EnLink Midstream, LLC
Q3 2014 Earnings Call Transcript

Published: 9 Nov 2014

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the EnLink Midstream Partners LP Third Quarter 2014 Financial Results Conference Call. During the call, all participants will be in a listen-only mode. After the presentation, we will conduct a question-and-answer session. (Operator Instructions). Please note that this call is being recorded today Wednesday, November 5, 2014 at 10

[Jill McMillan:]

Thank you Jeremy and good morning everyone. Thank you for joining us today to discuss EnLink Midstream’s third quarter 2014 results. With me on the call are Barry Davis, President and Chief Executive Officer; Mike Garberding, Executive Vice President and Chief Financial Officer; Steve Hoppe, Executive Vice President and President of the Gathering, Processing and Transportation business and Mac Hummel, Executive Vice President and President of the Natural Gas Liquids, Crude and Condensate business. We issued our third quarter 2014 earnings release this morning, and we filed the 10-Qs later today. To accompany today’s call we have posted presentation slides and the earnings release on the investor relations portion of our website. If you would like to listen to a recording of today’s call, you can access a webcast replay on our website. I will remind you that any statements about the future including our expectations or predictions should be considered forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. And we undertake no obligation to update or revise any forward-looking statements. We will discuss certain non-GAAP financial measures and you’ll find definitions of these measures as well as reconciliations of these non-GAAP measures to comparable GAAP measures in our earnings release. We encourage you to review the cautionary statements and other disclosures made in our SEC filings specifically those under the heading risk factors. In a moment I will turn the call over to Barry who will highlight management’s perspective and a summary of our financial results for the third quarter. Steve and Mac will then provide an operational overview. Finally Mike, will review certain financial results from the quarter and in particular those topics that relate to our balance sheet and cash flow. I would also like to remind everyone of our upcoming Analyst and Investor Conference which will be held in New Orleans in 2015 on March 30 and 31. We issued a save the date last week and we will send more information out soon. I will now turn the call over to Barry.

[Barry Davis:]

Thank you Jill and good morning everyone. We’re excited to have the opportunity to communicate with you this morning about the progress we’re making at EnLink Midstream. We are proud of the exceptional level of execution across all of our businesses and current operations and growth. Earlier this year we laid out four avenues of growth which will enable us to reach our goal to double the size of EnLink Midstream by the end of 2017. We laid out a clear plan and are executing on that plan with tremendous progress made in the third quarter. We recently announced the completion of approximately $1 billion of organic growth projects, which include the Cajun-Sibon expansion project in South Louisiana and a portion of the Bearkat project in West Texas. And just over the last 90 days we’ve announced projects and acquisitions totaling approximately $1 billion in additional new capital utilizing each of our four strategic growth avenues. If you turn to page four of the presentation we posted today on our website you can see an illustration of these efforts. The projects we’ve announced include an approximate $200 million drop down from our GP, a $235 million strategic acquisition in South Louisiana, $250 million expansion project to enhance our ORV condensate position, a $200 million expansion of our West Texas position to serve Devon and other producers and over $50 million in expansion of our Cajun-Sibon project to serve Marathon. We were excited about these opportunities not only for the good returns and the near-term impact it will make but also long term as they increase our strategic footprint for future growth. These projects represent key steps that will help us achieve our goal of doubling the size of the company by the end of 2017. Now let’s briefly walk through the four avenues of growth. Our first is to take advantage of drop-downs from our GP and Devon into the MLP and you can see an outline of our drop down plans on page five through seven of the presentation. Two weeks ago we announced ENLK’s acquisition of E2 from our GP for approximately $193 million. This transaction marks the first drop down from our GP ENLC to our partnership ENLK. The E2 drop down is just the first of several drop-down opportunities. These include Devon’s Victoria Express Pipeline in the Eagle Ford which we expect to happen in the first half of 2015. The Access Pipeline in Canada and the 50% interest in the legacy Devon Midstream assets currently owned by ENLC. Our second avenue of growth is maximizing our relationship with Devon by responding to Devon’s Midstream infrastructure needs. As part of our expansion projects in the Permian basin we announced a new 120 million cubic feet a day natural gas processing plant, multiple low pressure gathering pipelines and a new 23-mile high pressure pipeline. This project is supported by a long-term fee based agreement with Devon to provide gathering and processing services for over 18,000 acres under development in Martin County, one of the hottest spots in all of the Permian Basin. The entire expansion project is expected to cost over $200 million roughly doubling our investment in the Permian to over $400 million. We’re also excited about the additional opportunities in other areas where Devon is growing their production including the Eagle Ford, Oklahoma and the Delaware Basin as well as possible new basins that Devon may develop in the future. Our third avenue of growth is the expansion of our core businesses and organic growth projects. In September we announced the completion of the Cajun-Sibon expansion project in South Louisiana and a portion of the Bearkat expansion project in West Texas. Together these projects represent approximately $1 billion of capital investment starting back in 2012. We will continue to take advantage of the additional growth opportunities from our expanded platform of assets. Moving to the Utica Shale, in August we announced plans to construct a new 45-mile condensate pipeline and six natural gas compression and condensate stabilization facilities that will serve several major producers. This project will cost over $250 million, builds on our strategy in the Utica and Marcellus shale plays where we are primarily focused on creating a logistics network to stabilize and transport condensate and crude oil. Also in August, we announced our new 50/50 joint venture with a subsidiary of Marathon Petroleum Corporation to construct an NGL pipeline along the Gulf Coast in Louisiana. This project also represents the next phase of growth for our Cajun-Sibon expansion project and further deepens our relationship with Marathon. The opportunity to grow through the expansion of our core businesses is due to the strategic location of our assets and we remain committed to identifying projects in areas that we know well. Our fourth avenue for growth is mergers and acquisitions and we remain active in sourcing opportunities that complement our core businesses at reasonable valuation. We recently closed the acquisition of Gulf Coast Natural Gas Pipeline assets from Chevron for approximately $235 million. These assets support our growth strategy by expanding and strengthening in our franchise position in Southern Louisiana, to take advantage of the growing demand in the industrial refining and petrochemical marketplace. These high quality assets will complement our existing business and provide us with opportunities to serve a wider range of customers with an expanded range of services. We will continue to pursue acquisition opportunities, again particularly in areas where we can expand on our existing platform and where Devon is active and we will remain disciplined in our approach. To recap, in the third quarter, we completed approximately $1 billion of organic growth projects which include the Cajun-Sibon expansion project and a portion of our Bearkat processing complex. And just in the last 90 days we’ve announced an additional $1 billion for projects utilizing all four of our growth areas. These are exactly the types of projects that will help us reach our goal of doubling the size of the company by 2017 and in our opinion they have higher returns and lower risk than what we see being done in the M&A market today. We’re confident we will achieve this objective because we are in a great industry environment. The impact of the shale oil and natural gas revolution is nothing short of a game changer for our industry. In fact, a recent study by The American Petroleum Institute indicated approximately $890 billion of spending on midstream infrastructure over the next 11 years and we are perfectly positioned to take advantage of this dynamic in robust markets. Looking to the future, you’ll see that there is a lot of activity around our core areas and Devon’s core areas of operations which is where you should expect to see EnLink continue to grow. And with approximately 95% of our gross operating margins being generated from fee-based contracts we can offer our unit holders a sustainable and predictable stream of cash flow. Before I turn the call over to Steve let me quickly review EnLink’s third quarter financial performance. The partnership adjusted EBITDA for the third quarter was $111.3 million and we raised distributions by $0.005 to $0.37 for unit holders of ENLK. The General Partners cash available for distribution was $62.2 million and we increased distributions by $0.01 to $0.23 per unit holders of ENLC. I will now turn the call over to Steve.

[Steve Hoppe:]

Thank you Barry and good morning everyone. We continue to see significant growth opportunities in the gas business, both through our relationship with Devon and the strategic location of our assets. I’ll start with a summary of our West Texas operations in the Permian Basin. As we had announced in September, the Bearkat Natural Gas Processing Plant Project is mechanically complete. We also completed 30 miles of high pressure pipeline that gathers gas for producers in Glasscock and Reagan Counties. We started operations of the gathering system and processing plant and we expect the volumes to ramp-up through this year and into 2015. Construction on an additional 35 miles of high-pressure pipeline which will further provide gas gathering capacity for the Bearkat Natural Gas Processing Complex is underway. The pipeline will provide gas takeaway for constrained producer customers in Howard, Martin, and Glasscock County and it’s expected to be operational in the fourth quarter of 2014. The second phase of our Permian expansion project includes a new $120 million a day natural gas processing plant which we have named Ajax. It also includes multiple low pressure gathering pipelines and a new 23-mile high pressure gathering line. The new rich gas gathering pipelines are expected to be operational in the first quarter of 2015 and the Ajax processing plant is expected to be operational in the second half of 2015. Once complete the Bearkat gathering system will have the ability to increase its capacity to over 400 million cubic feet per day. You can see an illustration of our footprint in the Permian Basin on page eight of our presentation. West Texas is a primary for our additional growth and we recently partnered with our liquids group to repurpose our Mesquite terminal and rail facility to take advantage of opportunities to treat off-spec NGLs and condensate in the region. This project is supported by long term fee-based contracts with an active gathering and processing company. The Permian remains an important growth area for EnLink and we’re going to continue working with this prolific region with Devon and other producers on developing gas, crude oil and NGL projects that will provide gathering, processing, transportation and treating services. We’re confident that our footprint in this region will be an integral part of EnLink’s success moving forward. In North Texas, we remain focused on optimizing our existing assets. During the quarter our gathering volumes averaged approximately 2 billion cubic feet per day and our processing transportation volumes were over a 1 billion cubic feet per day. While we continue to see declines in produce volumes in the Barnett Shale, we’re focused on offsetting these declines through the optimization of our assets future consolidation opportunities and serving new customers. As a reminder, we’ve 10 year fixed fee contracts with significant 5-year volume commitments in North Texas for both gathering and processing. In Oklahoma we’re seeing an increase in producer activity around our assets. The Cana plant continues to operate near its capacity which is the result of Devon successful Cana Woodford drilling and re-completion program. Devon recently announced plans to increase their operated and non-operated rig count in the Cana Woodford to 10 rigs by the first quarter of 2015 and we’re working with Devon and other potential customers on expansion opportunities of our Cana system and other areas in the Anadarko basin. We’re also exploring gathering and processing opportunities around our Northridge assets. EnLink’s gas business is well positioned for ongoing success and we’re pursuing initiatives to deliver on our growth strategy including opportunities to connect our assets in Texas and Oklahoma that will efficiently utilize existing processing capacity and give us capability for serving new customers. And now I’m going to turn the call over to Mac.

[Mac Hummel:]

Thanks Steve and good morning. It certainly has being eventful in the liquids business unit over the last 90 days. We announced significant growth projects and acquisition and a drop down that set us up for long term growth in both Louisiana and the Ohio River Valley or ORV. Starting with Louisiana in late September, we announced that the Cajun-Sibon NGL expansion is operational. We consider Cajun-Sibon to be a game changer for Louisiana NGL customers and for EnLink. You’ve heard me talk previously about the importance of our assets being in the right neighborhood and we believe that’s absolutely the case with our Cajun-Sibon expansion. Given that the NGL industry as supply long in Mt. Belleview and short supply in South Louisiana we’re able to bridge that imbalance with our Cajun-Sibon facilities. During the third quarter we experienced a planned shutdown at the Riverside fractionator as we completed construction of the Cajun-Sibon expansion which resulted in reduced volumes throughout the quarter. The reconfigured Riverside fractionator, the new Plaquemine fractionator and the expanded Cajun-Sibon pipeline are now all operating. We’re happy to report that the startup of the facilities was accomplished safely and as expected. In fact, as I think through the progress of the startup, it’s really been phenomenal. The facilities have performed remarkably well and our operations technical and commercial groups have shown what great teamwork and capability can accomplish. Volumes have continued to increase since start-up and have reached highs succeeding 85% of fractionation capacity and 90% of pipelines capacity. In late September, we also announced an agreement with Chevron to acquire Gulf Coast Natural Gas Pipeline assets in South Louisiana. You can see a map and information on this acquisition on page 11 of the presentation. The natural gas assets include approximately 1,400 miles of pipelines spanning from Port Arthur, Texas to the Mississippi River Corridor and approximately 11 Bcf of working capacity in three South Louisiana storage caverns. We value these assets at around 10 times our expected near-term adjusted EBITDA for the existing business. The Chevron transaction demonstrates our M&A growth strategy to acquire systems in and around our current asset base where we can take advantage of synergies, optimization and bolt on opportunities. These assets combined with our existing Louisiana assets provide EnLink with tremendous optionality to provide midstream service to Southern Louisiana’s growing marketplace and as part of the acquisition EnLink also operates and manages title tracking at the Henry Hub. We are currently evaluating the future use of these assets including the option to convert certain pipelines to crude or NGL service over time. Now that the acquisition is closed, we plan to focus on the integration of the pipeline system and on realizing the many opportunities that these strategic assets can provide us. And finally in Louisiana, we also announced a joint venture and term supply agreements with Marathon. You can see a map and information on that transaction on page nine of the presentation. Under the supply agreements, EnLink is providing Marathon with butane and gasoline supplies that will feed a new joint venture pipeline under development. Services under this supply agreement have already commenced and will continue through the term of the joint venture. For our joint venture, EnLink is responsible for managing the construction and future operation of the 30 mile NGL pipeline from our Riverside fractionator to Marathon’s Garyville refinery. We’re already working to finalize the pipeline’s route and are procuring the necessary mitigation credit and rights-of-way. We expect the pipeline to begin operation in the first half of 2017. Moving to ORV, we continue to make progress to enhance our position for substantial growth in the Utica and Marcellus shale plays where our investment will be around $700 million by the end of next year. We’re successfully executing on our strategy to provide customers with crude, condensate and drying solutions via our truck and pipeline transportation assets through which we provide those producers access to premium rail, barge and truck markets. In ORV, we recently announced the construction of a 45-mile condensate pipeline and six additional gas compression and condensate stabilization facilities to service major customers in the region. You can see information for this project on page 10 of the presentation. This pipeline is significant for our ORV business since it positions us in the heart of the condensate production fairway. The new 50,000 barrel a day pipeline will connect to our existing pipeline in Eastern Ohio and is expected to be complete in the second half of 2015. As a component of the project we have entered into a long term fee-based agreement with the Eclipse Resources for compression and stabilization services and for the purchase of stabilized condensate to be transported in the pipeline. We’ve already begun stabilizing and purchasing Eclipse condensate volumes and moving them to market outlets with our truck fleet until completion of the new pipeline. The new gas and condensate facilities associated with the Eclipse volumes will be located in Noble, Belmont, and Guernsey counties. The facilities will capacities of proximally 560,000 Mcf of compression and approximately 41,500 barrels per day of stabilization and are expected to be complete by the end of 2015. We also recently announced the drop down of the E2 assets in ORV. This transaction marks the first drop down from ENLC, our General Partner to ENLK our Master Limited Partnership. Currently three of the five former E2 gas and condensate facilities are in service and commercial startup of the two remaining stations is expected in the first half of 2015. All five former E2 facilities are supported by long term fee-based contracts with Antero Resources. Once all of the facilities are complete and in service, they are expected to generate approximately $20 million to $25 million per year of adjusted EBITDA. With the former E2 facilities, along with the six gas and condensate facilities being built as part of the ORV pipeline project we will have 11 stabilization and compression facilities in service by the end of 2015 with total daily capacities of 60,000 barrels of condensate and 1.2 Bcf of natural gas. These investments are exactly the type of follow-on investments we expected when we initially entered the area via the Clearfield acquisition two years ago. And as we continue to develop our position in the area, we expect to experience additional bolt on opportunities. In conclusion, the liquids business unit made tremendous progress during the third quarter in support of EnLink’s goal to double in size by the end of 2017. These projects validate the strategies we’re executing in ORV and Louisiana as well as the strategic location of our assets. Simply said, we have the right assets in the right neighborhoods and we believe that our liquids business will be a key contributor to EnLink’s future growth. I will now turn the call over to Michael Garberding to review our financial results for the quarter. Thank you.

[Mike Garberding:]

Thanks Mac, good morning everyone. Before I get into the financial results for the quarter, I’m going to start with some commentary on the commodity market impacts. When we were going through the merger with Devon to form EnLink among our biggest priorities was setting up a stable, high-quality midstream company, a company that has minimal commodity exposure, stability of cash flows and a diverse base of assets that can thrive in any commodity environment. We believe we have done this through EnLink. This is why 95% of EnLink’s gross operating margin comes from fee-based contracts and we work to hedge the little direct commodity exposure we have in our business. The Devon contracts we have in place which account for approximately half of EnLink’s gross operating margin in 2014 are also a 100% fee-based with 5-year minimum volume commitments. The large majority of our contracts with third party customers are fee-based and with volumes commitments wherever practicable and finally we have good base and diversity. In short we believe our strategy is working, and positions us to be a top performing midstream company in any environment. Now for a couple reminders in our financial reporting that are consistent with the last quarters. First, the combination of Crosstex and Devon Midstream Holdings was treated as a reverse acquisition which means that Devon Midstream Holdings is the acquirer of the transaction because its parent, Devon obtained control of the partnership. Since the acquisition closed on March 7, we now have two reported quarters under our belt as EnLink Midstream and our historical numbers don’t provide much insight or relevance for analysis. Also note the EnLink Midstream Holdings which is the entity that holds Devon’s legacy midstream assets are contributed to EnLink on a consolidated basis for both ENLK and ENLC statements of operations. EnLink Midstream Holdings is 50% owned by ENLK and 50% owned by ENLC, so we provided a table in both the earnings press release we issued this morning and the ENLK 10-Q that segregates the results of operations of EnLink Midstream Holdings from the partnerships of other operations. During the third quarter, we delivered relatively flat financial performance as compared to the second quarter results just as we said we expected in our earnings call last quarter. An easy way to think about this is to start with our base business and stack growth opportunities on top. Our base business has been relatively flat however we’ve seen and expect to see declines in areas such as North Texas. We announced the completion of around a $1 billion of new projects by the Cajun-Sibon expansion project and a portion of the Bearkat natural gas processing complex. We will also spend around another $1 billion on the growth opportunities, Barry outlined in the beginning of the call. We have seen very little results from these projects yet in our year-to-date results which is why our adjusted EBITDA during this development phase has been relatively flat. However, we do expect great growth from not only the projects we have executed upon but also from additional opportunities around our core business such as Oklahoma. For the third quarter the partnership realized adjusted EBITDA of $111.3 million and distributable cash flow of $89.1 million which is down slightly from adjusted EBITDA of $101.6 million and distributable cash flow of $93.8 million for the second quarter of 2014. Gross operating margin for the third quarter of 2014 was approximately $254.2 million which is down approximately $8 million from the second quarter due to relatively slight declines in our operating segments. The decline was primarily due to the plant Riverside fractionator shutdown due to the Cajun-Sibon startup and lower gathering and processing volumes in North Texas due to temporary volumes realized in the second quarter and not in the third quarter. EnLink also received a $6.1 million payment from one of Texas Brine’s insurers in the Bayou Corne litigation. This is the first payment we have received for the Bayou Corne litigation and additional claims remained outstanding. For reporting purposes the $6.1 million payment has included EnLink’s Midstream reported income and adjusted EBITDA, but $4.7 million of the payment is deducted from distributable cash flow because that money was considered a return of capital for the pipeline replacement. Taking all this into consideration the partnership declared a distribution of $0.37 per unit for the quarter, an increase of $0.005 from the second quarter which resulted in a 0.95 times distribution coverage ratio. As we’ve stated previously we believe we will be around 1.0 times for the year. We expect fourth quarter adjusted EBITDA to increase primarily due to the startup of Cajun-Sibon expansion project and the Bearkat gathering and processing complex. We believe we are on track to exceed our guidance targets for the year of combined adjusted EBITDA of approximately $675 million on an annualized basis from the second quarter through the fourth quarter of 2014. The General Partner’s cash available for distribution was $62.2 million for the third quarter of 2014 which was down approximately $7 million from the second quarter primarily due to $5.9 million of tax expenses being booked in the third quarter. This resulted in a 1.65 times coverage ratio on the declared distribution of $0.23 per General Partner unit. Note, that the partnership is still not in the highest level of incentive distributions which is $0.037 per unit but we expect to reach that level of incentive distribution rights by the fourth quarter. We currently expect to pay around $10 million in taxes at ENLC for the year with approximately $6 million booked in this quarter. This represents a true up of taxes at ENLC based upon the updated results for the year as well as a minimal tax impact of the E2 drop downs. We also believe we will fully utilize our existing NOL by the end of this year. For the outlook for taxes at ENLC beyond 2014, the best reference is the tax slide in our 2014 analyst presentation which laid out the potential tax impact of each type of cash flow at ENLC. From a balance sheet perspective the partnership’s debt to EBITDA ratio for the third quarter was approximately 3.4 times right about where we expected it to be. We ended the quarter with about $370 million drawn on our revolver at ENLK. You may have seen that we filed a Registration Statement last week for $350 million at the market equity program which we will use to help to finance our recent growth project and acquisitions. With respect to ENLC we used approximately $130 million of cash received in the drop down of E2 to fully paid-down this revolver. As we look down the road, we believe we’re in a position of strength because we have good stability cash flows from our contract structures and diverse asset base. We have a strong balance sheet, we’ve good line of sight to additional growth through drop downs including the General Partner’s interest in EnLink Midstream Holdings, the VEX pipeline and the Access Pipeline and we have a strong sponsor in Devon that is supporting our growth. I’ll now turn the call back over to Barry for closing remarks.

[Barry Davis:]

Thank you, Mike. As you can tell we’re working hard to execute on our identified growth projects and are taking advantage of the many growth opportunities that our partnership with Devon continues to provide. EnLink is strategically positioned with a diverse geographic footprint and strong financial foundation delivering tailored solutions for sustainable growth. We will continue to drive value creation for our equity holders and customers well into the future. With that, we will turn the call over to our operator and you may open the line for questions.

[Operator:]

(Operator Instructions). And your first question comes from the line of Darren Horowitz from Raymond James. Your line is open.

[Darren Horowitz:]

Good morning, guys. Barry a couple quick questions for you, the first on slide eight with regard to your comments around growing with Devon. Obviously today we’re in a slightly different four curve for commodity prices relative to where we were when we had the Analyst Day in May and things from an economic perspective or at least net backs to producers look a little bit different for liquids. So I’m just curious as you are discussing with Devon, has anything changed with regard to their future CapEx spending plans through the drill bit either geographically or in terms of volume growth or timing? And I’m just wondering if that might have an influence or possibly a shift on infrastructure development in a lot of the areas that they are focused on whether or not it’s West Texas or the Eagle Ford or even the heavy oil stuff where a lot of the Anadarko opportunity – the Anadarko Basin that you referenced.

[Barry Davis:]

Darren, great question and one that obviously everybody is thinking a lot about right now and the first thing and you’ve heard us throughout the prepared remarks today just really emphasized the balance if you will of our position and having a great contracts under existing operations. So we think to the extent we see a down cycle here, which it isn’t clear yet that we’re going to see a downturn. We haven’t in fact in our areas of operation seen a downturn in development yet. But to the extent we do, we think that that’s what we’re built for, is to sustain those and to really come out of it on the other side in a better position than we went in. Specifically to Devon, we won’t make any comments. I think you should look to their comments this morning as to any activity levels, but we’re still very optimistic that we are in the right places. We are in the places that are going to be profitable at $80 crude. So we’re really not projecting at this point any significant changes in any of our plants.

[Mike Garberding:]

Also Devon put out a third quarter operations report this morning which specifically references their work in Martin County and talks about their first, as well results were very successful and also mentions bringing a second rig in. So some good reference material to show just what Devon’s activity is around that area.

[Darren Horowitz:]

Okay. Shifting gears a little bit to the existing assets and the opportunities set that you guys have in front of you to better optimize the North Texas and Oklahoma assets. Can you quantify the volume metric upside that you think over time you can get out of that combined asset footprint? Maybe also the associated CapEx, it would take you to reach your goals and have greater connectivity and throughput?

[Steve Hoppe:]

This is Steve. Really what we’re looking at on that is maintaining North Texas that, are flat as we said at our analyst, we’re looking to continue to, that EBITDA contribution to stay flat. And in Oklahoma, we’re looking to grow that business by about either a $65 million to $100 million in EBITDA growth over the next three years. We see those opportunities in expansions around the existing asset base and Greenfield opportunities as you are well aware in the SCOOP and the STACK plays as those continue to expand in areas where we are more competitive and we can start to grow our asset base.

[Darren Horowitz:]

Okay. And then last question for me just more along the lines of the opportunity set across the ORV assets and I can appreciate the CapEx guidance of spending $700 million by the end of next year. But I’m just curious you had referenced previously maybe the potential for a condensate refinery or additional pipelines whether or not it’s stabilized condensate or even split condensate and the ability to move gas oil out of that area. Beyond the end of next year, how big of an opportunity set do you think that could be? Because it seems like there could be a tremendous amount of production growth waiting on additional infrastructure and that could give you a very vertically integrated approach from the wellhead to the end users. So I’m just curious how that business evolves or at least the way you see it evolving over the next few years.

[Mac Hummel:]

Darren, I like the way you think. This is Mac Hummel. As we said, when we look at our ORV position at this point, we are very bullish about the opportunity to grow that business. We are starting to see increased condensate volumes on our facilities and as we ramp up both the facility size as well as the pipeline size next year via the pipeline construction and E2, we’re going to expect to see additional growth in 2015, but really we’ll see the big portion of that hitting in 2016 as all facilities are online for the first full-year. We see that opportunity branching out from where we currently are. We’re talking to other producers and other service providers about ways to expand the footprint we’ve got along the way that you were talking about and along the way of the existing pipeline and expanding that existing pipeline. So we think the opportunities are significant there. We feel really good about our position and we’re hopeful that we will be able to bring those to fruition.

[Darren Horowitz:]

Thank you very much.

[Mac Hummel:]

Thank you, Darren.

[Operator:]

Your next question comes from the line of Gabe Moreen from Bank of America. Your line is open.

[Gabe Moreen:]

Hi, good morning everyone. I will say it’s really nice not to be – to talk much about the direct impact of NGL prices on this call. A couple questions for you. One is on really Cajun-Sibon Phase II weather expectations have changed on timing or ramp up there given what has happened with Phase I, where you – you’re set now but it seems like it was a little delayed.

[Mac Hummel:]

Gabe, this is Mac Hummel again. Startup of Phase II has really gone very, very well. We started up at the end of September and so we’re just a little over 30 days into the startup and we’ve already seen a continued and steady ramp-up in volumes. We have exceeded really our expectations that we planned on in October and we have hit about 85% to 95% of capacity on those facilities already. So, I really feel very, very good about where we are at there. The facilities have performed very well and the operations team and the technical teams are really continue to work there and continue to get a feel for the expanded assets as we bring them up and operate them. And there is all the reason to be optimistic about what the future holds there for us.

[Barry Davis:]

Gabe, this is Barry, I’ll add a bit of an exclamation there. I think it is a startup that has been second to none and extraordinary results as it was described essentially we hit the big green button, we’re making spec products across the full stream on the new fractionator and have hardly a bobble since then. So maybe the law of averages does work and so on average between Cajun-Sibon 1 and Cajun-Sibon 2 we have had a terrific great startup.

[Gabe Moreen:]

Great, thanks guys. And then larger picture question just in terms of I think you are probably ahead of our, certainly our expectations and maybe the markets in terms of third party M&A not from Devon, third party I guess organic growth projects. I’m just wondering given how much CapEx spend and M&A spend you had whether that changes the equation at all in drop downs for 2015?

[Mike Garberding:]

Hi Gabe, this is Mike. It’s a good question. We’ll always look at that like we said at the Analyst Day, it’s an option for us right now as we sit today, the two drop downs we’re looking at, the 50% of Midstream Holdings which we said would happen in the beginning and then also the VEX pipeline. So those are the big ones really that we’re looking at. So, again we have the flexibility to do whatever portion of EnLink Midstream Holdings would make sense and we will look at that and give you more guidance as we proceed. But right now still we’re planning as we discussed at the Analyst Day.

[Barry Davis:]

Once again Gabe, I think you can hear the enthusiasm in Mike’s voice to just have that many knobs and levers to turn whether we are talking about timing or financing structure. We really do have lots of flexibility, but we’re not going to be passive, we’re not going to be to be too deliberate about it. I mean, we are going to get the drop downs completed as soon as practicable.

[Gabe Moreen:]

Great. Thanks guys.

[Operator:]

(Operator Instructions). Your next question comes from the line of TJ Schultz from RBC Capital. Your line is open.

[TJ Schultz:]

Hi everybody, good morning. I guess just staying there on the drops, Barry or Mike, should we expect Access or VEX ahead of the legacy midstream assets and then if you could get any more specific when you think about the legacy midstream assets at ENLC, the likelihood that you take back primarily ENLK units just to offset some of that lost cash flow.

[Mike Garberding:]

I mean I guess I will reiterate what Barry just said, it is nice to have this optionality. We have laid out a plan, but we will continue to look at that plan just because we have that flexibility. So when you think about the options, VEX is up and running this quarter and has been operating you can look at Devon earnings release today and look at what kind of success they are having in the Eagle Ford, so we feel we’re in a great position for that asset not only to take that asset but to grow that asset. We’ll try to optimize the timing of those two because the VEX pipeline could go before or after and we will look at each of those options of what makes the most sense for us. Given trying to get the growth into us just as Barry said too on EnLink Midstream Holdings when we talked about that before, we said 50% next year and 50% the year after at the beginning of both those years we’ll look at what makes sense there. If you go to our base plan when we talked about dropping EnLink Midstream Holdings from ENLC, the ENLK we did talk about under our base plan really taking ENLK units back to ENLC.

[TJ Schultz:]

Okay, good thanks. Just a couple questions on the growth projects, I guess first with the Gulf Coast Natural Gas assets, so beyond the initial investment here if you could get a little bit more specific may be on repurposing options, I guess what the primary focus points for you would be if maybe that’s ethane or ethylene distribution and then what the incremental cost would be and type of returns on that all-in capital?

[Mac Hummel:]

Yes, this is Mac Hummel again. And we continue to look at those opportunities. The transaction closed November 1 we’ve been looking at those opportunities now for several months. And really have just been unleashed to begin to talk to the marketplace about what those opportunities are. So what I would say is that you can look at what’s going on in the State of Louisiana from a NGL perspective or from a crude perspective and you can imagine that there are opportunities for midstream companies to participate in that growth. And so as we look at the footprint associated with all of our assets in Louisiana and we think about the amount of pipe we’ve got there and the ability to take full advantage of the optimization of those assets on the gas side, perhaps on the NGL side, perhaps on the crude side we’re tremendously excited. In terms of the capital associated with that, I would say it’s a little bit early to know exactly what that capital spend will be because we haven’t really focused on what the right opportunity is for us to try to execute on. But we believe the opportunities are there and more importantly we believe the opportunities are real.

[Barry Davis:]

TJ, its Barry. Let me just add a little bit there. One of the things that we really want everyone to appreciate is just the impact of having 1,400 miles of pipe dropped into the middle of what was already about 3,000 miles of pipe that we control in that area. And just together, the position that it represents is really a phenomenal position. We talk about the map affect around here and in fact early in my career I learned that any midstream development guy should be able to just talk all day off of the map. And we can and we will off of this in the coming days as we really start to imagine all of the ways that we can connect the dots associated with the opportunities in the Gulf Coast of Louisiana. We would say that what we bought for $235 million really irreplaceable pipeline and if you could replace it, it would be several billion dollars’ worth of pipe. And we also would say that we would expect the capital investment around this to be multiples of the acquisition prices. So again, it is a lot like what we did with LIG in 2004. We bought a starting position and really transformed those assets and we think we will see that again here.

[TJ Schultz:]

Okay, that’s helpful. Just lastly following up on the ORV and the condensate pipeline if there is any update on commitments beyond Eclipse? And then you discussed expanding that pipeline, but as you look at potential condensate growth in the area, is the potential primarily to look at expanding on the existing footprint or is there potential or do you have a view now of potentially taking that pipeline further north into Harrison?

[Barry Davis:]

Well first of all let me talk about the customer piece. As you know, we’re going to be filing for our open season pretty soon and we will see what sort of activity and interest comes out of the open season. We’re expecting that to be very successful and are looking forward to that. And in terms of the pipeline itself, really it’s what the market presents. We would be happy to look at expansions of that existing facility, we’d be happy to look at taking that to new market centers also. So it’s really what the opportunities present themselves to be as to what our opportunity will be with regards to the footprint of the pipeline. So excited, expectant about what we might be able to achieve there, but at this point I think the opportunity in the field is still wide open.

[TJ Schultz:]

Okay. Fair enough. Thanks everybody.

[Barry Davis:]

Thank you, TJ.

[Operator:]

And this concludes our Q&A session for today. I’d like to turn the call back over to Mr. Barry Davis for closing remarks.

[Barry Davis:]

Thank you, Jeremy. In closing, as you have heard throughout the call, these are exciting times for us here at EnLink. We are positioned for long term sustainable growth in the key basins. Our relationship with Devon continues to create abundant opportunities. We have strong business relationships with our key customers that make us a provider of choice and we have the right people to execute our plans. So thank you, we’ve enjoyed communicating with you today on our update. We look forward to talking in the future and have a great day.

[Operator:]

And this concludes today’s conference call. You may now disconnect.