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Edited Transcript of ENLC earnings conference call or presentation 20-Feb-19 2:00pm GMT

Q4 2018 EnLink Midstream LLC and EnLink Midstream Partners LP Earnings Call

DALLAS Mar 1, 2019 (Thomson StreetEvents) -- Edited Transcript of EnLink Midstream LLC earnings conference call or presentation Wednesday, February 20, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barry E. Davis

EnLink Midstream Partners, LP - Executive Chairman

* Benjamin D. Lamb

EnLink Midstream Partners, LP - Executive VP & COO

* Eric David Batchelder

EnLink Midstream Partners, LP - Executive VP & CFO

* Kate Walsh

EnLink Midstream Partners, LP - VP of IR & Tax

* Michael J. Garberding

EnLink Midstream Partners, LP - President & CEO

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Conference Call Participants

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* Colton Westbrooke Bean

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Shneur Z. Gershuni

UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Torrey Joseph Schultz

RBC Capital Markets, LLC, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the EnLink Midstream Fourth Quarter and Full Year 2018 Earnings Call. (Operator Instructions) Please note that this event is being recorded today, Wednesday, February 20, 2019, at 9 a.m. Eastern Time.

I would now like to turn the meeting over to Kate Walsh, Vice President of Investor Relations. Please go ahead, ma'am.

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Kate Walsh, EnLink Midstream Partners, LP - VP of IR & Tax [2]

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Thank you, and good morning, everyone. Thank you for joining us today to discuss EnLink Midstream's fourth quarter and full year 2018 earnings as well as our future outlook. Participating on the call today are Barry Davis, Executive Chairman; Mike Garberding, President and Chief Executive Officer; Eric Batchelder, Executive Vice President and Chief Financial Officer; and Ben Lamb, Executive Vice President and Chief Operating Officer.

To accompany today's call we have posted our earnings press release and operations report to the Investor Relations portion of our website. Shortly after today's call, we will also make available a webcast replay on our website. I will remind you that statements made during this conference call about the future, including our expectations or predictions, should be considered forward-looking statements within the meaning of the federal securities laws.

Actual results may differ materially from what is described in these forward-looking statements. Forward-looking statements speak only as of the date of this call, and we undertake no obligation to update or revise any forward-looking statements. Additional information on factors that could cause actual results to differ from what is described in these forward-looking statements and sources for certain statements we make in here are available in the earnings press release and the operations report accompanying this call, located at enlink.com and in our SEC filings.

This call also includes certain non-GAAP financial measures. Definitions of these measures as well as reconciliations of comparable GAAP measures are available in our earnings press release and our operations report on enlink.com. We encourage you to review the cautionary statements and other disclosures made in our earnings press release and our SEC filings, including those under the heading Risk Factors.

The structure of the call will be to start with prepared remarks by Barry, Mike and Eric, and then leave the remainder of the call open for a question-and-answer period.

With that, I would now like to turn the call over to Barry Davis.

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Barry E. Davis, EnLink Midstream Partners, LP - Executive Chairman [3]

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Thank you, Kate, and good morning, everyone. Thank you all for joining us to discuss our strong fourth quarter results, our exceptional fiscal 2018 performance and the exciting 2019 and beyond outlook we have for our newly simplified EnLink. Before I turn the call over to Mike and the team, I'll make a few quick remarks.

In March of 2019, we will celebrate our fifth year as EnLink. Looking back at the past 5 years, I can proudly say that we have created a differentiated midstream platform built for long-term, sustainable value creation. As you can see from our excellent 2018 results and our future outlook, EnLink's assets are generating strong and growing cash flow. We have been disciplined, intentional and proactive in building our large integrated asset platform. We are located in premier production basins and we are connected to key growing demand centers like the Gulf Coast. We're incredibly well positioned in a market that we believe is poised to improve. Although EnLink is only 5 years old, EnLink's management team and board are seasoned energy professionals. What we've seen recently is that investors across the energy value chain are heightening their focus on value creation. Value creation is exactly what EnLink has always been focused on.

Financial markets continue to push for corporate simplification, effective capital allocation and ultimately value creation. In my opinion, midstream companies are undervalued by the market and have considerable upside and tremendous opportunities in front of them. There will be opportunities both at the asset level and at the corporate level and those with efficient economic access to capital and the ability to execute will thrive.

Our team has done a tremendous job executing on EnLink's growth to date, and I know they will capitalize on upcoming opportunities for midstream. When I look at the bright future ahead for EnLink, I see the deep, strong relationships we've developed with our customers driving our next phase of growth. I characterize this next phase of growth as the type of growth unitholders want us to focus on. It's the low-risk, high-return, bolt-on project growth that is right in our backyard and right in our wheelhouse. And I see our strategic partner, Global Infrastructure Partners, supporting us every step of the way. We have a strong track record of expanding relationships with our high-quality customers and partners across all commodities to execute mutually beneficial growth and we'll continue to make that happen with the low-risk, high-return projects I just mentioned.

To bring that all back together, I'll leave you with this. We have a very strong team operating a purposely built asset platform with discipline and intention. This, coupled with our impressive roster of customers and deep industry relationships, sets us up to create value over the long term. There is tremendous upside in midstream valuations for well-positioned companies. And today, EnLink could not be better positioned to deliver growth and to deliver attractive total returns for our unitholders. Mike, over to you.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [4]

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Thanks, Barry, and good morning, everyone. If there is one thing I want everyone to take away it is our belief in how well positioned we are for long-term sustainable value creation. That is our focus as a business. You will see that in our 2018 execution and our team's near-term focus on low-risk, high-return projects around our platform and in our deep customer relationships. We feel great about the strategic position of our business.

Focusing on 2018 results, the fourth quarter capped off a tremendous year for EnLink. We significantly grew our asset base. We continued to find very attractive, multi-commodity opportunities to expand our purposely built asset platform and further integrate the value chain. We strengthened our balance sheet. We increased our distribution at ENLC. We simplified our corporate structure and ultimately, we executed on the high end of previously increased adjusted EBITDA guidance for the year.

EnLink also delivered record volumes during 2018, which drove the outstanding adjusted EBITDA results. We had great performance in our Oklahoma segment, which is now our largest segment. Average natural gas processing volumes increased 50% during 2018. We own and operate one of the largest, fully integrated midstream businesses in the STACK. We continue to enhance value chain integration. We take title to a significant amount of growing natural gas liquids produced from our Oklahoma operations and link those liquids to our growing Louisiana NGL platform. As a result, our Louisiana segment experienced strong NGL volume growth in 2018 of around 15%. We are increasing our crude gathering operations in Central Oklahoma and have the Black Coyote system and the Redbud system in full service, serving 2 of the largest producers, Devon and Marathon. Our Permian Basin operations also had a very strong 2018 with crude gathering and gas processing volumes growing around 40% year-over-year. Executing in our base business growth and bolt-on opportunities this past year drove close to 20% growth year-over-year in adjusted EBITDA at EnLink. And it's the strength of our business that gives us confidence in our guidance outlook for 2019 and our growth drivers for the next 3 years: One, projected 2019 adjusted EBITDA of $1.13 billion, 10% to 20% growth from 2018 after the roll-off of around $100 million in related party deficiency payments. Two, projected Oklahoma segment profit 3-year cumulative annual growth of approximately 10%. And three, projected Permian segment profit 3-year cumulative annual growth of approximately 20%. Solid growth that is supported by the strong fundamentals we are seeing in the business today. In Oklahoma, our expansive operations have a core position in 3 of the best producing counties in the state. From a basin standpoint, Anadarko Basin liquids growth is expected to exceed 100% growth from 2018 through to 2022, and we are very well positioned to benefit from this liquids and associated gas production.

In the Permian, dynamics are strong and growing with the Permian expected to account for 33% of U.S. domestic oil production in 2019 and growing to 41% in 2020. Again, our Permian platform is ideally positioned to capitalize on this production growth.

Much of this upcoming supply growth will be transported to the Gulf Coast where demand growth is expected to remain strong. Our infrastructure network in Louisiana is optimally positioned to connect gas, NGL and crude to this high-demand region, and we are actively working on a number of exciting opportunities across all commodities. With improving fundamentals as a backdrop for our next phase of growth, we're working closely with our strong roster of customers to provide innovative growth solutions and best-in-basin services. If we take a look back at some of our most significant successes, many of them are essentially repeat business with customers with whom we have been working closely for years. Deep customer relationships will continue to drive repeat opportunities, repeat business and repeat growth.

One of my favorite projects that we've announced recently is our Cajun-Sibon III expansion. This is a perfect example of an innovative solution where we took existing assets and were able to expand them quickly, efficiently with very little capital. This project is expected to provide a tremendous return with an adjusted EBITDA multiple of 2x to 3x and an in-service time frame of 9 months. And our existing customers are there and ready to take the increased product from us. This expansion has also positioned us for further growth in the Louisiana market with excess fractionation. We have contracted with an existing third-party facility for additional fractionation starting in 2020. If you pair this with the excess capacity we'll have with our Mont Belvieu GCF facility starting in 2020, we're in a great position for near-term fractionation while preserving optionality for the next leg of growth. Our purposely built strategic asset platform sets us up so well for near-term capital efficient growth and longer-term multicommodity opportunities. The projects that are driving growth over the next 3 years are things such as well connects and compression around our existing platform. They're incredibly capital efficient and lower risk with adjusted EBITDA multiples of 5x to 6x on projected total capital spend of $1.2 billion to $1.5 billion over the next 3 years. These are projects that are straight down the fairway of what we do every day.

Our platform also sets us up well for the next leg of growth. I mentioned Louisiana as an incredible opportunity given its growing demand market supported by the strong fundamentals of domestic production growth. Our assets could not be better positioned, and we have deep relationships with the market participants.

Opportunities can come in many forms across all commodities. Expansion of our purity product transportation, expansion of our exports, expansion of our fractionation position and expansion of our end-use gas demand delivery. We have the right team executing on these longer-term opportunities. And this all leads us back to our focus on long-term value creation. Our strategic asset platform clearly provides us near-term capital-efficient growth through focusing on projects with 5x to 6x adjusted EBITDA multiples. Our deep customer relationships have provided and will continue to provide multicommodity opportunities, and our strong team and culture will continue to drive execution excellence. I'll now turn the call over to Eric to give an overview of our financial performance and our philosophy around capital allocation.

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Eric David Batchelder, EnLink Midstream Partners, LP - Executive VP & CFO [5]

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Thank you, Mike, and good morning, everyone. Before I start on the numbers, I will remind everyone that we successfully closed our simplification transaction on January 25, 2019, and going forward, we'll report our results for ENLC on a consolidated basis. We have also updated our segment reporting into 4 operational segments; Oklahoma, Permian, North Texas and Louisiana. We feel that these primarily geographically based segments better align with how we are managing the business. As Barry and Mike have highlighted, EnLink delivered strong financial results for both the fourth quarter and full year 2018. I'll start with ENLC, which reported annual results of $231 million of cash available for distribution, representing 7% growth from full year 2017.

ENLC continued to increase its quarterly distributions throughout 2018 with annual declared distributions for 2018 increasing by 5% over 2017 annual declared distributions. From an ENLK perspective, we achieved adjusted EBITDA net to ENLK of approximately $274 million for the fourth quarter, and approximately $1.042 billion for full year 2018, which represents 15% and 19% growth, respectively, from the comparable 2017 periods.

Our financial success is a direct result of the outstanding job the entire EnLink team has done executing on our plan. Our double-digit growth was largely driven by our gathering and processing operations in Oklahoma and the Permian, and our Crude and Condensate segment. Oklahoma segment profit, net of the onetime contract restructuring, was up by 28% as compared to the fourth quarter of 2017, and up 46% as compared to full year 2017. Permian results were up over 50% as compared to the fourth quarter of 2017, and up over 40% as compared to full year 2017.

Crude and Condensate results were up by 63% as compared to the fourth quarter of 2017, and up over 70% as compared to full year 2017. From a cash flow perspective, ENLK's distributable cash flow was up 17% from the fourth quarter of 2017 as well as for the full year 2017. DCF growth exceeded our expectations, coming in at the high end of our guidance range that we previously increased in 2018. DCF is a key metric that demonstrates the strong cash flow we are seeing from the business.

ENLK also continued to improve distribution coverage, achieving coverage of 1.24x for the fourth quarter of 2018 and 1.18x for full year 2018.

Strengthening our distribution coverage ratio has been a key financial priority for us and we are very pleased with the results we achieved this year. A stronger distribution coverage ratio points to a stronger balance sheet, which gives us the flexibility to self-fund an increasing amount of our growth capital expenditures and allows us to effectively navigate the capital markets.

From a leverage perspective, we ended the year in a better position than expected with debt to adjusted EBITDA of 3.78x as calculated under the terms of our credit facility. Due to the strong cash flows from the business, we also raised very little equity via our at-the-market program during the year. In total, we issued approximately $46 million of ENLK equity in 2018. We continue to maintain a flexible liquidity position and exited the year with ENLK revolver availability of close to $1.5 billion. As we enter 2019, we continue to have significant liquidity and flexibility to finance our growth projects. Upon closing of simplification, we refinanced the ENLK and ENLC credit facilities into a single, consolidated $1.75 billion 5-year revolving credit facility. In December of 2018, we closed on an $850 million 3-year term loan. The combination of these 2 financings sets us up to execute on our growth projects in 2019 and significantly reduces our reliance on capital markets.

Our 2019 capital program will be funded with excess cash flow after payment of distributions, borrowings under our revolving credit facility and limited noncore asset sales as well as limited equity issuances under our at-the-market program. Our financial tenets remain unchanged, and we continue to target distributable cash flow per unit growth of 10-plus percent from 2019 through 2021, long-term distribution coverage of 1.3x to 1.5x and debt-to-adjusted EBITDA of 3.5x to 4x. By growing distribution cash flow per unit by 10% or more each year from 2019 through 2021, we are significantly strengthening our balance sheet and increasing our power to enhance long-term distribution growth. We will continue to allocate capital prudently and are targeting 5% to 10% distribution growth per year through 2021. Before I turn it back to Mike, I'll touch on one other point that I think is worth reinforcing in the wake of our simplification. EnLink continues to be a very tax efficient investment strategy for a lot of investors. We currently expect the quarterly distributions that EnLink anticipates paying out to be characterized as a nontaxable return of capital for tax purposes over the next 3 years, which provides an attractive tax deferral vehicle for many investors. Our strong financial outlook give -- gives clarity around and visibility into our commitment to sustainably creating and returning value over the long term. With that, I'll now turn it back over to Mike.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [6]

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Thanks, Eric. To sum it all up, value creation is what we are focused on. EnLink has purposely built asset platforms and a team dedicated to executing our plan with excellence each and every day. We have deep industry and customer relationships that have provided and will continue to provide robust opportunities. And our assets plus our people plus our relationships will drive strong results in the future just like we delivered in 2018. With that, you may open the call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question will be from Shneur Gershuni of UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [2]

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I guess I just wanted to start off on the guidance for 2019. I was wondering if you can give us some sensitivities on how we should think about changes in rig count and how that would impact growth rates? And if you can also put it in context to the most recent update from Devon? And was that available when you originally put everything out, when you were going through the simplification transaction?

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [3]

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Shneur, this is Mike. Let me start and I'll let Ben walk through the details. But -- I think when you think about the 2019 guidance, we have great confidence in the platform we've built to drive this growth. And to give context to that, think about '18 and '19. '18 was tremendous execution across all commodities and then ultimate results across all the platforms, so we could not be better positioned. It also set us up from a project standpoint to where you have Thunderbird, Lobo III, Oklahoma Crude, oil bulk Systems, Delaware Crude, Avenger and Cajun-Sibon III, all coming into service over the first half of '19, again the continuation of building on those platforms. So we believe we've set ourselves up incredibly well going into '19 really for that capital-efficient growth because the majority of the large-scale projects will be in place over the first half of the year. And I'll let Ben walk through the volume piece, which we're equally confident on.

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [4]

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Shneur, so I think what you're referring to on Devon is they have a statement in their ops report that they expect flat production in the STACK and you're seeing us guide to 25% increase in gathered volume and you're trying to figure out how those can be simultaneously true. So the critical thing to start with is Devon is guiding to 85 to 95 wells turned to sales in the STACK. Our guidance is premised on about 90 wells turned to sales for Devon in the STACK. The reason that they can guide to flat and we guide to growth is because they are 2 different numbers. For Devon, it's net production and so you have to consider what their net revenue interest is in the wells they are drilling this year versus last year. It's lower this year. You have to consider what they're doing on their non-op position, which impacts them but doesn't impact us and you have to consider what they're doing in terms of asset sales. So last year, they sold a package in the very far northwest part of the play that looks like less production for them because it's sold, but it doesn't change anything for us because we continue to serve the new owner. So what we focus on is what's their gross operated production and we are in line with their expectation at about 90 wells. Something else I'll say too, Shneur, on your question about rig count sensitivity. This is going to get harder for you guys to track because as everybody goes into development mode, you're going to be less focused on rig count and more focused on well count. So again if you just stay with Devon for a moment. They're looking at a 4- to 5-rig program in the STACK, turning 85 to 95 wells to sales. And there is a few DUCs in there but just remember that number. Go over in the Delaware and they're running twice the capital program, 11 rigs running, but they're guiding to 100 to 110 wells. So there's a difference in the rig efficiency in the play just given their focus in a small area in the STACK and the efficiency that, that creates versus [the size] of the Delaware and all those factors.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [5]

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Okay. Appreciate all the color but maybe just to sort of extend the question a little bit. I mean does the Devon updates, and I understand that they're moving on and off acreage and so forth and all the answers that you gave, but does any of their statements or the new Devon, however, you want to position it, does that change your longer-term guidance as to how you think about business in '20 and '21?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [6]

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No, it doesn't. But let me talk about what I think -- big picture, what I think the new Devon means for us. I think that their proposed exit from the Barnett is a positive for us and I think that for 2 reasons. First, I think they've done a wonderful job of laying out the roadmap for the next owner of the Barnett assets and how to maximize the value of that asset. And they've done that through a successful refrac program that they've told us anecdotally is so good it competes with the Delaware in their capital stack. They've done that by drilling a number of new wells and showing people what a modern completion can do in the Barnett. And then they've done it by showing how a buyer could do it in a very capital-efficient manner with a partnership with a party like DowDuPont. So I think they've actually been quite intentional over the last couple of years in laying out the roadmap piece by piece for the next owner, whether that's another operator or whether it ends up being some kind of a spinoff or split-off and operating as an independent company. And all of that is to the positive for us. But the other side, when you think about what's left at the new Devon, it's more focused than ever on developing Delaware and developing the STACK, which are 2 basins where we have a significant relationship with them. So I think it's good on both sides of the house.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [7]

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Okay. Fair enough. And maybe a bigger-picture question. EnLink, over the last couple of quarters, you've kind of been focused on a bunch of different strategies. If I remember from last year, it was the 6 or 7 different items and so forth. You have a lot of different basins that you're working in and so forth. When I sort of think about the broader market right now and we saw a transaction yesterday done at a very high multiple, is there any thought to actually exiting one of your productive basins where you, let's say, have lower market share, get these crazy high prices and then reinvest the capital in an area where you have stronger market share and you can potentially pick up assets, as well, too, in terms of trying to refocus the company and to be more nimble and more focused than kind of the broad-strategy approach you have right now?

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [8]

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Yes, Shneur, this is Mike. So you're -- again, you're referencing the 7 strategies, but let me step back from that. We have been incredibly purposeful in what we built when you think about it. As far as -- just look over the last 5 years and the core multicommodity positions we've built in the STACK and the Permian as well as the demand position that we've built out in Louisiana. So -- and Ben referenced to the Barnett and we think of the Barnett as an incredibly capital efficient and more stable cash flow or a nice asset to add to that mix. So for us, what that set up ultimately is building those strong platforms and then continuing to have really high efficient capital on top of that. The numbers we referenced longer term on that is the $1.2 billion to $1.5 billion of growth capital focused on 5x to 6x returns around those platforms. And when I say around those platforms, it's almost solely focused on the supply platforms. And we have a huge optionality of growth really serving that demand market in Louisiana that's not included in that number. And if you look at the Louisiana guidance, you'll see also it's stable cash flow. We feel great about the upside we see there among all commodities. I talked about the different things we can do. We can look at whether it's purity product expansion, whether it's export expansion, fractionation expansion, some sort of all of those and that's what we're doing. So our focus on ultimately is creating value from those platforms through executing on those high-return, lower-risk projects with the optionality of demand growth in Louisiana. And so we feel really, really well positioned and very focused on that.

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Operator [9]

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The next question will be from Jeremy Tonet of JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

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Thanks for all the color on your thoughts on the STACK there and just want to build off of that a little bit more. Besides Devon, we're seeing some of the other customers there, Cimarex and Marathon, laying down some rigs. And so just wondering when you guys look forward into the STACK, are you guys -- do you see the potential kind of capture more market share, and that's kind of what you see also aiding to the growth? Or if you could kind of expand on what you're seeing outside of Devon and the STACK?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [11]

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Jeremy, it's Ben. So outside of Devon and the STACK, remember, overall, we've got about 30 producer customers on these systems. Cimarex really isn't a big win for us other than their joint operations with Devon in the Cana-Woodford. So their changes in the STACK don't really impact us. And Marathon is far more active on us -- on our dedicated acreage for crude than they are for gas. And as you know, our crude system in Oklahoma is just getting up and running. This will be a, I guess, third full quarter of operations will be the quarter we're in right now. But look beyond that and you're thinking about Encana as successor to Newfield. You're thinking about Rhône down in the MERGE. You're thinking about a portfolio of smaller publics and private companies all over the play. I mean, we have the largest market share in the STACK today. I don't see that changing. And while there is not a ton of acreage left to be up for grabs in the STACK, I think that over the last couple of years, we've won more than our fair share of what is up for grabs and I don't see that changing. And that's -- Mike likes to talk about our purposely built platforms. That's because we have the biggest system in the play and a very expansive footprint -- it sets us up to win more than our fair share of the -- of what's left for dedication.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [12]

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Jeremy, to answer your question longer term, the plan we've laid out is completely focused on executing on what we have today. So it's not -- there is not an assumption of greater market share or pulling this customer, it's about executing on the customers we have today and focused execution around that.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [13]

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That's helpful. And I see in the PR, you guys have kept the language as far as with -- your funding plan has been increasingly self-funding there, but just wondering for the portion that's not, if that's going to be -- how do you think about going for more equity issuance on the ATM versus noncore asset sales, kind of balancing those two?

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Eric David Batchelder, EnLink Midstream Partners, LP - Executive VP & CFO [14]

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Jeremy, it's Eric. That's a great question. I think that one of the things that occurs to me is I hear Mike and Ben talk about purposely built assets, we have a purposely built balance sheet as well. As I'm sure you're aware, last -- late last year, we put in an $850 million term loan, which allowed us to provide over $1.6 billion of liquidity coming into 2019 on our revolving credit facility. And so when we think about the combination of those 2 pieces as well as the excess cash flow from the business, we feel very good about the liquidity and financial flexibility to execute on the plans that we talked about in terms of these quick-to-return cash growth projects that Mike and Ben have been referencing. And we can do that in a way that isn't dependent on the capital markets. As we've talked about in the past, though, we will certainly keep the ATM option open because we want to make sure we have all the available levers to pull on and we'll continue to monitor that. But as you saw in 2018, we issued less than $50 million of equity on that. So as it relates to noncore asset sales, again those are very small assets that are off the run and truly noncore that perhaps most of you may not even be familiar with, and we'll continue to evaluate those in the context of everything else.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [15]

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Great. One last one, if I could, just coming back to the STACK. Looks like Thunderbird moved back just one quarter, just wondering if that timing -- being capital efficient and matching timing with producer activity there? Or anything else that's happened?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [16]

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No, it's a minor delay in the construction process is all it is. As you appreciate, when you're doing $100-plus million projects, not everything goes on that day that you like it to. So it was scheduled to be late in the second quarter -- or pardon me, in the first quarter. Now it's going to be a little bit into the second quarter. We're looking at a delay of few weeks driven by contractor and vendor issues, same thing that a lot of us are dealing with in this industry. To pick up where you might go next, I have no concern whatsoever at being able to handle the gas during the few weeks of delay, either between our own assets or a portfolio of offloads that we have with others in the play. I have no concern at all about being able to handle the volume.

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Operator [17]

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The next question will be from Spiro Dounis of Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [18]

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Maybe just wanted to go back to some of Devon's comments, if you could, quickly. I guess some of the things that came out of the release was just around this renewed focus in the Delaware. And so I know while you are investing heavily in the Permian, Oklahoma is still the largest bucket for CapEx. And so I guess, is there an appetite or an ability to divert more CapEx to the Permian I guess instead of Oklahoma over time?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [19]

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Well, I'll start and then Mike may want to add on. Spiro, it's Ben. We love our Permian business and we are investing there and we're investing there to support Devon. The big area that we are investing in right now is our Avenger system, which is in service. It serves the Todd area of the Delaware Basin. And as of this morning, we're moving about 20,000 barrels a day of crude through them and we expect to see that grow because Todd is one of their biggest focused items as a company this year.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [20]

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And I'd also say, we love the diversity of producers we have out there, too, and you see the continued growth we expect in the Delaware, not only over '19, but over the next 3 years. So we feel we're in a great position with that portfolio of customers. And with Devon, go back to their presentation on Todd, 20 wells and a high focus and that stuff we're moving today and we'll continue to move and grow.

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [21]

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If we widen the lens a bit on the Delaware, the second phase of the Lobo III plant is just about to come online, what we call Lobo IIIx; that will take us up to 375 million cubic feet a day of processing capacity. And I think we have good line of sight to seeing continued growth in that asset for the long term.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [22]

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Got it. Appreciate that color. Switching gears a bit and sorry if I missed it in your prepared remarks, but I think you're still pursuing 3 options for expanding your fractionation offering. I guess any update you can provide there? And are you leaning in any particular direction?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [23]

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Yes. Let me start and again Mike may want to add on. So we think about our fractionation position. The first piece that comes into play is Cajun-Sibon III. That will be online in the first half of this year. And at that point, we'll have access to 193,000 barrels of nameplate capacity. Depending on composition, everything else, 180,000, 185,000 barrels a day is what we expect. Okay. Then you get into 2020 and you've got 2 more things happen. First is, as you know, we own 38.75% of Gulf Coast fractionators in Mont Belvieu, which is 56,000 barrels a day net. That capacity has been under contract to a third party. That contract expires at the end of this year, and we're working with that third party to decide how much capacity they want and how much capacity we want at GCF. But we certainly expect we're going to have a considerable amount of capacity to use for our equity volumes at GCF and Belvieu. Then the third piece, and Mike alluded to this in his prepared remarks, is this quarter, we signed a medium-term fractionation deal with a third-party fractionator in Louisiana that we are able to access that most others are not able to access. And because of that, we were able to do that at very attractive rates. So when you stack those 3 pieces up, we don't see a need for fractionation capacity for our equity volumes until the second half of 2021. And so that's going to afford us some flexibility to see how the fractionation market develops because with everyone building them 2 at a time, I think it'd be good to see how the volume curve that everyone expects actually develops over time before we make a decision about building our own asset. The second thing I'd say is, don't be too focused on fractionation as our next step on NGLs in Louisiana, because again, as Mike alluded to in his prepared remarks, fractionation is one piece of the puzzle. Another piece of the puzzle is purity pipeline projects like our Ascension JV that we did with Marathon a couple of years ago. Another element can be expansion of our LPG export capability. We had record LPG export volumes this past year, but it's still fairly small relative to others, and we are looking at ways that we can make that much bigger.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [24]

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I think the thing to take away there is that I think people in the last quarter heard Cajun-Sibon III and were looking at it in isolation and were expecting maybe a bigger project, but we set this up to ensure we make good capital-efficient decisions while preserving optionality for that next leg of growth. And I think Ben set that up well, meaning that most people did not think about the excess third-party fractionation that already exists today in Louisiana and what we did was allow ourselves to utilize that at effective rates versus the market in Mont Belvieu or new build. And like Ben mentioned, this has positioned us well for that next leg of decision, which is all those opportunities. And so I know we're solely focused on fractionation a lot of times, but I would say is that portfolio is -- has equal options happening and it's not just one of those.

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Operator [25]

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(Operator Instructions) The next question will be from TJ Schultz of RBC.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [26]

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I think you hit on most of the stuff in Oklahoma. Just one follow-up. Your assumption is based on a field development of 6 wells per section. What is the impact, if there is any really, of field development? Is it something less than 6 wells per section? I think Devon was saying 4 to 6 wells. So I just want to understand the sensitivity to that for you all if there is any?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [27]

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TJ, it's Ben. If that were to be the case, it would not be a near-term impact. What it would mean would be a reduction in long-term inventory. But given that Devon and others, who we do business with, have multidecade, in some cases, inventory, I don't think that would be a near-term concern, but I would also say that given the results that we've seen -- the near-term results that we've seen from Devon: the Safaris, the Northwoods, the Pony Express wells. Safari and Northwoods were 5 infills with a parent section so that's 6. Scott was 5 wells with a parent section so that's 6. Those have all been really good results. And so our expectation is on average across the field, we'll see about 6 wells per section. Some places like as you go farther to the northwest up to where Chipmunk and Faith Marie are, you're going to have fewer wells in those sections, but they're going to be really big dynamite wells. Some areas, perhaps some operators, are going to be able to put 8 or even more wells in, but average across the play it looks like 6 and we feel good about that number.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [28]

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Okay. Great. And then I just want to go back to what you were talking about before on the kind of frac solutions and I guess the comment on the evolving dynamics there and kind of waiting to see how the volume curve develops. I just want to square that with the 3-year CapEx guidance you gave previously. Was there a frac solution in that number before? And maybe that's being replaced with some of these other purity projects or export expansions? Just trying to understand what's all in that kind of 3-year CapEx number?

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [29]

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It's Mike. Let me give you an overview just to make sure we're all level set on how to think about this and then I'll let Ben walk through details, but we keep referencing this $1.2 billion to $1.53 billion 3-year CapEx. 85% of that is well connects and compression. I mean -- so again, blocking and tackling capital around our core positions. So I mentioned earlier about Louisiana being upside. Louisiana, as you saw really from 2018 to 2019 really, was flat and we've alluded to that. We're going to see overperformance like we did in '18 based on what we're seeing in the demand market. But we believe that is just a tremendous opportunity for that next leg of growth. All the different things we've talked about, we talked a lot about NGL, but equally gas and crude. But none of that is included in there. And so what we've tried to do is continuing to do capital-efficient decisions to continue to preserve that optionality to make the best and most efficient capital decisions long term for the business. And that's what this Louisiana frac solution has done so far for us because we're utilizing what we have in underutilized markets as step 1 of the broader solution.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [30]

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Got it. Helpful. Just lastly, any impact to you all from the Grand Prix pipeline extension into the STACK? Whether that's an option for you all to utilize for takeaway or if it's competition? Anything you all considered or have in place?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [31]

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TJ, it's not. If you think back to, I guess it was the summer of '17, we announced our partnership with ONEOK where we committed to ship large majority of our Oklahoma liquids on their system and in return they agreed to a very attractive transportation rates, but also to construct a physical connection between their system to the front door of Cajun-Sibon. So that's all done, and I don't see that changing, and we're seeing the dividends of that pay off today. I think there is a factoid in the operations report that about 50% of Cajun-Sibon volume last year was our equity volumes. I think today, we would say that's closer to 60%, and the biggest part of that is coming from Oklahoma.

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Operator [32]

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And the next question will come from Colton Bean of Tudor, Pickering, Holt.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [33]

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So just to follow up on the discussion there around well spacing. If the upspace designs that we've seen do contribute to any reduction in core inventory, how does that impact your thinking around capital allocation? I think you referenced that a lot of this capital is tied to well connects and maybe it's a less -- little bit less risk of straining capital there, but just wanted to get the philosophical views?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [34]

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Yes, Colton, it's Ben. I'll start again and Mike may want we want to add on. The 6-well-per-section average across the play is something that we've now been expecting for a number of quarters. So that's not news to us. So I would say that the way we think about capital allocation, the 6-well average assumption is baked in. It's not a new factor for us. And I don't see it having any kind of near-term impact. I mean the question that you're -- ultimately you're going, how much room did the play have to run? Even at 6 wells per, I think we are -- less than 20% of the total potential locations in the play have been drilled. So there is a lot of room left for the play to run. I don't see any negative implication on capital allocation for us.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [35]

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No, and I think you can look at Devon's presentation, they referenced 130,000 net acres, ultimately, and that doesn't include their Woodford optionality. So I don't think, as we sit here today, we have concerns about that. But like you referenced in the beginning of your question, all the stuff we're doing is 5x to 6x capital. This is the capital you want us to spend, quick to cash highly effective. And so we feel very good about that.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [36]

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That's helpful. And then just on Louisiana, just looking at the guidance there, volumes are effectively flat to up, little bit of a step-down in the segment profit. Is that primarily ORV or maybe a reduction in the Pelican keep-whole margins?

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Benjamin D. Lamb, EnLink Midstream Partners, LP - Executive VP & COO [37]

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Well, it's a couple of pieces, Colton. One is that we don't expect the processing economics to be quite as robust this year than last year as you touched on there. It's not really keep-whole, it's more -- it's a straddle plant, right? So it's not under contract. If there's no margin, we just don't process it, like a keep-whole contract. So we expect there to be less gas that is economically processable. And the gas that is economically processable we expect to have a lower margin associated with it. Another factor there is -- and this is for the guys who've covered us a long time, it's an old story -- we had some legacy transportation contracts in the north part of our system that are rolling off over time. Those are now almost completely gone. But when you make a '19 to '18 comparison, there is an element of volume commitment exploration that hits us in Louisiana.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [38]

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Yes, and I think it's important also to think about the business performance in '18 versus guidance. You can see that the option for value does not go away. We're just being conservative based on what we're seeing today and how we're thinking about it. The last couple of years in Louisiana gas, we've had overperformance both the years and continue to have that option. So it's just more about how we're thinking the business as we're going into this year.

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Operator [39]

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And the next question will be from Dennis Coleman of Bank of America Merrill Lynch.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [40]

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I want to just hit on distribution growth a little bit here. You've kept the 5% to 10% guidance range. But I think elsewhere in the commentary you talked about an example where you used 5%. Given sort of just trying to matrix this all, given the coverage range target still sort of is to the midpoint of your guidance range, should we be thinking 5% for the -- I guess for the 3-year period? And sort of that lets you ramp up and achieve the no equity issuance kind of things that you're talking about?

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [41]

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Hey, Dennis, this is Mike. I'm going to start on something I said to multiple questions, but again, the platform we have sitting here today really allows us to do incredibly effective capital, which drives cash quickly and efficiently, it's a 5x to 6x multiple. So our focus as you can see is really on value creation. And that's going to be the core driver and you saw that in '18 ultimately with the overperformance of the business from a cash flow standpoint, from a volume standpoint, from a distribution coverage standpoint. As we move into '19 and think about '19 and also think about that longer term, I think what we want people to hear is that we feel confident in the value creation of the business and we're very, very focused on ensuring that we're doing the right thing with that. So what is that right capital allocation? And so as we sat here today, we've had the 5% distribution growth on ENLC and feel very comfortable with that -- with the growing coverage, which got to 1.24 in the fourth quarter for ENLK. As you look forward, what we want to ensure is how do we return value to stakeholders the right way? And that's what we're working through. So you referenced 5% for the next 3 years. What we're saying is, with the business we have and how we see that business going forward -- we've talked about that longer-term growth in that business, we have the capability to have distributions 5% or greater up to 10%. But what we need to do is be very effective on how we think about the capital allocation. Is that the right thing to do? We'll look at that and say is that the best way to return value to stakeholders? Is it to invest in projects at 5x to 6x? Is it best to think about share repurchases, which is a comment the market's starting to think about? And we need to keep an eye on all of those. So what I want you to hear is: A, we have the capability to grow distributions between 5% to 10%; but, B, is we've got to be very smart on capital allocation and returning value to stakeholders. And that's really what's driving us.

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Operator [42]

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And ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Michael Garberding for his closing remarks.

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Michael J. Garberding, EnLink Midstream Partners, LP - President & CEO [43]

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Thank you, Denise, for facilitating our call this morning, and for everyone on the call today. Thank you for your participation and for your support. We look forward to updating you with our first quarter results on May 1.

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Operator [44]

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Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.