Transcript ( PDF 538 KB ) - EnLink Midstream Partners, LP

EnLink Midstream
2015 Analyst Conference
March 30, 2015
Michael Garberding:
We’re going to go ahead and get started. Welcome,
everyone. I’m Mike Garberding, CFO of EnLink Midstream, and we’re incredibly
excited everyone’s here for the 2015 Analyst Day. You know, it’s real special to
us to have everyone here in Louisiana. If you think about things for us, right,
Cajun-Sibon, a huge achievement for us on the NGL side of the business. You
think about the Bridgeline acquisition and the building of the platform we’ve done
here, you know, something that we think can be really special to what we’re
going to do. So to have the time with you guys here in Louisiana to walk through
those opportunities, as well as tomorrow actually visiting the site and seeing the
guys who have executed on this and are operating today, this is a great
opportunity.
So if you really think, we’ve been EnLink for about a
year, it’s not that long, and we think we’ve done a great job executing on the
opportunities really to put us in this position to grow. So today, there are some
key things we want you guys to hear, right? So what is important for you is really
that we’re prepared for this, you know, stability plus the growth, the great growth
optionality you’ll see embedded in each business. We’ll also talk about our great
assets and the product diversity, again going back to the stability, and we’re not
your typical G&P company. A lot of people put us in that category but we think
we’re quite different.
You’ll see the leadership team which we think is real
important, the guys really executing on the business and the growth, and you’ll
have a good opportunity for us today and tomorrow to talk with them and get their
good views on what we’re doing. Devon, a premier sponsor who we think is top
tier as far as how they run their business and then their strategic alignment with
ourselves, EnLink. Then ultimately, our goal has not changed; double in size by
2017, so that’s real important. So what we hope you see is that roadmap of how
we do that, how do you get from here to there and the growth options and
opportunities that are embedded in our business, so feel very good about that.
So for the day, we’re going to start hearing from Barry
about the strategic vision for EnLink. Then Dave will be up here talking about
how strategically positioned Devon is and how that then comes into and helps
EnLink. We’ll then have each of the BUs, so the gas and liquid, we’ll have Steve
and Mac talk about their vision for the business, and then we’ll have panels of
those leaders for the business talk about the growth opportunities, the growth
projects, their view of the business. We think it’s a great—it’s great to hear it
from them, to really see the leadership team is really executing, giving us this
opportunity, so a good day. Then ultimately, we’ll end up with the financial
strategy, you know, how do we make it all happen? The panels we think will be
1
good because really, you hear from the guys, right, the guys that are making it
work, so—and we think it’s a nice way for you really to see how we think about
the business.
So with that, I’m going to turn it over to Barry Davis,
CEO of EnLink Midstream.
Barry Davis:
Mike and good afternoon, everyone. Is my mic on? It
is on, good. Well, welcome to our place. When you think about EnLink, you
think about Dallas, right? Well, I think after this weekend, or this next couple of
days, you’re going to think about this, Louisiana being our home. We have a
great set of assets, a great operation and a great team here in Louisiana. I’ve
said often that if I could put together a team of people and create a company that
had the personality of our Louisiana assets, that would be the perfect scenario. I
think you’ll see what I’m talking about after the next 24 hours as you get
exposure. We got Mike LeBlanc, who must the Mayor of New Orleans – he
should be if he’s not – with us, and you’ll hear about—you’ll hear from him over
the next 24 hours.
A year ago, we got to sit here and tell you what we
had just done as we took a giant step forward in our history of the Company to
create EnLink. Before that, we had over 60 years combined between Crosstex
and Devon in the pursuit of building the best midstream company in the industry.
We had the expertise of the people that were running those companies, and we
had a lot of input from you as to what would constitute the best midstream
company in the industry. The answer to what we heard and what we designed
for was a company that would have the safety in difficult circumstances, stability
in all conditions – that means predictability of cash flow, solid assets that are
going to grow – and most importantly for most of us, value creation through a
vehicle that can grow. The second thing that we said we wanted to solve for was
we wanted to be powered by a diverse set of assets and relationships in the
industry, and we have that. The last thing is you need people, the right people,
people with the expertise to navigate in whatever conditions you’ve been in.
Well, over the last several years, we have put that
team together and I think today you’re going to get a chance, once again as you
did last year, to see what that team looks like. As we each speak to the situation
that we’re in, what you’re going to see is an enthusiasm, an excitement and a
confidence that is based on the execution that we’ve done to date. We promised
you a year ago that we had a roadmap that we felt like had been tested, and now
what you’ve seen over the last 12 months is the execution of that roadmap to the
point of $3.7 billion of growth. You’re going to hear a lot about growth and what
we’ve been able to do, and if you just look at it all in, we’ve grown by about 25%
on an Company overall size of about $14 billion when we sat here last year.
2
One of the things that I’ve struggled with a little bit –
and I said this to somebody earlier today – is to really communicate to you that
all that we’ve done has positioned us strategically for great things in the future.
I’ve struggled with how to communicate that to you in terms of numbers. If we’re
sitting here today with a $741 million EBITDA projection for this year, what could
it be once we see all these things really begin to contribute the way that they—
that we expect them to? Look for that today. Look for that in all the things that
we talk about. Where are the upsides, where are the opportunities to really
leverage this position, because we believe that these assets have much greater
potential than what we’ve been able to realize yet, and that’s not to say we’re not
doing our job. What it is saying is that we’re just getting started. So look for what
the opportunities are.
When you look at us today, and I’ll just hit a couple of
points on this slide that we want to make sure that you appreciate, is the fact that
we do, in fact, have one of the top tier balance sheets with an investment grade
credit profile that has served us extremely well in the last 12 months as we’ve
raised over $2 billion of capital to fund the growth that we’ve experienced. The
second thing is you’ve seen strong support from our sponsor, Devon. We think
you’re going to have a much greater feel by the end of the day to what the
significance of that is. As you hear from Dave Hager here shortly, the things that
Devon is working on is done with a view towards what is the impact to EnLink?
How can we work together as a partnership? So we think that that is a significant
part of what we’re doing as a company.
I’m happy to report that—one of the big questions we
had last year is, is this marriage, if you will, between Devon and Crosstex going
to be what we expect it to be? Is the transition going to happen in a way that it is
constructive to the company that you own, and I think what you’re going to see is
that it has been that. From my own measure, it’s exceeded all expectations that
I’ve had. We have worked tremendously well together, have greater respect than
we’ve ever had for Devon and their capabilities and I think we’ve demonstrated to
them that they’ve got a great midstream company in EnLink.
So let’s talk about where does the safety, stability and
growth come from? Well, it starts with having the right platform, and we believe
that we have that in terms of the diversity of where we make money. By
segment, we have a cash flow that is balanced, obviously a big position in the
Barnett Shale and in Texas, growing in the Permian and the Eagle Ford, with
about 50% of our gross margins generated from Texas. Oklahoma is 17%,
Louisiana is 26% and growing significantly, and lastly in our ORV business in
Ohio, we have a growing business there as well.
By customer, Devon represents a little over 50% of
our business. What we would say is that when it comes to Devon, we are one.
When it comes to our customers, we’re also many. We know how to serve other
3
customers, we know how to serve Devon, we’ve proven that over the last year as
we have not only strengthened the relationship with Devon but done the same
thing across all of our portfolio relationships. Many times you’ve asked us the
question, is it hurting us in other relationships? And I would say just the
opposite. The strength and the capabilities of Devon have made us a more
credible midstream provider. People see the stability and the growth and the
capabilities that we have, and so that has really served us well.
Lastly, the most important thing from a safety and
stability standpoint is the right contract. Over 95% of our margin today is
generated from fee-based contracts. That means that in the place of a 50%
contraction in commodity prices over the last six months, we’ve seen very little
downside. What we do have though is significant upside when we see the
recovery in the commodity prices that we would expect it some time. Importantly,
we have terrific contract volume commitments. Over 80% of the throughput, the
fees that we generate across our assets, are supported by minimum volume
commitments and firm transportation agreement, giving us a great stability to
build from.
I said earlier that EnLink is a vehicle that is powered
by a diverse and significant asset base. In the last 12 months, we’ve grown by
25% in terms of the miles of pipeline. We today have over 9,000 miles of pipe.
We’ve grown by 25% in terms of the gas processing facilities that we have with
16 plants in service today. We have 280,000 barrels a day of natural gas liquids
handling, one of the leading natural gas liquids handlers in the midstream
business.
We still have operations in six major basins, including
most recently with our expansion in the Eagle Ford, as well as the Permian.
We’re in the right places. I’ve described several times in conversations with you
guys recently that what we’ve seen to date and what we’re going to see, we
believe, is about a 50% contraction in the business from kind of a high of six
months ago to a low of where we’re—you know, maybe in the next 90 to 120
days. We believe that that 50% contraction is going to be concentrated in a very
few counties across the country. The good news is that we’re in those places.
Those are the places that we’re operating in these six basins. We have assets in
the right places even in a lower activity environment.
Lastly, let me just make a point that we are also
balancing the services that we provide to our E&P customers. Several years
ago, it became clear to us that when you walk in the room, you have to be able to
do whatever the producer needs, to handle whatever product that they produce;
natural gas, natural gas liquid, condensate and crude oil, you have to be able to
do it all. What we’ve done is we’ve built our capabilities to go way beyond gas
and natural gas liquids into the crude logistics, condensate and handling, and so
4
today with great capability, we can do whatever a producer needs to get its
product marketed.
You’ll hear us talk a lot today—in the next 30 minutes
or so, you’re going to hear the Devon story. What Devon means to us is that we
have one of the premier sponsors with a top tier E&P company with assets and
operations in many of the same places that we do. In fact, of the six places that
we operate, Devon is active in four of those. So we have the benefit of a terrific
sponsor and a relationship in Devon that basically is overlaying a classic master
limited partnership structure. With a public general partner, we will—we are
rapidly moving towards a pure general partner. Once we drop down the last half
or the last 25% of EnLink Midstream Holdings, our general partner will be a pure
GP with essentially all of its holdings being the units and the general partnership
interest of the Company.
So if you had—if I had told you last year that we were
going to do $3.7 billion worth of transactions and that we were going to execute
according to the roadmap that we had laid out for you, would you have been
satisfied? Well, that’s what we’ve done. It’s been an incredible year. I saw one
of the analysts wrote last week that they were looking forward to trying to put all
the pieces together of all the activity that we’ve had. We have been very
fortunate to execute the way that we laid out. I know we’re diligent, I know we’re
faithful to do what we said we were going to do, but it also takes some things to
work out well and those things have happened.
We have dropdowns—starting with our four avenues
of growth. Avenue one is dropdowns, and we started last fall with the first of
those dropdowns with our E2 business, which is an ORV concentrated service
company that we were—we owned 93% of. We essentially bought that in into
our partnership with a value of a little over—of about 100—right at $200 million, a
significant step for us to begin to see those dropdowns. The second thing we did
was a 25% interest in EnLink Midstream Holdings, which was completed this
year in the first quarter, a little over $900 million of total transaction value in that
transaction. Last week, we did the Victoria Express pipeline, or VEX, that we talk
about. The VEX system will be a little over $200 million in total value, including
the follow-on construction that we’re currently in the middle of. So in avenue
one, we’ve been very active. We’ve completed dropdowns; we’ve got several
things that are coming in the future.
In avenue two, which is growing with Devon, we made
the first of those transactions in the fourth quarter last year when we committed
to build—or it was actually in the third quarter, when we committed to build the
Martin County expansion off of our Bearkat facility and the Ajax plant. That
transaction was really strategic for us because it got us essentially a first seat in
position to buy the Coronado asset, which came shortly thereafter.
5
The third avenue of growth is our organic projects,
and this is what we’ve always done. So this is probably what you would expect
to see us have, great concentration going forward as we want to continue to grow
organically off of the platform of assets that we have. Our Cajun-Sibon project,
which you guys will get to witness tomorrow firsthand, is an extraordinary project.
I say in the history of the Company, it would be difficult to find anything that was
a greater—had a greater impact. It was a game-changer for us, to have
approximately an $800 million project go as well as it’s gone, to have it come on,
essentially on time, on budget with great execution really is a testament to the
quality of the team that we have in Louisiana. The second is the Bearkat
construction we completed in the fourth quarter of last year. Third is our ORV
condensate expansion project, which is—has announced and you’ll hear much
more about later in our liquids business discussion; and lastly, our MarathonGaryville project which is essentially the next phase of growth off of the CajunSibon project.
Moving into avenue four, a year ago, you would have
asked the question, how much do you expect to do in terms of M&A? Our
answer is always when it comes to M&A is we’re going to be very strategic, we’re
going to use it when it’s appropriate, but we’re also going to be very patient and
very disciplined. We were able to do two transactions this year that we had
coveted. In fact, all three of them we have coveted for a long time, starting with
Bridgeline. Bridgeline is an asset that we had watched for about 10 years. We
had actually seen it repeatedly as our team kept talking about the ways that we
could bring the Bridgeline in and continue to optimize our existing system. Well
finally, after 10 years, we were able to make that acquisition for about $235
million and we believe it’s going to be a very strategic piece of business for us
here in Louisiana.
The second really in terms of sequencing would be
our LPC transaction, which is a logistics, a crude logistics business in the
Permian. While we weren’t specifically looking at LPC over the last two or three
years, we were in fact looking for a platform in the Permian. Shannon Flowers,
who you’re going to hear from later, has been with us for a couple of years and
one of the reasons we brought Shannon in was that we wanted to acquire a
platform. We want to grow the crude business. We think it’s a place that really
complements—an area of the business that really complements what we do, and
so we were able to see one of the best platforms in the Permian in the case of
LPC and to be able to make that transaction.
Lastly and most recently, we completed our Coronado
Midstream acquisition, $600 million transaction and the greatest asset we got
you’re going to get hear from later, Andy Deck. Andy was the CEO of Coronado
Midstream. We believe he knows the Permian and that particular area of the
Northern Midland Basin extremely well. He’s executed extremely well in the case
6
of Coronado and we’re happy to have him on board to continue to build out our
strategic plan for that area.
So the four avenues of growth have served us
extremely well since we introduced that concept last year, and as we look
forward into the future, we expect that there will continue to be great growth
opportunity. Walking back through the avenues, I’m going to essentially start
with the dropdowns and the Access Pipeline. The Access Pipeline is still a very
attractive opportunity for us. Our plan is still to see that acquisition happen from
Devon, from us acquiring it from Devon. We expect that to happen in 2016. We
still have 25% of the EnLink Midstream Holdings business that will happen
sometime here in the second quarter. We’ve said it’ll happen in the first half, and
we’re almost to the end of the first quarter, I guess in the very near future, next
day or two, so second quarter transaction. Then lastly, you will hear about some
additional opportunities that we expect to see with Devon. There will never be an
end, we don’t believe, with the Devon dropdown opportunities because they’re
always generating opportunities through their E&P activities for either us to build
infrastructure or Devon to build it and drop it down into our NC (ph) in the future.
Second avenue and opportunities looking forward is
we are looking at expanding our position in the Cana or the mid-continent
business. We think it represents one of the key opportunities that we’re looking
at today. We’re also expecting there will be multiple expansion opportunities in
the Permian, including the building of our Ajax plant which will happen later in
2015 and ’16.
Moving into avenue three, our organic projects, just to
highlight again a couple of things, the ORV condensate project, the MarathonGaryville project, a gas to liquids pipeline conversion in Louisiana. We promised
you that we would begin to unfold for you what the opportunities are around the
Bridgeline facilities. Now that we have redundancy of pipe, one of the leading
positions in the State of Louisiana as far as the amount of pipe that we have and
the redundancy of that pipe and how we could begin to use that for additional
services. So I think what you’ll see is the kinds of things that we’re thinking
about. Lastly is the Permian Basin expansion for Coronado and LPC. It’s like we
have a new place to farm, a new place to harvest and there’s a lot of low-hanging
fruit as we look at the opportunities LPC has seen in the past but not had the
capability to pursue. Similarly with Coronado, we will bring an infusion of new
capabilities, ideas and energy to go grow that business.
Lastly in the M&A area, what I would expect, what you
should expect to see us do is to do the things that really do enhance our existing
position, the bolt-ons and the expansion opportunities around our existing
platform while we are looking for, if you will, that step change transaction. I
don’t—we don’t expect it near term. We think the environment is going to
continue to improve for that step out transaction, but we’re doing the things that
7
you would want us to be doing right now to make sure that we’re vetting those
opportunities daily.
So our promise to you last year, and many of you
continue to ask the question, do you still believe in 1.4 billion by the end of 2017?
And the answer is absolutely. We’re confident that we can execute on this plan
because we have good visibility to where those projects and that growth
opportunity will come from. This slide attempts to explain that by going through
the four avenues of growth and how much capital and how much EBITDA that we
expect to spend in each of these avenues. So starting from a base of a little over
700 million for this year’s projected EBITDA, what we expect to see is 4 to $6
billion of growth capital over the next three years that would result in somewhere
between 450 and $750 million of EBITDA. Now, that’s a fairly significant range
that’s represented by this shaded area, but you see right there in the middle what
we’re targeting is 1.4 billion by the end of 2017 and we believe that that is the
expected case or the base case of the things that we’re working on right now. So
Mike is going to talk to this slide in more detail later and I’m sure that there will be
plenty of questions in the Q&A time around this slide.
So what we said is, a year ago, was that we have a
plan to build a vehicle that was really the first of its kind. We believed it was the
first of its kind because what you took is a very capable midstream company with
one of the best E&P companies. We brought them together to create the first of
its kind. We thought there would be a pursuit of the follow-ons, the people that
wanted to do the same thing, but what we told you is that it wouldn’t be easy to
do because the gating item is the relationship that’s got—that is required to bring
two companies together like that, and it proves to date we’re right. You haven’t
seen another one and so we still believe that we are a unique vehicle in the
midstream space. We are built for safety, stability and growth.
Many people have asked, did we predict this
environment that we’re in? And our response is we didn’t predict it but we were
prepared for it. In fact, what we think, if we’d built a company that can excel in
any environment, give us the next robust environment, give us the next up cycle
and I think you will see the opportunities generated from this platform of assets
with this group of people will be extraordinary just like you’re going to see in a
down cycle that we’re in now extraordinary performance from the Company. We
will continue to generate stable and growing cash flows. You’ve seen that in all
of our projections. Devon’s sponsorship, which I’m anxious to hand the mic over
to Dave here shortly, I think you will see that the commitment is strong, the plans
for the future are great and we have the right people, and I think you’ll see that
throughout the rest of the day.
So the last thing I’d like to say before we get into the
full presentation is thank you for allowing us to do what we love doing by giving
us your support. Many of you have been around and I look at the back table and
8
guys have been here for 10 years or so, and then I guess after a few years, they
start to move to the back, but it’s been terrific to have the support for what we do.
We do this because we love being together as a team. I think you’ll see that
throughout today there’s a camaraderie, there is a culture that says we like what
we do together, and we think that we’re really doing a nice job. We’re good at
what we do in creating value, but we couldn’t do any of it without you, so guys,
today, listen for the results of your company and know that we’re just getting
started. I hope you’ve got a lot of running room left in you because we think the
best is yet to come and we’re excited to tell you the rest of the story throughout
the day.
So let me turn it over now to Dave Hager, who is the
Chief Operating Officer and soon to be Chief Executive Officer here as we see a
transition between Dave and John Richels over time, and we’ll look forward to
seeing you guys throughout the rest of the day. Thank you.
David Hager:
Well thank you, Barry. Good afternoon. It’s a
pleasure to be with all of you and to talk to you a little bit about how important this
relationship between Devon and EnLink is. We view the EnLink investment as a
very important long-term strategic investment for Devon, and I can tell you we’re
very proud of the relationship that we have with EnLink and we think that it’s
working very well and we plan to maintain our investment in EnLink for a long
time. So I’d like to talk about, first off—or I’d like to talk to you a little bit about the
Devon assets and some of the important Devon assets that we think can
contribute to pre-future midstream growth. Also like to talk to you a little bit about
some potential dropdowns that we see and to the EnLink vehicle in the medium
term, but before I even get to that, I think I’ll kick it off talking a little bit about
where we are today in our business.
If you look back 10 or 15 years or so ago, if you
looked at North America onshore, it was area that was pretty much in decline. It
was an area where we did not see the growth opportunities as an industry. I’m
proud to say that Devon was one that actually kicked off the entire
unconventional revolution in the Barnett Shale, and from that, we have now, with
the advent of horizontal drilling and hydraulic fracturing, gone to a period of very
strong growth for North America onshore. As the slide says there, energy
independence in North America is possible and it’s all because of the
unconventional revolution that is taking place in North America right now.
Now, sometimes with revolutions, they’re a little bit
messy and I think we’re going through a little bit of a messy period as we speak
right now. We have had so much success as an industry, first on the natural gas
side and now on the oil side, that we have created an oversupply type situation
and obviously driven prices down precipitously to under $50 a barrel WTI and
under $3.00 per Mcf NYMEX. I can tell you that we feel very good about the
future of North America onshore. We (inaudible) tremendous amount of
9
resources yet to be discovered and developed, so we see a strong future for
Devon. We are now strictly a North America onshore-only focused company and
for a company the size of Devon, to commit to be North America onshore-only,
you can see we wouldn’t make that commitment unless we saw a tremendous
future in the business, and as Devon grows, we see tremendous opportunities
then for EnLink to participate in that—on the midstream side.
We think, given where we are right now, there are
three keys for success in this environment. First, you have to have top-tier
assets. You have to have strong plays that still produce good returns in this
commodity price environment. We have that. You also have to have superior
execution. It’s not good enough just to have the assets. You have to deliver on
those through reducing drawing costs, improving completion efficiencies, et
cetera. We are 100% focused on that. Then third, you need to have financial
strength and Devon has that. We have a very strong balance sheet currently. I’ll
go through how the EnLink relationship actually has enhanced that strength as
well, and we plan to maintain that, and again, a strong Devon facilitates a strong
EnLink. So we think that’s one of the things that we bring to the table.
So if you look at Devon today, we have really focused
the company back to a number of core areas. Last year, we—in addition, we
kicked off the year really with the relationship between Crosstex and Devon and
forming of EnLink, but after we did that, we actually also executed a series of
divestments and acquisitions that have now placed us in four oil-oriented areas,
one up in Canada, the heavy oil and the SAGD project we have going on, and
three oil-oriented areas in the US side – the Permian Basin, the Eagle Ford and
an emerging play we have in the Powder River Basin of Wyoming. In addition,
we have two liquids-rich areas in the Anadarko Basin, particularly our Cana field,
and then in the Barnett Shale where we kicked off the whole revolution. It’s
important to remember that EnLink is in four of these areas currently with us.
They’re in the Eagle Ford now with the VEX transaction, very big participation in
the Anadarko Basin in the Cana field, the Barnett Shale and also in the Permian
Basin. So there’s a lot of commonality between the growth of Devon and the
growth of EnLink.
Well, how are we going to succeed? I hit this quickly
here before. Again, you have to have a premier asset base and that’s the good
news, is even though commodity prices have fallen precipitously here, we still
have strong return projects in our core areas, and so we’re still able to execute
the programs, particularly in the Eagle Ford, the programs in the Permian Basin,
also programs up in the Cana field in the Anadarko Basin, and to a lesser
degree, we have a refrack program going on in the Barnett that, if successful,
could lead to significant additional opportunities there as well. So we have a
deep inventory. We also have an inventory that’s balanced between oil and
natural gas, so as commodity prices fluctuate, as they obviously do, we can shift
and so we’ll be in a shift back to more liquids-rich from our natural gas oriented
10
drilling or we can stay more focused on the oil side, which we are now. So again,
having that balance, along with the financial strength, I think helps to sustain a
strong capital program with strong returns which can facilitate the growth of
EnLink as well.
The execution side is where we’re putting a huge
amount of energy right now as a company, and a great example of how we’ve
improved our execution there, it has really driven the economics in our core plays
as where we’ve gone to much larger completions on a number of our wells in
terms of the sand concentration that we’re using. In many cases, we have
doubled or tripled the amount of sand that we’re using in wells, and what we’re
seeing is that by the increased use of higher sand concentrations that we
concentrate immediately around the well bore too, we’ll get much higher initial
rates in these wells and we actually, in many cases, are increasing the ultimate
recovery. Bottom line, we still have good economic plays that we can invest in,
even at this challenged commodity price environment. So as long as you
executed on—or deliver on the execution on that, as well as another thing I’d
mention that’s very important that EnLink brings to the table is around managing
our base production and particularly in the—and I’ll get into more detail on the
Barnett, but we generated about a billion dollars worth of cash flow in the Barnett
last year. That cash flow was enhanced through a lot of activity that EnLink
brought to the table, reducing line pressure through additional compression,
things like that. So there’s a real mutually beneficial relationship that exists there
that enhances our cash flow and then, in turn, as we can enhance our cash flow,
allows us to invest more and grow the business more.
We are maintaining our financial strength and
flexibility. I’ll show you a slide on that, and of course, EnLink in general is a
strategic midstream business to us that we think gives us a leg up over the
competition.
If you look at overall, we have an interest obviously
both in the MLP and the GP. We’re very happy with the relationship that we
have there on both sides of that. Obviously, some of the news that was talked
about last week is we did sell some of the MLP units. I can tell you at this time
very clearly that Devon has no future plans to sell any of the MLP units. If you
look at that, what was going on as the commodity prices have been falling very
quickly, obviously we’ve been ramping down our capital during that timeframe,
but if you add in the sale of those units plus the dropdown of the Victoria Express
pipeline, that essentially places us in a cash neutral position for 2015. We are
also planning our budget for 2016 to be cash neutral without the sale of any
units, just from our ongoing operational cash flow. So this we look at as a onetime type event, and again, I want to reiterate that we are very committed to the
long-term relationship that we have with EnLink. This was a one-time type
transaction and we have no future plans for any more sale of the MLP units. But
that allowed us to—and even in this very challenged commodity price
11
environment, say that to be essentially cash flow neutral, it allowed us to keep
operational momentum going in some of our key areas such as the Eagle Ford
and the Permian and where we’re still getting strong returns on those projects.
So why is the EnLink relationship important to Devon?
I think there are some good bullets that are listed here. Before I go through
those, the one thing I want to tag into that Barry was mentioning too, I think the
start of any successful relationship and business like this is to have a common
set of values between entities, and I can tell you that from the Devon perspective,
that we feel that we share a common set of values approach to the business with
the EnLink people. They think the way we do, they value the same things we do,
they value trust, they value integrity, they value safety and they value operational
excellence, and when you start with that basis, I think then the rest of it is going
to come that much easier. Beyond the cultural things, there obviously are some
other things that are very beneficial from this relationship.
Having EnLink involved in the infrastructure does
enhance the value of the E&P production stream, so because of our very close
working relationship, we can get wells tied in very quickly, we can access the
markets for our hydrocarbons very well and it is a much closer working
relationship than if we had a third party relationship. It also improves the capital
efficiency, and that allows the EnLink side of the business to spend the bulk of
the midstream capital and then the capital that we spend as a company, that
Devon spends as a company can be concentrated on the E&P side of the
business. So if we concentrate our capital on the E&P side, that allows us to
grow the E&P side even quicker, which, again, can provide opportunities back to
EnLink, so all of this is mutually beneficial by that.
It did also allow us to get a public market value for our
midstream assets without incurring any tax obligation there, so that—getting that
public marker out there was important. We also see that a benefit from asset
dropdown from our perspective as well. Not only does it drop down into EnLink
which grows their business, but then the distributions back to Devon provide an
additional source of cash that we can invest to grow the E&P side of the
business. We also see that there’s just a diversification, scale and growth
trajectory through EnLink, through what Barry was talking about here, is
enhanced through this entity versus what it would have been internally just within
Devon as well. So for all these reasons, it’s a very important relationship.
Looking at Devon more specifically here, we’ve been
on a growth trajectory here—I mentioned not only did we do the EnLink
transaction, but we also acquired a great asset in the Eagle Ford, divested about
$5 billion of non-core assets. We grew our oil production about 37% last year
overall. That was about 74, 75% on the US side; flat in Canada last year. We’ll
be back on the growth trajectory this year in Canada, but significant growth on
the oil side, about 15% on a boe basis. If you looked at Devon a few years ago,
12
we would have been about 70% natural gas, 30% liquids. If you look at it now,
Devon, we’ve made a significant shift into oil and natural gas liquid, with that
being about 60% of production stream and about—a little over 40% natural gas.
The 2015 capital program, we did reduce it probably a
little bit less than the industry, about—we reduced our capital program by about
20%. Couple of reasons why. One, we have positions in some of the most
economic plays onshore North America, so we still have good rate of return type
opportunities in those. Second, we have a strong balance sheet and it allowed
us to execute on that program. So we dropped it back by 20%. The bulk of our
capital is being spent in the Permian, the Eagle Ford and heavy oil, although we
do have important programs going on in the Anadarko Basin and even the
Barnett, where we’re doing this refrack program may be important for the future
there as well.
We were very pleased at—before the price decline,
we had talked about growing our oil production 20 to 25% and our boes about
5%, with similar amounts of capital to what we spent in 2014; in other words,
somewhere around 5.2 billion or so. When we actually rolled out our budget, we
reduced the capital by 20%, but we kept our production guidance intact. So I
think that’s a pretty noteworthy accomplishment to be able to do that, and the
reason we were able to do that is, again, driving those efficiencies in the
business, the upsize fracks that we did, the base production, minimizing base
production declines; again, a benefit of working with EnLink on that side of the
business. Our—the bulk of our—we have a pretty small capital budget
associated with the midstream business on the Devon side this year, and so
again, that’s a benefit to us as well, that almost all of our capital’s going on to the
E&P side.
Looking at the financial strengths of the company, we
have always been a company that prides ourselves on financial strength, we are
investment grade credit rating by all the major agencies. You can see we have a
cash balance of about 1.5 billion, net debt of about 7.8 billion excluding EnLink, a
net debt to EBITDA projected for 2015 of approximately 1.5, and then our cash
flows, we protected significantly in 2015 by hedges. You can see there our
hedge position, over 50% at $91 a barrel and about 40% at over $4.00 in Mcf,
which gives us a significant advantage and it allowed us to continue execution of
the capital programs we did. We also see some cash distributions coming in,
about $300 million or so from EnLink this year, and the midstream asset
dropdown potential, one of which we just executed, which is the Victoria Express.
So let’s take a look at some of the plays quickly, just
to give you a feel for some of the different things that we’re involved in. Let’s
start off in the Eagle Ford. This is a play where we have about 82,000 acres.
This is the best acreage in the Eagle Ford. This is right at the core of the Eagle
Ford, very high rate of return opportunities in DeWitt County. As you move up a
13
little bit to the northeast of Lavaca County, it’s not—a little bit thinner, not quite as
strong but the DeWitt County acreage in particular is just the best of the best you
have in the Eagle Ford. We have about a thousand undrilled locations. You can
see tremendous cash margins that we generated there last year. We currently
have about 11 to 12 rigs working in the Eagle Ford, focused primarily on the
DeWitt County acreage, spending a little bit over a billion dollars.
We mentioned the Victoria Express dropdown. That
was our first dropdown that we did, accomplished it last week, a 56 crude—a 56mile pipeline that goes from our terminal at Cuero down to the Port of Victoria,
that we currently have about 50,000 barrels a day of operational capacity and
about 150,000 barrels a day of storage. With the additional construction work
that’s going to be finished up between now and the end of the year, we’ll be
expanding that capacity to around 90,000 barrels a day and about 360,000
barrels of storage. So a great opportunity, not only to handle the Devon crude
but additional third party opportunities, and I think the guys are going to be
talking about it a little bit more in the presentation, trying to access some of the
third party opportunities in the Eagle Ford.
Looking at the Permian, we have a significant
acreage position in the Permian, about 1.2 million acres currently. We’ve been
growing our production in the Permian. You see 23% higher and last year, up to
98,000 barrels a day, coincidentally, the same production we had at the Eagle
Ford in the fourth quarter, 98,000 barrels a day, very deep inventory of projects
there, particularly in the Delaware Basin where we’re executing in Lea and Eddy
County for various formations, particularly the Bone Spring and also, we have the
Wolfcamp, the Leonard, the Delaware Sands as well, upside to that even
potentially through down spacing pilots that we’re doing this year. We also have
about 15,000 acres in the Martin County in the Midland Basin side near the
Bearkat infrastructure that EnLink has. This is an area that’s a very prolific part
for the Wolfcamp play. We’ve drilled a few wells in there. We understand the
resource capability that it has. We’re working on getting the drilling cost down a
little bit, and then we plan to go back out with a more active program there.
But—and this time, this again, a big spend for us, about $1.3 billion, primarily
with activity in the Delaware Basin in 2015. As commodity prices get back to
more normalized prices, we’ll probably be adding rigs back elsewhere in the
Permian Basin.
Up in Canada, the one thing about the SAGD area
you need to understand is that this is really located in the—certainly the top 10%
of all the SAGD reservoirs. It’s an area—this project and a few other projects
immediately around it are really the best of the SAGD, and in a SAGD project,
basically what you want to do is get it—avoid getting too much water associated
with the reservoir. If you have edge water, top water, bottom water, it’s like
pouring cold water in a teapot; it just kind of cools off the reservoir and it takes
more steam to heat it up. Well, this is an area that minimal water associated with
14
it, so you heat up these reservoirs—think of them as the consistency of peanut
butter in the reservoir, they heat up the entire reservoir through the use of steam,
and that’s a steam assist, they gravity drain down from a higher well to a lower
well and then you gas lift it out and you mix it with diluent, and then you take the
blended product down the line. We have three phases of this type project
operational currently. At Jackfish 1 and 2 are essentially fully ramped up.
Jackfish 3 is currently on stream and is ramping up and should reach full
operational capacity by the end of 2015, at which point we’ll have roughly
100,000 barrels a day gross and we have 100% working interest, so 100,000
barrels a day or so pre-royalty with this project.
We also have a project immediately to the south of
that, the Pike Project, that is 50/50 with BP and we operate. We’re finishing up
all of our delineation drilling, all of our engineering work. We’ll see—look at
prices at the end of the year and make a decision on whether we want to
sanction that project or not and we’ll see where the commodity price environment
is. Associated with that is the Access Pipeline. The Access Pipeline uses
essentially three pipelines, or are in the same ditch there, going up to—from the
Sturgeon Terminal down to the southwest up to the field at Jackfish and Pike,
and we have just finished the construction of a 42-inch blend line, so that’s the
line that takes the diluent back down from Jackfish and Pike back down to the
Sturgeon Terminal. The 24-inch line that’s shown there, it was the previous
blend line but we’ve converted that and now it’s taking diluent up to the projects.
We take the diluent up through the 24-inch line; the 42-inch brings the blended
product back down; the 16-inch line, once we built the 42-inch, it was previously
a diluent line and it’s now out of service and we’re looking at decisions on what to
do with that pipeline. But this is a potential dropdown, obviously into EnLink, and
again, Barry mentioned it already as something that we’re looking at working
through all the tax and legal issues associated with it, looking at what our final
decision will be relative to Pike and then look at potential dropdown sometime in
2016.
Moving to the Anadarko Basin, it’s an area that’s a
great success story and it’s an area where we have a very close relationship with
EnLink. It’s an area where it looked like the play—as we had a decline in NGL
prices (inaudible) a year or so ago, it was going to be questionable whether it
was going to be economic, but through the enhanced completions that I
described where we’ve essentially doubled the amount of frack sand that we’re
using, it is now with much higher rates, much higher ultimate recovery on these
wells; they are now very economic, even at the current commodity price
environment. So we have eight rigs working in this area now, five of which are
drilling these developments in Cana and then three that are actually testing a
zone immediately above that, the Meramec zone that we—that is more of an oiloriented zone that we think has great upside as well. We have, in total, about
280,000 acres in Cana. About 230,000 of that’s also prospective for the
Meramec, and as—if we—in a more normalized commodity price cycle, if we
15
would have more rigs working here, there’s actually upside to the infrastructure
sizing at Cana which could be meaningful to the EnLink business as well.
In the Barnett, I mentioned this before, we have the
largest and the best acreage position in the Barnett. This was an area where our
two companies work very, very closely together in a great relationship. We do
not have any drilling activity going on right now, but we are totally focused on
minimizing the production decline. EnLink has been a great partner in that, as I
said, in adding compression, lowering line pressures in the field. We also have a
refrack program going on right now that’s primarily oriented towards vertical
wells, but we’re also testing some horizontal wells. Now, if we get the economics
to work well in the horizontal wells, we have a tremendous amount of refrack
opportunities in horizontal wells that we could consider in the future, and not to
mention we still have a lot of dry gas drilling locations out here that are potentially
economic in the right commodity price environment too that we could execute on.
So even though we’re not executing on a drilling program right now, it’s still an
important program for the company, generated a billion dollars of free cash flow
in 2014, so you think about it. This is—even though you’re not spending the
capital there, this is really important to us to generate this strong cash flow that
we can reinvest in the rest of the business and grow our programs elsewhere
that provide opportunities between ourselves and EnLink.
As far as other potential midstream opportunities we
have here beyond what we’ve talked about with the Access Pipeline, we’re very
active, as I said, in the Delaware Basin and Northern Midland Basin, the Martin
County acreage. We are active, you can imagine, with a strong balance sheet in
this price environment that we are active looking for additional opportunities as
well. The Cana-Woodford area we could potentially ramp up to higher activity in
a more normalized price environment with—that would require additional
infrastructure built out there that could be beneficial to EnLink. I mentioned the
Meramec opportunity that’s called the STACK opportunity that we’re drilling.
Eagle Ford, new source, we love the Eagle Ford, we—and not only the existing
acreage that we have. If the right opportunity came along, we’d certainly be
interested in enhancing that position. Of course, we’re always looking at new
basins as well, and that’s part of being an E&P company. You’re always looking
for new opportunities out there and it’s very possible as we find those new
opportunities that our strategic relationship with EnLink would be important
associated with those.
So overall, we value this relationship a great deal that
we have between Devon and EnLink. We obviously have large investment in the
business as well, and we think it’s a relationship that we like right now and we
plan to have as a long-term relationship with the Company.
So with that, I’d like to invite Barry back up to the
stage and, Barry, I think we’re doing about 15 minutes of Q&A.
16
Barry Davis:
Yes, we are, Dave. Thank you for that and if you like
the enthusiasm for the partnership that we have with Devon, I think you can see
why we think it’s such a strategic piece of who we are as a company. So, Dave,
thank you for sharing that story.
We do have about 15 minutes and we’d love to hear
your questions, what’s on your mind related to the Devon and EnLink
partnership.
Noah (ph):
Barry, I got a question back here, and I guess it starts
with Dave and then goes over to you. You came out very forcefully that, you
know, Devon has no other plans to sell any additional EnLink, but then you talked
about you needed to sell at (inaudible)—or you inferred that you needed it to
make you cash neutral for 2015. You’re starting to look at 2016. If commodity
prices don’t bounce back, is EnLink units an opportunity for you to raise cash,
again in 2016 that you would end up selling more units?
Then Barry, I guess, how does the current—the
recent sale by Devon impact—and any future sales impact your need for growth
capital? With a 4 to $6 billion growth plan over the next three years at a 50/50
split, assuming there was a sale or take-back of units, you need to put 2 to $3
billion worth of units into the market over the three years and, you know, there’s
only so much cash to go around and if Devon takes it, it might make your path a
little more difficult. So if you guys could comment on those two interplays, I’d
appreciate it.
David Hager:
Yes, maybe I should start off on that, Barry. Again,
we are—and still in the middle of developing our 2016 budget, and I’m not going
to give exact guidance on what it looks like, but I can tell you philosophically that
we are preparing a budget that lives within Devon’s operational cash flow and is
cash neutral to that. So we would not rely on any sort of additional sale of units,
and so that’s why I’m very confident to say we have no future sale of units
planned, and you may say, “Well, how are you going to do that given you’re
getting the benefit of $2 billion of hedge this year and if prices stay down next
year?” Let me just walk you through a little bit of that.
I’m not going to give you exact guidance, but if you
look at our budget overall, we get the vast majority of our margin out of our oil
side of the business and we’re essentially guiding our production flat this year on
the oil side of the business. As we move forward into 2016, we see that we’re
getting a partial year of the cost savings that we’re getting through the cost
reductions that are taking place out in the industry this year, so commodity prices
stay low in 2016, we’ll get a full year’s benefit of those cost savings through lower
pressure pumping cost, lower drilling cost, probably get a little bit of relief on
17
tubular cost, et cetera, so we will get significant additional cost savings in ’16
relative to 2015.
We also see that we can adjust our budget in other
areas such as—even in the heavy oil with a sanctioning decision on Pike. We
can make a decision to do it or not, and a dropdown of Access is not dependent
necessarily on that sanctioning decision. So we can adjust our capital spend up
in Canada as well, so we have a lot of different levers.
The other thing that—the last comment I’ll make, just
to give you some information, is we only have about 10 rigs under long-term
commitment and we have no long-term projects at this point. We’re finishing up
Jackfish, we haven’t yet committed to Pike so we have all the operational
flexibility in the world to adjust our capital spending to whatever level we deem
appropriate given the commodity price environment that we’re in. So if we see
that next year is developing to be a lower commodity price environment, we can
adjust our capital spend as appropriate to that environment without the need for
any unit sales.
Barry Davis:
So, Noah, what I’m hearing Dave say is time. They
have time to make a plan that can—you know, execute to a plan without the sale
of units. This year, we’re in extraordinary times. If you think back about it, when
we saw the decision by the Saudis on, what Thanksgiving weekend, Devon
would have been right in the middle; in fact, probably already at that point had…
David Hager:
Our Board meeting was the next week.
Barry Davis:
Yes, so (cross talking).
David Hager:
We had to approve our 2015 budget, yes.
Barry Davis:
So they had a first caste of their budget and they just
didn’t have enough time to react, and so that’s my first response when people
talk about what Devon just did in terms of the sale. These are extraordinary
times. I think now we’ll be able to do things next year with, hopefully, a different
outcome.
One of the things you’ll hear us say repeatedly is what
we value the most is our strong balance sheet and our investment grade credit
rating and our commitment to maintain those. Dave spoke of the levers that we
have. I remember the story of Mike Garberding, whenever we put this deal
together, Mike was like a 10-year-old with a new Nintendo or something. I mean,
he said now that he would have the ability to finance this business with all the
levers and all the different things, the optionality that we have, we will need to
access the capital market. A sale by Devon, certainly if we were needing to do
18
that now, it would have had an impact. Fortunately, we don’t have any plans in
the near term for that and we’ve got time to react.
Next question. Yes, I think we—no? Okay. I saw
several hands go up. They all had the same question. What (inaudible).
Male Speaker:
As you think about, I guess commodity prices, you
know, what do you think is normalized and at what level do you think you’ll start
to break (inaudible) add it back in?
David Hager:
Well, it’s uncertain to say for sure what is a
normalized commodity price environment. I think to some degree, it depends on
the amount of cost reductions that we can see sustained throughout the industry.
So right now what’s taking place is we are going to all of our service companies
and asking for significant—the drilling companies, the pressure pumping
companies, et cetera, asking for price reductions on their services. We’re getting
those. I know what they’re having to do is go back to each of their suppliers and
service companies and work the entire supply chain, and so we have to see how
these—the cost reductions work their way through the entire supply chain and
then also how it interplays with what else I was talking about, the improved
efficiencies that we’re getting through our completion designs and, frankly, just
getting the time to, in lower capital spend environments, to work issues more and
become more efficient.
So it’s hard to say what the normalized price
environment would be. I would guess that, as an industry, that you would
probably start seeing increased spend. Somewhere you’re getting 60, $65 a
barrel, you start getting some confidence to put some capital back to work. More
normalized, I think probably it’s a wide range. It could be 70 to 85 but we’re not
certainly counting on $100 oil longer term. If it comes, we’d certainly enjoy the
benefit, but I think—we think we can work in a normalized environment that’s not
as strong as that and still make good returns.
Barry Davis:
ahead.
Yes, sir. We got a question right here. Okay, go
Male Speaker:
Dave, quick question for you. As I’m trying to
reconcile the capital budget for 2015 and I’m seeing that there’s going to be
minimal exploration activity, I’m wondering, from a completion deferral
perspective how much of that is set to the sideline with the economic threshold
by your big three plays? And if you could, I’m just trying to put that into context
with what could be a pretty large incremental volume ramp for EnLink should
commodity prices, you know, get north of a price point where you’re getting an
unlevered 10%, or 20% plus cash-on-cash return, because it seems like there’s
going to be a decent amount of inventory, well inventory for you waiting on
completion which could get done very efficiently, and as you said, you know,
19
cutting variable cost, service cost, compression cost, what have you, your
netback economics change. So how do we think about the volumetric ramp in
certain pricing points, you know, not just on an absolute basis but
geographically?
David Hager:
Yes. Well, this is a recent phenomena, this entire
completion deferral discussion that’s taking place out there. I would say Devon is
taking the approach more—we are slowing down our completion activity at this
point versus stopping our completion activity, so give you an idea. In the Eagle
Ford, where we’re 50/50 with BHP on this acreage, we had five completion crews
working last fall, early part of the fall. We actually, prior to the commodity price
decrease, ramped up to nine completion crews because we were building up
some inventory. We’ve now gone down to three completion crews in the Eagle
Ford. So I think the—there’s still uncertainty within certain plays as Permian
versus Eagle Ford, as well as an industry overall as to how much completion
deferral is going to take place.
I think you will see, for us, it would be more of a—and
I’m—we have guided, and I’m trying to be careful here to stay within our
guidance. We’ve guided to essentially flat oil production and I think that’s still our
expectation as to what we would have going from Q1 to Q4 and maybe some
moderation of this due to the deferral of completions but I don’t think it’d be real
significant.
Male Speaker:
Thank you.
Barry Davis:
(Inaudible) we got a mic back here.
Male Speaker:
Yes, sorry. You want me to wait?
Barry Davis:
No, go ahead.
Male Speaker:
David, I’m just trying to think about, a lot of the capital
is being spent in the Permian and the Eagle Ford, so I’m just trying to think kind
of near term and long term, you know, the options to really leverage EnLink, and
it sounds like near term, particularly in the Permian, you’ve got acreage near the
Bearkat. It sounds like drilling cost has to come down a bit, so if you can kind of
frame where costs are now and where they need to be, you know, and then more
longer term, both in the Eagle Ford and the Permian just given the amount of
capital, how (cross talking).
David Hager:
Yes. Well, Eagle Ford is probably our most economic
play that we have as a company, and so it remains economic. You can still—you
can get into a philosophical argument; should you complete wells in this low
commodity price environment or not, but I can tell you it’s still economic even in a
lower commodity price environment. It’s just whether you want to play the
20
contango and the curve and think you can get—generate more rate of return by
waiting until it’s 10 or $15 higher. In the Permian, the bulk of our activity is in the
Delaware Basin currently. We love the Bearkat area as far as the reservoir
standpoint. We only have about 15,000 acres. We drill a handful of wells to get
an idea for what the reservoir is, so now we’re going back and we’re doing all the
technical work to drive down those drilling costs. I think we’re going to be very
successful with this, with all the drilling activity of getting those down. If we can
get them down to another million dollars or so, I think in a normalized commodity
price environment, we’d be ready to go back to work there.
We also didn’t ramp up—I’ll bring in another area.
We didn’t ramp up our Cana activity as much as we had originally thought we
would coming into 2015. At one point, we said we were going to have 10 rigs
working just in Cana or a—plus some work in the Meramec. We only ended up
going to five, mainly just to balance our cash flow. So they’re still economic but
just to balance our capital spend, and so if we get in a little bit more normalized
commodity price environment with stronger cash flows, we could see putting
more rigs to work back in Cana, which is important to the build-out of potential
infrastructure in Cana as well.
Male Speaker:
Great. Thank you.
Barry Davis:
a second.
Question here and then we’ll come to you, Robert, in
Male Speaker:
Thanks. So I guess for both David and Barry, so I
was hoping you could give a little more color just about, beyond the Access
Pipeline, what midstream opportunities do you see at Devon that are available to
be dropped, and like I think you had said something to the effect of about 135
million at Devon in midstream cap ex this year, I think that was about 100 million
or so last year ex Access and VEX.
David Hager:
Yes.
Male Speaker:
So any color you can give kind of that, and also
perhaps how you see—or to what extent you see M&A at Devon kind of
contributing to that alongside (inaudible)? Thanks.
David Hager:
Well, the remaining assets that we have at Devon,
there are some smaller assets that can be. They’re not real meaningful as far as
the existing ones, but there are some ones I know we’re doing some internal
work to see whether they’d be appropriate to be dropped down, but I wouldn’t
look for a real big number. I can tell you as far as the M&A side, this is the type
environment where companies such as Devon with strong balance sheets and
positions in core plays can potentially do very well. Now having said that, we’re
going to be disciplined, but there also is incremental leverage potentially about
21
doing an acquisition given our relationship with EnLink, and then, frankly, we took
advantage of one of these long before EnLink, didn’t we, Barry?
Barry Davis:
We did.
David Hager:
Back, the Crosstex days back in the Barnett. But
given the—if we would find an acquisition opportunity, it would have midstream
associated with it and we could put the midstream business into Crosstex that
trades at a much higher multiple than Devon does, that provides us an
advantage as far as value that we can pay, and we understand that, so that’s
part of the thought process when we look at acquisition opportunities. So I can’t
predict for sure if we’re going to or not. I think, frankly, the commodity price
environment we’re in is probably going to have to exist a little bit longer for the
bid-ask spread to come together, but strategically, that’s one of the advantages
of the relationship.
Barry Davis:
Yes, we’re really optimistic about that being the case
in the future. I mean, we’ve done some things together. The Coronado
transaction, we worked very closely with Devon on the resource side of that play.
It was an example of what their capabilities brings to us. It was a tough time to
be doing the Coronado transaction in the middle of kind of
November/December/January and so what we had to do is eliminate as much
risk as possible on one of the several key factors, that being the resource first.
So we’re excited about the opportunities that can come from that. Devon’s an
active company that’s going to be generating opportunities for a long time to
come. We can’t put names on them right now, but I’m optimistic that it will come
in the future.
So last question. I think we are going to wrap it up
with one more question.
Male Speaker:
Where is your acreage in the Powder River, and are
you gathering your own oil and gas there?
David Hager:
Yes. Our acreage is somewhat (inaudible) from the
gas window. It’s mainly in Campbell County overall. It’s several different—it’s a
little bit scattered, but there’s several different areas. We’re actually developing
one specific area that we called Kosner (ph) area where we think it’s the
economics, particularly for the Parkman formation is beneficial, and we’re moving
forward with that at this point. We have a couple of rigs working on that. We’re
actually drawing 10,000-foot extended reach laterals in that play currently, and
that is currently being handled by third parties.
Barry Davis:
So one of the things I learned as a young kid, my dad
taught me is if you hang around with good people, good things will happen. I
think he had something different than building a midstream company, but it works
22
there too. We are really thankful for the relationship that we have with Devon.
We didn’t get here by accident. We spent years trying to find that right partner,
that right company. In 2006, we did the first deal with Devon, and Dave
mentioned that, the Barnett Shale where we acquired Chief oil and gas together,
the midstream asset in our case, the upstream asset for them. We’ve gotten no
less of a great partner than we thought.
That being said, and I really want to emphasize this,
they respect greatly the relationship that we have with other customers and just
because of the integrity and the way that they operate, they’ve done nothing to
take away from that but a lot to enhance those. So we’re thankful for Devon.
Dave, thank you for sharing with us today.
David Hager:
Thank you, Barry. Good to hear.
Barry Davis:
The—we’re going to take about 15 minutes for a
break. I guess we’ve worked hard enough here in this first hour and a half or so
to deserve a break. I think there are refreshments in the back and then we will
gather back here. It’s about 2:15 so we’ll gather back here at 2:30. Thank you,
guys.
Michael Garberding:
Are you guys ready to get started again? So I think
that gave you a very good overview from Barry’s standpoint on EnLink’s strategy,
from Dave’s standpoint on Devon and how that ties back to EnLink. So now
we’re going to kick off the business units and we’re going to start with Steve
Hoppe in the Gas Business Unit. So Steve’s going to spend the first part really
talking over his vision for the Gas Business Unit and then after that, we’re going
to have a panel of the leaders of the Gas Business Unit come up and really talk
further about the projects, the vision and the execution.
So with that, I’ll turn it over to Steve Hoppe, President
of the Gas Business Unit.
Steve Hoppe:
Well, thank you, Mike. When I think about the Gas
Business Unit, I really think about it as being really three distinct areas that we
operate in, and as Dave kind of led on earlier, one of those areas is pretty
important to Devon, you know, the North Texas area, a pretty premier position
that both we have and Devon has in North Texas, and we also look at that area
as not only a premier position but a stable consistent future for us and we think
that Devon sees that as the same way. In fact, it kind of makes me nervous
when Dave stands up here and he gets this little grin on his face and he says,
“Yes, that’s a billion dollars of free cash flow every year for us,” and then look at
where we’re going to put that to go drill elsewhere. I lose a lot of sleep in the
wintertime when I see equipment freezing off and things shutting down and—but
those are the kind of things that we see in our relationship with Devon there, and
23
I think it’s very, very compelling when you hear Dave talk about that area and
how positive he is.
The other area we’ve got is our Oklahoma area, and
we’ve got a great asset in Cana, in the Cana-Woodford area in Oklahoma. It’s
another system that we’ve got a great partnership with Devon on, and it’s very
stable, and as you heard from Dave, they really have revolutionized the
completion technology in that area. So we see that as a growing area. But the
other thing that we’re going to talk about in Oklahoma is the other opportunities
that we see outside of the Cana-Woodford and the things that we want to do in
Oklahoma to expand our presence there. In the Permian, we’ve finally got what
we wanted, a great position, a premier position in the Midland Basin, in the very
core of the Midland Basin, and we’re going to show you why we think that.
So as Dave said, in North Texas, it’s really important,
it’s really significant and it’s long term, but what are the things that we like about
North Texas? Well, we’ve got a great asset base. It’s a huge asset base in the
very core part of the Basin. We’ve also got a great sponsor in Devon, as you
heard. We’ve got a large inventory of acreage that’s dedicated to it, and that
acreage has got a lot of undrilled locations and there is a lot of rich and lean gas
in the area and those locations are going to get developed over time as
commodity prices improve. We’re also very well positioned in this Basin to be a
consolidator. When you look at our footprint and you look at the competitors that
we have and the other third parties—the other third—the assets that are owned
by third party producers, we think that in these opportunities when prices are low,
we’re going to be able to consolidate infrastructure into our system and develop
and grow from there, and we offer a broad range of services. In that Basin alone,
we’re doing gathering, we’re doing processing, transportation and fractionation all
the way from the wellhead to the market, and we get access to some really
premier markets.
The Fort Worth Basin has some great takeaway to
some very good areas in the entire US for both its gas and NGL. What are we
going to do in the near term? We want to maintain a good, consistent, stable
cash flow out of that Basin. Just like Dave, we want to use our Fort Worth Basin
as a cash flow to support the development of the rest of our business. How are
we going to do that in the near term? We’re going to maintain the operational
excellence that we’ve got there today in the low-cost operations that we have.
You’re going to hear us talk about executing on
optimization projects. We’ve got over seven optimization and pressure reduction
projects going on in the Fort Worth Basin field today that we’re working on with
our customers and on our own. These aren’t really big projects that we’re going
to come out and announce and tell you about. What it is it’s a whole list of
smaller projects that are going to consistently add value to this asset and
continue to maintain that stable cash flow.
24
The other thing that you heard Dave mention is the
refrack potential that there is in this area. They’re starting with verticals and
we’ve seen a number of opportunities already. We’ve probably seen 30 to 40
vertical wells refracked and that have been connected to our system. That
moves into the horizontal area; we see some great potential there for us to grow.
I know you wouldn’t think about it right now in a basin like the Fort Worth where
there’s not that much activity, but we also see some expansion opportunity. We
see expansion to move into areas where contracts are expiring and we can pull
gas away from our competitors. We’re working on exactly one of those projects
up in Northern Wise County.
We also are seeing some development opportunities
in new production zones. We’re pursuing some well connects over in Jack
County into a new area that’s being developed. We see expansions that go all
the way up in—as far north as Southern Oklahoma. So we’ve got a number of
projects and opportunities that we’re executing on today that’ll help maintain the
stability and offset the declines that we’re seeing in the field. We really believe in
this area long term, and as you said, we share the same excitement that Dave
does with the amount—with how we see this asset generating the kind of cash
flows that we think it can do.
In Oklahoma, the Cana system is really our largest
system, it gives us our best returns right now and it’s got some great potential
upside. It’s well positioned with the Devon contracts, and as you heard, Devon’s
continuing to do drilling, they’ve seen some great improvement over the
completion techniques and they’ve even identified about 35,000 of prospective
STACK acres in the area. But outside of that, when you look at this area, there’s
going to be a lot of opportunity that we see to develop in the Scoop and the Miss
and the STACK. As we’ve got now, we’ve got a great position in our system so
we can get to the STACK as well, and we’re looking for an opportunity to
penetrate into any one of those markets as well. So we’re looking for Greenfield
acquisitions that we can acquire—or we’re looking for—or Greenfield projects
that we can build in the STACK, the Scoop and the Miss. We’re also looking for
acquisition opportunities to get into those areas as well.
As Dave mentioned, Devon’s got an active drilling
program in Cana and they continue to develop and increase their volume. So
right now, near term, when we look at our growth opportunities in Cana, we’re
actively building to expand the gathering system by 75 million cubic feet. We’re
putting in pipelines and compressors in that field today. We also just completed
a test of our Cana plant, and we identified how we can add 50 million of
throughput to the existing system with just a minor capital investment. We’re
going to complete those projects by Q4 of this year. That’ll accommodate the
drilling and the refrack that Dave’s talking about and it’ll also position us to look at
what our next expansion opportunities are going to be in that area.
25
One of other projects that we’ve been working on is
still in development phase but we really like this idea and we’re trying to advance
it further, is to build a pipeline that would start in the Cana field and extend down
into North Texas. This would integrate our Oklahoma assets with our North
Texas asset and creating kind of a super system of facilities for us across this
whole area. The pipeline, as you can see, would go to the Cana-Woodford, it
would extend down into the Scoop and also cover the northern part of the Fort
Worth Basin. Now, the advantage we see of a project like this to the potential
customers is it’s going to bring gas out of Central Oklahoma where, at times,
there’s takeaway constraint capacity, it’s going to get it down into Northern Texas
and when the Barnett Shale revolution occurred, a lot of takeaway capacity for
both gas and NGLs was created to premier markets from that area. We think
that if we can get gas from Central Oklahoma down into North Texas, it’ll
basically give the producers an opportunity to get to access a lot of premier
markets and develop and expand that Oklahoma system to get more volume into
our gathering systems on our midstream operation. This project is really early,
as you can see from the scopes and the scales that we’re looking at, they’ve just
started to develop the option; it’s anywhere from 200 to a Bcf a day and we’re
working with our customers to figure out what’s the best scale that is going to fit
their needs.
Probably the area that we are most excited about
today is the Permian because the acquisition of Coronado gave us the
opportunity to get the position in the Permian that we had been working on for a
very long time. I think one of the things that you’ve got to kind of hear is our
history in the Permian and it’s kind of unique in that it started way back in 2010
and the liquids guys actually are the reason—one of the big reasons we’re in the
Permian. They had an idea. They said, “Look, we know that there’s NGLs
constrained out of the Midland Basin and we want to find a way to get that NGL
constraint relieved,” so we acquired a small fractionator and they were bringing
NGLs into the fractionators and they were fracking them and they were trucking
them and railing them out of the area. Well that little project, that led us to a JV
with Apache on Dead Horse plant. From that JV with Apache on Dead Horse
plant, that brought us to the deals that let us build the Bearkat plant and
gathering system. The Bearkat plant and gathering system led us to the
opportunity to acquire LPC in January of this year and we coupled that with the
acquisition with Coronado. So right now, as you can see, we start with a little
fractionator in 2010; by 2015, we have what we think is going to be the premier
midstream position in the Midland Basin.
So—I’m missing the—there we go. So why do we like
the Midland Basin so much and what do we think—you know, what caused us to
want to go out and acquire both LPC and why are we so focused on that area?
Most specifically, it wasn’t the entire Midland Basin; it was just some key counties
within the Midland Basin that we were very focused on, and those were the
26
counties where we had constructed the Bearkat system and where we’ve put—
and where Coronado was. So what was the advantage of that area over some of
the others? Really, three key things. There was a large amount of Stack pay.
There were up to 10 potential producing zones in that area of the Midland Basin,
and you can see on the screens up here, multiple zones in those basins give it
an opportunity that if you have a dedicated acreage, let’s say we got 200,000
acres of dedicated acreage, and we have at least two pay zones within those
dedicated acres, you effectively convert those 200,000 acres to 400,000 acres.
Now, not all of these 10 zones are going to be prospective in every acre that we
have dedicated to it, but it’s pretty reasonable to assume that some of them will,
and we think there is a great multiplying effect in this area that we’re really going
to be able to benefit from given the position that we were able to achieve when
we acquired Coronado.
The other thing that we saw when we acquired
Coronado was we took a look at where the best wells were being drilled. We
looked where the best results the producers were seeing in the area, but when
you look at that map, you can see the red area, that is a 30-day flow rate for the
wells that have been recently drilled in the Midland Basin, and the yellow diagram
shows the—our Coronado gathering system and our Bearkat gathering system.
So you can see the red is the best wells, blue is the less prolific wells. Look how
well positioned we are in the drilling that’s occurring in the Spraberry and
Wolfcamp wells right now, again, another reason why we like this acquisition and
we like this area so much and the position that we’ve created.
The final reason why we like this area, it really was
the customers and the producers that we were able to acquire with it. Take, for
example, a company like Diamond Energy. Right now, they’re drilling wells in a
$50 oil environment that are generating 50 to 125% returns. They’re continuing
to see better results as they drill wells. They’re learning how to do better frac
jobs, they’re learning how to land their wells better in the horizontal laterals, so
you continue to get additional improvement and development over time from
those customers. We really think that the customers that we have on our system
are also the premier customers and the premier producers that are going to
perform in the Basin.
So how are we going to grow near term Midland
Basin, Permian area? Right now, we’ve got integration of the Coronado and
Bearkat systems going, we’re going to integrate the low-pressure and highpressure systems and we’re going to tie them together. In the last eight months,
EnLink and Coronado have brought on over 11 field compressor stations. Once
we tie the system together, we’re going to bring the gas in through those field
compressor stations, we’re going to gather the gas up to the 300 million a day of
combined processing capacity that the two companies have built over the last
few years and we’re going to consolidate those operations. In addition to that,
we have expansion opportunities right now going on in Riptide, which is the new
27
plant that is being constructed in the area by Coronado, with a hundred a day—
100 million a day plant expansion that also has a second phase to that expansion
that could add another 100 million a day, and we had our Ajax plant that we have
suspended—that have recently suspended because of the construction in the
Riptide plant; that’s another 120 million a day. So right now, we have capability
to incrementally increase our capacity in the Fort Worth—or in the Permian Basin
by 100 million a year for the next three years. That would take 300 million to 600
million a day in the next three years. We’ve got 245,000 acres dedicated to us
that our producers are currently drilling and developing.
So we see a lot of opportunity near term just from
dedicated acreage, but in addition to that, we’re pursuing opportunities outside
the dedicated acreage. If you look at Howard, Dawes, Glasscock and Reagan
Counties, we’re pursuing other producers and other dedications in those areas
right now today where we’re trying to capture gas and get additional volume.
We’re not done making acquisitions in the Permian as well. We think that the
Coronado acquisition actually positions us to go after a number of other
producer-owned assets in that area. In addition, we want to take what we did in
this process, as you saw in the Midland Basin, and we want to create that same
position and that same process in the Delaware Basin. So we’re going to use the
people we acquired and the capability we acquired with Coronado, and we’re
going to consolidate those operations and we’re now going to replicate it up into
the Delaware Basin. This is an exciting time for us and the Gas Business Unit
really has some great growth potential that we see in the near term.
So North Texas, we really see it as a long, stable
cash flow opportunity for us. We’re going to focus on optimizing the asset.
We’re going to focus on reducing pressures (ph) and delivering a lot of premium
service to our customer. Oklahoma, Cana’s going to continue to grow. We see a
lot of expansion opportunities outside in the midstream asset, in the midstream
sector, but we also see some opportunities to do some things like that North
Texas interconnect pipeline. We’re going to be looking at different projects that’ll
really leverage the opportunities and the service we have in the area. In the
Permian, it’s going to be a core growth area for us. We’re going to turn the
Permian into a premier EnLink asset. It’ll be one of the highest-performing
assets that we have by the time we’re done, Andy promised.
The final thing that I think really doesn’t get said
enough but you guys need to know is we talk a lot about how it takes people to
do this stuff, and it has and it has at EnLink taken people to make a lot of this
happen and we’ve got a lot of those people here today; you look at our HR group
and our Legal group and our Operations group. I’ve got a couple of quick stories
to tell you, and I know I’m over time but I think it’s important that you understand
the kind of people that EnLink has. We had a Christmas party out at Midland
Basis in December and it wasn’t very well attended, and really the reason it
wasn’t very well attended is the day of the Christmas party, we were bringing on
28
a number of field compressors and our Marketing guys, our Commercial guys,
our BD guys and our Ops guys had all committed to the customer that they were
going to bring these facilities online before the beginning of the year, and they
were struggling to bring them online and going through the usual startup issues.
Half of that operating staff, the Engineering staff out of Dallas, the construction
guys, they weren’t going to the Christmas party that night; they were working on
starting up that compression. That’s pretty impressive when you get a group of
guys that are that dedicated and they were going to meet that customer’s
commitment.
The other thing that just happened just the other day
is, in preparation for this presentation, I had gone into the office on Saturday and
it was 7:00 am on a Saturday morning, I go in the office and I was kind of
gathering my thoughts and doing some work, so I get HR—I’m on the same floor
with HR. HR staff is sitting in their offices working away. Why? Well, we just
completed the Devon merger, we had the acquisition with Chevron that we were
doing, we did the LPC and they were working on the Coronado integration. That
takes a lot of work for a Legal staff and for an HR staff. So you look at that and
you look at the commitment those folks have, seven o’clock on Saturday morning
plugging away, getting ready for the things that they need to do, that’s the kind of
people that we have working here, and these are the—you’re going to meet
some of these guys as they come up. But what—the other thing I’m seeing is
that the companies that we’re acquiring, the Coronados, the LPCs, they get the
same kind of people. It’s like Dave said, we drew up this merger with Devon, we
have a very similar culture and now we’ve seen the benefit of having additional
acquisitions that we make and bringing in the same kind of culture and the same
kind of people. I think that’s a very powerful thing. Mike?
Michael Garberding:
Thanks, Steve. That’s a great segue. So what we’re
going to do is have the leadership team and the Gas Business Unit come up and,
purposely different than last year, we thought it was really good for you guys to
have the opportunity to hear from them, what they’re thinking, how they think
about the opportunities. So for the next hour, we’ll spend the first 45 minutes
with them really talking through those opportunities, and the last 15 minutes we’ll
open up for questions for you guys just, again, to walk through what you’re
thinking. So the panel, you met Steve, Ben Lamb, Mike Burdett, Andy Deck, who
just joined us from Coronado, and Stan Golemon.
So I’m going to start with a question for Mike Burdett.
We talked a lot about the super system, right, so what can you do between North
Texas and Oklahoma? So I figured it’d be great for Mike to give sort of his
viewpoint on sort of the strategic vision of that opportunity.
Michael Burdett:
Sure. Steve did a good job setting it up. Essentially,
we’ve got, between North Texas and Oklahoma, two of our key cash flowing
assets. I mean we’ve got a fantastic position in North Texas with significant
29
infrastructure already in place. But, as you know, the drilling activity in North
Texas right now is down quite a bit. So Cana-Woodford area is an area where
we see growth, also we have a strong position, but we—the vision essentially is
to link the Cana-Woodford area with the North Texas area, take advantage of the
infrastructure that’s in place for processing in North Texas and the takeaway
capacity for both gas—residue gas and NGLs in North Texas, and that way, we
can leverage the positions of our growing Cana-Woodford area with the
infrastructure that exists in North Texas today. All the while as we go through the
Scoop, we have an opportunity to pick up additional supplies that we can
leverage on (inaudible).
Michael Garberding:
One of the things Steve mentioned too was just about
the takeaway options out of North Texas. I mean, that seems like a big
opportunity.
Michael Burdett:
Yes, it is. I think the—in Oklahoma, I mean the
growth that’s expected there is going to further strain the residue and NGL
takeaway situation, but because of the infrastructure that exists now in North
Texas, we have ample ability to bring in more rich gas processors there in North
Texas and then have no constraints from the standpoint of residue takeaway or
NGL takeaway.
Michael Garberding:
More of a premium market (inaudible).
Michael Burdett:
Yes, good market access.
Michael Garberding:
So you’ve heard us talk a lot about the Permian. I’m
not sure we can say Permian enough, so I thought it’d be helpful to get Ben’s
view on just how strategic Coronado was to us and our thinking around that
acquisition.
Ben Lamb:
Yes. Mike, you have to think about it in the context of
our overall Permian strategy, and Steve did a good job in his prepared remarks
of taking you through that history, but we started there with nothing but a JV plant
with Apache, a jointly built plant where we didn’t even control the gathering
system, and we then levered that into building the Bearkat plant and our own
high-pressure gathering system and then had announced the Ajax plant and a
line into Martin County to serve Devon’s Martin County acreage, and all the while
while we’re building this out organically, we’re looking at M&A opportunities for
platforms that will expand our capability and our coverage of the Permian Basin,
and we saw a lot of deals come before we found the right deal and Coronado for
us was the right deal for a couple of reasons. One, because the geology on that
side of the Basin we think is just phenomenal, and Steve walked through the
Stack pay potential but it wasn’t very long ago that the Spraberry was thought of
as the world’s largest uneconomic oilfield and it’s far from that today. Some of
the best wells that are being drilled out there now are lower Spraberry wells.
30
But it’s not good enough just to have a great
resource. You have to have great companies developing that resource and we
think we do in Diamondback Energy, RSP Permian, Reliant is a private compete
that many of you probably know less about but they have an opportunity set that
looked a lot like Diamondback’s and RSP’s. So the combination of extending the
platform that we had on the eastern side of the North Midland Basin all the way
across, almost like a mirror-image to the west side, the excellent geology on that
side of the Basin and then a great customer group made that the right deal for us
and we’re really excited about the way it has us set up to create a real core
business for EnLink in the Permian.
Michael Garberding:
The customers are big investors too, so a good
alignment really between everyone. So Andy, the newest member of the team,
and Steve, as you noticed, promised that he was going to execute the section
and everything, so a nice way to start. But I thought it’d be helpful, Andy, if you
gave just sort of a little bit on your background ultimately on—and then your
views sort of on moving into EnLink.
Andrew Deck:
Sure. Yes, I’m the new guy but my background, I
have an Engineering degree from Oklahoma State some 30 years ago and have
been in the energy industry all that time, roughly the time, I’d say, split about half
and half between the Midcontinent, Oklahoma and the Permian sort of in various
roles; engineering, project management, planning, general leadership roles. So
I’ve served in a number of different ways over that period of time. Went to work
for Conoco right out of school and so I had some—I’ve had some big company
experience, as well as some—an entrepreneurial venture as well, so it’s kind of
spanned the gamut.
A couple of years ago, I had the opportunity to come
back to the Permian Basin when MidMar, or the predecessor to Coronado, the
leaders of MidMar Gas, it was really kind of a co-op of some of the producers
that were mentioned already, they had put together a little gathering company
and were looking to take that and build that into a true midstream business.
They saw that they had kind of exceeded their competencies and were looking
for somebody with experience to come in and begin to professionalize the
organization and build that up. So I had the opportunity to do that, joined with
them a couple of years ago and then moved back out to Midland again and
started that process of building a team to operate the assets which had been
operated by a contractor at that time. We started growing the business,
developed the high-pressure system to go over the low-pressure systems that
existed, added another processing plant and have enjoyed adding other
customers, additional acreage, additional assets to the system in that time. As
the system is growing then, the owners started to look at the IPO path and also
entertained just a handful of folks that were interested and looking at acquiring
31
the business, and you can see the results of that. EnLink was successful in
acquiring the business and, honestly, I couldn’t be happier.
One of the things about EnLink, you’ve heard it a lot
already, but when I went to—Coronado had this opportunity to help kind of shape
the development of that company, that organization. You know, you tend to
establish what are the key values, what are the—what’s the why, how is that we
are going to go about doing business, and we developed values such as safety
and integrity, partnership, transparency, those kinds of things, and we were
building our business that way with valuing those things. You’ve already seen,
you’ve already heard and you already know that EnLink has that same set of
values and so it’s very natural for us; not only are the assets very complementary
– you can see that from the map – but I find that those values and the culture that
exists are also extremely complementary, so I couldn’t be happier.
Michael Garberding:
You got to be happy on the map. Like you said, you
start looking at right now just where you’re at and the capability to expand,
processing by 300 million a day real gas. What kind of vision do you have for
this then to meet Steve’s goal?
Andrew Deck:
That’s right.
Steve Hoppe:
Well, didn’t I set the vision out?
Michael Garberding:
Yes, (cross talking).
Steve Hoppe:
I’ve got a great one.
Andrew Deck:
You did a great job of describing what—and I think
one of the questions earlier even talked about, you know, what’s going to happen
if all of a sudden commodity prices improve and a lot of these drilled but not
completed wells could potentially come on quickly? I think the answer to that is
you have to be in a position to handle the business if it were to develop like that,
and I think that’s exactly where we are. By integrating the assets, tying them
together, we’ve got a great ability to handle that wherever the gas develops on
the system. Now we extend the crossing of eight of the best counties in the
North Midland Basin, and regardless of where the gas develops along there,
we’re going to be able to move it to the available capacity and we plan on having
that capacity available as the resources develop.
Michael Garberding:
That’s great optionality. You hear a lot of growth,
right, so to execute on growth, you have to have effective processes and the
people and capabilities to do it. So Stan, why don’t you give a view on what
we’ve done from sort of the process standpoint and people standpoint to ensure
we can execute on all this?
32
Stan Golemon:
Absolutely, Mike. One of the things that the merger
afforded us was a great opportunity to go back and take a look, not only at our
staffing levels but also the actual processes and systems that we were using for
the Company. We had to make sure that those systems were scalable in order
to meet our goal there of doubling the size of the Company by the end of 2017.
There’s no better example of how we went about that process to how we
developed our safety program. First, we appointed a high-level team. We felt
that it needed that level of management that could actually drive change down
the organization to make sure that both companies were coming together and
with (inaudible) way. So after we formed that team, they took a look at the
processes and systems associated with each of the legacy companies, they
literally picked the ones that worked the best for this size of company and put
them together. We also made sure that we had a very clear communication plan
and that we deliberately rolled this out to our employees. The rollout’s over with
and now we’re in that point where we’re going back and reinforcing things.
One thing though to make sure that everyone had a
vested interest, we developed a score card, a balanced score card for safety that
had both leading and lagging indicators on it, and then we tied a portion of our
bonus to that particular score card and its results. So I’m happy to say that we’ve
got everyone vested in the process now. At EnLink, you know, safety is not just
the right thing for our employees; it’s the right thing for the business also. You
look at the world today and in this industry, operating safely has become a
prerequisite to doing business.
Michael Garberding:
It’s important. I mean, we’ve talked a lot about that,
Dave talked about it, Steve talked about it. There’s a lot of discussion around
just the relationship with Devon as far as our service capabilities and then a lot of
questions about where are we at on transition. I thought it’d be helpful for Steve
to walk through not only just that relationship with Devon on the transition piece
but also just on the forward-looking commercial piece so everyone has a good
understanding of how we’re working together.
Steve Hoppe:
Well, one of the things that was really beneficial when
we did the transition was we had the relationship with Devon that allowed us to
transition slowly over time, and we were able to use a lot of their systems and a
lot of their people actually also supported us in the transition. So when you look
at a big merger like that, it took us over a year to complete the transition but it
was very effectively done because Crosstex had done this before so they had a
very good transition model that they followed. We had the Devon resources to
support us in that transition and, combined, it was a very smooth and I kind of
look at it from the standpoint of it culminated really in this wintertime when we
went through about a two-week period where we had cold weather in North
Texas, Oklahoma, which was the key operating areas for Devon Gas, and across
that two-week period, it was pretty cold, snow and a lot of freeze-offs in those
areas and at the end of it, I’d gotten an email from one of Devon’s VPs and they
33
said, “The operations couldn’t have run any better and the communication
couldn’t have flowed any better than if we had continued to own the assets.”
They were very pleased and very proud of how well it worked, and I think that
was the testament not only to the commitment that the Company has to customer
service but also to how well we implemented the transition and how effective it
was. I expect that same transition, we’re going to continue to be effective when
we do the transition with the Coronado asset and the LPC. That’s our very focus
is; we do not want to sacrifice customer service or our customers’ commodities
and their access to market when we do transition and that’s critical for us.
Michael Garberding:
I mean, you know, Mike, do you have any views on
just that customer relationship? I mean, because it’s such a key piece of our
business, as you’re saying (cross talking).
Michael Burdett:
Yes, I’d like to add on. I think the transition went
smoothly. A lot of the reason it went so well was due to the fact that since 2006,
Devon has been our largest customer and at that time, with activity levels really
high, we set up fairly robust kind of communication protocols, ways to stay
connected and make sure that we were serving the needs of Devon to make sure
that our lines were ready to receive gas when they were ready to flow their wells,
and as a result of establishing those kind of processes and communication
protocols, we’ve just enhanced that. With the combination of EnLink, we’ve seen
the formation of kind of formalized joint asset teams where we’re looking at the
types of mutually beneficial projects that they’ve described on an ongoing basis
from the leadership to the folks that work in the field and actually implement
those pressure reduction programs and the optimization programs, looking at the
best way to put in compression, making interconnect between our lines and
things of that nature. So that’s, I think, a reason that our transition went off
without a hitch.
Michael Garberding:
That’s great.
Michael Burdett:
Yes.
Michael Garberding:
Andy, I mean the same thing in the Permian, right,
because you had the issue where your owners were your customers, right? So
that’s a great opportunity as far as that same relationship.
Andrew Deck:
Yes, that’s right. I think when we were growing the
business out of Coronado, the leaders of those key customers that we talked
about out there were the Board members of our Company, and so they were very
engaged in what it was that we were going on and the vision of building out the
necessary midstream assets required to serve them effectively as they
developed the resource. So they continue to be some of our key customers that
we have out there, and I think we’ll be able to build off of that relationship that
started previously.
34
Michael Garberding:
That’s great. So since Steve said the transitions are
working so smoothly, you know, we got to go back to Ben and say, okay, what’s
next? What are we going to look at next, or what kind of opportunities would we
look at for the Gas Business Unit?
Ben Lamb:
Well, we continue to see a lot of opportunities, and
Mac Hummel, who you’re about to hear from on the Liquids side, often gives me
a hard time because he feels short-changed somehow that we did Coronado for
$600 million even though the other three of the last four deals were in his Liquids
Business Unit. So we’ve only begun to scratch the surface, I think, on what’s
available to us on the gas side, and I think that comes in a couple of forms. One
is a platform expander, and that’s what Coronado was. We had a platform in one
part of the North Midland Basin and what the Coronado acquisition did for us was
to expand us across into the other side of the North Midland Basin, let’s us better
fit the build-out of the infrastructure to the producer needs.
Another kind of acquisition that you could see us
pursue would be a platform consolidator along the lines of some of the things that
Steve talked about in North Texas, where you have a mature basin and your
investment thesis is driven more by being able to reduce line pressures, maybe
you have a competitor that has a plant that is half full or a third full and we could
consolidate that supply into our plant and that’s just basic industrial logic. Third
kind of M&A deal would be a platform creator. So that could be something on the
Delaware side of the Permian Basin where, today, we don’t have any gas
operation, or it could be along the lines of what Dave Hager described in his
prepared remarks, where we and Devon jointly find a way to move into a new
basin. So we’ll look at opportunities across all of those ways of doing business.
Michael Garberding:
That’s great. So we hear a lot about the Delaware,
right? Devon talked a lot about just their activities in the Delaware and their
focus. Steve, you mentioned—as far as looking and moving over there, what’s
your thoughts and vision for trying to replicate the Midland Basin over in the
Delaware?
Steve Hoppe:
I think you approach it the same way we approached
the Midland Basin. We needed to find a foothold in that area, and we needed to
have an asset and we needed to have something that would start to establish
relationships with the potential customers out there, and we’re starting to do that.
The LPC asset gets us access to that Basin. We’ve got a relationship with
Devon. Although a lot of the Devon acreage is dedicated, we see that there
might be some opportunity. So it just takes something to get started for that
snowball to start rolling and then we can start to grow it and it takes time. You
look at how long and how hard they’ve been working at the Midland Basin, it’s
been a five-year process, but ultimately, you look at the results and the
opportunities that that work has created. I think it’ll take time, but I think it’s
35
definitely capable of doing it and I think it’s capable of doing in any basin in the
US. I don't think it’s just limited to the Permian.
Michael Garberding:
So we talked a lot about North Texas. Dave talked
about it and how key it is really to their business and what a big piece of free
cash flow it represents. Mike and Steve talked about the same thing, really, and
it’s the same thing for us; it’s a big piece of our business, a lot of optionality in it.
So, Mike, you want to just sort of give your view on the current sort of state of the
union of North Texas and how you think about that?
Michael Burdett:
Sure. I mean, for EnLink in North Texas, I mean it is
the most significant cash flowing asset that we have. The activity levels from a
drilling standpoint are down but we’re seeing ways to work with our optimization
programs, pressure reduction programs that will help us offset decline and
continue to allow us to see significant cash flow generating from that asset. The
activity levels are going to be more focused on refrack, where you do see—in the
Barnett, we know that it’s an asset that’s a proven resource play. We know that
there are significant remaining locations to be drilled at not only Devon, as Dave
mentioned, at the right price but by a number of other customers, the producer
customers that we have with significant acreage dedications to us.
So the other thing you should recall is that we have
four more years remaining of significant minimum volume commitments that will
guarantee stable cash flow. So I think we’re set up really well from the
standpoint of contract that will cause significant stable cash flows just where our
assets are for when drilling activity does ramp up again. We’re in the core of the
core of the Barnett, so I couldn’t be more pleased with how we’re set up for the
long term in North Texas.
Michael Garberding:
We talked about 10% decline for the past two to three
years. In the last couple of years, we didn’t see it because of things that my
Commercial team was able to do, but we do see it this year. Is it something you
expect to see year-over-year, or is it something that—you know, what kind of
view forward should we think about that?
Michael Burdett:
Well, I think that this is a depletion type of business. I
mean, you will see natural declines if there isn’t something you do to offset that
decline. I think the optimization programs that I mentioned, the pressure
reduction programs, all of the things will help us to dampen the decline. We
also—as was mentioned, we have opportunities from an EnLink perspective to
offset that decline by doing some consolidation, doing some acquisitions, things
of that nature. So I think, given our current position and our ability to grow,
whether through the drill bit or through other means, I see us offsetting that
decline.
36
Ben Lamb:
I’m looking at Andy pass the mic while Mike’s making
that comment, and what I see in Andy’s face is, with 10 productive zones, he’s
never going to have to be making that comment about (cross talking).
Steve Hoppe:
Yes, but I think Mike’s being a little humble in that you
look—I look at the number of things that his team in the Barnett is evaluating and
doing and capturing. I mean, they’ve got 20, 30 projects going on at any time
that are—like I said earlier, none of them are all big, glamorous projects but
they’re all consistent, helping to offset that and the guys are plugging away at
everything. There’s no stone they’re leaving unturned. If it’s just even just a
single well connect, they pursue it, so I’d give them a lot of credit for the way
they’re approaching this and how they’re tackling it.
Ben Lamb:
Well, and the expanse of our system in the Barnett
really positions us to be the consolidator of choice. Was that fair to say?
Michael Garberding:
Well, the other thing you guys have mentioned is that
just by having a combination of systems allows you to actually go and do the
pressure reductions. When you had—the disparate systems of Devon, ourselves
and others really didn’t have that option. Is that—or you had the option but it was
just harder to get done. Is that a fair way to think about it?
Michael Burdett:
Yes, absolutely. We’ve been able to take the legacy
Devon assets, couple that with the legacy prospect assets, make some low-cost
interconnects, strategic interconnects and move some compression around, and
it’s yielding benefits to both companies. Frankly, it’s yielding benefits beyond just
Devon. I mean, our other customers, our producer customers are benefiting as
well and it gives—you know, as production increases, both the midstream
company and the producer are well aligned.
Michael Garberding:
Yes. If we go back to your original question around
the rate of decline and everything, now as the drilling slows down in North Texas,
the average well out there is a little more mature, wouldn’t you expect the decline
to lessen a little bit as it as we go forward in time...
Michael Burdett:
Oh, you would (cross talking).
Michael Garberding:
...year-over-year?
Michael Burdett:
You’re on the four-year or five-year decline and
lower—I mean, and beyond the rate of decline diminishes significantly. It’s that
first couple of years where the decline is more dramatic, correct.
Michael Garberding:
So with a lot of project execution going on, you know,
it’s key for us to succeed through executing on time, budget, et cetera. Stan, do
you have a view on just how we plan to be successful in all that?
37
Stan Golemon:
Yes, I do, Mike.
Michael Garberding:
All right, make me feel better.
Stan Golemon:
When you look at it, execution is absolutely critical.
You saw it earlier in Dave’s message that superior execution is one of the keys to
being successful, especially in this commodity environment. It’s always the key
to being successful, but today, it’s even more so. One of the things that we saw
there with our four avenues of growth was that we needed to grow organically.
When we came out of the Cajun-Sibon project and having invested somewhere
north of $800 million, it became very apparent to us that we were now playing in
a whole new league when it came to capital investment for organic projects.
So one of the things that we did was we’ve set out to
deliberately modify or revamp, improve our process project—our project process
for investment in organic growth. This is such an important issue that it was
essentially led literally from the top and that Barry chaired the committee that
took a look at this particular process to get it the way we felt like it should be for
the size of investments we were making. After we had several group sessions
and came up with what we felt the process was, we again developed a very clear
communication plan, and we are right now in the middle of rolling out that
process very deliberately, making sure that everyone who is associated with the
project gets some level of training in that. Obviously, the guys that do the
projects themselves are going to get more training than the guys that are more
on the peripheral.
One of the key tenets that came out of this was we
felt like the projects had to be directly linked to the business, and the way that we
did that is we had the project teams report to our business asset teams, those
geographical teams that actually run our business. So getting it right, reporting
the relationship, getting the right process in place puts us in a great position to go
out and execute well on these organic growth projects.
Michael Garberding:
That (inaudible) that’s a huge key to our success so
we can’t in any way underestimate that. So what I’m going to do is turn it over to
questions. This was a good start as far as giving you a background of
information. I think the first one, Noah back there, if we can get a mic thrown to
the back?
Noah:
I’ll throw it out to anybody in the panel or whoever on
the panel wants to comment on it. With producers that you’re dealing with, I
know some of them actually happen to be some of the E&P, MLPs that have had
to cut their own distributions because of cash flow issues. I’m just curious, what
kind of conversations – you might want to use the term ‘pressures’ – are you
getting from your producing customers, whether they’re the MLPs or just other
38
producers in general, to try to reopen, adjust the current contract to help them out
with their cash flow needs, and what kind of benefits are you getting maybe for
giving up a little bit today but gaining down the road, if you’re having such
conversations with your customers?
Michael Garberding:
Steve, you want to start with that one, or Mike?
Michael Burdett:
You know...
Michael Garberding:
Go ahead, Mike.
Michael Burdett:
Well, Noah, we really haven’t had any direct
conversations or requests of that nature, so that’s the short answer. But—and I
think it’s because we—if those questions are looming out there, I think I would be
surprised because we have pretty good relationships with all of our producer
customers, and the only times where we encounter those are when you’re
approaching a renewal or a contract extension period. So I think that’s been
mostly the (cross talking).
Michael Garberding:
If you go back in like 2008, 2009 and other timeframe,
right, when we saw the commodity decline, we really didn’t see that same issue.
It was more so on the back end of that and we actually saw more customer
contract support to get the capital to go do things. A little different scenario there
because of the financial market collapse, but we didn’t really at that point in time
have big issues on customer contracts.
Michael Burdett:
Yes, I think that’s the benefit to having long-term
contracts in place, and my perception is that our producer customers are more
focused on their services, oilfield services providers than they are on the
midstream providers.
Michael Garberding:
The biggest piece is that Devon represents such a big
piece of our business between Oklahoma and North Texas, so we feel pretty
good about that.
Steve Hoppe:
Yes, a lot of the discussions that we’re having with
producers are about enhancing deliverability and enhancing production and it’s
not about rate discussions; it’s about more performance discussion, and that’s
why when we said earlier, we talked about these refracks and these pressure
reduction and optimization programs, you know, that covers things that benefit us
both, that covers even our fuel usage. If we can reduce our fuel usage, that
benefits our customers because they give us the fuel in kind, and they see us
working with them on that and I think that that’s what’s really driving the
economics.
Michael Garberding:
Sure.
39
Female Speaker:
I have a question about the Cana and the North
Texas project that you’ve talked about. So are you—is it more like a wet gas line
processing those gas in your North Texas system, or would it be residue, dry gas
plus some sort of light grade (ph) combination? Also, could you talk about
maybe the capital cost and also what needs to happen for you to firm that up?
Thank you.
Steve Hoppe:
So the type of pipeline it’s going to be hasn’t been
defined yet. We’re looking at all of those opportunities, and we’re trying to figure
out what is the service that the customers would best benefit them and that
they’d be willing to sign up for, and that’s really the phase we’re in right now. The
capital cost on the project has a wide range depending upon the size that we
might build. Whether it be a 24 or a 36-inch line, it—we really haven’t defined the
size yet and we’re just in very preliminary discussions on the idea and the
concept, so it could range significantly. We don’t—we really aren’t at a point to
pin down any specific scope yet. We’ve got a lot of work to do with customers in
identifying really what base group that we’re going to have that will support either
one of those wet line projects or even a dry gas project.
Michael Garberding:
But if you look really at the environment, right, it
points for the opportunity ultimately of, you know, you really want to get the gas
to a better market and this allows you to get built with the residue gas to a better
market. If you look also of having the processing flexibility, is it better to utilize
existing processing versus having to build processing? Under all circumstances,
you should have a gathering expansion, you know, as Steve and his team is
actually kicking off already and looking at the gathering expansion and executing
on that. So it’s really trying to define again what’s the best value for the customer
ultimately to that end use product, and does it make more sense using existing
processing versus building new processing?
Male Speaker:
I just have a question on trying to replicate the
Midland footprint into the Delaware. If you could just talk about the LPC foot—or
toehold, I guess if you will, and expand on how that may help you? Then I know
you said the Devon acreage is largely dedicated but there may be opportunities
there to leverage the Devon—to leverage Devon to help out in the Delaware.
Just kind of talk through those opportunities in that Basin.
Ben Lamb:
Yes, I’ll—maybe I’ll start. You’re right; we do have a
toehold now in the Delaware with LPC. They have two truck injection stations on
the Delaware side of the Basin, and those are our first operations in the
Delaware as EnLink. If you think about the way that we built on the Midland
Basin side, the M&A transaction that we’ve done and the organic expansions that
we’ve done really feed one another. So we started with an organic project built
onto it with the Coronado acquisition, and now we’ll be looking on the Midland
Basin side to do more of both of those things.
40
In the Delaware, we got in through M&A two truck
injection stations. We will be looking both for acquisition opportunities on that
side of the Permian, as well as looking for opportunities to do organic build-out.
Specifically with respect to Devon, it is true that much of their gas on the
Delaware side has dedications that were in place before we created EnLink. It’s
also true that, at some point, those dedications will come to term. I do think that
there is more near-term opportunity with Devon on the Liquids side of the
business for build-out in the Delaware, so we’re working closely with them to see
what makes sense for both companies on that side of the Basin.
Michael Garberding:
When—you made a good point there, right, on
dedication of gas. I mean, there’s a lot of opportunities in the crude side over
there that’s not dedicated that’s still being looked at from a growth perspective.
Ben Lamb:
The LPC acquisition – and we’ll talk more about this
in the Liquids Business Unit – but the LPC acquisition gives us the capability that
we didn’t necessarily have before to be really active on the crude side of the
Permian, so it’s a ticket to play the game.
Steve Hoppe:
The other thing that we’ve got is we’ve got Andy and
his entire Commercial team. They’ve all got long history in the Midland Basin, in
the Midland area. They know a lot of the producers in that area, and we think
that’ll also help to leverage us into the Delaware Basin.
Michael Garberding:
Another question? Yes.
Male Speaker:
I was struck by the, on one of the slides, the system
capacity expansions in the Permian area. Are those predicated on prices coming
back, or are those—is that production’s already in line or will be in line? How
much of that’s based on price recovery?
Steve Hoppe:
So those are predicated on the development of the
dedicated acreage we have today and the drilling that’s going to occur there and
also any expansions that we make outside of our dedicated acreage, but we’re
already moving about 180 million in the Basin and we continue to see the growth
opportunities, producers are going to continue to drill in that area even in the
downturn prices. I think what we’re looking at is just how quickly we think they’re
going to drill and develop, but we’re well positioned, as Andy said earlier, not only
to deal with the immediate needs that we see today but also if prices turn around
and it accelerates and goes at a much rapid pace, we can meet those services
as well. One of the things to note is that, of those 11 compressor stations that
we’ve recently brought online, we’re actually expanding two of them today; we’re
adding compression to two of them today. So we’re continuing see volumes
build in the area.
41
Ben Lamb:
That—so what you may see is that capacity curve
may shift left or right and the spaces between the capacity addition may shorten
or lengthen as we go, but the big picture, and I think what Steve was getting to
there, is we have a high degree of confidence in that acreage being developed
even in a relatively difficult price environment, and that’s part of what we like
about the customer set that we got with this acquisition. We have a group of
customers; two of the three biggest are public companies so they have public
company access to capital. They are very nearly, if not entirely, focused in the
North Midland Basin and the results just get better and better, and both
Diamondback and RSP do a great job with their public IR. So for those of you
who spend most of your time on the midstream, I’d really encourage you to
spend some time looking at their materials because they tell very, very
impressive stories about the quality of the resource.
Michael Garberding:
The producers have done a great job really
positioning themselves to have liquidity to do it. These are—Ben went and
basically picked through a lot of things we think grew from an M&A standpoint
and feel good about their capabilities to continue drilling.
Steve Hoppe:
The other thing that the combination of the two assets
allows us to do is it gives us capacity and it gives us access that let us build
incrementally over time at a much closer rate to the production as it develops, so
we’ll be able to optimize our capital spend to that production curve.
Michael Garberding:
Any additional questions? Going to wait for my—or is
there one at the back real quick? We’ll get to you next, John. Jerry (ph)?
Jerry:
Thanks. Can you talk a bit about the consolidation in
the Barnett and how fragmented is that market? I know you guys mentioned that
a few times.
Michael Garberding:
Steve, you want to start, and Ben or Mike?
Ben Lamb:
Mike, go ahead and we’ll start (ph).
Michael Burdett:
Yes. I just want to make sure I heard. You said talk
about the consolidation opportunities in the Barnett?
Ben Lamb:
Yes.
Michael Burdett:
So there is a significant number of producer-owned
gathering systems. There are a number of other midstream players in the
Barnett, and so we are obviously looking to enhance our already premier position
in there and working towards opportunistic opportunities to actually grow our
position within the Barnett, and we see that happening over the next couple of
years.
42
Ben Lamb:
Yes, I think the size of the footprint that we have in
the Barnett means that we touch a lot of these smaller systems, many of which
may be underutilized, and so it positions us to really be the consolidator of choice
in the Basin. Jerry, and some of these deals are deals where we’ll never issue a
press release, but because they’re relatively small in the grand scheme of EnLink
but they’re meaningful to our producer customers and they’re meaningful toward
arresting the decline that we would otherwise see in the Barnett.
Michael Garberding:
John?
John:
A follow-up here. So when you summarize all this,
you know, you have about 1.1 to 1.65 billion of identified opportunities, I’m
presuming you have pretty high confidence that those will materialize. Then I’m
just curious, I mean someone asked earlier about what kind of price environment
you’re thinking about there, and then I guess the other issue is, I mean if you
were to look a little bit beyond this, what kind of opportunities that you’re thinking
about there, or if you could comment on that (inaudible)?
Michael Garberding:
Yes, so I can start on that. So price environment
different for each area, right? So you start on the Permian that, you know, Ben
and Andy walked through and you can look at the price environment today and
you’ll probably see slower growth but we still see growth and good growth there,
and you start seeing that layered on processing, as Ben mentioned, that can
contract or expand a little bit depending on pricing. So we have seen
constructive pricing and expect to see it in the future, but we think the option cost
in the Permian is a lot lower than other areas. As Dave mentioned on Cana,
Cana’s very productive today but it was more of a question really of allocation of
value between the portfolios. So what that represents is just trying to really live
within a budget, not necessarily having an economic opportunity. So you can
see the Cana growth would be in and around the gathering, processing there or
processing (inaudible) the pipeline, so feel good about that opportunity.
Barnett is going to be the consolidation really. It’s
how do you think about adding that, it’s going to be the efficiency, we did talk
about some small growth that Steve mentioned. We’ll continue to look at the
success of the refrack program which we think could be real interesting, but
that’s on existing wells, right, so you have a lot of infrastructure there. So, to
your point, feel good about the option value on that capital really within the price
environment.
What’s next? I think the what’s next is what we’ve
talked about is, you know, what’s next for the Midland Basin, what’s next for
moving further west in the Permian, what’s next for going to that new area within
Oklahoma as far as being able to capture some of the new areas based on the
43
pipeline and really having the access to that and having a premium markets
you’re moving the product to, other things that...
Ben Lamb:
John, I’d just say that even bigger picture, and I agree
with everything Mike just said, but even bigger picture, what gives us confidence
in that number is that we have all four avenues of growth available to us. It’s not
as if we’re an MLP that’s nothing but a dropdown story or we’re an MLP that
doesn’t have a strong sponsor in Devon; we have all four avenues of growth
available to us. What we’ve given you is an illustrative way of how that might all
come together, and I’m sure that at the end of the day, it won’t come together
exactly the way that we’ve laid it out on these slides today, but we feel very
confident that, in the aggregate, it’s a very achievable goal.
Male Speaker:
You talked about the Scoop and Stack and just
looking for something potentially to do big there. Can you just talk a little bit more
about what you’re looking for or partnering with Devon or Greenfield versus M&A
opportunities and things like that?
Steve Hoppe:
So really right now, all of the above. We see some
opportunity to extend our Cana system up into the Stack play, and we could
enter it that way. We’re working with a potential customer that we could access
some undedicated acreage and just build a lateral back into there and bring it
into our Cana plant. We’re trying to enter into the Scoop through acquisition.
We’re trying to do it through Greenfield development and really at this point, just
anything we can because we really think that we need a third play in Oklahoma
to really establish that as a core area for us. So we’re looking at all those
opportunities as above. We’ve already looked at a number of opportunities and
haven’t been able to quite bring them to ground, but we still think there’s going to
be a lot of things that would become available and even if, in this price
environment, we think that might free up some other assets as well. So it really
is everything right now for us.
Michael Garberding:
Any final questions? Okay.
Male Speaker:
What’s happening with acquisition multiples, and
(inaudible) something significant (inaudible) area like the Barnett Shale, is that
reflected in the price today versus (inaudible)?
Ben Lamb:
Yes, so big picture, what’s happening with acquisition
multiples, I might answer that by broadening the question a little bit and talking
about what we’re seeing in the M&A market generally. We had the luxury of
being able to maintain our discipline during the very, very good times when
commodity prices were high, and so you didn’t see us being very active in the
M&A market at that point in time. Now you’ve seen us become very, very active
after Thanksgiving, and a big reason that has been possible is because we’ve
had our powder dry while some of our competitors have gone and done deals
44
that now they’re working on digesting. So while I would not say that acquisition
multiples have become cheap by any means, I would say they’ve become more
reasonable and most importantly, among our peer set, I feel like we’re the best
positioned to take advantage of the acquisition opportunities we see in this
market, because we previously maintained discipline and because we have the
benefit of an investment grade balance sheet and the access to very low-cost
capital that that comes with.
If you think back a couple of years ago or even just a
year ago, the benefit that EnLink ought to have had from being an investment
grade company was really understated by the fact that the capital markets would
lend anyone money at very low rates, and we’ve seen that begin to change and
reinstate our advantage. So I think you’ll continue to see us be active, and I feel
really good about our ability to compete for M&A deals, but we won’t lose our
discipline. We’ll continue to be disciplined around what we do and, hopefully,
that means we still have plenty to do.
Male Speaker:
(Inaudible) prices don’t change (inaudible) materially?
Ben Lamb:
I think that’s possible. I think that’s possible. I think
as Dave said in his remarks on the E&P side, that he felt like more time needed
to pass on the E&P side for the bid and ask to come together, and I think there’s
an element of that in midstream as well. I think something else that could drive a
little more midstream M&A would be if the capital markets became a little bit less
accommodating to the producers. There have been a lot of equity deals done by
the producers to fill funding gaps where maybe those gaps could have been filled
by selling midstream assets to MLPs like ourselves. You also asked if you do a
large M&A deal in a declining basin, then how is that taken into consideration,
and of course, it is. We’d expect to pay a much lower multiple if the cash flow
profile that you’re buying is a high cash flow today working into a lower cash flow
in the future, as opposed to, for instance in the Coronado deal where you’re
buying a cash flow ramp as a result of new development.
Michael Garberding:
Two other things in the market. I mean, one is just
the capability of the IPO has changed, right? All those guys, I mean, could do
single asset IPOs anywhere and that was a—you know, they always went that
dual path because they could, so—and that’s still there but it’s a lot smaller. The
other is, like Ben mentioned, it’s just the number of parties in M&A deals has
declined substantially so the competition is different. So you don’t see 20 people
involved in a process; it’s a lot smaller process, and I think the producers also
look—if they’re doing something and still remain on the system, looking at parties
that’s coming to the process and servicing them. That’s a big deal of having the
capability to do it, having liquidity and having the people, so I do think the bar of
who’s in that process and who’s buying has changed also a little bit.
45
Ben Lamb:
I agree with that, Mike, and I think that was a big part
of Coronado. Because the seller, the biggest of the sellers remains with the
system, they cared deeply about who was going to take over those operations,
and fortunately for us, they saw EnLink as a party they could trust.
Michael Garberding:
Any additional questions? Great. I’d like to thank the
panel. I’d like to thank you guys for the time today. So what I’m going to do is
just summarize sort of the key things you heard, right, from the panel. So I think
great, solid base business with good underlying cash flows and great alignment
with Devon from a customer. So that’s the solid footing you have in the
business. If you look then at growth and the options, our growth, you look at the
Permian and it makes you real excited. You are exactly where you want to be in
the Midland Basin with a great group of customers and the capability to grow.
Then you start looking at the Cana and look at what we can do there and the
options and opportunities there, so feel very good about that opportunity to grow.
So again, thank you, guys, for going through the Gas
Business Unit. We’re going to take a quick 15-minute break, so we will be back
at, what, 3:55 and then start the Liquids Business Unit.
So let’s go ahead and get seated if we can. We’re on
the final stretch, so bear with us. So now we have the Liquids Business Unit and
what we’re going to do here is we’re going to have Mac Hummel start with a
macro view of the Louisiana market. It should give you a real good view of why
we’re so excited about our position in Louisiana. Then he’s going to give a high
level overview of the Liquids business and the key asset teams in the Liquids
business, and then we’re going to roll back into a Liquids Business Unit panel
with the leaders for the Liquids Business Unit walking through the projects,
opportunities.
So with that, I’m going to turn it over to Mac Hummel,
President of the Liquids Business Unit.
McMillan Hummel:
Thank you, Mike. As Mike said, I am going to give a
perspective of supply and demand in the US and in Louisiana, and it’s going to
be at a high level necessarily, and then I’m going to try and build a picture as to
what that means to EnLink in Louisiana given our position.
So the takeaways that I hope you walk away with
here is that—is this US marketplace is extremely dynamic. There’s a lot going on
from the supply/demand perspective, and as that goes on and as it transpires,
there are going to be a lot of midstream infrastructure opportunities. I would say
the same is true from the Louisiana perspective, so just as it is for the US, I think
it will be for Louisiana. As you think about our platform in Louisiana and our
footprint, I hope you walk away with the perspective that these guys really are
positioned well to participate as these markets change; and then finally, we’ve
46
been active, we’re going to continue to be active in taking advantages of the
opportunities we see in this marketplace.
So before I get started, I thought I might just give
you—we might just go over a map here of our Louisiana footprint and how it’s
built up over time to make sure you’ve got a mind’s eye view of this as we talk
through it. So you see our position today as it exists in Louisiana, and I believe
we are very well positioned, uniquely so in the State of Louisiana, across all
commodities; natural gas, natural gas liquids and even a limited footprint on the
crude side. But if you look at the coverage we have in Louisiana, North, Central
and extremely good across Southern Louisiana, you begin to get a picture of the
coverage we’ve got north to south and east to west. It wasn’t always like this.
If you think back to 2004, it was kind of the initial foray
into the Louisiana market with the acquisition of the Louisiana Intrastate Gas
system. That was really the precursor of the position we have today. You layer
on top of that what we’ve historically referred to as the PNGL system, an
acquisition from El Paso, primarily processing, treating, natural gas liquids
pipelines and fractionation, again building a position in Southern Louisiana. You
layer on top of that in 2014, the Cajun-Sibon system, which was built to move
product, NGLs, from the Mont Belvieu area over to the Mississippi River corridor,
and then finally, a little bit later in ’14, you have the addition of the Chevron
pipeline assets.
Now, you’ve heard us all talk about the Chevron
pipeline assets today in a little bit of shorthand. We say the Bridgeline
acquisition. So when you think about the Chevron pipeline acquisition, the
Bridgeline assets – and the Bridgeline system was a piece of that – but was—
also came with the Sabine pipeline, came with the Chandeleur system, offshore
system, it came with Napoleonville Storage and it came with Sorrento Storage.
So when you hear us talk about Bridgeline using our internal shorthand, that’s
really what we mean is in total, all of those assets that came to us via the
Chevron acquisition; so again, uniquely and well positioned in Louisiana.
So getting now to the supply/demand piece of it, and
we’ll start with natural gas first. As you can see in a reasonable price
environment, the supply of natural gas and the demand of natural gas—demand
for natural gas are expected to increase over time, with demand increasing at a
slightly faster pace. Well, what really drives that demand? Well, power
generation drives that demand, industrial load drives that demand, but
importantly, LNG drives that demand too, and we could debate how much LNG
growth there’s really going to be over time, but there is going to be LNG growth.
The question is, is just how much? In this example, in this perspective, there’s
about 10 Bcf by 2020 and if you think about the demand side and you think
historically, where is demand created in the US, you don’t necessarily think of
47
this huge increase of demand coming in the Gulf Coast. You might think about it
coming elsewhere.
Conversely, you look at the supply curve. We’re
projecting it to increase over time. Where’s that increase coming from? Well
largely, it’s coming from the Northeast, right, and so we sit here today in a
fundamentally different place than we would have thought maybe five years ago,
and that is the Northeast is becoming perhaps a net exporter of gas, the Gulf
Coast is becoming perhaps a net importer of gas. So this infrastructure we’ve
historically built in the US to take Gulf Coast gas to the Northeast is now being
turned on its head, right, and we’ve got gas wanting to come down from the
Northeast to the Gulf Coast. It’s one of those ‘who’d have thunk’ kind of
moments, right?
So you take the domestic side, the US side and now
you boil it down to Louisiana, and what’s going on in the State of Louisiana?
Well, much the same thing on the demand side. We talked about demand
increasing in the Gulf Coast. In Louisiana, because of industrial growth and
because of LNG, the expectation is that demand will continue to grow. But on
the supply side, we see something quite the opposite. We see supply
decreasing in the State of Louisiana. You couple that decrease in supply with
that increase in demand and you’ve got a very significant swing, maybe 10, 12,
14, 15 Bcf a day of swing between a decrease in supply and an increase in
demand in Louisiana. That’s huge. That’s really significant and when you think
about the changes that are going to be required in the infrastructure on a US
level and on a Louisiana level to take advantage of that, it’s very significant. You
know, as we think about the implications for EnLink as this demand and as this
dynamic changes, there’s a lot going on in the State of Louisiana, right?
There’s a lot going on in this slide too, I realize, so
don’t get too focused on this slide, but the purpose of this slide is that, you know,
if Barry talked—when he started his conversation, he talked about Louisiana
feeling like home. Well, if Louisiana feels like home, then I’d say this is our
backyard, and if gas has to come from the Northeast to get to LNG projects on
the Gulf Coast, if gas has to come from the Northeast to get to LNG projects or
industrial project growth in the State of Texas or perhaps even export
opportunities to Mexico, it literally has to come through Louisiana to get there.
So if you think about our footprint and our coverage from north to south and east
to west across Southern Louisiana, we’re extremely well positioned to participate
in that; in fact, we kind of talk about it from the last mile perspective. If you think
about the big inch in expansions of pipelines or coming down from the Northeast
and you think about our distribution to market centers across Louisiana, we’ve
got a real opportunity to be the last leg of that pipeline that moves that Northeast
gas to where it needs to be consumed.
48
So you think about the natural gas liquids side now
and you look across the US. The story is really much the same on the supply
side; kind of a broad scale expectation that supply is going to increase across the
US. There’s almost no place that you can look at on that map where you don’t
see an expectation that volumes will go up, with the exception of Louisiana,
right? So if you think about supply going up in the US from the NGL side,
where’s it likely to go? Where does almost every barrel want to go in the US?
To Mont Belvieu, right?
More and more, we’re in a situation today where
barrels can move to great supply—great demand areas outside of Mont Belvieu.
Whether it’s Northeast gas moving off the East Coast, whether it’s Northeast –
Northeast NGLs, I’m sorry – Northeast NGLs going to the Eastern Canadian
petrochemical complexes, whether it’s Northern Tier NGLs going to the Western
Canadian petrochemical complex, whether it’s natural gasoline going to the
diluent markets in Canada, there are more and more ways for NGLs to move to
places other than Mont Belvieu than we’ve seen in the past, but that doesn’t
change the fact that a portion of almost every barrel in every supply area of the
United States at some point in time wants to end up in Mont Belvieu. So if you
think about this tremendous supply source of NGLs in Louisiana, NGLs in Mont
Belvieu and you think about the demand growing in Louisiana, there has to be a
way to get that supply linked in Belvieu to that supply short in Louisiana. What
does that look like?
First, let’s talk about demand. Sorry, I forgot that
piece. You boil it down to the State of Louisiana and you start thinking about the
dynamics we’re seeing there with the growth in the petrochemical markets. Well,
what’s happening there? We see supply, which is represented by that red line on
the graph, and we see demand by the bars on that graph. So we see supply,
over time, going down slightly, and we see demand growing very, very
significantly. We’ve got about a 200,000 barrel a day short in the State of
Louisiana on ethane today. That could increase to 500,000 barrels a day into the
2020 time period.
So you think about, again, the supply linked in Mont
Belvieu, you see the increasing demand in Louisiana and there is not the
infrastructure today to solve this problem, and so there’s going to have to be a
solution created that gets barrels from Mont Belvieu to Louisiana. We think it
could look like Cajun-Sibon. That’s really what Cajun-Sibon did, right? It took
supply linked in Mont Belvieu and it took it to demand needs in Louisiana, and we
think that same opportunity is going to be present on the ethane side of the
equation. Now, we’re not the only parties looking at this. We recognize that
there are others looking at this opportunity. But again, given our footprint and
given the capabilities we’ve got with that footprint, we think we’re a real
compelling part of that story.
49
So moving to the last thing we’re going to talk about
on this segment of the discussion and it’s crude oil, and this graph represents the
refinery demand for crude and the supply of crude, and unlike natural gas liquids
and natural gas, on the crude side, there’s a very significant amount of the
demand that’s serviced by imported product, right? It’s about a third roughly in
this case, depending upon the timeframe you’re looking at. So, as the US has
become more and more successful in producing crude on the domestic front, we
pushed out more and more and more of those imports, right? We’ll continue to
do that. We’ll probably do that on a slower pace than we have in the preceding
four or five years just because of the commodity market—commodity price
markets we’re in, as Dave talked about.
You fast forward to Louisiana and the story is much
the same. You’ve got an area that’s well developed from a refinery complex. It
produces or has demand of about 3 million barrels a day. It imports a significant
amount of that supply from foreign sources; in this case, about a million barrels a
day, so about a third of its demand needs. The opportunity for the US producer
is to displace foreign barrels brought into the US. Now, there’s a limitation as to
how much you can do and a crude barrel is not a crude barrel is not a crude
barrel. A refinery is not a refinery, is not a refinery. The quality of crude has to
match the capability of the refinery in order for that crude to be brought into that
refinery, or the refinery has to be retrofitted to match the supply of crude that’s
available.
Well, the supply of crude that’s available generally in
the US is a little bit lighter than what we have historically produced or imported
into the US, especially in the Louisiana area. So not unlike the conversion
perhaps that we’ve seen in the petrochemical industry where the industry moved
from a slate of heavier feedstocks to wider feedstocks, that same opportunity
could be part of the solution here. But in any event, if we as an industry are
going to import a million barrels or some portion of a million barrels from
domestic sources into Louisiana, the infrastructure has to be developed to do
that, and again, given our footprint, we think we’re part of that story and excited
about the opportunities we see in that regard.
This graph, while again a little bit busy, goes to talk
about the amount of imports that are likely to be able to be displaced. If you think
about that million barrels a day, there’s some portion of that that’s imported by
the owner of the crude. So you take CIDCO as an example. They’ve got
Venezuelan production, they’ve got Louisiana refineries, they import barrels from
Venezuela into Louisiana; it’s going to be tough to displace those barrels from an
economic perspective. But if you think about all of the other barrels that are
simply economic barrels, and there’s considerable number of those, maybe
700,000 barrels a day of that kind of product, that’s a significant opportunity for
the US producer to economically displace those barrels, but again, it takes
infrastructure to do that. Again, we’re in a position to be part of that story.
50
So as I think about—if I think about this scenario
we’re in, this volatile market we’re in, this dynamic market we’re in, there’s no
question that we’re going to continue to see this dynamic market create
opportunities on the midstream side. We’re seeing it in a big way as Northeast
volumes look to come south, something in the neighborhood of 15 Bcf a day of
projects on the books to move south—to move Northeast product south.
Louisiana markets are undergoing also a very significant amount of change. We
talked about that on the gas side, we talked about that on the natural gas liquids
side and the opportunity’s available on the crude side too. No question, as you
think back to the footprint we have in Louisiana, we have extremely good
dispersion of facilities across Louisiana. Whether it’s Northern Louisiana coming
down to Southern Louisiana, whether it’s extreme Southwestern Louisiana to
extreme Southeastern Louisiana, we literally have a footprint unlike any other
person, unlike any other company in the State of Louisiana that we are going to
look to take advantage of. I showed you the buildup of our position over time.
We’ve been active in building this position in Louisiana. Expect us to continue to
be active as we see these dynamics playing out and take multiple advantage or
complete advantage of the facility position we have.
So I’ll move now to a more detailed discussion of our
Liquids Business Unit, and just as a reminder, the Liquids Business Unit is made
up of our NGL business, it’s made up of our Louisiana Gas business, and it’s
made up of our crude businesses, both ORV and outside of ORV. If I think about
all these businesses, I think there’s a lot of reason to be encouraged. I think
there’s a lot of reason to be optimistic. So that’s—as I think about all of these
businesses, perhaps the one that I’m—the set of businesses that I’m most
excited about are the crude businesses, crude and condensate businesses
because we’ve see such a change in our capability over the near term. When
the VEX transaction closes in the near term, we will be touching five to six times
more barrels in this segment of our business than we were touching 60 days ago,
and if you think about that amount of growth in our crude and condensate
business, that’s—I’d call it a step change. You know, it’s a big step change to
have that kind of growth in your business, but what a great opportunity for us to
have that kind of growth in our crude and condensate businesses.
You know, I was thinking back as I was preparing for
today. I was thinking about last year’s Analyst Day, and I’d been with the
Company for about 45 days and I was thrust into the opportunity to speak at
Analyst Day, and I remember distinctly standing up here and talking about the
charges of the Liquids Business Unit and what I said is the charge of the Liquid
Business Unit is to increase our level of contribution to EnLink, and what you will
see is we’ve done that. You’ll see that we’re positioned to do that in ’15, and
you’ll see that we’re positioned to do that beyond ’15.
51
So talking about the individual businesses in a little bit
more detail; first of all, our NGL business. It’s our largest segment of the Liquids
Business Unit. You really can’t talk about our NGL business without talking
about Cajun-Sibon. Cajun-Sibon, and Barry said it earlier, it’s a transformational
asset for us. It gives us a significant platform to build from in our NGL business,
and really, if you think about it outside of EnLink, I think it was transformational
for the NGL industry in Louisiana too, because what did it do? It created an
incremental or an alternative supply source into the state that had not been there
before, so we created the opportunity for diversity of supply for a number of
customers in Louisiana. You look at the increase in cash flows between 2014
and 2015 for this business, that’s really the result of Cajun-Sibon being online for
a full year versus a partial year in 2014.
Moving to our Louisiana Gas business, you know we
say here that we’re developing opportunities from a market-leading position. I
wish I’d have stuck another word in there when I did this, and that is the word
‘the’. I think we’re developing opportunities from the market-leading position in
Louisiana. I think we’ve got the premier gas footprint in Louisiana that you could
have, and really, what caused that premier position to occur was the acquisition
of the Chevron pipeline assets because it gave us so much capability, so much
more capability than we had prior to that acquisition that we now sit with today.
We have so much better coverage of the state – and we’ll talk about it – but we
also have storage capabilities on the gas side at Sorrento and Napoleonville that
we didn’t have before. So as I think about our business here, I think about a
business that is poised extremely well to participate in these changing dynamics
we see as supply and demand shift, not only in Louisiana but in the US. I also
see a business that’s poised extremely well to take advantage of improving
commodity markets as those surely improve over time.
Okay, now the Gulf Coast acquisition of the Chevron
pipeline assets. Again, you take a look at this map and you look at the faint blue
and the faint green on there. That was our historical position prior to the
acquisition of the Chevron pipeline assets. So what you see immediately, what
you should see immediately is in South Central Louisiana, you see an area
where we’ve got a significant amount of contiguous pipe. You see an area to the
extreme Southwest Louisiana where we had no footprint at all, and you see an
area to the extreme Southeast Louisiana where we now have a much more
robust footprint in the Mississippi River market corridor. So it’s easy to see when
you look at the map why we were so excited about picking up these assets.
You know, it might look like—if you’re familiar with the
M&A market, you might look at and you’d say, well, these assets came up for
sale in 2014 and EnLink was successful in buying these in 2014 and they closed
on them in 2014. That does a real disservice to really the story there because,
as Barry said, we’ve been after these assets for years and years and years
because we could see that we could add value to these assets that the market
52
couldn’t, and this was a case where actually the right buyer was actually the right
buyer of these assets because I think we can add more value to them than
anybody else could.
You look at the green dots on that map and we are
starting to really catch our wind with regards to the integration of these assets
into our existing asset position. We’re currently working on about 25 discreet
projects on the Chevron—well, really on our Louisiana footprint as it relates to
the Chevron pipeline assets. You can take those 25 projects and you can
roughly put them into four buckets. Number one is the supply bucket. We are
accessing better supplies, maybe advantaged supplies from a basis perspective
and/or from a processability perspective. You can create another bucket that’s a
market bucket. We’re getting access to more diverse and different markets than
we had access to before. The third bucket might be storage buckets, so now
we’re looking at storage and we are looking to reactivate storage that Chevron
took out of service and put it back in service. A fourth bucket, especially as you
look at the contiguous nature of the footprint here, is that we are looking at asset
optimization opportunities where we can more fully utilize or more efficiently
utilize different segments of pipeline and free up other segments of pipeline.
That freeing up is really important and the reason it’s really important is because
that gives us opportunity to do something different with that pipe than have it in
partial gas service.
So as we think about these changing dynamics in
Louisiana, we think about gas, we think about NGLs, we think about crude, we
think about petrochemical products where we may have a higher value use for
that pipe than simply being in a gas service. Now, we aren’t presupposing that’s
the answer, but we’re certainly beating the heck out of the bushes to see if we
can develop that kind of opportunity to use these pipelines in a different higher
value service, and that doesn’t extend just to the pipeline side. I mentioned
we’ve got gas storage now at Sorrento, we’ve got gas storage now at
Napoleonville. We are also looking to see whether it makes more sense to have
storage service in something other than gas; perhaps NGL service. So that
repurposing opportunity is very broad and we’re very actively looking at what our
alternatives are there.
On the NGL side of the business, you know, I’ve got a
note here about the Marathon pipeline extension and as neat as this project is,
and it’s on schedule and we’re moving forward with it and, you know, we’ve got
the route set and we’re just about to get out and buy pipeline right-of-way, maybe
the most important thing about this or the most exciting thing about this is really
why it came about. It came about because of that same dynamic that Barry was
talking about and that Dave was talking about, about the relationship we build
with our customers. We’ve got a long history of serving Marathon, of being a
counterparty with Marathon and there is no way they wouldn’t have entered into
this opportunity if they hadn’t developed a level of trust, a level of expectation
53
around our ability to serve them and an ability to work with them. So maybe the
most exciting thing about this whole project is just the fact that a customer like
Marathon would participate in this kind of opportunity with us, and so I look at the
Marathon pipeline example as kind of being a proxy for other projects that we
might see off of Cajun-Sibon, not necessarily that they’ll be JVs, but I do think
there will be extensions off of Cajun-Sibon to reach new markets, maybe to reach
existing markets better, maybe connect to new supply sources. So a great
opportunity for us and, again, one that I think serves as an example of what you
might you might see prospectively.
Okay, moving to the crude and condensate piece, and
again, I talked about this as being such an exciting area for us because of the
changes we’ve seen just over the last 60 days, and I’ll talk a little bit more about
Victoria Express here in a bit and I’ll talk a little bit more about ORV in a minute
too. So I’ll focus a little bit more on LPC right here, but what a great opportunity
for us to enter the Eagle Ford and the Permian, the Permian via LPC. I could’ve
run up here and hugged the gas guys when I heard them talking about LPC the
way they were. What a great opportunity for us, right? We now have the
opportunity not only to build out this crude position we have in the Permian
Basin, really in the best part of the Permian Basin, but we’ve now got the
opportunity to do something that LPC could not do on their own and EnLink could
not do on our own, and that is cross-sell between our two existing customer
bases. So in addition to just being able to grow our gas business and grow our
crude business, we’ve now got the opportunity of built-in customers on either
side of the business that we can look to add value to on the other side of the
business; really a cool opportunity.
So moving to the Victoria Express pipeline, the VEX
pipeline, you know, we get the opportunity to enter perhaps one of the best crude
basins in the United States. Dave talked about Devon and their perspective on
the Eagle Ford and just what a tremendous resource and asset it is for them. As
I think about VEX, I think about the opportunity that’s in front of us. VEX today
has 50,000 barrels of capacity, it has 150,000 barrels a day of storage capacity.
By the end of this year, it’ll have 90,000 barrels a day of throughput capacity, it’ll
have 360,000 barrels a day of storage capacity and it will have the opportunity or
the availability as an asset, the capability via a truck terminal to receive third
party barrels. So as you look at this growth that we expect from this asset over
time, we’re going to have to be more active with Devon and we’re going to have
to be more active with our third party business, and the expansion will give us the
capability to bring in third party barrels that really does not exist today. So a
great opportunity for us to enter a great basin with an existing asset that has an
existing customer on it and the opportunity to bring in more customers.
ORV. We continue to believe that the Utica and the
Marcellus are important basins for us to have assets in. We are happy with the
position we’ve got there, and we’ve got—we’re happy that we’ve got access to
54
those barrels coming out of that area. As we think about our ORV business,
we’ve got to continue to really perform well with our legacy customers. We’ve
got customers where we do crude business with, condensate business and brine
business, and as we think about our ORV business, it’s important we continue to
provide high quality service to those customers. The growth vehicle for our ORV
business looks like it’s going to be condensate, so as you see us looking to
increase our level of contribution from ORV for our Liquids Business Unit pretty
significantly in 2015 versus 2014, that’s really going to be on the back of the
growth of crude—growth of condensate, I’m sorry.
So how are we going to do that? What kind of
services are we going to provide? Well, we’re going to provide stabilization
services, and we’re going to provide related gas compression services. We’re
also going to be providing pipeline services. That’s our expectation. We’ve got
about seven stabilization and/or gas compression facilities online today. We’ve
got an eighth that we expect to be on by sometime later this year and, of course,
we’ve got the condensate pipeline. We expect our stabilization capacity to be
about 37,000 barrels a day by the end of the year, and we expect our gas
compression capability to be approximately three quarters of Bcf a day of
compression capability.
Now getting to the pipeline, you all know that we’re in
the middle of the open season for the pipeline. It extends through the middle of
April. We continue to procure a right-of-way for that pipeline. I think the latest
estimate I’ve seen is that we’re in excess of 90% of the right-of-way acquired for
that pipeline. We continue to clear right-of-way that we think is on the critical
path for completion of that pipeline, and we continue to work with customers as
part of our activities in the open season.
Now, we’re going to do at the end of the open season
what you all would want us to do, and that is we’re going to take a look at the
commitments we’ve got and we’re going to make a decision at that point. The
decision may be to press forward full speed ahead like we’re currently working
towards, or it might be that we delay the project and we take a look at the drilling
activity and we pick a time that’s more optimum to build a pipeline. The great
thing about it is that’s an option we control at this point, right, and even a greater
thing about it is that prior to the time when we build a pipeline – and we do
believe a pipeline is the right answer long term – we’ve got the capability to move
these barrels in the interim via our rolling pipeline, via our truck fleet. So we can
handle the barrels we’ve got, we can handle growth with that truck fleet until the
time is right to build a pipeline, and again, I’m not presupposing that it is or it is
not the right time to build a pipeline. What I’m saying is that we’re going to be
evaluating that, and we’re going to be making the best decision going forward on
what the right answer is there.
55
So as I think about the Liquids Business Unit and I
think about the opportunities we’ve got here, on the NGL side of the business,
again, Cajun-Sibon, what a phenomenal asset it is, transformational for us and
for the industry, driving a significant amount of growth in 2015 versus 2014;
Louisiana Gas position, the premier position in the State of Louisiana. If you
think about it from how this asset is poised, poised extremely well to take
advantage of supply and demand dynamics as they change, as well as to
participate in an improving commodity market over time, and then our crude and
condensate businesses. Again, it’s hard to tell you how excited I am about the
development in our crude and condensate businesses, the opportunity we have
in ORV, but also the opportunity we have in two of the best basins in the United
States for crude oil production, the Permian and the Eagle Ford.
Thank you. Don’t need it.
Michael Garberding:
That’s for me, right? Thanks. Thank you, guys. So
great overview by Mac on the macro view of why we get so excited about
Louisiana, and I think you’ve heard that about a hundred times today and will
continue from us. Also, a good overview of the business, but now, just similar to
the Gas side, we have the Liquids panel. Sixty minutes, so we’ll talk up here
probably first, you know, 30, 45 minutes and open to questions for you guys.
The Gas panel, you know Mac, John Pellegrin, Ben Lamb, Shannon Flowers and
Chris Tennant.
So I’m one of the ones guilty of saying Bridgeline all
the time so I guess I’ll change it to Chevron, so—but Chevron was incredibly
important to us. I mean, you saw how long we’ve been thinking about it. We
worked on that acquisition a real long time. I thought it’d be real helpful hearing
from Ben’s point of view just how strategic that acquisition is, you know, and our
thoughts around that.
Ben Lamb:
Yes, my—you know, Mac gave us a good
presentation just now on why we’re excited about being in Louisiana, and that’s
where it all starts, to understand why we’re so excited about the Chevron
acquisition. But you didn’t have to hear Mac’s presentation to understand that.
All you had to have was a window seat this morning on the airplane as you came
in because you probably flew along the river coming into the airport and all you
had to do was look out the window and see the fantastic concentration of
industrial activity that exists here on the Mississippi River. When you couple that
concentration of industrial activity with declining Louisiana production, both of
gas and of NGLs, it sets up the same kind of market imbalance that we
addressed in our Cajun-Sibon project. So similar to our Cajun-Sibon project,
we’re working to identify exactly what the market needs in Louisiana and how we
can use our assets to satisfy that need, and that comes in two different phases.
The first phase is an optimization phase that John Pellegrin and his team are
56
working on as we speak. That’s the 25-plus opportunities represented by those
green dots that Mac mentioned earlier.
The second phase takes a little bit more time and
that’s the repurposing phase, where we try to identify whether it’s NGL service,
whether it’s crude service, it could even be in gas service where it’s repurposing
by reversing flow to bring gas back to the West, but a higher and better use for
those assets than exists today. The key to it is we have a special set of how
important having that duplicative redundant pipeline in the ground is in Louisiana
because we just completed the Cajun-Sibon project and we understand how
difficult it is in this geography to build pipeline, and so while lots of others are
looking at these same opportunities, we think that that existing infrastructure
gives us a real advantage in being able to actually execute on those kinds of
projects.
Michael Garberding:
The other thing really was not everyone could have
converted it like we did, right, because we just had—you mentioned it, sort of the
duplicative pipeline gave us that capability to have that option.
Ben Lamb:
Well, that’s right. You know, if you have a pipeline
and gas service and you want to move it into other service, in all likelihood,
somebody is using it in gas service today. You have a customer who’s being
served and if you convert that pipeline, that customer may not be able to be
served anymore. That’s one of the advantages we have in having this
redundancy is, in many cases, we’ll be able to serve that gas customer through
another piece of pipe so that no one sees a reduction in service.
McMillan Hummel:
You know, Mike, I’ve got a couple of things I want to
add there. First of all to Ben, and that is next time you save people from listening
to one of my presentations, do it before I have to give it, okay, first of all; and
second of all, if—when you think about this concept of repurposing and you think
about the act of taking a pipeline out of one service and putting it into another
service, don’t forget that as we build the Cajun-Sibon system, a lot of that was
new pipe into new areas and was tremendously difficult, and we know how
difficult it is to build in the State of Louisiana. But the eastern—approximately the
eastern third of that pipeline was a conversion project, so we took an existing
pipeline that was formerly in gas service, we did everything we needed to do
from a technical perspective to convert it to liquid service and we did that. So
we’ve got practical experience not only building new pipeline in Louisiana, but
converting existing pipeline to a different service in Louisiana too.
Michael Garberding:
So I think John Pellegrin is going to rue the day we
put the green dots on the presentation because every meeting in the future is
going to be asking about the green dots, but—so why don’t you give us your
perspective just on the Bridgeline acquisition and what it means to the gas side
of the business.
57
John Pellegrin:
No, absolutely, Mike. I—you know, just to piggyback
on what’s already been discussed, I don’t think there’s ever been a period of time
where there’s been so much excitement about market growth in the Louisiana
corridor. I’ve been working this area for about 15 years now, and while we’ve
had a lot of excitement here in Louisiana, it typically hasn’t focused on the
demand side of the equation. We’ve been through periods where we had an
excess of 10 Bcf coming from offshore to the onshore coast of Louisiana. We’ve
had the Haynesville Shale show up in North Louisiana, all very exciting things
that have happened, but really this is unique in that it’s a demand-driven
opportunity here in Louisiana, so we’re really encouraged by that.
We’re real proud of our system that we’ve put
together here in Louisiana. In just what I’ve said so far, you can see that, over
time, there’s been some pretty—some significant swings in not only supply or
market available, but also the processing environment. Many of you know that
we operate a very integrated processing business within our Louisiana assets as
well. So here is a case where, in this corridor, we have a very integrated value
chain in that we gather wellhead gas, we process, treat, liquids go into liquids
infrastructure that EnLink operates, and then we ultimately take residue gas out
of those plants to burner tip markets. That’s a very integrated value chain.
Now, as we looked at our business in Louisiana – and
I’ll be the first to say that we were very proud of what we’ve built here – we did
identify some things that we’d certainly like to have. Our market access was
relatively colloquial on the scheme of things and so we always desired a broader
exposure to top shelf industrial complexes that dot the Baton Rouge to New
Orleans landscape. We also—there was a whole geographic portion of the state,
particularly the western side of the state, that we really didn’t have a footprint in
at all. So as we looked at things that we’d like to add to our already enviable
suite of assets, those were things that popped out as being of interest to us. The
Bridgeline acquisition certainly provided many of those things.
I’d say another component that the Bridgeline
acquisition provided was access to storage. As I said, we serve producers on
the production side of the equation and end users, burner tip end users on the
market side of the equation, so the ability to manage supply and weather and
various other things, storage plays a very valuable role in that. So our ability to
yet add that component to our midstream value chain in Louisiana was really
important to us. So that kind of really sums up, you know, what we saw and are
really excited about.
Michael Garberding:
A lot of growth with a lot of optionality, you’ll hear that
numerous times here. So if you look at it from a different commodity perspective,
NGLs, you know, and you think about what we’ve done there, it’s probably good
58
Chris giving his view on just starting with Cajun-Sibon. I mean, we can’t talk
about that enough about how strategic and transformational it’s been.
Chris Tennant:
You’re exactly right and I love to talk about that. You
know, before I do, I learned something from Mac’s presentation today in that, you
know, after five years of hard work and finally getting the pie chart just right
where NGL was about 52% of the pie, Mac’s most excited about crude and
condensate so, Shannon, the review should be good this year. But yes, the
Cajun-Sibon pipeline project, can’t brag about it enough. I think it’d be important
for this group to understand what the environment was when we were doing this,
and I’ve worked Louisiana for three different times over 20 years as a major
marketer and trader, as a consumer and a producer with Chevron and then as an
integrated supplier by pipeline with EnLink today, and I can tell you that
Louisiana’s historically a captive market, one or two suppliers for the whole state.
So when you think about what’s going on with that
and then you look at the decline of offshore gas, just less NGLs and less NGLs
coming into the state, that’s the environment where we said let’s get a group of
people, let’s take our assets; they weren’t necessarily green dots but they were
different colored dots on the map, and we said let’s make a supply chain out of
these and let’s make the Cajun-Sibon project, and that’s what we did. The really
cool thing about that was – and I would say this is one of our core strengths – is
that we had a platform, a very small footprint and we optimized it to something
much bigger, and I think you’ve heard it today across all the commodities,
whether it’s gas—and I’m pretty sure Shannon and John are going to talk about it
as well, give us a platform, let us get our customer relationships, and we’re going
to grow this into something big, and that’s really where we are today. The
Marathon project you heard Mac talk about, it’s a perfect example. So we get the
Cajun-Sibon project done, we get a new and larger footprint and that, plus our
decades of transparent service to Marathon, opened the door to those
conversations and we were able to have those and progress them up to the point
now where we have a new, you know, decade long delivery mechanism to
Marathon and Garyville.
As I look forward, I place no limits really on our
growth, be it the project side or where we’re going to try to get into. With the
Bridgeline, Chevron pipeline acquisition, repurposing pipelines – John and I arm
wrestling over who’s going to use what for what service – or even development of
new underground storage complexes, those are the type of things that we want
to do for our customers and the—we’ve run Cajun-Sibon up fully since
September and the more that we run it, the more that we perform, the more leads
that come in, the more conversations we have with our customers about what
can we do. When you put all those together in a basket, the next few chapters of
our story are going to be very exciting.
59
Michael Garberding:
It’s interesting, you mentioned Marathon too because
you tie that into the Chevron, right, because don’t you run that—you run the
Marathon pipeline right by Sorrento, don’t you, as far as now (ph) further
optionality on?
Chris Tennant:
We’re very excited about the route we chose for the
pipeline because, once again, like I said, captive market, so there’s very few
people that can get into certain areas, and with this new pipeline going through a
market hub of Sorrento, Louisiana, it’s going to open options and conversations
for us with other, I’d say, Tier 1 quality customers, so we’re very excited about
that.
Michael Garberding:
You must be pretty excited, Mac, when you hear all
this as far as options on the Louisiana business?
McMillan Hummel:
It does, Mike. You know, as I sit and talk about our
Louisiana position, it strikes me that as I think back a year ago and when I joined
EnLink, I really didn’t appreciate the position we had in Louisiana. Yes, I knew
we had a position, I knew we were working on Cajun-Sibon, I knew it would be
done soon but I really didn’t appreciate the perspective around that position, and
being here for a year and, you know, kind of Barry talked about it in terms of
“feels like home to us” and it’s tremendously exciting to see what we’re doing
with our position there. We took a historical position, and we made it better. We
took a historical position, we added gas to it, we added more gas to it, we added
NGLs to it. Who knows what we’ll add to it next?
But the exciting thing to me is not only the opportunity
represented by the footprint, which I do think is significant, when I think about the
other assets that we’ve got – and when I say ‘other assets’ you’re seeing some of
them up here – there’s a tremendous amount of capability in this Company that,
again, I didn’t fully appreciate when I came over from Williams. You know, I
knew it was a good company, I knew they’d accomplished some good things but
I really didn’t appreciate the amount of capability and the amount of experience
that’s sitting up here. You take any one of these folks and they’ve got 20 to 30
years of experience in the industry that they’re working in, and that kind of
expertise is really extremely valuable when it comes to us taking full advantage
of this position we’ve got, and I’m really excited, Mike.
John Pellegrin:
If I can, Mac, I’d add…
McMillan Hummel:
Even about the NGLs.
John Pellegrin:
Just to add to Mac’s observation there is, is that we’ve
been talking about the green dots, and as he mentioned, we put those into four
categories. We identified the things we wanted to attack first. We wanted to
make sure and pursue all of the expansions on the Mississippi River corridor. It
60
was important for us to be first movers in being able to provide those—that
connectivity as those projects were cited and developed.
The second thing was we wanted to focus on supply
points. You know, you can see from the—all the arrows on Mac’s slides, there’s
just—there’s all kinds of direction changes, and so we wanted to make sure that
we had enough interconnectivity to give our shippers access to various liquidity
points throughout the state, not only east to west but north to south as well. So
that was the second component of that.
The third component was the integration projects that
we had ongoing, you know, where we could tie the systems together and utilize
excess capacity that we might have on one pipe that matched up favorably with
receipt or delivery capabilities on the other pipe. So indeed, when we put these
together, we’ll think—we think we’ll end up with something greater than each one
was individually, and that all said, that there will be excess pipelines and capacity
available for alternate utilizations.
So while I’d love to arm wrestle with you, I think at the
end of the day that we’ll all have access to the best of all worlds; increased
capabilities through the integration (ph) projects and then the freedom to be able
to respond to ever-changing market conditions because our footprint and our
options are so strong.
We wouldn’t be able to do this without people on the
ground that certainly understand how our assets work and what we’re after.
We’ve got a team of folks that work our pipelines every day that understand from
the commercial side of the equation what it is we’re going after, what our goal is,
and so they’re already on it as we acquire an asset like Bridgeline in working
towards ways where we can improve our efficiencies. So we’re real excited 20
weeks into the Bridgeline acquisition on the progress we’ve made, and many of
these we think, you know, over the next six months to a year or so, we’ll have
most of these projects in place and fully functioning, so we’re very excited about
that.
Ben Lamb:
That’s great.
Maybe a quick follow-on on the
experience of the people. You know, one thing that, unless you’re told, we’re in a
unique pricing environment right now, but everybody sitting up here, the one
thing about—good about being older is that you have experience and the type of
contracts that we do and we work with our customer, we’ve been through these
cycles before so we know how to write contracts that protect us on minimum fees
for volume or minimum fees for certain component composition, and our
operations guys are exactly the same way. They’ve seen it and done it before,
so when we’re taking a concept to them, we’re talking to the best in the industry
and many times they tell us, you know, you really need to scale that back, son,
61
that’s not going to be, you know, high quality. You may have some problems
with that, and that’s baked into everything that we do.
Michael Garberding:
Great. So Shannon, I know, has been sitting up here,
you know, being the favorite child of Mac now and not having a chance to talk,
so…
Shannon Flowers:
Hey, it’s getting lonely.
Michael Garberding:
I know.
You look at the map and just the
opportunities we’ve put in place and lots of the same strategy, but why don’t you
give them your vision for what you’re trying to put together in the crude and
condensate standpoint.
Shannon Flowers:
Yes. Chris mentioned that chart and my eyes were
immediately drawn to it. When I started two and a half years ago, it was within
Crosstex, the very first PNGL net income chart we had, crude was like 8 or 9%,
and I’m going, “Man, that is a really small number.” So to see it now, what we’re
going to be in 2015 at 28% and then even growing – sorry, guys – that with all
the opportunities that we’ve got, I mean it’s really exciting. I’m really looking
forward to being a part of that. So the coolest part of it is we’re not going to do
anything different than what EnLink has already done in its history. We’re going
to use the same formula of buying base assets in very strategic locations,
increasing that throughput on those assets where we have those opportunities
and then working with customer relationships, as well as our best in class service
to immediately identify growth projects to build and expand the overall value
contribution from those assets.
So to go in a little more detail on what we’re doing
with VEX, that’s a great example of exactly what we’re doing. We acquired a
really—I worked the Eagle Ford with a previous employer for about two to three
years just as it was getting started and really fell in love with the opportunities
and the diversity of that basin and the VEX asset really gives us that opportunity
to go out then, and for me and my team to go out there and participate in that
basin. It’s got a base commitment, so there’s always going to be some volume
that’s flowing on there, and we’ve already identified growth projects that we’re
already working on with the eight-bay truck rack at Cuero on the north side of the
system, on expanding barge dock capabilities on the south side of the system,
storage on both ends, as well as a midpoint booster bump (ph) to take it from 50
to 90,000 barrels a day. So all we’ve got to do now is go get those opportunistic
third party barrels, and we’ve already been working on that. We’re buying barrels
in the area today and looking forward to growing that volume and filling that piece
of pipe.
Michael Garberding:
Pretty amazing when you look at the opportunities on
that too, and I know VEX has changed a lot as far as when we first started to talk
62
to the market about it versus what we’ve seen today, and there’s more. I mean,
because again, and Shannon made a huge point, which is having the capability
of getting an asset with an underlying contract and the capability to grow, so just
a great position. LPC is another one. It’s just been incredibly strategic for us,
you know, so Ben, why don’t you give your thoughts on that as far as the strategy
when we acquired that?
Ben Lamb:
Well, we set out purposefully last year to get into the
crude business in the Permian, and my background in crude is not very deep but
Shannon’s been doing it for almost 25 years; and I remember, I think it was late
summer last year, I came down with a couple of folks from the M&A team and we
spent most of the day together with Shannon in Houston and we started with the
white board, said, “Shannon, show us how the value chain in crude works. Show
us how the pieces connect.”
So we started with first purchase of the lease, through
truck transportation, small diameter gathering, regional aggregation, long haul
takeaway, and we spent the whole day talking about this. So we got to the end
of the day and talked about, well how do we get there? You know, what’s the
first step? What I remember Shannon saying is, “The first step is to control the
barrel. Start with controlling the barrel and then you can build that into the value
chain.” So we knew that what that was going to look like was going to be a first
purchasing operation with some logistics assets, probably trucks, and that—it
looks like that was August and we left it with Shannon saying, “We’re going to go
and find that opportunity, but we don’t know how long it’s going to take.” It didn’t
take nearly as long as we thought it would because not long after that, we got the
first call about LPC and we instantly realized that it was very, very close to the
ideal opportunity to get us into the crude business in the Permian, and it was that
because it served some of the same customers and much the same geography
that we serve on the Gas side, so we have a cross-selling opportunity.
It came with a great Management team that we’ve left
in place out in Midland to operate the business and grow it for us. But our vision
is not for it to just be a bigger version of what it is today. Our vision is to integrate
further into the value chain along the lines that we discussed six or eight months
ago, getting into larger diameter pipe, converting barrels that are moving on
trucks today onto regional gathering systems and then potentially even going on
beyond that. So really excited to have that acquisition under our belt and be, I
think, eight weeks now into growing with the LPC theme.
Shannon Flowers:
I’d just add a couple of things real quick, Mike, on the
LPC and why we were so excited about it is, first, they had the same culture
values that Dave and Barry talked about, right, so they were very family oriented.
They were very concerned about whoever was going to be their acquirer that
they kept everybody intact. They wanted to make sure everybody had a new job,
or a job in the new organization.
63
The second thing is, is they’ve built their business
where customer relationships are so important, and when you talk to them,
whether it’s the truck driver or the people in the division order department or the
commercial guys that are out there working with those folks, they put such a big
emphasis that they want to make sure they serve that customer the best way
possible, which is—so moving that company into the EnLink Company and
keeping with our core values was a—been a very easy transition.
Ben Lamb:
Yes. I think when you think about VEX and you think
about LPC, it’s really important not to think about those as destinations. They’re
really journeys, and it’s really the first step on the journey. So we’re going to
apply the tried and true methods that EnLink has applied so many other places,
and that is we’re going to get a platform, we’re going to get the right platform in
the basins that we want to be and then we’re going to start building off that
platform. They might be organic projects. They might be bolt-on projects. They
might be strategic acquisitions, but what you need is you need the first step and
what we’ve got in both the Permian and in the Eagle Ford is the first step. I think
that’s why we hear so much energy from Mac around the crude business. Crude
is fairly new (inaudible). Like, it’s—our heritage is more gas gathering and
processing, but now we have starter kits in two of the three basins that are really
driving the revolution in US crude production, so it’s exciting days for Shannon
and his team.
Shannon Flowers:
Very much so.
Michael Garberding:
Well I—just to keep on it real quick, but one thing you
didn’t mention when we talked about LPC was Devon, which is interesting. So
what—I mean, how do you look at that?
Shannon Flowers:
Yes, I mean the neat thing, I was so excited to hear
all the gas guys talk about LPC, so if we’re ever short of truck drivers, man, I’m
calling you guys first (inaudible) and help out. But Devon is just starting to really
explore and drill in the Delaware Basin and they’ve not committed a lot of their
crude, and so we’ve already—I think the gas guys mentioned there’s two
locations there that are very strategically placed. We were—already have got
contracts in place and we’re going to start hauling barrels in April, will be our first
contact really with Devon, touching that volume, and what we’re going to do is
apply the exact same model with LPC that they’ve done in the other areas in the
Permian, is that put the barrels on truck, consolidate those barrels that are in an
area, bring in their very low-cost high efficient gathering pipeline, look for regional
pipeline outlets and market centers, and so we’re very excited about, now that
we’ve got these first barrels with Devon, the future opportunities it’s going to
bring is out there.
64
McMillan Hummel:
You know, Mike, it’s interesting you mentioned Devon
in the context of the Liquids Business Unit because that really is—I think about—
so I think about Devon and I think our relationship—of our relationship with
Devon, it’s really oriented along the gas side of the business. We’ve had this
very, very deep long relationship with Devon as the key customer of our gas
business, but the interactions with Devon as a customer on the liquids side of the
business had been very small. So these opportunities that Shannon’s talking
about for us to get out there and provide service to Devon in even a small way I
think is a big step for us with Devon to begin building that kind of relationship and
that kind of comfort level and their belief in our ability to provide flow assurance
for them on the liquids side like we’ve done so well on the gas side of the
business. So it’s—even if it’s a small step, I think it’s a really, really big
opportunity, and we’ve also got the opportunity to build that Devon relationship
with our ownership and operatorship of VEX. So really, really critical times for us
in terms of just our business in general, but the opportunity with Devon especially
on the liquids side, it’s important.
Michael Garberding:
Something also to think about is just the broader
platform for NGLs, right Chris? So when you think about it, we talked a lot about
Louisiana, but if you really think of what we do, it’s a lot broader platform of how
we touch NGLs, so you might give them sort of the thought process on that
broader strategy you see.
Chris Tennant:
Sure, and I’ll give you an example that’s really suited
for the times we’re in right this second and just give you an idea of the flexibility
that we have in our system and how we work with our customers to drive margins
for ourselves. So today, there’s a number of customers that we have, Tier 1
customers, major producers, midstreamers. They have production in a lot of
different places and they feel the pinch like a lot of other folks, and through the
relationships we would have with them, we would come to find out that they may
want to—they’re going to have problems meeting all their requirements on the
pipeline deliveries they have to make. We would talk with them and we would
say, “You know, we can help you out with that. Why don’t you, if you can do this,
and we know you have stranded barrels over here in these places, why don’t you
take some pipeline feed that you’ve got going to us and let’s—you can deliver
that and meet your obligations elsewhere and then you can deliver your stranded
rail out of the Marcellus, the Utica, the Bakken, the Permian to any of these
points by rail car and we’ll come up with a fee for that,” and we’ll actually win on
our side with increased margins and we’ll actually win long term on the customer
side because we solved two problems for them.
We solved the problem number one with the pipeline
obligations they have to make; problem number two with the stranded product
they have. If you go back five years ago when we started this journey, we
couldn’t even conceive about talking to customers at that level, and that’s what
we do day in, day out. Whether it’s a producer, whether it’s a petrochemical
65
company, whether it’s a refiner who wants underground storage, who wants
consistency of supply, they want a different look for some piece of their portfolio
of supply, and that’s really what we’re leveraging off of today.
Michael Garberding:
Great. So I’m going to ask one more question and
then I’ll turn it over to you guys for questions, and Mac, you talked a little bit
about the Utica, Marcellus; we think long term a great investment. You want to
give a little more color around your thoughts on that?
McMillan Hummel:
Yes, we think it’s a great investment, Mike. We
entered that area coming up on three years now this summer. We did it
because, again, it was a platform investment for us. It wasn’t an end all. It was
just the beginning of what we thought was going to be a big opportunity for us to
build out the pipelines, to build out our facilities and our services, and we
continue to think that’s the case. We continue to think that it’s an area that is a
very good area in terms of producing capability. The Utica and the Marcellus,
we’re happy that we’ve got a position in that basin, and so as we think about the
long-term goals, we think that a pipeline, for instance, is the right answer with
regard to condensate. We’re still going to work to make that the reality, but it
may or may not be the reality at the end of the day, at least at this time. So we’ll
continue to evaluate that and determine what we think the best outcome of that
is, but the great thing is, is we’ve got opportunities. We’re in a basin we want to
be in, we’ve got the kind of platform that we want to have and we’ve got options
around how we best use that, and that’s what we’re going to do.
Michael Garberding:
Then—and we’re seeing product increase there too
today, aren’t we Shannon, from Sunset?
Shannon Flowers:
We are. Volumes have stayed pretty steady and
there’s still tremendous opportunities for our asset base with barrels that want to
stay there in the local market or for the opportunities to flow them out, either
through our barge facility on the south end or the rail facility on the north end.
Michael Garberding:
the questions, David?
A lot of optionality. So with that, why don’t we start
David:
You’ve—there we go. You’ve described a very wide
suite of assets, really both on the gas and the liquids side quite thoroughly and
described them as in the core of the core and well positioned in 28 ways and
many other companies do say the same sort of things, not as eloquently as you,
obviously, but you do. At the end of each of your presentations, you list
investment opportunities in these assets for 2015 to ’17. You give a range and
those are pretty healthy numbers, and I guess I wanted to give you the
opportunity to relate to those numbers and explain what that means, given all the
assets that you have when, you know, in the NGL side, it’s 350 to 700 million
capital investment opportunities for 2015 to ’17. Crude, you know, in the Ohio
66
River, you know, 600 million to 1.3 billion. You know, what’s the probability of
being in the middle of the range, the top of the range? You know, what would
cause you to not even get to the bottom of that range or is that impossible, and
what sort of return should we be expecting on average, six times, seven times for
those investments with all these assets with what you see in the environment that
you envision?
Michael Garberding:
Now—and I’ll start with that and then we can go into
the different businesses, but probably the best way to start with that, and I’ll talk
about this slide a little bit, is just the slide Barry showed, which is the growth and
the way to think about it is it’s not a straight line. It’s probably the opportunity of,
you know, within the boundaries of that on the four avenues, right, because we
have numbers that are on the growth and the growth with Devon, organic growth,
M&A, right, so each of the different avenues.
For example, the VEX dropdown, $200 million gave
us the opportunity for Shannon and the team to go now invest additional dollars
in the Eagle Ford, which we did not have before; Ohio pipeline which we
announced, same thing. If you go to the Louisiana market, I think it’s lumped
together where it’s Louisiana gas and Louisiana NGLs from a capital standpoint,
and you can look at opportunities around Bridgeline conversion where we had
the investment opportunities of up to 300 million on conversion of the pipeline to
another use. You can look on NGL and just expanding the footprint because if
you go back to what Mac said, the one thing we do know is the market’s short
and the capability to get product over there is limited, so there’s limited parties
that can do that.
So do we feel that every single thing will be executed
on? I think the answer is no, but do we feel we have the opportunity and the
option on that capital? The answer is yes, because we’ve set ourselves up with
the asset today in our portfolio to do it. It’s not something we have to go to the
market and go find and then execute on, so very different execution risk on our
mind.
Returns, when we think about returns, we’ve always
think about on a risk-adjusted unlevered basis, and typically, when you’ve seen
how we’ve executed on these projects, we were seeing returns in the high teens
levels is what we’ve seen. So on organic projects, you’re sometimes between six
to seven to eight times. On acquisitions like the LPC acquisition, we said it was
around 10 times and we had clear line of sight to reduce that; Bridgeline the
same thing.
Male Speaker:
Anything to add on that?
Male Speaker:
(Inaudible).
67
Michael Garberding:
No. I’m just giving that as an example from a return
standpoint. Another question? Look, there’s one back there, I think Bill in the
corner.
Bill:
With the ORV, do you run the risk of losing those
barrels to someone else? Is there competition in that area where you might lose
something if they’re first to build a pipeline?
McMillan Hummel:
Do you mean LPC?
Male Speaker:
No, ORV (cross talking).
McMillan Hummel:
ORV, okay, I’m sorry.
Male Speaker:
ORV pipeline (cross talking) trying to say.
Michael Garberding:
If we don’t build it, will somebody else?
McMillan Hummel:
You know, there’s certainly competitive pressure on—
in virtually every place that we operate and so, you know, Marathon is building
the Cornerstone pipeline. There are no other pipeline projects that I’m aware of
announced in our neck of the woods with regards to the area, the market area
that we’re targeting, but certainly there’s competition for those barrels. We are
not the only potential party to purchase those barrels or to move those barrels via
truck or to perhaps even build a pipeline, although I haven’t heard the kind of
alternatives that we’ve proffered.
Shannon Flowers:
I would just add to that, Mac, the area that we are
targeting and where our existing facilities are do give us a pretty strong
competitive advantage, right, because these barrels are more on the southern
end of the people that we’re talking to. So it’d be much more difficult and more
expensive for people to go all the way down that part and take facilities that are
further—let’s say if was barged further up the river or to a different rail site, so
doesn’t mean it can’t happen. It would be a lot more expensive.
Michael Garberding:
Well, the other thing is you’re executing already today
on the stabilization sites and that’s where all the barrels are being aggregated to,
so it just gives you, again, a way to touch them first before others do.
Shannon Flowers:
That’s (inaudible).
Male Speaker:
A year or two ago, there was a lot of chatter about
possible pipeline solutions to bring liquids down from the Northeast. Kinder was
involved, and Williams and Boardwalk and others. Did any of those represent a
particular benefit to you by the pathways they would have taken or possibly a
68
risk, and would you think that you might need to be a part of that solution some
day to kind of control the destination of that product?
Male Speaker:
Chris, you want to take that?
Chris Tennant:
Sure. So I think we are pretty excited about the idea.
Like Mac referred to earlier, some of these major pipes coming down from the
Northeast, that’s come right through our neighborhood so we felt like, with our
Cajun-Sibon line sitting in the middle, that we had some very unique value
propositions to offer. So I think we like the idea of having NGL supply cross our
pipeline several times. We feel like we can be a good partner to folks for that
with our fractionation footprint and our customers, more importantly in Louisiana
and our connectivity back into the Mont Belvieu market.
Male Speaker:
you down, or thirsty.
Next question? Well, we were so thorough, we wore
Michael Garberding:
Yes, exactly. So again, I’d like to thank the panel,
thank you guys for the questions. I think the key takeaways as you work through
this is that there’s a lot of growth optionality, and we’ve said that a lot but we
mean it, embedded in this business, right, because we’ve had the acquisitions,
we have the opportunities and now it’s executing on those opportunities. Another
thing you’ve heard that Devon really represents a pretty small piece of this side
of the business, you know, with VEX are there, but it’s something from a
relationship standpoint, an opportunity standpoint you see a lot of growth. Third,
feel really good about the growth options and growth opportunities, and we’re
doing it the same way we’ve always done it, really with building out the platform,
starting with a key strategic position and executing on that position and VEX is a
great example of that. So with that, I’d like to thank the Liquids panel for the
time.
So I’m lucky enough to keep going on the financial
outlook, right? So what I hope to do is take all the pieces you heard today and
bring it together from a financial perspective to show how we’re going to execute
on this and ultimately, from a results standpoint, on what you’re going to see. So
it’s always worth starting with the same thing, and I say this a lot because it really
differentiates us, right, because everyone is not the same and it’s important
because we believe this gives us the capability to execute on everything you’ve
seen today, right? You have to have the investment grade balance sheet. The
cost of capital advantage today you’re seeing is very distinct. As Ben mentioned,
it was not two years ago. It is very much changed over the last six months, the
leverage of the balance sheet, and we’ve always set a goal out there. We have
lived to that goal, we’ve managed that goal, we have a lot of levers to lift that
goal. The type of cash flows, the 95% fee-based, it matters; the stability of cash
flows, right, the contracts that support it, and we’ll go through that in a second as
far as the contract make up the business; the diversity of the business, right?
69
We were an existing midstream company that brought
a sponsor in. Most are the other way around and it’s pretty hard to do the other
way around, and you’re seeing that to where you see equal growth on each side
of the business. We think that’s really important, and the capability to manage
the financing of the business. So I think we’ve done a good job of that and really
given ourselves the opportunity to do these acquisitions when others haven’t.
So for us, the best place to start really is the
questions we were asking. David asked the question about the capital, how do
you think about that? The nice thing when you look at this chart is the map
hasn’t changed, right? The numbers on the left and the right have—or number
on the left has changed, number on the right’s the same, but the pathway to
there is the same. That’s what makes us so optimistic. We look at this and we
say, “Okay, let’s look at the four ways we’re going to do this.” The dropdowns,
right? So the two dropdowns that are there, really the VEX dropdown and the
Access dropdown. The only change we’ve made here is we gave a range for
Access and we’re still working on that. We think, when you look at Dave’s
presentation for Access, the fundamentals of that asset are terrific. It’s a great
asset for MLPs; it’s like the bitumen super highway. It’s exactly what you want
from an MLP, so feel very good about that.
You move next with the growing with Devon. You
heard today just on the gas side, use Cana as an example of that opportunity to
grow, right, that you have drilling that makes economic sense today but,
ultimately, it’s a portfolio decision as far as number of rigs, and we have the
dedication, we have the relationship and we can look at projects not only as far
as the expansion in Cana, but also the expansion in Cana into North Texas, a big
thing. This is not really different from a capital standpoint of what they’ve said
they spend. In the past history, we’ve always said they’d spend about $500
million a year pre-EnLink and they’ll continue to do that, so whether that’s on the
crude side of the business supporting them maybe in Delaware Basin on the
crude or whether it’s in Oklahoma, we see those opportunities. We’re looking at
that as basically an eight times, and if you look at typical deals we’ve done on
that, that’s about right when we get the asset and then work with it from third
party business on top of that.
Organic growth, we have a lot of that. That’s what
we’re good at. I mean, the recipe we talk about has been the same throughout
today, and you’ve heard about it, right; get the platform position, build off the
platform. So we show a number of a billion to $2 billion and you start thinking,
okay, where does that come from? Just up here, just a second ago, we talked
about what you can do with the Bridgeline asset, right, so the conversion, that’s
$300 million great EBITDA. Here we’ve tried to be a little conservative, so when
you look at the multiple, you’ll see, okay, man, that’s different, that’s a 10 times
multiple, so why did we do that? The one thing we know is things change, right,
70
so we’re trying to be incredibly conservative, knowing that the base business
could change, there could be different factors that happen over this period so just
take a 10 times multiple to take that all in consideration.
If you look historically at what we’ve done, we’re
probably more of a six to eight times. Cajun-Sibon was eight times. When you
look in the past history, we had some five times projects. So it’s trying to take
into consideration that you do see some risk from the base business, so what
you see for the estimated 2015, we can’t guarantee it’s going to be there forever,
so.
Finally M&A; you know, when you look at that, again
eight times multiple, pretty consistent with what we’ve done on Chevron and
LPC, pretty consistent with our expectations like we laid out for Coronado.
We’ve done a billion dollars in the last six months, right, and we’ve done it, we
think, in a very smart way. We haven’t bet big on just saying, “Okay, I’m going to
go and do this big acquisition.” We’ve done great acquisitions in and around our
footprint to continue to build the footprint, so the same way. So when you step
back and look at this and start adding up the capability to grow the business and
double the size and break it back to the roadmap that we laid out, we believe it’s
very achievable. That’s why we can stand up here and believe we’re optimistic
on the capabilities to do that.
This gives us the right to do it, the balance sheet. I’m
not going to talk about everything on here. The keys are, you know, is that great
liquidity. We redid the credit facility, a new 1.5 billion, have about half in liquidity.
The really great piece is, and we’ve said it before, is we’re sitting today based on
what we’re going to execute as we don’t expect any market equity needs. We
know this is a hard market to do deals in but it’s nice to sit here and be able to
manage your future by not having the reliance on the capital markets. You know,
we have that. That’s a big deal.
The cost of capital advantage; we’ve really remade
the balance sheet and also funded all these growth with better cost of debt. It’s
real and it’s going to get—it’s going to start—that divide is getting bigger and
bigger in our mind, so we believe it’s a very big strategic advantage.
This chart we showed last year and I think it’s really
important. We show the summary chart that Barry had in the front to that 80%
because the stability of the base business gives you the opportunity to grow, and
you have to have that stability for the kind of growth we’re talking about. So
when you look at the makeup of the contracts by the business unit and say that
you have good underlying contracts for 80% of the business, it makes you feel
pretty good about the business. Just break down the subsections, right? So we
showed in North Texas how much Devon represents of the minimum volume
guarantees of the total fee base; Oklahoma, the same thing between Linn and
71
Devon; Louisiana with Cajun-Sibon has been—I mean, we say it’s a game
changer for us, I mean as far as what it’s done for that business, and you’ll
continue to see what we believe is the growth in the crude business which will
move more toward a long-term fee-based contract business with the VEX field
and, ultimately, with what we think we can build out and add the pieces of the
business. So this is incredibly important for us to have to be able to have all this
other execution.
The dropdowns, so laid out a roadmap last year and
we’ve executed on the roadmap. That’s a good thing to say, right? It’s always
nice to stand up here and say the same thing you said last year because that
means you did a good job of laying out your goals and you’re executing on your
goals. So Barry walked through the dropdowns. We did the E2 dropdown, we
did the EMH dropdown, we did the VEX dropdown, we talked about the second
EMH dropdown really in the second quarter. We’ll get the taxes. That’s driven
by efficiency of taxes and it gives us incredible balance sheet flexibility because
of the type of dropdowns. So we expect to do the second EMH dropdown very
consistent with the first one. So you’re really taking unlevered cash flows,
bringing them down and giving yourself great liquidity and capability as a
partnership to look at what’s next.
As far as future, Access hasn’t changed. It’s 2016,
and as Dave said with Devon, we’ll see what’s next. I mean, that can come in a
lot of different forms and we are looking at some smaller assets, but I would say
that neither of us are done yet on what we can do.
I’m not going to spend a lot of time on this, and I will
say that the book is a little different than the slide, and you’ll see that, so make
sure and reference the slide on the website, but the key to me on this is really
thinking about we’ve spent a lot of capital in the last year for opportunities. That
capital’s been spent so that capital’s—you know, when we talked about the prior
page on the financing, that’s already been done. The thing that you haven’t seen
is the growth in the business, so that optionality is all here. You mean, you look
at Cana, for example, which is basically declining to flat, that’s got great growth
optionality. You look at, whether it’s LPC, whether it’s Coronado, whether it’s
Bridgeline, that’s not really represented in what we’re seeing here. This really is
the base business plus that optionality to grow, and that’s what we—you know,
we say the growth optionality, we say it a lot because that is there, that is true,
and a lot of that growth optionality from an option or a pricing point in the market,
we’re not saying that we have to get back to $100 crude, right? A lot of the
things on where we are, you know, going through the ‘we feel we’re in the right
place’, that matters and that gives us the capability to execute on that.
From a capital standpoint, this represents capital we
know today. Do we believe we’re just going to spend $500 million? The answer
is no. When you see the capital allocation, it’s mainly driven toward ORV and
72
Permian, nothing with regard to Cana, nothing with regard to expanding the
further broader Permian footprint, nothing in regard to further crude. So gives
you a snapshot of what we see today, but the one thing that we do know, it’s
growing. Our thought on total capital spend is no different than we always said,
which is a billion to $2 billion.
From a maintenance capital, this has changed from
last year. If you look on the annualized run rate, maintenance capital for 2014,
we’re about at 26 million. We’re about 50 million this year. We will see some
changes as far as—or we saw some changes ultimately on cycles of doing some
overhauls. A big driver also is what we expect to see in Cana. Is there, you
know, well connects in Cana? We haven’t seen many in North Texas.
This is important, so who’s our customer? How do
you feel about him? In a market like this, you’ll want to know that you got a great
customer base. So what this is based off of is 2014, so this, in our mind, is going
to get better because, for example, the Cajun-Sibon didn’t run full year and the
credit quality of those customers is very good. But to give you a snapshot, you
know, 82% is investment grade, so very good portfolio. The top 20 customers
are all investment grade, and you saw them a lot today, right, Dow, BP, that
matters. That again, is the other price to play in the sense of having the good
credit quality customers on the other side. The biggest is Devon, 50% of your
business and always has done a consistent manner of running their balance
sheet very well.
Favorite slide of everyone, ENLC taxes. So we went
through a lot of this last year and have had a lot of questions on taxes, and
fundamentally, the way we explained it last year hasn’t changed, right? There’s
sort of three different streams of cash flows that have different tax effects. We’re
trying to simplify that with the dropdowns, so ultimately after you drop down EMH
in the second quarter, you’ll only have two streams of cash flows, so we heard
you guys, so we’re trying to simplify it for everyone to make it easier. But to step
back, it’s the same theory from a tax standpoint in ENLC, right? So the three
different cash flows, right, IDRs, LP unit distributions, and then ultimately, we had
cash flow from the EMH, so we’ll start with the third, right? With the dropdown in
the second quarter, that one will go away and that’s a big reason why you see a
change when you look at the taxes related to the EMC—the EMH cash flows; it’s
changed. The dropdown’s now moved that down into the partnership.
Now, and let’s go back to the first one, IDRs. IDRs
are really uncovered, as we saw, and we do expect those to increase in the
future and those will be fully taxable. So then you have LP unit distributions. A
big reason for LP unit distributions when you think about 2014 and 2015 was the
NOL, and our team did a really good job of looking at options at the end of 2014
to, A, extend the NOL into 2015, because if you do remember during the third
quarter of last year, we thought at that point in time we’d utilize the NOL but we
73
did not, and there’s a lot of levers to think about really how—a lot of levers that
impact the cash taxability of those cash flow streams, right, so bonus
depreciation, how much capital do you spend at ENLK; all those things matter.
So when you sum it all up, when we look at this year for those three different
streams, we think it’s about $20 million. That is going to change as we go in the
future because with the two cash flow streams, as the IDRs increase, you will
see the taxability of that, so—but it’s something that we feel good on this year
and our team has done a good job managing.
So to summarize, I’m going to go back to what I
started with, right? That’s the stuff that matters – the balance sheet, the liquidity,
the capabilities to execute on the growth we’ve done, so the stability of cash
flows, the credit quality of the portfolio, the growth optionality embedded in the
business. So we think we’re incredibly well positioned. I mean, that’s why we
can stand here and say we’re optimistic on the execution of what we’re doing and
feel good that we’ve set ourselves up to have the different means to really
manage the balance sheet and manage the business on a go-forward basis.
So with that, I’m going to turn it over to Barry Davis to
close.
Barry Davis:
Thank you, Mike. Well, it’s been a great afternoon.
We told you we were excited to have the opportunity to share the story with you
and update you on our progress. I reminded you that we began last year using
the analogy of EnLink as a vehicle and that our vision for this vehicle came from
60 years of experience between Crosstex and Devon. I told you that we
designed it with safety, stability and growth in mind, that we had built it around a
framework or a platform of assets that provided a stable cash flow that we could
grow from going forward. It’s powered by a strategic relationship in the
sponsorship with Devon and a broad portfolio of customers that we have served
for many years and, lastly, as a vehicle it would be driven by a team with great
experience.
I hope that you’ve seen that experience this afternoon
and what I mean by that in the depth of the team. This depth has been
significantly enhanced, as you heard over and over folks talk about the fact that
they’d come here within the last year to three years, so we are very grateful for
what we’ve got. In fact, the tone that you’ve heard us talk with today has been a
tone of focus, of confidence, of enthusiasm and the last thing that I would like to
add is the tone of gratitude.
Last week, I had an opportunity to take a week of
vacation and go into a very faraway place, Burundi, Africa, to actually lead a
team to lead the leaders in that country on what leadership looks like. We really
emphasized servant leadership, which is I think what you see in—at EnLink, and
so as I sit here today, I am more than normally—more than I normally am,
74
grateful for the incredible country that we live in where a group of people can put
their arms around each other and say, “Let’s go do something great,” and really
have the opportunity to do that. We have that opportunity in this country.
I’m also grateful for guys like you that will come
alongside us, support us, be a part of what we’re doing, allow this to be part of
your story, and encouraging us in every opportunity, challenging us when we
need to be challenged. I’m grateful for this team but, more importantly, the
1,300-plus people that really make EnLink what it is today; and lastly, I’m grateful
that we get to spend the next 24 hours together and go see facilities, have dinner
tonight and celebrate what we’ve done together, continue to dream a little bit
about what the future holds for us and then spend the day together tomorrow
going out into the field, seeing the real assets and the real people, the people
that are on the front line doing what we do.
So thank you for your time today. You’ve been
incredibly attentive and we’re just excited to be part of the same family, so thank
you for that and look forward to dinner tonight. I think Mike’s going to give us
some instructions on logistics.
Michael Garberding:
Yes. So as Barry said, thank you, guys, for the time
today. We really appreciate it. So tonight, we’re going to meet down in the lobby
at 6:00 for dinner and walk over there. We plan to sit down for dinner around
6:30, so if any questions, just find the guys in the grey EnLink shirts and we can
help you there; so just again, down in the lobby in about half an hour from right
now. Thank you, guys, very much.
75