Enable Midstream Partners, LP
Q4 2014 Earnings Call Transcript

Published: 18 Feb 2015

[Operator:]

Good day and welcome to the Enable Midstream Partners Fourth Quarter 2014 Conference Call. It is now my pleasure to turn the floor over to Matt Beasley. Please go ahead.

[Matt Beasley:]

Thanks operator. Good morning and welcome to Enable Midstream Partners fourth quarter 2014 earnings call. I'm joined on today's call by our President and CEO, Lynn Bourdon, our Chief Financial Officer, Rod Sailor, our Chief Commercial Officer, Paul Weissgarber, 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 Act 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 of the presentation for reconciliation of non-GAAP financial pleasures. With that, we'll get started and I'll turn the call over to Lynn Bourdon.

[Lynn Bourdon:]

Thanks, Matt. Good morning and thank you for joining us for today's call. Before we begin, I would like to acknowledge the contributions of Keith Mitchell, our former Chief Operating Officer who left in January, to assume the Chief Operating Officer role over OG&E, one of our sponsors. We really appreciate Keith's hard work and his dedication over his almost 20-year career at Enable and Enogex. And I'm especially grateful for his leadership during the integration of two legacy companies. We wish Keith the best in his new role and we are very glad he is staying inside the Enable family. Also want to take a minute and introduce the new member of the team, our Chief Commercial Officer, Paul Weissgarber. Paul comes to us with significant industry and commercial experience, most recently serving as Senior Vice President at Enlink Midstream, where he played a key role in the company's 2012 acquisition of Ohio River Valley assets and subsequently led the growth strategy of the company’s crude oil business in that area. We are excited to have Paul on board and his leadership will be critical as we continue to grow our business. Earlier this week, we announced a restructuring that will result in a reduction in the size of our organization and a consolidation of certain corporate functions to our Okalahoma City and Houston offices. These were difficult but necessary decisions to better position Enable for today's challenging market environment and strategically position us for future opportunities. Rod will cover these changes more in his section of the presentation. To start the call, I'll plan to cover a few financial highlights and illustrate how Enable is well positioned for the current environment. After that, I will turn the call over to Paul who will give an update on current market conditions and our growth strategy. Rod will then cover fourth quarter results in detail and provide updated outlook. Finally I will review our key accomplishments for 2014 and our key areas of focus for 2015. We will also be taking your questions at the end of today's call. This morning we reported 2014 net income attributable to the partnership of $530 million, an increase of 18% over pro forma 2013. Adjusted EBITDA for 2014 was $868 million, an increase of 11% over pro forma 2013 and distributable cash flow totaled $622 million for 2014, an increase of 14% compared to pro forma 2013. Our distributable cash flow exceeded the top end of our 2014 outlook range driven primarily by lower than anticipated maintenance capital spending. On January 23, the Board of Directors of the general partner declared a fourth quarter distribution of $0.30875 per unit which is a 7% increase over Enable's minimum quarterly distribution. This distribution was paid on February 13 to unitholders of record at the close of business on February 4. Turning to the next slide, I want to take a few minutes to tell you about why Enable is well-positioned for current market conditions. First, we are financially strong with a great balance sheet, substantial liquidity, investment grade ratings, and lower leverage than many of our peers. We have significant fee-based margins with approximately 79% of 2015 gross margin forecasted to be fee-based and 54% forecasted to be firm or NVC based. Our hedging program provides additional margin protection and we currently forecast of 88% of our 2015 margin will be fee-based or hedged. Integrated assets are another stream for Enable in this environment. The extensive connectivity between our gathering, processing, transportation and storage system allows us to respond quickly to our customers changing activity, economically optimize our business, and continue to provide high levels of liability. And then finally, our management team and employees have a broad depth of experience and have proven success through many different market conditions. Changing gears I'd like to update you on the status to several of our key projects. We are still on schedule for our first quarter 2015 start-up of our Bradley Plant. Construction of the plant is substantially complete and we are currently testing at commissioning the plant system's targeting full [indiscernible] operations at the plant by early March. We are very excited to bring this plant online as it will bring much needed capacity to support our customer volume growth in the SCOOP area. The additional SCOOP area plant we announced back in September of 2014, is now scheduled for a first quarter 2016 start-up which is an update from previously announced in new service date of late fourth quarter 2015. We are continually building gathering and compression infrastructure in the SCOOP adding 47,000 horsepower compression in this area during the fourth quarter of 2014 and we have much more plans throughout 2015. Our Bradley Lateral transportation project which will provide transportation takeaway capacity out of the SCOOP is moving forward and is now estimated to be in service in either the third quarter or early fourth quarter of 2015 depending upon regulatory approvals. Our second Bakken crude oil gathering system which we call [Exxon] [ph] for the plant capacity of up to 30,000 barrels per day is expected to start initial operations in the first quarter of 2015 with construction anticipated to be completed by the end of 2015. In this environment a lot of companies are saying their assets are in the core of the core but as Paul will detail for you, this is really the case for our Bakken systems. With this, I will turn the call over to Paul for the market update.

[Paul Weissgarber:]

Thanks Lynn. Given changing market conditions, I want to give an update on the activity and demand we are seeing on and around our systems. Currently approximately 350 rigs are active in the counties since we operate or constructing assets. This is a decrease of approximately 70 rigs from our third quarter conference call. The largest rig count reductions have come from the Bakken, the Greater Granite Wash and SCOOP plays offset by increases we have seen in the Cana Woodford play. Despite a reduction in the overall rig count, produces are still very active in our growth areas. Currently, we see 27 rigs in the SCOOP play, they are drilling schedules are to be connected - currently we have 27 rigs in the SCOOP and these wells are scheduled to be connected to our gathering systems. The returns remains strong in the SCOOP with continental resources indicating rates to return into SCOOP that are approximately 50%, assuming a 60 barrel oil price and a $3 natural gas price. And in North Dakota, 93% of the rigs in that state are active in the counties in which we operate or constructing assets. Based on current and forecasted SCOOP drilling activity, we expected additional transportation takeaway capacity out of the area will be needed. Enable is still well-positioned to provide this additional capacity, but the timeline for this project will likely to be longer than previously anticipated due to the late SCOOP drilling activity. In the transportation and storage segment, we are seeing opportunities developed for additional end user demand driven by lower natural gas prices and the announcement of new natural gas fired generation around our systems. Finally, we expect volatile markets and changing supply dynamics will continue to create opportunities. Turning to the next slide even in today's market environment, our growth strategy remains unchanged. We intend to capture organic growth opportunities in our core basins by partnering in our customer success and investing a new infrastructure for their needs. We're already seeing instances where capital constraint competitors are reluctant to make additional infrastructure investments and we believe our ample liquidity and strong balance sheet will be a competitive advantage in this environment. We plan to continue to extend the value chain from wellhead to end-users in our core commodities of gas, NGL's and crude. For instance, we believe volume growth in the SCOOP will require additional natural gas, NGL and crude oil infrastructure and we plan to be part of those solutions for our customers. In the Bakken, we believe there are opportunities to expand our crude footprint and offer natural gas gathering and processing services. We're still looking to establish our presence in other high growth basins whether that is through a Greenfield opportunity or by using our strong balance sheet to make an acquisition. We plan to develop a meaningful and competitive position in any basin where we participate as we said before, we don't want hobby in any basin and we're currently pursuing several opportunities to expand our Bakken footprint. We plan to capture additional market demand on in and around our system. As I mentioned earlier, low natural gas prices are driving a number of end-user projects around our transportation systems and we feel we are well-positioned to severe those new loads. Finally, we intent to maximize earnings stability by increasing fee-based margin and many of the opportunities I mentioned such as natural gas, transportation, crude oil gathering are primarily fee-based in nature. In closing, I want to say how excited I'm to be part of the Enable Team. The company has great assets, employees and customers and a lot of opportunities ahead of it. I will now turn the call over to Rod to discuss fourth quarter results and outlook.

[Rod Sailor:]

Thank you, Paul. Turning to operating statistics, we gathered 3.36 TBtu per day of natural gas on our gathering systems during the quarter. This was a decrease of 2% compared to the fourth 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 volumes on our Anadarko system resulting from the increased rich gas production in the SCOOP play. Much of the decrease on the Ark-La-Tex and Arkoma systems is expected to be offset by payments under minimum volume commitment contracts. Natural gas processed volumes were 1.64 TBtu per day for the quarter, an increase of 14% compared to the fourth quarter 2013 and NGL production increasing 5%. The growth in both processed volumes and liquids production reflects producers for rich gas activity on our Anadarko system as well as increasing NGL content in the gas we produced in those areas or the gas produced in those areas. Crude oil gathered volumes from our first Bakken crude oil gathering system went into service in November 2013, were approximately 7,500 barrels per day for the quarter. In our transportation and storage segment, total transported volumes were up 2%, volume from interstate firm contracted capacity was down 1%, interstate transported volumes were up 1%. Turning to fourth quarter financial results, as we stated in our release this morning gross margin was $371 million for the fourth quarter. This was an increase of $33 million compared to fourth quarter of 2013. Gathering and processing gross margin was $207 million for the quarter and an increase of $4 million when compared to fourth quarter 2013. The increase in gathering and processing gross margin is primarily result of higher processed volumes on our Anadarko system and higher crude oil gathered volumes on our Bakken system. As I mentioned earlier, we did had gathered volume declines on our Ark-La-Tex and Arkoma systems but again, but those declines were associated with contracts containing minimum volume commitment features. Transportation and storage gross margin is $165 million for the quarter, an increase of $30 million compared to fourth quarter 2013. The increase in transportation and storage gross margin is primarily the result of unrealized gains on derivatives associated with our hedging program. Operation and maintenance expense was $144 million for the quarter, an increase of $17 million compared to fourth quarter 2013. The increase in operation and maintenance expense is primarily due to increased payroll expenses to support business growth. Net income attributable to the partnership was $122 million for the quarter, an increase of $7 million compared to the fourth quarter 2013. The increase in net income is primarily due to increased gross margin and equity earnings offset by higher operation and maintenance and interest expense. Adjusted EBITDA was $198 million for the quarter, a decrease of $2 million compared to fourth quarter 2013. The decrease in adjusted EBITDA is primarily due to higher operation and maintenance expense offset by higher SaaS distributions. Distributable cash flow for the quarter was $119 million, a decrease of $16 million compared to fourth quarter 2016. The decrease in DCF is primarily due to higher operational and maintenance expense, higher maintenance capital spending, and higher interest expense offset by higher SaaS distributions. Finally, expansion capital expenditures were $196 million for the quarter compared to $160 million in the fourth quarter of 2013. Also as Lynn mentioned earlier, we paid a distribution for the fourth quarter of $30.75 per unit on February 13 to all of the partnerships - on all of the partnerships outstanding comment in subordinating to all of the - partnerships outstanding comment and subordinated unitholders as recorded close of business on February 4. Before I go to our outlook for 2015, I’d like to note that producers across our system continue to develop their capital plans and their drilling schedules. Consequently, we still have some uncertainty around ultimate customer activity and volumes being produced along our system. We continued to be in close discussions with our customers and this outlook represents out best view for the expected activity. We anticipate gathered volumes of between 3.1 and 3.3 TBtu per day for 2015. The decline expected volumes from '14 to '15 is primarily driven by projected declines in our Ark-La-Tex and Arkoma systems which are largely covered by minimum volume commitment contracts. Those volume declines are offset by projected volume increases on our Anadarko system. The volume reduction for 2015 compared to our previous outlook is driven by Anadarko volume reductions including reductions from the SCOOP, Granite Wash, and Mississippi Lime plays, as well as further reductions in Ark-La-Tex and Arkoma basins again those will be the larger offset by minimum volume commitments. We anticipate process volumes between 1.6 and 1.8 TBtu per day for 2015. The process volume increase over 2014 is largely driven by continued rich gas volume growth on our Anadarko system, while the decrease from our prior outlook is driven by the previously mentioned reductions in SCOOP, Granite Wash and Mississippi Lime forecast. We anticipate crude oil gathered volumes of between 20,000 barrels per day and 22,000 barrels per day for 2015. The projected growth in crude oil gathered volumes over 2014 is due to volume increases on our first Bakken crude gathering system and the start-up of our second Bakken crude oil gathering system in the first quarter of 2015. We project adjusted EBITDA of between $800 million and $860 million for 2015. The decrease in adjusted EBITDA over 2014 is primarily driven by lower commodity prices or the decrease compared to our prior outlook is driven by both lower commodity prices and our expected lower volumes. As Lynn mentioned, we did announce the restructuring earlier this week, and we estimate that annual savings associated with these initiatives of approximately $20 million per year. Given a one-time expenses associated with these initiatives, the $20 million in annual savings will largely be realized in 2016. However, given these initiatives and other cost reduction initiatives we're pursuing, we expect the whole 2015 operation and maintenance expense to a level at or below 2014 operation and maintenance expense or up $527 million. We project adjusted interest expense of between $95 million and $105 million for 2015, compared to 2014 interest expenses higher in 2015 primarily due the higher debt balances and because of interest expense associated with the $1.65 billion in senior notes that we issued in May of 2014. And higher interest on the $1.3 billion in term loans from the senior notes offer being repaid. We project maintenance capital expenditures between $140 million and $160 million for 2015, and we project distributable cash flow between $540 million and $590 million for 2015. Maintenance capital spending will continue to be a focus in 2015. For distributions, we're targeting a per unit distribution growth of between 3% and 7% for 2015, this is calculated of our fourth quarter distribution of $0.30875. Given our distribution growth in 2014, our 2015 guidance range represents approximately 6% to 8% compound annual growth over a quarterly minimum – a minimum quarterly distribution. For distribution coverage we anticipate coverage ratios of between 1x and 1.08x, as we have previously stated seasonality in distributable cash flow will cause some variability in our quarterly coverage ratios throughout 2015. Again, before I go into a little bit on our capital, just given the uncertainty around producer activity, we will only be providing a capital outlook for 2015 to-date. We estimate between $600 million, and $800 million of 2015 capital expenditures associated with current contracts and acreage dedications. This capital includes gathering, and compression, and processing infrastructure to support volume growth in the SCOOP, Bakken, Cana Woodford, and Greater Granite Wash plays. Our contracted expansion outlook for 2015 has been reduced from our prior outlook due to shift in volumes to later years and will result in some of the previously identified capital for 2015 being spent beyond in the later years. We also estimate that up to $300 million of capital associated with identified opportunities in 2015. These include opportunities or projects in both gathering and processing and transportation segments or in commercial negotiations. Finally, I'd like to take a moment to review Enable's fee-based margin and commodity exposure. Enable, targets fee-based contracts on a firm basis when possible and as you can see from the chart below approximately 70% of our gross margin for 2014 was fee-based with 50% associated with firm or minimum volume commitment contracts. For 2015, we project that 88% of our gross margin will come from fee-based business or is the hedge percentage of our commodity business. Enable has contractual provisions in some contracts in fact against low commodity price environments and volume decreases. For instance, some contracts have fee-based floors to commodity prices fall below certain levels. Turning to commodity sensitivities for 2015, we anticipate that a 10% change in natural gas prices would result in approximately a $9 million change in gross margins or 10% change in natural gas liquids and condensate prices would result in approximately a $5 million change in gross margin. This concludes my prepared remarks for today. And I'd now like to turn the call back over to Lynn.

[Lynn Bourdon:]

Thanks Rod. 2014 was a great year of execution for Enable Midstream. In April of 2014, we went public for the successful $575 million IPO making Enable the largest entity at IPO in the history of Northeast base. And then May of 2014, we issued $1.65 billion in senior notes establishing benchmark securities in 5, 10, 30-year maturities. We had a number of significant commercial accomplishments for the year including contracting the new 30,000 barrel a day Bakken crude oil gathering system, we added 600,000 gross acres in the SCOOP area dedication and we extended and added several major transportations towards contracts demonstrating a strong linkage between our gathering and processing business and our transportation and storage systems. For the year we executed on almost $700 million of growth capital and through the new 200 million cubic foot a day plant for the SCOOP area. We also saw strong financial results for 2014, compared to pro forma 2013 with our net income increasing 18%, our adjusted EBITDA increasing 11% and our distributable cash flow increasing 14%. We exceeded the top end of our distributable cash flow outlook and grew distributions by 7% over our minimum quarterly distribution. Now I want to turn to key areas of focus for 2015. We remain committed to our customers and delivering on our promise to be a partner in their success. We intend to maintain a strong balance sheet, which we give as a significant strength in this environment. We are very focused on managing cost and have initiated cost savings measures for all of our expenditures including O&M maintenance and expansion capital spending. Even though market conditions are challenged, we have a long-term view of our business and plan to remain focused on our growth strategy by growing our footprint, expanding into new basins and continuing to extend the value chain. And also should the right opportunities present themselves, we will look to use our strong balance sheet for acquisitions. Most importantly, we will continue to be focused on safety and the environment, and that includes the safety of all of our employees, contractors in our facilities and our communities. That concludes my prepared remarks and we will now open the call up for your questions.

[Operator:]

[Operator Instructions] And we can take our first question from [indiscernible]. Please go ahead. Your line is open.

[Unidentified Analyst:]

Good morning. I wanted to touch bit on the maintenance CapEx for this year. Is this a one-time reduction or can we expect this run rate going forward?

[Lynn Bourdon:]

That's a run rate that we will continue to strive. Clearly we are not giving guidance past 2015 I think as we - as I think we have consistently said through 2014 since the IPO that, - I think at S1 we had about $199 million maintenance capital number we felt that that was high and we will continue to try to work that down. But again that's one that we will continue to get focused. But we're only giving guidance down 2015 but we will continue to try to strive - to keep that number down and ultimately as a percentage of EBITDA, we would hopefully look much like our industry peers.

[Unidentified Analyst:]

Second question is, do you got any update on the level of synergies integration just from the initial combination of assets. I think you previously identified something to the tune of $50 million. I wanted to see if that changed or changes in the current environment?

[Lynn Bourdon:]

Yeah, we really haven't given any updates since that number was talked about I think at S1 clearly I think some of the restructuring that we're going through now are a way to help capture those synergies.

[Unidentified Analyst:]

Final question for me either for Lynn or Paul, you mentioned that you still want to establish a presence in high growth basins. Does this entail potential M&A, and if so how do you rank order the basins reference today in the given where commodity prices are?

[Lynn Bourdon:]

I think we are looking at really all the avenues for entering new basins. We currently have some efforts underway right now that are more Greenfield in nature. As we stated, we have a really solid balance sheet and we would look at acquisitions. The market environment up through and still including the day, we still think that sellers continue to want to see a premium on the sale of any assets. And in today's environment, we have to be very careful about what you do because it may be very easy to over span on something looking at seller expectations versus where the market really is today on that side. So, we were engaged in a number of things last year and we just never were at a point where we felt like the value that things were being transacted represent what we thought was good value. So we’re going to continue to chase it out on both hands. We have said as far as basins, we like all of the big basins. We got a big presence up in the Bakken and we will continue to look to grow in that area. We obviously have a great position in the Anadarko basin, we like Permian basin, we like Marcellus. Those areas are very key areas. But we are not going to say no to any of the other areas as well. If we find an opportunity, we would look in those as well.

[Unidentified Analyst:]

That's it for me. Thanks guys.

[Operator:]

And our next question comes from Matt Tucker from KeyBanc Markets. Please go ahead.

[Unidentified Analyst:]

Good morning, this is [indiscernible] for Matt. Just to get back on the M&A question, you guys obviously have articulated an interest in inquisitive growth at some point in the future. So is it fair to say based on your response that, which is - a game pushed out a little bit.

[Paul Weissgarber:]

I don't think anything around our acquisition strategy has changed at all. We will continue to be very disciplined, we will work at opportunities that have interest to us, that need our - our strategic growth goals that we have laid out. So, I don't think anything changes. As Lynn mentioned, one of our goals is to maintain a strong balance sheet so we can capture opportunities in front of us. I don't think we had pushed anything out or pulled anything forward based on current events.

[Unidentified Analyst:]

Sure, fair enough. Still on NGL production, I think it’s been flat sequentially over the last couple of quarters. Could you help us think about maybe a threshold price for NGL's or for oil where it becomes economic in – you're more likely to see volume growth on NGLs and maybe discuss a little bit what's the play in terms of why it's been flat.

[Lynn Bourdon:]

I think that, one, we do continue to see and should continue to see increases in NGL production as we bring on, for instance, new plants - new Bradley Plant as it starts – we will see a NGL production increase on that side. But it really going to take ethane coming out of rejection for us to see a significant material increase in NGL production and unfortunately that's probably at least a year to two half, based on what other things stands today. So I wouldn't expect to see increases other than that type.

[Unidentified Analyst:]

Okay. That's all I had. Thanks for that. I'll jump back in the queue for now. Thanks.

[Operator:]

And our next question will come from Ted Durbin with Goldman Sachs. Please go ahead.

[Ted Durbin:]

First on for me is - look like you brought down your 2015 growth CapEx and I think prior - maybe 400 million or so. Prior you had guided around $1.2 billion to $2 billion of growth capital in 2016 and 2017. Should we assume that same amount came out of those years as well or how you're thinking about the 3 or 4 that you used to give us?

[Rod Sailor:]

Again, some of it is related to - some uncertainty around producer activity, we still think those opportunities are still out there. It's just that we're looking at right now lower volume growth primarily in the SCOOP area, and that's pushing out the need to lower out additional processing facilities. So, really it's - it's sort of the same kind spend level that we have been thinking about over the long term. It's just been stretched out a little bit, given some of the uncertainties past 15 and we got uncomfortable giving much past 15. Hopefully that answers you question, Ted. But it's really more around just the thought, that we think that volumes are going to come out a little slower, so we are pushing some of the fourth quarter 2015 capital into first quarter 2016 and then that just rolls through our forecast.

[Ted Durbin:]

That's helpful. Second one from me is the hedging, I think, when you went public, you certainly didn't have a lot of hedges on, I think you were again more aggressive in terms of hedging, can you just talk about - just programmatically what is your goal for how much hedging do you want to do on whether it's on the NGL side or the gas side, maybe specific commodity sells you are looking to hedge?

[Paul Weissgarber:]

I think we were relatively aggressive on hedging in 2014, we just really didn’t talk a lot about it. Clearly we have some variability in our earning stream related to commodity prices and we try to lock that into a level, clearly the fall in commodity prices, we got somewhat aggressive without trying to lock in that earning stream so that we could give recent guidance and don't want to get into the summer and find ourselves in a price environment without taking some risk off the table. But I think the way we think about it is, again we want to be both prudent with managing the commodity piece of our business with an eye on maintaining distributable cash flow but also somewhat opportunistic on some of our opportunities. So, we thought it is important to get the slide in that we have locked up a insignificant amount of revenue stream, either through the fee-based contracts or through our hedging program. And Lynn, you want to add anything on that?

[Lynn Bourdon:]

What I will add is, we have not set a target as to how much of our exposure that we intend to hedge every year. I think the focus for this year is we recognize that there is going to be a significant amount of volatility in the commodity prices. And I love the saying that, the Keith Mitchell has been – and that hopes not a strategy and hoping that prices recover just didn't seem like a very prudent strategy. What seems like to be a more prudent strategy is to try to minimize some of the commodity volatility that we have in our business so that we can remain focused on building the business, putting capital in place and looking at other opportunities rather than staying focused on volatile commodity environment. So, we've taken steps and had taken steps earlier as far back as earlier in 2014 to move into 2015 with some hedges. I think, we like where we are. I think that certainly the market is going to continue to move around. But we are in good place to loose for the moment that gives us some comfort around, the exposure that we have. So prices moves up and we get to capture some opportunity on that side and we continue to remain focused on our strategy.

[Ted Durbin:]

Got it. And if I could just do one more, given the pullback in the growth capital, I think we had originally thought you might need a little bit of equity maybe the back half of this year given where the balance sheet is, maybe we should assume that, there is no equity need at this point.

[Lynn Bourdon:]

We will not really going to speak to our financing plan around the forecast, will be prudent. Again we have to manage, we want to maintain a strong balance and maintain some dry powder. Again whether we leave with that or leave with equity will largely depend on what we think the opportunities set is in the prices of - both the equity and debt capital markets.

[Ted Durbin:]

Okay. I will leave it at that. Thanks.

[Operator:]

Our next question will come from John Edwards with Credit Suisse. Please go ahead.

[John Edwards:]

Good morning everybody. Following up on the restructuring cost, I'm just curious how much of the restructuring would have been done anyway without the falling commodity prices?

[Lynn Bourdon:]

I would say that, again we want to prudently manage the business. There was probably a need for some restructuring to capture synergies but clearly this is also as largely a result of what we have seen in producer pullback and really need to be a little more efficient, a little linear just given the business environment that we see right now. I don't think anybody in our space is going to be able to grow as quickly as we all are thinking about 12 months ago. And so that really is what – is what we predicated - to produce our work force. It is very hard decision that we had to make but in the end just given where we think the growth is going to be over the next few years, we made the tax improvements steps today.

[John Edwards:]

Okay. So, would the right REIT on that be – let’s assume that prices comeback say by 2017 that you probably add back in that regard?

[Lynn Bourdon:]

I think we would - again, as we grow, there will always be some increase related to growth. You can't put new plans on, you can't fill more pipe without some incremental growth associated with that.

[John Edwards:]

Okay. That's helpful. And then just if we could go back to Slide 13, just ask a couple of volume questions on that. Just on the Commodity price sensitivities, as far the changes relative to forecast prices – what's the forecast prices from which – what's the base from which we should -

[Lynn Bourdon:]

If you look on Slide 11, those are all footnoted at the bottom of Slide 11. And those would be the prices I would suggest that although you need to use the calculate.

[John Edwards:]

Okay. So that's the $2.85 and the $0.47, so it's from that, okay, that’s helpful. And then just as far as the other fee-based – what's in that?

[Lynn Bourdon:]

Gathering and compression.

[John Edwards:]

Okay. So how does that differ from the firm fee base?

[Lynn Bourdon:]

Well the firm fee-based is more related again to demand obligations on our pipe and in areas where we had minimum volume commitment which we're again a below a certain volume level, we just basically get a fixed fee. As we put – if we put on incremental compression there is a compression fee, there is a gathering fee, and that’s a fixed fee component of the business.

[John Edwards:]

So the other fee is related to volume, it's not a demand charges, is that correct?

[Lynn Bourdon:]

That's correct.

[John Edwards:]

That's what I'm trying to –

[Lynn Bourdon:]

You are absolutely correct.

[John Edwards:]

Not all fee-based is the same, so that's what I am trying to get at?

[Lynn Bourdon:]

And that's basically how we tried to portray it on the slide.

[John Edwards:]

Okay. That's helpful. That's all I had. Thank you.

[Operator:]

And we’ll take our next question from Michael Bloom with Wells Fargo. Please go ahead.

[Michael Bloom:]

Thanks, Good morning. Just want to go back to the extension capital for a minute. One question is, we identified opportunities of zero to $300 million. I was feeling those - is that capital that will be spent in 2015 or should we think of that as the base of 2016?

[Rod Sailor:]

No, that would be capital that we anticipate spending in 2015 with potentially some incremental impact in 2015 and our full year impact in 2016.

[Michael Bloom:]

Okay. And then just in terms of returns on your invested capital. Can you just tell us if that's changed and where that's sits, and then second part of that question is round the IPO, you had articulated a time frame from of capital deployed to cash flow return, can you just talk about how - if that's changed at all and what that looks like.

[Rod Sailor:]

I would say - again our current expectations have not changed. I think we had talked about on the road initially 7x to 8x multiple on invested capital. Clearly that’s more on the G&P side. If you are on the transportation side, the terms are going to be a little bit skinner but largely will be back by currency based type contracts. As you think about processing activity, again if put a plan on – its on our header system we can immediately fill up that plant that we didn’t backload volumes offered maybe more inefficient plants. And I think we have consistently said, processing takes about 18 months to fill up. I think nothing has changed, I think some of the segment that we were saying last year around that.

[Michael Bloom:]

Great. Thank you very much.

[Operator:]

And we'll take our next question from Ali Agha with SunTrust. Please go ahead.

[Ali Agha:]

Good morning. Originally when you had led out for us your plans and you had gone out 2017, it was our growth expectation, if I recall correctly 8% to 10% annually et cetera. I understand lot has changed and of course your 2015 guidance now is showing declining EBITDA and distributable cash flow base. But, is there any visibility at all over the next couple of years that can give you any confidence that of this lower base you can still see growth over the next couple of years or is still too early that we may still be - these are the commodity prices we are seeing, we should be thinking more of a flattish to maybe a declining outlook. Can you give us any visibility over the next couple of years?

[Paul Weissgarber:]

I will just start, and turn it over to Rod to answer some of the more financial thing. I think there is a lot of things that as we look forward are positive. Certainly, just if you think about where we are in the Anadarko basin, and you think about the quality of the rock that we have underneath that system, people are getting continue to own or develop that resource and there isn't anybody in the business that has a system as good as ours in that particular core area. So we expect and I believe it produces an area continually expect that the produce that hydrocarbon as we go forward. The issue is right now, there is not much information that we have in front of us from producers. They are still trying to get their programs put in place and it just makes it very hard for us to put anything definitive in front of you guys without that information and we just didn't want to get out here and try to portray something that we don't know. I think as we start to emerge and get through 2015, you're going to see the confidence come back, you're going to see a lot more information from the various producers and that's going to give us the ability to give you a much clear vision as we go further out. But just right now we are dealing with a price that has collapsed very quickly and it's at levels that make it difficult for some of the producers and some of the print areas, and they are trying to make sure that they establish and put their capital plans in place. So demand is going to continue to grow with the low natural gas price. We will continue to see coal fired gas plant, our power plant convert to gas. We are going to continue to see industry, moved to the managed dates from offshore as gas prices and overall energy prices are low. So you're going to continue to see the demand side of things we have a huge amount of petrochemical demand that is going to start kicking on, I think as early as later this year and will extend for the next several years. You have LNG facilities that will start cranking up end of this year, early next year and then later in 2018, 2019. So, as we look forward there are lot of positive factors out here but just the uncertainty of what producers are doing as creating a little bit of a GAAP between our ability that actually forecast where we are going to be - even as early as later this year and in on 2016 and 2017. So I think we have a very positive outlook. We just don't have the information to give you guys a more definitive feel.

[Rod Sailor:]

I really wouldn't add anything to that. Again I think we feel confident that we will be able to grow the business maybe not as quickly as we have talked about in 2014. But we see a lot of opportunities and again as Lynn mentioned some of the pet-chem opportunities start to come on, we are very well positioned and we are in a very rich gas area which should only board well for our system.

[Ali Agha:]

Okay. And my second question, as you know some of you large sponsors have made certain commitments to their shareholders about dividend growth, and what have you. So is there a scenario, is it possible you think that some of the - discipline that you look at in terms of your growth in your distributions per unit, that you may get more aggressive on those and grow the distribution at a faster rate even if the underlying distributable cash flow or EBITDA may not be growing in the next couple of years at the same levels?

[Lynn Bourdon:]

Well, I don't want to speak specific for our sponsor although I will say that I think everybody is lock step that we want to be sure that we maintain a very strong company that we are prepared to capture opportunities in 2016 and beyond which requires a strong balance sheet. And so we think we need to maintain a strong balance sheet and again some level of coverage. So, clearly our coverage has come down a little bit because again we are forecasting some distribution growth at the expense of coverage. But I would say that I - clearly we are all aligned both the company and our sponsors in the board about the direction we want to take, I think our guidance reflects what we think is what our best thinking and that of the sponsors.

[Ali Agha:]

And can you remind us from a financial perspective what is the minimum level of coverage that you would target to keep you with any of your guidelines?

[Lynn Bourdon:]

Well again that's a bit of a moving target. We put guidance out now that when we came out, we were talking about coming out at about 1.15 and we wanted to maintain a strong coverage level. I think we were very consistent of saying, we did not want to fall below one times and our guidance reflects that. Clearly we like to be in that 1.15, almost there with this guidance. We want to be above one times.

[Ali Agha:]

Understood. Thank you.

[Operator:]

And we’ll take our final question from Helen Ryoo with Barclays. Please go ahead.

[Helen Ryoo:]

Thank you. Good morning. So your second plant is pushed out to first quarter 2016, I'm just curious given Bradley Plant is coming online this quarter with about 26 rigs running in SCOOP, what is the incremental volume - SCOOP volume, do you expect to flow through your system and just trying to get a sense if the timing on the second plant may have to be pushed out of this?

[Lynn Bourdon:]

Well there is two things, one we're just about to start the Bradley Plant up right now. And I would say from a volume perspective we still continue to see very solid equity, in fact we are probably nip and tuck with getting the plan online, and the pad is supporting this plant online. And frankly the gas that we expect out of the pad is going to feed this plant is pretty much going to take the whole plant. So it's a significantly large size pad is coming online and they are going to be additional gas that comes online as we move through the year. So the slide is really pretty slide, we had originally forecasted sometime late in 2015 in the fourth quarter, and I would just - we just decided we don’t have to rush as much to get it on but we still need to get it online in the first quarter to meet the growth in it and the flow that we expect to see out there. From our standpoint, we’re not seeing a significant shift in our volumes in 2015 versus what we had originally thought.

[Paul Weissgarber:]

Helen this is Paul. What I would say is, Lynn is exactly right here. As you look at the slope of projected growth rates on volumes, its still a very good slope, its just not quite as steep as it used to be. So we very much see filling up this next Bradley Plant and the plant behind it. So again, we are still seeing good activity around our system, the producers are high grading what they're drilling, but they are drilling very, very good wells and the good news is they are close proximity to systems.

[Helen Ryoo:]

That's very helpful. In your 2015 CapEx guidance, 600 to 800 how much of the second plant CapEx is included?

[Rod Sailor:]

Approximately 100 million.

[Helen Ryoo:]

Okay. And still, you talked in the past that each plant would require 450 to 500 total CapEx including all the related infrastructure. So is that still a good rule of thumb to think about or given I guess more price environment maybe that cost estimates would come down, any thoughts around that?

[Rod Sailor:]

We would anticipate that we will see a reduction in construction cost as well as acquisition of major items through this. I can't give you any kind of specific numbers on that, and for things that are already in the queue in some cases, you're already committed to a contract that may not have any ability to reduce some of those things. But yes, we would anticipate just as the producers are going to anticipate that costs are going come down in this environment.

[Helen Ryoo:]

Okay. Thank you very much.

[Operator:]

It appears we have no further questions. I'll turn the floor back over to Lynn Bourdon, for any additional or closing remarks.

[Lynn Bourdon:]

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

[Operator:]

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