cash flow for the quarter was $189 million, an increase of $35 million compared to third quarter of 2015, which was driven by higher adjusted EBITDA and lower maintenance capital expenditures. The decline in maintenance capital expenditures was primarily due to lower information technology, compressor maintenance and pipe replacement spend in the quarter. Our expansion in capital expenditures were $47 million for the quarter compared to $157 million for the third quarter of 2015. The reduction in expansion capital expenditures was primarily due to the higher capital expenditures in the third quarter of 2015 related to the Bradley II plant, the Bradley Lateral project and commissioning of the Bear Den and Nesson crude oil gathering systems as well as additional gathering expansion projects. As we stated say previously, these investments in capacity in recent years have expected to continue to support Enable growth going into the future. Before we move on to our 2017 outlook, I would like to make a few comments about the remainder of 2016. My comments here will be in relation to the 2016 outlook that we set out on our second quarter call. In terms of net income attributable to common and subordinated unit holders, we expect to be near the midpoint of the range subject to any future changes associated with commodity price fluctuations that will impact the fair value of our hedges and at the lower end of our previously issued outlook for interest expense. In terms of adjusted EBITDA, we expect to be at the higher end of the range, while our expectations for maintenance capital and adjusted interest expense are at the lower end of the range. Finally we also expect to be below the Q2 2016 outlook for gathering and compression-related expansion capital. Turning and looking forward to 2017, Slide 12 shows Enable's significant producer acreage dedications in the substantial producer activity around our asset footprint in SCOOP and STACK we had nearly $2 million gross acreage dedicated to us as well as the Haynesville play. The drilling activity in these plays is expected to drive significant volume increases for Enable in 2017 which are expected to benefit both of our business segments. Our forecasted volumes can be seen on Slide 13 and as a result of the growing producer activity in the STACK, SCOOP and Haynesville play, we expect our 2017 natural gas gathered volumes to be between 3.3 and 3.8 TBtu per day and our 2017 natural gas processed volumes to be between 1.9 and 2.3 TBtu per day. In the Bakken, we forecast our 2017 crude oil gathered volumes will be between 23,000 to 28,000 barrels per day, which is consistent with the volume that we've seen over the past few quarters in 2016. We also forecast our 2017 interstate firm contracted capacity will be between 6.1 and 6.5 billion cubic feet per day. To support the volume growth in and around our footprint, we estimate spend between $320 million and $420 million on gathering related expansion capital and $90 million to $100 million on plant capital in 2017, which will be driven by the timing of our election to resume full construction activities on the Wildhorse Plant. The majority of the 2017 expansion capital for the transportation and storage segment of $45 million to $55 million is associated with a new end-user transportation project that was awarded to us in 2015 but is not expected to be in service until late 2018. As a result of our forecasted gathering and processing volumes and our continued focus on cost management and the new long-term fee-based contract in the STACK we forecast our 2017 net income attributable to common and subordinated unit holders to be between $315 million and $385 million. In addition we forecast our 2017 adjusted EBITDA to be between $825 million and $885 million while our distributable cash flow is expected to be between $555 million and $605 million. We also forecast our 2017 maintenance capital spend to be between $95 million and $125 million, again as a result of our continued focus on efficient capital deployment. Finally our 2017 outlook is underpinned with a margin profile that's expected to be 92% fee-based or hedged. With limited commodity exposure, our 2017 net income and adjusted EBITDA have minimal sensitivity to price movement as we show on 2014. With that, I would like to turn the call back over to Rod for his closing remarks.

[Rod Sailor:]

Thanks John. In closing our continued focus on leverage, coverage and cost reduction has positioned us well for 2017 and beyond. Our assets are strategically located in some of the most prominent plays like the SCOOP and the STACK where we continue to see significant drilling activity. We are uniquely positioned to serve our customers with a fully integrated suite of asset which are highly interconnected with end markets. Our newly announced contract to increase our fee-based margin, reduce our commodity exposure and extend our average contract line. We believe that our strong asset mix in addition to our continued focus on financial discipline, positions as well for our 2017 objectives and makes Enable an attractive investment opportunity. We would now like to open the call for your questions.

[Operator:]

Thank you. [Operator Instructions] Thank you. Our first question is coming from Ali Agha from SunTrust. Please go ahead.

[Ali Agha:]

Thank you. Good morning.

[Rod Sailor:]

Good morning.

[Ali Agha:]

Now your report out your '17 guidance as well, I was just curious when you look at the visibility of your customers and your business over the next say year or two, how are you seeing that today versus three months ago at the time of the last quarterly call? Have you seen much change as far as confidence and visibility is concerned?

[Rod Sailor:]

I would say what we've seen is again I think we're -- our customers are getting more comfortable with the commodity environment that they expect to see next year. I think folks are seeing a leveling of costs. Our customers are largely I think a little more optimistic about the climate going forward and I think that's one of the reasons we've felt comfortable to put out some guidance.

[Ali Agha:]

Okay. And secondly as far as your business and strategy and day to day working are concerned, how if at all is that being impacted by this strategic review that CenterPoint has ongoing regarding their majority ownership?

[Rod Sailor:]

It really has little or no impact on our day-to-day business, where it has the most impact or let me get on call so we can ask potential question we're out talking to our investors about the status of that ongoing announcement. I think clearly we want to be sure that we continue to keep our employees as well informed as we are and again we've said on the last call, the call before that, we had really been involved in that process as really anything that we are doing currently.

[Ali Agha:]

Okay. But I am just thinking to the extent there is some change in ownership, somebody comes in with a large stake and obviously influence on the Board, is there any concern that they may have a different strategic view and that may cause you guys to slow down a little bit on your strategic plans waiting to see how that plays?

[Rod Sailor:]

Well I would and I have answered it this way before, remember that we have two sponsors. They both share control, so really one can't change our direction without the other being in agreement. There is a golden share, there is no boat they share control. We've a 50-50 partnership from a control standpoint. The other sponsor has been very clear that they like their investments in Enable. They are very comfortable with the Direction that Enable is heading in, very confident in the management of the company and so I would think that anybody coming in realizes that that is what their other sponsor expects and really doesn’t have any leverage to change that if the other sponsor wants to continue going in the direction of going into that. Ali, does that help you out?

[Ali Agha:]

I appreciate that. Thank you.

[Rod Sailor:]

And I would just like to add again, while there is a process going on and I have said this most of our calls again, our interaction with our sponsors is at the Board level and our Board dynamic is very good. Our Board discussions are about how do we take Enable and how do we move Enable forward. So we really haven't seen any impact from again from that announced. Our Board dynamic is good. Again our Board continues to focus on how do we move the company forward.

[Ali Agha:]

Understood. Thank you.

[Operator:]

And we'll go next to Jeremy Tonet from JPMorgan. Please go ahead.

[Jeremy Tonet:]

Good morning.

[Rod Sailor:]

Good morning, Jeremy.

[Jeremy Tonet:]

While recognizing that there is a certain level of seasonality in your business in the fourth quarter, it generally is going to be a bit lower than maybe the third quarter, it still seems like there's a kind of a notable step down implied in your guidance quarter-over-quarter there and I'm just wondering if the level of conservatism built in there or is there any specific drivers that we should be thinking about.

[Rod Sailor:]

Yes, sure Jeremy thanks for the question and bringing that up. There are a few things as you point out typically with the fourth quarter whether it's seasonality. Also I think one of the more noteworthy favorable variance is relative to the guidance that we had put out for 2016 has been with respect to maintenance capital. And we had some efforts ongoing around maintenance capital, which could result in timing. We're expecting some of that to as we had mentioned earlier in the year has been delayed into the second half of 2016. We're expecting to see a larger amount of that come forward in the fourth quarter now, but to the extent it doesn't, that maybe an opportunity to see some benefit in the fourth quarter of 2016, but we would expect that to show up in 2017 early on. So there's a little bit of timing that's embedded there, but I think we do expect to have some more spend in the fourth quarter than what we've had year-to-date as it relates to some of those maintenance activities. That's not only would show up in maintenance capital, but also in our outside services in our own M&A and G&A lines.

[Jeremy Tonet:]

Okay. Great. So for EBITDA it would really just be O&M is something to think about there. Got it. When thinking about 2017 EBITDA guidance, I'm just wondering is the mix shift between the segments broadly similar to what it looks like in 2016 or should we expect any changes there?

[John Laws:]

Not terribly. I think that we were contemplating of course in our guidance the thing that we've talked about in the past, which would be associated with some of re-contracting efforts that we've had underway. Rod mentioned one here with Laclede on a contract that would otherwise be expiring in mid-2017, which was re-contracted. We've talked in the past about line CP and our outlook does reflect our view there on line CP as well as the continuation of the rig activity that we spoke about primarily in the SCOOP and the Stack. We also talked about it in the Haynesville but as we said there in the past, we wouldn't expect to see 2017 Haynesville volumes to be above our minimum volume commitment levels.

[Jeremy Tonet:]

Great. Picking up on the Haynesville, there is a lot of discussion out there regarding Appalachia and the bottlenecks there potentially curtailing production growth expectation and producers looking to rotate their focus towards areas such as Haynesville. Do you see that in the producers that you're talking to as far an uptake in focus and direction there? It seems the rigs picked up quarter over quarter and then as well I think land has been changing hand since you have operators, private operators that may be the Haynesville stacks up differently in their focus versus the previous operators, if you could just touch on that, that would be helpful?

[Rod Sailor:]

Well I guess I would say that we have seen a renewed interest in the Haynesville and we've been very pleasantly surprised by the increased activity. Clearly our increased rig count along our footprint is directly related to one of the things you raised, which is some private equity back firms coming in and buying out some more established producers. And so we've seen them with single opportunities in front of them increasing their drilling plan. We think we will continue to see some increased activity in the Haynesville. I don't know you want to add.

[John Laws:]

No I think that's right. I think it's just as you described that we are seeing acreage changing hands that goes into private equity, which had probably better access to capital for drilling that area. As far as the people wheeling from the Northeast to the Haynesville, Range is probably the main one that can do that with Chesapeake a little behind that, but we're not -- we're seeing more of activity from the smaller guys that are coming into the area, but definitely seeing increased activity in the Haynesville area.

[Jeremy Tonet:]

Great. Thanks for that and then just one last one if I could with regards to the new contract if it's from pop to more fee-based margins just wondering if you could provide any color on what the economics on the fee based margin may look like? Does that imply certain commodity price environment as far as the top equivalent for anything you could share there would be helpful.

[Rod Sailor:]

Well I would just say that with the increased activity in the STACK, we had some existing acreage dedicated up there with a very significant producer. That producer wanted to be sure that we were going to continue to deliver the level of service that they have come to expect from us, that percentage of proceed contract was not on acceptable terms as some of our others and we felt the need to put more surety around the fee component of that. And again very pleased that the producer was willing to work with us to come out with an outcome that we allows us to provide them with the service that we need and return on the capital that we need to invest. That's clearly probably all we can say. I would say that we anticipate in our guidance numbers, our capital spend is going to be spending money is the STACK behind that contract and the returns are then associated with the 2017 guidance.

[Jeremy Tonet:]

Great. That's it for me. Thank you very much.

[Rod Sailor:]

Thank you.

[Operator:]

Thank you. We'll go next to Neel Mitra from Tudor, Pickering. Please go ahead.

[Neel Mitra:]

Hi. Good morning.

[Rod Sailor:]

Good morning, Neel.

[Neel Mitra:]

I had a question on the 2017 guidance for volumes. It looks like for the gathering volumes they're up on the bottom end of the range and the top and the range for 2017 versus 2016, yet the processing volumes are relatively flattish the top end is a little bit higher. Given that mostly deal with white gas, why isn’t it completely proportional? Are you seeing more uptick out of the Anadarko Basin or are you short processing capacities for 2017, can you just explain that discrepancy?

[Rod Sailor:]

Neel, I think I'll just point you back to the comments around the activity on Haynesville which is the dry gas areas where we wouldn't expect to have any associated processing activity with that gas. Our expectations for the Anadarko will also implying some fairly significant growth is that all that gas would likely find its way to our processing facilities.

[Neel Mitra:]

Okay. Great. And then could you just comment on when you think the Anadarko will need additional takeaway capacity and just roughly the timeframe you're thinking under the current commodity environment?

[Rod Sailor:]

Yeah, this is Rod. Look I think that decision has been made here pretty shortly around take away capacity. Clearly we think we have the ability to may be build quicker than some of our competitors that are out there looking at similar projects. That said I think that we feel that we really need to get activity moving on take away capacity. I think Enable has done a very good job of finding additional capacity for our customers given our significant footprint in the Anadarko, but our ability to continue to capacity out of our system is very difficult right now and there needs to be a solution for residual gas takeaway. That said, I think we're well-positioned for that and I think we have -- we talked to a number of producers in the area around a number of different options to get gas out of the Anadarko and we'll continue to do that, but I would like to emphasize and we think decisions need to start getting made because again depending on whether it's inter or intrastate solution, we're looking at a 12 to 18 month to 24 month type build cycle and we see some pretty aggressive production figures being talked about coming out of the new areas in the Anadarko.

[Neel Mitra:]

Got it and just quickly gives you the competitive advantage to build faster than some of your competitors in the region?

[Rod Sailor:]

Well I would say if it's an intrastate solution the permitting process is like easier if it's an interstate, we probably have an advantage from operating aspect. That said we have significant infrastructure in the Anadarko, which I think gives us some abilities. Again given the benefit that we can do some Brownfield with all these rebuilds.

[Neel Mitra:]

Got it. Perfect. Thank you.

[Operator:]

Thank you. We'll go next to Alex Kania with Wolfe Research. Please go ahead.

[Alex Kania:]

Thanks. Good morning. Just a quick question on the '17 guidance, what is the driver of the change in net income year-over-year just relative to how EBITDA changes? Is there like a change in kind of hedge for value or something else that we should be looking at?

[John Laws:]

Yeah I think the primary change that you'll see is the hedge losses that we've experienced in 2015 again being marketed, excuse me, 2016 being marked at the current price deck and I don't have any of those baked into 2017 and I think that was about $40 million in 2016.

[Alex Kania:]

Okay. Perfect and can you give me a sense of just what your capital needs might be just as CapEx forecast for '17 that you need, you need equity next year or is that unclear at this point.

[John Laws:]

Well I think again what we have always said is we're going to be very prudent about how we manage the balance sheet and we've done a great job this year, Kudos to John and his team for keeping our leverage where it's at and again we'll access the debt or equity markets as we move to maintain what we think is the right mix, the right credit profile, but it's going to be highly dependent on ultimately how much of capital where we spend. You remiss without reminding everybody very, very strong liquidity position we stand here today.

[Alex Kania:]

Great. Thanks very much.

[Operator:]

Thank you. [Operator Instructions] We'll go next to the line of Nick Raza with Citi.

[Nick Raza:]

Thank you, guys. Just a couple of quick questions just broadly speaking, is there any opportunity to convert some of the transportation pipeline to liquids? There is a deal out there that was done this past year where Ozark Gas Transmission, Spectra, essentially converted one of the lines out of the Fayetteville. I was wondering if you guys saw any of those opportunities.

[Rod Sailor:]

Yeah, I would say with our system not really chasing any kind of opportunity along that line. We continue to look at opportunities in the future about how we want to move liquids, but now we're not looking at any conversions at the moment or any of our systems.

[Nick Raza:]

Okay. Fair enough. And then in terms of just O&M expenses and I apologize I know this question has been asked but in terms of Q4 just looking at what you guys did in Q3 is it safe to assume that it will be in line with Q3 or could it be even lower, same question about maintenance CapEx as well?

[John Laws:]

Thanks for the question Nick. I think what we said on this particular item is that clearly through the first nine months of the year, both from an O&M expenses as well as a maintenance capital prospectively, we've enjoyed some favorable trends and comparisons relative to 2015 and certainly have been the need to run rate that would get us to our previously issued outlook for 2016. But part of that is in relation to timing. We are expecting and do have a number of efforts underway particularly on the maintenance side that will result ultimately in increases, that's our expectation as it relates to is outside services, contractor services, some of which will be capitalized, another compliance work that would increase all else being equal to fourth quarter relative to run rate that's implied in the first nine months of the year.

[Nick Raza:]

Got you. Thanks guys. That's all I had.

[Operator:]

And we'll go next to Ted Durbin from Goldman Sachs. Please go ahead.

[Ted Durbin:]

Thanks. Could you give us a sense of after this new contract on the processing side, what percentage of your overall volumes or contracts are fee based versus commodity percentage of proceeds or percentage of liquids. I think you are around 50-50 as of last year. Do you have a sense of what that is now?

[John Laws:]

Yeah I think for overall fee based as we look toward 2017 our business will be just under 50% fee-based or commodity. I'll call it other fee and commodity. Our NBCs are still expected to be little over half about 54% of the business with respect to gross margin. But when you take the 54% plus the other piece that is fee now through the contribution that this new contract will provide we're about 85% overall fee-based and then the commodity portion is right at 50%.

[Ted Durbin:]

Got it and so…

[John Laws:]

Back to your question I think on POP or PAL we haven't put out that specific guidance but I'll tell you it's just overall rough numbers and we think that the change based on our outlook is about -- is worth a couple 3% from what would have otherwise been commodity-based to fee based gross margin.

[Ted Durbin:]

On a consolidated basis?

[John Laws:]

Yes.

[Ted Durbin:]

Okay. So at the actual processing level, the mix is much more fee-based is that fair?

[John Laws:]

Yes. Given our expectations for growing contribution in the STACK area, that's right.

[Ted Durbin:]

Okay. Second one just not try totally followed, are you actually sanctioning the Wildhorse plant now or are you still waiting for just more producer activity before that actually gets built.

[John Laws:]

Yes. We haven't officially -- we started our activity on that project. We got some language but that's a decision we'll probably make later depending on how we see the production curves coming together.

[Rod Sailor:]

And it really wouldn't have any impact on '17 and we've made decision to date to move forward.

[John Laws:]

Yes. The spend Ted on these plants is a little chunky and so right now I think we've said tail end of 2017 start-up date if that's were to shift a little bit into 2018 that could have a decent impact on the spend and so that's why we're a little bit careful about how we say or when we talk about kind of the redemption of full construction activities there?

[Ted Durbin:]

But just to be clear, is that call it $95 million at the midpoint is that what you need to spend to get it built or I know you've done some pre-work on it, but what's action…

[Rod Sailor:]

That's a fair assumption.

[Ted Durbin:]

All right. Got it. That's helpful and then maybe I missed this, any comment on what you're seeing in terms of ethane rejection, are you in a projection mode now are you recovering? Where are you on that?

[Rod Sailor:]

Yes, we're in rejection now would expect to see with the prices that we've laid out to see some recovery towards the second half of 2017.

[Ted Durbin:]

Do you have any sense of how much you're projecting right now, volume wise?

[John Laws:]

Volumetrically no, not exactly, but again as we think about contribution to Enable from a rejection or a recovery decision it's, not a meaningful shift for Enable from a margin perspective.

[Ted Durbin:]

Understood. I'll leave it at that. Thank you.

[Operator:]

And at this time I would like to turn the call back over to Rod Sailor for closing comments.

[Rod Sailor:]

Thank you, Erica. In closing I would like to thank all of our employees for their continued focus on safety and on cost discipline. I would like to thank everybody on the call for your interest in Enable and please have a safe day. Thank you.

[Operator:]

Thank you. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.