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Edited Transcript of EPD earnings conference call or presentation 2-May-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Enterprise Products Partners LP Earnings Call

HOUSTON May 10, 2017 (Thomson StreetEvents) -- Edited Transcript of Enterprise Products Partners LP earnings conference call or presentation Tuesday, May 2, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jim Teague

Enterprise Products Partners L.P. - CEO

* Randy Fowler

Enterprise Products Partners L.P. - President

* Tony Chovanec

Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P.

* Brad Motal

Enterprise Products Partners L.P. - SVP, Natural Gas Assets & Marketing

* Brent Secrest

Enterprise Products Partners L.P. - SVP, Liquid Hydrocarbons Marketing

* Bryan Bulawa

Enterprise Products Partners L.P. - SVP and CFO

* Craig Murray

Enterprise Products Partners L.P. - SVP, Regulated Business and Regulatory Affairs

* Bill Ordemann

Enterprise Products Partners L.P. - EVP, Commercial

* Randy Burkhalter

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

* Laurie Argo

Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs

* Bob Sanders

Enterprise Products Partners L.P. - SVP, Asset Optimization

* R.B. Herrscher

Enterprise Products Partners L.P. - SVP, Petrochemicals

* Kevin Ramsey

Enterprise Products Partners L.P. - VP, Capital Projects

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Conference Call Participants

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* Barrett Blaschke

MUFG Securities - Research Analyst

* Brandon Blossman

Tudor, Pickering, Holt & Co. - Research Analyst

* Brian Zarahn

Mizuho Securities - Research Analyst

* Chris Sighinolfi

Jefferies - Research Analyst

* Darren Horowitz

Raymond James & Associates - Research Analyst

* Faisel Khan

Citigroup - Research Analyst

* Jean Ann Salisbury

AllianceBernstein - Research Analyst

* Jeremy Tonet

JP Morgan - Research Analyst

* John Edwards

Credit Suisse - Research Analyst

* Kristina Kazarian

Deutsche Bank - Research Analyst

* Matt Phillips

Guggenheim Partners - Research Analyst

* Michael Busche

TIAA Global Asset Management - Research Analyst

* Shneur Gershuni

UBS - Research Analyst

* Ted Durbin

Goldman Sachs - Research Analyst

* TJ Schultz

RBC Capital Markets - Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Nicole, and I will be your conferencing operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners Q1 2017 Earnings Conference Call. (Operator Instructions) It is now my pleasure to hand the conference over to Mr. Randy Burkhalter. Please go ahead, sir.

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Randy Burkhalter, Enterprise Products Partners L.P. - VP, Investor Relations [2]

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Thank you, Nicole. Good morning, everyone, and welcome to our first quarter call. Our speakers today will be Jim Teague, Chief Executive Officer of Enterprise's General Partner; and Bryan Bulawa, Chief Financial Officer. Other members of our senior management team are 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 the 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 made during this call. And with that, I'll turn the call over to Jim.

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Jim Teague, Enterprise Products Partners L.P. - CEO [3]

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Thank you, Randy. Our business continued to perform well in the first quarter benefiting from our integrated systems, the momentum from an improved price environment but I think most of all, from the relentless drive of our employees. As demand to oriented projects, such as ethylene plants, power generation and LNG exports began to come online, we believe the U.S. is entering into a period of strong demand growth. While many companies have been busy trying to weather the storm over the last 2 years, we positioned ourselves for the demand phase of the cycle, and are set to benefit from the demand increases that are coming for U.S. hydrocarbons. It felt good to see the word 'record' in our press release, and with production coming back and a number of our own long lead time projects coming online, we hope to be using that word more.

Total gross operating margin was $1.5 billion, up 11% from first quarter of last year. EBITDA was a record $1.4 billion, and our distributable cash flow was up 7% with a coverage ratio of 1.3. 3 of our 4 business segments reported higher gross operating margins than the same quarter last year. We had record NGL pipeline transportation volumes, record marine terminal volumes and record onshore liquids pipeline transportation volumes of 5.4 million barrels a day. Our biggest demand project, our PDH, remains on target to be up and running in the third quarter. Permitting and engineering is moving along for our iBDH plant, which is expected to be up in the second half of 2019. Both of these projects are similar, as the movement towards increased ethane cracking that brought us numerous feedstock opportunities is now giving us the opportunity to take growing LPG volumes and turn them into higher valued propylene and butylene. In April, we announced that we'll develop ethylene storage and transportation in and around our U.S. Gulf Coast assets. Because we are already connected to every ethylene plant in the U.S. and supply them with substantial amounts of their ethane and propane, as well as their storage needs, we feel like we can add value to these customers' storing and transporting their ethylene. We expect that to be online in 2018.

As to supply projects in the Permian, we recently announced a major NGL pipeline, our Shin Oak pipeline. The pipeline will have an initial capacity of 250,000 barrels a day, but it's expandable to 600,000 barrels a day. We expect that in service in the first half of 2019. This pipe adds to our other west to east NGL pipelines in moving NGLs to our fractionation, storage, distribution and export systems in Mont Belvieu. We recently added 2 new processing plants in the Permian, and have a third, our Orla plant, under construction. And frankly, we expect to add more processing in that basin, as our forecast indicates that additional gas processing will be needed. We have Frac IX under construction in order to support all of these liquids, which is expected to be up and running in the first half of next year. Our Midland-to-Sealy crude pipeline is currently under construction, with an expected in service date late this year, ramping up to full capacity early next year.

There are 2 areas that have been seen these laggards over the last couple of years, the Eagle Ford and the Haynesville. Starting with the Haynesville, over the last 12 to 18 months, there have been significant M&A activity. The buyers are applying new drilling and completion techniques at very low breakevens, that are experiencing significantly improved initial production rates and reserves, and they are committed to the Basin and are moving quickly to maximize their returns. After bottoming at 12 rigs last year, Haynesville rig counts have improved considerably to around 40. There were over 100 wells drilled in the play in the first quarter, with parties like Covey Park considering IPO, it appears that Capital Markets understand the capabilities of these new producers and the capabilities of the Haynesville. With this increased level of activity, volumes in our gathering systems are increasing rapidly. In fact, by year end, we project that our State Line system in North Louisiana could exceed our peak volumes of 0.5 Bcf set back in 2011.

This outlook was a key driver behind our recent acquisition of the Azure gathering and processing assets. These assets access both rich and lean Haynesville and Cotton Valley production, and are an excellent fit with our systems in East Texas and Louisiana. In addition, these assets complement our supply footprint and will help us grow our Gulf Coast markets. We feel good about what we are seeing from this new type of Haynesville producer, and we like where the production sits relative to growing demand. In the Eagle Ford, similar to what we have seen in the Haynesville, Eagle Ford acreage is now beginning to turn over in a trend that is expected to continue.

The highest profile recent sale was Anadarko's sales to Sanchez, but there have been others, including Pioneer selling some of their Atascosa County acreage, and acreage sales by Newfield, SM and Rosetta. Obviously, the cost of entry is much lower in the Eagle Ford than the Permian, and the basin has technical upside, both in new drilling and completion techniques, and then the stacked pays now being developed in the upper Eagle Ford, Austin Chalk and the Buda. After hitting the low of 30 rigs last October, the Eagle Ford rig count has moved up to around 80, with 800 wells permitted and 500 horizontal wells drilled during the first quarter. While rig count increases won't instantaneously bring incremental volumes, we project that Eagle Ford production is now stabilizing and will soon begin to grow. As Eagle Ford production grows, we have the capacity in our existing assets, so increased production mean cash flow upside. And from a competitive standpoint, our Enterprise value chain is hard to match. We also believe there isn't a better basin situated for the growth in the crude NGL and gas markets, including exports. Finally, we think it's important that the market appreciate the ability of the Houston Ship Channel to handle the growth and the energy exports that we expect to occur over the next 5 to 10 years.

With our facilities at our Enterprise Hydrocarbons Terminal and at Morgan's Point, there isn't a company that has more experience and more conviction around the capabilities of the Houston Ship Channel than Enterprise. Over the years, we have become used to rhetoric from competitors, trying to get a toehold into exports. But recently, the Houston Ship Channel has been the recipient of deceptive allegations from folks promoting other Texas ports. Frankly, because they don't have and can't get a position on the Ship Channel. I read commentary from so-called experts, many of whom, have never loaded a ship, about growing congestion on the Houston Ship Channel. People are entitled to their own opinions. They're not entitled to their own facts. Here are the facts. Actual ship traffic data shows that the Houston Ship Channel operates at well under 60% of it's peak day capacity. Nothing compares to the Ship Channel's capabilities. Nowhere has the combination of over 100 pilots, designated barge lanes, 2-way traffic, a draft of 45 feet, max beam of 170 feet, air draft of 175 feet, and probably, most important, somewhere in the neighborhood of 60 berths. The ability to stage a lot of vessels at multiple docks is what really allows ship traffic to move in and out smoothly. There's a reason the Houston area is considered the energy capital of the world. One reason is the Houston Ship Channel. Another reason is refining capacity that offers producers a domestic market of 4.5 million barrels a day of crude, and more storage than all other Gulf Coast locations combined. All of this gives producers the 2 things they value the most - flow assurance and market choices. And with that, I'll turn it over to Bryan.

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Bryan Bulawa, Enterprise Products Partners L.P. - SVP and CFO [4]

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Thank you, Jim, and good morning, everyone. I will discuss a few income statement items for the first quarter, provide an update on our growth and sustained capital spending for 2017 and wrap up with an overview of our balance sheet metrics and capital raising activities for the quarter. But before doing so, I'd like to reiterate comments I've made in the past regarding revenue and seasonality.

The changes in revenue and operating costs and expenses are largely influenced by changes in commodity prices, and are not typically an accurate depiction of the partnerships' performance. In contrast to the past few quarters, the first quarter of 2017 revenue was up 46% when compared to the same quarter of 2016, while associated costs and expenses were up 53%. We believe total gross operating margin is a better performance-based metric, and as Jim mentioned, it increased 11% to $1.5 billion for the first quarter of 2017 when compared to the first quarter of '16. Also, it's important to be reminded that the fourth and first quarters are typically our seasonally stronger financial performance quarters.

Now moving along to incrementals for the quarter. Net income attributable to limited partners for the first quarter of 2017 was $761 million or $0.36 per unit on a fully diluted basis compared to $661 million or $0.32 per unit on a fully diluted basis for the first quarter of 2016. It was a relatively clean quarter with no material nonrecurring items. Total capital spending in the first quarter of 2017 was $460 million, including $48 million for sustaining capital expenditures. For the full year of 2017, we expect organic growth capital expenditures to be approximately $2.5 billion to $2.75 billion, and sustaining capital expenditures to come in right around $250 million. This is slightly elevated from the levels provided during the Analyst Day, given the number of new organic projects we've announced and were mentioned earlier in Jim's comments. In addition, we recently closed the previously announced $189 million acquisition of the midstream assets -- midstream business and assets of Azure Midstream Partners through a bankruptcy directed auction process.

At March 31, 2017, our total debt principal outstanding was $23.6 billion. The average life of our debt portfolio was 16 years and our effective average cost to debt was 4.6%. Adjusted EBITDA for the 12 months ended March 31, 2017, was $5.3 billion, and our consolidated leverage ratio continues to trend lower after peaking near 4.5x in third quarter 2016. For the first quarter of 2017, it was 4.27x after adjusting debt for the 50% equity treatment ascribed by the rating agencies for the hybrid debt securities and to reduce it further for cash and cash equivalents. Further, when we adjust debt for elevated working capital levels associated with short-term contango opportunities across commodities and contracted growth projects under construction, our adjusted leverage ratio was just under 4.2x and 4x, respectively. For the first quarter of 2017, we retained $238 million of distributable cash flow and raised $449 million in net equity proceeds from our distribution reinvestment program, our employee unit purchase program and the at-the-market or ATM program. To that end, we had record unaffiliated unitholder participation in our distribution reinvestment program that was paid in February, which raised $90 million in equity proceeds. Finally, our consolidated liquidity was approximately $4.1 billion at March 31, 2017, which included available borrowing capacity under our credit facilities and unrestricted cash. With that, I'll turn the call back over to Randy.

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Randy Burkhalter, Enterprise Products Partners L.P. - VP, Investor Relations [5]

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Thank you, Bryan. Nicole, we're ready to take question from our participants. But before that, let me remind everyone that we like to limit the questions to one question, plus one follow-up, please to give more people time to ask questions. Go ahead, Nicole.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Jean Ann Salisbury with Bernstein.

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Jean Ann Salisbury, AllianceBernstein - Research Analyst [2]

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I just wanted to see if you could give a little more color on how to think about the competitive positioning of your oil, gas and NGL pipelines in the Permian. You've mentioned before that your crude acreage dedication could be a primary feeder to your oil pipelines. Would those be the same customers on your other pipelines or is that just a totally different set that you're pushing?

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Bill Ordemann, Enterprise Products Partners L.P. - EVP, Commercial [3]

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I think it's a mix. Some of the customers will be the same, but there will be others that will be different.

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Jean Ann Salisbury, AllianceBernstein - Research Analyst [4]

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Okay, so that's the acreage dedication supports the crude pipelines but not necessarily the other pipelines?

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Bill Ordemann, Enterprise Products Partners L.P. - EVP, Commercial [5]

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That's correct. Then that would be individual per pipeline.

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Jean Ann Salisbury, AllianceBernstein - Research Analyst [6]

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Okay. And definitely, I get a lot of questions about whether processing capacity could be a bottleneck in the Permian. I think you've said before that you don't expect that due to the no permitting and quick build time for the plants, but I just wanted to get your latest view on that.

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Bill Ordemann, Enterprise Products Partners L.P. - EVP, Commercial [7]

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I'm sorry, I missed your question. You said what now?

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Jean Ann Salisbury, AllianceBernstein - Research Analyst [8]

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Whether processing capacity could be a bottleneck in the Permian?

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Jim Teague, Enterprise Products Partners L.P. - CEO [9]

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Not if we have anything to do with it.

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Bill Ordemann, Enterprise Products Partners L.P. - EVP, Commercial [10]

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That's correct.

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Operator [11]

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Your next question comes from the line of Brandon Blossman with Tudor, Pickering, Holt & Company.

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Brandon Blossman, Tudor, Pickering, Holt & Co. - Research Analyst [12]

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Let's see, I'll circle back on the NGL pipeline, Shin Oak. What -- just broadly, from a macro prospective, what are you guys seeing in terms of takeaway capacity over the next 5 years for NGLs out of the Permian? And are you thinking -- how do you think about market share gains relative to your competitors over that 5-year period for NGL takeaway in the Basin?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [13]

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Brandon, this is Tony. When we made our announcement on our NGL pipeline, we said that it was expandable. And as we see the numbers at current drilling rates, we think there's a good chance that over the time period that you discussed that we will be expanding it. That's how we see it.

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Brandon Blossman, Tudor, Pickering, Holt & Co. - Research Analyst [14]

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Okay, fair enough. Related topic, the Texas Intrastate System, natural gas system saw a downtick year-over-year. What's the -- and probably for Tony, what's the trajectory there from your expectations going forward?

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Brad Motal, Enterprise Products Partners L.P. - SVP, Natural Gas Assets & Marketing [15]

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This is Brad. I think that from a trajectory perspective, we've kind of seen the bottom, and I suspect that we'll start to see some upside on a go-forward basis, as we maximize the use of the pipes out of the Permian going east and south, and then with the pickup of the Eagle Ford, we should see some revenue growth there as well.

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Operator [16]

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Your next question comes from the line of TJ Schultz with RBC Capital Markets.

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TJ Schultz, RBC Capital Markets - Research Analyst [17]

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I guess, just first, if you can give any update on Centennial discussions with customers on needs for diversification and how much that need may ultimately play into the dynamic, I guess, just to find a second market for NGLs?

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Craig Murray, Enterprise Products Partners L.P. - SVP, Regulated Business and Regulatory Affairs [18]

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Well, the Centennial project is a slow play right now. These projects require a multitude of players be involved. It has fast paces and slow paces, and we're in slow pace. We've suspended work in the field. We're pressing on with our negotiations with shippers, northeast producers that want additional access to the Gulf Coast market for their propane. And we're calling on other people to see whether there would be interested shippers. And when there's sufficient volume demand, there'll be a project. I think we're a long way from talking about abandonment. But until there is volume at acceptable levels to justify our project, it won't go forward. But the good news, I think, in that is because of the acceptable range of volumes that would justify the high end of that is very realistic. It should be just a matter of timing. But until that's there -- until the demand's there, there's no project.

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Jim Teague, Enterprise Products Partners L.P. - CEO [19]

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And in a nutshell, TJ, we're not going to chase it. If people want it, we'll do it but we're not to chase it.

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TJ Schultz, RBC Capital Markets - Research Analyst [20]

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Okay, makes sense. I guess, second would just be on the Eagle Ford and Haynesville. You spent some time there. I see a few leases turning over. You just bought the Azure assets. I guess, are there other assets in those particular basins that you think make sense, potentially from an M&A perspective? Or was Azure kind of a one-off and the message is there's just more open capacity right now on your system that you'll participate in with minimal CapEx?

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Jim Teague, Enterprise Products Partners L.P. - CEO [21]

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I think Azure was a unique situation that fit us like a glove. And I think in the Eagle Ford, we'd like to see production come back more. Tony thinks it will. We've got plenty of capacity to handle it without doing a heck of a lot. In the Permian, we found that it's more economical to build than to get caught up in the frenzy of paying high premiums for existing assets.

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Operator [22]

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Your next question comes from the line of Kristina Kazarian with Deutsche Bank.

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Kristina Kazarian, Deutsche Bank - Research Analyst [23]

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Jim, you started off talking about the multi-year period of petchem demand growth that we're going into, and I know you guys announced a handful of new projects in the quarter. But maybe, could you talk high level about like what the next set of major infrastructure needs or projects EPD's kind of focused on to meet these needs? And I guess, most importantly, how big could this opportunity be?

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Jim Teague, Enterprise Products Partners L.P. - CEO [24]

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Well, with PDH and iBDH, it is pretty big already, Kristina. But from an ethylene perspective, I think what R.B. and his group's putting together is kind of sticking your toe in the water to see where we can go with ethylene logistics. I think, putting together a storage system that the entire Gulf Coast can use, putting together a distribution system is the first step. I know we -- R.B.'s worked tirelessly on ethylene export, but the question there is how long is this market for -- how long a product -- how long is it with ethylene for how long? And we will keep working that and see where it goes. But right now, we just kind of like what we're doing. Just a minute, I'm getting a note. Oh, and then Tony's reminding me that he thinks that there's a second wave of crackers that will be built in the U.S. He doesn't think we're through building crackers which will be supportive of us putting together kind of an ethylene hub and distribution center, and will be supportive of our ethane delivery infrastructure.

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Kristina Kazarian, Deutsche Bank - Research Analyst [25]

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Perfect. So I guess my follow-up will be maybe just timeframe on those latter 2 points, so you know timeframe to developing a lot of the infrastructure needed to handling the end products on the ethylene side and maybe timeframe to Tony's second wave of crackers that maybe -- might be coming?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [26]

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This is Tony. So relative to the second wave, we're watching the announcements -- quasi announcements like everyone else. So let's think in the early 2020s. That's what we expect and then, relative to [pub] activities, R.B. will take it.

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R.B. Herrscher, Enterprise Products Partners L.P. - SVP, Petrochemicals [27]

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Yes, we're currently developing the pipeline, transportation and the storage, if the ethylene terminal goes, if we get -- if the demand is there, it'll go. But a lot of the crackers focused a lot on their feedstock supply and their derivative capacity, and what we have found is there's a little bit of a gap there for -- on the ethylene side of the business that we're trying to fill their needs.

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Operator [28]

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Your next question comes from the line of Darryl Horowitz with Raymond James.

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Darren Horowitz, Raymond James & Associates - Research Analyst [29]

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Jim, maybe a question for you or Tony. I'd like your thoughts on the expectations that propane balances possibly could meaningfully tighten this winter, and what you think about the impact on market dynamics and pricing specifically if we don't have enough U.S. supply to meet LPG exports, running at 850 or 900,000 a day without drawing down inventories. How do you guys think about capitalizing on what could be a very profitable arbitrage of securing propane near-term, storing it at Belvieu, selling it forward, especially if we're heading into a scenario, where Mont Belvieu propane could sell at a premium to like Northwest Europe?

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Jim Teague, Enterprise Products Partners L.P. - CEO [30]

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Darren, I wondered where you were.

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Darren Horowitz, Raymond James & Associates - Research Analyst [31]

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I did too, Jim.

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Jim Teague, Enterprise Products Partners L.P. - CEO [32]

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And you didn't start off with saying nice quarter. Have you been hanging out with our NGL marketing guys?

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Darren Horowitz, Raymond James & Associates - Research Analyst [33]

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As much as I can.

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Jim Teague, Enterprise Products Partners L.P. - CEO [34]

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You're speaking of contango, obviously, and we did quite a lot of contango last year, Tug? We haven't -- frankly, we haven't had the opportunity to do as much, I don't think, the first quarter as we did last year. But it is in our playbook. The beauty of our system is when you have things like we've had the last couple of years, invariably, it creates other opportunities that aren't otherwise there, contango being one of them. And we've got a system that can capitalize on that big time. Brent, Tug, you have anything?

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Brent Secrest, Enterprise Products Partners L.P. - SVP, Liquid Hydrocarbons Marketing [35]

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Well, I think you're dead on. This is Brent talking. The market has not sold propane that needs to be stored yet. And so we just started to see some stuff happen. We started to see, just from the industry talk, cancelations happened this month, and -- or yes, for the month of May, but ultimately, I think you're spot on. The market will tell propane that it needs to be stored, so that they can get geared up for this winter.

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Operator [36]

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Your next question comes from the line of Matthew Phillips with Guggenheim Partners.

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Matt Phillips, Guggenheim Partners - Research Analyst [37]

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So continuing on the petchem theme, Tony alluded to it before, but Exxon recently announced the possibility of a new cracker down to near Corpus Christi. You all have a frac in Nueces County. I mean, do you -- that part of Texas is fairly light in NGL infrastructure. I mean, do you see there is room for more of a build out there, whether it's your own assets or acquiring third-party assets?

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Jim Teague, Enterprise Products Partners L.P. - CEO [38]

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If they build that monster, we're certainly going to be in there pitching the system to supply it. If you look at -- we say it a lot, but we're -- for NGLs, we're tied to every ethylene plant in the United States. We're very proud of that, and we're not going to let an ethylene plant come online that we don't have some kind of access to.

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Matt Phillips, Guggenheim Partners - Research Analyst [39]

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Would it make more sense to expand Aegis that way or would you build a bespoke frac for a plant like that?

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Jim Teague, Enterprise Products Partners L.P. - CEO [40]

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Well, the reality is, we -- Mont Belvieu down to South Texas, we have a 16-inch pipeline in ethane service that's bidirectional. So we call Aegis -- from Mont Belvieu to the river, the reality is we've got an ethane header from Corpus to the Mississippi River. So we're positioned to do some, but the -- if they build what they say they're going to build -- what is it Tony? Over 100,000 barrels a day I think?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [41]

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Over 100,000 or more.

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Jim Teague, Enterprise Products Partners L.P. - CEO [42]

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They're going to need an infrastructure. I bet we're talking to them, Matthew.

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Matt Phillips, Guggenheim Partners - Research Analyst [43]

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To that point, I mean, the fact that Exxon and SABIC would build a plant of that size, does that kind of throw some cold water on the idea that we're going to be tight ethane anytime in the next 5, 6, 7 years?

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Jim Teague, Enterprise Products Partners L.P. - CEO [44]

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Personally, well, I'll let Tony weigh in. But as I look at all the associated gas and rich gas, I'm having a hard time thinking we're going to run out of ethane.

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [45]

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Yes. Our balances for ethane, and we published them at the Analyst Meeting, changed considerably over last year. So we have a slide we publish in our investor materials all the time as to how we see it, and it's -- the situation is much better than it was before. And out of the shales -- ethane is plentiful and getting more plentiful all of the time.

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Matt Phillips, Guggenheim Partners - Research Analyst [46]

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You mean much better from a supply perspective?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [47]

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Yes, yes. That's correct.

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [48]

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I just -- I want to add one other thing, Jim alluded to infrastructure. When we look at the second wave of crackers, they need services that, particularly, around storage and transportation that are offered in and out of Mont Belvieu. So I personally don't believe that you're going to disconnect Mont Belvieu from anything that happens further south just like you didn't disconnect it from what's happening in Louisiana.

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Matt Phillips, Guggenheim Partners - Research Analyst [49]

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Does it make sense for you to build - would it dilute your returns to build a frac further south than it would be at Mont Belvieu at this point?

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Jim Teague, Enterprise Products Partners L.P. - CEO [50]

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No.

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Operator [51]

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Your next question comes from Ted Durbin with Goldman Sachs.

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Ted Durbin, Goldman Sachs - Research Analyst [52]

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Just coming back to the Permian and the gas takeaway question. I guess, can you quantify how much gas you're moving or can you move right now on the Texas Intrastate? Is it -- because you got a lot of capacity on that system but it's hard to know exactly how much can come out right now before you get your new gas line built.

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Jim Teague, Enterprise Products Partners L.P. - CEO [53]

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Brad?

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Brad Motal, Enterprise Products Partners L.P. - SVP, Natural Gas Assets & Marketing [54]

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Yes. We can move -- we've got the 2 pipes, the 36 and the 30. We can move over 1 Bcf a day away from the area as it sits today. What I can tell you is on a daily basis, we run fairly full already because we have seen the volume start to show up so...

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Ted Durbin, Goldman Sachs - Research Analyst [55]

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Okay, that's helpful. And then second question, as we think about whether it's a Permian gas pipe or an NGL pipe, is this mandate to use American steel, I think you mentioned that you use -- you always use American steel. But I'm just curious about your thoughts on the costs as they come through the industry. How that might impact your ability to pass on, let's say, a fair higher cost and earn the returns on capital that you want to earn?

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Jim Teague, Enterprise Products Partners L.P. - CEO [56]

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We're going to adjust that. We're going to adjust the kind of deals we do based on what our costs are. The one thing is the fact that we've had a real initiative built -- have been for the last 8, 10 years that we were going to buy American. We've developed pretty good relationships with the mills. We think that gives us an advantage. Kevin, you got anything to add? I mean, they have more demand probably increases cost, but American capitalism is pretty neat. It has a way of making it up.

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Kevin Ramsey, Enterprise Products Partners L.P. - VP, Capital Projects [57]

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Yes. We've been successful so far. We haven't had the big price problems, and as you know, we bought American on virtually all our major projects for some time so...

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Jim Teague, Enterprise Products Partners L.P. - CEO [58]

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We've got an American flag in here in the conference room.

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Operator [59]

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You next question comes from the line of Shneur Gershuni with UBS.

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Shneur Gershuni, UBS - Research Analyst [60]

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A lot of my questions have been asked and answered. But maybe just a quick follow-up. I think Kristina asked earlier about potential project opportunities and so forth. Excluding the gas pipeline that you're thinking about out of Waha, is there kind of a number that we're thinking about in terms of how big the backlog can potentially get to? Are we talking $1 billion to $2 billion more? Or are we talking something on the scale of $4 billion to $5 billion? Just wondering if you can sort of give us a frame of reference.

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Jim Teague, Enterprise Products Partners L.P. - CEO [61]

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Well, I think our biggest problem is holding our people back. We never talk about our backlog. If we -- we don't publish that at all. We've got this many billions of dollars in backlog, but we seem to always -- if we think we are going to spend $1.5 billion 2 years from now, when we get there, it's usually a lot more.

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Shneur Gershuni, UBS - Research Analyst [62]

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Is there kind of like a capacity that you feel that you can handle on an annual basis? $4 billion to $5 billion is kind of your max capacity that your staff can handle or do you think you can do something bigger than that?

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Bryan Bulawa, Enterprise Products Partners L.P. - SVP and CFO [63]

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This is Bryan. We've had in the past, we've handled quite handily $4 billion to $5 billion without acquisition -- without third party acquisitions. I think with our size and the access to the capital markets, to the extent there's opportunities there, we don't really see that as being a huge limiting factor. Of course, we'll always instill the discipline that we've demonstrated over the years with respect to our balance sheet and approach in DCF coverage.

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Shneur Gershuni, UBS - Research Analyst [64]

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Very helpful. And then just in terms of financing and equity needs, and so forth, you've had a pretty decent quarter -- a pretty good quarter actually in terms of EBITDA and DCF and so forth. Does this take down your equity needs for this year? You've talked about being self-funding in 2018. Has that timeframe moved at all either up or backwards, just given the change to your CapEx forecast?

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Bryan Bulawa, Enterprise Products Partners L.P. - SVP and CFO [65]

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Well, just on your latter notion with respect to -- yes, being self-funded is dependent upon on a recovery. Of course, we are on that. We're not -- the wind's not quite fully at our back at this point. But we are continuing to spend and find the opportunities, so the more opportunities we find, the less likely we'll be fully self-funded, but our equity needs, still, as we look forward into 2018, remain light. And as far as this year, pretty much the last 3 quarters are a pretty good indication of the range of activity that we might have with respect to raising third-party equity.

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Operator [66]

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Your next question comes from the line of Brian Zarahn with Mizuho.

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Brian Zarahn, Mizuho Securities - Research Analyst [67]

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On the Shin Oak project, do you see current customer contracts? From a high level, how do you view producers' willingness to sign contracts for existing projects and potential future projects?

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Jim Teague, Enterprise Products Partners L.P. - CEO [68]

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If you look at that pipeline, the most reliable supply that you can have for a pipeline is that, that comes out of your own plants, which should tell you something about our plans in the Delaware Permian from a processing perspective.

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Brian Zarahn, Mizuho Securities - Research Analyst [69]

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Understood, I guess, maybe trying to understand your other projects. How do you view the producer willingness to increase their contracted capacity? For example, in Midland-to-Sealy?

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Jim Teague, Enterprise Products Partners L.P. - CEO [70]

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Yes, Midland-to-Sealy, I think, we are going to be fine. We are -- we originally said that pipeline was going to come on at 300,000 barrels a day. We have opted to take it up to its full 450,000 barrels a day of capacity. We did that because we feel like 300,000, we'll be at easily, and there's room to grow. We're talking to a lot of folks. There's a lot of interest. I think a lot of the reason there is interest, it isn't just that they are signing up for a pipeline. They're signing up for a system that gets them to the water on the Houston Ship Channel, that gets them to a market that has 4.5 million barrels a day of refining capacity, and gets them to a location that has tons of storage. So what they're looking at, I think, is this is ideal for giving me the flow assurance I want and the ability to market my crude to a variety of customers.

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Brian Zarahn, Mizuho Securities - Research Analyst [71]

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And along those lines on crude exports, we've seen significant growth this year and assuming the EIA data is correct, exceeding over 1 million barrels a day at times. How do you view the crude export opportunity given the current spread environment? And do you have enough capacity in the future to accommodate the expected Permian production growth to load vessels?

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Jim Teague, Enterprise Products Partners L.P. - CEO [72]

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All right, Bob?

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Laurie Argo, Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs [73]

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We feel like we have plenty of capacity to handle it. And I'll let Brent speak to the arb potential for crude export.

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Jim Teague, Enterprise Products Partners L.P. - CEO [74]

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How much crude could we load today without spending a dime?

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Laurie Argo, Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs [75]

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4 million barrels a day.

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Bob Sanders, Enterprise Products Partners L.P. - SVP, Asset Optimization [76]

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Yes, 4 million a day across all the terminals and that can be increased for minimal dollar impact.

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Brent Secrest, Enterprise Products Partners L.P. - SVP, Liquid Hydrocarbons Marketing [77]

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On the arb piece, for a while, last year, we had structure working for us, and so we were doing quite a few exports just based on structure, not based on Brent WTI spreads. But as structure has come in, you're seeing these spreads widen. You've seen it widen all the way down the curve. Our belief, much like we said at the Analyst Meeting, is that these barrels have to clear on the water. There's so much -- there's only so much demand here domestically for this light sweet crude. It is the cheapest barrel that's going to be out there for the global market. And ultimately, this barrel, it's not justified to be stored. So where is the next move? It goes out by the water.

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Operator [78]

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Your next question comes from the line of Jeremy Tonet with JPMorgan.

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Jeremy Tonet, JP Morgan - Research Analyst [79]

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I just wanted to touch on Waha basis. You've talked about this a bit here. But just wondering if you could walk me through how to think about what stops that basis from widening out at this point? You've really seen it move and just what can you guys do to capitalize on that in the near term? I guess.

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Jim Teague, Enterprise Products Partners L.P. - CEO [80]

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Oh, gas, Brent.

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Brad Motal, Enterprise Products Partners L.P. - SVP, Natural Gas Assets & Marketing [81]

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We've got a little bit left, I guess, I'd say in the near-term as far as this basis or pipeline capacity to take advantage of the basis. But for the most part, we are -- we have sold that capacity on a firm basis away. So a lot of the day-to-day business that we do is not basis oriented between Waha and South Texas.

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Jim Teague, Enterprise Products Partners L.P. - CEO [82]

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I think one of the things we can do to take advantage of it is, and others are trying, is they are given -- present an opportunity to have more infrastructure out of there.

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [83]

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Jeremy, this is Tony. When you look at the forward markets on basis for the Waha area, the market is already telling you, capacity is tight and going to get tighter. Infrastructure is required to solve this problem.

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Jeremy Tonet, JP Morgan - Research Analyst [84]

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Great thanks. And then just one follow-up. You've talked about in the past, just wondering if you have any updated thoughts to share with regards to any potential in the future to adopt a dual C-corp currency to kind of broaden investor access?

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Randy Fowler, Enterprise Products Partners L.P. - President [85]

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Yes, Jeremy, that's something that we'll continue to evaluate, but really no update.

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Operator [86]

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Your next question comes from the line of Faisel Khan with Citigroup.

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Faisel Khan, Citigroup - Research Analyst [87]

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I had 2 questions. But then you threw up this 4 million barrels a day crude oil export number. I just want to clarify that. Is that just crude oil or is that you're talking about total liquids, where it's products and crude oil and condensate? My understanding is you have segregated tanks. You've got sort of -- you can't just -- they're not 100% interchangeable. So I just want to make sure I understood the comment on the 4 million a day.

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Bob Sanders, Enterprise Products Partners L.P. - SVP, Asset Optimization [88]

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I will tell you, the 4 million barrels a day does relates to all the commodities you referenced. But as far as you don't necessarily have to have completely segregated tanks if you have the ability to completely drain a tank to load a ship. So it's a clean tank for the next product. And that is across the system in that regard. It does not include refrigerated products in that number.

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Faisel Khan, Citigroup - Research Analyst [89]

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Right, but if we are already exporting sort of -- the U.S. is exporting 5 million barrels a day of total liquids products, I mean, it's just displacement, right? You can't just like -- if the product wasn't there to be exported, then you would have the excess capacity for crude. But you need to -- you have to actually have both. Right?

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Jim Teague, Enterprise Products Partners L.P. - CEO [90]

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His number doesn't have anything to do with LPG. If that's what you're asking, Faisel.

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Faisel Khan, Citigroup - Research Analyst [91]

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Sure, no, but the products, right? We export, what, 2, 3 million barrels a day of product? So I'm just trying to figure out how much excess capacity you have to move crude, I guess. That's the more critical number as we grow production and keep products exports growing too, right?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [92]

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Faisel this is Tony. From a fundamental standpoint, you're either going to export more crude or more refined products. Not both. Right? And the behavior of the refinery -- refineries isn't that they're going to massively expand. So if we look at that capacity and say, what's the guess, if you will, as to whether or not it's going to export crude or refined products because it won't be both. We think that crude oil exports are the ones that are the game, just because refineries aren't adding all over the United States. We just don't see that.

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Faisel Khan, Citigroup - Research Analyst [93]

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Sure, no, okay, that's fair enough. And last question, just on the Midland-to-Sealy pipeline, going back to your comments, so do you have that -- I think at the Analyst Day, you commented that you didn't have the 300 a day of contracts in hand, but that you were sort of very close to sort of inking those deals. Has that been done yet?

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Laurie Argo, Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs [94]

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Yes, we -- well, we have the 300 a day filled of capacity and we actually think that we will be at the 450 capacity upon startup.

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Faisel Khan, Citigroup - Research Analyst [95]

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My question was on the contracts though. Are the contracts...

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Jim Teague, Enterprise Products Partners L.P. - CEO [96]

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What you said is we've got...

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Laurie Argo, Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs [97]

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We've got 300.

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Operator [98]

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Your next question comes from the line of Michael Busche with the TIAA.

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Michael Busche, TIAA Global Asset Management - Research Analyst [99]

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I wanted to talk about the CapEx number that was up a little bit from the Analyst Day. Is that 2018 CapEx getting pulled forward or do you see new opportunities? And following up, do you expect if it is getting pulled from 2018, to replace that in 2018?

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Bryan Bulawa, Enterprise Products Partners L.P. - SVP and CFO [100]

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Michael, this is Bryan. That is not pulling 2018 forward, that is just the addition of the projects that have been added that has moved the 2017 number up. So also, clearly, we didn't talk about 2018, but our 2018 number has also moved up.

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Operator [101]

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Your next question comes in the line of Barrett Blaschke with MUFG Securities.

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Barrett Blaschke, MUFG Securities - Research Analyst [102]

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Just wanted to follow-up on the commentary about a second round of cracker build out, kind of timeline for that? And do you see it as all being Gulf Coast? Or do you see the East Coast finally trying to develop more of a local market around the volumes that are being produced up there?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [103]

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This is Tony. So we see the timeline as early 2020s. And as we look at the projects for now, we see it as all being Gulf Coast.

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Barrett Blaschke, MUFG Securities - Research Analyst [104]

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So no thoughts on, I guess, that all trends will remain an export market as it builds out?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [105]

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Up in the Northeast? Yes, sir. That's how we see it.

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Operator [106]

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Your next question come from the line of Chris Sighinolfi with Jefferies.

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Chris Sighinolfi, Jefferies - Research Analyst [107]

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Appreciate the comments about the many attributes of the Ship Channel. I was intrigued by the conversation earlier on the call about export capacity. So I just wanted to try and clarify, that 4 million barrel a day number that you quoted, I'm just trying to reference that relative to, let's say, what the 1Q volume was. So if I just think crude and refined products somewhere in the neighborhood of 1 million barrels a day, is that the right sort starting reference point to think about your headroom without meaningful capital spend?

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Jim Teague, Enterprise Products Partners L.P. - CEO [108]

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Yes, that's probably in the ballpark, yes.

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Chris Sighinolfi, Jefferies - Research Analyst [109]

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Okay, okay. And then second, or as a quick follow-up, the number that you quoted for crude export last night, or I guess, this morning 475,000 barrels a day, was just slightly different than the number I saw in the release in April. So I was just wondering if it was just a difference in definition or if I misinterpreted something, or any help in clarifying that would be helpful.

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Randy Fowler, Enterprise Products Partners L.P. - President [110]

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Yes. This is Randy. The press release that we put out in March was reflecting gross barrels. And then what we referred to in the press release as our economic barrels, our net barrels.

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Chris Sighinolfi, Jefferies - Research Analyst [111]

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Okay, perfect, perfect. And then final just follow up on export, Jim your comment in the release, you had talked about Morgan's Point ramping to sort of the 125,000 barrel a day level by sort of the end of the year. Just curious, I know your slide presentations have sort of indicated around that range as an average for 2017. But you had mentioned in those presentation slides, the opportunity for shippers to sort of flex around, customer elections might change. I'm just curious if I'm reading just way too much into your comment, and nothing's changed or if there were any maybe changes in the election?

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Jim Teague, Enterprise Products Partners L.P. - CEO [112]

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I think you're probably reading a little much into it.

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Chris Sighinolfi, Jefferies - Research Analyst [113]

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Okay. I'm at risk of doing that at times.

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Operator [114]

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And your final question comes from the line of John Edwards with Credit Suisse.

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John Edwards, Credit Suisse - Research Analyst [115]

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Just on the second wave of steam crackers in terms of size, I guess, this first wave was around 700,000 barrels, give or take, of incremental ethane demand. What -- so maybe, Tony, you could tell us what's -- how big do you see that second wave, in terms of ethane demand?

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Jim Teague, Enterprise Products Partners L.P. - CEO [116]

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John, it's Jim. I'll turn it over to Tony. There is a basic assumption, and that is the gas-to-crude spread. So if you're assuming second wave, you're assuming a wide gas-to-crude spread, which frankly, we do. But that -- if you have crude fall relative to gas, that's a different ballgame, but we think it won't. So Tony?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [117]

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Right. Yes, so we have been on the bandwagon of the U.S. has ample natural gas for a considerable time. But relative to the question, the projects that we are monitoring today have, call it, between 250 to 300,000 barrels of incremental demand. Those are the handful that we're monitoring today as -- I'm going to call them prospects, okay?

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Jim Teague, Enterprise Products Partners L.P. - CEO [118]

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And that would include Exxon and SABIC, Tony?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [119]

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Yes, sir.

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John Edwards, Credit Suisse - Research Analyst [120]

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Now does that include Shell's cracker in the Northeast, or no?

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Tony Chovanec, Enterprise Products Partners L.P. - SVP, Fundamentals and Commodity Risk AssessmentPartners L.P. [121]

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No, that's existing wave. Those are being built. They're under construction. This is the second wave.

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John Edwards, Credit Suisse - Research Analyst [122]

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Okay, all right, fair enough. And then just, I guess, for my second question, Jim, you made the comment better to build than buy in the Permian. So I just thought maybe you could give us a little more insight into the Permian opportunity. I mean, obviously, you've talked about some of these with the -- your Midland-to-Sealy pipelines are, you think, is going to hit 450 by the third quarter. Obviously, very bullish there. Any other comments you can make around opportunities that you're seeing in the Permian and how Enterprise can take advantage?

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Jim Teague, Enterprise Products Partners L.P. - CEO [123]

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We're building a trunk line upstream of Midland. What is that, Laurie, how many -- how long is that pipe that you're building up in Loving County?

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Laurie Argo, Enterprise Products Partners L.P. - SVP, Crude Oil, Refined Products and Unregulated NGLs [124]

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From Loving County into Midland, about 170 miles, 150 miles, 130 miles.

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Jim Teague, Enterprise Products Partners L.P. - CEO [125]

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All right. So we are building upstream of Midland. We're being -- we're being very disciplined. And I mean, heck, I don't know. We're pretty sold on the place. We're pretty proud of our position. I really don't know how to answer the question other than we continue to build out there, in crude, gas and NGLs.

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Randy Burkhalter, Enterprise Products Partners L.P. - VP, Investor Relations [126]

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Nicole, if you would give our participants the replay information and then, after that, you can go ahead and end the call.

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Operator [127]

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Certainly, and we thank you for your participation today. Please note there will be a replay available at today's conference call, beginning at 01:00 PM Eastern Standard Time. You may dial 1 (800) 585-8367 to access the Encore replay. And use today's conference ID number of 49822180. Again, that's 1 (800) 585-8367 and use the conference ID number of 49822180. This recording will be available until midnight on May 9, 2017. Thank you. You may now disconnect.