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Executives

Alyson Gilbert

J. Michael Stice - Chief Executive Officer of Chesapeake Midstream GP L L C President of Chesapeake Midstream GP L L C and Director of Chesapeake Midstream GP L L C

David C. Shiels - Chief Financial Officer of Chesapeake Midstream GP L L C and Principal Accounting Officer of Chesapeake Midstream GP L L C

Robert S. Purgason - Chief Operating Officer of Chesapeake Midstream GP L L C and Director of Chesapeake Midstream GP L L C

Analysts

James Spicer - Wells Fargo Securities, LLC, Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Paul Jacob

Heejung Ryoo - Barclays Capital, Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Brett Reilly - Crédit Suisse AG, Research Division

Access Midstream Partners, L.P. (ACMP) Q1 2013 Earnings Call May 1, 2013 9:00 AM ET

Operator

Good morning, and welcome to the Access Midstream Partners 2013 First Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the call over to Ms. Alyson Gilbert in ACMP Investor Relations. Please go ahead, ma'am.

Alyson Gilbert

Thank you, Kyle. Good morning to everyone. Thanks for being with us this morning as we discuss our first quarter results. With me today are Mike Stice, Chief Executive Officer; Dave Shiels, Chief Financial Officer; and Bob Purgason, Chief Operating Officer.

Please note that if you do not have a copy of the press release issued yesterday, please visit www.accessmidstream.com, where you will find it in the News section.

Today's discussion will include information regarding non-GAAP financial measures such as adjusted EBITDA and distributable cash flow. Please refer to the Investor Relations section of our website for SEC-required reconciliations of these measures.

Finally, today, we will discuss forward-looking statements that give our current expectations or forecasts of future events. They include, but are not limited to, estimates of expected volumes, future operating expenses, planned capital expenditures and anticipated asset acquisitions and sales. They may also include statements concerning anticipated cash flow, liquidity, business strategy and other plans and objectives for future operations. Although we believe the expectations and forecasts reflected in these forward-looking statements are reasonable, we can give no assurance they will prove to be correct. Please see our 2012 Annual Report on Form 10-K for a listing of factors that could cause actual results to differ materially from expected results.

With that, we'll get started, and I will turn the call over to Mike.

J. Michael Stice

Thanks, Allison, and good morning, everyone. We appreciate you being with us today. Dave and I will start with some prepared remarks on our first quarter results, and then Bob will join us in answering any questions you may have.

2013 is an important year of transition, growth and integration for Access Midstream. We are simultaneously separating our back office services from Chesapeake while executing on a $1.7 billion capital program. The combination of these activities results in a standalone company with an unprecedented growth story. At the same time, we continue to expand and enhance the level of service we provide to our producer customers. Earlier this year, we moved our corporate headquarters from Chesapeake's campus to 2 newly renovated buildings in Oklahoma City. As you might imagine, a lot of work is necessary to transition the tools and capabilities our employees need to continue to operate effectively. We programmatically monitor our transition progress, and we are currently 68% complete on over 950 individual tasks necessary to complete this transition. Our current schedule anticipates completion of the transition by year end.

We have an outstanding group of over 1,250 employees who have made this transition a very productive exercise while continuing to deliver on both our customers' expectations and our aggressive growth. Integration of the assets acquired from Chesapeake at the end of 2012 is another critical success factor in 2013. We acquired assets in the Eagle Ford, Utica and Niobrara basin and added to our asset position in the Marcellus, Haynesville and Mid-Continent regions. I'm pleased to report that the integration of these assets is complete and that each of these additions is performing as we expected. The assets in the Eagle Ford contributes significantly to Access' financial results today, as we connected 119 new wells to our gathering systems in this region during the first quarter alone. We will continue to have significant construction in this area for a number of years. The Utica region is still very early in its life cycle, but our ongoing construction projects in this area will contribute to our distribution growth for many years to come. I recently returned from a field tour of the Utica, where I visited both the gathering assets in our Cardinal joint venture and the processing and fractionation assets in UEO joint venture. I am proud to report significant progress on the construction of these world-class facilities. All of the construction activities in the Utica remain on time and on budget.

One other noteworthy transformation at Access is the addition of Williams to our team. Williams' acquisition of 50% of Access' general partner in December of last year gives us a partner that brings leading midstream operational and asset development capabilities, as well as deep expertise across the midstream value chain. We continue to benefit from the active engagement and support of our sponsors, GIP and Williams. As I mentioned on the last call, we added 3 new board members from Williams: Alan Armstrong, President and CEO of Williams; Don Chapel, Senior Vice President and CFO of Williams; and Jim Shiel, Senior Vice President of Williams. We had our first board meeting with the new directors in attendance in March, and I'm excited about the structure of the board and the contribution each of our board member makes. We continue to have a board that is very engaged in our business, and one that demands a best-in-class corporate governance structure.

Dave is going to discuss the financial results in just a minute, but I did want to note the recently announced increase in our distribution. The increase of $0.0175 per common unit is the largest increase in Access' history and is a direct result of the growth that continues to be generated by our business. As we execute on the operational opportunities I discussed earlier, we expect to sustain a solid distribution growth of at least 15%.

Finally, we just completed National Safe Digging Month in April, and I wanted to take this opportunity to ensure everyone is aware of the national 811 phone number. I know many of this -- of you on this call do yard work and other projects where digging may be necessary. If you will call 811 from anywhere in the country, 48 hours prior to digging, your call will be routed to the local one-call center. Just let them know what type of work you'll be doing, and they will send a locator to mark the location of all of the underground lines, pipes and cables in the area in which you plan to work. You'll then be able to execute your project safely. In many states, underground lines and pipes can be found as little as 18 inches below the ground surface, even in residential neighborhoods. Dialing 811 will help to ensure you avoid potential injury and from accidental contact with these underground obstacles. Please make this important call to ensure your safety and the safety of the general public around you.

With that important safety tip, Dave has some commentary on our first quarter financial results, and then we'll take questions. Dave?

David C. Shiels

Thank you, Mike. Good morning, everyone. I'm very pleased with our financial results from this year's first quarter. Mike mentioned how important execution is to Access this year, and we continue to execute on our operational and financial opportunities. I expect to continue to see positive results that are consistent with our public guidance.

First quarter 2013 adjusted EBITDA was $184 million, an increase of $66 million or 56% compared to the 2012 first quarter. Distributable cash flow was $131 million in the 2013 first quarter, up 55% compared to the 2012 first quarter. Resulting distribution coverage for the first quarter was 1.40x.

Gathering volumes for the first quarter totaled 3.55 Bcf per day, an increase of 27% over the 2012 first quarter. As a reminder, these throughput amounts include volume from our equity investments, primarily in the Marcellus, but revenue does not include Marcellus results. All of the revenue and expense impacts from our equity investments are included in the income from unconsolidated affiliate line on the income statement. Revenue for the first quarter was $237 million, an increase of $82 million or 53% over last year's first quarter. If we included revenue from equity method joint ventures in the revenue line on the income statement, our consolidated revenue would've increased 55% versus first quarter last year. Total CapEx spending was $408 million during the first quarter with 220 wells connected. The primary drivers of capital spending were: Utica, where we spent $160 million; the Marcellus, where we spent $93 million; and the Eagle Ford, where we spent $82 million. Our capital expenditures in the first quarter were in line with our expectations and consistent with our total year public guidance of $1.6 billion to $1.7 billion for 2013.

The Eagle Ford is the most mature of our new regions, and the capital spent in the Eagle Ford helped connect 119 new wells to our gathering systems in the first quarter. Eagle Ford throughput in the first quarter averaged 228 million cubic feet per day, generating revenue of $58 million. Marcellus throughput averaged 863 million cubic feet per day for the first quarter net to ACMP's interest, an increase of 50% year-over-year. While a small amount of this volume is attributable to the new Marcellus assets acquired in December 2012, the vast majority of the throughput is related to our equity investment in the Marcellus. Chesapeake continues to exceed its EBITDA commitment for the Marcellus equity investment. Therefore, we did not recognize any revenue associated with this commitment in the quarter.

In the Barnett Shale, average throughput decreased from 1.28 Bcf per day in the first quarter last year to 1.07 Bcf per day this year due to a decrease in drilling activity by Chesapeake and Total. We have updated our forecast throughput for the remainder of the year, and based on that analysis, we expect to record revenue associated with our contractual minimum volume commitment in the Barnett of between $35 million and $40 million in the fourth quarter this year.

We have used the low end of this range to adjust EBITDA for 25% of the expected shortfall, or $8.75 million, as we don't record revenue associated with MVCs until the end of each year.

Haynesville throughput averaged 770 million cubic feet per day in the first quarter, an increase of 86% compared to the 2012 first quarter, as volume from the Mansfield System acquired in December of last year more than offset a volume decrease in the Springridge system. Cost management continues to be the focus in the dry gas regions like the Haynesville, where we have seen reduced activity by our producer customers. Mid-Continent average throughput was 559 million cubic feet per day, a 5% increase compared to the first quarter 2012. A combination of the 2.5% annual fee escalation and rate redetermination effective January 1, 2013, generated a 28% revenue increase in the Mid-Continent.

On April 26, we announced an increase in our quarterly distribution from $0.45 per common unit to $0.4675 per common unit. The $0.0175 increase is a step up from the $0.015 increases we'd made each of the past 4 quarters. The distribution represents an increase of 15.4% versus the first quarter last year and a 3.9% increase versus the fourth quarter last year. The distribution will be paid on May 15. As mentioned earlier, our DCF provided a strong distribution coverage ratio of 1.40x.

In support of our 2013 funding plan, we completed a very successful offering of our common units in April, and the demand from both institutional and retail investors continues to show strong support for our leading organic growth opportunities and low-risk business model.

One final note. As a result of the asset acquisition in December of last year and the resulting addition of 3 new operating basements for Access, we have determined that we will need to begin reporting geographic segments in our SEC filings effective January 1 of this year.

Accordingly, you'll see some additional regional detail in the 10-Q that we expect to file in the next few days.

Operator, we would like to open the call for any questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from James Spicer with Wells Fargo.

James Spicer - Wells Fargo Securities, LLC, Research Division

In the -- just to start off in the Haynesville, I was wondering if you could provide a volume breakdown between the Springridge and Mansfield systems? And then just wondering if you had a sense of where you expect volumes out there to stabilize?

J. Michael Stice

Yes, James, we read your comments, and directionally, you're correct. We have not provided, historically, a breakdown, especially going forward between the 2 assets, Springridge and Haynesville. But we can speak to the comments that we made at the end of last year. I mean, directionally, the Haynesville is off per your comments. We had an exit rate of roughly 590 million cubic feet a day in the Haynesville-Mansfield, which was in the CMO asset that we quoted. And those numbers were down to 460 million, which is 130 million a day off, so that's consistent with, I think, directionally what you were seeing. Now that's offset by increases in volumes in the Eagle Ford of roughly 80 million, resulting in a -- if you just wanted to look at the CMO assets alone, they're down roughly 50 million a day in total compared to where they were when we announced at the end of the year. Is that helpful to you, James? Because I thought that was what you were after.

James Spicer - Wells Fargo Securities, LLC, Research Division

Yes, and that's definitely helpful. Do you think that you'll realize any MVC revenue from the Springridge system this year?

J. Michael Stice

No, we don't think so. They're going to be operating above that. As you know, they've over-delivered in the Springridge, and that's resulted in an MVC on total Bcf days for 2013 of 135. And we believe they're going to be operating well above that for the year 2013.

James Spicer - Wells Fargo Securities, LLC, Research Division

Okay, great. Then next in the Marcellus, looks like you had some good well connects, increases and compression in horsepower. I was a little bit surprised that you didn't see a bigger uptick in volumes from Q4. Just wondering if you could talk to that a little bit.

J. Michael Stice

Well, we actually had it -- an awesome -- in fact, we set a record again yesterday. We [indiscernible] set weekly records in the Marcellus norm. They were, for flowing, grows 1.88 bcf a day. But keep in mind that our net ownership in that is 47%. So when we see that we show a net number as we're going -- we connected 32 wells this quarter. That brings the total wells connected to Marcellus to 1,502. Which -- and when you consider the volumes in the net, it's 863 million cubic feet a day for the first 3 months of 2013. That is an incredible number. It's a pretty exciting story there in the Marcellus. I think we're over 30% of the state's production just in those 2 counties alone. So sorry that you weren't impressed, because we are.

James Spicer - Wells Fargo Securities, LLC, Research Division

Okay. Now I was just looking -- I thought that your throughput in the -- for the fourth quarter was 859 million cubic feet a day, and it's 863 million in the first quarter.

J. Michael Stice

Look, and it's your fourth quarter, 859 number. Yes, that's 8 -- yes, that's actually, we're -- our exit rate right now is 884. And -- so maybe we're looking at the averaging of the quarter. And you're about right, run 860 exiting December 31, and now we're at 884 million a day, 3/31.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay, got it, got it. Okay. And then last question for me. Just wondering, the Mid-Con, that last Mid-Con asset that you were looking at acquiring from Chesapeake, it looks like it was sold to SemGroup, announced this morning. Just wondering what happened there? And where you're looking next for your next acquisition?

J. Michael Stice

Yes, thanks, James. I appreciate the opportunity to answer that question. I think everybody on the phone knows that we had that asset under exclusivity until March 1. And we presented an offer on that date, actually. Chesapeake elected to do an RFP and take advantage of this highly competitive region in Oklahoma. I think most people familiar with Oklahoma know that there's a lot of overlapping assets in a quite competitive field. We were graciously given the opportunity to refresh our bid, and so we did 2 weeks ago, but the cold hard truth of it is we lost. And it was an asset I was interested in, and I'm disappointed we didn't get it. But at the same time, I have a commitment to my unitholders to bid what I think is an accretive transaction if it's an attractive deal. I've already congratulated Norm at SemGroup for buying these assets. I think it's a very good position there. But we feel like we're given due diligence -- fair due diligence and fair consideration, but we did not win.

Operator

Our next question comes from TJ Schultz with RBC Capital Markets.

TJ Schultz - RBC Capital Markets, LLC, Research Division

I guess first on the assets acquired in December. I guess, last quarter, you had given about a $6 million impact through 12 days, so we had a pretty good run rate. And if I'm looking at it right, it looks like the first quarter was a bit better, so we had a good initial read. Is this due to volumetric upside at this point? Or are these contractual mechanisms that provide some minimum level of cash flow for these earlier stages as they ramp?

David C. Shiels

TJ, I guess the way I would put it is that the volumes continue to grow and those assets, with the exception of Haynesville, has been pointed out. So the well connects, that Mike mentioned, in the Eagle Ford. The Utica action hasn't really showed up in volumes yet because we're waiting on processing capacity, but we connected a lot of wells, deployed a lot of capital. And that the Eagle Ford is really our big addition here in terms of financial contribution in the first quarter, and we're very pleased with the results.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Good. I guess, just lastly, I want to go back to the Marcellus. I understand you have the EBITDA kind of guarantee through this year, but can you provide any color on kind of your expectations for the ramp there in volumes through the year? What we could expect as an exit rate this year? Or really, as we exit 2013, your confidence level? I think your fourth quarter this year, EBITDA guarantee is $45 million, so just your expectation to kind of be at that run rate by the end of the year?

J. Michael Stice

Yes, I think we're actually ramping up nicely, and we're expecting -- those predictions, the 100 in 2012 and 150 in 2013, have been spot on. And so it's our expectation that we'll end the fourth quarter right where we need it to be. Your math is correct. And we're seeing the volume ramp and the -- via the contractual mechanisms that calculate the cost of service fees, are all lining up right in line with that. So we don't think that, that guarantee will actually be triggered in the Marcellus because of the results that we're seeing at the well head.

Operator

Our next question comes from Sharon Lui with Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

With regards to your CapEx budget, just looking at the allocations for the regions, can we anticipate that it will be similar to, I guess, first quarter type of spending?

J. Michael Stice

Sharon, it's going to vary a little quarter-by-quarter. But I'd say it's as good a guide as you've got, and not far off of what's happening. It's on a go-forward basis. But we're not going to give you the breakout kind of forecast quarter-by-quarter in the future. But this is a good indication of the level of activity. Eagle Ford and Utica are the 2 big areas with a lot still going on in the Marcellus. And that's going to continue to be the story.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And with regards to, I guess, the MVC in the Barnett, is the expectation for volumes to remain relatively level with the first quarter to get to that $35 million to $40 million run MVC number?

J. Michael Stice

Sharon, there are going to be some completions in the well connects during the rest of the year, and they'll mostly be offset by natural declines. And that's kind of why Dave talked to that analysis that we've done on a very conservative basis in our adjusted EBITDA. So it's good and solid, but as you know, producers are not doing a lot of dry gas drilling right now. And our contracts protect us from the outcome of that, but it should continue to perform, as we indicated.

David C. Shiels

And Sharon, I would just comment, in addition, that you're really asking for a gas price forecast because one of the areas, Barnett and the Haynesville, 2 dry gas positions, they can be ramped up very quickly if gas prices were to return. And I know for a fact that both Chesapeake and Total in the Barnett would be very interested in mitigating any kind of MVC payments if they saw the economics to do so. And so you could see a change in behavior this year if gas prices return.

Operator

Our next question comes from Paul Jacob with Raymond James.

Paul Jacob

In terms of CapEx, I just wanted to see if you could provide a little bit of color. I know you had a prior range prior to this latest series of acquisitions, and I was just wondering if, for the legacy assets, that range is still in effect so that we could expect maybe $1.1 billion of CapEx this year on the newly acquired assets. Is that the way to think about it?

J. Michael Stice

I think, fundamentally, that's the right way to think. I mean, we're still at this growth cap of 1.8-ish or so around that with -- including our maintenance cap of $101 million, so...

David C. Shiels

$110 million.

J. Michael Stice

Or $110 million, yes. So we are right on where we are guiding to and expect to get this capital in the ground this year.

David C. Shiels

Yes. And Paul, we gave that split between the legacy business and the acquired assets when we announced the transaction in December. Nothing materially different from that. So I think that's what you're looking for. So, yes, I mean, we're still consistent with that. You can see the current burn rate in what we're reporting by basin, and you'll see that in the 10-Q. And while I'm commenting on that, I wanted to make one correction. In my prepared remarks, the Utica CapEx is $123 million for the quarter, and I said $160 million. So just please make sure you make that correction. $123 million for the Utica.

Paul Jacob

Okay. And then in terms of assessing the CapEx program, I've seen the release, that you put in there a non-GAAP number. And I was just curious, could you outline exactly how that ends up being different from the reported value?

David C. Shiels

On the CapEx?

Paul Jacob

Yes, yes. It was the $400 million, and I think in the cash flows it was a little bit below that on the investment line.

David C. Shiels

Yes. So the $400 million is all-in, including the equity investments. We just have to provide a reconciliation of what's coming from the equity investments versus what's coming from the consolidated.

Paul Jacob

Okay. And then last question for me. Could you give a sense for the future well connect expectations in the Eagle Ford?

J. Michael Stice

It's one of the more active areas that we've got. We don't project well connects, per se, but there's an enormous amount of activity, specifically when we look at the WOPL count real quick. But as you guys are aware, that within ACMP, we have a total of 410 -- 465 WOPLs. If you did look at the Eagle Ford alone, there's 92. So we've connected 119 wells in the first quarter. They're actually out-drilling us. So they're adding to the WOPL list they made for -- [indiscernible] was taken away for a little while. But we're coming back. And so I think you can see a steady increase in the wells connected in the Eagle Ford.

Operator

[Operator Instructions] We'll take the next question from Helen Ryoo with Barclays.

Heejung Ryoo - Barclays Capital, Research Division

First question is, with the Chesapeake field now no longer under consideration, I guess, what are you seeing in the M&A market? And what is your appetite to do other deals at this point?

J. Michael Stice

Well, obviously, we've not guided to any M&A activity and nor did we guide to the Mid-Continent. The Mid-Continent was not in any of our numbers. And so, as you know, with our large acquisition at the end of 2012, we -- our cup runneth over with execution capital opportunities that will lead to the distribution growth that generates, obviously, quite a bit of wealth for our unitholders. Specifically, though, there are -- this is a very active M&A market. There are a number of transactions that have come up in and around -- I call them the bolt-ons. You've heard me talk about that before, Helen. Bolt-ons in the Marcellus, bolt-ons in the Utica, bolt-ons in the Eagle Ford. Interesting conversations going on around consolidation in areas of dry gas. We're interested in all of those M&A deals where they integrate nicely with our current footprint. We were interested in the Mid-Continent. Don't get me wrong, I wanted that deal, but I wanted it at a price that I could make it attractive to my unitholders. So it's so important to appreciate that we're going to be very active in that bolt-on area. Where we're not going to go, Helen, is that we're not going to be branching out into regions where we don't have a presence. Frankly, we don't need to do that. We have the current portfolio of assets that, if we just execute on it, we can deliver on that predictable cash flow that we speak to. So I do not plan to expand out on some of these larger M&A deals you hear about in the Bakken and other locations where we're not. But I think you will see us have an appetite for these bolt-on deals, and we are, daily, evaluating things like that.

Heejung Ryoo - Barclays Capital, Research Division

That's very helpful. Another question I had was, you started providing the operating data for these new assets you acquired, especially Eagle Ford, Niobrara and Utica, and are you able to comment on what kind of fee per M you're making on these systems? And if it's difficult to give a rough number, I guess, directionally, how does it compare with your other -- your legacy systems?

J. Michael Stice

Well, I think, as you know, the contractual mechanism varies by region. And the mechanism we tend to rely on, whether it would be fee redeterminations or cost of service, that mechanism creates a fluctuating fee base, so you end up with a fee that gets calculated. In some cases, we're doing it in the Eagle Ford as we actually build it with a kind of a tiering system. In other cases, it's a year lag where they go look back at the capital and the volume and adjust accordingly. So we don't actually quote the fees that are in there. My guess is, as we start to give out the segment data, it won't be difficult for you to calculate it. It's revenue divided by volume. So Dave, you have any other comments?

David C. Shiels

No. Helen, we've always provided revenue and throughput in the 10-Q by basin. That will continue, and we've added the new basins to the 10-Q that we will file here in the next few days. And what you get there, obviously, is an average fee, right? So we have multiple systems within the Eagle Ford, for example. So what you're going to see is total volume, total revenue, average fee, if you want to do that math. But it does vary system-by-system within the basin. So just be careful with that.

J. Michael Stice

Yes, and there's a function of levelized rates in that math, and there's also a function of, in inventory assets where the capital is being spent and the volume's not there yet, you end up with higher-than-normalized rates, and then over time, they come down. So just be aware that, that phenomenon will be evident to you.

Heejung Ryoo - Barclays Capital, Research Division

Okay, great. And then just a last question. I guess, in Utica, you're building, I guess, 4 processing plants currently. And just could you talk about the takeaway options you're considering, whether you have committed to certain projects or what you're looking for there?

J. Michael Stice

So the way we're structured, as you know, is that we provide the producers the service. And we're doing the processing and fractionation under our UEOM joint venture with Momentum and Enervest, and Momentum is the operator. I mentioned I just came back from there and was quite pleased with the progress there. The producer then takes the commodities, whether it be liquids or gas, and they're accountable for the takeaway options. Now obviously, we've worked hand-in-hand with the producer community to make sure that we'd located our facilities in places that give them access to market. In the case of the Kensington facility, we've built a world-class rail yard and corresponding storage. I'm sorry, Harrison is where the fractionation is. And then processing is at Kensington, where that's going to be a world-class. Three of its 4 trains will be built there at 600 million a day, and that's got the location for the proper residue offtake that the producers were looking for. So you can go and look at each one of those locations, and each of them has been designed to give the deliverability, if you will, of residue and NGL takeaway. And as you know, the producer community is in talks with a variety of different NGL market takeaway opportunities, whether it be ATEX for the ethane or whether it be Bluegrass for wide-grade, or whether it be locally fractionated and delivered product via rail. So there's a variety of different projects going on to determine how to optimize that net back for the producer.

Operator

Our next question comes from Ted Durbin with Goldman Sachs.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

So my first question was just on the expense line, actually. So we've got revenues up, I think 53% year-over-year, but expenses are up 70%. And it looks like kind of on a sort of dollar-per-M basis, $0.26 versus $0.19, if my math is right. So I'm just wondering if -- where it's sort of a new higher level of OpEx per M, or is there anything kind of funny happening in the first quarter here?

David C. Shiels

Well, I think, first of all, Ted, it's a difficult analysis when you're booking a very large chunk of your EBITDA as an equity investment. So when you look at it on a net consolidated basis, we're actually very consistent with prior year. And there's very little movement on a cents-per-M basis. So unfortunately, that is the GAAP accounting, and that's what you'll see. But on a net-consolidated basis, there isn't any material change. But as reported, yes, what you're seeing today is what you'll -- similar to what you'll see in the future.

J. Michael Stice

And actually, we are seeing some benefit as well. I mean, I mentioned in my prepared remarks the transition effort, Ted. We're actually seeing some really unique opportunities as we transition away from Chesapeake's back office. And that's going to result in some G&A savings. I think, initially, we thought that we would benefit from the incremental analysis of paying Chesapeake to do our back office. The technology has moved so great that now we're making new choices with new technology for data centers, et cetera. We're actually going to see a reduced G&A. And so I'm excited about that as a part of our transition effort. I'll be frank, I think it was unknown until we got into the details. So I actually expect to see our G&A improve from prior year.

Robert S. Purgason

But just going back to Dave's point on the way things are shaping up, right. Our volume growth area is Marcellus, which is accounted for in the equity method. Our volume declines in the Barnett and the Haynesville are what you're seeing in the consolidated financial numbers. So it's just the way the equity accounting drives us, but not a reflection of the business performance.

J. Michael Stice

But we monitor that OpEx per Mcf very closely in the EBITDA margin, which is a function of EBITDA per revenue dollar. And that's a very important metric for us as operators, and we're seeing very consistent, very good margins across all of our basins.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Great, that's really helpful color. And then just coming back to sort of the Utica and thinking about the ramp of the cash flows relative to the CapEx you're spending, maybe just walk us through again on kind of how that -- how you're seeing that shape up through '13 and then '14. Is there going to be a fairly big lag as things kind of leg in as the capacity comes online?

J. Michael Stice

Yes, I think you're probably aware -- just to make sure everyone on the phone is aware, the Utica is a liquids-rich play where we're predominantly following the producer through the wet gas window, which means that it isn't just about well connects, it's about getting this processing capacity online and then openly getting the fractionation online. And as you can imagine, we're doing this in phases. So Phase 1 is anticipated to come on late this summer, which would be the 200-million-a-day plant, first 200-million-a-day plant at Kensington. And then correspondingly, we're building incremental fractionation trains at Harrison, roughly 36,000 barrels a day for every 200-million-a-day plant. So these are going to be coming on Phase 1, 2, 3 and 4 until we have all 800 million a day up and running. And that's going to be the timing that you need to follow. And the way to think about it is, Momentum's currently looking at a late-summer, 200-million-a-day plant coming on with the corresponding fractionation. That might slip a month or 2. And then every 6 months after that, another 200 million a day will come online. And so the connecting in the field is going to be timed with that processing and fractionation capability.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

That's great. And then if I could, just a last one here. Just remind us again, coverage is at 1x for this quarter, kind of how we should be thinking about the path of, I think, bringing coverage down, and where you openly want to get there and the timing to when you get there.

David C. Shiels

Well, I think our coverage has run, as you know, Ted, 1.25x or so last couple of years. 1.4x, obviously, is very strong, and we expect it to be strong going forward. So we like the model we have today, which is roughly 15% distribution growth with very strong coverage. Provides us a lot of flexibility, and it generates some excess cash for funding, what we -- is a significant organic growth platform here in the next couple of years. So I wouldn't expect any change from that model.

Operator

We'll take our next question from Brett Reilly with Crédit Suisse.

Brett Reilly - Crédit Suisse AG, Research Division

Two quick ones for you guys. Could you just give us an update on pro forma leverage from a credit facility perspective post the recent deal?

David C. Shiels

Yes. Brett, this is Dave. So we are running about 4.5x on a last-12 months basis at the end of the first quarter. On a last-quarter annualized, we're just under 4x. And our current covenant for 2013 in our credit facility is on a last-quarter annualized basis. So we have lots of room where we're running today. Our covenant's 5.5x. And like I said, we're under 4x on the last-quarter annualized basis. But when you look at the last 12 months, it's about 4.5x.

Brett Reilly - Crédit Suisse AG, Research Division

Got it. And maybe pro forma exposure to Chesapeake following the recent announcements they've had?

J. Michael Stice

Yes, I -- we've actually seen quite a bit of movement. As you can imagine, there's a portfolio effect when we bought CMO at the end of last year. We did the math and kind of looked at the exposure, were going from roughly 75% up to 80% on a revenue basis. With the things that have gone on in the first quarter, that's actually been reduced to 77%. And that is a result of shifting throughputs. And it's important to recognize that once the portfolio shifts, we also are starting to see some traction with them from third-party volumes. So I was looking at the report last night. I think we have over 75 producers on our systems. Obviously, the predominant producer is Chesapeake, and about 80% of the volume's with the top 5 producers. But I am pleased to report that we are starting to see some traction with our third-party effort. We're actually closing deals with third parties in and around our systems. We've done some things in the Eagle Ford, we've done some things even in the Barnett. We've done some things already in the front end of the Marcellus and the Utica. So our engine is starting to come up and running, and I'm expecting to achieve that 50% kind of level through a variety of strategies by the end of 2015.

Brett Reilly - Crédit Suisse AG, Research Division

Okay. And then, I guess, lastly, maybe any color you guys could provide on any developments that may have materialized since Williams has joined the team, or anything you guys are kind of working on in the background?

J. Michael Stice

Well, I can't say enough about what a great partner Williams is proving to be. I knew that was going to be the case because of the relationship that Bob and I have with a variety of players over at Williams. But we're benefiting, and I believe we're mutually benefiting. We're able to show them the kinds of things we do in the field, from standardization and speed and, ultimately, satisfying the producer's need. And simultaneously, they are a very mature, very capable organization, and we're able to take advantage of some of the standards and engineering and some of the things that they've done over the years. So we are in the process of exchanging things like that technical information and benefiting from both organizations. And so I think Williams would tell you that there is a mutual beneficial relationship that's been created here. And it's exciting for a young company like ours, who's having to establish new policies right out of the get-go and having to create things that -- from scratch. We don't have to do that. We can actually make a phone call and take advantage and leverage the things that have already been done at Williams. And so a very, very beneficial relationship, and I couldn't be happier.

Operator

I would now like to turn our conference back over to Mike Stice, CEO, for closing remarks.

J. Michael Stice

Well, thank you, and we're awful proud to present another strong quarter. And we continue to benefit from the CMO assets. I think the thing that's exciting to Bob and I is our destiny is in our hands. We're able to execute on the capital programs that ultimately are going to lead to the distribution growth and the value of our overall business, and so that's very exciting. Although we are disappointed that we didn't win the Mid-Continent transaction, we do believe that we gave our best foot forward, and so we're not looking back, we're looking forward. And we're excited about looking at those other bolt-on opportunities that might present themselves in the future. So with that, we want to thank you all for your time here this morning, and look forward to another strong quarter next quarter.

Operator

This does conclude today's conference call. Thank you all for your participation.

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