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Edited Transcript of EPD earnings conference call or presentation 29-Apr-20 2:00pm GMT

Q1 2020 Enterprise Products Partners LP Earnings Call

HOUSTON Apr 30, 2020 (Thomson StreetEvents) -- Edited Transcript of Enterprise Products Partners LP earnings conference call or presentation Wednesday, April 29, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. James Teague

Enterprise Products Partners L.P. - Co-CEO

* Brent B. Secrest

Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer

* Chris D'Anna

Enterprise Products Partners L.P. - Senior VP of Petrochemicals

* Graham W. Bacon

Enterprise Products Partners L.P. - Executive VP & Chief Operating Officer

* John R. Burkhalter

Enterprise Products Partners L.P. - VP of Investor Relations

* W. Randall Fowler

Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer

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Conference Call Participants

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* Christine Cho

Barclays Bank PLC, Research Division - Director & Equity Research Analyst

* Colton Westbrooke Bean

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

* Gabriel Philip Moreen

Mizuho Securities USA LLC, Research Division - MD of Americas Research

* Jean Ann Salisbury

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Keith T. Stanley

Wolfe Research, LLC - Research Analyst

* Pearce Wheless Hammond

Simmons & Company International, Research Division - MD & Senior Research 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, Research Division - Co-Head & MD of Master Limited Partnership Franchise

* Tristan James Richardson

SunTrust Robinson Humphrey, Inc., Research Division - VP

* Ujjwal Pradhan

BofA Merrill Lynch, Research Division - Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2020 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker today, Randy Burkhalter, Vice President of Investor Relations. Sir, the floor is yours.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [2]

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Thank you, Tina. Good morning, everyone, and welcome to the Enterprise Products Partners conference call to discuss first quarter earnings for 2020.

Our speakers today will be co-Chief Executive Officers of our general partner, Jim Teague, and Randy Fowler. There are other members of our senior management team in attendance today for the call.

During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team. Although management believes that these expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements that may be made during this call.

And with that, I'll turn the call over to Jim.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [3]

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Thank you, Randy. We had a record year in 2019, and our first quarter results show that last year's momentum carried into the first quarter. We reported net income of $1.4 billion or $0.61 a unit representing a 7% increase from the same quarter in 2019. Distributable cash flow totaled $1.6 billion and provided 1.6x coverage, and we retained $574 million of DCF.

Then in March, everyone's world turned upside down as we were invaded by an invisible enemy, Coronavirus, officially COVID-19. This is not the first time in my lifetime that we've been invaded by an invisible enemy. I remember as a little boy, the most feared disease of the 20th century was polio. It was a highly contagious virus. It struck without warning. It paralyzed and it killed. It put people in something called an iron lung to support their breathing. People who got polio were isolated from others, quarantined, if you would. My mom, who was a registered nurse caught polio. I remember standing outside the hospital with my little brothers and my dad, so we could see her through a window. Mitigation steps were taken. Swimming pools and movie theaters were closed. We weren't allowed to go to public playgrounds. In effect, we practiced our own kind of social distancing. What I don't remember is shutting down the entire economy and 30 million people losing their jobs in 1 month.

Just as polio was defeated so will COVID-19. This too shall pass. It starts with changing our behavior, as we've done. I've learned what social distancing is, and my hands have never been as clean as they are. As this pandemic spread, our primary objective was the safety of our people. Our secondary objective was the continuity of our business. 80% of our headquarters' people are working remotely from home. Zoom meetings are being held routinely throughout the day and throughout the company. And as I understand it, there's been a lot of Zoom happy hours after work. So even though our folks are working remotely, through technology and alcohol at happy hours, teamwork continues to be a part of our culture, a part of our DNA.

We immediately staffed half our pipeline control people at our backup location in San Antonio. So we're operating our pipelines out of 2 locations to make sure that we always have an eye on our pipe and our plants. Many of our larger facilities went to 7 on and 7 off to allow for social distancing. Those of us that remained at our headquarters were disciplined in distancing and hygiene.

Further, Purell has become a valuable commodity at Enterprise. I've been through many cycles in my life, but I have never seen anything like what we're going through now. Demand literally fell off a cliff in March. It seems like it was overnight. As demand cratered, our good buddies Russia and Saudi Arabia piled on by pumping an additional 4 million barrels a day of crude oil into the market, and the result was what no one would have ever guessed, negative price crude oil.

At Enterprise, we immediately adjusted to this reality. Our operations people have gone into a managed cost mode. Our commercial groups have reduced CapEx from almost $4 billion in 2020 to $2.5 billion, $1 billion of which has already been spent. Six potential joint ventures are being negotiated, which could further reduce CapEx. In our businesses, our LPG exports continue to be virtually sold out.

In fact, May, with a little luck could be a record month. Three NGL wells at Mont Belvieu have been converted to refined products. Tanks have been converted to crude oil services as our people have found places to store crude oil that 2 months ago, we didn't even know existed.

To enhance our financial flexibility, we did $1 billion credit facility to bring our liquidity to almost $8 billion. All of this and much more is being done to succeed in this environment.

Chaos leads to inefficient markets, which leads to volatility. We don't fear volatility. We embrace it, and inefficient markets work to our strength. Some of our businesses are steady as a rock. Our NGL fractionators are full and will remain so. And our NGL pipelines overall haven't seen a downturn. Our Permian crude oil pipelines are fully contracted and Seaway is virtually full. Our petrochemical business is challenged as motor gasoline demand has fallen and refinery runs have been cut. Once refinery runs improve, so will our petrochemicals. Natural gas throughput on our Texas and Louisiana intrastate pipelines have been full. While our natural gas processing has suffered, this is a business that I believe has potential upside in the second half of the year.

Opportunities around our assets are abundant. Our storage is worth its weight in gold as there is contango on every hydrocarbon and we've even seen some cases of backwardation and there are location differentials around our pipelines.

It's anyone's guess as to when the economy will open and things return to normal. During this time, our people are driven to continue to perform to deliver the results that create the value they've always delivered.

I'll give a personal perspective. As a young naval officer in an attack helicopter squadron in the Mekong Delta, Vietnam, I took a great deal of pride that I was part of a special fraternity. It took a long time to have that feeling again, but I have that same kind of pride today being a part of this fraternity.

At Enterprise, everyone understands the mission and understands their role in accomplishing the mission. The mission, add value. How we add value may change, but we always add value.

In closing, we want every member of the Enterprise family to know how much we appreciate all that you do. You are this company's greatest asset. You're what makes this a special fraternity.

And with that, I'll turn the call over to Randy.

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [4]

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Thank you, Jim, and good morning, everyone. I'd like to remind you that our first quarter earnings support slides are posted on our website for your reference.

Starting with income statement items for the first quarter, as Jim mentioned, net income attributable to limited partners for the first quarter of 2020 was $1.4 billion or $0.61 per unit on a fully diluted basis. Net income for the first quarter included a $187 million or $0.08 per unit benefit in deferred tax expense associated with the settlement of the liquidity option on March 5 and subsequent accounting for a related deferred tax liability.

Moving on to cash flows. Cash flow from operations was $2 billion for the first quarter of 2020 compared to $1.2 billion for the first quarter 2019. Excluding changes in working capital accounts, cash flow from operations for the first quarter of 2020 was 3% lower than the first quarter of last year. Free cash flow for the first quarter 2020, which we define as cash flow from operations minus investing activities plus any contributions from noncontrolling interest, was $916 million. Free cash flow was $3.4 billion for the last 12 months ended March 2020, which was 78% higher than the $1.9 billion reported for the last 12 months ending March 2019.

We define payout ratio as the sum of cash distributions and buybacks as a percent of cash flow from operations. Our payout ratio was approximately 56% for the first quarter of 2020 cash flow from operations.

In January, we provided guidance that we expected to increase our distribution related to the first quarter of 2020 by 0.25% to $0.4475 per unit. Given the economic sudden stop and uncertainty related to the Coronavirus, we thought it was prudent to hold our distribution flat at $0.445. It will be paid on May 12. This distribution represents a 1.7% increase when compared to the same quarter of 2019. Given the current macroeconomic backdrop, we will be deliberate and our Board will evaluate our distribution growth quarterly in 2020.

With respect to buybacks, we purchased $140 million of common units during the first quarter of 2020, substantially all prior to the COVID-19 outbreak, which is a 6.4 million unit reduction. Additionally, EPD's distribution reinvestment plan and the employee unit purchase plan, purchased a total of 1.4 million EPD units in the open market in the first quarter and affiliates of our general partner, purchased approximately 1.5 million units in the open market during the first quarter of 2020.

Now moving on to capital expenditures. As Jim mentioned, we effectively reduced 2020 capital expenditures by $1.1 billion in our initial review. We now anticipate spending between $2.5 billion and $3 billion in growth capital projects this year. We currently expect growth capital investments for 2021 and 2022 to be approximately $2.5 billion and $1.5 billion, respectively, based solely on sanctioned projects already approved.

As Jim also mentioned, we are currently in negotiations on joint ventures, which could lead to a further reduction in growth capital expenditures for 2020, 2021 and 2022. We currently expect sustaining capital expenditures for 2020 to be approximately $300 million, which is a $100 million reduction from previous guidance. Total capital investments in the first quarter of 2020 were $1.1 billion, which includes $69 million of sustaining capital expenditures.

Turning to capitalization. Our total debt principal outstanding was approximately $30 billion as of March 31, 2020. Assuming the first call date of our hybrids and as well as the final maturity date, the average life of our debt portfolio is 16.1 years and 20.2 years, respectively. Our average effective cost of debt is 4.5%.

As mentioned on our last quarterly call, we completed our issuance of 10-year, 31-year and 40-year notes in January 2020, the aggregate amount of that issuance was $3 billion. We're very appreciative for the continued strong support from our term debt investors in this offering.

Currently, we do not expect to have the need to return to the debt capital markets in 2020.

Adjusted EBITDA for the trailing 12 months ended March 31, 2020, was $8.1 billion. And our net consolidated leverage ratio was 3.3x after adjusting debt for partial equity credit in the hybrid debt securities given by the rating agencies and further reduced for unrestricted cash. Our consolidated liability was approximately $7 billion at March 31, 2020, including availability under our existing credit facilities and approximately $2 billion of unrestricted cash on hand.

As of today, our liquidity is approximately $8 billion with additional liquidity provided by the new 364-day facility entered into, call it, April 3. We are grateful for the support and responsiveness of our bank group in providing us additional flexibility during this time.

We anticipate elevated uses of working capital in the near-term for contango opportunities.

Regarding our cash balance, our only remaining debt maturity in 2020 is a $1 billion maturity of 5.2% notes due in September.

I'd like to thank our employees, many of whom were challenged to work from home while maintaining their same level of productivity. I'd like to thank them for their efforts not only in our business continuity, but also in the comprehensive SOX testing and our accounting controls and processes that attest the earnings we announced today and the 10-Q that will be filed on May 8.

I want to take a minute to speak to the durability of our business as we see it currently. Our top 200 customers represented 96% of 2019 revenues. 78% of the revenues from our top 200 customers were comprised of investment-grade customers, or those backed by a letter of credit. This is based on published debt ratings through April 23, 2020. So it takes into consideration 3 of our formerly investment-grade customers that have become high-yield fallen angels in the past few weeks. Only 11% of the revenues from our top 200 customers represented independent E&P companies. Our earnings are typically 80% to 90% fee-based, depending on the commodity price and spread environment. When we break down the fee-based areas, we compartmentalize those into 3 broad categories.

The first, take-or-pay or minimum volume commitments, which comprise 45% to 55% of our fee based earnings.

Second, durable fee earnings which we think of as storage throughput and wholesale deliveries -- wholesale residential deliveries make up another 20% to 30%.

Fee earnings with more volumetric exposures, such as wellhead dedication and certain demand-based volumes make up the balance.

Even within our volumetric based earnings, we have a high degree of confidence in a lot of the earnings capture given the many ways our commercial and operational teams have hustled to keep our assets full, such as repurposing storage and pipeline assets.

Finally, I'd like to iterate our financial objectives as to defend and maintain our distribution, our strong balance sheet and our debt rating, maintain ample liquidity and continue to high-grade and investment projects underwritten by high credit quality customers, long-term fee-based contracts and underpinned by solid long-term fundamentals.

Before I turn the call over to Randy, we would like to thank our long-term investors for their feedback, confidence and support through these volatile times. To all of you and your families, stay safe.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [5]

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Okay. Tina, this is Randy. We're ready to take questions from our listeners. But before we do, I'd like to remind them that, please just limit your questions to 1 question and 1 follow-up. Okay, Tina, thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Shneur Gershuni.

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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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Maybe to start off here, and do appreciate all the comments that you made in the prepared remarks. But I was wondering if you can talk about the current environment as when I say, current, I mean, with respect to April versus, let's say, February, how things are going from a volumetric perspective, on your traditional fee-based and POP business, I'm not specifically talking about the spread differential business. But how are things going with respect to that business as there's been accelerated rig declines and talks of shut-ins and so forth? How materially worse do you think volumes are going to be in the second quarter if they're consistent with where they are today, let's say?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [3]

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Well, this is Jim. I think I said in my prepared remarks, so far, our -- for example, our LPG export facility is pretty full, Brent, and it has been. I think I said that our crude oil pipelines -- if you look at our crude oil pipelines out of the Permian, do we expect some downturn in production? Yes, but those crude oil pipelines, I think we have 1.5 million barrels a day of contracts, Brent. They're all take-or-pay contracts. And they all have associated dock deals, some of them storage deals that are all take-or-pay. And as Randy said, they're all investment grade. From an NGL perspective, we are seeing -- from the supply side, we're seeing some slight downturns. But on the demand side, we're seeing increases. Where I think we're probably most challenged right now is our petrochemicals as refinery runs have been cut. But I see upside on that, as refinery runs increase, I think our petrochemical business in the second half, will do a hell of a lot better than it's doing now. Brent, you got anything else?

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [4]

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No, I think you hit it. I mean, on the flow side, we'll have a record month for LPGs in April. We'll have close to a record in May, maybe a little bit less than April. And as we go out further, you could see some effects on production declines. But in the end, our dock space is over 90% contracted for LPGs and crude oil for take-or-pay. So we haven't seen big drop-offs yet. I think maybe on the G&P side, we'll see some volume decline on that side. But in terms of the customers that we deal with, if you look at the barrels that are going to be cut out, the barrel that's the highest cost to produce will be first. The second barrel that will probably get cut out is the highest cost to get to market and then the third will be some sort of a quality issue. So if you look at our system and our customer base, I think we're -- I don't want to say we'll be the last ones to see reduction in volume, but I think they're pretty well positioned in terms of our customer base to keep on producing it at some sort of level.

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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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That makes perfect sense. Really appreciate the color there. Maybe as a follow-up, in your prepared remarks, you talked about an attempt to reduce expenses, and you also talked about keeping the distribution flat. Just kind of thinking about on a go-forward basis, are you able to handicap how sizable your O&M and G&A expense reductions could be on a go-forward basis? And does the commentary about keeping the distribution flat also remove the objective about a 2% buyback target from CFFO as well, too? Or is that still in place?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [6]

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Yes, Shneur, on the buyback target, we -- the company bought back $140 million worth of units in the first quarter. And if we use last year's cash flow from operations as a guide, 2% of that number was about $130 million, $140 million. So I think we've pretty much addressed that. I think for a long time, our -- the way we return capital to investors is consistent distribution growth. And again, this year, we added the additional component of doing the buybacks. But I think right now, there's just too much uncertainty at this point in time with this economic sudden stop and how long does this -- the effects of this Coronavirus last on the broader economy and energy demand. So I think we'll take a look quarterly as the Board meets and see how the business performs.

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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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Any comments on the costs?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [8]

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What did he say?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [9]

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On the cost. G&A.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [10]

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Our folks, Graham Bacon in operations is focused on reducing OpEx and sustaining Capex. And I think -- I don't know how to answer the fact that we are hyper-focused on cost, and we're hyper-focused on Capex. I don't know how to answer it other than that.

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Operator [11]

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And your next question comes from Christine Cho with Barclays.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [12]

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If I could start with exports, can you just remind us how you're contracted on the export side for crude, LPG, ethane and ethylene relative to the capacities? How much above the MVCs are the volumes currently? And I know you guys have also historically said that you pay a -- or the customers have to pay deficiency charge if they don't pick up the volumes or they cancel. How much lower is that rate relative to if they were to pick up the volumes?

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [13]

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Christine, this is Brent Secrest. So on a high level for LPGs, the contracts and as you go out further in time, this percentage goes down slightly. But on the LPG side, 90% -- over 90% are take-or-pay. If for some reason, the vessel doesn't show up, there is a payment that's made to Enterprise that is essentially an offset to what it would be for us to operate and recover our variable costs. So there's kind of a fixed reservation -- there's a reservation component, and then there's a -- if they do show up with the vessel, there's a variable component that offsets our variable costs. And that varies contract by contract and term by term. On the crude side, again, the volume is over 90%. The duration on our crude contracts is actually longer than the LPG side and that component is take-or-pay, and there is no sort of offset. It is take-or-pay, whether the vessel shows up or does not show up, the fee is essentially the same. On the ethylene side, I'm looking at Chris D'Anna next to me. All those, I think it's almost 100% -- 90% to 100%, Chris, that are being contracted as take-or-pay?

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Chris D'Anna, Enterprise Products Partners L.P. - Senior VP of Petrochemicals [14]

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That's correct. Yes. 95% of our capacity has been contracted at take-or-pay. And it's set up similar to how NGLs, where there's a fee and there is a component that is basically the variable cost. If they don't show up, the take-or-pay takes -- basically keeps us whole on the fee.

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [15]

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So when it comes to exports, I'll let Jim and Randy correct me. But from a variability to our earnings as it relates to exports, it's essentially what you're talking about as some sort of, call it, walk up opportunity we would have on volume, it's pretty much set in stone.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [16]

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That's really helpful. And maybe if I could just follow-up to Shneur's question about the cost. How do we think about what sort of cost savings we could potentially see in the event of a prolonged return? Midstream assets seem to just generally be a high fixed cost business. And so the more notable cost saving seems to come from shutting down processing plants or non Mont Belvieu frac facilities or maybe a pump station on a pipeline to better optimize the system. But is there anything else we should be thinking about just beyond the standard G&A cut?

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Graham W. Bacon, Enterprise Products Partners L.P. - Executive VP & Chief Operating Officer [17]

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This is Graham. We look at all aspects of how we operate our systems in terms of overall cost reduction. As Jim said, we're hyper-focused on variable cost reduction, whether it be how we -- how much power we use for a pump station operation, if there's declining volumes from fixed cost. We have a number of strategies that we use to reduce our -- reduce and extend our maintenance cost. We have strong focus on reliability and predictive maintenance, and we use those tools. And all of the things we've got help us to really run our cost and manage those costs. And we don't put a lot of targets out there. But certainly, I think from a standpoint of where we're looking sustainable, we can go 10% or lower for some period of time.

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [18]

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And Christine, travel and entertainment expenses are down, too.

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Operator [19]

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Our next question comes from Tristan Richardson with SunTrust.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [20]

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Just curious, can you talk conceptually about the range of CapEx for 2021, seemingly kind of unchanged from where you talk about sort of general opportunity set in any given year? I mean the deferrals you saw in '20 or the deferrals you made in '20 sort of pushed into 2021 that's keeping that elevated? Or is it just to say that the project outlook for 2021 is largely unchanged from where you see in any given normal year?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [21]

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You, why don't you start and I can jump in?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [22]

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Yes. Tristan, pretty much it was a combination of things because we had some projects that the capital expenditures were deferred. So yes, some moved from 2020 into 2021, but we had some that were indefinitely deferred. So they dropped out of 2020 and 2021. So it was a little bit of a combination of both.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [23]

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Helpful. And then I mean, maybe just conceptually at a high level, could you talk about a CapEx floor for Enterprise where CapEx could be in any given year where only the most critical and essential projects are go ahead or what that could look like in any given year?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [24]

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Yes. Tristan, we're in a pretty unusual time right now. I'd say, if we think about base level of opportunities, it seems like invariably we have opportunities to come in and debottleneck the system or do some -- some opportunities to debottleneck the system or come in and reduce costs. And they can be $10 million, $25 million, $50 million a throw, and all of a sudden, in a whole year, it adds up to $250 million to $500 million. So we have those type opportunities. As we think of things right now, on the horizon, we don't see a lot of opportunities facing from the upstream side of our customer base, but we could very well see some opportunities on the downstream side and on the demand pull side as well. So I think as you're thinking about it, probably something in the $1 billion, $1.5 billion opportunity from a growth CapEx is a good base level.

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Operator [25]

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Your next question is from TJ Schultz with RBC Capital Markets.

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Torrey Joseph Schultz, RBC Capital Markets, Research Division - Co-Head & MD of Master Limited Partnership Franchise [26]

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You talked about finding new storage capacity throughout your system. How much available crude storage capacity or what percent of your capacity is not contracted that's available for contango?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [27]

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More than I thought. Brent, take it.

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [28]

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Yes, I don't. I mean it's fairly sensitive, in my opinion. So in terms of how we're going to contract this stuff is -- there's a chance for us to have some opportunities long-term with people and it's probably not going to be a different approach than how we did some of our crude oil pipelines is there is some short-term opportunity. And if it made sense for us and it made sense for the customer, we did long-term deals on the pipeline side out of the Permian. So what may have not looked so great early on, looks pretty good now. In the case of storage, it's a balance, frankly, of us trying to secure long-term deals and then take advantage of the opportunity. But in terms of specific numbers, I'll just echo Jim. You take a hard look at your business and you get a lot of people involved and you find things that, frankly, you forgot about. And we've been pleasantly surprised with how much crude oil storage that we have access to.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [29]

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Refer back to my script notes, we think our storage is worth its weight in gold.

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [30]

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And I think one other thing that we talked when -- just 3 months ago, it feels like it's 3 years ago, when we had our first -- our fourth quarter earnings call, we talked about in 2019, we had what we would call outsized spread capture in 2019 that we thought that maybe $500 million to $600 million of that would not repeat in 2020. We have the potential to come in and have that kind of number again in 2020.

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Torrey Joseph Schultz, RBC Capital Markets, Research Division - Co-Head & MD of Master Limited Partnership Franchise [31]

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Okay. Good. Just on the follow-up for the JVs, I think you mentioned 6 potential JVs are in discussion right now. Have those conversations, just given what's happened in the market, have those shifted, accelerated, slowed down at this point? And are you talking to more strategic or financial partners?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [32]

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Well, first of all, we're talking to strategic partners. And secondly, yes, we're in discussions with 6. I'd say, 3 of those are highly engaged.

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Operator [33]

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Our next question comes from Pearce Hammond with Simmons Energy.

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Pearce Wheless Hammond, Simmons & Company International, Research Division - MD & Senior Research Analyst [34]

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Jim, I appreciate your prepared remarks. That was really interesting. My first question pertains to force majeure. Are you experiencing any force majeure calls on take-or-pay contract -- contracts and assuming we fill full oil storage and producers have no place to ship the crude, could that be a reason that they call for a force majeure?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [35]

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We would call that a price majeure, and that's not in our contracts. We've looked at all our contracts, and we feel pretty comfortable that we're not going to have any issue with force majeures as it relates to price.

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Pearce Wheless Hammond, Simmons & Company International, Research Division - MD & Senior Research Analyst [36]

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Okay. And then my follow-up is what is your outlook for U.S. oil and LPG exports over the next 2 years? And could you see a situation whereby some of your oil export capacity gets repurposed to LPG exports?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [37]

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I'll take a shot and then Brent and Tony might follow-up.

Yes. I think our LPG export facility, I feel pretty good about that for this year. I don't know who the hell can answer you on crude oil. Fortunately, we've got a lot of -- most of our crude deals are take-or-pay at the dock, Brent, I think you said 90%, but it really boils down to when does this economy come back. In terms of storage, I just fundamentally don't believe that you fill up storage. Something always happens that creates an outlet or stops production. We -- I think, Brent, we have seen here recently. I mean, we were exporting, what, 1 million barrels a day of crude plus before this. And then all of a sudden, everything stopped. But now I think we're getting calls and starting to do some deals on crude exports.

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [38]

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Yes. I mean, we're -- if you look at first quarter, we're on pace to track kind of the same numbers as second quarter. But if there's this case to be made, and I understand it, that production declines and kind of by default, I would say that the crude exports are going to decline. I just think a lot of those crude exports are kind of walk up opportunities for other terminals. I would think that if people have take-or-pay contracts with us, I don't think you'll see a big impact on volumes on our side. And certainly, not going to see a big impact on dollars on our side. In the case of trying to reconvert crude to LPG, I mean that's -- I think that sounds much simpler than it is. I mean it's essentially a dock is what you gain and if crude oil production declines, you're going to make the assumption that NGL production will go with it. You may see different basins that return that aren't crude centric. So I would think along those lines, there may be a resurgence in some of those basins that may be of value or have NGLs and gas. So I think there's some opportunity there for us.

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Operator [39]

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Your next question comes from Jean Ann Salisbury with Bernstein.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [40]

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I just wanted to follow-up on the major CapEx in 2021 and beyond. As someone noted before, it looks like a lot of it has been deferred. And I think that, that's what the blue check marks mean. I'm just wondering if for some of the bigger ticket items like PDH 2 and Midland-to-ECHO 4. We should think of it as still being cancelable if you choose to do so? Or if there are just major penalties to doing that?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [41]

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Yes. Both of those projects are underwritten with long-term contracts. So in our mind, not cancelable.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [42]

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Okay. Fair enough. And then I think on May 5 that Texas RRC will decide about whether Texas will cut, would this impact take-or-pay contracts?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [43]

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The answer to that is no, and I don't believe for a minute, they're going to do anything in terms of pro rationing production.

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Operator [44]

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Our next question comes from Keith Stanley with Wolfe Research.

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Keith T. Stanley, Wolfe Research, LLC - Research Analyst [45]

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Just a follow-up on the $1 billion CapEx cut for this year. It seems like the major sort of capital projects are only delayed really slightly and the isom was canceled. So how much of the $1 billion changes to kind of the major projects you guys lay out versus just the environment, less need for well connects and smaller things on the margin that you're able to pull out of the budget?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [46]

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Do you want to talk here along these lines?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [47]

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Yes. And I'm sorry, could you repeat your question one more time?

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Keith T. Stanley, Wolfe Research, LLC - Research Analyst [48]

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The $1 billion CapEx cut, I'm just -- I'm wondering how much of that is from the major projects you lay out in your slides, which are really only delayed slightly, versus other things just in the environment where you could have fewer well connects and just smaller projects that normally support producer growth? Just a figure about how much is ...

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [49]

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Yes. I would say a significant amount of it was attributable to the larger projects. There was, if you would, there was a bucket of other projects that it may have accounted for $200 million, $300 million.

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Keith T. Stanley, Wolfe Research, LLC - Research Analyst [50]

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Okay. That's helpful. And the second question, just on the C-Corp question. I'm just curious how recent events have impacted your thought process with, obviously, the sector selling off very hard, closed-end fund issues, but then, I guess on the other side, you have federal deficits really kind of exploding here. Just any updated thoughts on how you think about the C-Corp question, given what's happened in the world over the past few months?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [51]

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Yes. I'll be honest. Really, that hasn't been our priority is to come in and evaluate MLP versus C-Corp period the last few weeks. It's really about executing on the business in these uncertain times and getting us positioned from a liquidity standpoint and to take advantage of funding some of these contango opportunities. I think you hit on some key things there. I mean you -- it seems like invariably, you have -- you can have some investor turnover. I think MLPs had our fair share of it here in the last 6 weeks. But if I come in and -- I think you hit on a key point. I think everybody is going to pay more in income taxes, including C-Corp's going down the road. So we'll see what happens there. These -- somebody's got to pay the tab for all these $1 trillion stimulus packages. And then -- but also, I think, frankly, what surprised me was some of the volatility in the C-Corp names that we saw some of those names just plummet. So -- but we've not gone into a deep dive or any kind of reevaluation.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [52]

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I think what you just said is we've been too damn busy?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [53]

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Right.

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Operator [54]

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Our next question comes from Spiro Dounis with Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [55]

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I just want to start off on strategy. You all have been slightly more aggressive or taking a slightly more aggressive approach leading into this downturn and focused on capturing more market share. And Jim earlier, you mentioned embracing volatility. So just curious, has anything really changed? Or does anything change that approach? Do you actually see an ability to accelerate market share capture in this environment, either organically or through M&A?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [56]

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I guess I'm -- well, it's hard to understand the question.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [57]

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You guys --Yes. Go ahead, Randy.

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [58]

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Yes. If you could repeat your question 1 more time, maybe just a little bit louder?

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [59]

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No, no, no problem. So you guys have been fairly aggressive leading into this. It sounded like you were trying to capture market share, getting really competitive on pricing and some recontracting to attract more customers. So just curious in this environment to just sort of bolster everything up, does that change at all? Jim, you had mentioned embracing volatility here. So just curious, do you go out there with the same aggressive approach in trying to capture more of that market share. Is that -- is there an organic path there? Or do you see some opportunities here on the M&A side to actually pick up some assets?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [60]

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Yes. I don't think there's any M&A that we're looking -- that we would look at right now. And yes, I think we talked about on our LPG export dock. If you are going to compete with us, you better be willing to get down and dirty, and we contracted that dock out. I think we kept a couple of spots a month. And then in terms of embracing volatility, we've got a 20-year track record of creating value. And sometimes, that comes in different forms. I'm not sure how much credit we get for it. But when we say embrace volatility, you know that we benefited from crude falling on the floor, refined products, LPG. We have a footprint that lends itself to having opportunities that in normal circumstances aren't there, and that's been the case through hurricanes and financial melt downs and now through Coronavirus.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [61]

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Understood. And just going back to the potential for future CapEx cuts as it relates to joint ventures, one to maybe specifically focus around Midland-to-ECHO 3 and the connection there at Wink to Webster. I guess my understanding there is that pipeline is -- some of the steel has been ordered already, some of it is actually in the ground. And I imagine that one falls into a largely underwritten asset that moves forward. Just curious what maybe options you have there around changing the scope or size? Are there options available to you? And then obviously, you guys also have some idle pipelines or some pipeline optionality to move volumes there instead. Are those some of the things that are being discussed right now?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [62]

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Well, we can reduce CapEx by entering into joint ventures on assets that are in virtually every one of our businesses, none of which touch the church house.

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Operator [63]

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Your next question is from Gabe Moreen with Mizuho.

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Gabriel Philip Moreen, Mizuho Securities USA LLC, Research Division - MD of Americas Research [64]

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I just had a couple of follow-up questions on the joint -- the potential joint ventures. One is really on use of proceeds there, is it fair to say that, that's strictly going to deleveraging at this point? Or could there be other -- some other form of capital to return and then also depending on which JVs are able to continue -- get going, can you talk about whether or not some of the projects would go from, I guess, what's shaded in blue to actually, I mean, being accelerated if you're potentially able to get something going commercially, depending on the terms?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [65]

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Yes. Gabe, on the first part, I think any use of proceeds that we had, whether it would be incremental areas where we may see additional room to reduce CapEx in 2020 or if there was any proceeds from any JV opportunities, it would really just come in and go to delevering. At this point in time, again, any other return of capital, be it through distribution growth or be it through incremental buyback, really, we need to get more visibility of what the macroeconomic backdrop looks like and what the demand for energy looks like before we make any other decisions on that.

And Gabe, what was the second part of your question?

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Gabriel Philip Moreen, Mizuho Securities USA LLC, Research Division - MD of Americas Research [66]

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Yes, it was just on whether some of the JVs that you're negotiating are for some of those projects, which you've shaded in blue, which you've deferred, so depending on how the JV works out, could those potentially be brought, I mean, I guess, brought back?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [67]

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Yes. And Gabe, on that one, that's where Jim said, with these discussions, it's for assets across all 4 segments.

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Gabriel Philip Moreen, Mizuho Securities USA LLC, Research Division - MD of Americas Research [68]

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Okay. And then, Randy, I just had 1 follow-up in terms of the marketing opportunities you talked about and the working capital draw. I don't know if you care to talk about how large that working capital usage might be. I realize that's sort of a dynamic number. And then also, can you just talk about maybe the cadence of when you might recognize those marketing earnings in 2020? I assume it's the back half type of the year recognition?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [69]

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Yes. I'll let Jim or Brent hit the timing of the earnings. I think the one benefit from low commodity prices is it doesn't take a lot of working capital to execute on contango.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [70]

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Yes. I think we're going to see -- we've had some -- in the past, we've had some rather large contango opportunities. At $16, $17 crude oil, the working capital is a hell of a lot less. And the way we're doing contango, by and large, is where do you get the biggest spread? I mean, I think it's probably going to be throughout the year, Brent?

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [71]

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Yes. Certain commodities, we've targeted closer to the front and other commodities, frankly, we've kind of spread it out based on liquidity and some other things. But I think for the balance of the year, you're going to see these numbers show up month by month.

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Operator [72]

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And your next question is from Ujjwal Pradhan with Bank of America.

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Ujjwal Pradhan, BofA Merrill Lynch, Research Division - Associate [73]

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This is Ujjwal. First one, just following up on your earlier comments around share repurchase. So maybe to ask the question a little differently, how do you view the appropriate distribution yield on your units in the current environment? And how that informs your buyback program beyond the plan to repurchase 2% of 2020 cash flow from operations?

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W. Randall Fowler, Enterprise Products Partners L.P. - Co-CEO & Chief Financial Officer [74]

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Yes. We've been public since -- as far as the distribution growth question goes, we've been public since 1998, and we provided distribution growth in every year since our IPO. So that's been 1 of our objectives over time, is to provide consistent distribution growth. And so that's been important to us over time. But I'll -- you may have asked the question a different way. I'm probably going to go back to the same answer. Given the uncertainty -- again, this economic sudden stop that we've had on a global basis, it's historic. And just there's a lot of uncertainty of how the next 3 months, 6 months are going to progress. And I think we just need to have more visibility of how that's going to progress before we make any decisions about returning any additional capital above what we're doing now to investors at this point. I think this is a point where you really come in and protect your balance sheet, protect your debt rating, come in and protect your liquidity. And we've got a lot of good opportunities that our assets set us up for. And right now, we are in execution mode, big time over the next 3, 6, 9 months.

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [75]

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Good answer.

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Ujjwal Pradhan, BofA Merrill Lynch, Research Division - Associate [76]

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Appreciate your thoughts there. And my second question is regarding your Seaway reversal, the partial reversal plan. Can you discuss how that came about despite Cushing already filling up rapidly and kind of how you -- what sort of uplift do you expect from that reversal?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [77]

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Brent?

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [78]

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Yes, this is Brent Secrest. That basically came about because you guys saw what was going on in the market, and there was a flight to storage and that was the open access storage. And frankly, that was where people were buying crude oil, whether that was financially or what have you. We looked at our customer base and our Permian producers, and our Eagle Ford producers ultimately wanted access to market, and some of them approached us to figure out if that could still be reversed. Graham Bacon and his team figured out how to do it very cost efficiently and quickly. There was a lot of things still in place. So that was the thought behind that. And it just led to another optimization opportunity on our side and also a solution for our customers. Jim, do you have some...

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [79]

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No. That's it...

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [80]

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Tina, this is Randy Burkhalter. Given the fact we've got calls coming up after ours, and I apologize for anybody in the queue that couldn't get in, but we're going to take 1 more question before we end our call today.

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Operator [81]

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Your next question comes from Colton Bean with Tudor, Pickering and Holt.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [82]

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I'll keep it brief here. So just to circle back to LPG exports. I think you all noted that May was shaping up to be a record month. Any detail in terms of where those cargoes are headed or preliminary discussions around June?

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A. James Teague, Enterprise Products Partners L.P. - Co-CEO [83]

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I think they're by and large going to Asia, and South America, I doubt if anything is -- I don't think anything is going to Europe that I know of.

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [84]

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It's mainly things that are geographically advantaged. I'd say the one big area of uptick that we saw was India and Indonesia. But certainly, India had an increase on what they were bringing in.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [85]

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Got it. Appreciate that. And then, Brent, maybe just to follow-up on some of your comments there around when and why we would see production curtailed. As you look across your system, is it really South Texas and the Permian that you would expect to be most exposed? Or are there any other maybe more nuanced regions that have rich gas exposure that you're keeping an eye on?

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Brent B. Secrest, Enterprise Products Partners L.P. - Executive VP & Chief Commercial Officer [86]

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I would -- I'd say Delaware Basin, light. You saw what differentials did out there. That became challenged for a little while. Eagle Ford condensate as certain buyers stepped away from the market. And then I see some -- frankly, I see some opportunities that are going to offset that. And whether that's the Rockies or potentially Haynesville. Some of those areas, I think, are going to have a resurgence.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [87]

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Okay. Tina, before we end the call, would you give our listeners the replay information? And then let me just say thank you again for joining us today. And from Enterprise, we're going to go ahead and get off the call. And then again, if you could give the replay information. Thank you.

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Operator [88]

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For the replay information, you may dial 1 (800) 859-2056, access code 9879389. That does conclude our conference for today. Thank you for your participation. You may all disconnect.