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Edited Transcript of EPD earnings conference call or presentation 1-May-19 2:00pm GMT

Q1 2019 Enterprise Products Partners LP Earnings Call

HOUSTON May 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Enterprise Products Partners LP earnings conference call or presentation Wednesday, May 1, 2019 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. - CEO

* Bradley Motal

Enterprise Products Partners L.P. - Senior VP of Natural Gas Assets & Regulated NGLs

* Brent B. Secrest

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

* Chris C. D'Anna

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

* Graham W. Bacon

Enterprise Products Partners L.P. - Executive VP of Operations & Engineering

* James P. Bany

Enterprise Products Partners L.P. - VP of Crude Oil Pipelines & Terminals

* John R. Burkhalter

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

* Justin Kleiderer

Enterprise Products Partners L.P. - VP of NGL Marketing & Supply

* R. Daniel Boss

Enterprise Products Partners L.P. - Senior VP of Accounting & Risk Control

* Tug Hanley

Enterprise Products Partners L.P. - VP of Pipelines & Terminals

* W. Randall Fowler

Enterprise Products Partners L.P. - President & CFO

* Zach Strait

Enterprise Products Partners L.P. - VP of Unregulated NGLs

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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

* Jean Ann Salisbury

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

* Justin Scott Jenkins

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Keith T. Stanley

Wolfe Research, LLC - Research Analyst

* Michael Jacob Blum

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Shneur Z. Gershuni

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

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Torrey Joseph Schultz

RBC Capital Markets, LLC, Research Division - Analyst

* Tristan James Richardson

SunTrust Robinson Humphrey, Inc., Research Division - VP

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Presentation

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Operator [1]

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Good morning, and thank you for standing by. Welcome to the Enterprise First Quarter Conference Call.

I would now like to turn the call over to Randy Burkhalter. Please go ahead, sir.

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

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Thank you, Kristi. Good morning, everyone, and welcome to the Enterprise Products conference call to discuss first quarter 2019 earnings. Our speakers today will be Jim Teague, Chief Executive Officer; and Randy Fowler, President and Chief Financial Officer of Enterprise's general partner. Other members of our senior management team are also in attendance for the call today.

Now during this call, we will make forward-looking statements within the meaning of Section 21E of the Securities 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 the call.

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

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

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Thank you, Randy. First, let me express my regret for missing our Analyst Day. I would've much rather been with you guys, but 3 broken ribs and unbearable pain kept me away. I was glad, however, that you really got to see the quality of our people, have an appreciation for our culture and hopefully get the message of the promising outlook for our business.

And not long ago, there was research note out titled, "What would drive investors back into energy stocks?" The report said the answer is "Show me the cash." In the first quarter, Enterprise did its part to show me the cash. Consistency and execution is critical in all facets of our business. We demonstrated it in the first quarter by completing the conversion of one of our Seminole NGL pipelines into crude service and with initial operations on the Shin Oak pipeline 4 months ahead of schedule. Successful execution also includes our ability to deliver returns on invested capital. We have consistently returned capital to our investors for 20 consecutive years of distribution growth and counting, while maintaining healthy coverage. We call that show me the cash.

We also take very seriously that many of our long-term investors rely on this income. Our balanced approach of returning capital, maintaining coverage, while conservatively using leverage has provided us with financial flexibility to not only weather the cycles, but continue to grow our business during those cycles. That balanced approach has us well positioned to capitalize on organic growth opportunities without relying on the equity capital markets. We believe this will lead to future growth in DCF per unit, distributions and the value of our equity.

We had an exceptional first quarter with 3 of our 4 business segments reporting higher gross operating margin. We set 5 operational records and 6 financial records, and that's on the heels of a strong 2018. Excluding noncash mark-to-market earnings, gross operating margin, adjusted EBITDA and DCF, each increased by approximately 18% in the first quarter compared to the first quarter of last year. DCF, excluding nonrecurring items was a record $1.6 billion, giving us a healthy 1.7x distribution coverage for the quarter. We retained $665 million in the first quarter that is available to reinvest in our growth. This record performance was driven by a contribution from assets that began operations during the past year, volume growth on existing assets, our marketing group's ability to capture some of the West to East spread opportunities in crude oil and natural gas, which more than offset the effect of weaker gas processing margins and temporary closure of the Houston Ship Channel due to the fire at the ITC terminal.

As to capital projects on the supply side, our focus on the Permian continues. We placed the initial phase of our Shin Oak NGL pipeline in service at the end of February and is currently running at 250,000 barrels a day. As I said, we completed the conversion of one of our Seminole pipelines from NGL to crude service. We refer to that as Midland-to-ECHO 2, and it is flowing greater than 200,000 barrels a day. Note that given its location and interconnects, we will always have flexibility to convert this pipeline back to NGL service depending on the pipeline's supply-demand balances for crude oil and NGLs in the future. I doubt that anyone else will be able to offer this type of future flexibility to Permian producers and to markets.

On the demand side, we expect to complete our LPG dock expansion in the third quarter, our iBDH plant at the end of the year and partially initiate service at the ethylene export terminal also in the fourth quarter. We recently completed the restart of 55,000 barrels a day of fractionation capacity at our Shoup and Tebone facilities in South Texas and Louisiana, respectively. We expect fractionation capacity to be tight again in the second half of '19.

Anticipating further NGL supply growth, we're currently constructing 2 new fractionators in Mont Belvieu. We're also developing PDH 2, and we feel confident that this project will be successfully commercialized.

On the natural gas, natural gas liquid side, we expect to complete the third processing train at Orla this quarter and Mentone I in the first quarter of next year. Orla 1 and 2 were placed in service last year and are running full. When all of these facilities are completed, we'll have about a 1.6 Bcf a day of natural gas processing capacity and 240,000 barrels a day of liquids production out of the Permian. We are in discussions with customers that could lead to our underwriting 2 more processing trains at Mentone. We also expect to complete the expansions of Front Range and Texas Express NGL pipelines in the third quarter.

Many of you have seen that, we filed permits to construct another crude pipeline out of Midland. If successful, this would be our Midland-to-ECHO 3 pipeline. We're quite creative in naming these pipelines. We're receiving serious interest from customers who value Enterprise's ability to provide flow, quality assurance and market choices on our integrated system. This integrated systems joins together our pipelines, storage, Houston distribution system and marine terminals, safeguarding quality for both producers and end-users by way of uninterrupted delivery from the wellhead to refineries or docks. If we're able to successfully underwrite this third pipeline, we would have a lot of flexibility to convert Midland-to-ECHO 2 back into NGL service should demand support it.

While on the subject of flow assurance, I want to share with you how we performed during the ITC fire and 5 days that temporarily limited the traffic on the Houston Ship Channel. None of our upstream customers saw any disruptions while ship channel traffic was impaired. And in fact, some of our facilities were used by the authorities during the event. This is the value that a large integrated company like Enterprise provides. This is also the value of being in the Houston market where we have access to 4.5 million barrels a day of refining and 300 million barrels of storage. With our loading capabilities, we made up a significant portion of our vessel backlog in April and expect to load all of the remaining vessels in early May.

During our Analyst Day, our fundamentals team covered the subject of light oil, how much growth did we see from the Permian and where we see the demand. I think they did a good job explaining that light oil will find a home in petrochemicals and gasoline demand. However, after that, we received a lot of questions about LPG demand. Can the world absorb all the future LPG supply? I know a lot of you have to think about these things, and you have to ask these questions. And Tony and his group did a lot of analysis on these subjects. And if you want a deeper dive, I'm sure he'd be happy to do it during the Q&A. But let me give you my personal perspective.

I don't worry about this for 1 second. The reason? I have a fundamental belief. Price creates demand just as price creates supply. You can ask Tony about demand growth for propane in India. Despite record LPG exports from the U.S., propane is currently worth 40% of WTI and normal butane at 48%. These are historically low relationships. They were not typical during the old days. I think that's a reference to me. In those -- back in the day, propane always sold at 70% to 75% of crude. At 40% of crude, price will create demand.

Before I turn the call over to Randy, let me say again how proud we are of our performance this quarter and how much we are looking forward to the opportunities we see in 2019. None of this is possible without the extraordinary efforts and teamwork of our employees. I could go on for an hour about the quality of the people we have here at Enterprise. Our strong results this quarter after the record-setting year we had last year is a tribute to their work ethic, their creativity and the teamwork you see within our company.

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

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W. Randall Fowler, Enterprise Products Partners L.P. - President & CFO [4]

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Thank you, Jim, and good morning, everyone. Starting off with the income statement for the quarter. Net income attributable to limited partners for the first quarter of 2019 was $1.3 billion or $0.57 per unit on a fully diluted basis. This included $96 million or $0.04 per unit in noncash mark-to-market gains. This represents an 11% increase in earnings per unit after adjusting for the effects of mark-to-market amounts versus the comparable adjusted EPU in the first quarter of 2018.

As Jim mentioned, we did report 6 financial records for the first quarter, including record adjusted EBITDA of $2 billion and DCF excluding nonrecurring items of $1.6 billion. If we follow the recent sell-side theme of converting adjusted EBITDA into distributable cash flow, for the first quarter, we made this conversion of EBITDA to DCF at 82% for the quarter. This illustrates the benefits of having lower leverage, lower interest rates and a simple structure, which is very efficient in converting cash flow all the way down to the unitholder level. Cash flow from operations was $1.2 billion for both the first quarter of 2019 and '18. Of note, cash flow from operations for the first quarter was reduced by $560 million for working capital purposes. And this is compared to a use of $203 million for working capital purposes in the first quarter of last year.

In traditional terms, our payout ratio, cash distributions paid to limited partners as a percentage of cash flow from operations was approximately 80% for the first quarter of 2019. And if we take a look at the trailing 12 months, which if you would, smooths out the noise of working capital since the next seasonality, the payout ratio was 62%.

Free cash flow was $1.9 billion for the trailing 12 months ended March 31, 2019, which increased to 89% compared to the trailing months ended March 31, 2018, and is $97 million less than the trailing 12 months for December 31, 2018. And again, some of that due to changes in working capital.

We placed approximately $1.9 billion of major growth capital projects into service through April of this year, including the initial capacity on the Shin Oak NGL pipeline and the conversion of Seminole into crude service. We have approximately $5 billion of major capital projects under construction that we expect to come into service between now and the end of 2020.

Our capital investments in the first quarter were $1.2 billion, which includes $62 million of sustained CapEx. We currently expect growth capital investment for 2019 to be in the range of $3.4 billion to $3.8 billion, and another $350 million for sustaining CapEx.

For 2019, we still expect to receive approximately $625 million of cash contributions from business partners and projects that are jointly owned.

Moving to our balance sheet. At March 31, 2019, our total debt principal outstanding was $27 billion. Assuming the first call date for our hybrids, the average life of our debt portfolio was 14.1 years. Assuming the final maturity date for the hybrids, the average life of the debt portfolio is 19 years and the effective average cost of debt was 4.5%.

Adjusted EBITDA for the trailing 12 months March 31, 2019, was $7.5 billion. And our consolidated leverage ratio was 3.4x after adjusting for the partial equity treatment of the hybrid debt securities. On consolidated liquidity, it was approximately $4.7 billion at quarter end, which included available borrowing capacity under our credit facilities and unrestricted cash.

Moving on to equity issuances and purchases. Enterprise received approximately $43 million in net proceeds from the distribution reinvestment program and the employee unit purchase programs during the first quarter of 2019. The level of the participation in the DRIP program after turning off the discount was less than half of what it was in the prior quarter, which again would have been, with respect to the distribution paid out in November 2018, and we anticipate it may come down further at the next reinvestment date. As we continue the transition to equity self funding, we are now evaluating and applying the reinvestment of distributions to open market purchases instead of new issuances.

During the first quarter of 2019, we repurchased 1.9 million units for $51.6 million or approximately $27.83 per unit, which more than offset the 1.5 million units issued through the dividend reinvestment plan and the employee unit purchase plan in February 2019.

And with that, Randy, I think we're ready to open it up for questions.

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

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Okay. Thank you, Randy. Before we open the call up to Q&A, I'd like to mention that we've posted some slides on our website as supplemental information with respect to first quarter earnings. They're listed under the caption Presentations in the investors section of our website.

So Kristi, we are now ready to take questions from the audience.

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Questions and Answers

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Operator [1]

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(Operator Instructions) You do have a question from Tristan Richardson of SunTrust.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [2]

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We'd have to say that the 5 beats in a row doesn't go unnoticed. The only thing is you're making our modeling skills not look so great. Just a quick question on your project execution and just pulling forward some of the projects specifically Midland-to-ECHO, presumably that allowed for some beneficial spread exposure. Fast forwarding today, does that capacity start to shift to third-party use all at once? Or is that a gradual shift over time?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [3]

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Yes. So Tristan, this is Brent Secrest. If you look at Midland-to-ECHO 1, I want to say contractually, Jay, we're at -- for the first quarter, we are at 475?

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James P. Bany, Enterprise Products Partners L.P. - VP of Crude Oil Pipelines & Terminals [4]

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Yes, that's correct, Brent, 475.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [5]

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And we'll ramp up. So second quarter contracts come on, additional contracts come on, and I want to say we peak at 535. In the case of Midland-to-ECHO 2 starting in April 1, that was -- the pipeline was handed over to the committed shipper and that volume is at 205,000 barrels a day.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [6]

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Helpful. And then just similar question on the natural gas side. Do you see more commercial activity for third party? Or is some of that space that gives you that spread exposure stay throughout the year?

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Bradley Motal, Enterprise Products Partners L.P. - Senior VP of Natural Gas Assets & Regulated NGLs [7]

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It's Brad Motal. I think it's going to stay there for the rest of the year and beyond. And frankly, I've been impressed with the amount of continued commercial opportunities we've had in the Permian. I felt like it was going to start to slow down a little bit, and frankly, it hasn't. It's kept up it's pace potentially.

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Operator [8]

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And your next question comes from Jean Ann Salisbury of Bernstein.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [9]

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The LPG export has really widened recently. Your export expansion should help with that. Can you share if it's mostly sold fixed-fee? Or if you would have material exposure to the arb when that comes on?

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Justin Kleiderer, Enterprise Products Partners L.P. - VP of NGL Marketing & Supply [10]

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Yes, this is Justin Kleiderer. Yes, from a spot perspective, we've certainly seen a widening of the arb and that expansion is going to give us access to capitalizing on that wider arb. maintain our focus on our long-term strategy of offer competitive rates on the term supply business. So I think, as we think long-term, we're not going to deviate from that long-term strategy of ensuring that we capitalize on long-term supply and competitive rates.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [11]

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Okay. That makes sense. And then on, how do you see Shin Oak capacity ramping between now and the end of the third quarter?

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Tug Hanley, Enterprise Products Partners L.P. - VP of Pipelines & Terminals [12]

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This is Tug Hanley. Shin Oak, as Jim mentioned currently, it's full at its initial capacity of 250,000 barrels a day and we'll be bringing on pumps between now and at the end of the year, call it another 100,000 barrels a day by the end of third quarter.

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Operator [13]

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And our next question comes from TJ Schultz of RBC Capital Markets.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [14]

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Just on the unit buybacks in the quarter, you noted it covered the DRIP and purchase plans. Is there anything to read into that as far as strategy on buybacks? And maybe it changes if you go to open market purchases? Just any more color on how you view this as an opportunistic time on the buybacks?

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W. Randall Fowler, Enterprise Products Partners L.P. - President & CFO [15]

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Yes. Frankly, I don't think there's -- our perspective has changed that much since our Analyst Meeting 3 weeks ago. I think we're still looking to be opportunistic with the buyback program as we highlighted at Analyst Day, and we're looking at a number of projects in development that, frankly, we're feeling pretty good about. And so we may need capital needs there. So I think right now, we're just, like I said, being very deliberate and keeping our financial flexibility now. So really, no change, just really more opportunistic in approach.

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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [16]

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Okay. And then, you have a crude dock in Corpus through the Eagle Ford JV that's coming online. Would you expect any more storage around that as more ties into Corpus are complete? And just if you can provide any color on the capacity to load across that dock?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [17]

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That dock is operational now, and we're working with our partner over there to bring that dock into operation. I want to say, currently, with the air permit, it is -- the capacity is just shy of 200,000 barrels a day, Jay?

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James P. Bany, Enterprise Products Partners L.P. - VP of Crude Oil Pipelines & Terminals [18]

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At 200,000.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [19]

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At 200,000 barrels a day. So we think it's -- I think we're on record about this, but we do think there will be opportunities to help clear that market as pipelines come online, docks come on at different times and there is some potential misalignment between pipelines and docks. So certainly, we're looking for opportunities like that.

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Operator [20]

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And your next question comes from Spiro Dounis of Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [21]

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First question just on the Permian. Just curious if you're seeing any near-term impact on NGL volumes, the Permian as a result of the Waha basis? I think most of the shut-ins were on the gas acreage, but just curious if that's also resulted in any sort of meaningful impact on liquids and processing economics?

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Bradley Motal, Enterprise Products Partners L.P. - Senior VP of Natural Gas Assets & Regulated NGLs [22]

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This is Brad Motal, again. We have not seen any impact from shedding gas relative to our processing volumes on our equity gas plants out in the Permian.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [23]

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Okay. Great. And then I believe you made a comment at the Analyst Day that I think you're seeing or finding it increasingly harder to offer NGL customers transportation without also offering frac and export capability. And just curious if that's resulted in ability to maybe charge premium prices just given that you're integrating, obviously, differentiated on that front. And then, are you able to sort of see that same dynamic either in crude or refined products as well?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [24]

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This is Brent. So I think that the ability to offer all of those services is a benefit to Enterprise. And I don't think we're shy about saying that we leveraged the integration to offer those type of services. I think the customers that we have the most success with are probably the -- typically a larger type customer who want to be in that game. They want to be in the export game. In the case of crude oil, I do think that us having control of that barrel all the way through from the field, all the way to the dock, when it comes to maintaining quality, and executing what that producer wants us to do with that barrel, I do think it gives us an advantage. And I think, frankly, you're seeing it with how our volumes are coming on quarter-by-quarter.

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A. James Teague, Enterprise Products Partners L.P. - CEO [25]

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Is it fair to say, Brent, on your Midland-to-ECHO 1, I think you have only one contract that doesn't have an associated dock deal with it.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [26]

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That's right.

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

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I think that 1 contract is in negotiations with us for a dock deal.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [28]

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That's correct.

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

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And so that's evidence that, to your point, the bundled service is quite valuable to us.

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Operator [30]

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And your next question comes from Justin Jenkins of Raymond James.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [31]

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I guess, maybe thinking about the propylene market, it seems like that was one of the few headwinds in 1Q. Maybe just your thoughts on how operations unfold here in 2Q and market outlook in the near term for that particular business line?

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

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I'm going to let Chris D'Anna jump on that. But I think it was headwinds because last year, first quarter, we had 20-plus cent spreads. We're trying to integrate the polymer grade, and that's not something that you would expect long-term. I think our spreads were more in the range of what we would have expected. Chris?

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Chris C. D'Anna, Enterprise Products Partners L.P. - Senior VP of Petrochemical [33]

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That's absolutely right, Jim. Our first quarter of last year, the spreads were just historically very wide and we've returned more to a normal. Now our pricing here in the U.S. is much lower than other regions. So that's also opened up the opportunity to export quite a bit of volumes. So we're exporting record volumes of propylene across our dock.

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Justin Scott Jenkins, Raymond James & Associates, Inc., Research Division - Senior Research Associate [34]

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Perfect. And I guess may be follow up here on the CapEx bump for 2019. Is that an acceleration of existing projects? Or is that a combination of that and maybe some new projects to the fold?

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W. Randall Fowler, Enterprise Products Partners L.P. - President & CFO [35]

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Yeah. Coming in to look at it, the increase was approximately about $250 million. And I would say almost 60% of that is in projects that are $10 million and less. And then, frankly, that's normally where we get our best returns on capital are from those smaller projects.

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Operator [36]

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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 [37]

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In your prepared remarks, you guys talked about the propane price being lower as a percentage of crude than where it's historically been. How much of that is a function of price pressure at Mont Belvieu? Because it looks like we're at export capacity. And with the winter demand domestically for propane going away, more of it, I'm sure you need to clear the market. Do you expect that we're going to see more pressure on propane and butane until your export expansion comes on?

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

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I think you could see a little more pressure on both of them. And you are right, it's at 40% of crude, because winter is over, and there's a lot of supply. I mean, you nailed it.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [39]

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Okay. And then, I guess, just as a follow-up on your LPG export expansion. What -- if you are doing contracting, what are the rates and tenor looking like for those contracts versus what you historically have signed on your first round of export capacity?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [40]

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This is Brent. I think in terms of the experience in a sense, I think you're seeing the U.S. producer step in for these type of contracts. So in the first kind of wave on these, it was traders, it was potentially end users who were trying to open up the U.S. market. So they had alternative sources of supply. I think now, to go back to your prior question, in the case of HD-5 propane, it's got to find some where to go. And so it's going to get turned into export quality propane. So I feel confident in terms of the length. Obviously, we're not going to get the rates that we got the last time around. Frankly, we've been fairly public, but that was probably a mistake, and we got -- we probably ask for too high a number, so we lost our market share. So you're going to see rates that are quite a bit less than we got the first time around. You will see a different type of customer for us. But in terms of term, I think we'll see longer term.

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A. James Teague, Enterprise Products Partners L.P. - CEO [41]

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And let me say, when Brent says lost our market share, he's talking about going from 80% to 45% to 50%. You can't -- with all the volume, I don't think we could continue being the only game in town. But the other thing he is saying is we're not going to make the mistake of having prices that invite more competition. People are going to have to compete hard to beat our pricing.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [42]

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Fact of the matter is we have a brownfield project, and for us to expand, it's much more economical than to allow greenfield projects to start up.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [43]

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Okay. Very helpful. And then, can you remind us the hedges, like when the hedges that you have on your volumes for Midland-to-ECHO rolloff? And should we think that you guys are going to continue to hedge on based on any uncontracted capacity you have on Midland-to-ECHO 1 and 2?

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R. Daniel Boss, Enterprise Products Partners L.P. - Senior VP of Accounting & Risk Control [44]

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This is Daniel Boss. The hedges that we have on Midland-to-ECHO, it primarily rolls off in 2019, and then there's a small portion that goes into 2020. There is about $26 million of gains left on those hedges that will come off mostly in the second quarter and fourth quarter of this year. So beyond that, we're on that capacity that's not contracted under long-term agreements, and that's pretty wide open.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [45]

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And should we think that you guys are going to continue to hedge that out?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [46]

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I think in terms of how we use that space, and Brad talked about it, and you'll hear potentially Zach Strait talk about it, is we have opportunity with that space. And our plan and our methodology is to allow people who are willing to do long-term contracts with us to use that space. So we'll try to convert that into long-term deals. If we're having them full-time, getting that done then -- if we feel like the market is at a number that we like, then we could step in and hedge it. But right now, the focus is is to get long-term deals.

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A. James Teague, Enterprise Products Partners L.P. - CEO [47]

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That's the same thing on the capacity we have on natural gas from Waha to the Gulf Coast. We're taking advantage of it right now, but we plan to leverage it into Mentone 3 and Mentone 4, right Brad?

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Bradley Motal, Enterprise Products Partners L.P. - Senior VP of Natural Gas Assets & Regulated NGLs [48]

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Yes.

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Operator [49]

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And your next question comes from Keith Stanley of Wolfe Research.

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

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Just some quick clarifications. On crude marketing being so strong in the first quarter, is it fair to say most of the year-over-year increase there is just Seminole rent and not before the contracts kicked in, in April or were there other areas of strength in crude marketing?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [51]

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I think if you look at Midland-to-ECHO 2, I want to say we averaged just shy of 100,000 barrels a day on that. That was unhedged space. So that rode the value of what the market was at the time. There is some unhedged space we have on other pipelines. In terms of what you can expect quarter-over-quarter, I mean, you'll see, obviously, increased volumes on Seminole. The rate will probably go down or it will go down, but at the end of the day, that's the highest rate we have on any crude transport out of the Permian basin. And the fact of the matter is, there will be other opportunities. And it's hard for me to sit there and say the opportunities are going to be at the dock, or the opportunity is going to be in storage, but we talk about all the opportunities we have, at this time, across all the different commodities. In the case of maybe this quarter, there is an opportunity on crude basis.

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Keith T. Stanley, Wolfe Research, LLC - Research Analyst [52]

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Okay. That's helpful. And on frac 10, did frac 10 get accelerated now? I just want to make sure I'm reading this right to the fourth quarter of 2019 instead of early 2020?

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

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Zach, you're too nervous to answer the question.

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Zach Strait, Enterprise Products Partners L.P. - VP of Unregulated NGLs [54]

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It did get accelerated.

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A. James Teague, Enterprise Products Partners L.P. - CEO [55]

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A nice short answer.

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Operator [56]

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And your next question comes from Colton Bean of Tudor, Pickering, Holt.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [57]

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And just to follow-up briefly on the crude oil basis discussion there, to some degree, was Q1 impacted at all by the Cushing in Houston spread? And I guess, if so, when you guys expanded Seaway last year, was there incremental spot capacity associated with that? Or is that all thought of as third party?

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [58]

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The Enterprise marketing has Seaway space. And then when the expansion came out last year, that space was fully contracted for. If you look at Seaway pipeline, the fact it achieves market base rates, there can be arb there, but obviously, that's shared with our partner. But in the case of volumes, Enterprise, from a marketing standpoint, is moving crude oil down Seaway as it makes sense. And sometimes, those volumes are less, and sometimes they are more.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [59]

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Got it. May be just to circle over to Shin Oak. Given last week's update on Alpine High, does that change your view on the ramp over the course of '19? And if so, is there any potential to backfill that with other counterparties?

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Tug Hanley, Enterprise Products Partners L.P. - VP of Pipelines & Terminals [60]

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This is Tug. No, it doesn't. Just for example, the Shin Oak mainline is in service right now, flowing at 250,000 barrels a day and we have yet to complete the lateral down to get those volumes, which would be sometime around June. So we don't see that impacting us, and furthermore, I believe some of the curtailments and reductions are dry gas, not rich gas, that's what we're seeing.

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

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The other thing on Shin Oak and -- is the most valuable supply -- or the most reliable supply to Shin Oak and to our fractionators comes out of our own processing plant. And I don't think we're through, but we've mentioned the possibility of 2 more Mentone plants. I mean, that's another 80,000 barrels a day, Tug? And I don't think that's going to be the end of our processing plants in the Permian, and all of which will feed Shin Oak.

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Tug Hanley, Enterprise Products Partners L.P. - VP of Pipelines & Terminals [62]

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And Shin Oak, just a reminder, it's not just connected to the Permian, it's connected to our entire system, which touches just about every basin there is.

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Operator [63]

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And your next question is from Shneur Gershuni from UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [64]

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First off, I just wanted to say, really appreciate the increased disclosures that you guys disclosed with today's earnings. Just a couple of questions here. Kind of a follow-up on the buyback and the DRIP questions from earlier. Just kind of what are your thoughts on just turning the DRIP completely off at this point right now? And in your responses on buybacks, you talked about wanting to be opportunistic, and at the same time you are evaluating a lot of large projects. If I recall correctly, at the Analyst Day, you talked about $5 billion to $10 billion worth of projects that you were hoping to FID at some point. Is there something more than that, that you're thinking about? Because, I mean, your results, Jim, as you said, you showed us the cash, you're producing very healthy excess distributable cash flow that can certainly fund that kind of a backlog. So is there something more that we should be thinking about? Or could we actually see some -- a more elevated pace of buybacks?

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W. Randall Fowler, Enterprise Products Partners L.P. - President & CFO [65]

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Shneur, on the DRIP, again, you have some participants in the DRIP that just like to reinvest without broker fees, frankly, and some of that cash is going to continue to come in. Rather than come in and just turn that program off altogether, we could come in and maintain our flexibility by continuing the program. But instead of the units being sourced from newly issued units, you just source the units by doing open market purchases. So I think, one, I think it still provides the company some flexibility on a longer-term basis, but then also comes in and continues to those participants that want to continue to purchase through the DRIP even without a discount still keeps that option of -- a low-cost investment option for them. On the -- as far as being opportunistic on the DRIP, Shneur, really, like I said, not much changed from 3 weeks ago. I think we still see $5 billion to $10 billion worth of projects under development. The guys are continuing to chase other projects as well. And right now, just looking to come in and maintain flexibility and be opportunistic on the buyback. Really not a lot additional perspective I can give you.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [66]

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Okay. And may be as a follow-up question. Obviously, you're talking about your LPG export capabilities and how strong it is. You had some peers, or should I say competitors that are expanding theirs and others that are evaluating and so forth. Is there an opportunity for you, I'm not sure if the word opportunity is the right word. But just sort of given the competitive landscape, I mean, you kind of want to keep the export capacity to something that's, obviously, manageable for the market. Do you sort of sit there and say, let's take a lower price on our export fees for a period of time to ensure that all this proposed capacity and potential capacity doesn't actually end up getting built? Just kind of wondering what your thoughts on the competitive dynamic there.

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A. James Teague, Enterprise Products Partners L.P. - CEO [67]

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I think Brent put and said it then and as did Justin, we're going to be very competitive on long-term deals, and that translates to we're not going to make the mistake we've made last go around. We're not looking at $0.12 fees, we're looking at fees that I doubt people can build greenfield on. Is that right, Justin?

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Justin Kleiderer, Enterprise Products Partners L.P. - VP of NGL Marketing & Supply [68]

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That's right.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [69]

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Kristi, this is Randy. We have time for one more before we cut the Q&A off, okay?

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Operator [70]

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Yes, sir. And your final question come Michael Blum of Wells Fargo.

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Michael Jacob Blum, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [71]

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My questions, 2 related questions on Midland-to-ECHO 3. So I guess, the first question is, I think, consensus view is that within a year, the Permian will be pretty overbuilt in terms of crude takeaway capacity. So I just wanted to understand on the context of that, is that a bad assumption? Or what are you seeing that you think you're going to have demand for another incremental crude pipeline out of the Permian? And then, the second part of that question is a competitor pipe recently increased their cost pretty substantially of their crude pipe and they pretty much talked about rising steel and labor costs. And so wanted to kind of see what you guys thought in terms of facing any of that?

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

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Well, Michael, this is Jim. I'll take the first part, latter, I'll let to Brent and then we'll let Graham answer the last part. But when you have a large producer that wants you to build a pipeline, you take a hard look at it. We differentiate. You see all the pipe coming out of the Permian, and I agree, there's a lot of pipe. We differentiate what's going to Corpus, what's going to Cushing, as it relates to what's going to Houston. Houston is the big sponge, and most of your major producers want to go to Houston and they want to go to the big sponge. And they like the fact that when they come through Enterprise, they're going to make sure their quality is going to be -- we're going to keep the quality high, and we're going to give them 4.5 million barrels a day of market -- refining market. We're going to give them 300 million barrels of storage. We're going to give them the ability to export their barrels. So when we look at, "Oh God, there's a lot of pipelines," we say there's not enough to Houston. And I think that's what the major producers think.

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Brent B. Secrest, Enterprise Products Partners L.P. - Senior VP of Commercial [73]

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And I'll add to that, Jim. Fact of the matter is we have a decent number of producers who are coming to us, asking us to build another pipeline. And so when I ask you to do that, then obviously, you have to take a look at it. And if you look at what we have upstream of our system in Midland, what we have downstream of our system in Houston, and you put everything together, it looks like a really good project. Now if you want to take out all the production and Tony has his curve, you want to apply the capacity, the pipeline capacity on there, I would agree with you that it does look overbuilt. But to Jim's point, so what doesn't happen? And so I think barrels going to Cushing probably don't happen. And to apply a 100% capacity factor to pipelines that go to Corpus, I think that's very optimistic. And then if you apply the pipelines that go to Corpus that have acreage dedications, I'm not sure that equals a 100% capacity factor. So our contracts, if you look at our contracts, and they are essentially all 10-year contracts, won't expire until 2026, then we kind of look at that time frame and find out what's overbuilt. And at that point in time, it looks like the Permian is underbuilt when it comes to pipeline capacity. Jim alluded to his comments about converting crude oil back to an NGL line that was converted to crude line back to an NGL line. That's an opportunity. That's an optimization that we have. But ultimately, we don't have any contracts expiring during this overbuilt time. If we did, I probably would be more concerned about it.

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

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Graham, what about the costs?

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Graham W. Bacon, Enterprise Products Partners L.P. - Executive VP of Operations & Engineering [75]

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As far as the costs, we're seeing some slight increases in costs from the time we did Midland-to-ECHO 1. Nothing substantial, but I think we've been able to lock in cost for steel, and steel and pipe, steel prices have actually gone down. Pipe stayed -- just stayed relatively flat during that time period just due to the impact of the tariffs. But all that we can do is make a project work for Brent and his team.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [76]

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Okay. Kristi, if you would -- would you please give our listeners the replay information before we close the call. Thank you.

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Operator [77]

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Yes, sir, and thank you all for participating in today's conference. This call will be available for replay beginning at 1:00 p.m. Eastern Time today through 11:59 p.m. Eastern Time on May 9, 2019. The conference ID number for the replay is 6667747. The number to dial for the replay is 1 (800) 585-8367 or (855) 859-2056 or (404) 537-3406.

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John R. Burkhalter, Enterprise Products Partners L.P. - VP of Investor Relations [78]

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Thank you. Thank you, Kristi, and thank you, everyone, for joining us today and have a good day. Goodbye now.

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Operator [79]

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And thank you again for attending. You may now disconnect.