Summit Midstream Partners, LP
Q2 2015 Earnings Call Transcript

Published: 7 Aug 2015

[Operator:]

Good morning and welcome to the Second Quarter 2015 Summit Midstream Partners, LP Earnings Conference Call. My name is Brandon, and I'll be the operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. And I'll now turn it over to Mr. Marc Stratton, Senior Vice President and Treasurer. Mr. Stratton, you may begin.

[Marc Stratton:]

Okay, great. Thanks Brandon and good morning everyone. Thank you for joining us today as we discuss our financial and operating results for the second quarter of 2015. If you don't already have a copy of our earnings release, please visit our website at www.summitmidstream.com where you’ll find it on the homepage or in the News section. With me today to discuss our quarterly earnings are Steve Newby, our President and Chief Executive Officer; and Matt Harrison, our Chief Financial Officer. Before we start I'd like to remind you that our discussion today will contain certain forward-looking statements. These statements may include, but are not limited to, our estimates of future volumes, operating expenses and capital expenditures. They may also include statements concerning anticipated cash flow, liquidity, business strategy, and other plans and objectives for future operations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can provide no assurance that such expectations will prove to be correct. Please see our 2014 Annual Report on Form 10-K which was filed with SEC on March 2, 2015 as well as our other SEC filings for a listing of factors that could cause actual results to differ materially from expected results. Please also note that on this call we will use the terms EBITDA, adjusted EBITDA, distributable cash flow and adjusted distributable cash flow. These are non-GAAP financial measures and we've provided reconciliations to the most directly comparable GAAP measures in our most recent earnings release. With that, I'll turn the turn the call over to Steve Newby.

[Steve Newby:]

Thanks Marc. Good morning everyone and thanks for joining us on the call today. I’ll begin by discussing our second quarter highlights and then I’ll turn it over to our CFO, Matt Harrison for additional details on our second financial results. I’ll end the call with additional comments on our outlook for SMLP for the balance of 2015 as well as the ongoing development activities at Summit Investments. Yesterday we announced financial and operating results for the second quarter of 2015, which were inline with our previous guidance. For the quarter we reported adjusted EBITDA of $53.7 million, which included $600,000 of transaction costs related to our May acquisition of the Polar & Divide gathering assets in the Bakken shale from Summit Investments. Adjusting for these transaction cost our normalized second quarter adjusted EBITDA was $54.3 million. This was down 1.3% relative to the first quarter of 2015 and up 7.3% over the second quarter of 2014. Adjusted distributable cash flow for the second quarter totaled $40.4 million, which was down 1.6% relative to the first quarter of ‘15 and up 7.6% over the second quarter of ‘14. Just to remind everyone our financial and operating results for all periods discussed today include the as-pulled historical results for Polar & Divide. On July 22nd we announced our second quarter distribution of $0.57 a unit, which represented a 9.6% increase over the second quarter of 2014 and a 0.9% increase over the first quarter of 2015. This was SMLP’s 11th consecutive quarterly distribution increase since going public in September of 2012. Our distribution coverage ratio for the quarter was 1.0 times and for the first quarter half of the year was 1.07 times. Our diversified business model benefitted us in the second quarter as the natural gas volumes declines on our gathering systems related to the first quarter of ‘15 were offset by stronger than expected liquids volume growth in the Bakken. On the natural gas side average throughput for the second quarter was 1.52 bcf a day, which was down approximately 4% from the first quarter of 2015 average of 1.58 bcf a day. Relative to the last year period our total natural gas volumes were up approximately 8%. Most of SMLP’s natural gas volumes declines in the first quarter can be explained by our Barnett Shale gathering asset DFW Midstream, which declined from 403 million cubic feet a day in the first quarter to an average of 356 million cubic feet a day in the second quarter. Recall that DFW had a very strong first quarter, given the connection of 10 new wells in late December of 2014. Initial production declines from these wells combined with the delay in the expected commissioning of another large 10 well pad site in the second quarter negatively impacted our volumes of DFW. In addition we had two active rigs working during the second quarter, which also led to volumes declines as pads are typically taken offline from production during drilling and completion operations. The two rigs in our area compared to a total of three drilling rigs working in entire Barnett which reflects the widely held belief that DFW sits atop the core of the core of the Barnett Shale. Our customers on the DFW Midstream system currently have 17 drilled but uncompleted wells and they are in the process of drilling another 11 wells, new wells, by the end of 2015. We expect that these 28 wells will be completed and commissioned throughout the second half of ‘15 and into the first half of ‘16 which will stimulate volume growth beginning in the fourth quarter of ‘15 and into ‘16. Antero volumes in the Mountaineer Midstream system which originate from interconnections with Crestwood and Antero Midstream’s low pressure gathering systems were virtually flat in the second quarter relative to the first quarter at 542 million cubic feet a day. Compared to the second quarter of 2014 Mountaineer second quarter 2015 volumes were up 48.2%. As we have previously guided we expect volumes to decline throughout the second half of this year as production rates from existing wells upstream of our system decline. But we expect strong annual volume growth in calendar year ‘15 over calendar year ‘14. Based on information from Antero there are over 20 wells that have been drilled but uncompleted behind our system that are expected to come online beginning in 2016, as basis differentials compress due to increased takeaway capacity from the region. Given current commodity price levels, including basis differentials in the Northeast we remain cautious on the near-term outlook for volumes on this system but we expect to see returning volume growth in 2016. On Grand River volumes averaged 604 million cubic feet a day in the second quarter of ‘15 which was down 2% from the first quarter and down 10.1% from the year ago quarter. Volume declines were primarily associated with Encana’s continued lack of drilling activity in the area and slower drilling activity from WPX. As we have noted in the past we are highly contracted on Grand River and volume declines do not necessarily affect our cash flow from the year end. Partially offsetting Encana and WPX declines was volumes growth from several other customers in the area, including Ursa and Black Hills who are actively drilling in the area. During the second quarter we had a total of five rigs running behind our Grand River systems which we view as positive given the challenging price environment for both NGLs and natural gas. However we’ll continue to remain cautious in this area in the near term given the current pricing dynamics. Again we are highly contracted in this area and given our MBC mechanisms we do not expect volume declines to translate into significant cash flow declines. Our Bison Midstream system, which reflects the performance of our Williston Basin gas segment gathered an average of 17.3 million cubic feet a day of associated natural gas production in the second quarter of ’15, which was in line with our guidance and just slightly down from the 17.9 million cubic feet a day in the first quarter. More challenging for us in this area was direct commodity price realizations related to a single POP contract in the Bison Midstream system, which continued to fall in the second quarter relative to the first quarter and the second quarter of 2014. Our average realizations in the second quarter ’15 were $0.65 per MCF versus $0.90 per MCF in the first quarter of ’15 and $1.96 per MCF in the second quarter of ’14, again underscoring the challenging commodity price environment. Fortunately for Summit this revenue represents less than 1.5% of the MLPs total cash flows and overall we have a very low amount of direct exposure to commodity prices. Offsetting the Bison volume declines are our Polar & Divide assets which reflects our Williston Basin liquid sector. Our liquids business, which includes crude oil and produced water gathering services across Williams and Divide counties in North Dakota continues to outperform relative to our expectations from when we announced the dropdown in early May. Total liquids volumes were up 13% relative to the first quarter and up 81% over the second quarter last year. Liquids volumes in the Bakken are benefiting from a number of factors, including our continued development of the system to connect new pad sites and take market share away from third party truck gathering, the implementation of enhanced completion techniques from our customers and our strategic location in the core area of the basin. Throughout the quarter our customers averaged eight drilling rigs behind the Polar & Divide system which underpins our expectations for continued volume growth through 2015 and beyond as we continue to expand our system. In addition our Stampede Lateral project which will provide our customers with another crude oil delivery option to the Columbus rail hub serving the East Coast markets is on track to be in service by the end of this year. Recall that this project is underpinned by minimum volume commitments. Overall our financial and operating performance in the second quarter was inline with our guidance. While we remain cautious on the natural gas volume outlook for the balance of ’15 given the weak commodity price environment and its impact on our customers CapEx budgets we believe that our 2015 guidance adequately accounts for these slowdowns. We also believe that our limited direct commodity price exposure, diversified operations and high level of MBCs position us well relative to others since volume declines for many of our customers are protected by our MBC mechanisms. In response to a challenging commodity price environment I would like to commend our employees for working hard at finding ways to reduce operating expenses without sacrificing safety or reliability. SMLPs OpEx in the year-to-date period is down approximately 4% relative to the OpEx in the fourth quarter, 2014 period. In addition activity levels at Summit Investments, our general partner, which I’ll touch on later in this call remains strong and provides SMLP with high growth visibility over the next three years. So with that I’ll turn it over to Matt to review the quarterly financial results in more detail before I conclude our formal remarks.

[Matt Harrison:]

Thanks Steve. Adjusted EBITDA for the second quarter of 2015 was $53.7 million compared to $50.6 million for the second quarter of 2014, an increase of approximately 6%. The $3.1 million increase in adjusted EBITDA was primarily due to the increase in volume throughput on the Polar & Divide and Mountaineer emission systems. In addition adjusted EBITDA for the second quarter of 2015 included $600,000 of transaction costs related to the Polar & Divide dropdown transaction. Adjusted EBITDA in the second quarter of 2015 included approximately $14.4 million related to MBC mechanisms from our gas gathering contracts. This amount included $3.5 million of minimum shortfall payments that are recognized as gathering revenue, $2.1 million associated with the net increase of deferred revenue related to MBC shortfall payments and $8.8 million associated with quarterly adjustments related to future projected annual MBC shortfall payments. Additional tabular detail regarding MBCs is included in the second quarter earnings release. SMLP reported net income of $5 million for the three months ended June 30, 2015 compared to net income of $5.6 million in the second quarter of 2014. Adjusted distributable cash flow totaled $40.3 million for the second quarter of 2015. This implies a distribution coverage ratio of 1.0 times relative to the second quarter distribution of $0.57 per Limited Partner unit to be paid on August 14, 2015. Capital expenditures for the second quarter of 2015 were approximately $35 million of which $2.2 million was classified as maintenance capital expense. We had $279 million of debt outstanding under our revolving credit facility at June 30, 2015, the borrowing capacity under our $700 million revolver was approximately $421 million at June 30, 2015. Total leverage at the end of the quarter was 3.95 times. SMLP narrowed its adjusted EBITDA guidance for 2015 to a new range of $210 million to $220 million. This guidance reflects a full year of Polar & Divide’s results. Now with that I'll turn call back over Steve.

[Steve Newby:]

Thank Matt. As Matt mentioned, we are narrowing our fiscal year 2015 adjusted EBITDA guidance to a new range of $210 million to $220 million. This guidance excludes the impact of additional dropdowns from Summit Investments for the balance of 2015. We expect that this adjusted EBITDA guidance will result in distribution growth as fourth quarter of '15 over the fourth quarter of 4% to 6% and distribution coverage of 0.95 to 1 times for the full year. Again this is without any additional dropdowns during 2015. We continue to see positive signs regarding the volume and cash flow ramp in our assets at Summit Investments, particularly across our Utica systems. This is one of if not the most economically viable basins in the country for producers and we continue to expect very large volume growth in these assets well into 2016. In Ohio gathering our 40% JV with MarkWest Utica EMG we had average volumes of 583 million cubic feet a day for the second quarter, which was up more than three-fold from the period last year. Further, at the end of the second quarter, we commissioned our dry gas system which has been initially designed to gather up to one bcf of gas in Southeastern in Ohio. Producers continue to test and develop this area and average EURs in the area range upwards of 15 Bcf with initial production rates consistently in excess of 25 million cubic feet a day. We believe that these initial results set us up for significant volume growth at these assets over the foreseeable future. Summit Utica, our 100% owned natural gas gathering system that serves XTO’s dry gas Utica acreage in Bellmark [ph] and Oro [ph] counties is also beginning to ramp up nicely. We completed our first pad site tie-ins for XTO in the second quarter and we will commission our DI stations during the third quarter. The pace of pad connections and resulting volume growth is expected to accelerate significantly over the next 12 months as XTO continues to actively drill the acreage. Finally, we remain very active on the commercial side in the Utica and we believe that we are well positioned at both Ohio gathering and Summit Utica to win our fair share of future business from producer's in operating and around these service areas. With regard to dropdowns, as we've discussed in the past, we'd like the market to view our dropdown strategy over the course of the next three years versus how the timing lays out in any one calendar year. In other words, we feel very confident that an average of $400 million to $800 million of drops will occur over the next three years, but the timing of these drops maybe lumpy as it relates to any given calendar year. Especially during this challenging commodity environment, we have slowed down the pace of development. However, because of the demonstrated ramp up of our Utica business the dropdown scheduled for those assets is starting to become much clearer to us. So although we currently expect that we will be at the low end or even potentially below the low end of the dropdown range for '15. We expect the average over the 2.5 years to be well within the range and we expect that all current assets of Summit Investments will be dropped down to the MLP by the end of '17. So in closing, while we recognize the difficult commodity price environment in which we and our customers are currently operating, our assets are performing well, our '15 financial guidance accounts for expected volume throughput declines over the back half of the year. And we are strategically located in the best parts of the basins in which we operate. We have built SMLP and structured our fee-based gathering agreements with MBC mechanisms to underpin our volume expectations and protect our cash flows, particularly in challenging commodity price environments. We continue to execute on our strategic plan to significantly grow our asset base, diversify the MLP geographic exposure and expand our customer roster and services offered. Summit is uniquely positioned to transform itself over the next several years by opportunistically making accretive acquisitions from our General Partner, which is currently executing on approximately $2 billion of development CapEx, the majority of which is occurring in the Utica Shale. So as you think about Summit over the course of ‘15 and into ‘16 and ‘17 you should consider the fact that we have visibility towards drop down transactions that will effectively double 2015’s adjusted EBITDA by 2019, and in the process become one of the premier midstream service players operating in the core of Utica Shale. So with that I’ll open it up to questions.

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And from Deutsche Bank we have Kristina Kazarian online. Please go ahead.

[Steve Newby:]

Hey Kristina.

[Operator:]

Kristina if you could unmute your line. Okay we’ll take the next question, from Wells Fargo we have Praneeth Satish online. Please go ahead.

[Praneeth Satish:]

Hey guys, good morning.

[Steve Newby:]

Hey Praneeth.

[Praneeth Satish:]

Just a couple of quick questions, I guess first just on the Barnett I guess as you look at volumes for the balance of the year, I know you said there is the potential for a rebound in Q4 but would you expect continued weakness in Q3 or has that kind of stabilized at this point what’s kind of the outlook there?

[Steve Newby:]

Yeah, Praneeth I think our expectation is probably a continued slight weakness in Q3 and a fairly strong rebound in Q4. The large pad site that was expected to come on in the second quarter and the delay in that actually was not a producer holding off, they had a mechanical issue in the delay. So wasn’t an economic decision. We expect that to come on in early Q4 and that should lead to a pretty sharp increase.

[Praneeth Satish:]

Got it. And then on the rate redetermination mechanism on Polar & Divide can you just remind us again when that rate takes effect specifically, what quarter? And then has anything changed there in terms of your expectations with the movements in commodity prices et cetera?

[Steve Newby:]

Yeah, I think there is a couple of different rate redeterminations. So depends on which one we are talking about. One takes place the end of this year I believe, so at the end of calendar year ‘15 and then I believe another takes place at the end of calendar year ‘16. So at the end of calendar year ’16. So I think our expectations have not changed based upon what we are seeing and related to those rate redeterminations and what we think will occur.

[Praneeth Satish:]

Got it. And then just last question, I mean obviously equity prices valuations have come down across the sector and as you look at potential drop downs in having to issue equity at these levels, is that something you would consider or could the sponsor maybe drop down assets at lower multiples to offset that, or would you hold off for higher prices. I guess just generally how are you thinking about that?

[Steve Newby:]

Yeah, it’s a good question, I will answer first and then if Matt if you have anything to add as well too. I think first I think our sponsors demonstrated in the past and will continue to demonstrate support to execute our strategy on drop downs. We expect ‘16 to be a very, very active year on drop downs, particularly for our Utica assets. Obviously in the current in the current environment the volatility of the current environment creates not just the drop down transactions and any transaction I think you are seeing in the M&A markets a fairly big spread given the volatility even if it’s between your general partner and your MLP. So obviously that has some effect but looking out over the next couple of years we would expect to continue executing our strategy and if need be I think our general partner has shown that he will be supportive. Do you have anything? Hopefully that helps Praneeth.

[Praneeth Satish:]

Yeah, thank you.

[Operator:]

From SunTrust we have Tristan Richardson online. Please go ahead.

[Tristan Richardson:]

Good morning guys. Just curious if you could remind us, you talked about Stampede being planned to complete at the end of the year. As we look at '16 could you just remind us the commercial activity going on with that line? I mean are we full committed there or just an update on that.

[Steve Newby:]

So we upsized the line. So we're now fully committed on it we made a decision to build it slightly bigger, but the MBCs we have underpinning it, underpin it to sort of our metric which is sort of six day times build level on cash flow for assets. And so we do have capacity there, so it's a further increased commitments on the line or throughput on the line. So and its construction has gone well and or it's going well as I said we expected it to be on by the end of the year.

[Matt Harrison:]

And relative to the kind of Polar & Divide dropdown guidance that we provided during the transaction, we basically provide guidance as that amends in '16.

[Tristan Richardson:]

Okay, that's okay. That's really helpful. And just in terms of Summit Investments, the Summit Utica piece, have you guys talked about and could you just refresh my memory, what are the long-term plans for that in terms of maybe potential size of that system over the next couple of years what's the total capacity that you're thinking about for that system.

[Matt Harrison:]

Yeah, so I think let's delineate the Summit Utica, Summit Investment and Utica is our 100% owned system that serves Exxon and XTO. That system been built for 0.5 Bcf a day. That's right now strictly for XTO's need, that's that amount. Obviously we can expand the system from there through compression and other mechanisms. And so but that's what the current plan is for them, and their partner in that is AU Arnell [ph] I think is what they have renamed it. So that's the current plan.

[Tristan Richardson:]

Okay. That's helpful. Thank you guys very much yeah. Thank you.

[Operator:]

From Deutsche Bank we have Kristina Kazarian online. Please go ahead.

[Kristina Kazarian:]

Good morning guys. I don’t know what happened there.

[Steve Newby:]

Hey, you're back.

[Kristina Kazarian:]

I'm back. So thanks for the volume update numbers on the JVs. Those were good numbers there. Can you guys touch a bit on your thoughts on, given the MWE-MPLX merger with respect to your JVs, I know you said the assets are ramping well, but does this change the timing on drops, how you're thinking about the assets, just that will be great.

[Steve Newby:]

Yeah so I'll take it, it’s Steve. We had a lot of discussions with MarkWest since their announcement. I don’t think it changes anything related to the JVs. It doesn't change anything related to our timing of when that comes down to the MLP. I actually think if you look at it, at their announcement in POX, I actually think it's going to be a positive particularly on our condensate piece of the JV if everyone will recall, we have a Ohio gas gathering as far as the JV and then we have Ohio condensate as part of the JV2. So to stabilize, our condensate stabilization facility is basically full today. And we think that merger could bode well for future commercial activity around that asset as well. So no I don’t think it -- I think if anything it's a net positive for commercial development of downstream projects from that JV.

[Kristina Kazarian:]

Perfect, that's helpful. And then when I'm thinking about the droppable backlog and timeframe on future drops, does the current environment change maybe the math of dropping down completed versus under development assets and how do you maybe think about that?

[Steve Newby:]

Yeah, I think the current environment, as I mentioned, I think what it changes is this kind of volatility makes it very hard to get something done even when it’s with your JV, just I said the bid-ask is fairly wide. I think we'd like to see things quite frankly normalize a little bit. From a development standpoint, I would guide you, I think '16 is going to be a big year, as we continue to ramp these systems through the back half of '15 and into '16. So we have said to the market in the past, we continue to say we want these assets come down with the continued growth, organic CapEx associated with them. So our goal is not just send everything up to the general partner. It's actually to bring the assets down with CapEx associated with them. I think that would be particularly true in Summit Utica, with our 100% owned system. But I think what changes -- or not changes but I think that the things that affecting the timing is just the market currently and the volatility related to it.

[Kristina Kazarian:]

And then last one from me, can you guys just touch a little bit, I know you talked a lot about capital markets and openness there, but the rationale behind that using the ATM in the second quarter, is that timing related, is it market environment related and how do you want me to think about that on a go forward basis?

[Steve Newby:]

Yeah I’ll let Matt touch on that.

[Matt Harrison:]

Yeah, thanks Kristina, so as everybody knows we put a $150 million ATM for ramp in June and that’s basically just to provide another source of capital, another option for capital as we move forward to our growth cycle. The way that we have financed our operations has been much more episodic, right so dropdown transactions, net of financing in conjunction with that. Typically and what we intended to do with ATM program is more of a perpetual issuance of equity and so as these drop downs have come down the MLP which then bring about -- bring with them organic growth going forward, you maybe look to us to start using ATM program, but in the immediate future we have really no anticipation to use the ATM program.

[Kristina Kazarian:]

Perfect, that’s it from me, thanks guys, nice job there.

[Steve Newby:]

Yeah, thanks.

[Operator:]

From Wunderlich Securities we have Jeff Birnbaum online. Please go ahead.

[Steve Newby:]

Hey Jeff.

[Jeff Birnbaum:]

Hi, sorry I lost you, can you hear me?

[Steve Newby:]

Yeah, we got you.

[Jeff Birnbaum:]

Thanks. The phone issue seems to be the theme of this Q&A so far. So a couple of questions from me on assets, at the general partner start. So there have been -- several dry gas acreage areas have been thought to be out for bid and I was kind of wondering if you could comment on if Summit Investment has been actually bidding or engaged there and kind of how you see prospects going forward for you?

[Steve Newby:]

Yeah hey, Jeff this is Steve. I’ll try to comment as much as I can. Obviously we don’t want to get too detail on commercial activity. But we believe and have communicated before that there is significant billions dollars of infrastructure needed to be built in the Utica particularly in the Southeastern core, and particularly in the dry gas area of the Utica. It’s a very active region commercially, I think here you’re right about that. As producers, there’s really been a shift over the past six plus months to the dry gas area and so we are very, very active commercially in the area I would say, others are too. I don’t want to lead you to believe there’s not significant competition and there are several big players in the area including us. And I think it’s a very active area. I think we’ll be successful in growing our footprint there as we move forward. But the easy answer is yes there’s a lot going on, lot that needs to go on over the next couple of years and I think we’ll end up getting our fair share.

[Jeff Birnbaum:]

Okay, thanks Steve. And the comments on dropdown dancing at the low end or even perhaps below the low end to the range in 2015, I get what you’ve been saying about not getting too focused or cut up on timing any calendar year but could you just maybe talk a little bit about what factors in particularly are leading you to kind of think that and give those comments today? Is that more financing or market driven, more development driven in terms of the assets that you want to drop being where you want them, when you want to drop them perhaps just some color there?

[Steve Newby:]

Yeah, it’s again Steve and Matt can footnote me too, I think it’s all of the above. First is development cycle and where we are in the development cycle, and although we are seeing tremendous growth in the Utica assets and the dry gas area, really just starting to come on here in the last several months, we still have a slowdown from a year ago levels. I don’t want to pretend that it hasn’t obviously bridges dropped everywhere and Utica hasn’t immune from that. So it’s development cycle of the assets, so that’s definitely a consideration. And look, I think on the financing side as I mentioned when you have particularly when you have very high growth assets and a pretty good runway of -- on that growth, that combined with I would say a pretty extreme level of volatility in the capital markets, that creates a bid-at spreads and difficulty in completing any transaction and that includes drop down transactions from the joint partners. So the capital markets obviously play a role in that. I do think though as I said over the next two years, two and half years by the end of ‘17 all of the current assets are going to be at the MLP. I think ‘16 is going to be a very big year for us as well too as far as drop downs. So hope that helps give you some guidance.

[Matt Harrison:]

We continue our drop down strategy is that that drop down will provide immediate accretion to distribution. So that’s part of the thought process as well.

[Jeff Birnbaum:]

Got it. So call it regardless of market conditions you still think that as we move into ‘16 and ‘17 all those assets will come down and be dropped accretively to the MLP?

[Steve Newby:]

Yes and I always hesitate on saying regardless of all market conditions, because that’s a little dangerous, but I think in anything that is, could be considered fairly normal we think are -- we strongly believe they will and we strongly believe our general partner will be supportive to affect that.

[Jeff Birnbaum:]

Okay, great. And sorry just one last quick housekeeping one from me, on the guidance which I believe you mentioned earlier in the call, I think is now going to be correct me if I am wrong you said 4% to 6% growth year-over-year on the distribution 4Q-over-4Q was it about 0.95 coverage, did that include anything in that by way of drop down?

[Steve Newby:]

Yeah so it did not and so it’s 0.95 to 1 coverage and 4% to 6% distribution growth without any additional drop downs. And that’s really consistent with what we previously relayed, last call we had 7%, 8% at the low end of our guidance on drop down. So really where we are today without any additional drop downs, that’s 4% to 6%.

[Jeff Birnbaum:]

Got it, thanks a lot guys.

[Operator:]

From Goldman Sachs we have Jerren Holder online. Please go ahead.

[Jerren Holder:]

Hi good morning. I was wondering, if you could talk about maybe where there is volume risk relative to MBC, levels, you guys pointed out Grand River is pretty highly contracted so further potential to pull in the clients there doesn’t really impact cash flow but how should we think about other regions?

[Steve Newby:]

Yeah, I think the biggest area and hopefully it comes across as the Barnett and we have MBC there we are just significantly above them and have been for years now. And so that’s probably our biggest risk area, Jerren and really as we talked in the past that area is lumpy, it’s definitely lumpy when you have drilling activity and completion activity and then unexpected was one of our big producers had a mechanical issue, with a big pad coming on and so it just pushed that back. And so but that’s the area where we probably have the most risk. It’s high margin gas for us. The other area is obviously Mountaineer, we are above our minimums there that’s much lower margin gas, high pressure system. So but that’s the other area. But the biggest by far is DFW.

[Jerren Holder:]

Thanks and I guess in terms of the Utica, again just given some of the really strong well reserves you have seen with some of the E&P companies, how does that sort of change the potential CapEx you think you could spend in just your product footprint?

[Steve Newby:]

Yeah, it’s a great question and one of the things it’s doing interestingly enough it’s actually lowering our CapEx requirements at both the JV and our 100% owned system and the reason is these wells are so big and so strong they actually don’t need compression, for now we are looking at potentially several years. So down hole pressure is so strong and they can basically baulk interstate pipeline pressures for several years. It’s quite frankly something we haven’t seen in other areas. So that actually so when you take out compressions assets, that’s going to lower CapEx, it’s a pretty big positive that you are still getting volume of course. So that’s why when I made my comments about Summit Utica and we said we are bringing on two de-high [ph] stations. We didn’t make the comment we are bringing on two compressor stations because we are not. So that’s the net effect of a very unique basin.

[Jerren Holder:]

All right, great, thank you.

[Operator:]

From RBC Capital Markets we have Elvira Scotto online. Please go ahead.

[Elvira Scotto:]

Hi just a quick follow-up. The 0.95 times distribution coverage, is that a full year number or is that a 4Q number.

[Steve Newby:]

That will be average for the full year, 0.95 to 1 for the full year Elvira.

[Elvira Scotto:]

Okay, and then can you just remind us what's your target coverage is and how you balance coverage versus distribution growth, especially in the market where distribution growth may not get fully valued?

[Steve Newby:]

Yeah no absolutely, it's a good questions. And on the science, I would say our target is 105 to 110, I think we've relate that previously to the market given our high level of -- our contracted cash flows were a little bit below that now. We have the benefit of having higher degree of visibility with our growth quite frankly into '16 that are able to effect a coverage ratio and distribution growth where because of our high degree of visibility on future growth. So that's how we balance it. I think obviously our distribution growth per unit growth this year is going to be down from last year. So given the commodity price environment and the overall environment. So we are cognizant of that. But I think that's how we view it and management view it.

[Matt Harrison:]

I may Elvira you kind a pointed on something are you getting any benefit from the base, if you wanted to bring down coverage and increase growth and we would agree with you, I don't think the markets really robust for that type of strategy. So we're going to take coverage pretty conservatively.

[Elvira Scotto:]

Great, thanks. That's all from me.

[Operator:]

[Operator Instructions]. And from Height Hedge we have Andy Gupta [ph] online. Please go ahead.

[Unidentified Analyst:]

Hi good morning thanks for taking my question. Just to follow up on two quick questions. One is on CapEx needs for the rest of this year. There was some talk about maybe using the ATM or not. Can you just define that a little bit more, do you expect to have enough balance sheet capacity to do this or do you foresee coming in the market sort in a marketed deal.

[Steve Newby:]

Yeah, I would say we have some CapEx organically actually planned for the end of the year. Most of it relates to our Polar & Divide assets and a few cleanups at our other systems. And what may happen as we -- especially Stampede, right, as you ramped it up you may see leverage go from 3.95 maybe go up to 0.1 or 0.2 from there but nothing significant in it. And then as those cash flows come on it will go come back down to 4 and below. But there are no we don't have any thoughts of executing on the ATM program.

[Unidentified Analyst:]

Okay thanks. That makes sense. One quick clarification on the distribution. The 4% to 6% without drops is that that's fourth quarter '15 or fourth quarter '14 right?

[Steve Newby:]

That's right yeah.

[Unidentified Analyst:]

And any insight into '16 distributions right now or no?

[Steve Newby:]

I would say right now. I mean obviously for us it’s the pace and timing of drops. So it affects that in a large, large way. So I don't think we're quite there yet. Other than I'll say as I said three times now, I think on the call, just to make sure '16 we think will be a big year for drops particularly our Utica assets.

[Unidentified Analyst:]

Great, thank you.

[Steve Newby:]

You got it, thanks.

[Operator:]

And we have no further questions at this time. I will now turn it back to our speakers for closing remarks.

[Steve Newby:]

Well great. Well we appreciate everybody joining us today. And have a good weekend and we'll talk you soon.

[Operator:]

Okay. And ladies and gentlemen this concludes today's conference. Thank you for joining. You may now disconnect.