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Sunoco Logistics Partners, L.P. (NYSE:SXL)

Q1 2013 Earnings Call

May 9, 2013, 8:30 am ET

Executives

Mike Hennigan - President & CEO

Pete Gvazdauskas - VP, Finance

Martin Salinas - CFO, ETP General Partner

Mackie McCrea - Chairman, SXL, and President & COO - ETP General Partner

Analysts

Gabe Moreen - Bank of America

Brian Zarahn - Barclays

Steve Sherowski - Goldman Sachs

Stephen Maresca - Morgan Stanley

Ross Payne - Wells Fargo

John Edwards - Credit Suisse

Joe Herman - Tudor Pickering Holt

Elvira Scotto - RBC Capital

Selman Akyol - Stifel Nicolaus

Edward Roe - Raymond James

Operator

Welcome to Sunoco Logistics First Quarter 2013 Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Mr. Mike Hennigan, President and CEO. You may begin.

Mike Hennigan

Thank you, Audrey. Good morning everyone. Welcome to Sunoco Logistics Partners conference call to discuss our first quarter 2013 results. I’m Mike Hennigan, President and Chief Executive Officer for the General Partner. Joining me today is Pete Gvazdauskas, Vice President of Finance and also on the call are Martin Salinas and Mackie McCrea.

In the course of our remarks and in the subsequent Q&A, we’ll be referring to slides that have been posted on our website entitled First Quarter 2013 Earnings Conference Call and we may be making some forward-looking statements. In that regard for the purpose of facilitating the discussion, I refer you to Slide 2.

With regard to our results, we are pleased to report that we earned $236 million of EBITDA and a $195 million of distributable cash flow, both new quarterly records for our Partnership. Our first quarter 2013 earnings represent a 40% increase over our first quarter 2012 results.

Our Crude Oil Acquisition and Marketing business led our results in the quarter as market conditions continue to be favorable for our business with the wide WTI-LLS spread. In addition, the spread between WTI Midland and WTI Cushing was unusually wide in the first quarter.

Our Crude Oil Pipeline business also had a strong quarter despite having part of the system shutdown for some period to implement our West Texas Expansion projects. Our Terminals business operated on plan and our Refined Products Pipeline business saw some reduction in earnings due to some slowdown time for our Mariner West implementation.

Overall, we are very pleased with our record quarter. Now, let me give you a status of some of our major organic growth projects. We had three successful Open Seasons related to the expansion of our West Texas crude system totaling 110,000 barrels per day delivering Permian Basin crude to various markets utilizing the existing pipeline. Our Houston Access project has started up and we are pleased with the early results. We expect our Longveiw Access project to be fully operational by the end of the month.

Our third project, Nederland Access includes connecting to ExxonMobil’s Pegasus pipeline and has been delayed until that pipeline restarts. We don’t have information to share on the restart timing and we are awaiting information from ExxonMobil.

Our Permian Express Phase I project, which provides crude oil transportation service originating in Wichita Falls, Texas culminating in the Nederland, Beaumont, Port Arthur and Lake Charles market is expected to be operating at an initial 90,000 barrels per day capacity in June. Full capacity of 150,000 barrels per day is expected by late 2013 or early 2014.

We continue to develop Permian Express Phase II, which will increase the takeaway capacity out of the Permian Basin by 200,000 barrels per day and will be available to our Nederland terminal and provide further market access to the Gulf Coast. We have had considerable market interest and continue to develop the details of this project.

On the refined products pipeline side of our business, we announced a successful open season for a project called Allegheny Access. This project addresses the surplus of Midwest refined products that need to move into the Eastern Ohio and Western Pennsylvania markets. This project is designed for 85,000 barrels per day, expandable to 110,000 barrels per day and we expect it to start up in the first half of 2014.

In the NGL area, we have our Mariner West and Mariner East Phase I projects to provide critical takeaway capacity out of the Marcellus. Both Mariner West and Mariner East are the result of a terrific relationship with MarkWest that started several years ago and has helped bring about these two projects to get Marcellus liquids to the northeast and international markets.

Our Mariner West project, which will deliver ethane to the Sarnia marketplace is expected to startup in the July, August timeframe with initial volumes in the 20,000 barrels a day range ramping up to 50,000 barrels a day by the end of the first quarter 2014.

Final engineering and construction are underway for our Mariner East Phase I project. This project will deliver ethane and propane from the Marcellus to Marcus Hook, Pennsylvania, where it will be processed, stored and distributed to local, regional and international markets. Total capacity is approximately 70,000 barrels per day and we expect to be able to deliver propane by the second half of 2014 and both ethane and propane in the first half of 2015.

As you are aware, propane is already being exported from the terminal today as the northeast is long and will continue to go longer NGLs as the Marcellus and Utica develop further.

In the second quarter, we purchased the Marcus Hook facility from Sunoco for $60 million. The Marcus Hook industrial complex will anchor the Mariner East project as we repurpose and further develop this key waterborne industrial site. We plan to create a world-class natural gas liquids hub on the East Coast.

As production continue to grow in the Marcellus and Utica, Marcus Hook has deepwater berths, rail access, truck capability and pipeline infrastructure to rival existing facilities. Marcus Hook is also in a unique position of having five underground caverns for storing natural gas liquids along the East Coast. Since it is only a couple of hundred miles from the Marcellus and Utica, we believe Marcus Hook is very competitive economically for producers and processors.

We are receiving propane today by truck and rail for export with the ability to handle additional products. And with the completion of our Mariner East Phase I project, Marcus Hook will have even more capability and flexibility to meet customer needs with the ability to expand on the 800 acre site.

Mariner East Phase II is in development as the production in the Marcellus and Utica continue to grow necessitating additional NGL takeaway capacity needed in the basin. We believe a northeast hub at Marcus Hook able to handle the full suite of NGL products to supply local and regional demand as well as providing access to the export market will be very attractive to producers and industrial consumers.

Earlier this week, we announced that we’ve received commitments that will enable our Mariner South project to move forward. This is a joint project within our family of partnerships to export NGLs from the Gulf Coast. The project would originate at the Lone Star fractionation facility in Mont Belvieu and connect to a Sunoco Logistics pipeline that delivers to our Nederland Terminal. We’re conducting an open season on the pipeline. Although sufficient commitments have been received the open season will remain open for a couple more weeks to finalize customer interest.

We are pleased we have a go project and our goal is to have this project online in Q1 of 2015. This is the first example of a great synergy that was developed by being part of the energy transfer family and we look forward to additional opportunities in the future.

In addition, we plan to launch another open season soon for a project entitled Eaglebine Express. This project will convert a portion of our existing refined products MagTex pipeline into crude service and reverse the flow from Hearne, Texas back to our Nederland Terminal. We see a need to provide outlet capacity for the Eaglebine and Woodbine crude areas and believe this pipeline will help producers deliver their crude oil to the key markets along the Gulf Coast.

You can see a schematic of this project in slide number 13. All of our open season projects will provide fee-based income under long-term commitments. The ratable cash flow from these projects will allow us to continue to grow our overall EBITDA even though we expect our margin related earnings to decline as crude differentials contract. The WTI-LLS spread is coming significantly in the second quarter compared to the first making these ratable projects even more important to our long-term plan that will award our unit holders.

From a capital standpoint, we finished 2012 spending $324 million on our growth plans compared to a $171 million of organic capital in 2011. We have guided for approximately $700 million of organic capital in 2013 as we continue to implement our growth strategy.

On our distribution, we announced an increase to $2.29 per common unit on an annualized basis which represents our second consecutive 5% increase quarter-over-quarter and our 32nd consecutive increase overall. This also represents a 34% increase year-over-year compared to the first quarter of 2012. We also expect to continue approximately 5% quarter-over-quarter increases in 2013 and expect to give our investors over 20% growth again this year as we continue to implement our growth strategy.

We continue to grow our blue bar earnings and remain committed to distributing these earnings as our projects materialize. As we've discussed in the past our long-term business model of 8% blue bar and 20% red bar we generate an approximate 1.25 times coverage ratio. To the extent our red bar coverage is a higher percentage then we will enjoy cash flexibility as the source of equity for funding future growth.

We also continue to have tremendous balance sheet capacity to fund our on going expansion capital program. In the first quarter, we completed $700 million bond offering to finance our 2013 organic capital program. Including net debt financing our debt-to-EBITDA was 2.5 times through March 31.

As we continue to implement our plan we remain committed to sustainable, competitive distribution growth. We’re confident in our strategy is on track and we’re committed to growing our cash flows over the near and the long-term.

And with that, I’ll ask the moderator to open the lines for any questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Gabe Moreen with Bank of America.

Gabe Moreen - Bank of America

Question on the Marcus Hook facility and appreciating that it’s tied with Mariner East, but can you talk about any repurposing at the Marcus Hook site itself you might need to accommodate transforming it into this NGL export hub beyond what it’s already doing, sort of the timing on such expenditures, maybe if you can quantify to?

Mike Hennigan

Gabe, our goal here is to really emphasize NGLs and the Mariner East Phase I project is the start of that transformation. What we have there is we have five underground storage caverns. So, we have roughly about 2 million barrels of NGL storage today, about half of which is propane capable and all of which is NGL capable. Then we’re going to bring our Mariner East Phase I project online and we’ve guided earlier -- to give you a flavor, we had guided that Mariner West and Mariner East together will be over $600 million. So, we have a significant investment going into the facility. A large portion of that investment, Gabe, is putting additional storage both ethane and propane as part of the Mariner project. So, we’re bullish to say. We’re also adding to the truck and rail capability as we believe having that facility on the river is going to be a real important part of the NGL exporting and transportation out of the Marcellus.

So, we’re real excited to have it in our ownership at this point, and we want to get after getting the Mariner East project online. And as I said a couple of times, we expect the Mariner East project to come online in the second half of ’14 and first half of ’15, but we’re already exporting propane out of the facility today. Marcellus liquids today are finding their way to the coast and we’re loading ships as we speak, and we’re trying to kind of bring the facility up as we bring the project on at the same time.

Gabe Moreen - Bank of America

Got it, thanks, Mike. And if I could may be shift gears and talking about Mariner South, can you just talk about kind of the returns you’re expecting on the project with the initial commitments what it could be if you are getting more commitments, I mean, if you can may be give us a flavor sort of the capital spend on that potentially? And I noticed in the $700 million you’re maintaining for the CapEx forecast, do you have anything there for Mariner South?

Mike Hennigan

Yeah, on Mariner South I can give you a couple of things, Gabe. First of all, we’re still in the open season so I don’t want to comment on the commitment level.

As far as capital we can give you some guidance there. We’ve been telling you it’s a joint project within our family, within Energy Transfer so we’re teaming up with the Lone Star team. The overall project itself is about $700 million of capital and that will be split approximately 70% on the SXL side, 30% on the Lone Star side. So that will give you some flavor as to how the joint project will separate.

Again, very similar to what we’re doing up in the East our side of the project is putting in a storage at our Nederland facility. And just to remind you, our Nederland facility is predominantly a crude facility at this point, 22 million barrel crude facility, but it’s in a great position on the Gulf Coast and we’re really excited to get it in the NGL business. We’ve been looking to do that for sometime, but the way that it's occurred as being part of the Energy Transfer family. So we’re excited about it. We want to get that project online as quickly as we can and we’re looking at around the first quarter of 2015 as a start-up.

Gabe Moreen - Bank of America

And is anything in that, in your $700 million for 2013 CapEx, is any of that Mariner South?

Mike Hennigan

There is a little bit in there but as the majority of the CapEx will be in 2014.

Operator

Thank you. There is a question from Brian Zarahn with Barclays.

Brian Zarahn - Barclays

Just following up on that and appreciate the color on Mariner South, looks like you’ve with that and other projects coming online in 2014-2015 timeframe, it would seem reasonable that 2014 CapEx could be somewhere to or higher than 2013 CapEx. Does that make sense?

Mike Hennigan

Yeah, Brian, we’re not prepared at this point to disclose anything as far as guidance for 2014. We are excited about Mariner South though. Like I said, it’s a good project to us, for us and like Gabe had mentioned the majority of the capital spend will be in our 2014 numbers when we finally come out with that. I mean, right now, we’re still at the early part of 2013; we feel good about the guidance for $700 million for 2013. As you guys have seen in the industry you tend to ramp up from the beginning of the year as the year progresses. So for right now, we’re still feeling comfortable that our best guidance for the industry is $700 million in 2013, and when we get a better look at the backend of this year we’ll be able to give you a much better sense of where 2014 will be.

Brian Zarahn - Barclays

Fair enough. Can you give us some update on trunk line, I mean any additional color you may have since the last update?

Mike Hennigan

Yeah, not a whole lot to offer at this point. As you guys know, we’re working within our family with Energy Transfer on the project. At the last call we had mentioned how excited we were that we had reached an agreement with Enbridge, within the family. So, the project continues and I think we’re still excited about it and we’ll give you an update as soon as we have something new.

Brian Zarahn – Barclays

And any changes to potential costs for the project on your end?

Mike Hennigan

No, not at this point.

Brian Zarahn – Barclays

Okay. And then on the first quarter can you talk a little bit about the contribution from butane blending activities?

Mike Hennigan

Yeah, we don’t specifically give specifics on the butane, Brian, as you know, but I would give you a couple of comments. We continue to be bullish of the business I would say the spreads that we’ve seen in that business have gotten little better year-on-year as we continue to progress in time. We think that’s partly driven by the fact that these Shale plays are kicking out some C4s and the production of C4s they’re becoming better. We're right in the time period where we start to put our hedges on for next year. Typically, in the April, May, June, July timeframe we see the best opportunity for us to lock in margins. So, we’re in the middle of that; the market looks pretty good now compared to what it was last year. But as you know we don’t give specific numbers related to that business.

Brian Zarahn – Barclays

Do you think just may be qualitatively, do you expect our ethane performance should be a little bit better this year than last?

Mike Hennigan

Yeah, absolutely, we are growing that business. Like I just mentioned, the margins continue to get a little bit in our favor which is great. We don’t count on the margins going that way; what we do count on is growing the sites, and we continue to have a robust plan on growing them. So, we continue to exercise our growth strategy that way and we’re just happy that the margins continue to wind a little bit.

Operator

Thank you. Steve Sherowski with Goldman Sachs, your line is open.

Steve Sherowski - Goldman Sachs

Just regarding the first quarter, could you just talk a little bit about the crude oil pipeline results and what drove them? Your throughput and revenue per barrel were up a decent amount year-over-year but [inaudible] increased by about $1 million if I recall, just wondering what was driving that?

Mike Hennigan

Steve, we had a couple of things going on in the pipeline business. First of all, we had a little bit of shutdown activity to get ready to startup our West Texas expansion, but that was part of what was going on in the quarter. In addition, we had about $4 million related to pipeline releases and environmental costs that we don’t plan on having that being a recurring costs. So that impacted our first quarter results as well. And then, as you know, we’re starting into the process and you should start to see in the second and third quarter the projects coming online, and you’ll start to see the impact in them as we progress out into the year.

Steve Sherowski - Goldman Sachs

Okay. Was that $4 million associated with Pegasus?

Mike Hennigan

No, no, this is related to releases within our system that we addressed during the quarter and the cost was about $4 million.

Steve Sherowski - Goldman Sachs

Okay, thanks. And just a quick question on Marcus Hook. How much of that is currently supported by either volume commitments or contracts with third-parties?

Mike Hennigan

Well, the facility itself is really starting fresh. As you know, we shutdown as an operating refinery a while ago. So, we don’t have any existing activity there so to speak from the previous scenario. We do have, as you know commitments, as part of Mariner East as those start to come on, but right now we’re really kind of it at ground zero with the facility. Our goal is to take it on and grow the EBITDA from here knowing this Mariner East will be a big anchor.

Like I said previously to Brian and Gab, our goal here is to take the facility and start to increase its capabilities; we’re expanding truck and rail as we speak. So kind of in the interim until we get the pipeline in service to transport the ethane and propane back to the facility, we’re going to be in a truck and rail mode. So, we’ll actively try and grow that while we’re continuing to operate the facility. But we’re really starting out from ground zero.

Steve Sherowski - Goldman Sachs

Okay. Yeah, I was under the impression that you had some contracts with Carlisle there but I guess I was mistaken. Okay, thank you that’s it from me.

Mike Hennigan

Yeah, just to be clear, Steve, I mean, we do have a relationship with Carlisle, a little bit of activity but there is no material EBITDA for us at this point.

Operator

Thank you. There is a question from Stephen Maresca with Morgan Stanley.

Stephen Maresca - Morgan Stanley

Just two quick ones, one on the Phase II Permian Express I don’t know if I missed this but at what stage you are in right now for that 200,000 barrel a day expansion?

Mike Hennigan

We’re still in development, Steve. As you know, there's been some competitive projects announced. So we’re still in development. We do have consumer interest. I mean, the uniqueness about our project is it gets the market a little further eased on the Gulf Coast, you can get down to our Nederland terminal. We’re very fortunate to have that Nederland terminal be a significant hub inside the Gulf Coast region, if you will. If you look to our volumes are up at our Nederland terminal, our activity is picking up as the flow continues to move West, from West to East and North to South, our Nederland terminal is becoming a very, very important distribution hub.

So, we’re still in development, we’re in the marketing phase of it at this point, we don’t have anything else to disclose, but we’re still bullish that the Permian is going to continue to need takeaway capacity.

Right in the short term, as you know, we have projects that have come on and there have been competitive projects come on. So right today, the market is in a good position, but at least it’s our view that the Permian is going to continue to expand pretty bullishly. My number has been 200,000 barrels per day per year. If you believe that type of number you’re going to need this type of project occurring every year to keep up with 200,000 barrels per day per year growth. So, we are still bullish to projects that we’re working with interest of customers and I hope in the near future we’ll be able to come out something more definitive.

Steve Sherowski - Goldman Sachs

And then lastly just back to this Marcus Hook NGL hub, what other assets you – a lot of storage you talked about, what else do you envision that could be needed there and then how much export potential do you think ultimately you will see off of the Northeast over the next two years?

Mike Hennigan

Yeah, it’s a good question, Steve. First of all, I mean, the facility itself was a former refinery. So, what it brings to us as far as the terminal is we get a couple of million barrels of gasoline and distillate in crude tankage. So, we'll look to start to market that. That tankage very similar to what we do with the former Eagle Point refinery on the Delaware River. So that’s a business that will start to be active in.

Like you said on the NGL side, we really have a good opportunity to increase the rail and truck because in our view what’s happening in the basin right now and what’s happening in the U.S. NGL market is the Gulf Coast is clearly long, NGL prices are depressed and there is exporting occurring from the Gulf. It’s our view that barrels don’t need to move down to the Gulf to ultimately export, they just need to move a shorter distance in export. So that’s occurring today. We’ve been loading some propane ships out of there and we will continue to do that.

As far as what’s the capacity of it, right now we’re pretty bullish that we’ll be able to handle anything the East Coast needs to export. Once Mariner East comes on we’re adding to the propane storage; we’re also adding the ethane storage as well as part of that project. So, we’re going to have some pretty robust storage capabilities.

The facility has five ship berths. So, it has quite a bit of dock capability; also has barge berths. So it’s a full side terminal.

The other part about it that we’re going to start to work on is we’re calling in industrial complex. It does have all the infrastructure from a power and water et cetera, et cetera standpoint to handle industrial processing equipment because it handled a full refinery. So we’re going to start to look at opportunities for processing capabilities inside the facility as well. Our thought process has been it’s not going to run crude oil as a refinery but it certainly still has the ability to bring some processing in and if we can hook something up relative to the NGL space that would be a goal of ours.

Operator

There is a question from Ross Payne with Wells Fargo.

Ross Payne - Wells Fargo

Hey Mike, quick question, under the Crude Pipelines segment it talks about lower pipeline operating gains, if you can speak to that for a second? Also, in terms of the large basis differentials from the Permian to Cushing if you can talk a little bit about what was driving that? Thanks.

Mike Hennigan

Yeah, Ross, thank you. I’d say on the gains I’d say is non-material so I don’t think there was a whole lot discuss on that just little bit of money but I don’t think anything extraordinary is going on there.

As far as the differentials, as you guys know, that’s the million dollar question for where is the market going to continue to be. The outlook capability that really constrain at the end of last year and into the start of this year and you saw Midland Cushing spread to levels that were unprecedented. Now that Longhorn has started up and our West Texas project have started up, we don’t see Midland Cushing as spreads it’s going to be robust at all and in fact you see the market kind of bouncing around where Midland was a little bit above Cushing and a little bit below. So, I think that market phenomenon is behind us for some period of time until the basin catches up.

But then the other big one is TI-LLS. And as you guys know we’ve seen numbers as highest $20 a barrel and it’s kind of come into around 10ish. And the question is there is a lot of dynamics occurring in the market. There is a growth occurring from all types of the production regions, Bakken, Canada, Permian, Eagle Ford, all the production continues to be a important part of the equation. And then the takeaway capacity, some of the projects that we’re doing as well as the other MLPs are pulling products away. So, I don’t think any of us know where the marker is going to equilibrate.

We’ve all had a belief and we certainly are in that camp that the market would be coming off. Right now, around $10 seems to be about where it is in the near term and we’re all just going to have to wait and see what develops as the year progresses.

Operator

The next question is from John Edwards of Credit Suisse.

John Edwards - Credit Suisse

Just if you could comment a little bit on I guess the thought process or what do you think the impact would be on Marcus Hook with some of these competing pipelines to take NGLs down to the Gulf and how you envision that with your outlook? I mean, you’re obviously are very bullish, can I get a little more background on that would be great?

Mike Hennigan

Sure, John. I mean, the main reason that we’re bullish it’s our belief and it’s our theory that most of the NGL barrel needs to export out of the market. I mean, we’ve been saying that we don’t think it’s in a lot of debate that the propane in heavier which is 50% of the NGL barrel out of the liquids is long; it’s long in the U.S. So, it’s long in the Gulf, it’s long in the East Coast. So, at least half the barrel is long and needs to export.

On the ethane side, as you know, there is a lot of views and debates. We happen to be a believer that the demand side growth will be slower than the supply side growth. So, we think ethane imbalance will continue to occur, obviously it’s in an imbalance mode right now and ethane prices are down pretty low. So we’re bullish that even the ethane molecule is going to need to continue to export.

So, if you believe that theory, John, our view is that traveling 300 miles is much more competitive than traveling all the way down to the Gulf Coast to achieve the same end result of meeting the export. Like I said, the propane exports that are coming out of the Gulf Coast are pretty well documented; the butane molecule is going to be long at the same time. So, like I said, C3 heavier or long and C2 is a debatable topic but at least our view is that be long for sometime as well.

John Edwards - Credit Suisse

And then can you share at all, I mean, you said you really don't want to comment on commitments but can you share it all what the initial indications are on Mariner South in terms of volumes?

Mike Hennigan

Yeah, I don’t really want to give a number yet, John, just because the season is open but I think it can get a good flavor. I mean, we told there is a project $700 million, we told that we have an anchor customer and we told it's a go. So I think that gives a good sense that we really are pretty bullish to project.

I think the big story of that Mariner South though is the takeaway that I like the investor base to think about is two things, one is it’s a great collaboration within the family of partnerships within Energy Transfer. We had been for sometime wanting to get it Nederland into this business and we’re so happy to be part of Energy Transfer to make that happen in such a short period of time. As you guys know, we just close within the family back in October and we’re announcing $700 million project. So, I think that’s terrific.

The second part of it is we’re just really excited about getting Nederland in other businesses. As Nederland continues to grow in the crude side we think that’s a really great thing for us and just we’re excited to get it going in the propane and butane business, and we’re going to look to do even more with it.

So, we’re fortunate to have Nederland in the location that it is. It’s a really great spot for the way the market has been developing as far as distribution needs. And so, we’re feeling pretty good about it and, like I said, we’re really excited to announce Mariner South as a goal project.

John Edwards - Credit Suisse

Okay, great. I appreciate that additional comment on it. And then as far as marketing margins it look you hit record numbers this quarter, you’ve already indicated you expect that to come in quite a bit, I mean, for the rest of the year you think you – more of a normalized margins or is it still more of an open question?

Mike Hennigan

Yeah, John, it’s just like the question that Ross just asked it. I mean, I wish I could give you guys more color. What we’ve been trying to do is breakout that we think is not sustainable and we put that in our red bar analysis and we’ve been giving you blue bar, red bar. As everybody knows our goal as a business is to be 80% blue bar, but last year we were more like 60-40 and we got to enjoy a strong market related earnings contribution to our cash flow.

We’re not going to give our quarter-by-quarter because it bounces around too much and it’s more of an odd but obviously the first quarter was more like 2012 it’s more predominantly red bar compared to our business model. But the reality is we just don’t know I mean we would love to know and we would love to give you more color as to what it will look like. The level that it's at now I mean I can see in argument it says that’s a pretty sustainable level for what we think but before market has it been a little weaker than that and I think we’re all just going to have to see.

The bottom-line and I know you guys know this. It’s just pretty dynamic right now. There’s just a lot of stuff happening on both the supply and the demand, the market is very fluid, there is infrastructure being developed at the same time there is production occurring, refiners are looking to see how that they can move their consumption to handle more domestic and Canadian crude. So, it’s just a really dynamic situation.

We think we’re doing the best we can to give you color showing you blue bar, red bar but I’d be kidding you if I told you that I knew exactly where that market is going to go equilibrate.

Operator

Thank you. There is a question from Joe Herman with Tudor Pickering Holt. Your line is open. Joe Herman your line is open, would you please check your mute phone.

Joe Herman - Tudor Pickering Holt

On Mariner South, well that’s totally be equally capable of exporting propane and butane or what we hear primarily towards exporting propane.

Mike Hennigan

The capabilities will be proposed both propane and butane but our expectation it will be heavily weighted to propane. We’re starting out, like I said previously, obviously the U.S. market is long propane in the Gulf Coast exports are pretty documented. So, the Gulf Coast needs more propane exporting more immediately than it needs butane, but the project is set up to handle both so, we’re going to be prepared to pick up butane as that need occurs as well.

Joe Herman - Tudor Pickering Holt

And switching Marcus Hook that $60 million were just price, was that included in the $600 million or so project cost that was originally announced from Mariner East, or this on top of that? And do you have any expectations on when you’ll announce whether you’ll move forward with the Phase II on Mariner East?

Mike Hennigan

Yeah. To the first part of our question that the 60 was not included in the guidance, what we’ve given on the guidance is our organic program.

As far as Phase II, we’re in a similar situation that the Texas crude market is in. We’re bullish on the project; we think we have a very good competitive project but it’s not a need right today. The market as you know is starting up with Mariner West is coming on line very shortly, Mariner East and then the ATEX project they’re all active projects that have been announced to be coming online.

So, the market in the short-term has some takeaway capacity. But just like we’re seeing in the crude area there is an additional need. We think Mariner East Phase II is a very competitive project for that additional need. Obviously, other MLPs are supporting their projects.

The basis of our project so is we think we can be very competitive against those other projects and we just think at the end of the day the barrel should export from the closest location rather than traveling a long distance just to end up exporting. So, we’re marketing it, we continue to believe that it will come to fruition but we are still just in the development phase of it.

Joe Herman - Tudor Pickering Holt

Great. Thanks for that color. And then just one more from me on [rinse], did rinse for your ability to rinse butanes in the firs quarter?

Mike Hennigan

For us rinse is kind of a nonmaterial event for us. We’re an obligative party so we have our rents need but we’re also a purchaser of ethanol and we pretty much come out pretty close to balance. So, so rinse, I would say had a nonmaterial impact on our first quarter earrings.

Operator

There is a question from Elvira Scotto with RBC Capital. Your line is open.

Elvira Scotto - RBC Capital

I just wanted to follow-up on some of the Marcus Hook question. So, building out the NLG hub up there in the Northeast do you think that that precludes then the need for a pipeline to move NGLs down to the Gulf Coast or do you think that there is enough supply coming online that you could see both?

Mike Hennigan

Well, we certainly, Elvira, hope that it precludes the market from wanting to got to the Gulf Coast. I mean, it depends on the timeframe that you are talking but at least our belief is Mariner East should be the next project that becomes a go. There is a lot of very bullish sentiment around Marcellus and Utica so I think you are going to see continuing projects occur both from the fractionation standpoint as well as from the takeaway capacity.

Like I said, we came to a conclusion a long time ago that working with MarkWest, who has had a great foothold as far as fractionation was a good project for us and we kind of worked Mariner West and Mariner East together with those guys putting these projects together. We just think Mariner East II is the next step in that evolution.

Obviously, the production curves are everybody has their own view of what’s going to occur there but we just think from a competitive standpoint, we think we’re going to be offering the most competitive next project to hit the market. So, that’s our belief and that’s our hope and we’re talking to both the producer side and the marketing side and we continue to have interest, but we don’t have anything further at this point.

Elvira Scotto - RBC Capital

And then just a follow-up on the -- you have the underground storage caverns for NGLs or do you need to build those out at Marcus Hook?

Mike Hennigan

We have the underground storage caverns. So, we don’t any plans to further those underground facilities. Like I said earlier, Elvria, there is about two million barrels, about half of that capacity is capable of propane, all of it is capable of butane, but the storage that we are adding as far as part of the Mariner East project is above-ground refrigerated storage. So, the underground storage caverns are not refrigerated you come aboveground. We’re putting refrigerated storage so that we’ll be able to load vessels cold to support the export market. So, above ground, we’re going to have both ethane and propane refrigerated storage to support the exporting, below ground will have propane and butane.

Elvira Scotto - RBC Capital

And then the last one from me is actually on the Eaglebine Express pipeline. So, that’s really a conversion of underutilized refined products pipeline. What needs to be done? If that project moves forward but what do you need to physically get to for the pipe and then you have to reroute refined products capacity that is being transported on MagTex?

Mike Hennigan

Yeah, exactly, Elvira. Thank you for that question. Yeah, Eaglebine is exactly what you said is the line is currently in refined products service and the line is well underutilized. So, we will reroute the refined products. So, we had a commitment to our customers that we would still get them refined product service, so we’re doing that. In essence, the project is taking that pipeline, reversing it in crude. So, what we have to do is, we have to spend capital, put in crude pump stations and get the ability to reverse from the Hearne area back to Nederland as opposed to pumping from the Nederland area out to the Hearne area.

So, we’ll be putting some pump stations in service, some truck stations, some crude tankage but obviously we don’t need to do much pipe work at all. So, its existing pipe from that standpoint, but pump work and tankage work is the majority of the activity. We think we can get that in service by about mid next year. So, we should be able to move little quicker on that project than a typical new build type project.

And I think the real interesting part about this project is, as you guys well know, as Eagle Ford extends up towards this area and we view it as a nice little sweet spot, where the Eagle Ford area and the Woodbine area are kind of meeting, so that’s the term Eaglebine comes out of that.

So, we think it’s a nice fit for an area of crude production and again we think our jewel is that we can bring that down to the Nederland facility and get it into the Gulf Coast market and distribute it from there. So, we’re bullish the project from a timing standpoint compared to the normal couple of years that it takes a new build. So, hopefully about mid next year and we’ll be able to give some more color on that.

We do plan to launch an Open Season soon and what I mean by soon it could be as early as next week. I mean, we are trying to move this quickly as we can because we think the market needs that pipeline and crude service.

Operator

Thank you. There is a question from Selman Akyol with Stifel Nicolaus.

Selman Akyol - Stifel Nicolaus

I appreciate all the color. Just two quick ones on Marcus Hook. First of all, in your comments you said on your storage caverns half of propane capable, all are NGL capable?

Mike Hennigan

All our butane capable. So, they are all able to handle C4s and about half the capacity can handle C3s.

Selman Akyol - Stifel Nicolaus

Okay. And then the other question I had, can you say how much propane you exported during the quarter?

Mike Hennigan

No, we’re not giving that out. What I would tell you is we’re loading vessels. We’re trying to ramp up the volumes but in the short term, we are limited by the capacity of the facility. I also would just point out as we just took over as far as April 1. So, we’re going to move as quickly as we can. But right now, we’re constrained with the assets that are in place.

So, so we hope to expand truck and rail as quickly as we can and, as you know, as I said a couple of times here, is we won’t have the piping service until the Mariner East project comes into play. So, we’ll be doing truck and rail in the short term. We’ll eventually get to pipe and then we’ll eventually get to refrigerated storage and then we’ll have it in full service mode.

Selman Akyol - Stifel Nicolaus

And then, I know you said half of the underground storage is capable of propane and you are adding propane and ethane barrel storage aboveground. So, should we just take from that you see more demand for the propane side?

Mike Hennigan

Yes. Yeah, definitely compared to be same for sure, very similar to the Gulf. I mean, right now the U.S. supply demand is just much more out of balance on the propane molecule. And on the NGL liquid side at least a general view is the liquid s are about half ethane, about a third propane. So, propane is the next biggest chunk of the NGL portfolio outside of the ethane. So, it’s more than the butane molecule.

So, directionally propane will have just more volume related to it relative to butane. And then, as you know, there are some domestic needs for butane in the refinery mode et cetera. So, propane will be the predominant export capability just because the U.S. demand, the supply demand balance is just long propane and that needs to get to the international market.

Operator

Thank you. There is a question from John Edwards with Credit Suisse.

John Edwards - Credit Suisse

Yeah. Mike just a follow-up to Elvira’s question. So, just to be clear, so your belief is, just want -- is there room for both Mariner East Phase II and these additional takeaway pipeline such as Bluegrass or do you think its one or the other?

Mike Hennigan

Yeah. I mean, over time, John, the question becomes what do you need how many molecules are eventually going to need to be transported. So, like I was saying, it’s similar to the Permian. I mean, right today in the Permian Basin the projects that are coming online are taking care of the short- term need. But if you believe my number in the Permian at 200,000 barrels a day growth you need competitive project coming on over time.

Same analogy in my view on Marcellus/Utica. There continues to be growth of patterns that are a little less clear to me I would tell you to look to the producers to give you a little bit more color as to what those look like. But over time, I think there is going to be more and more takeaway capacity need. However, at the same time, we believe that our project should be the next competitive project. I mean, we think that we have a unique advantage in that we do not have to travel as far as the competitive projects need to travel as far as getting to the same outcome, which is to export the other product.

There is some debate in people’s mind as to whether the East Coast market or the Gulf Coast market are better markets. We clearly think from an exporting standpoint that the East Coast is a better market. I mean, we fully acknowledge that the ethane demand side is much more robust on the Gulf Coast, I mean, that’s where the ethane market is. But we just have a view that the demand side will not come on at the pace that is predicted by some of the people and we think that the ethane molecule will be in the mode that it is today, which is an oversupply mode.

So, there is some I’ll say belief that ethane will come back in balance. It’s just our view that that imbalance is going to be a little more longer and a little bit prolonged than some of the consultant views at this point.

So, we’re still thinking we have the next competitive project. That’s our view on it. Over time I think there is a lot of infrastructure that need to be build out in the basin. I think the market has shown that fractionation up in the basin is a good thing. And I think separating the molecules out so that you get market capabilities on each of the individuals is a good thing up in the basin. So, we’re much more of a believer in the individual ethane, propane, butane flexibility that fractionation and takeaway capacity that fits that is just more flexible for the producers to have ability to market individuals as oppose to more of a y grade solution that fractionates on the Gulf.

John Edwards - Credit Suisse

Okay, great. And then just last question, did you I can’t remember on did you make any indication or disclosure on the CapEx of Eaglebine, and is that at all in your 2013 CapEx budget?

Mike Hennigan

Yeah, we haven’t given an individual disclosure, John. As you know, it was our philosophy is to try and give you guys what the full package is. We’ve also given what we believe there is a good kind of summary or the bundle. We’ve been telling people about six times as a good organic multiple for our projects. We typically haven’t given individual disclosures on projects, so we haven’t done that.

There is a little bit in the 2013 number at this point but again most of these projects as you know the spending is at the back end of the timeframe and comes on more towards the last six months than it does the first six months. So, I think you’ll see that on Eaglebine.

As I mentioned to Elvira, there is no pipe work it is reversing the lines from pump stations and trucks and some tanks. So, we think we can get it on pretty quickly and you’ll see more in the 2014 number.

John Edwards - Credit Suisse

Okay, great. And how many miles is that on?

Mike Hennigan

John, that’s a great question. I'm going to have just say you stumped me on that. I don’t know the exact mileage. It originates in Hearne, Texas if you want to get a quick map and so from Hearne, Texas back towards Houston area and then further east over to Nederland that is the way the pipe runs.

Operator

Thank you. There is a question from Edward Roe with Raymond James.

Edward Roe - Raymond James

Hi, just a real quick question around the industrial complex you’re thinking about in Marcus Hook. Given initial estimates on condensate that coming out of the Utica, when you talk about processing given the lower transportation costs for gasoline and diesel to Europe are you guys thinking about condensate splitters in that complex as well? That’s all

Mike Hennigan

Yeah, and it’s something it’s on our radar screen, but the crude and condensate development out of Utica I think it’s been slower than most people would expect. So, we have it on the radar screen I wouldn’t say it’s our high priority at this point. We’ll look at that but right now our focus is on trying to get the NGL facilities in place as quickly as possible.

We’ll keep an eye and see how the crude/condensate development occurs out in the Marcellus and Utica areas, but at least it’s my belief that it’s a little slower than the expectation. But over time, I mean, the reports of the abilities out there are pretty robust. So it’s something that we’ll look at but it’s not on the front-burner.

Operator

Thank you. At this time, there are no further questions.

Mike Hennigan

Okay, I want to thank everybody for their interest in the call today. And Pete will be available for follow-up questions. So thank you very much.

Operator: Thank you for participating. Today’s call has concluded. And please disconnect your phone line at this time.

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