Enable Midstream Partners, LP
Q2 2014 Earnings Call Transcript

Published: 5 Aug 2014

[Operator:]

Welcome to Enable Midstream Partners second quarter 2014 earnings conference call and webcast. At this time, all participants have been placed in a listen-only mode. (Operator Instructions). It is now my pleasure to turn the floor over to Matt Beasley. You may begin.

[Matt Beasley:]

Thank you. Good morning and welcome to Enable Midstream Partners second quarter 2014 earnings call. I am joined on today's call by our President and CEO Lynn Bourdon, our Chief Operating Officer Keith Mitchell, our Chief Financial Officer Rod Sailor, 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 a 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 the presentation for a reconciliation of non-GAAP financial measures. On today's call, we will be comparing second quarter 2014 results to pro forma second quarter 2013 results since second quarter 2013 historical results do not include the results of Enogex LLC for the month of April 2013. With that, we will get started and I will turn the call over to Lynn Bourdon.

[Lynn Bourdon:]

Thanks, matt. Good morning and thank you for participating in Enable Midstream Partners' second quarter earnings call. Enable had a solid second quarter, where we saw growth in our key financial metrics. During the quarter, we renewed contracts on our natural gas pipeline system, added acreage dedications in a high-growth Anadarko basin, grew our NGL production, made significant infrastructure investment decisions and solidified our growth strategy. We are excited to share the details of all of these accomplishments and more on today's call. To start the call, I plan to cover a few financial highlights and then I will turn the call over to Keith who will cover segment highlights including a SCOOP update and an overview of our operating statistics. Rod will then cover second quarter results in detail and provide our outlook for the remainder of 2014 and 2015. And then finally, our review our growth strategy and key investment highlights. We will also be taking your questions at the end of the call today. This morning, we reported second-quarter adjusted EBITDA of $211 million, an increase of 7% over pro forma second quarter 2013. Distributable cash flow totaled $159 million for the second quarter, an increase of 17% compared to pro forma second quarter 2013. The primary drivers of our increased results were increased gathering and processing gross margin resulting from higher natural gas gathering and processing volumes on our Anadarko system, as well as increased transportation and storage gross margin resulting from higher off system transportation volumes and associated fees and higher rates on transportation services for on system demand and higher other firm transportation revenues. On July 25, we announced our first public distribution, a distribution for the second quarter of $0.2464 per unit or $0.295 per unit on a full quarter basis, which is a 2.6% increase over Enable's minimum quarterly distribution. This distribution will be paid on August 14 to unitholders of record as of yesterday's close of business. Enable continued to demonstrate its ability to access the capital markets during the quarter. In May, we issued $1.65 billion of senior notes establishing benchmark securities in the five, 10 and 30 year space with a weighted-average coupon of 3.9%. At the time of issuance, these notes had the lowest five and 10 year coupon of 2014 and the second lowest 30 year coupon when compared to MLP issuances for the year. This $1.65 billion debt issuance was in addition to our $575 million IPO in April and a senior notes offering at SESH in June. Then on May 30, we acquired an additional 24.95% interest in SESH from CenterPoint Energy, bringing our current SESH ownership to 49.9%. We anticipate that the SESH acquisition will be accretive to both our DCF and per-unit distributions. Now, I will turn the call over to Keith.

[Keith Mitchell:]

Thanks, Lynn. First I will cover the highlights from our gathering and processing segment for the quarter. We saw rich gas volumes grow during in the quarter with NGL production increasing 19% compared to pro forma second quarter 2014. One of our rich gas areas contributing to the increased production is the SCOOP in South Central Oklahoma, where we added almost 18,000 horsepower of compression during the quarter to support the volume growth. We also continued to optimize and to integrate our gathering and processing systems. During the quarter, we expanded the connection of our Clinton Plant to our super-header processing system, which allows us to better utilize our processing plants as natural gas production continues to grow across the Anadarko system. In addition, we integrated two gathering system in the Anadarko basin during the quarter, which allowed us to process gas that was previously unprocessed. In June, we announced upgrades to our Cox City Plant which will improve the efficiency of the plant and allow us to better process the increasing rich gas production in the Anadarko basin. As you can see from the picture on this slide, construction continues on our Bradley Plant and we anticipate that plant to be in service in the first quarter of 2015. We also continued to see strong producer activity across our footprint with approximately 400 rigs currently running in the counties in which we operate or currently executing plans to operate. Now turning to the transportation and storage segment for the quarter. As Lynn mentioned, we acquired an additional 24.95% interest in SESH during the quarter from CenterPoint Energy. SESH is a great asset, well positioned to serve the growing Southeast markets with substantially all of its one Bcf a day of capacity contracted on a firm basis. To accommodate the growth in the SCOOP play, we increased the proposed capacity of the Bradley lateral pipeline, increasing the size of that from 20 inches to 24 points. On the intrastate side, we signed a long-term contract to provide firm natural gas transportation service to Grand River Dam Authority's planned 495 megawatt combined cycle plant in Mayes County, Oklahoma. This new natural gas-fired power plant is expected to be in service in early 2017 and the contract allows for delivery of up to 84,000 MMBtu a day of natural gas. We continue to successfully recontract volumes on our interstate pipelines. During the quarter, we extended firm transportation contracts on EGT with St. Louis-based Laclede Gas Company. The extended contracts will provide up to 135,000 dekatherms per day of firm transport service for periods ranging from two to five years. We also extended two other prime contracts on EGT with volumes totaling 98,500 dekatherms per day through 2020. Now, I want to give you more details on the growth in the SCOOP area. We continue to have commercial success in the SCOOP. To-date, we have contracted almost one million gross acres across the play with multiple producers. As you can see from the math on the slide, there is a significant amount of producer activity across our midstream footprint. Currently there are approximately 30 rig drilling wells in the area that will be connected to our gathering system. All of this activity is driving midstream investments in the SCOOP. We have already invested significantly in gathering and compression infrastructure. We plan to continue to invest in additional infrastructure as production grows. On the processing side, are announced Cox City upgrades and our new Bradley plant will support SCOOP processed volume growth. In addition, this area is connected to our processing super header, which allows us to process SCOOP gas at other plants in the Anadarko basin. In anticipation of additional volume growth, we recently placed an order for Longley processing equipment including a cryogenic processing plant and the required compression and this will enable us to respond more quickly to our producers' needs. We are finalizing our plans to expand with additional capacity at one site and build a new complex in the area. The production growth in this area is also driving new business on our transportation systems. Earlier this year, we signed an agreement for 230,000 dekatherms a day of capacity, and we are currently constructing the Bradley lateral pipeline to offer residue takeaway capacity in the area. We also anticipate that there will be additional transportation capacity needed in the area as production grows. Turning to the operating statistics. We gathered 3.41 TBtu per day of natural gas on our gathering systems during the quarter, a decrease of 5% compared to pro forma second quarter 2013. The decrease in gathered volumes is primarily due to lower gathered volumes on the Ark-La-Tex and Arkoma systems, partially offset by higher gathered lines on the Anadarko system resulting from increased rich gas production including growth from the SCOOP and Mississippi lime plays. Much of the decrease on the Ark-La-Tex and Arkoma systems was associated with contracts which contain minimum volume commitment features. Natural gas processed volumes were 1.55 TBtu per day for the quarter, an increase of 9% compared to the pro forma second quarter 2013 with NGL production increasing 19% and condensate production increasing 33%. The growth in both processed volumes and liquids production reflects producers rich gas activity on our Anadarko system, as well as the increase in NGL content of the gas we are processing. Crude oil gathered lines from our first Bakken crude gathering system, that went into service in November 2013, were approximately 1,600 barrels a day for the quarter. Currently a producer on the Bakken system is awaiting permits from the state of North Dakota that will allow current production to move by pipeline, instead of by truck and will increase our gathered volumes in the Bakken. In our transportation and storage segment, total transportation volumes in interstate firm contracted capacity were both relatively flat compared to pro forma second quarter 2013. Finally, intrastate transportation average throughput was 1.63 TBtu per day for the quarter, an increase of 11% compared to pro forma second quarter 2013. The increase in throughput is primarily related to higher demand for off system transportation services. I will now turn the call over to Rod to discuss the second quarter results and outlook.

[Rod Sailor:]

Thank you, Keith. Turning to our second quarter results. As stated in the release, gross margin was $349 million for the second quarter, an increase of $22 million, compared to pro forma second quarter 2013. Gathering and processing margin was $203 million for the quarter, an increase of $12 million compared to pro forma second quarter 2013. The increase in gathering and processing gross margin is primarily a result of higher gathering and processing volumes on our Anadarko system. As Keith mentioned earlier, we have gathered volume declines in our Ark-La-Tex and Arkoma systems but these declines are associated with contracts containing minimum volume commitment features. Transportation and storage gross margin was $146 million for the quarter, an increase of $10 million compared to pro forma second quarter 2013. The increase in transportation and storage gross margin is primarily a result, as mentioned earlier, of higher off system transportation volumes and associated fees, higher rates on transportation services for off system demand and higher firm transportation revenues. Of our total $349 million in margin, approximately 73% of that was deemed to be debased. Operation and maintenance expense increased $4 million compared to pro forma second quarter 2013. The increase is primarily due to cost incurred as we stand Enable up as a public entity and we put new assets into service. Net income attributable to the partnership was $120 million for second quarter 2014, compared to $1.3 billion for pro forma second quarter 2013. The pro forma second quarter 2013 net income number was impacted by the recognition of $1.2 billion of outstanding current income tax liabilities and deferred income tax assets and liabilities as a result of the conversion to a partnership. A better comparison maybe to look at operating income for the second quarter 2014 of $138 million, an increase of $16 million, compared to pro forma second quarter 2013. The increase in operating income was primarily due to gross margin increases mentioned earlier, offset by higher operation and maintenance expense and higher depreciation expense. Distributable grow cash flow for the second quarter 2014 was $159 million, an increase of $23 million, compared to pro forma second quarter 2013. The increase in distributable cash flow is primarily due to higher gross margin, lower maintenance capital spending offset by higher interest expense due to higher debt balances. Finally expansion capital expenditures were $156 million in the quarter compared with $118 million for pro forma second quarter 2013. As previously announced, for the second quarter we anticipate distributing $22 million to our pre-IPO unitholders based on methodology set forth in the pre-IPO limited partnership agreement for the period April 1 through April 15. As Lynn mentioned earlier, we do intend to pay a distribution for the second quarter of $0.2464 on August 14 to all of the partnership's outstanding common and subordinated unitholders of record as of yesterday's business close. Turning to the next slide. As we discussed on the road, we like to share with you our outlook for 2014 and for 2015. We anticipate gathered volumes of between 3.3 and 3.5 TBtu per day for 2014 and between 3.5 and 3.7 TBtu per day for 2015. The year-over-year increase is driven primarily by volume growth on our Anadarko system, offset by declines on our Ark-La-Tex and Arkoma systems. These volumes are down from the forecast provided in our S-1 and this decrease is due to lower anticipated volumes in the areas covered by minimum volume commitments. We anticipate processed volumes of between 1.5 and 1.7 TBtu per day for 2014 and between 1.9 and 2.2 TBtu per day for 2015. We anticipate that our processed volumes will increase due to continued rich gas volume growth along our Anadarko system. We anticipate crude oil gathered volumes of between 3,500 barrels per day and 5,500 barrels per day in 2014 and between 22,000 and 28,000 barrels per day in 2015. The projected growth in crude oil gathered volumes is due to the continued build out of our first crude oil gathering system and the startup of our second crude oil gathering system in 2015. In addition, as mentioned, we anticipate crude volumes that are currently being trucked will move by pipeline once the producer obtains permits in the state. We projected adjusted EBITDA of between $850 million and $890 million in 2014 and between $915 million and $985 million in 2015. The increase in the adjusted EBITDA is primarily due to volume increases just described. We project adjusted interest expense of between $80 million to $90 million in 2014 and between $100 million and $110 million in 2015. Interest expense is higher primarily due to higher debt balances and because interest expense on the $1.65 billion senior notes we issued in May is higher than the interest expense on the $1.3 billion in shorter tenure term loans that the senior notes offering we paid. We project maintenance capital expenditures of between $175 million and $190 million in both 2014 and 2015. And as we have previously discussed, this item will continue to get focus with the goal of reducing both the amount and as a percentage of EBITDA. We project distributable cash flow of between $590 million and $610 million in 2014 and between $630 million and $690 million in 2015. For distributions, we are targeting a per unit distribution growth rate of 10% to 12%. At this pace, we would anticipate reaching the lower swaps [ph] by the fourth quarter of 2015. For distribution coverage, we anticipate annual coverage ratios between 1.1 and 1.2 times. Quarter-over-quarter DCF will have some seasonality due to factors such as commodity price seasonality, storage spreads, basis spreads, market-based pipeline, power plant demand and local distribution company demand and maintenance capital timing due to weather. We will focus on quarter-over-quarter distribution, so you should expect to see coverage durability on a quarterly basis. Now turning to the next slide, our growth capital outlook. Our primary guidance information is focused on 2014 and 2015, but we are providing a longer work at growth capital to highlight the potential organic opportunities that we are seeing along our footprint. We have divided growth capital spending into two primary buckets. The first is contracted expansion where we estimate opportunities between $2.2 billion and $2.8 billion. The capital is associated with current contracts and acreage dedications and is primarily composed of gathering, compression and processing infrastructure to support volume growth in the SCOOP, Bakken, Greater Granite Wash and Cotton Valley plays. As Keith mentioned, we are in the process of pre-ordering processing and gathering equipment now for future expansions in the SCOOP area and it is identified in those 2014 numbers. The second bucket is identify the opportunities where we estimate between $1.1 billion and $1.5 billion of capital associated with gathering and processing, transportation projects that are in late stage commercial negotiation, as well as additional gathering and processing and transportation system expansions that we can foresee. Overall we have currently identified $3.3 billion to $4.3 billion in growth capital potential through 2017. This concludes my remarks, and I will turn it back over to Lynn.

[Lynn Bourdon:]

Thanks, Rod. We have spent considerable time over the last few months refining our growth strategy and we would like to share with you today. First, we plan to capture organic growth opportunities in our core basins. We believe that we have significant opportunities in our current basins, and we are focused on continuing to deliver value to our customers and growing our existing footprint. We also plan to extend the value chain from wellhead to end-users in our core commodities gas, NGLs and crude. We currently gather a significant amount of volumes at the wellhead and deliver a significant amount of volume to end-users. However, we believe there are additional opportunities for us to expand our midstream service offerings. We plan to establish a presence in high-growth basins. We already have a footprint in areas with significant growth but we plan to look at opportunities to expand into additional high-growth basins such as the Permian and the Marcellus/Utica. We also plan to develop a meaningful and competitive basin in any basin where we participate. Said another way, we don't want to have a hobby in any area or segment that we participate. So anywhere we are, we are going to have and develop a significant position. We plan to seek and capture additional market demand on and around our system. And finally, we plan to maximize earning stability by increasing our fee-based margin. So to summarize our key investment highlights, we have a great set of assets, strong relationships with our customers and a solid financial platform for growth. I would like to close my prepared remarks with a tribute to the hard-working employees of Enable Midstream Partners who are responsible for our achievements. Our employees have all done a great job of delivering on our promise to be a partner in our customers' success and creating one company from two legacy companies. We will now open the call for you questions.

[Rod Sailor:]

Lynn, I might just add, I think I may have misspoke when I was talking about adjusted EBITDA guidance. For 2015, the range is $915 million to $985 million. I may have got a little tongue-tied on a couple of those numbers. Thank you.

[Lynn Bourdon:]

That's all right, Rod.

[Operator:]

(Operator Instructions).

[Lynn Bourdon:]

Operator, it looks like we have got some questions in the queue and we are ready to take Q&A right now.

[Operator:]

We will go first to Gabe Moreen with Bank of America. Please go ahead.

[Gabe Moreen:]

Hi, good morning, everyone. Appreciating that maintenance CapEx. So there is timing issues around that. But I am just wondering, and following up on Rod's comments about it being an area of focus, when you are going to have more of an update there as far as what run rate of maintenance CapEx is going to be? I saw you put out the number for 2015. But just wondering when do you think you will be able to have an update on that?

[Keith Mitchell:]

Yes, this is Keith. It's an area we continue to focus on and as we have stated before and as we stay on the road, obviously number one is going to be to maintain the assets and safety for the employees and the public. So we are continuing to develop those plans and work those plans right now. I think what we disclosed today is very consistent with what we have said before, what we think the range is. We have now gone up to another year and I think that's what we see at the current moment. As Rod mentioned in his comments, it's a continued area of focus. We do see this continue to come down as we get through some line replacements and some other areas over the next couple of years. So I think, as Rod indicated, you will see that not only will the number go down but the percent of EBITDA will go down, but exactly where that ends up really depends on how we get through these next couple of years and as we continue to work that number.

[Gabe Moreen:]

Okay, and switching gears to the commentary around the expansion opportunities, where you talk about potential transportation projects to new end-user markets coming out of the Anadarko. Can you talk a bit more about those pipeline projects and what that would involve?

[Lynn Bourdon:]

I don't think we have any specifics that we were looking to share today. I think what we look at in general is growth out of the Anadarko basin and Oklahoma as total is going to grow by three plus Bcf a day. And the current infrastructure in that area is pretty well utilized. So we believe that we are going to continue to see opportunities for additional projects around that area.

[Rod Sailor:]

Yes, this is Rod. I would just add, we think we are very well positioned to capture those opportunities as those volumes need to find a home.

[Gabe Moreen:]

Got it, and then I guess as a follow-up to that, I am wondering within these identified opportunities backlog whether there are any larger discrete transportation projects or otherwise? Os that more just G&P opportunities that kind of add up across the different basins?

[Rod Sailor:]

I would say that in the identified opportunities we do have transportation opportunities built into that number.

[Gabe Moreen:]

But no outsized project, is that fair? Or is it just smaller transportation? Small being relative.

[Rod Sailor:]

That's probably right now an area we couldn't get into. I think we would hope that as time goes on, we will be able to move some of those identified opportunities up to contracted expansions, but to talk about size right now might be a bit premature.

[Gabe Moreen:]

Okay. Thanks, everyone.

[Operator:]

We will go next to Matt Tucker with KeyBanc. Please go ahead.

[Matt Tucker:]

Hi, good morning, gentlemen. Congrats on a nice quarter.

[Lynn Bourdon:]

Thank you, Matt.

[Matt Tucker:]

First on the growth strategy. I noticed you didn't really mention acquisitions there. So could just talk a little bit about your current thoughts on M&A and the opportunities that may be out there?

[Lynn Bourdon:]

Sure, we would be happy to. I think what we have said consistently, we certainly did on the road, and we did when we were going through the IPO, is that our strategy is one built around primarily on the organic side. We are blessed to have a tremendous amount of opportunity in front of us and what we have said is we want to focus on the organic side as our primary growth element. That said, that doesn't mean we are not looking at and we won't engage or look at acquisitions. We just want them to be very strategic in nature, and we don't want to take our eye off the ball with all the organic that we have in front of us. The organic side not only is higher return for us, it's also something that is in front and you don't want to take you eye off that ball and try to get out and engage or look at acquisitions and miss the opportunity in front of you on that side. So we are going to take a look at it. We have already looked at certain things. We are going to continue to evaluate opportunities and if we see something that we think fits for us then we will fully engage.

[Keith Mitchell:]

And I think, just to add, when you think about our growth strategy and our desire to establish a meaningful presence in high-growth basins, that's an area where we think about as probably an opportunity to look at acquisitions. And I think as we have also talked about on the road, we are focused on growing out our Bakken position. That may also be an area where we might look for acquisitions. But I think, as Lynn mentioned, we are very active in looking but I think if you look at our growth capital outlook, we have got a lot of capital that we can redeploy on an organic basis. There are no acquisitions factored into that $4 billion number.

[Matt Tucker:]

Thanks, and then on the identified opportunities, you mentioned some that are in late stage negotiation. Could you give us a little more color on those? When could we see some announcements and are any of those in basins where you don't currently have a position?

[Lynn Bourdon:]

I would say that in that 2014, 2015 timeframe, that runs the gamut across both our segments, additional acreage dedications. I would hope that we would be able to move some of those identified opportunities, contracted expansion, before the end of the year.

[Matt Tucker:]

Okay, thanks, and then just on the distribution per-unit CAGR target. Should we assume the minimum quarterly distribution is the base level for that? And can you talk about expectations beyond 2015?

[Lynn Bourdon:]

You know, you are correct. You should think about the minimum quarterly distribution as sort of the starting point for the CAGR and right now, I think we are just going to focus on 2014 and 2015. But again, one of the reasons we gave the extended outlook on capital is just to show you that again we feel like we have got a pretty good strong growth trajectory that we can maintain just organically through 2017.

[Matt Tucker:]

Thanks. Just one last one on the Bakken crude gathering volume guidance. I believe you have announced projects that add up close to 50,000 barrels per day. Could you talk about how the ramp-up goes beyond 2015? And what takes you to get there to fully utilize?

[Keith Mitchell:]

Yes, this is Keith. The first system that we put into service in late November, we are still building out some pieces of that, kind of what we call the Phase 2 to that. There are some flowing volumes right now that are being trucked. Once all the permitting gets done from the producers' side, they will be able to come on, that's how that will be a chuck of ramp-up. Also we are building our second system. A lot of those barrels are currently producing and being trucked as well. So it's not like we are having to wait for the drill bit to ramp those up. Some of those are flowing and they just ramp-up over time, I would say, over the next four or five years. I think the total capacity that we did build out, I think we said, I think you are correct, around that 50,000 barrels a day. And we are also looking at other producers behind those systems to attract their barrels as well.

[Matt Tucker:]

Thanks a lot guys. Very helpful.

[Keith Mitchell:]

Thank you.

[Operator:]

We will go next to Ted Durbin with Goldman Sachs. Please go ahead.

[Ted Durbin:]

Thanks. Good morning. I just wanted to come back to the expansion capital and maybe can you talk about how much of the contracted expansions are really just minimum volume commitments? Or do you have -- excuse me, are they (inaudible) or do you have any minimum volume commitments behind them? And are there financial backstops we should think about?

[Rod Sailor:]

If you think about -- you are talking about our growth capital outlook for contracted expansions?

[Ted Durbin:]

Yes.

[Rod Sailor:]

That's really primarily gathering and processing -- in the near term, that's gathering and processing either what we have identified through contracted volumes, the majority of it is around acreage dedications where we either have our internal volume forecast or we have, in working with producers, an idea of their production forecast. So its really the capital deployed to be sure that we capture what we have contracted to capture from those acreage dedications.

[Ted Durbin:]

Great, and then can you just remind us the return profile of the expansion CapEx based on, if there are any whatever the producer forecast or your forecast, say at the midpoint, what's the range of return?

[Rod Sailor:]

Well, I would say, we target mid-15% IRRs. Again we are in a very competitive area there. So you could see 13% to 15% type IRRs, but that is what we have historically targeted and feel like going forward we are continue to try to target.

[Ted Durbin:]

And again, these were mostly be POP type contracts? So there will be some commodity sensitivity in there?

[Rod Sailor:]

Right now, that seems to be what the producers are looking for. As Lynn stated, we have got a desire to move more and more of our business in the fee-based model. So to the extent that we could take a little lower return and move a POP to straight fee-based, we would entertain that but again at the end of the day, we are somewhat bound by the competitive nature of the areas that we are in.

[Ted Durbin:]

Got it, and then last one from me. Just trying to understand, the very nice pickup in the NGL volumes this quarter. Is there still ethane rejection happening as you thought you would? I not think as you said before, is there any ethane that's going back now versus or is this more of a ramp-up in propane in some of the heavies?

[Rod Sailor:]

There is definitely a ramp-up in the propane in heavies. We have still been in an ethane rejection mode. We don't really see that changing as we look forward in our pricing assumptions in the near term in the next few years. So all of that ramp-up is really just the increase in volume and the increase in just the richness of the heavies.

[Ted Durbin:]

Great. I will leave it at that. Thanks, guys.

[Operator:]

We will go next to Neel Mitra with Tudor, Pickering. Please go ahead.

[Neel Mitra:]

Hi, good morning. Just wondering if you could maybe rank some of the basins that you are not currently involved in, in terms of how attractive they are and whether you would want to enter them, specifically the Marcellus and also the Permian and the Bakken as, gaining a bigger footprint in that area?

[Lynn Bourdon:]

Neel, that's a good question. I think the way we view the various basins is, we call it the big five that have high growth areas. So you have the Bakken. You obviously have the Anadarko basin, where we are solidly positioned. You have the Marcellus. You have the Permian. And you have the Haynesville. I think from our standpoint, they all are very different. They all offer different opportunities. They have a different competitive set in each one of those. I think what we have looked at and what we have talked about is, we like the Permian basin. There are features about that, both from a geography standpoint, location standpoint and everything that are opportunity to us. We like the Marcellus and the Utica side. That basin is a massive basin. And it is going to continue to produce and flow volume long after some of these other basins are done. So we like those two basins. The Eagle Ford is pretty competitive. It is pretty much dominated by a couple of big, big players. So that one is a phenomenal basin. It's just, entry into that is also very different than maybe some of the other opportunities. So that's kind of how we see them. I think, as Rod said, we have good foothold up in the Bakken. We like to see ourselves being significantly larger in that particular area. So that's an opportunity of focus for us. It's a question of how we get bigger in that particular area. Keith and his team are working on various different opportunities and doing that right now. So that too is going to be a focus for us.

[Neel Mitra:]

Without any assets in the Permian and the Marcellus, could you do anything organically? Or would you need to make an acquisition again into those areas?

[Lynn Bourdon:]

I think there is no reason you can't do both. I think it's more a function of finding the right opportunity for entry, more so than saying one's better than the other one. I think it's just a question of timing. It's a question of opportunity and what makes the most sense.

[Neel Mitra:]

Got it, and then just last question. When you say you are targeting 10% to 12% CAGR for per-unit distribution growth, is there a specific starting point and ending point for that?

[Keith Mitchell:]

Well, the starting point is cover minimum quarterly distribution and the idea of showing the longer lead time on the capital is to show that we do have a pretty good trajectory of capital spend, but really today we are talking about more in the 2014, 2015 range. But if the identified opportunities should show up as we expect them to, then we think we could go longer.

[Neel Mitra:]

Okay, great. Thank you.

[Operator:]

We will go next to John Edwards with Credit Suisse. Please go ahead.

[John Edwards:]

Yes, good morning, everybody. Nice first quarter after IPO. I am just curious regarding primary say upside or downside surprises since the IPO. Maybe you could talk a little bit about that?

[Lynn Bourdon:]

I would say that again for the most part, the surprises have been more to the good. We have clearly seen a little weakening in commodity prices, but as we said about 73% of our margin is fee-based through June 30. Volume forecasts that we continue to get in are to the upside in the Anadarko. But as I mentioned, we are probably seeing more of fall off in volumes in the Arkoma and Ark-La-Tex, but again we have minimum volume commitments through 2019. And I would say that we have actually seeing, not in our areas, but again in the Haynesville itself, some increased producer activity. And it's entirely going to be a function where gas prices are at. When we saw gas prices up above $4, $4.25, you started to see couple of folks talk about potentially getting back in. One did get back in. Gas was pulled back now. So that remains to be seen. But I would say, generally we are as comfortable today as we were when we were on the road on the IPO with our outlook. Again, we have some challenges in front of us around integration and we have identified that we need to continue to look at our maintenance capital expense. But again I would say clearly more issues to the upside. As Keith mentioned and I tried to reiterate, we are accelerating the purchase of some equipment for expansion of processing capabilities and for a potential new complex. So again, capital spending is, as we anticipate, being up of where we were on the road. So again very positive outlook going forward

[John Edwards:]

Okay, that's helpful. And then as far as -- I think there were some conversation at the CenterPoint Analyst Day regarding acreage dedications and maybe you could elaborate or talk a little bit more about that.

[Lynn Bourdon:]

Yes, we continue to gain acreage dedications in some of these growing areas. I think the infrastructure that we have built and that we have in our position, I think is a very good position and we have seem to, the customers seem to like the services that we are able to offer because of that. So we have continued to add dedications to multiple producers in the areas and we are in continued discussion with those as well. So I think that's been a positive for us to continue to see that grow.

[John Edwards:]

Can you quantify it more specifically?

[Lynn Bourdon:]

Well, I think we have talked about that we have a million acres, over a million gross acres in the SCOOP. I would say that we are certainly in discussions with hundreds of thousands of additional acreage dedications. And that's consistent with some that we recently signed.

[John Edwards:]

Okay, and then as far as the one million acres, what's the change since the IPO, if you could comment on that?

[Lynn Bourdon:]

I am sorry, could you repeat that question?

[John Edwards:]

Just the change. on What's the increase in acreage dedications at this point since IPO?

[Lynn Bourdon:]

We have probably added in the range of about 500,000 acres.

[John Edwards:]

Okay. All right. That's helpful. And then just lastly, obviously you have laid out a pretty good CapEx opportunities. To maintain your 10% to 12% trajectory in distribution growth, from your standpoint, about how much capital spending you think it takes to support that?

[Lynn Bourdon:]

So I think the capital plan that we have laid out here would meet that, would fall within that range that we have given, the 10% to 12%. So I think when we were on the road, we said we needed to spend about $800 million a year in expansion capital to low double digit growth. And again it depends on what the returns are and again we are in a competitive nature but as you can see, we have tried to identify here that we are well within that range.

[John Edwards:]

Okay. That's very helpful. Okay. Thank you. That's it for me.

[Operator:]

We will go next to (inaudible) with BMO Capital. Please go ahead.

[Unidentified Analyst:]

Good morning. Most of my questions have been answered. I just had a quick follow-up. With respect to the expansion and new processing facility, what is the timing and size of that facility?

[Lynn Bourdon:]

The Bradley plant, we will bring on early next year. It is a 200 million with a facility. If you look at the last few plants that we have added, it has been in that 200 million a day size. So as we continue to expand, I would anticipate that that's the size that we will expand and implement.

[Unidentified Analyst:]

Okay, great. I guess this is a question for Rod. With respect to synergies from CenterPoint and Enogex assets, what are you guys seeing on that front?

[Rod Sailor:]

Yes, we are continuing to see a pickup of synergies especially on our supply chain change of management. We are early in the process of pushing the two systems together, combining some of our operating systems and so it's probably a little premature to scorecard that, just because we are in the middle of that. I think we talked about 50 million in synergies and I think with the supply chain stuff, we may be close to halfway there.

[Unidentified Analyst:]

You have a line of sight as to when you can get that 50 million level? Or is it still too early to tell?

[Rod Sailor:]

Too early to tell.

[Unidentified Analyst:]

Okay. Finally, one of your competitors made and announcement recently for a processing plant in the SCOOP. Is that in any way taken away from your opportunities?

[Rod Sailor:]

No, it doest not. We are certainly aware of their position. And as I mentioned, we continue to gain acreage dedications and we certainly have seen the volume growth and the capital layout we have here that doesn't in any way affect that at all.

[Unidentified Analyst:]

Okay, great. That's it for me. Thank you.

[Operator:]

We will go next to Shneur Gershuni with UBS. Please go ahead.

[Shneur Gershuni:]

Hi, good morning, guys. Most of my questions have been asked and answered. But just a couple of quick follow-up. First, can you remind us your acreage position was in the SCOOP prior to the IPO versus the million gross acres that you have today?

[Rod Sailor:]

We were, right again, around that 500,000 range, and so we close to doubled, probably.

[Shneur Gershuni:]

Okay, and you believe that, based I think, on response to John's question, you think there is potential to add another 500,000 acres? Is that a fair thought process?

[Rod Sailor:]

Well, we are certainly in discussions with several. And I think that, though, again, as Rod laid out, we have the contracted amount. And then we have identified opportunities and we talked about late stage negotiation on some of those things in the identified opportunities. So that's how we view that.

[Shneur Gershuni:]

Thanks. Just shifting to the balance sheet and financing for a second. Is it fair to assume, based on your interest rate guidance, that you organic expansion at least for the next 18 to 24 months, you are going to attempt to fund more via debt versus equity? Is that a fair way to think about it?

[Rod Sailor:]

Yes, I think that's very, very fair. So we have got significant liquidity. And so our intent would be to utilize that liquidity to our revolver and then look to term that out either with debt or equity, probably some time next year.

[Shneur Gershuni:]

But fair to say, you would rather lean on the debt side?

[Rod Sailor:]

Right now, yes.

[Shneur Gershuni:]

Okay, great, and then finally I guess a philosophical question. In the scenario where your DCF, let's say, runs at a level that is above a 1.2 coverage ratio, even if you are paying out at the 12% growth rate, are you more likely to retain the DCF directed towards your big organic backlog? Or are you likely to push the distribution higher just to accommodate that? I am curious if we should be thinking more about the distribution growth rate or more about the coverage ratio as to how they interplay when something gets out of whack?

[Rod Sailor:]

Well, I would tell you, we are going to be focused first and foremost on quarter-over-quarter distribution growth. We do have some seasonality in the business, as I said. So you are going to see very, very strong coverage in the first quarter and then they will fall off in the second through fourth quarter and then strong again in the first quarter. It is probably premature to get in front of our sponsors on what and if we have a higher than the 1.2 coverage is, although I would tell you, that if we hit these organic capital, we will have that that issue to face, but again, first and foremost, we will try to be consistent with where we are going to focus on, quarter-over-quarter distribution growth. We are going to be wed to our investment grade credit rating. That's going to be very important to us, since we are going to want to be sure that as we think debt and we think about equity, that that factors in and coverage, to a certain extent, fallout of those things but again I think right now, we are targeting or trying to guide everyone on the call that 10% to 12% distribution CAGR and we will see some variability in the coverage ratios. Lynn, I don't know if there is anything you want to say to that?

[Lynn Bourdon:]

No. I would agree with that. I thing, to the extent we can retain or have a higher coverage ratio, that capital is lower cost than having to go out and issue equity on that side. But I think as Rod said, I think it's premature for us to say much more about that until we get into that situation. And again sponsors are going to weigh in on that as well.

[Shneur Gershuni:]

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

[Operator:]

We will go next to Brian Lasky with Morgan Stanley. Please go ahead.

[Brian Lasky:]

Hi, guys. Congratulations n the quarter. I had just for one last clean-up question from me. I was just wondering, what was your minimum volume commitment collection for the quarter? Did you disclose that by chance?

[Rod Sailor:]

No, we did not disclose that.

[Brian Lasky:]

Okay. Is that a number you can provide or not?

[Rod Sailor:]

We haven't provided that as of yet. So I think going forward, we will try to a give a little more guidance around that impact and I think it will probably be important for you who are modeling it. But at this point in time, we haven't really decided on how we want to share that information.

[Brian Lasky:]

That's fair, and then finally I was just curious, how your CapEx backlog, it looks like you have identified some incremental opportunities to close. There is some shifting going on. So I was just curious if you could speak to how that backlog has shifted between your two business segments and areas since the IPO?

[Rod Sailor:]

Well, I will take a stab and Lynn and Keith can jump in when I badly mangle it. But I would say, when we came out in the IPO, we were targeting about a little over $500 million in expansion capital and as we talked about and that was over the next 12 months. And since we are coming off the road, we have started the process to purchase the additional processing equipment as Keith has talked to and so if you think about it, that was probably internally was an identified opportunity. It's now, once we write those checks, we will be contracted the expansion, because again it's facing a volume forecast that we see in that we need. I would say that in the contracted expansion, again in the near term, that's more around the gathering and processing side. It's around the expansion in the SCOOP and so probably would prefer to leave it at that.

[Brian Lasky:]

Thank you very much.

[Operator:]

There are no further questions at this time. I would like to hand the call back over to our presenters for any closing or additional remarks.

[Lynn Bourdon:]

Thank you, operator. I just want to take this opportunity to again thank all of our employees for their continued engagement around safety and for all of their hard work that has resulted in the accomplishments that we have outlined for you here today. I also want to thank everyone listening to the call for your interest in our company. We believe we have a great story and a great team and I look forward to speaking to you again soon. Thank you and have a safe day.

[Operator:]

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