U.S. Markets closed

Edited Transcript of OKE earnings conference call or presentation 28-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 ONEOK Inc and ONEOK Partners LP Earnings Call

TULSA Feb 28, 2017 (Thomson StreetEvents) -- Edited Transcript of ONEOK Inc earnings conference call or presentation Tuesday, February 28, 2017 at 4:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* T.D. Eureste

ONEOK Inc - IR

* Terry Spencer

ONEOK Inc - President and CEO

* Derek Reiners

ONEOK Inc - Senior Vice President and Chief Financial Officer

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day and welcome to the ONEOK and ONEOK Partners fourth-quarter 2016 earnings call. Today's conference is being recorded.

At this time, I would like to turn the conference over to today's host, Mr. T.D. Eureste. Please go ahead, sir.

--------------------------------------------------------------------------------

T.D. Eureste, ONEOK Inc - IR [2]

--------------------------------------------------------------------------------

Thank you. And welcome to ONEOK and ONEOK Partners fourth quarter and year-end 2016 Earnings Conference Call.

A reminder that statements made during this call that might include ONEOK or ONEOK Partners expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in any forward-looking statements.

For discussion of factors that could cause actual results to differ, please refer to our SEC filings. Our first speaker is Terry Spencer, President and CEO of ONEOK and ONEOK Partners. Terry?

--------------------------------------------------------------------------------

Terry Spencer, ONEOK Inc - President and CEO [3]

--------------------------------------------------------------------------------

Thank you, T.D. Good morning, and thank you all for joining today.

As always, we appreciate your continued interest and investment in ONEOK and ONEOK Partners. On this conference call is Walt Hulse, Executive Vice President, Strategic Planning and Corporate Affairs; Derek Reiners, Senior Vice President and Chief Financial Officer; and our Senior Vice President's, Wes Christensen, Operations; Sheridan Swords, Natural Gas Liquids; and Phill May, Natural Gas Pipelines.

We also have Kevin Burdick, who was recently promoted to Executive Vice President and Chief Commercial Officer, reporting to me, with responsibility for all of our business segment commercial activities. Kevin has served a number of key leadership roles and performed at a high level.

I have no doubt that Kevin's exceptional leadership skills and experience will continue to serve the Company well in his new role. Congratulations to Kevin.

Thank you for joining us this morning to review our 2016 and fourth-quarter results. ONEOK and ONEOK Partners reported strong 2016 financial performance as ONEOK Partners adjusted EBITDA increased nearly 18% compared with 2015.

Increased fee-based earnings drove double digit adjusted EBITDA growth in all three of our business segments. The strong year-over-year adjusted EBITDA growth was achieved despite increased ethane rejection and severe weather in December that impacted volumes in our Natural Gas Liquids and Natural Gas Gathering and Processing segments in both the Williston Basin and the Mid-Continent.

The impact of the severe weather and increased ethane rejection in December reduced fourth-quarter results by approximately $15 million. Severe weather continued early in the first-quarter of 2017, impacting volumes but volumes have rebounded significantly in February to November, 2016 levels, which were some of our highest monthly volumes.

We expect year-over-year adjusted EBITDA growth in 2017 to be weighted towards the back half of the year. This growth is driven by mostly routine, high return capital expenditures to fill available capacity in our Natural Gas Gathering and Processing and Natural Gas Liquids segments and sets the stage for significant adjusted EBITDA growth into 2018 and beyond.

Growth is expected to be fueled by industry fundamentals from increased producer activity and highly productive basins, across our operating footprint, and from increased ethane demand from the petrochemical industry and NGL exports. We anticipate closing our recently announced acquisition of the remaining 60% of ONEOK Partners that we don't already own in the second quarter of this year.

We expect the transaction to be immediately accretive and then double digit accretive to ONEOK's distributable cash flow in all years from 2018 through 2021, providing for a 21% initial dividend increase. Followed by expected annual dividend growth of 9% to 11% through 2021 with 1.2 times or greater dividend coverage all while improving our consolidated credit metrics.

Our integrated assets and growth over the last ten years has us well positioned to capitalize on improving market fundamentals and the continued development of the extensive resource plays within our broad 37,000-mile footprint. Derek will now provide additional details about our financial performance and outlook.

--------------------------------------------------------------------------------

Derek Reiners, ONEOK Inc - Senior Vice President and Chief Financial Officer [4]

--------------------------------------------------------------------------------

Thank you, Terry. Starting with the Partnership, fourth quarter and full-year 2016 adjusted EBITDA increased compared with 2015 by approximately $20 million and $275 million, respectively.

ONEOK Partners distribution coverage ratio was 1.3 -- 1.03 times for the fourth quarter and 1.09 times for the full-year 2016. A substantial improvement compared with the 0.86 times coverage for the full-year 2015.

The slightly lower fourth-quarter distribution coverage ratio, as anticipated, was due to the timing of maintenance capital spending. Credit metrics again improved the Partnership's already strong balance sheet, with the trailing 12 months GAAP debt to EBITDA ratio 4.2 times of December 31.

ONEOK maintained its healthy dividend coverage throughout 2016, ending the full-year coverage of 1.31 times or approximately $250 million of cash on hand and an undrawn $300 million credit facility. We expect to utilize ONEOK's available cash to pay down consolidated debt this year.

ONEOK's 2017 financial guidance was issued as if our proposed merger transaction with ONEOK Partners closed on January 1. We expect to true up the guidance for net income, income taxes and non-controlling interests, once the timing and related impacts of the transaction are known.

We still expect closing to occur in the second quarter. Adjusted EBITDA and distributable cash flow should not be materially impacted by the timing of the transaction closing.

For the NGL segment, 2017 adjusted EBITDA guidance, we are mindful of the primary components that may impact results. Including the timing and amount of additional ethane recovery and incremental volumes from the STACK and SCOOP.

Based upon our current assessment and producer activity in petrochemical construction, we expect to be within the guidance range as the segment delivered nearly $1.1 billion in adjusted EBITDA in 2016. We expect a lower cost of funding resulting from our strong financial performance in 2016 -- and successful efforts to reduce commodity price risk.

Combined with the recent transaction announcement, which eliminates incentive distribution rights. Also, the credit rating agencies have viewed ONEOK favorably, placing ONEOK on review for upgrade to investment grade, following the closing of the transaction.

The expected growth in adjusted EBITDA and use of the excess cash on hand to repay debt should enhance ONEOK -- should enable ONEOK to improve its credit metrics. Reducing consolidated debt to EBITDA to around our target of four times in the next 18 to 24 months.

In terms of timing and next steps for the merger transaction, we expect to file registration statement and joint proxy statement within the next week or so. Once the registration statement is declared effective by the SEC, we will mail the joint proxy statement to our shareholders and unit holders and set unit holder and shareholder meetings to be held on the same day.

As of now our best estimates is for the transaction to close in June. I'll now hand the call back to Terry.

--------------------------------------------------------------------------------

Terry Spencer, ONEOK Inc - President and CEO [5]

--------------------------------------------------------------------------------

Thank you, Derek. Let's take a closer look at each of our business segments.

Starting with our Natural Gas Liquids segment, 2016 adjusted EBITDA for the segment increased more than 10% compared with 2015, benefiting from new natural gas processing plant connections in the Williston Basin and STACK and SCOOP areas, and increased ethane recovery during the first half of the year. Severe winter weather continued to impact our system in January, however NGL gathered volumes have rebounded in February.

Averaging approximately 780,000 barrels per day this month. This average is more in line with our November, 2016 volumes.

We've also seen higher NGL product price differential and location differentials, which we expect will partially offset early year impacts from weather. We expect 2017 NGL volumes to be driven by increased drilling activity across our system and the ramp up and full-year benefit of the six natural gas processing plants we connected in 2016.

We also expect to connect an additional six plants this year, including one in the Rocky Mountain region, three in the Mid-Continent and two in the Permian Basin. These new connections will increase the Partnership's total third-party plant connections to nearly 200.

Producers are planning to move more rigs to the STACK and SCOOP area and the Williston Basin by midyear and with the ramp up of new processing plants, we expect volumes to increase significantly during the back half of 2017. With respect to ethane, we continue to expect ethane recovery levels to fluctuate throughout 2017.

But we are also seeing positive signs from petrochemical and export facility so far this year. At least three world scale petrochemical facilities are slated to begin operations in the second half of 2017.

In addition to increase capacity utilization at new export facilities. Additionally, a new 36,000 barrel per day Gulf Coast ethane cracker recently began start up operations.

While ethane recovery is an important part of our growth outlook and is expected to provide additional NGL volume growth into 2018; it's important to note that our 2017 financial guidance expects increased recovery of ethane to provide $40 million to $60 million of adjusted EBITDA growth. Moving on to the Natural Gas Gathering and Processing segment, 2016 adjusted EBITDA increased 40% compared with 2015.

Driven by higher average fee rates and continued volume growth in the Williston Basin. Prior to December's severe weather impacts, natural gas volumes processed in the Williston Basin exceeded 780 million cubic feet per day in November.

The segment's average fee rate increased to $0.84 per MMBTU in the fourth-quarter 2016 and $0.76 per MMBTU for the full year. High initial production volumes from customers with fee-based contracts contributed to the higher average fee rate in the fourth quarter.

We expect an average fee rate of closer to the $0.80 in 2017 with fluctuations due to volume and contract mix. Plus, we have hedged a significant portion of the segment's remaining 2017 commodity price exposure.

In the Mid-Continent we saw several additional multi-well pad completions through the end of 2016, and into early 2017. Our natural gas volumes processed increased in the fourth quarter, compared with the third quarter and we saw processed volumes exceed 790 million cubic feet per day periodically during the fourth quarter.

Producers across our Natural Gas Gathering and Processing systems have accelerated the drilling activity, particularly in the prolific STACK and SCOOP plays where production results continue to improve. We currently have 10 to 12 rigs on our dedicated acreage in the STACK and SCOOP, compared with three to four rigs at the low point in 2016.

Recently, a number of our gathering and processing customers, which account for more than 200,000 acres of dedication, have increased their drilling programs which could push rigs on our acreage to a range of 17 to 20 by the end of 2017. Volumes are expected to increase significantly in the second half of 2017 as producers continue to move additional rigs into the area during the first half of the year.

The increased drilling activity in the STACK and SCOOP not only benefits our Natural Gas Gathering and Processing segment but also significantly benefits our Natural Gas Liquids segment, which is a take away service provider in Oklahoma as is our Natural Gas Pipeline segment. Producers have also accelerated drilling and completion activity in the Williston Basin.

With expectations for higher 2017 volumes compared with 2016. Producers continue moving rigs back into the core of the basin with approximately 25 correction -- 23 to 25 rigs currently on our dedicated acreage.

Approximately 300 drilled but uncompleted wells remain on ONEOK's acreage dedications, which provide a backlog of volume growth opportunities in 2017 requiring minimal capital while rigs continue to increase throughout the year. We expect to connect approximately 400 wells in the Williston Basin this year, compared to nearly 340 in 2016.

The segment remains well positioned to take advantage of growth opportunities requiring minimal capital investments such as well connections and compression projects. The majority of the segment's $170 million to $210 million of expected 2017 capital expenditures, is dedicated for these types of high return projects.

In the Natural Gas Pipeline segment, 2016 adjusted EBITDA increased 14% compared with 2015. The segment continues to benefit from higher fee-based earnings driven by increased firm contracted capacity and capital growth projects recently placed in service.

In 2017, the segment is expected to benefit from a full year of operations on three natural gas transportation projects placed in service last year, including the Roadrunner Gas Transmission Pipeline, ONEOK West Tex Pipeline expansion and the Midwestern Gas Transmission expansion. Combined, these three projects added an additional 1 billion cubic feet per day of transportation capacity to ONEOK's Natural Gas Pipelines system.

All three projects are fully subscribed under long-term, firm, fee-based commitments. The segment continues to expand its operations this year with additional capital growth projects including additional electric generation plant connections and increasing natural gas take away capacity out of prolific shale plays such as the STACK and SCOOP.

Already this year, we've began construction on a 25-mile pipeline that will provide transportation and storage services to OG&E's Mustang electric generation plant near Oklahoma City. This project is supported by a long-term, fee-based agreement with OG&E.

We've also started construction on a westbound expansion of our ONEOK gas transmission pipeline out of the STACK play. This project is also supported by a long-term firm commitment.

The initial expansion design which consists of adding compression, provides for 100 million cubic feet per day of capacity on the pipeline and a scalable up to 400 million cubic feet per day. Discussions are ongoing with producers which could potentially increase the expansion volume.

We expect to complete the Mustang project in the third quarter this year and complete the westbound expansion in the second quarter of 2018. In addition, we continue our discussions with producers for ONEOK to potentially construct a new natural gas pipeline to provide much needed takeaway services from the STACK and SCOOP plays.

If ONEOK is successful in securing the necessary contractual commitments and board approvals, the proposed 200-mile intrastate pipeline and related compression would run through the middle of the STACK and SCOOP. Providing essential takeaway of up to 1.4 billion cubic feet per day and connectivity with existing ONEOK facilities in central Oklahoma, as well as the Bennington market hub in southeastern Oklahoma.

If constructed, the pipeline and related infrastructure would have an anticipated completion date of the third-quarter 2018. Our Natural Gas Pipeline segment is well positioned in increasingly active basins such as the Delaware and Midland Basins and the STACK and SCOOP plays, to compete for additional takeaway opportunities.

Looking ahead to the remainder of 2017 and beyond, we are well positioned for growth opportunity. The continued improvements in producer drilling economics, funding costs and a long runway of future development potential in our basins, are resulting in more customers in the increase take away capacity.

With this line of sight into growth opportunities and improving market fundamentals, we have between $1.5 billion and $2.5 billion of future potential organic growth projects in the development phase. Additionally, we have lowered our cost of funding to support these growth opportunities with the recently announced transaction.

We are confident in our assets, experienced people, financial flexibility and discipline and our legacy of providing reliable and quality service to our customers and creating value for our stakeholders, even during difficult industry cycles. Thank you for your continued support of ONEOK and ONEOK Partners and as always, thank you to our employees for your hard work and continued dedication to operating our assets safely, reliably and in an environmentally responsible manner.

Operator, we're now ready to take questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Thank you.

(Operator Instructions)

John Edwards, Credit Suisse.

--------------------------------------------------------------------------------

NEW SPEAKER [2]

--------------------------------------------------------------------------------

S good morning, everybody. Thanks for updating us on the narrative. Just as a follow-up, Terry, could you just walk us through the fourth quarter Permian gather volumes a little bit below average for the year? I was just thinking it wasn't going to be a weather impact there, so any color of what happened there? And how you think that will turn up in 2017? A little bit beyond the detail you provided in the narrative already? To make sure, John. I'm going to let Sheridan kind of walk you through those components.

--------------------------------------------------------------------------------

NEW SPEAKER [3]

--------------------------------------------------------------------------------

First thing, John, we did see a little bit of impact of weather in the Permian but West checklist which a lot of people think it's just a Permian did say more weather impact to the Barnett Shale and we did see some methane, increased ethane rejection out of on the West Texas pipeline in the fourth quarter and we continue to see growth in the Permian as we go the permit has been fairly steady through the year but we are connecting additional plants in the Permian, two additional plants this year will increase our volumes out of the Permian.

--------------------------------------------------------------------------------

NEW SPEAKER [4]

--------------------------------------------------------------------------------

Okay, that's helpful. And then just as far as wrapping up to the overall guidance of a hundred million dollars Phill hundred million dollars that you provided a few weeks back I think you indicated in your opening comments you are already seeing in February something like 780 so would it be fair to say that you're thinking you'll cross over -- I mean when would you expect across north of 800 and then would it be fair to say because it is a second-half situation that you're going to be closer to the 900 range kind of in the third and fourth quarters, as of the right way to think about it?

--------------------------------------------------------------------------------

NEW SPEAKER [5]

--------------------------------------------------------------------------------

I think the way think about it with definitely be ramping up in the second half of the year because that is when we said that we will start seeing that ethane sustainably coming out in the second part of the year. As we go forward. But I think as we come into the second quarter is when we'll start seeing this crossed the 800. A lot depends out of the growth of the skip in the STACK we are seeing a lot of great results today we are seeing some as I mentioned some volume growth out of the Permian and then the Williston Basin still comes on strong for us as well. We will see that drove there. I think an answer to your question it will be much more second half with your Phill in these plans continue to ramp up will probably cross 800 and the second quarter.

--------------------------------------------------------------------------------

NEW SPEAKER [6]

--------------------------------------------------------------------------------

Okay, that's helpful and just if I could switch gears on one other area just, I'm assuming more of a question for Derek, you're indicating get to four times leverage in the next 18. Twenty-four months or so and our assumption has been primarily an EBITDA growth story in that regard, not really depended so much on equity issuance so if you could just to clarify for us how you think you're getting there, that would really be helpful?

--------------------------------------------------------------------------------

NEW SPEAKER [7]

--------------------------------------------------------------------------------

Sure, John this is Derek. And you're exactly right. I think we don't need to issue in order to get the leverage metrics down into that target range of four times. Now certainly we could, depending on additional capital projects we have some large capital projects we could issue some equity there but really don't have the need to do so in that 18. Twenty-four months as were thinking about it today.

--------------------------------------------------------------------------------

NEW SPEAKER [8]

--------------------------------------------------------------------------------

Okay that's helpful and just last one just in the deck you provided to us, Terry, there was the optimization marketing price differential you indicated there is some squeezing going on their how should we be thinking about that going forward?

--------------------------------------------------------------------------------

NEW SPEAKER [9]

--------------------------------------------------------------------------------

John definitely a need fourth quarter the spreads were narrower than we see in the third quarter and also the construction market that we get a lot of our marketing activity was narrower than we've seen. But as we move into the first quarter we've already seen the spreads between Conway in Bellevue be a lot wider than in previous years we're seeing propane at $0.08. Ten cents and butane at $0.12 in February and a little bit narrowing in March but still very strong so I think that we'll have a very good optimization in the first quarter.

--------------------------------------------------------------------------------

NEW SPEAKER [10]

--------------------------------------------------------------------------------

Okay, that's it for me. Thank you so much for the clarifications.

--------------------------------------------------------------------------------

NEW SPEAKER [11]

--------------------------------------------------------------------------------

Thank you, John.

--------------------------------------------------------------------------------

NEW SPEAKER [12]

--------------------------------------------------------------------------------

Christina Kaz around with Deutsche Bank.

--------------------------------------------------------------------------------

NEW SPEAKER [13]

--------------------------------------------------------------------------------

Afternoon, guys. So just a quick follow-up for equivocation on John's point see no $17 million is that you guys refer on page 8 in the slide deck that I just get that rate you said that's already worked itself out and probably won't be a go forward impact that we should be thinking about?

--------------------------------------------------------------------------------

NEW SPEAKER [14]

--------------------------------------------------------------------------------

$17 million as compared to the third-quarter in most of that is in the market but we had a very good third quarter in the market but we're devising wider spreads today and we saw in December as we continue to go through that so we'll definitely have, should be better off in the first quarter than we different were in the fourth quarter.

--------------------------------------------------------------------------------

NEW SPEAKER [15]

--------------------------------------------------------------------------------

Perfect. So bigger picture question there's been a theme of starting new projects in you guys had some delay projects and you also talked about that 1.4 BCF capacity SCOOP and STACK can you just remind me how much a pipe like that would cost? What the catalyst to watch for on it moving forward and other new projects that you might think about coming back into the queue? Cynosure, Christine we'll let Phill take that question.

--------------------------------------------------------------------------------

NEW SPEAKER [16]

--------------------------------------------------------------------------------

Sure, Christine. The pipeline that we're trying to develop out of the SCOOP and STACK is 210 miles of 36-inch pipe with compression and depending on what kind of capacity sales that we are able to garner in the discussions it can be between $750,000,000.900 million.

--------------------------------------------------------------------------------

NEW SPEAKER [17]

--------------------------------------------------------------------------------

And then other projects that you guys might think about moving back into the queue maybe some that had been delayed before the cycle turned down or anything else on your radar there? So I guess, Christine I think you're thinking about it right. As we think about this $1.5 billion. $2.5billion of projects under development there's a pretty good portion of it and our gathering and processing segment where we're adding additional capacity more around the SCOOP play and in certainly along the lines of the types of projects that Phill is talking about specifically in the pipeline segment then also opportunities in the Permian, and shall related infrastructure, NGL storage, those types of things when you think about how it's broken up at $2.5 billion level your roughly talking about a third, a third and one third one third GMT one third pipes and one third liquids. And so generally that's how you think about, that's what the projects look like that are currently under development so that's really helpful and last one for me I know you guys get this a lot that can you just remind me of your thoughts especially post the transaction we announced earlier this year of appetite for strategic M&A and how you might think about using the currency?

--------------------------------------------------------------------------------

NEW SPEAKER [18]

--------------------------------------------------------------------------------

Sure well certainly we have an appetite for M&A we've got an appetite for asset acquisitions as well and the things that, the transactions certainly provides a benefit to our currency. We're continually thinking about strategic M&A and what assets that we don't have that certainly makes sense so the challenge remains finding something that's actionable and if you do find something actual try to find something with the bid ask spread is not so wide. So those challenges remain but certainly as a result of this transaction we're very interested in acquisition opportunities. There. , thanks, guys for the update.

--------------------------------------------------------------------------------

NEW SPEAKER [19]

--------------------------------------------------------------------------------

You bet. Thank you.

--------------------------------------------------------------------------------

NEW SPEAKER [20]

--------------------------------------------------------------------------------

Eric Genco, Citi.

--------------------------------------------------------------------------------

NEW SPEAKER [21]

--------------------------------------------------------------------------------

Hey, could one just want to follow up on the last question.

--------------------------------------------------------------------------------

NEW SPEAKER [22]

--------------------------------------------------------------------------------

Think about the guidance numbers it looks like you're more than final fractionation capacity for 2017 maybe into 20 team if we look at a little bit think about some of the higher guidance and how some of that could go Houston you think you might need to new fractionation capacity think about top and been six and 35, 140 for ethane get to seven or 75 talking in the past about 100,000 barrels a Kamal for sleep Stackhouse and can that occur and how long before you can get some of those things in?

--------------------------------------------------------------------------------

NEW SPEAKER [23]

--------------------------------------------------------------------------------

Usually takes us about two years to get a fracking from the standpoint I think we will need additional frac capacity into we get into 2019. Some the people we talked about out in the skip in the STACK we are talking about just transporting the barrels maybe not doing a complete frac, doing a complete bundle service they kind of play that into as well but I think it will be into 2019 before we would really think we would need to look at additional frac capacity.

--------------------------------------------------------------------------------

NEW SPEAKER [24]

--------------------------------------------------------------------------------

Okay how about on the processing side?

--------------------------------------------------------------------------------

NEW SPEAKER [25]

--------------------------------------------------------------------------------

Eric on the processing side again a lot of it will depend on the ramp that we see, as Terry mentioned we have seen pretty significant uptick in rigs in the STACK, that area, those wells are much higher volume than we see in the Bakken so if that type of activity continues we're owing to need some additional capacity probably in the next couple of years. Because we'll eat up are available capacity pretty quickly. As we think about the Williston we've got a couple hundred million dollars a day of capacity available there. We also have the opportunity of some low cost expansions so you're probably looking at maybe three. Four years before we get in current type pricing environment where you would fill up our capacity and may need additional processing.

--------------------------------------------------------------------------------

NEW SPEAKER [26]

--------------------------------------------------------------------------------

Audit and last Monroe quick you mentioned the higher rates been somewhat in the GMP segment been somewhat due to higher IP wells coming on the just curious if you could expand a little I believe there was a contract sell to other customers in the Bakken and also curious to see if there is any sort of movement on perhaps the Mid-Continent in getting any movement there may be getting a little more money there?

--------------------------------------------------------------------------------

NEW SPEAKER [27]

--------------------------------------------------------------------------------

Eric, it is Kevin again. That rate did spike a little bit in the fourth quarter. We did reach agreement on a restructured contract that was relatively sizable that drove that up a little bit but we also had a significant amount of IP gas come on in the fourth quarter which did drive up our volumes and the vast majority of that gas was on contracts that had a much higher fee-based components. So quarter to quarter, we think that rate will settle in more of the $0.80 range as other volume comes on and just the volume mix on the contracts moves around a little bit. Now that is completely separate from the $8 million contract settlement was a service contract that is and related to our producer, our customer contracts.

--------------------------------------------------------------------------------

NEW SPEAKER [28]

--------------------------------------------------------------------------------

Thanks a lot congrats on the promotion.

--------------------------------------------------------------------------------

NEW SPEAKER [29]

--------------------------------------------------------------------------------

Everybody I want to just make just a quick correction, I guess I got tongue-tied on one of my numbers when I was talking about Mid-Continent natural gas volumes I said 790 million cubic feet per day periodically in what I meant to say was 690 million cubic feet per day, so perhaps that was wishful thinking on my part. But anyway, I apologies. So hopefully that clarifies it in no make sure the transcript a properly reflects the corrected number. Thank you. Now, back to questions.

--------------------------------------------------------------------------------

NEW SPEAKER [30]

--------------------------------------------------------------------------------

Michael Blum, Wells Fargo.

--------------------------------------------------------------------------------

NEW SPEAKER [31]

--------------------------------------------------------------------------------

Hi, thanks. Can you provide an update on where you stand on the West Texas LPG line and just how that sort of interplay's with sounds like you're connecting some additional plants in the Permian and do you have enough take away capacity and just kind of update in terms of your thoughts on NGL take away capacity and just any update on West Texas LPG?

--------------------------------------------------------------------------------

NEW SPEAKER [32]

--------------------------------------------------------------------------------

Sure.

--------------------------------------------------------------------------------

NEW SPEAKER [33]

--------------------------------------------------------------------------------

Michael, the Sheridan. The West Texas rate case we will be in front of, we have a hearing in front of Administrative Law Judge at the end of March and then after that it will go through its normal course to come to a resolution on that. In terms of how that impacts the new plans we are connecting, we are able to contract these new plants at market rates, not at the lower rates due to that is what the market is out there so as we increase volume up their we'll get it at a higher rate. The capacity that we have is we're talking to many different plants out there, some much further than others and we think the that through those discussions there is a possibility of expansion coming on the West Texas Pipeline out of the Permian basin as that continues to grow. 'S that will be depending on how successful we are with some of these new plans that will be up in the next year. Eighteen months.

--------------------------------------------------------------------------------

NEW SPEAKER [34]

--------------------------------------------------------------------------------

Okay and that expansion, would that be any idea there on timing or is that just Thompson cost and just try to get a feel for what that would entail?

--------------------------------------------------------------------------------

NEW SPEAKER [35]

--------------------------------------------------------------------------------

Was definitely will be cheaper than laying a new line but it will be some pumps and a little bit of looping of some of the line and probably be some additional gathering infrastructure out to the Permian.

--------------------------------------------------------------------------------

NEW SPEAKER [36]

--------------------------------------------------------------------------------

Okay. Great. And then the other question, Terry, I think I heard you say earlier that in the 2017 guidance assumes $40 million. $60million EBITDA uplift from ethane recovery did I hear the right?

--------------------------------------------------------------------------------

NEW SPEAKER [37]

--------------------------------------------------------------------------------

That's correct.

--------------------------------------------------------------------------------

NEW SPEAKER [38]

--------------------------------------------------------------------------------

So I think it was about a year ago you guys were talking about the potential for $200 million EBITDA from ethane recovery. When do you think that could occur?

--------------------------------------------------------------------------------

NEW SPEAKER [39]

--------------------------------------------------------------------------------

Will certainly that happens over time that $200 million EBITDA impact, that's still a good number. The timing is the 2017, 2018 and 2019 impacts. So the cumulative effect of all the incremental ethane coming on would have an impact of $200 million so that's all still, that all still works. So that's the timing, 2018 is a big year for the petrochemical facilities starting at, as we said earlier in the call we've got three large crackers coming on that are going to crack anywhere from 80. 100,000 barrels a day it piece, ethane. So growth is pretty big a million barrel a day to Mark we have even significant more crackers starting up in 2018 timeframe. So we expect significant uplift in this business as we think forward in this NGL segment the uplift from ethane continues to be a big part of our story in addition to all the raw feed growth is happening in the STACK and the SCOOP and in the Permian.

--------------------------------------------------------------------------------

NEW SPEAKER [40]

--------------------------------------------------------------------------------

Great. Thank you very much.

--------------------------------------------------------------------------------

NEW SPEAKER [41]

--------------------------------------------------------------------------------

(Operator Instructions) Chris -- Jeffrey.

--------------------------------------------------------------------------------

NEW SPEAKER [42]

--------------------------------------------------------------------------------

A Terry thanks for taking the question for taking the question.

--------------------------------------------------------------------------------

NEW SPEAKER [43]

--------------------------------------------------------------------------------

Thank you, Chris Terry?

--------------------------------------------------------------------------------

NEW SPEAKER [44]

--------------------------------------------------------------------------------

I'm well. I'm well, thanks. That's wanted real quickly maybe where Michael left up just understand so 40. Sixty is when the guidance for this year shared and the was mention in your still anticipating that to be mostly back half loaded and so I guess I'm just wondering do you still see sort of the regional profile that you've outlined before where we should expect sort of all Permian to be recovered then we moved to Mid-Con for the next sort of trying to recovery?

--------------------------------------------------------------------------------

NEW SPEAKER [45]

--------------------------------------------------------------------------------

Yes. Chris that is right. The Permian will come first and then we'll go into the Mid-Continent but I will say that the rates out of the Mid-Continent are very far behind the permit they are very close to each other so you could see a little bit come out of the Mid-Continent first depending on which, how our contracts are structured but that's basically on a high-level that's what we see happening.

--------------------------------------------------------------------------------

NEW SPEAKER [46]

--------------------------------------------------------------------------------

Okay. And then there was a question earlier about frac capacity within the ONEOK franchise we've obviously seen some frac announcements now first time in a while and I know that some others at Bellevue remain per did you mention, sure, potential for you to transfer volumes on behalf of potentially what others might frac. Can you just talk to us a little bit about that dynamic I think it might take shape? Vis-a-vis the producer schedules and then also this recovery dynamic?

--------------------------------------------------------------------------------

NEW SPEAKER [47]

--------------------------------------------------------------------------------

Well in terms of just transporting out of the SCOOP and STACK we have some customers out of the SCOOP in the STACK that have rack capacity and they want to instill there frac capacity first. And so that is why we are working with them to do a transfer only type deal. In terms of our frac capacity we'll just have to see what comes out of the SCOOP in the STACK is up capacity build ethane is going to fill the capacity for but we are all very excited we think as we go forward and look into 2019 and beyond that there is opportunities as the Permian gross as the SCOOP and STACK roast that we may have a fracking, but on all's going to depend on commitments from the producers and processors going forward.

--------------------------------------------------------------------------------

NEW SPEAKER [48]

--------------------------------------------------------------------------------

So the only thing I would add to that, Chris, is from an to perspective, we have the capacity necessary to reap this $200 million impact EBITDA impact from incremental to that capacity our the Athanasius are underutilized right now because of the ethane rejection so there's no capacity of any meaningful size that needs to be built to accommodate that, what Sheridan is primarily talking about is the raw feed or C3 plus capacity that needs to be constructed to accommodate this organic growth not just out of the STACK in the SCOOP it certainly out of the Permian. We expect to be a fractionation service provider for customers in the Permian even though currently many of our customers frac in other locations. As we bring on the incremental development that's happening in the Permian, we expect to be providing a full menu of services to these customers gathering fractionation and certainly storage as well.

--------------------------------------------------------------------------------

NEW SPEAKER [49]

--------------------------------------------------------------------------------

The other thing I would add to that is that we as well also have fracs in Mont Bellevue so when we get the commitments we will be able to start building fracs.

--------------------------------------------------------------------------------

NEW SPEAKER [50]

--------------------------------------------------------------------------------

Okay. I was Mercurius like assembly was signing up for new frac capacity I guess chances are that's under a fairly lengthy commitments was just wondering if then something is looking to take pipe capacity on your system to sort of provide the volume that would subsequently be frac you get an equal duration contract or how that work and we've had sort of a Sterling pre- expansion opportunity out there for a while like at what point you might maybe see that fall back into reality kind of two Christina's earlier question?

--------------------------------------------------------------------------------

NEW SPEAKER [51]

--------------------------------------------------------------------------------

I think really as we talk about people we may be transporting out of the SCOOP in the STACK there predominately going into their own fracs that they own. They would be doing it. And so we negotiate on those transportation deals independently if they are going to take it to a third-party frac we and negotiate those are the penalties will after the length of term that we think is appropriate for our business regardless of what they get on the frac side. Some people have done shorter-term frac deals some people have done longer-term frac deals and some of the other volume that we transport only.

--------------------------------------------------------------------------------

NEW SPEAKER [52]

--------------------------------------------------------------------------------

Okay in if I could really quickly shared and just to clarify something you had said earlier in response to question so if I think about the profile of where you're anticipating see two volumes to be recovered you can have this profile of cost structure and what you are saying if I heard you correctly some regions within the mid, are competitive relative to the Permian we would see that rate sort of, that volume hit first and then we profile sort of in a rising cost water flow. Is that the right way to think about it? And then where would -- you noted a bundle see in the Permian like less than $0.03 I mean does that, that's kind of the ballpark you're talking about then in terms of the lowest-cost areas of the Mid-Con?

--------------------------------------------------------------------------------

NEW SPEAKER [53]

--------------------------------------------------------------------------------

No. The $0.03 that we have talked about is an overall fee on the West Texas Pipeline at the lower rates that we are at today. Most of the other pipelines are at a much higher rate and that higher rate is where we see is comparable to the Mid-Continent so if you just look at what we provided, we provided $0.08 a gallon on an average fee out of the Mid-Continent and so we feel that fee is competitive with some of the fees that are out of some of the new plans that are out of the Permian that are on the newer pipelines which are the higher rates than on our pipelines.

--------------------------------------------------------------------------------

NEW SPEAKER [54]

--------------------------------------------------------------------------------

So shared in the rates $0.39 you're referring to our transportation only. We do not include fractionation, correct? There for $0.03 just of our transportation only and it is an average fee for the whole West Texas Pipeline that takes in Permian, Barnett Shale, East Texas, short-haul volume so as an average across the whole thing. Always the Permian is going to be on the higher even on our system. The Mid-Con is an average fee that has both transportation and transportation and frac but that could also go to Conway, to Bellevue, different places. So we see our as you talked about certain contracts in the Mid-Continent, we know are competitive with some of the new plants out of the Permian.

--------------------------------------------------------------------------------

NEW SPEAKER [55]

--------------------------------------------------------------------------------

Okay. That's very helpful. Thanks for the clarification.

--------------------------------------------------------------------------------

NEW SPEAKER [56]

--------------------------------------------------------------------------------

You bet. Thank you, Chris. Seven and it appears there are no further questions at this time. I'd now like to turn the conference back over to our presenters for any additional or closing remarks.

--------------------------------------------------------------------------------

NEW SPEAKER [57]

--------------------------------------------------------------------------------

Thank you. Our quite period for the first quarter starts to me close our books in early April and extends until earnings are released after the market closes in early May. Thank you for joining us.

--------------------------------------------------------------------------------

NEW SPEAKER [58]

--------------------------------------------------------------------------------

That does conclude today's presentation. Thank you for your participation. You may now disconnect.