Crosstex Energy's CEO Hosts NGL Business Update and 2013 Guidance Conference (Transcript)

Dec.11.12 | About: EnLink Midstream (ENLK)

Crosstex Energy, L.P. (XTEX) NGL Business Update and 2013 Guidance Conference Call December 11, 2012 11:00 AM ET

Executives

Jill McMillan – Director-Public and Industry Affairs

Barry Davis – President and CEO

Mike Garberding – SVP and CFO

Bill Davis – EVP and COO

Analysts

Paul Jacob – Raymond James

Gabe Moreen – Bank of America/Merrill Lynch

Sharon Lui – Wells Fargo

Helen Ryoo – Barclays

John Edwards – Credit Suisse

Operator

Good day, ladies and gentlemen, and welcome to the Crosstex Energy NGL Business Update and 2013 Guidance Conference Call. My name is Derrick and I'll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now turn the conference over to Ms. Jill McMillan, Director of Public & Industry Affairs. Please proceed.

Jill McMillan

Thank you, Derrick, and good morning, everyone. Thank you for joining us today for an update on Crosstex's NGL business and Cajun-Sibon projects and to discuss 2013 guidance. On the call today are Barry Davis, President and Chief Executive Officer and Mike Garberding, Senior Vice President and Chief Financial Officer. Bill Davis, Executive Vice President and Chief Operating Officer also is on the call and will be available for questions.

We issued a news release about our significant NGL project Phase II of our Cajun-Sibon expansion yesterday evening. We issued a news release about 2013 guidance early this morning. For those of you who didn't receive copies, they are available on our website at crosstexenergy.com. If you want to listen to a recording of today's call, you have 90 days to access the replay by phone or webcast on our website.

During this call, we will be reviewing slides that are available on our website. I will remind you that any statements that might include our expectations or predictions should be considered forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. And we undertake no obligation to update or revise any forward-looking statements. We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors.

In addition, some of the financial measures that we will be discussing today are not GAAP compliant. Please review the statements on slide 3 for an explanation of these terms and the proper use of them.

Before I turn the call to Barry Davis, I want to remind you about our 2013 Bank Group meeting on January 22nd and Analyst Conference on January 23rd. Please put these dates on your calendars. Both events will be held in Fort Worth at the Museum of Science and Histories Energy Blast Gallery. We will be communicating more details on the invitations which we plan to distribute soon. But if you need more information now, please contact me.

Today's discussion will only cover our growing NGL business, our Cajun-Sibon projects and 2013 guidance. We will provide an in-depth discussion of our 2013 financial expectations and company-wide operations at our upcoming meetings in January.

I will now turn the call over to Barry.

Barry Davis

Thank you, Jill. Good morning, everyone, and thank you for joining us on the call. As Jill previously mentioned, I want to quickly remind you about our 2013 Bank Group meeting on January 22nd and our Analyst Conference on January 23rd in Fort Worth. We look forward to sharing more details about our 2013 strategic plan then.

This morning we will discuss our strategic position in the natural gas liquids business, update you on our Cajun-Sibon projects, discuss how these projects position us for additional growth in the NGL business and provide our financial guidance for 2013.

Before I specifically address today's main topics, I'd like to remind you of our long-term strategy which is outlined on slide 4. During the past three years, we have focused on two primary objectives; to maximize the earnings and growth of our existing business and to enhance our scale and diversification thereby creating value.

One of the keys to our success has been and will continue to be a disciplined, financial approach as we execute our plan. As part of enhancing our scale and diversification, we've concentrated on increasing our NGL business, growing a crude business and condensate business and developing our gas processing and transportation business in rich gas areas.

We're confident that increasing our scale and diversification will strengthen us as a company because we believe it will lead to less reliance on any geographic area or product line, offers greater growth opportunities from a broader asset base and provide us with more sustainable fee-based cash flows.

Turning to slide 5, we've provided a summary of our accomplishments to enhance scale and diversification and drive growth. We have been working to transform our asset base through projects that are focused on fee-based crude and NGL business. We plan to invest more than $1 billion of growth capital in crude and NGL projects between 2012 and 2014.

Many of these projects have already been implemented and others, such as the Cajun-Sibon projects are well underway. These projects alone will provide significant growth for both the partnership and the corporation, and we believe they put us in a great position to continue to expand our NGL and crude businesses.

Now let's take a look at what these projects do for us and how they position us for growth. Beginning with Ohio River Valley or ORV, our assets provide a first mover advantage in this developing area and represent a big step for us into the crude and condensate logistics business, as well as offers opportunities to expand into gas gathering, processing and transportation. ORV gives us a tremendous advantage in the Utica and Marcellus shale plays.

Moving to West Texas in the Permian Basin where we have a joint venture with Apache Corporation, we started the new Deadwood cryogenic plant in May. Volumes are climbing ahead of plan and Deadwood is already full. Those of you who had attended our Permian Basin Investor Tour a few weeks ago saw the abundant growth opportunities given the expected development in the Permian.

In Southern Louisiana, Phase II of our Riverside expansion which is under construction will increase our capacity to transload crude oil from rail cars to both barges and pipelines to approximately 15,000 barrels per day and is expected to be operational in the second quarter of 2013.

And now phases I and II of our Cajun-Sibon NGL project will significantly expand our NGL platform. Construction of Phase I is underway and is expected to commence operations on schedule in the middle of 2013. And we just announced yesterday that we are proceeding with Phase II which will generate approximately twice the adjusted EBITDA of Phase I.

From a business diversity standpoint, we expect over 40% of our growth operating margin will be derived from crude, condensate and NGL businesses by the fourth quarter of 2013, which is essentially all fee-based. As a result, we project that over 85% of our gross operating margin will be derived from fee-based businesses in 2013, which includes gas gathering and transmission along with fee-based processing. This compares with 68% in 2008 and represents a substantial derisking of our business and improved predictability of our cash flow. We still have the option for additional processing if prices return to the more favorable level, but we're not planning on it for the upcoming year.

Now fast forward to the end of 2013, we expect an adjusted EBITDA run rate of $260 million to $290 million driven by the crude and NGL-focused growth projects. We then have the next step changed growth with the execution of Cajun-Sibon II in the second half of 2014 which we anticipate will contribute $75 million to $85 million to the annual run rate adjusted EBITDA. By the end of 2014, Crosstex will be a different company. We will be focused on crude and NGL business growth while still maintaining the growth optionality of our core assets.

Now let's focus on our NGL business and specifically Cajun-Sibon phases I and II by turning to slide 7. In Louisiana, we're transforming our business that has been historically focused on processing offshore natural gas to a business that is focused on NGLs with an abundant additional opportunities for growth.

Just to remind everyone, the Louisiana petrochemical market has historically relied on liquids from offshore production. However, the decrease in offshore production and increase in onshore rich gas production have changed the market structure.

Our growth projects are working to bridge the gap between supply which aggregates the Mont Belvieu area and demand in the Mississippi River corridor of Louisiana thereby building a strategic NGL position in the region. We began this transformation with a few small steps.

Last April we restarted the Eunice fractionator at a rate of 15,000 barrels per day of natural gas liquids. This is a pivotal asset for Cajun-Sibon I as we will expand this facility to a rate of 55,000 barrels per day. When Phase I of our pipeline extension project is completed, Mont Belvieu supply lines in East Texas will be connected to Eunice for a direct link to our fractionators in Louisiana markets.

We then continued to take advantage of our fractionation facilities optionality by bringing truck and rail NGL volumes from the Marcellus and Eagle Ford shales into Eunice and Riverside. This also includes bringing in volumes from our Mesquite terminal facility in the Permian region. These small steps laid the groundwork for the larger NGL expansion in Louisiana; Cajun-Sibon I and Cajun-Sibon II.

Now let's look at the map on slide 8 that shows Cajun-Sibon Phase I in detail. Construction is underway on this phase which includes a 130-mile, 12-inch diameter pipeline extension of our existing 440-mile Cajun-Sibon NGL pipeline system connecting Mont Belvieu to the Eunice fractionator.

The pipeline will have an initial capacity of 70,000 barrels per day for raw-make NGLs. When the Eunice fractionator is expanded from 15,000 barrels to 55,000 barrels of NGLs per day, this will increase our interconnected fractionation capacity in Louisiana to approximately 97,000 barrels per day of NGLs.

We began the Eunice expansion in the third quarter of 2012. We expect Phase I facilities both the pipeline and the expanded fractionation facilities will be operating by mid 2013. We anticipate that Phase I's annual run rate adjusted EBITDA contribution will be $40 million to $45 million. Phase I is anchored by a long-term ethane sales agreement with Williams Olefins, a subsidiary of The Williams Companies.

The Phase I NGL pipeline extension will originate from interconnects with major Mont Belvieu supply pipelines providing connections for NGLs from the Permian Basin, Midcontinent, Barnett Shale, Eagle Ford and Rocky Mountain areas to our NGL fractionation facilities in Southern Louisiana which provide access to key Louisiana markets for all components of the NGL barrel.

Now moving on to Cajun-Sibon Phase II. Rather than following along with me bullet by bullet on slide 8, it might be more beneficial if you looked at the map on slide 9 where I will review this project. Cajun-Sibon Phase II will enhance our Louisiana NGL business with significant additions to the Cajun-Sibon Phase I NGL pipeline extension and fractionator expansion.

Phase II will include the addition of four pumping stations totaling 13,400 horsepower that will facilitate increasing NGL supply capacity from Phase I's 70,000 barrels per day to 120,000 barrels per day, the construction of a new 100,000 barrel per day fractionator at the Plaquemine gas processing plant site, the conversion of our Riverside fractionator to a Butanes and heavier facility and the construction of 57 miles of NGL pipelines that will originate at the Eunice fractionator and connect to the new Plaquemine fractionator which will provide optionality to move purity products around the Louisiana liquids market. And ultimately the construction of the 32-mile, 16-inch diameter extension of LIG Bayou Jack lateral which will provide gas services to customers in the Mississippi River corridor replacing the conversion supply lines currently used by Crosstex for liquid service.

We have entered into a 10-year sales agreement with Dow Hydrocarbons and Resources. As part of the agreements, we will deliver up to 40,000 barrels per day of ethane 25,000 barrels per day of propane produced at our new Plaquemine fractionator into Dow's Louisiana pipeline system. We will also deliver 70,000 MMBtu per day of natural gas to Dow's Plaquemine facility.

We expect Phase II will be in service during the second half of 2014 with an annual adjusted EBITDA run rate of $75 million to $85 million as I said earlier. We currently estimate the total capital investment for both phases of Cajun-Sibon will be between $680 million and $700 million with a combined annual run rate adjusted EBITDA contribution of $115 million to $130 million.

Now turning to slide 11, the Cajun-Sibon projects not only represent a tremendous growth step by leveraging our Louisiana assets, they also create a significant platform for continued growth of our crude, condensate and NGL businesses. These projects along with our existing assets put us in front of a number of additional opportunities to grow this business.

These include the expanding market optionality and connectivity, upgrading products, expanding rail imports, NGL exports and expanding fractionation and product storage capacity. We have visibility to projects representing an additional $1 billion in capital investment opportunities and high return both on expansion projects.

Now I'll turn the call over to Mike Garberding, who will review our 2013 guidance.

Mike Garberding

Thanks, Barry. If you look at slide 13, we are providing preliminary low, midpoint and high guidance for 2013 that is based on a range of commodity pricing assumptions and other factors. We are forecasting that our midpoint 2013 adjusted EBITDA will be approximately 235 million and distributable cash flow will approximately 144 million. Depending on changes in commodity prices and other factors affecting the business, adjusted EBITDA could range from 220 million in the low side to 250 million in the high side.

Key growth drivers of the business are the start-up of Riverside Phase II crude terminal in the second quarter of 2013 which is expected to provide a run rate adjusted EBITDA of approximately $10 million per year, the start-up of Cajun-Sibon Phase I NGL expansion in midyear 2013 which is expected to provide a run rate adjusted EBITDA of approximately $40 million to $45 million per year, the continued expansion of our Ohio River Valley assets and a full year of operations from our Permian assets.

Commodity prices have continued to provide potential headwind to growth in certain areas, continued low gas prices have impacted drilling in both the Barnett and Louisiana. With the reduced rate count in these areas, we expect to see a decline in both our North Texas and LIG operations for 2013 as compared with 2012. We will go over this in greater detail at our Analyst Conference in late January. However, we believe these are strong businesses with great long-term value.

The commodity prices have also impacted our processing business. For 2013, we expect processing margin contracts to represent only 5% of our gross operating margin as compared with 19% in 2011.

Our guidance assumes a weighted average liquid price between $0.75 per gallon and $0.93 per gallon implying a Brent crude price between $95 per barrel and $117 per barrel. The weighted average liquid price assumes approximately 55% of the barrel is ethane. We've also assumed average Henry Hub gas prices of between $3.50 and $4.50 per MMBtu which implies a natural gas to liquids ratio between 189% and 302% for the year.

Assuming actual results are within the range of guidance, we expect the Partnership could pay distributions in the range of $1.36 to $1.46 per unit for the year and we expect that corporation could pay dividends in the range of $0.53 to $0.63 per share for the year assuming the receipt of a per unit distribution from the Partnership at the range I just stated. This represents around 15% distribution growth and 42% dividend growth for the year when comparing annualized fourth quarter is assuming the midpoint of guidance. You will note that we assume a coverage of 1.1 times in our midpoint estimate given the limited gross operating margin for commodity sensitive businesses.

There are a number of variables that could affect the payment of distribution and dividends and a payment and amount of any distribution dividend will be subject to approval by the respective Board of Directors and to economic conditions and other factors existing at the time of determination. Lastly, I just want to point out that the expected growth capital for 2013 is $465 million.

Slide 14 walks through our business growth trends. When you think about our business, we believe you will see a step change over the next couple of years to the growth projects that are well on their way to completion of future startup. I'm going to start with the right-hand box, growth capital expenditures. We have the opportunity to spend over $1 billion in growth capital through the end of 2014 on the projects that we announced. As Barry mentioned, the growth capital is being spent on crude, condensate and NGL projects that are focused on fee-based margin. This capital will drive increased EBITDA and distributable cash flow.

When we get to the end of 2013, prior to the completion of Cajun-Sibon Phase II, we expect to have run rate adjusted EBITDA of approximately 260 million to 290 million. This translates in decreased distributions and dividends which can be seen with the growth in distributable cash flow. And these capital expenditures will continue to derive growth in 2014 and beyond as Cajun-Sibon II comes online and as we have the opportunity to execute additional potential growth projects around these assets. The announced projects give good visibility to long-term growth.

So what does all this mean for distribution and dividends? As summarized on slide 15, we believe we should see good growth in 2013 and beyond. Under the midpoint of guidance, we expect 15% distribution growth and 40% dividend growth when comparing annualized fourth quarters of 2013 with 2012. This is consistent with the growth we have seen over the last four years of both the Partnership and the corporation with cumulative distribution growth of approximately 13% and cumulative dividend growth of approximately 28%.

We also expect to see continued distribution dividend growth in 2014 with the contribution of Cajun-Sibon Phase II. If you look at the Cajun-Sibon projects on a standalone basis and assume equal debt and equity funding, these projects could add between $0.75 to $1 on a DCF per unit basis. The distribution coverage is expected to come down compared with past years which we believe is appropriate given the reduced contribution for commodity based gross operating margin. As consistent with our practices in 2012, we plan to fund a growth capital with long-term debt and equity in general, equal proportions.

Now turning to slide 16, you can see the proportion of fee-based business continues to increase, mainly driven by the growth in our crude and NGL activities and the absence of contributions from opportunity processing. For 2013, we expect to have over 85% of our gross operating margin from fee-based business. This is increased from around 70% in prior years. We will provide additional color on this guidance during our scheduled analyst event in January. If you have questions or want more information about the event, please contact Jill McMillan or me.

Now I will turn the call back to Barry.

Barry Davis

Thank you, Mike. In closing on slide 17, I want to reiterate several top line messages that we'd like you to take away from today's discussion. The growth projects that are contracted and we are constructing are expected to drive what we believe will be significant growth in the second half of 2013 and beyond. By fourth quarter 2013, we expect over 40% of our gross operating margin will be derived from crude, condensate and NGL businesses, all of which will be fee-based.

We anticipate that the crude, condensate and NGL businesses will increase to more than 50% of our overall business in 2014. We project that the gross operating margin from all of our fee-based businesses will be over 85% in 2013. We estimate that Cajun-Sibon phases I and II will make an adjusted EBITDA run rate contribution of $115 million to $130 million. By the end of 2013, we expect a total adjusted EBITDA run rate of $260 million to $290 million which will be driven by our fee-based projects. And with the Cajun-Sibon enhancements, our Louisiana assets will provide a platform for significant complementary growth that could provide over $1 billion of additional capital investment opportunities.

Some time ago, we laid up the plan to expand our services and geographic reach. With the projects we have completed and announced, we will achieve these objectives. Our focus will be on the execution required to deliver these important growth projects and the continued execution of our plan. We look forward to spending more time with you in January at our Bank and Analyst events.

And now, I'll turn the call back to our operator and Mike, Bill Davis and I will be happy to answer your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is coming from the line of Paul Jacob, Raymond James.

Paul Jacob – Raymond James

Good morning, guys.

Barry Davis

Good morning, Paul.

Paul Jacob – Raymond James

I guess starting with the Cajun-Sibon Phase II project, do you expect that the full annualized EBITDA contribution of 75 million to 85 million is going to scale up over a period of time or do you think that once that project is operational, you're going to be close to full utilization.

Bill Davis

This is Bill Davis, Paul. We expected it to start basically at full capacity and continue at that level going forward. That would max it out. And with that project alone, without additional capital investment, you wouldn't see project cash flows increase.

Paul Jacob – Raymond James

Okay. Thanks for that. And then I guess on the guidance, on slide 13, just trying to get an idea of the assumptions that you used to lock down from EBITDA to DCF. I guess firstly, the one-time coverage at the low end seems a little bit conservative. Is the paid-in-kind agreement baked into those numbers? And then if you could, how much of your capital expansion and spending is baked into those estimates?

Mike Garberding

Thanks, Paul. First question on the paid-in-kind when we think about the distributions here, we're considering cash distributions, so we're not showing it to your point on a fully diluted basis as those don't convert until the beginning of 2014. And secondly, we do assume the funding of the capital which is the 465 million during the year like we mentioned under long-term financing.

Paul Jacob – Raymond James

Okay. And then as a follow-on, do you see any one-time items impacting the reconciliation from EBITDA to DCF or is it just as usual interest expense, maintenance and cash tax?

Mike Garberding

It should be consistent with what you saw in 2012.

Paul Jacob – Raymond James

Okay. And then how much of the guidance depends on – and you've mentioned this in prior calls recently, some of the opportunities related to offshore Gulf of Mexico that you see and maybe some of the onshore emerging shale plays around Louisiana sites?

Bill Davis

Well, this is Bill again. We do have contracted a new packaged gas in the Pelican from the Gulf and it's a relatively small piece of the guidance right now. From the Gulf of Mexico we are watching closely some developments in the Gulf that we're optimistic could be beneficial to us but they're not currently in the guidance. And with regard to developments around some of those shale plays in the Louisiana, I think we're staying in close touch with producers. They are still working to try to crack the code there that we're seeing.

Paul Jacob – Raymond James

Okay. Thanks for the color. I appreciate it.

Barry Davis

Thank you, Paul.

Operator

Your next question is coming from the line of Gabe Moreen, Bank of America/Merrill Lynch.

Gabe Moreen – Bank of America/Merrill Lynch

Good morning, everyone.

Barry Davis

Good morning, Gabe.

Gabe Moreen – Bank of America/Merrill Lynch

Don't want to preempt the Analyst Day in January but just had a couple ones on guidance if I could and congrats on getting Cajun-Sibon Part II signed and agreed upon but just was wondering besides commodity prices, are there other key variables I guess that are moving around between the low point and the high point of your guidance, whether it's volumes on some of our systems (inaudible) also volumetric assumptions there or is it just really holding volumes consistent and commodity pricing being the same factor?

Mike Garberding

Yeah, thanks Gabe. The main difference is commodity prices but as you know in every business, there are things that could change during the year. But let's use January so it really goes for each of the businesses at a deeper level.

Gabe Moreen – Bank of America/Merrill Lynch

Okay. Then I'll try to follow-up with this one too, Mike, then just in terms of obvious exposure to absolute commodity prices but whether at Riverside or the Ohio business, is there a lot of sensitivity just I guess and if you can speak to it at a 10,000 foot view level, just the sensitivity to crude oil spreads in terms of baked into your guidance were there at any of your other assets on the crude side?

Mike Garberding

When we think about Ohio just like when we announced that acquisition, the Ohio assets are fee-based as far as just really on the logistics standpoint moving the barrel. So we don't have that commodity exposure in Ohio.

Gabe Moreen – Bank of America/Merrill Lynch

Okay. I'll look forward to more color at the Analyst Day. Thanks very much.

Operator

Your next question is coming from the line of Sharon Lui, Wells Fargo.

Sharon Lui – Wells Fargo

Hi. Good morning.

Barry Davis

Good morning, Sharon.

Sharon Lui – Wells Fargo

A question, you indicated that the guidance does account for declines in North Texas and the [Lake]. Just wondering what's the magnitude in terms of the midpoint of your guidance that you're assuming?

Bill Davis

I would assume we'll go into a great detail with that in the January call. What we're seeing in Louisiana next year I think is about a $3 million drop in our [FTE] contract levels and in North Texas, the dry gas areas are declining at the normal long-term rate for those wells given the lack of drilling offset by some increases that we're seeing in the rich gas areas.

Sharon Lui – Wells Fargo

Okay. And I guess for North Texas, does the guidance include the recontracting of that contract, the short – the one that rolled over to short term?

Bill Davis

It does include that assumption but that's not a huge piece of the guidance.

Sharon Lui – Wells Fargo

Okay. And then in terms of the potential growth opportunities tied to Cajun-Sibon, you indicated that's approximately 1 billion. Can you maybe talk about what type of projects you're looking at and whether it's primarily fee-based?

Barry Davis

Yeah, Sharon, first of all, what's really driving that is an expanded asset base there and simply the fact that we're touching more product and the opportunity to provide more services, I would say categorically or conceptually it's all about optimizing and kind of creating additional margins along the value chain. We're not going to comment – I think that will be a big focus for us in January to give you a better feel for that, but if you can think of just expanding services, the connectivity of our facilities, upgrading products, importing more products as we said kind of categorically, those are the areas it will be focused on. The important thing to note is that it all is synergy or bolt-on type expansion, high return projects that we are focused on and we have the great luxury of being focused on for the next couple of years.

Sharon Lui – Wells Fargo

Okay. And is any of these opportunities baked into your CapEx guidance already for…?

Barry Davis

No.

Sharon Lui – Wells Fargo

No, okay, great. Thank you.

Barry Davis

Thank you, Sharon.

Operator

(Operator Instructions). Your next question is coming from the line of Helen Ryoo, Barclays.

Helen Ryoo – Barclays

Good morning.

Barry Davis

Good morning, Helen.

Helen Ryoo – Barclays

A few more on the Cajun-Sibon projects. So the combined EBITDA run rate of 115 to 130 that's between the Phase 1 and Phase 2, how much of that EBITDA has volumetric exposure versus take-or-pay?

Bill Davis

The take-or-pay nature of the contracts generally ranges between 85% to 90% of the minimum of the stated value. Does that make sense?

Helen Ryoo – Barclays

So would you say take-or-pay portion would be 85% to 90% of the 115 million to 130 million EBITDA? Is that sort of...

Bill Davis

Yes, that's a good way to think about it.

Helen Ryoo – Barclays

Okay, great. That's very helpful. Thank you. And then in terms of the capacity, the total 120,000 barrels per day capacity that's been contracted out, you did indicate you had 40,000 with ethane contract with Dow, 25,000 with – propane contract with Dow and then you did have some Williams contract on the Phase I. Could you remind us what was the Williams piece and then of the remaining contracts with other customers?

Bill Davis

Well, Williams contract is for 20,000 to 25,000 barrels a day for five years on the ethane supply. And then with regard to other products, we have a variety of markets that we're very comfortable with for the butanes and the natural gasoline.

Helen Ryoo – Barclays

Okay. So, I guess just adding the 40, 25 and 25, that's 90 and the remainder I guess 30 has been contracted out with other parties?

Bill Davis

Well, the key to these projects is contracting the ethane. And then, of course, in the case of Cajun-Sibon II, we've got a substantial propane supply contract. The other products, we feel very comfortable with the marketplace in Louisiana and where they're going to be disposed off, and we're working with a variety of markets to enter into long-term contracts there. We have agreements in principle on those, and we're working to finalize them.

Helen Ryoo – Barclays

Okay, great. Thank you. And then just lastly, in your guidance, just using the midpoint of your EBITDA to DCF, it seems like the implied interest expense is $77 million for next year. And that's a bit lower than your third quarter annualized run rate. Could you talk about your interest cost or that balance assumption behind that, for the guidance?

Mike Garberding

Yes. We'll give more – thanks, Helen. We'll give more detail on that. But when you think about the interest expense, it's really the two notes we have. Then again our revolver is utilized for a lot of the debt capital this year at a lower rate, plus you take into consideration your capitalized interest you'll have on the main projects.

Helen Ryoo – Barclays

Okay, all right. Thank you very much.

Barry Davis

Thank you, Helen.

Operator

Your next question is coming from the line of (inaudible).

Unidentified Analyst

Good morning. Thank you. For your 2013 guidance for the Crosstex Inc. business, what is your assumption for the tax rate on a C Corp level?

Mike Garberding

[Lin], I'm sorry we didn't hear...

Unidentified Analyst

What kind of tax -- income tax rate for the C Corp assumption you are using for the 2013 guidance?

Mike Garberding

For 2013, right now we still are in a position where we're not paying taxes at Inc. And like we said in the last call, we expect over the next two, three years, we'll continue to be in that position not only with the tax loss carryforwards we have up there, but also the allocation to depreciation.

Unidentified Analyst

Okay, got it. Thank you very much.

Barry Davis

Thank you and I appreciate it.

Operator

Your next question is coming from the line of John Edwards, Credit Suisse.

John Edwards – Credit Suisse

Good morning, everybody.

Barry Davis

Good morning.

John Edwards – Credit Suisse

Just kind of following on Sharon's question, out of roughly $1 billion of additional capital investments you're looking at, what time period do you think those would hit? Would it be the next couple of years or do you think it would be further out in the future, if you can just give a little flavor for that?

Bill Davis

Well, as always, those are going to be subject to the commercial negotiations. And negotiations always involve other people that you really don't have control of. But I would say in general, the timeframe for seeing that money start to get spent is probably the 2014, 2015 timeframe.

Barry Davis

And John, I would say that those projects are along the lines of what we typically talk about as the generic capital projects that we're always working on. I would say the $1 billion of backlog or project opportunities is not inconsistent with what we always have kind of in the pipeline. And as you can see, what we've done in the last couple of years, I think this would represent the capital project opportunities beyond what we've currently gotten defined. So as Bill said, 2014 and beyond.

John Edwards – Credit Suisse

Okay. And then if you could just give a little color on – I mean this is quite a step up I think from in the past with regards to how many – what kind of growth opportunities are under a consideration list, if I recall anyway. And maybe if you can just give a little granularity on what do you attribute the increased opportunities from your standpoint?

Barry Davis

Yeah. John, I would say we agree with you. That's why we're excited about the communication that we've been able to give today and yesterday. It does represent a major accomplishment on our part of expanding our asset base not only geographic diversification, but overall scale. As we've said, we felt like we had an asset base that would allow us to grow from. But as we expand it, we will continue to see additional opportunities. So we agree with you. It is a huge step forward for us.

And I'd say one of the reasons that we've been able to execute that, in addition to strategically located assets and great people developing these commercial opportunities, has been the robust NGL market that we're in. The huge influx of NGLs arriving at Mont Belvieu over the next couple of years created the opportunity for us to bridge over to Mont Belvieu and bring those products into South Louisiana. So I applaud the efforts of our commercial development teams to make that happen and then also the environment that we operate in. It's a great time for us.

John Edwards – Credit Suisse

Okay, thanks.

Operator

At this time, I'm showing no further questions in queue. I would like to turn the call back over to Mr. Barry Davis for any closing remarks.

Barry Davis

Thank you, Derrick. And again I think the – maybe I just gave the closing. This does represent a great day for us in terms of our step forward in the diversification and scale that we've been executing on now for the last two to three years. We believe this is a beginning of communication to you that will continue in our January Bank and Analyst meetings. We look forward to sharing more details with you around these projects and our plans forward beyond the defined projects.

So again, as always, we thank you for your support. Thank you for your participation in the call today. We look forward to talking to you in January and hope you have a great holiday if we don't talk to you between now and then. So have a great day. Thank you.

Operator

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.

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