Enable Midstream Partners, LP
Q2 2015 Earnings Call Transcript

Published: 6 Aug 2015

[Operator:]

Welcome to the Enable Midstream Partners Second Quarter 2015 Earnings Conference Call and Webcast. At this time all participants is in placed in a listen-only mode and the floor will be open for your questions following the presentation. [Operator Instructions]. Today’s call is being recorded. [Operator Instructions]. It's now my pleasure to turn the floor over to Enable Senior Director of Investor Relations, Mr. Matt Beasley. Sir, you may begin.

[Matt Beasley:]

Thanks, Kevin. Good morning and welcome to Enable Midstream Partners second quarter 2015 earnings call. I'm joined on today's call by our President and CEO, Pete Delaney; 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 measures. With that, we'll get started and I'll turn the call over to Pete Delaney.

[Peter Delaney:]

Thank you, Matt. Good morning and thank you for joining us on today's call. The second quarter was another solid quarter of growth for Enable Midstream. We reporting double-digit volume growth and processing at 7% gathered volume growth outside of our minimum volume commitments, 12% volume growth in our intrastate transportation system and while we are reporting a decline -- volume decline in our intrastate system from a contract exploration, we’re also announcing new shipper requirements on EGT as a result of our open season. Reflecting these conditions Enable recently announced a second quarter 2015 distribution of $0.3106 per unit representing a 1.1% increase over our first quarter 2015 distribution and a 10% increase over the partnerships minimum quarter distribution. Enable remains focused on growing our distributions to unit-holders through sustain business growth superior customer service operational excellence and cost discipline, Rod will detail later, we are reaffirming our 2015 distribution growth guidance and we are providing guidance for continued distribution growth through 2017. Enable’s natural gas gathering a processing business continues to be driven by strong producer activity and well reserves, as producers reassess or reallocate resource and is low commodity price environment they continue to put significant capital work into prolific plays around our footprint including the SCOOP, STACK Cana Woodford and Cleveland Sands plays. In fact we have connect more wells year-to-date through July of 2015 that we did year-to-date through July of 2014. We’re also seeing strong results from our producer customer as they focused on technical resource is on a smaller number on active rigs. In the SCOOP area, Enables now gathering approximately 500 million cubic feet per day of natural gas, it's a significant amount of natural gas specially given at the SCOOP as a play was announced in less than three years ago. Excluding the areas covered by our minimum volume commitments gathering volumes were up 7% in the second quarter of 2015 compared to the second quarter of 2014. We are also continue to be the encourage by the uptick in producer activities in the leaner gas areas, currently benefiting from the minimum volume protection. To support these continued volume increases, Enable’s Board directors approved this week, the construction of the Wildhorse Plant, a 200 million cubic feet per day process in plant located in Garvin county, Oklahoma, we expect to be operational in the first quarter of 2017, as you may recall we’re also currently constructing additional 200 million cubic feet of the processing plant in greater county, Oklahoma that we expect we’ll begin operations in the first quarter of 2016. A transportation storage system provide, continues to provide significant earnings stability with a large contribution of firm fee based margin, our transportation system remains well position to deliver markets for our gathering customers as well as to serve important on system demand. Our result of our growing Oklahoma production and end user demand we’re announcing today that we’re moving forward with an expansion of our EGT intrastate pipeline as a result of we are saving shipper commitments in excess of 175,000 dekatherms per day to an open season announced early this year. Conclude my remarks, I’d like to give you a quick update on the CEO search process, special committee, the Board is continuing and leading that search for a partner and CEO with assistance from the second of search from Russell Reynolds number of well-qualified candidates have been identified and we are beginning to interview process. Meanwhile, we continue to execute on our business plan, remain committed to continuing as interim CEO until the new CEO is transition fully into the role. Now I will call to turn over to Paul for a commercial update. Paul?

[Paul Weissgarber:]

Thanks, Pete. As Pete mentioned producers remain active at many place around our footprint including the SCOOP, STACK, Cana Woodford, Cleveland Sands, Coughlin, Margaret Benton and Mississippi Lime plays. This activity is driven by the strong results and return producers are seen in this plays. And as we mentioned on our last earnings calls, many of these plays remain among the highest returning plays in the country, even in a lower commodity price environment. Turning to the next slide, the SCOOP continues to be a very strong play and focus have significant producer investment and activity, driven by strong economics and while results producers are currently running 15 rates in the area drilling wells to be connected Enable’s gathering systems. As Pete mentioned in his remarks, we are currently gathering approximately 1.5 Bcf a day other area and production continues to grow. One example recent producer success in the area is Continental’s Poteet it’s the pilot project producing a peak production rate of almost 150 cubic feet per day from a 10 wells project. We believe production growth in the region will continue as producers further develop to play and energy consulting from Wood MacKenzie is that over $41 billion will be spent by producers in the area through 2025. As Pete said in his remarks, we continue to invest an infrastructure in the area to support our customers drilling programs. This week, our Board of Directors approved the Wildhorse Plant, 200 million cubic feet per day processing plant in Garvin County that will allow our customers to continue to grow their production in the Anadarko basin. In April, we’ll invest approximately $200 million with that project including plant equipment, associated compression and installation costs. And we anticipate the project will be in service during the first quarter of 2017. A previously announced 200 million cubic feet per day plant in Garvin County, Oklahoma still expected to be in services during the first quarter of 2016 and our Bradley plant is started up in the first quarter of 2015 is currently running near full capacity. This investment and processing infrastructure allows enable to support our customer’s growth and further solidifies our position at the leader in processing capacity in the area. Enable also continue to invest in natural gas gathering and suppression infrastructure with the addition of almost 36,000 horsepower compression during the quarter, which brings total compression horsepower in the area to approximately 175,000. Given the rich gas production from the play, the region is also generating significant condensate volumes and Enable plans to expand condensate stabilization capacity in the area by 15,000 barrels per day. In addition to the SCOOP Enable is also serving producers in the STACK, Cana Woodford and Greater Granite Wash plays. In the STACK Enable was connecting wells from the dedicated producer targeting the Meramec reservoir, while the Cana Woodford play currently has 4 rigs drilling wells to be connected to Enabe’s gathering systems. We believe this area will also continue to attract drilling investments and Wood MacKenzie estimate producers will invest over $22 billion in the STACK and Cana Woodford play over the next 10 years. In the Greater Granite Wash producers remain active in the top Tonkawa, Marmaton and Cleveland Sands plays. Currently 6 rigs are active in this area drilling wells to be connected Enable’s gathering systems. We have also seen several new producers enter this year through acquisition recently including the recent announcement by 4 points energy of an acquisition of acreage from Chesapeake and Roger mills and Ellis counties in Oklahoma. These new entrance are increasing our expectations for future drilling activity in the area. Turning to the next slide, the Ark-La-Tex and Arkoma basins are primarily fee-based basins with significant minimum volume commitment and guaranteed return contracts. Although these basins have been less active in recent years, we are starting to see renew producer interest in these areas. In the Haynesville, we have seen new entrants in the play which is resulted an increased drilling activity and expectations for additional activity in the future. Enable continues to develop crude and condensate assets in the Ark-La-Tex basin to meet the rapidly growing need for condensate processing in east Texas and Northwest Louisiana. Enable recently expanded tank storage at the Waskom plant by acquiring the terminal. Enable also plans to commission new stabilizer capacity in the area in the third quarter of 2015. In the Arkoma producers are active in both the lean and rich gas areas of eastern Oklahoma. This activity is increasing the utilization of existing infrastructure and additional gathering and processing infrastructure maybe needed to should activity continue. Turning to the next slide. Crude volumes continue to grow in the Bakken as additional wells are connected to Enable's crude gathering systems. The Bear Den system our 19,500 barrel per day system is now fully operational as we have seen recent peak volumes on the system in excess of 16,000 barrels per day with additional volumes scheduled to come online in August. Given that current volume flows and outlook for future activity Enable has started to evaluate potential expansion to this system. The Nesson system, with an anticipated capacity of 30,000 barrels per day has started initial operations and is anticipated to be fully in service by the fourth quarter of 2015. Enable’s anchor producer in the Bakken, XTO remains one of the most active producers in the play and resource assessments of Williston Basin continue to grow with improved well density and completion techniques. Turning to the transportation and storage segment, we are focused on providing takeaway solutions for the prolific supply growth in our basins and we are also actively working to add new end user markets and increased services to existing end user markets. As Pete mentioned in his remarks we announced today an expansion of our EGT interstate pipeline after receiving shipper commitments from the EGT open season in excess of 175,000 dekatherms per day. The success of this open season is a direct result of strong producer growth and strong demand from the end user markets on our systems. The Bradley Lateral, a new EGT lateral serving Oklahoma production, is still targeted to be completed in the fourth quarter of 2015. And on the Oklahoma intrastate system increase natural gas production is driving an increase in demand for transportation service and an increase in interruptible transportation fees. Turning to market opportunities. During the quarter Enable continue to have success contracting new and existing capacity with shippers and was awarded several transportation contracts by industrial and utility customers. Also lower natural gas prices continue to drive demand for natural gas transportation infrastructure and Enable is currently responding to requests for proposals for end user projects developing around Enabl's transportations systems. Turning to the next slide, even though the oil and gas industry has been challenged by lower commodity prices, Enable has continued to effectively execute on its growth strategy. We continue to be successful contracting new and existing transportation storage capacity as demonstrated by today's EGT expansion announcement. We also continue to capture producer activity from new and existing dedications as demonstrated by success in the SCOOP, STACK, Cana Woodford and Greater Granite Wash plays. We are developing significant operations in crude, condensate and NGLs. As we mentioned today we are expanding our condensate facilities in both the Anadarko and Ark-La-Tex basins and we have grown our NGL volumes as a result of the increased rich gas activity around our systems. Enable is well positioned for the future with integrated and scalable assets in top-tier basins, significant fee based margin from high quality customers with a hedging program that provides downside protection and a focus on extending the value chain from wellhead to end users in our core commodities of gas, NGLs and crude and establishing a meaningful position in high growth basins. This concludes my commercial remarks and I will now turn the call over to Rod to discuss second quarter results and outlook.

[Rod Sailor:]

Thanks Paul. Turning to our operation statistics slide, I will go over all the numbers on the way, but too want to reiterate a couple of points. Our gathered natural gas volumes are down as primarily related to lower volumes in the Ark-La-Tex, Arkoma areas which are offset by expected payments from mineral volume payments. As Pete mentioned elsewhere on our system volumes are up in our growth areas. Also as mentioned natural gas processing volumes are as the NGL production condensate sales. Group volumes continue to increase on our two Bakken systems and finally transportation storage will flat we did see an increase in transport volumes along our intrastate system, which we continue natural gas volume growth on and long Anadarko system. Turning to our second quarter financial results, state in our release, our gross margin was 313 million for the second quarter decrease to 36 million compared to second quarter 2014, gathering and processing gross margin was 181 million for the quarter, a decrease of 22 million compared to the second quarter, the decrease in gathering and processing in gross margin was primarily related the lower average natural gas, and natural gas liquids prices. Partially offset by higher process volumes in the Arkoma and Ark-La-Tex basins. transportation and storage gross margin was 133 million for the quarter, a decrease of 13 million compared to second quarter 2014, the decrease in transportation storage gross margin was primarily results of the decrease in unrealized gains on natural gas derivatives and a decrease in liquid sales related to NGLs collect due to lower NGL prices. Operations and maintenance expense was 131 million for the quarter. An increase of 2 million compared to second quarter of 2014. This increase was primarily due to costs associated with workforce reductions. Net income attributable to the partnership was 77 million for the quarter, a decrease of 43 million compared to second quarter 2014. The decrease in net income was primarily due the aforementioned decrease in gross margin and increase in operations and maintenance expense, and depreciation and amortization expense. Adjusted EBITDA was 197 million for the quarter. A decrease of 14 million compared to second quarter 2014. The decrease in adjusted EBITDA was primarily due to a decreased in commodity prices impacting gross margin and increased operations and maintenance expense. Distributable cash flow for the quarter was 135 million, a decrease of 24 million compared to second quarter 2014. The decrease in DCF is primarily due to lower EBITDA and higher adjusted interest expense in the quarter. Finally, expansion capital expenditures were 264 million for the quarter compared to 156 million for the second quarter of 2014. The increase in expansion capital expenditures was primarily driven by 80 million acquisition of natural gas gathering assets from Monarch Natural Gas and continued gathering and processing infrastructure build-out in the SCOOP. Also, as Pete mentioned the Board of Directors for general partner did declared a quarterly cash distribution of $0.3106 the distribution will be paid in August 13, and unit-holders of record if we close the business on August 12. Now I would like to talk a little bit about the assumptions we used to develop our outlook. Enable continues to see increased producer activity, Ark-La-Tex and Arkoma basins for [indiscernible] and an increased demand for natural gas transportation services. Enable’s outlook is based on current estimates our producer volumes and transportation storage customer demand. We are constantly in discussions with our gathering and processing customers and this guidance reflects those discussions as well as our old internal reservoir analysis, strong producing results and Enable’s core areas of operation have accelerate capital needs and resulted in an increase 2015 capital outlook. Enable expects contracted expansion capital to grow, where time is volume certainly grows and additional opportunities for balance premium or structure develop. Finally our natural gas NGL and crude oil price assumptions for outlook are listed at the bottom of the slide, focusing on 2016 we’re expecting prices for natural gas to be in the low $3 range and crude to settle into $55 to $65 range. We expect to continue to see new opportunities along our footprint with this price scenario. Turning our financial and operational outlook. We anticipate gathered volumes of between 3.2 and 3.4 TBtu per day with 2015 versus an increase from our previous guidance, it is driven by strong producer activity in the Anadarko basin. For 2016 we anticipate gathered volumes between 3.4 and 3.8 TBtu per day. We anticipate process volumes between 1.7 and 1.9 TBtu per day with 2015, which is unchanged from previous guidance. The 2016, we anticipate process volumes between 2.1 and 2.4 TBtu per day it reflects continued rich gas drilling activity and a new 200 billion cubic feet per day plant in Grady county Oklahoma that is expect to be in service in the first quarter of 2016. We anticipate crude oil gathered volumes to 8,000 barrels per day and 12,000 barrels per day in 2015, which is a slight decrease over a previous guidance. This decrease is driven by lower forecast activity on our Nesson system as well as some producer shut-ins. 2016 will be the first year to both crude systems are in service and we anticipate crude oil gathered volumes will increase in 2016 two between 18,000 and 22,000 barrels per day. 2015 adjusted EBITDA guidance remains unchanged from our previous guidance, but we believe actual results will be at the low end of that range. For 2016, we anticipate adjusted EBITDA between 850 million and 930 million and for 2017 we anticipate adjusted EBITDA of between 900 million and 1.5 billion. Our increasing EBITDA is driven by strong business growth including significant growth in gathering and processing volumes as well as strong focus on cost management. This growth is generated through organic opportunities and without any M&A activity. Our distributable cash flow guidance for 2015 remains unchanged for previously guidance, but we believe actual results will be at the lower end of the range as well. The 2016, we anticipate distributable cash flow of between 590 million and 650 million. We continue to focus on reducing over net expense were necessary and remain mindful of maintenance capital spending, we’ll never compromise on safety or reliability but continually review our maintenance spending for cost saving opportunities. As a result of EBITDA and BCf growth we are projecting current distribution growth of 3% and 7% through 2017 at a one-times or greater coverage ratio. Now turning to our next slide look at expansion capital for 2015 from 2017. In total, we are projecting potential were up to 3.6 billion and growth capital spending over this period. Contracted expansion capital is capital associated per contract and acreage dedications. For 2015, we project contracted expansion capital is between $700 million and $900 million, which is increase over our previous guidance and this result accelerated capital, growth capital result strong producer results. For 2016, we project contracted expansion capital of 700 million and 900 million and for 2017 we project contracted expansion of between $200 million and $500 million. Contracted expansion includes capital for gathering, compression, processing infrastructure, support growth SCOOP, STACK, Northwest Cana, Greater Granite Wash and Bakken plays and it also includes capital away that’s an EGT expansion. We continue to see reductions in costs associated with capital projects and some cases much as 20%. And those savings are included in these numbers. Identify opportunities for projects in negotiation and we project there will be up 1.2 billion and identified opportunities 2015 to 2017. Finally, I’d like to take a moment to review Enable’s fee-based and hedge margin. Enable continues to target fee-based contracts on a firm basis with possible, we have seen success in capturing more fee-based opportunities in 2015 on the G&P side of the business and Enable also its contractual provision with some of these contracts to protect against low commodity prices, look low commodity price environments and volume decreases. Turning to commodity sensitivities for the third quarter, fourth quarter 2015. We anticipated 10% change in natural gas and enterprises would results in approximately $4 million change in gross margin or 10% change in natural gas liquids and condensate prices excluding ethane would result in approximately $2 million change in gross margin. The 2016 commodity sensitivities we anticipate 10% change in natural gas and ethane prices would results and approximately $18 million change in gross margin or 10% change in natural gas liquids and condensate prices excluding ethane with result and approximately $5 million change in gross margin. The pie charts at the bottom of the slide shows are fee-based market profile for 2015 over 2016. The remainder of 2015, we expect with 91% of our gross margin with fee-based or hedge. Well in 2016, we expected 83% of our gross margin is fee-based or hedge at this time. We’ll continue to layer on hedges for 2016 and we expect to see this hedge proceedings grow. This concludes my remarks. Now like to turn the call back over to Pete.

[Peter Delaney:]

In closing, I want to highlight why we believe Enable’s compelling investment opportunity. First a record of consistently delivering distribution growth since our IPO. Our now second quarter 2015 distribution increase and outlook for 3% to 7% distribution growth in 2017 in addition Enable we are currently not being in the general partner distribution which means near-term distribution growth accrues solely to the limited partner holders. Enable also had a substantial number of subordinated units outstanding around 50% of our total outstanding. Enable had a large scale integrated assets and quality high returning basins of long-term relationships with high quality customers, Enable has also a favorable margin profile with significant transportation storage business as well as significant fee based gathering of process margin. We expect that 91% of margin for the remainder of 2015 and at this stage 83% of our margin for 2016 will be fee based or hedged. As you know Enable has investment grade ratings, substantial liquidity of sponsors who outlined our long-term bank duration and finally Enable who has the integration of our legacy systems and organizational restructuring completed earlier this year it positions us to deliver on lower O&M costs in 2016 and realized further reductions in gathering and processing capital costs. The strength Enable is well positioned to deliver strong returns to our unit-holders. With that I would like to open the call up to your questions.

[Operator:]

The floor is now opened for questions. [Operator Instructions]. Our first question comes from TJ Schultz with RBC Capital. Your line is now open.

[TJ Schultz:]

Hey, guys. I appreciate all the guidance. I guess I am going to start on the CapEx. If you look at contracted expansion CapEx over 2016 and 2017 I think the range is somewhere between $900 million to $1.4 billion at the end. So if you could just give some color on what trend due to the low end versus high end of that contracted CapEx range? And then just any color if we think about that $1 billion or so of contracted capital, what portion is focused on the SCOOP and STACK and what is potentially allocated for transport and storage or elsewhere?

[Rod Sailor:]

A lot of, to pick the last part of the question first – a lot the contracted expansion is really targeted on the GMP side of the business. We have done a little bit of P&S [ph] in there, but it's primarily the growth that we are seeing along our header system and we continue to be very successful in attracting new customers and again we are the largest provider infrastructure in the Anadarko basin. So along on that is targeted for that area for additional processing capacity. I think for us to be at the lower end of that range would really take some provisional pull back as we are -- again as we have talked about in the call we have to accelerate some of our '16 spending into '15 and -- in the '16 to meet what we see this increased demand again production results continue to be very-very favorable around that area and the gas seems to be much richer -- richer than we anticipated.

[TJ Schultz:]

Okay. Good. And then I know you had some allocated there for identified opportunities as well. Is any of that related to the Meramec? We've seen strong results out of the Meramec, I know you're supporting the customer here. If you could just comment on rig activity around that acreage and what the potential is to do more there if that play continues to work like we've seen. And then just comment on generally what are some of the other identified things that are not necessarily contracted yet, maybe some of the NGL transportation as well.

[Rod Sailor:]

I will take the identified opportunities and then maybe Paul might want to speak to the Meramac. I don’t want to put him on the spot. The identified opportunities, some of that is based on current estimates of producer demand it is also somewhat risk adjusted that we have talked about in the past. There will need to be some residual gas takeaway capacity coming out of that area. So some of that -- to that potential, we will continue to look at as we have talked about NGL opportunities for project in negotiations and we project it up, it could be up to [indiscernible] control in amount of NGL barrels out of that region and so there would be some takeaway opportunities identified there and again we just continue to be very successful of citing up new customers in and around that area. As Paul mentioned in his remarks that it's a potential for expansion at the Bakken systems, potential activity up there, so of those times and items were down in the identified opportunities line item.

[Paul Weissgarber:]

I would say on the Meramec, we are very impressed with some of the results, some of our producer customers are seeing there, there is continued focused there, one other things, we’ve noticed through this downturn is actually allows a number of our producer customers to focus even more and definitely on fewer areas and because they are doing that, they are actually putting more technical capabilities to work on fewer areas and they are actually making better wells, they are concentrating their efforts and we are the recipient as a big holder of dedicated as well as I think system and exposure is decrease their efforts and actually see some greater successes.

[TJ Schultz:]

Okay. That's helpful, I guess just turning maybe the M&A a little bit, just any thoughts on M&A market right now I know you guys are busy in Anadarko and as you have such a large presence there, is there opportunities to consolidated further within that play, or just generally kind of thoughts M&A maybe potentially stepping out further?

[Rod Sailor:]

I’ll take that and the answer is yes, I mean we continue to look for opportunities in a longer our footprint and in fact the Monarch acquisition was when we looked that was opportunity get us closer to customers that we are dealing with in the heart of our system and extend our reach out there, I would say that one of our stated growth again is new basin entry and that may well be accomplished through some M&A I would say what we’ve seen a significant price pull back all the commodity side, we haven't yet seen, I think sellers are still have a maybe a more inflated view of what answer or although I would say that we’ve seen a couple of opportunities processes I got that on whole, so maybe we’ll start to see some rationalization in that market. But I would say we’re very, we remain very active and looking at opportunities not only along our system but in targeted basins that we like get a presence here. So we remain that cautiously optimistic that we’ll find something that will meet our investment criteria in our growth objective on the M&A front.

[TJ Schultz:]

Okay. Thanks. Just last one, if you could just comment on the management turnover -- any comment there and then how you expect the transition process there to play out.

[Rod Sailor:]

Well, I think you are referring to my interim position, as I mentioned my comments, the researches under way as we announced and going well we’ve identified candidates as a committee, its three person committee, three people from Enable Board or we’ll be start an interview process and we are here to continue to drive things forward to be here to help the transition to new CEO, which we would expect to occur later this year.

[Operator:]

Our next question comes from Ali Agha with SunTrust. Your line is now open.

[Ali Agha:]

Thank you good morning. I wanted to just get a sense from you on the visibility/confidence level currently that you seeing on this ‘16, ‘17 forecast, for example I think your crude oil assumption seem to be higher than where the forwards are right now, I just wanted to also get a sense from you on how comfortable or confident you are based on what you are seeing out there for ’16, ’17?

[Peter Delaney:]

I’ll start with Rod that as – Rod went through CapEx forecast and I know you heard from may our little lengthy comments at the beginning, we see a lot of activity of course in our areas of where you expect to see the strength and SCOOP again, with the pull back commodity prices, you heard say several times, we really seen the producers high grade or portfolio that high grade seems to be in our footprint and are really going great results and as well we are seeing, renewed activity and some of the lean gas areas and as we see the normally occurs, we’re seeing a change in ownership and some important areas where -- areas of acreage dedications and there is buying into and associated with those transfers and acquisitions we expect things to ramp up. So we continue to see a lot of opportunities, we continue to be successful pursuing new dedications. And again we set down our growth distribution in response to and as part of our restructuring to be able to rig a shift for running in this commodity environment and we are continuing to do so. So I feel pretty good at this point in time. Rod?

[Rod Sailor:]

I think you have covered it. For what we are currently seeing I think we have pretty good. I think we feel good about '16 but pretty good about '17 spend.

[Ali Agha:]

Okay. Secondly -- on the reports on potential M&A prospect that maybe I look at. To the extent that's something that's fit and you are able to execute. Should we think of that essentially fitting in within 3% to 7% distribution growth target or can you see a scenario where that could cause you to perhaps increase that target for the next couple of years.

[Peter Delaney:]

Well, it is -- I will comment on that. Of course we would love to be able to do M&A transaction allow us to that accretion that would move our range up. I think our expectation that we probably, we will remain within the range, distribution range that we provided. One of our objectives obviously is to basin diversity and to provide other areas of growth and Anadarko, so we would love to really focus on diversity, but probably expect to remain in the 3% to 7%.

[Ali Agha:]

Got it. And then last question, can you also remind us on the expansion capital, what are your return expectations for that capital investment?

[Peter Delaney:]

Yes. I think we have consistently said we try to elect the target kind of a mid-teens unlevered IRR, I would say that we are in a very definitive environment, a lot of this capital has been spent along our system. So you can see that - down to a lower teens return. And that's kind of what we target is that 15% and we have been seen returns on both sides of that.

[Ali Agha:]

Yes and lower teens you think is still doable in this environment.

[Peter Delaney:]

Yes.

[Ali Agha:]

Thank you.

[Operator:]

Our next question comes from Gabe Moreen with Bank of America Merrill Lynch. Your line is now open.

[Gabe Moreen:]

Hey, good morning everyone. Given the choppiness I guess in MLP markets, just wondering in terms of financing plans, clearly you've got a really good balance sheet particularly compared to some of your peers. Just wondering how high you would be willing to go in terms of leverage metrics to fund the CapEx through this year and next?

[Rod Sailor:]

This is Rod. I will pick that. I think we have tried to consistently say that it is very important to us and we would love to protect that. If you look at what's out there, what agency kind of targets 3.5 and one targets 4 so we are going to live in that range. We will continue to have dialogue with the agencies, but we have said would we stretch for the right opportunity, yes, we would, but we wanted to get back down to kind of living in that 3.5 to 4 times range. I mean I think 3.5 would be a great place to be at, again this - large environment to see it continue to pick up a little bit.

[Gabe Moreen:]

Thanks Rod. And then, follow-up question I guess on the commodity sensitivities of some of the hedges you got on for 2016, is it fair to say that hopefully as commodity prices hit your assumed ranges for 2016 on a forward curve bases that you will be active in terms of hedging that exposure out? How should we think about that?

[Rod Sailor:]

I think we have said in the last call - couple of meetings that we will look as '15 rolls off would be trying to hedge into '16 next quarter. We have got some nice hedges on recruit side right now for '16 and it might be a little bit more on the natural gas side, but you are actually correct. We have targets out there that we set and as we get those and we will - we are also constantly readjusting more prices -- we need to be, we want to make sure that when we get into '16 that we have got a high level of certainty around distributable cash flow.

[Gabe Moreen:]

Got it. And then, last question for me and apologize if you covered this already. But I'm just trying to understand and reconcile the EGT expansion with the diminished capacity commitments I guess that you talked about also in the press release. Is that just a question of where it is on the EGT system or is it also a question of the additional contracts soaked up which you might have lost some capacity of late.

[Paul Weissgarber:]

Well, this is Paul, let me try to address that and the question is not exactly clear to me, but we did run this open season and we are moving forward with expansion associated with the open season. Some of that open season also allowed us to re-contract some of the volumes as well. So we could potentially have, you talked about staff rolling off, our line CP is a big part of our system and we have some roll-off there with certainly contracts. But we reloaded with respect to this open season and we continue to see strong demand on different parts or system.

[Operator:]

Our next question comes from the Neel Mitra with Tudor, Pickering & Holte. Your line is now open.

[Neel Mitra:]

I was wondering if you can maybe delineate some of the producer activity among the Anadarko Basin. I know this SCOOP is doing very well, but could you maybe going to more detail on growth or activity in the Granite Wash, STACK, Cleveland Sands et cetera?

[Paul Weissgarber:]

Yes, this is Paul. Let me just touch on some of this and I might refer you to offside to chose our system and some of the rig activity around different parts of our system. If you go to the kind of sticking in the Anadarko area up to the Northwest part of the system. We’re still continuing to structure producers doing work in the Granite Wash certainly the Cleveland Sands are real target there this Monarch acquisition we may what’s extends our system Westerly, Jones energy is still active over there and again they’re targeting the Cleveland Sands over in the Texas Panhandle. So we continue to see high level of activity there, if you kind of moved easterly, then, kind of grew that Granite Wash. Again continue high level of producer activity one independent there that we just or in the process of entering into another agreement what expanded service to them is they got very active drilling program there and we’ll putting in more compression and further building out our system. If you move further easterly and kind of southeasterly getting into the Cana area producers are seeing great results in the Cana area growing the sales and a lot of activity and if you look at those economics I know were producer customers are just pleasantly surprise what a great return or getting out those wells are rich production associated with that. And then as you move further southwesterly, you are starting to get all SCOOP play itself and again just seen dynamite results we already talked about continental and you can look what they talk about publicly with the Poteet pad and the ability of a pad to producers much as 150 million cubic feet a day of natural gas was just extremely-extremely rich gas. So I’d say with respect to that part of our system and now moving back to the Ark-La-Tex or the Arkoma. But again we’re seeing a lot of strong activity and continued interest. Neil, is that helpful.

[Neel Mitra:]

That’s very helpful, thank you. Second question I had was with activity in the SCOOP. The processing volumes going to be more commodity base tops or are you going to be able to negotiate more fixed fee contracts?

[Rod Sailor:]

We clearly have a desire to add more work XP and we’re possibly we’ll do that. To the extent we already have acreage dedications those will roll up under current contracts, which are predominantly POP contracts.

[Paul Weissgarber:]

Yes. We are in the process as well with another producer in the area that just have a nice acreage block and its new dedication to us. And that’s more of the fee-based contract versus a percent of proceeds. So as we are signing that additional volumes, we are doing that more under a fee-based center.

[Neel Mitra:]

Got it. And then lastly can you just remind us with your updated guidance when you expect for Enable to be in the GP splits for the first time?

[Paul Weissgarber:]

Yes. Sometime probably late next year.

[Operator:]

Our next question comes from Ted Durbin with Goldman Sachs. Your line is now open.

[Ted Durbin:]

Thanks. Can we talk about the guidance for '16 on the gathered volumes side or to be -- I guess what's the right count or where the assumptions are heading that number? So it looks like year-to-date it is - around just 3-2 so how do we get to the midpoint into the '16 number.

[Paul Weissgarber:]

Yes. I think again as we start to see some of this head development on certain areas you are going to see - fairly significant ramp up on volumes. We have mentioned some of the activity on those - are very-very sizeable. Again a lot of that volume growth is a we have said is coming from that kind of development in our SCOOP play and some reactivity in both of those -- and the STACK area.

[Ted Durbin:]

Okay. Kind of on a housekeeping question, but on the process volume as mentioned, is there - injection there or not just remind us some of your assumptions there?

[Paul Weissgarber:]

Yes. I mean economically prices retain you would be in rejection.

[Ted Durbin:]

In '16 as well?

[Paul Weissgarber:]

Yes.

[Ted Durbin:]

Okay. And then just lastly you sort of alluded to the cost savings, I guess from here, call it from the second quarter results onwards, can you just quantify capital or operating costs -- you are looking for.

[Rod Sailor:]

As we have previously mentioned, we think next year we will see a reduction in I would say $20 million the reduction in force that we had earlier this year, but we are starting to see significant reductions in capital. I think in my remarks I have pointed to reaching as much as 20% reductions on new compression and the pipeline associated with those gathering facilities. So we continue to see a reduction in costs of both the capital and the OEM side and we are baking that through our numbers.

[Ted Durbin:]

Great. I will leave at that. Thank you.

[Operator:]

And we will take final question from Faisal Khan with Citigroup. Your line is now open.

[Faisal Khan:]

Thanks. Just going back to the last question a little bit on the 2016 outlook for the gathered volume. What do you assume for the -- we really had one out of that for your outlook?

[Rod Sailor:]

Yes. I would say we continue to see volume declines I the Haynesville. Again that's an area that we have connections under minimal volume commitments. I would not want to leave that well, we have said a couple of times on the call I think in remarks and questions that we have seen that's where the areas where we have seen producer acreage change and we expect to start to see an uptick in volumes from that. Again I think new pictures are coming in. I have indicated that - return in this kind of gas price environment. So that's an area that we continue to see renewed interest in.

[Faisal Khan:]

Okay. Got it.

[Paul Weissgarber:]

I would just add to that Rod and Faizal, what is -- from our producer customers over there is that the Haynesville make very right for retracking. We make it income the timeframe or when those wells were drilled and how advanced tracking technology has come up since that time period. So we are optimistic and we feel very good about the infrastructure we already had in place and then our ability to leverage that is additional reserves in development.

[Faisal Khan:]

Okay. Got it. And then just on the condensate stabilization projects you guys are putting into service. Is that legally certified those assets?

[Paul Weissgarber:]

Yes. We are putting in distillation columns and we believe that the condensate will be going through a distillation process and will followed by that as exportable.

[Faisal Khan:]

Okay. And then, on the coverage ratio, you talked about 1 times or greater, but given the inherent risk in some of the contracts you have and some of the volume exposure you have, does it make sense to target a coverage ratio higher than 1.0 times, maybe 1.2 times? I mean I -- look at the -- I look across the group at the companies like yourselves that have the commodity price exposure, and there's certainly a premium for those companies that maintain a higher coverage with -- given exposure to commodity prices. I'm just trying to understand philosophically how you guys are thinking about this.

[Rod Sailor:]

Yes, that's a target and range and I think we have at this point, say that we would like to have a higher coverage ratio and we came out with the higher coverage ratio and some of that got ate up through current commodity price environment, so we would look to grow that we kind of put that guidance out here again as some guide range on distribution from significant, we want to set a floor on our coverage ratio but again one of our goals is to particularly drive strength in our coverage ratio.

[Faisal Khan:]

Okay. And then just as you guys kind of go to the search process for a new CEO, I wonder if you guys have thought about potentially collapsing the general partnership and the IDR structure into the limited for DLP, simply you guys that would certainly improve your, the perception of your cost of equity overtime and certainly that would give a sort of new manager sort of interesting sort of avenue of look at the company over long period of time, so I’m just trying see that some of you guys have discuss, would you consider it I mean now would be a good time to do it, given that you are serving a lower growth phase 37% versus the double-digit growth that you guys outlined last year, so?

[Rod Sailor:]

That's right, the executive search community helped us on getting the right individual for the CEO job, now we’re talking about structural changes and of course that will discussion that would really be involve a lot sponsors and I think its all -- I just want to say about this time.

[Faisal Khan:]

Okay. It is a theme like there is sponsors are getting much credit for the general partnership as it stands right now so, I’m just trying to think about as you guys have thought about to how to improve the overall cost equity of the franchise over time and may be this is one way to do it to set you apart from everybody else.

[Rod Sailor:]

Yes, we’re just [indiscernible] environment and obviously the lot of discussion about oil commodity environment those and what the actions of these prices and again and now we’re all long term focus and we always looked at value and value recognition, we’re very much focused on that.

[Operator:]

I will now turn the floor back over to Mr. Delaney for any additional or closing remarks.

[Peter Delaney:]

Thank Kevin I just want to close by recognizing all of our Enable team members for their continuing engagement around safety and their hard work, its really result in our ability to report on the accomplishments in the quarter that we talked about today, also want to thank all of you for listening and for your interest in Enable. Thank you and have a great day.

[Operator:]

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