Oklahoma City Jun 12, 2015 (Thomson StreetEvents) -- Edited Transcript of Enable Midstream Partners LP earnings conference call or presentation Wednesday, May 6, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Matt Beasley Enable Midstream Partners LP - Director of IR * Lynn Bourdon Enable Midstream Partners LP - President & CEO * Paul Weissgarber Enable Midstream Partners LP - Chief Commercial Officer * Rod Sailor Enable Midstream Partners LP - CFO ================================================================================ Conference Call Participants ================================================================================ * Carl Kirst BMO Capital Markets - Analyst * Jeremy Tonet JPMorgan - Analyst * Ali Agha SunTrust Robinson Humphrey - Analyst * Matt Tucker KeyBanc Capital Markets - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day and welcome to the Enable Midstream Partners first quarter 2015 earnings conference call and webcast. Introducing today's call is Matt Beasley, Director of Investor Relations. Today's call is being recorded. (Operator Instructions) It's now my pleasure to turn the floor over to Matt Beasley. Sir, you may begin. -------------------------------------------------------------------------------- Matt Beasley, Enable Midstream Partners LP - Director of IR [2] -------------------------------------------------------------------------------- Thanks, Keith. Good morning and welcome to Enable Midstream Partners first quarter 2015 earnings call. I'm joined on today's call by our President and CEO, Lynn Bourdon; our Chief Financial Officer, Rod Sailor; our Chief Commercial Officer, Paul Weissgarber, as well as other members of management. Statements made during this call that include Enable Midstream's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor Provision of the securities act of 1933 and 1934. Actual results could differ materially from our projections and a discussion of factors that could cause actual results to differ from our projections can be found in our SEC filings. Also, please see the appendix of the presentation for reconciliation of non-GAAP financial measures. With that, we'll get started and I'll turn the call over to Lynn Bourdon. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [3] -------------------------------------------------------------------------------- Thanks, Matt. Good morning and thank you for joining us for today's call. The first quarter was another great quarter for Enable Midstream. During the quarter, we continued to deliver on our promises and execute on our organic growth story by starting full operations at our Bradley plant in the heart of the South Central Oklahoma Oil Province, or better known as SCOOP, and our Bear Den crude gathering system in the core of the Bakken. We also began the commissioning of our second Bakken crude gathering system and conducted an open season on our EGT interstate pipeline to address the need for additional natural gas transportation resulting from growing Oklahoma production. In the first quarter we also completed the process of our organizational restructuring that reduced the layers of our organization, better align the Company to execute on our growth strategy and lowered our cost structure. While this transition was difficult, Enable is now well positioned for the future. Enable also announced the first quarter 2015 distribution of $0.3125 per unit, representing a 1.2% increase over our fourth quarter 2014 distribution and 8.7 increase over the partnership's minimum quarterly distribution. And finally, on May 1, we acquired an [$80 million] natural gas gathering system in the Texas panhandle that is a great fit with our existing assets and increases our competitive position in the Anadarko Basin. This is Enable's first acquisition and we will continue to seek and acquire assets that fit with our strategy. Now I will turn the call over to Paul for a market update. -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [4] -------------------------------------------------------------------------------- Thanks, Lynn. As we look across our footprint, many plays continue to provide strong returns for producers, including the Bakken, SCOOP, and Cana Woodford plays. As I will discuss on the next few slides, this additional production is driving opportunities for Enable across the value chain. Also, we are seeing some signs of increased activity in our dry gas basins with natural gas production increasing recently in the Haynesville. On the transportation and storage side, we continue to pursue new end-user projects and there have been several major announcements of new natural gas-fired power generation around our transportation footprint. Also, in the transportation and storage business, [contango] and natural gas markets is driving increased value of our storage capacity. As rig counts have declined across the US, we have seen a reduction in rig counts around our footprint. At the end of April, 227 rigs were running in the counties in which Enable operates or its constructing assets -- a decrease of 119 rigs since mid-February. Most of the decrease in rigs around Enable's footprint is in the Bakken, but Enable's primary customer in the Bakken, XTO, still remains active in the play. We also have seen trends of producers maintaining current drilling schedules and core plays and even bringing back rigs to areas after initially reducing drilling plans. Finally, we expect the changing markets and supply dynamics will continue to create opportunities across our business lines. Turning to the next slide, as you can see, Enable's growth areas still rank among the highest returning plays in the country with even higher returns forecasted as producers continue to realize reductions in drilling and completion costs. In the Bakken and the SCOOP, Enable is located in the core of the plays where producers are seeing the strongest returns. I will also point out that Enable has a substantial footprint in five of the top eight plays on this slide. On this next slide, I wanted to take some time to share more about the SCOOP. The SCOOP continues to rank as one of the strongest plays in the country and Wood MacKenzie recently put out some great research that demonstrates the potential of the play. Wood Mac estimates break-evens in the SCOOP at $41 to $47 per barrel in the SCOOP core, which is in Grady, Garvin and Stephens counties. Enable is well positioned in the core of the SCOOP and our new Bradley plant just started operations in the heart of the play. From the producers side, Wood Mac estimates its $63 billion of capital remains to be spent in the play, which will drive production to increase by an estimated 2.4 times over the next 10 years. This production growth will continue to drive the need for additional investments across the midstream value chain. Enable is well positioned commercially in the play with significantly long-term contracts and acreage dedications with the largest lease holders and most active operators in the play. Currently, 18 rigs in the SCOOP area are drilling wells scheduled to be connected to Enable's gathering systems. In addition to Enable's leading commercial position in the play, Enable also has a leading asset position in the SCOOP and we continue to build out gathering, compression, processing and transportation infrastructure to capture opportunities as the play grows. As Lynn mentioned, Enable recently completed the 200 million cubic feet per day Bradley plant, which was just in time for recent production growth in the area. Enable has also installed over 130,000 horsepower of compression in the area and the Bradley lateral pipeline for residue gas transportation is scheduled to be online by the end of the year. In addition, Enable is on target to add another 200 million cubic feet per day plant in the play by the first quarter of 2016. And we still anticipate that continued volume growth will drive the need for additional natural gas and NGL transportation infrastructure in the area. Turning to the next slide, as we announced earlier this week, Enable acquired a natural gas gathering system from Monarch Natural Gas on May 1 for $80 million. This acquisition is immediately accretive and extends Enable's Anadarko asset footprint in the attractive Cleveland Sands play, which remains active and continues to rank as one of the higher returning plays in the country. The system has long-term acreage dedications from an anchor producer of approximately 35,000 net acres and positions Enable to target additional third party production in the area. Turning to the next slide, I want to take some time to share more detail about the current activity we are seeing in the Anadarko Basin. Significant drilling activity continues in the SCOOP but producers also remain active throughout Enable's Anadarko footprint. Customers are active in the northwest Cana area in Blaine, Custer and Dewey counties of Oklahoma, including one customer that recently moved four rigs into the area supported by a drilling carry. Customers also remain active in the Granite Wash, including one customer currently running two rigs in the play with plans to expand up to eight rigs. As you saw from the return slide, financial returns remain strong across the Anadarko and we will continue to pursue bolt-on acquisitions and to serve customers where capacity or capital constraint competitors are unable to provide service. Now turning to the transportation and storage business, in the first quarter we conducted an open season for capacity on our EGT system that provides natural gas takeaway capacity for growing Oklahoma production from receipt points in the SCOOP and elsewhere in Oklahoma to delivery points at Bennington, Oklahoma, and Perryville, Louisiana. We have had a positive response to the open season and we are currently in the process of evaluating the bids received. Adding this additional capacity would enhance Enable's leading position to provide transportation services from the Anadarko Basin to key downstream markets. As you can see from the map, Enable's system is very well positioned to capture natural gas demand from the power sector, including from announced coal conversions and new natural gas plants. Power plant and LBC loads currently account for over 5 billion cubic feet per day of demand on our systems and we are well positioned to capture additional demand with over 45 coal-fired plants located within a 50 mile radius of our pipelines. In addition, within a 50 mile radius of our pipelines there are 60-plus units totalling six billion-plus cubic feet of gas per day of gas-fired capacity that are not currently connected to our pipelines, which also provides additional opportunity for expansion. Moving to the Bakken, our Bear Den system is now fully operational. This is a system that we started construction on in late 2013 with XTO as an anchor producer. We also began commissioning of our second Bakken crude system, the Nesson system, in the first quarter. In addition, we continue to connect new origin points to the system and are currently exploring options to bring in nonsystem barrels onto existing systems. Producers in the Bakken continue to remain active in the four counties in which we operate and XTO, our anchor Bakken producer, is the most active producer in the state of North Dakota. Finally, I want to reiterate our growth strategy. We intend to capture organic growth opportunities in our core basins by partnering in our customers' success and investing in new infrastructure for their needs, as evidenced by the new Bradley plant, the completion of the Bear Den system and our open season on EGT. We plan to continue to extend the value chain from well head to end-users in our core commodities of gas, NGLs and crude. We will look to establish a presence in the other high growth basins, whether that is through a green field opportunity or by using our strong balance sheet to make an acquisition. We plan to develop a meaningful and competitive position in any basin where we participate. We plan to capture additional market demand on and around our system. As I mentioned earlier, low natural gas prices are driving a number of end-user projects around our transportation systems and we feel we are well positioned to serve these new loads. Finally, we intend to maximize earnings stability by increasing fee-based margin. That concludes my remarks and I will now turn the call over to Rod to discuss first quarter results and outlook. -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [5] -------------------------------------------------------------------------------- Thank you, Paul. Yes, turning to our operating statistics, we gathered 3.18 TBtu per day of natural gas on our gathering systems during the quarter. This was a decrease of 4% compared to first quarter 2014. The decrease in gathered volumes is primarily due to lower gathered volumes in the [Tex-La] and Arkoma basins, partially offset by higher gathered volumes in the Anadarko basin, resulting from increased rich gas production. Much of the decrease in Tex-La and Arkoma basin is expected to be offset by payments under minimum volume commitment contracts. Natural gas process volumes were 1.68 TBtu per day for the quarter, an increase of 16% compared to first quarter 2014, while NGL production remained relatively flat and condensate sales grew to almost 6,000 barrels per day. The growth in process volumes and condensate reflects producers' rich gas activity in the Anadarko basin as well as the increasing liquid content of the gas we process, while the flat natural gas liquids productions is a result of deeper ethane rejection in the first quarter of 2015 compared to first quarter of 2014. Crude gathered volumes from our first Bakken crude oil gathering system were approximately 6,700 barrels per day for the quarter. In our transportation and storage segment, total transported volumes were up 3%, while interstate firm contracted capacity was down 1% and intrastate transported volumes were up 17%. The increase in intrastate transported volumes were driven by the natural gas of volume growth along our Anadarko system. Turning to our first quarter results, as stated in our release this morning, gross margin was $324 million for the first quarter. This was a decrease of $45 million compared to the first quarter of 2014. Gathering and processing gross margin was $179 million for the quarter, a decrease of $28 million compared to the first quarter of 2014. The decrease in gathering and processing gross margin was primarily related to lower average natural gas and natural gas liquids prices, partially offset by higher process volumes on the Anadarko and Tex-La systems. Transportation and storage gross margin was $145 million for the quarter. This was a decrease of $17 million compared to first quarter 2014. The decrease in transportation and storage gross margin was primarily the result of decreased -- of a decrease in unrealized gains on natural gas derivatives and an increase in liquid sales related to NGLs collected under our contractual arrangements due to lower natural gas liquids prices. Operation and maintenance expense was $130 million for the quarter. This was an increase of $4 million compared to first quarter 2014. The increase was primarily due to costs associated with workforce reductions. Net income attributable to the partnership was $91 million for the quarter. This was a decrease of $58 million compared to first quarter 2014. The decrease in net income was primarily due to previously discussed decrease in gross margin and increase in operations and maintenance expense, depreciation and amortization expense, taxes other than income. Adjusted EBITDA was $204 million for the quarter. This was a decrease of $24 million when compared to first quarter 2014. The decrease in adjusted EBITDA was primarily due to the decreased gross margin and increased [O&M] expenses and taxes other than income. Distributable cash flow for the quarter was $143 million, a decrease of $40 million compared to first quarter 2014. The decrease in DCF is primarily due to the lower EBITDA, higher adjusted interest expense and higher maintenance capital spending in the quarter. Finally, expansion capital expenditures were $200 million for the quarter compared to $119 million for the first quarter of 2014. The increase in expansion capital expenditures was primarily driven by gathering and processing infrastructure buildout in the SCOOP. Also, as Lynn mentioned earlier, the Board of Directors of our general partner declared a quarterly cash distribution of $0.3125 per unit on our outstanding common and subordinated units for the first quarter. This represented an increase of approximately 1.2% over the prior quarter's distribution and an 8.7% increase over the partnership's minimum quarterly distribution. This distribution will be paid May 15 to unit holders of record at the close of business on May 5. Now I would like to share with you some updates to our outlook for 2015. We anticipate gathered volumes of between 3.1 and 3.3 TBtu per day for 2015, which is unchanged from our previous guidance. We are anticipating being at the upper end of that range. We anticipate processed volumes between 1.7 and 1.9 TBtu per day for 2015, which is a slight increase over our previous guidance and reflects an expectation for increased process volumes in the Anadarko basin. As new wells come on in the SCOOP, we continue to see very rich gas. We anticipate crude oil volumes of between 13,000 barrels per day and 15,000 barrels per day for 2015, which is a decrease over our previous guidance. This decrease is driven by lower initial production rates and lower forecasted activity on our Nesson system, as well as some projected shut-ins. We have brought down the upper end of our adjusted EBITDA range to $840 million. As you will see in a future slide, we have put on some additional hedges for 2015. While this provides cash flow certainty, it did remove some commodity upside. And we felt the additional hedging was prudent going into the summer. We increased our adjusted interest expense guidance by approximately $5 million and have maintained -- but have maintained our distributable cash flow, coverage and per-unit distribution growth guidance. This outlook also reflects our current price outlook for 2015 and our price assumptions are listed at the bottom of this slide. As Lynn mentioned, we completed restructuring in the first quarter. As we announced on our fourth quarter call, we anticipate annual savings associated with this restructuring of approximately $20 million per year. Given the one-time expenses associated with these initiatives, the $20 million in annual savings will likely be realized in 2016. Now turning to expansion capital, our expansion capital remains unchanged except for the addition of the previously announced Monarch acquisition. Finally, I would like to take a moment just to review Enable's fee-based margins and hedging program. As we've previously discussed, Enable targets fee-based contracts on a firm basis whenever possible. Enable has contractual provisions in some of our contracts to protect against low commodity price environments and volume decreases. For instance, some contracts have fee-based floors should commodity prices fall below certain levels, while others have protections against negative [key pole] spread and several of our contracts have minimum volume commitment features. Turning to commodity sensitivities, our hedging program continues to reduce our sensitivity to commodity prices. For the second quarter through the fourth quarter of 2015, we anticipate that a 10% change in natural gas prices would result in approximately a $6 million change in gross margin while a 10% change in natural gas liquids and condensate prices would result in approximately a $1 million change in gross margin. As you can see, the impact of our hedging program in the pie chart below. We currently expect 94% of our gross margin for the balance of this year will be either fee-based or hedged. Finally, we have included detail on our 2015 hedging program on this slide. For the second quarter through the fourth quarter of 2015, we have approximately 66% of our natural gas exposure hedged at $3.23 per MMBtu. This is inclusive of basis. We have 79% of our condensate exposed -- exposure hedged as crude at $59.16 per barrel and we have 81% of our propane exposure hedged at $0.58 per gallon. This concludes my remarks and I would now like to turn the call back over to Lynn. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [6] -------------------------------------------------------------------------------- Thanks, Rod. In closing, I just want to reiterate a lot of the points you have heard on the call today and emphasize how well positioned Enable Midstream is for the future. Enable has a very strong balance sheet and investment-grade credit ratings. And as Rod detailed today, we have a significant amount of our fee-base business, including firm business, in a hedging program limits our commodity volatility for 2015. As Paul reviewed with you, our integrated assets really are a competitive advantage for Enable. Our integrated gathering and processing systems allow for economic and operational optimization, while our integrated transportation and storage systems offer shippers access to diverse supply sources and key markets. We're also fortunate to have a great set of high quality customers and a seasoned management team with experience through many different market environments. And then finally, we have a strong financial position that we will use to fuel our growth strategy with organic projects and strategic acquisitions. And I would be remised if I didn't add that we have the best employees in the business and a solid team that's working very hard to deliver for you as a unit holder. So this concludes my prepared remarks and we will now open the call up for your questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) We can take our first question from Carl Kirst with BMO Capital Markets. Please go ahead. Your line is open. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [2] -------------------------------------------------------------------------------- Thank you. Good morning, guys. I apologize if I missed this in the prepared commentary, but, Lynn, as you all are evaluating results from the open season at EGT, is it possible with what you've seen to basically book-end what a potential investment there might be if it were to move forward? -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [3] -------------------------------------------------------------------------------- I'm going to let Paul answer that question because he's deeply involved in that one, if you don't mind. -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [4] -------------------------------------------------------------------------------- First off, great question. We see this EGT expansion as being very exciting. There's a real opportunity to debottleneck what's happening in the Anadarko basin and just the continuing growth of the gas supplies. We did get a very positive response to the open season. We do have a very good feel now on what the investment will require from our side. And we are starting to get in very close as to what the winning formula's going to look like there. But I don't think we're at a spot today to disclose the specifics around how that's going to evolve. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [5] -------------------------------------------------------------------------------- Okay. Fair enough. And this is really -- would you characterize this as kind of a supply push, if you will, as you say, debottleneck? I only ask that because I was sort of intrigued by the 45 coal plants that are around the system and what you all see as the future potential opportunity to capture that. -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [6] -------------------------------------------------------------------------------- Well great comment and great opportunity for us to just remark about the uniqueness of our position. We're just not a supply push as a midstream Company. We do have a lot of market pull. And so it's the integration of doing the fuel gathering and the natural gas. But then also being able to bring the end-markets to those supplies as well. So on this open season, it's actually both. We're actually seeing supply push and market pull. And that's why the underlying project is such a great fit right now. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [7] -------------------------------------------------------------------------------- Okay. Thank you. And recognizing that looking at the $80 million acquisition -- and I'm not sure how much more color can be added apart from just the comment that it being immediately accretive, which I assume is good distributable cash flow metric. But just given that it was the first M&A done, I didn't know if there was any more detail we could get as far as kind of looking at as a template for what you guys might be doing in the future, whether that is initial return, targeted long-term return -- but just trying to get a better sense of that. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [8] -------------------------------------------------------------------------------- It's a good question. And I think what it represents is, as we've talked about with our growth strategy, we're going to look for things that either fit within our footprint and extend and expand our position in these various high growth basins. It fits right outside of our system. It allows us to extend into some very good areas. The Cleveland Sands area in that particular part of the world is still highly economically attractive. And it's also a type of acquisition where, from a price perspective, we felt like it gave us a very good, solid return. And so that's -- I don't know that it's a template for what we're going to do in the future other than last year we participated in a number of opportunities and we're very disciplined. We have a really good, really good team on valuating different opportunities. And we just felt like this was a good fit for us and it was at a price that we felt like was attractive. -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [9] -------------------------------------------------------------------------------- Just -- this is Rod -- just to add a couple of things. Again, we felt that it extended our reach of our system on the west end. It got us closer to some customers that we already have elsewhere on our system. So I think it just fit our pistol from a strategic standpoint and being sure we're capturing opportunities along our footprint while we're still in the same basin -- it did extend that footprint. And again, it was -- it's going to meet some customer needs in the future. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [10] -------------------------------------------------------------------------------- Okay. Thank you. And then maybe just last question, are there any material [MVC] contracts we should be aware of that are expiring either this year or next year? -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [11] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [12] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [13] -------------------------------------------------------------------------------- There are none. -------------------------------------------------------------------------------- Carl Kirst, BMO Capital Markets - Analyst [14] -------------------------------------------------------------------------------- Thank you, guys. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [15] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [16] -------------------------------------------------------------------------------- And we'll take our next question from Jeremy Tonet with JPMorgan. Please go ahead. -------------------------------------------------------------------------------- Jeremy Tonet, JPMorgan - Analyst [17] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [18] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Jeremy Tonet, JPMorgan - Analyst [19] -------------------------------------------------------------------------------- I just wanted to follow up a bit on the Monarch acquisition, seeing if we can get a bit more color there. Was this kind of a one-off opportunity? Or do you see other bolt-on small opportunities around your footprint that you could capitalize on them as well? And just wanted to get broader commentary on the M&A market, if you see bid [as] spreads compressing at all or any other opportunities there? -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [20] -------------------------------------------------------------------------------- Great question. I think we've consistently said that we're looking at a lot of opportunities, both large and small. Clearly we do not want to miss things that are in our own backyard. And this was one that was in our own backyard. We saw some synergies with it. We saw the ability to maybe service some customer needs. And so, again, we felt that the risk and return profile look very good. So it is, I think, consistent with everything we've said. We will continue to look for bolt-on opportunities. And I think even when we are on the IPO road show, we talked about the potential of some bolt-on opportunities. So I think it's consistent with what we've looked at. We've also looked at some larger scale M&A opportunities. And I think we've consistently said, and even Lynn said at the beginning of the call, that we've been very disciplined around those. So again, base hits are a lot easier sometimes than home runs. This is clearly a base hit. It's one that we really liked and think it's going to fit nicely into our portfolio. We'll continue to look for these type of opportunities. But again, we have consistently said that we want more basin diversity. And M&A is a likely way to get there. And I think we said on the last call, to the extent we see some pullback on growth opportunities along our footprint, that's just a dollar if we're not spending there, we have to spend on some acquisitions. Then I would just comment, and others on the team can also comment, but I think the M&A market -- there's still a pretty wide [bid-ask] right now. I think with price pullbacks, the way we think about some of these opportunities, clearly, are probably not the way sellers are thinking about opportunities. I think sellers still have a fairly -- kind of a fairly rich ask. We'll just have to see how that plays out. I don't think that will slow us down any from looking at opportunities. It will clearly temper the amount of capital that we would want to deploy on something like that. -------------------------------------------------------------------------------- Jeremy Tonet, JPMorgan - Analyst [21] -------------------------------------------------------------------------------- Thanks for the detail there. Seems like the integrated systems that you have, have served you well. I'm just wondering about your appetite to expand further downstream from the plant tailgate, if you see that as a future opportunity for you guys to expand further down the NGL chain. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [22] -------------------------------------------------------------------------------- We -- it's a good question as well. And we continue to stress in our strategy that that is one element is that we do intend to extend our value chain. And not just on the NGL side, but also on the crude oil side. We look forward to participating all the way from the well head to the end user in each one of the commodities that we participate. So we're hard at work developing that strategy and working on implementing it. And we actually do this in some of the areas. For instance, we have propane fractionators at three of our facilities up in the Anadarko basin. We have [full] fractionation down in our Waskom area. We have a little more than 300 million a day plant tied to a 25,000-barrel a day fractionator down in that side. So in that particular world, we deliver ethane to Eastman Chemical direct as well as to a number of other customers on that site. So we look forward to continuing to expand that side of our business. It's good fee-based business and something that we're familiar with operating as well as from a business side. -------------------------------------------------------------------------------- Jeremy Tonet, JPMorgan - Analyst [23] -------------------------------------------------------------------------------- Great. That's it for me. Thank you. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- And we'll take our next question from Ali Agha with SunTrust. Please go ahead. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [25] -------------------------------------------------------------------------------- Thank you. Good morning. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [26] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [27] -------------------------------------------------------------------------------- Given where we are today and the conversations you are having with your customers, how much visibility do you say you would have into 2016, 2017? And when would you be in the position to update your capital plans like you have previously given us for the 2016, 2017 period? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [28] -------------------------------------------------------------------------------- Thank you for that question. We continue to have -- I would continue a dialogue with producers. I think as Paul mentioned in his remarks, we're actually seeing some uptick in activity in and along our footprint. I would say -- we've got one producer that's moving into pad operations. Those results to date have been higher than our expectations. But I think we're probably still a few months out from where we would feel comfortable getting more clarity around 2016. Again, and I would just say depending on how late that goes would -- I think we'd clearly feel a lot better about 2017 right now than we do 2016 because I think, just looking from a price perspective, it looks like there will be more activity. But I would just say I think we'll continue to look at that. And as some of that firms up, I think probably here over the summer, we will get some look at 2016 guidance out. But again, I think we would like to get some more results from some of the pad operations and some of the results from some of the producers coming back in and in and along our footprint. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [29] -------------------------------------------------------------------------------- So I mean, conceivably, do you think second quarter earnings call would be a [forum] for that? Or do you think that's still too early? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [30] -------------------------------------------------------------------------------- No, I think by the second quarter earnings call, I think we would want you all to have some guidance out there. I would just say, hopefully you're taking away from this call -- I think clearly it is a challenged environment for everybody out there. But we've seen a lot of opportunities over the first few months of the year. I think we've been very successful. We've talked about the open season, some increased producer uptick along our footprint. So I think it's -- we've had -- we've clearly been impacted by prices. But we're still seeing, I think, a lot of activity along our system. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [31] -------------------------------------------------------------------------------- And then secondly, more near term, as you mentioned, you load the higher end of the EBITDA outlook by about $20 million, interest expense by another $5 million. And yet you're still keeping your distributable cash flow guidance the same. I know the bolt-on adds on a few million for cash flow, but where is the rest of it coming up? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [32] -------------------------------------------------------------------------------- Well I think the one thing is we're still -- as I said, we think our process, our gas volumes will be probably at the upper end of the range. We continue to see, I think, very strong liquids production from the initial results on some of the pad drilling in the SCOOP. And so we think process volumes will be up. It will be very, we think, very rich gas. And then -- so I would just say around the EBITDA, the real reason we kind of brought that down was, as I mentioned in my remarks, we've taken a lot of cash flow -- we put a lot of cash flow certainty into our distributable cash flow through our hedging program. So it took a little of our commodity upside out. We still have some upside around our maintenance capital, which is a driver on our distributable cash flow. So we're on the upper end of our ranges on our volumes and our add are below our midpoint on distributable cash flow, that kind of -- excuse me, on maintenance capital -- that kind of drives to the upper end on distributable cash flow. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [33] -------------------------------------------------------------------------------- Got it. And last question. I think as you alluded to -- as you look forward -- looking at the forward curves, et cetera, 2017 is looking much stronger than 2016, clearly. But in general, when you look at your portfolio across your footprint, how much upside, or what kind of oil and gas prices roughly should we be looking for for things to start to return back to normal in your mind? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [34] -------------------------------------------------------------------------------- Well, I would -- I'll speak and then Paul can back that cleanup. I think, clearly, as we saw oil start to tick up above $55 with the forward curve pointing to a number above $60, we started seeing producers get much more comfortable about coming in. So I think you need to see sort of that six handle to really, I think, significantly drive some of that growth. We were talking early -- or late last year that $4 gas was driving more production in the Haynesville. But we're still seeing folks coming in to the liquids rich areas at current gas prices. So I think if we see sort of the $3.50 gas and the $62, $65 oil, that's going to drive activity along our footprint. Paul, I don't know-- -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [35] -------------------------------------------------------------------------------- It's interesting. You made a comment there by normal. I'm not sure how one defines normal. What we have built is a Company that we can make money at all different price points, as you're seeing today in what we have assembled here. And some of our moves further down the value chain, as we think about NGLs, crude oil and some of these other pieces, is to allow us to kind of have that portfolio of assets, that portfolio of opportunities. So in some of these areas where -- as you think about the East Texas, Louisiana area, we do have a sizable footprint there. We still see opportunities for consolidation. And we're actively looking and working those. We're continuing to work on the expense side to allow us to attract additional supplies, put in additional compression, do these types of things as well. So we think there will still be some opportunities regardless of what price we see. And that's really what we're preparing as leadership of this Company is to make sure that we're viable regardless of what happens on the pricing side. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [36] -------------------------------------------------------------------------------- And I'll just add -- and I think if you look at slide 6 in the presentation that we had out there, I think we have to think about it's not only the price side, it's also the cost side that's helping to drive some activity where -- especially in these high end plays, a reduction in our -- in service costs is estimated to add another 10 points on returns. So I think it's more important to think about as you look at where we are from a current price perspective, I think we're going to see continued solid activity, at least in the high return plays. And then the other marginal ones may take a little higher price. And as the market balances out, that's where we'll see the price stabilize in order to encourage some of the marginal production to the balance of supply and demand. -------------------------------------------------------------------------------- Ali Agha, SunTrust Robinson Humphrey - Analyst [37] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- (Operator Instructions) We can go next to Matt Tucker with KeyBanc Capital Markets. Please go ahead. -------------------------------------------------------------------------------- Matt Tucker, KeyBanc Capital Markets - Analyst [39] -------------------------------------------------------------------------------- Good morning. Wanted to ask about the potential EGT expansion. Could you give us a sense of kind of time line from here in terms of making a decision, and if you go forward, permitting construction and the expected in-service day for that? -------------------------------------------------------------------------------- Paul Weissgarber, Enable Midstream Partners LP - Chief Commercial Officer [40] -------------------------------------------------------------------------------- As we look at that project overall, and I have to be a bit careful here, we're still in active negotiations with a number of parties. So certainly don't want to telegraph anything here. But we're hopeful. And it looks like we're going to be at a spot of even executing [suppressing] and agreements in the very, very near term. And we've already started some of the preliminary engineering work. So we believe that we're going to be able to make real progress on this. I don't know if we're at a stage right now that we actually want to put a date out as far as having the project completed. But we feel good about being able to marshall the engineering, the construction resources. We've been hard at work in parallel with some of the supply chain pieces to be able to move quickly once we get to these agreements. -------------------------------------------------------------------------------- Matt Tucker, KeyBanc Capital Markets - Analyst [41] -------------------------------------------------------------------------------- Thanks. And I apologize, I probably just missed this. But could you talk a little bit more about why the crude gathering guidance came down for this year? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [42] -------------------------------------------------------------------------------- It's really just -- we're not seeing quite the volumes right now that we had earlier anticipated on our Nesson system. It's kind of two-fold. One is some of the initial production on the early wells isn't quite up to what we -- the producers had originally forecast. And we've seen a few shut-ins. So we just, again, it's not a huge driver to gross margin this year. But we're just not seeing the uptick on that Nesson system that's going to come into service latter half of the year. -------------------------------------------------------------------------------- Matt Tucker, KeyBanc Capital Markets - Analyst [43] -------------------------------------------------------------------------------- Got it. Thanks. And then on the Monarch acquisition, in some of these opportunities you've identified kind of with your system maybe going after some of the other producers. Are these things that are kind of in the works and more near term? Or are these opportunities that you expect to play out over the longer term in the next few years? -------------------------------------------------------------------------------- Rod Sailor, Enable Midstream Partners LP - CFO [44] -------------------------------------------------------------------------------- Well I think we don't have another announcement in the queue ready to go out. We are working along a number of lines. I'm not sure I would go as long as a couple of years out. But again, we clearly want to grow our footprint. We're clearly talking to folks about opportunities along our system. So split the difference. Hopefully we'll be able to deliver some stuff over the next 12 months. -------------------------------------------------------------------------------- Matt Tucker, KeyBanc Capital Markets - Analyst [45] -------------------------------------------------------------------------------- Thanks. And just one last one. Your slides -- you mention some increase in activity in the Haynesville. I was wondering if you're seeing any change in activity on your system there or seeing or hearing anything from your customers there? -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [46] -------------------------------------------------------------------------------- We were anticipating that with some of the changeover in ownership that we'll see some people that are more encouraged to go out and do some things, rework some wells, put some new wells in. So we're optimistic that we're going to see some increased activity on that side. Recognizing, though, that today we have minimum volume commitments that are really keeping us whole from an economic perspective. So an increase in activity will bring some positives to us. But we're well below those minimum volumes right now on an actual flow. So I wouldn't see a significant impact on our income from that perspective. -------------------------------------------------------------------------------- Matt Tucker, KeyBanc Capital Markets - Analyst [47] -------------------------------------------------------------------------------- Understood. Okay. That's it for me. Thanks, guys. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- As it appears, we have no further questions. I will turn the floor back over to Mr. Lynn Bourdon for any additional or closing remarks. -------------------------------------------------------------------------------- Lynn Bourdon, Enable Midstream Partners LP - President & CEO [49] -------------------------------------------------------------------------------- Thank you, operator. I just want to take this opportunity to thank all of our employees for the continued engagement around safety and for all their hard work that has resulted in the accomplishments that we have outlined here for you today. Also want to thank everyone listening to the call for your interest in our Company. We have a great story and a great team and I look forward to speaking to you again soon. Thank you and have a safe day. -------------------------------------------------------------------------------- Operator [50] -------------------------------------------------------------------------------- And this does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.
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