Energy Transfer Partners Q2 2009 Earnings Transcript

Aug.13.09 | About: Energy Transfer (ETP)

Energy Transfer Partners LP (NYSE:ETP)

Q2 2009 Earnings Call

August 11, 2009 10:00 AM ET

Executives

Martin Salinas Jr. - Chief Financial Officer

Kelcy L. Warren - Chief Executive Officer and Chairman of the Board of Directors

Analysts

Stephen Maresca - Morgan Stanley

Michael Blum - Wells Fargo

John D. Edwards - Morgan Keegan

John Tysseland - Citigroup

Louis Shamie - Zimmer Lucas Partners

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Energy Transfer Earnings Conference Call. At this time all participants are in a listen-only mode later we will conduct the question and answer session. (Operator Instructions).

And as a reminder this conference is being recorded. I would now like to turn the conference over to our host Martin Salinas. Please go ahead.

Martin Salinas Jr.

Thank you, Linda. Good morning everyone. Thank you for attending today's call. As we've done in the past I wish to make a few comments about Energy Transfer Partners and Energy Transfer Equities, results for the quarter and six months ended June 30, 2009.

We will also update you on some of our larger pipeline projects which by the way are going extremely well at as well as our strong liquidity position as of June, 30.

We will then go into Q&A at the end of my prepared remarks. I'm joined here by Kelcy, Mackie, John McReynolds and Bill Powers in addition to other members of our senior management team.

As always, you can obtain a copy of ETP and ETE's quarterly report on Form 10-Q by visiting our website at www.energytransfer.com. During this call, we'll make a few forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934. Based on our belief as well as certain assumptions and information available to us.

Although we believe these forward-looking statements to be reasonable, we can't give assurance that such information will prove correct. We encourage you to read about the risk factors that may result our result of operations and our annual report on Form 10-Q which is also found on our website.

Okay, let’s talk some numbers. Beginning with the second quarter results, our consolidated EBITDA was $307.7 million for the second quarter of 2009, $15.7 million higher than the second quarter of 2008, despite the significant market headwind and its substantial difference, economic environment than a year ago.

EBITDA was $748.5 million for the six months ended June 30 of 2009 an increase of 16 million for the first six months of 2008. Before I walkthrough our operating segments results, I would like to address our 2009 EBITDA guidance.

As we've previously stated, a significant portion of our intrastate and intrastate revenue come from long term debase arrangements that are not directly tied to actual buying transfer. However we have seen a dramatic and sustain fall in natural gas prices over the last 12 months in addition to exceed reduction in rig count and current market conditions have changed our expectation for the remainder of the year.

Accordingly we are revising EBITDA guidance of 1.5 to $1.6 billion for 2009.

At the midpoint of revised EBITDA guidance, we would be approximately 10% higher than last year's EBITDA an accomplishment we are certainly proud of. We filed an 8-K this morning addressing the revised guidance which can be found on our website as I mentioned earlier.

Turning to our intrastate operation, which is our largest operating segment, we experienced a 31% increase in transportation volume through our intrastate transportation assets. Quarter-over-quarter and a 37% increase when looking at our six months numbers. The increase is principally driven by the completion of several large diameter pipelines in 2008 and during the first quarter of 2009.

We continue to complete our intrastate project on time and on budget and we are seeing the fruits of our labor. The completion of these pipeline projects and I'll comment about the Texas Independent pipeline system in a minute. We'll continue to enhance our ability to transport natural gas for our customers throughout our pipeline network.

While we saw increased revenues from the increase volumes both the demand and volumetric fees, the 2009 results still impacted negatively as compared to our expectations but a lower natural gas price level and less demand from industry end users and local distribution centers.

We also saw favorable variances from our transportation operations and comparing the current period for the same period of 2008. As of this quarter, we are now using fair value accounting for inventory held in our Bammel store facilities; we believe this message is more appropriate for our storage related activity, given the market volatility we've experienced over the last four months.

As it relates to Bammel, we have approximately 22 Bcf of Bammel 62 Bcf working gas capacity contracted under fee based arrangements, and approximately 32 Bcf of natural gas that we've taken title to and hedged before sells contracts for the upcoming winter month.

Shifting to our intrastate operations; well we turn in another consistent quarter result of operating income of 32 million in the second quarter. This represented a 12% increase over the same period in 2008, despite lower overall volumes due to less favorable market conditions and lower revenue from operational sales.

We'll remind everyone that a substantial portion of our intrastate revenue is supported by demand fees and it is not sensitive to volume throughput.

Operating income for the first six month was $60.1 million. On a year-to-date basis, we experienced increases in volume and revenues primarily to completion of the San Juan and Phoenix expansion project in 2008 and early 2009.

Looking ahead, we expect distributable cash from our intrastate operations to continue increasing due to the completion of any MEP Zone 2, the Trans 45 (ph) a replacement service commercially on August, 1st.

Regarding our midstream and the key drivers in that segment, we experienced lower cost testing margin offset by increase NDO volumes as a result of increased capacity at Agave plant starting in January, 2009. Despite NDO crisis with 49% lower quarter-over-quarter and 52% on year-to-date basis. Our midstream assets provided operating income of 28 million for the quarter and 53 million, we've seen a pick up in NDO pricing since, the first quarter of 2009 and as a level that we've experienced a year ago.

Turning to our propane operations for the summer months, typically the off peak season. We posted a solid $10 million increase in operating income quarter-over-quarter despite lower volume.

Added to our best of first quarter, our year-to-date operating income in our Propane segment had increased $67 million over the same period in 2008. We continue to see solid margins from our propane business and expect this margin to remain strong to the upcoming winter season.

Regarding the achievements in the second quarter, as I mentioned in our first quarter earnings call, we raised almost $1.6 billion and net proceeds of senior notes and equity offering since the beginning of the year with 1.35 billion of that being raised in April of 2009.

These proceeds were used to repay borrowings under our existing credit facility and to fund future CapEx and capital contribution to our joint ventures. As of June 30th we have almost all of our $2 billion revolving credit facility available to us. This facility we're not only be able to fund the growth projects we've announce but also provide us with the flexibility to peruse additional opportunities.

Based on our latest projections we have liquidity to meet our capital needs into the latter half of 2010.

Talking to a few of our CapEx numbers for you, and these numbers will prove the change in accrual, our growth CapEx was $223 million in second quarter and $414 million on a year-to-date basis. Of that, 194 million related to our intrastate business for the second quarter and 331 million on a year-to-date basis. Much of this was used for our TIPS project that expect to come online for September 1st or by September 1st of 2009.

Related to our intrastate 17 million was spent in second quarter, again most of this later to Tiger, and 59 million on a year-to-date of which portion of that was to Tiger Pipeline project as well as the completion of the Phoenix lateral in the first quarter of 2009.

We have $12 million in propane CapEx for second quarter and $24 million on a year-to-date basis. Our maintenance CapEx was $29 million in the second quarter and $44 million on a year-to-date basis, and we expect to come in around a $100 million for the year which is about $30 million lower than we had predicted earlier.

For the remainder of 2009, we expect to spend between 250 million and 300 million on growth initiatives. That includes approximately 10% of Tiger's estimated cost and addition to amount needed to bring our Texas Independent pipeline into service.

Related to our joint ventures with Kinder Morgan. We made $221million in capital contributions to MEP during the second quarter to fund our 50% share of the project cost. This would make $333 million in capital contributions on a year-to-date basis. For the remainder of the year, we expect to make between 320 and 340 million an additional contributions which included amounts to fund remaining CapEx for MEP, an additional capital contribution position MEP for a permanent finance structure.

Secondly, we made 31 million in capital contributions to SEP to fund our 50% share of that project, and a slight expensive make between a 160 and 180 million in additional contribution through remainder of 2009.

We intend to pursue financing which ranges sometimes between, during the remainder of during 2009 or reduce the level of expected capital contributions powered be Kinder Morgan and us. We are more optimistic with such financing and would be possible given the improved credit markets since the beginning of the year.

I'd also like to update everyone on the call on where we stand with our major projects. Regarding MEP, we finally get this bought on this project. MEP is now flowing natural gas that Tran solidify and we expected to briefly expansion -- to bring the project to 1.8 Bcf/d capacity by the end of 2010. We'll remind everyone that this pipeline is fully subscribed with the vast majority of the obligation under 10 year contract. As it relates to bps or it would be fixed independent pipeline system, we expect to have that in service by September 1st and cost are inline with our budget.

The addition of this will give us more flexibility and transporting our shipper natural gas, the market Hudson, Texas along with many interconnect, along our intrastate pipeline network.

Moving onto FEP and we are very pleased with the progress of FEP thus far. We received the tool from a first to follow an environmental assessment or EA rather than the environmental impacts payment and pipeline procurement is moving forward on schedule.

All that will continue to point to late 2010 and service day right on-schedule and on budget. We remind everyone that we have approximately 93% of this 2 Bcf capacity growth on this project under 10 year arrangement.

Lastly, Tiger a 100% own project is becoming -- certainly underway -- becoming a great pipeline for not only ECP but our shipper did well. We have 1.5 Bcf/d subscribe of the design 2 Bcf/d capacity and are extremely confident that we will the remaining capacity under long-term arrangement before the pipeline is complete. Based on our assumptions and estimates today, Tiger ahead of our original schedule in mid-2011.

A few comments regarding our distribution rate and as we stated in our press release on July 28, we continue to be cautious in this challenging economic environment and we have kept our distribution at a rate of $3.75 per common units on an annualized basis or $89.38 for common units per quarter.

As we look to the future and expect to receive additional distributable cash flow from recently completed pipeline and from pipelines expected to be completed within the next years to 18 months. We intend to resume our distribution growth with the goal of maintaining a distribution coverage ratio of 1.15, which recruiting coverage ratio given our diversified asset base and percentage of revenue coming from long-term key based top line (ph).

Turning our attention to Energy Transfer Equity, our general partner that few comments related to those operation.

ETE's cash distribution, we see is from an interest on ETE for the second quarter totaled $144.9 million and expect to payout $120.3 million in distribution within its coders, based on it's increased distribution rate of $0.535 per unit or $2.14 on an annualized basis. This represents a number of 2% increase over the first quarter, $0.525 per common unit and almost 5% increase of the last six months. The growth was primarily driven by the additional cash flow, the ETP results, of the ETE recent equity offering. Again there was incentive distribution right ownership.

We continue to manage ETE's business to maintain a one-time distribution coverage ratio, which the appropriate coverage ratio given ETE's Holding company status.

In closing, I would add that the beginning of the year, we had expected a challenging environment in 2009 due to the lower natural gas prices in general economic condition. As they turned out, natural gas prices decreased more as the year has progressed and industrial consumption have not fully recovered.

In spite of these factors, EBITDA for the first six month for 2009 was higher than first six months of 2008, and we believe that Energy Transfer is well-positioned giving our superior asset from operation by ample liquidity and our strong management team. We have maintained a strongest balance sheet to support investment grading metrics, while pursuing growth projects has also capitalize on future opportunities as they may arrive.

We couldn't be more excited about the future broad industry and how we have positioned ourselves to deliver distributable cash flow grow in the years to come. Linda that concludes our prepared remarks. Let's go with Q&A please.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Stephen Maresca with Morgan Stanley. Please go ahead.

Stephen Maresca - Morgan Stanley

Good morning, guys.

Martin Salinas

Hi, Stephen.

Stephen Maresca - Morgan Stanley

Couple of quick housekeeping. Don't know if I missed this. What is your current liquidity, I guess at the quarter end and maybe if there is an update as it where it is right now?

Martin Salinas

No updates until right now, but as it relates to June 30th, its about $1.94 billion available under our prolonged capacity of $2 billion.

Stephen Maresca - Morgan Stanley

Okay. And then just whatever cash is on the balance sheet and then that that's how you guys are settle right now?

Martin Salinas

Well, I believe we had a about little over $100 million of cash that was June, 30.

Stephen Maresca - Morgan Stanley

Okay. My next question is maybe you can talk to the Midstream segment, obviously it's a little bit weak and maybe you can talk to what you're seeing going on and how you feel like you can protect yourself in a difficult environment as we move forward and maybe just touch upon that a little bit?

Kelcy Warren

Yes Steven, this is Kelcy. You know what, in the Texas intrastate segment of the business there has been tremendous market pressure. As you know, I'll talk about the intrastate and the Midstream together, processing margins of course have suffered, they've comeback by the way as you probably followed and we feel good about that. But in the quarter that they were off, so much of our business is impacted through some of that margin but not a lot of it is speed basis well.

But if you look at the intrastate business, the delta of value to move gas from 1000 spite together has been probably the largest impact to our company. We experienced for the past several years of helping margin, we've seen six single digit margins value between Waha and Carthage let say. And even Waha to Katy from time-to-time.

So, that's probably been the largest impact and those thing don't last but they do occur and it will occur and it will cover and they will keep stocking like that. That's probably been the most impact able thing that we've seen.

Stephen Maresca - Morgan Stanley

Okay. I guess finally, Kelcy you haven't been too shy in terms of talking about looking at acquisition opportunities and looking for something in the potentially transformational. My guess maybe if you use right now what you're saying from sellers in the market in general.

Kelcy Warren

Yeah, we its been a little puzzling to me. I thought we would see small investment situations that we've seen so far. We do a lot of work in trying to buy things. We will continue to do that. We -- as you can see we've got pretty conservative that you must go preparing yourself for this when we cease distribution increases. Obviously we've said that we will resume those increases in the last two distances future. But we position ourselves well. As you can see, we got about $2 billion available to us to do a deal and we're chasing a lot of deals.

I think we're going to begin to see some more opportunities come our way, but we've got to be patient, we're not going to get overly addressed in these times, we don't things its necessary.

Stephen Maresca - Morgan Stanley

Okay. Thanks a lot for the color.

Kelcy Warren

Thank you.

Operator

Of the line of Michael Blum with Wells Fargo. Please go ahead.

Michael Blum - Wells Fargo

Hi, good morning.

Kelcy Warren

Hey, Michael.

Michael Blum - Wells Fargo

Couple of questions. One in the queue you talked about the decrease in margin from fuel retention and I thought some of that is offset by lower operating cost from the pipeline, so can you just talk about the dynamics of how that works?

Kelcy Warren

Primarily on our Texas intrastate system, we do retain fuel and we tried to offer efficiently as possible its about saving fuel in the moving gas hydraulically appropriate and can and by retaining that fuel we of course benefit from our commodity prices, lower commodity prices we don't see the benefit quite as much but there really isn't and the impact on the operations of our system from a cost standpoint, there is more of a saving standpoint by not lending as much compression.

Martin Salinas

Okay. While you see on two parts of the income statement both on the revenue side and then it was in the operating cost. Fluctuations are more dictated by the gas price from that, $7 gas price its cost you more to consume, the $3 gas price.

As we also mentioned that when we look at where additional savings can be have wind when electricity and fuel. So they're lot of as Mathew indicated we look to efficiently operate this much profitable cost side well its been able to get from a retention perspective whether due to right or a percentage on the margin side.

Michael Blum - Wells Fargo

Okay. Second question is just on the Texas Independent, the tips (ph) project. Can you just remind us are those demand charges is that a biometric commitment in terms of the contract or is that just going to be a straight revenue depending on volume type of project?

Kelcy Warren

I think in Texas consistent with the rest of our business, the vast majority of our capacity is sold under demand charges. We also offer shippers, a last kind of tier end both demand charges, it will be demand charges grow to the full capacity that just over the next 12 to 18 months.

Michael Blum - Wells Fargo

Okay. And then my last question is just one, you just addressed this but I just want to make sure I have clearly, I guess in the past related to distribution growth, you'd sort of indicated that perhaps we'd start seeing increases in the second half of 2009, with this projects are in term online, given the change in your guidance is that still the plan or do you think it's going to be more likely 2010?

Martin Salinas

Fairly no, Michael and we'll continue to be very prudent with our cash management. We do see the benefit of these pipelines coming online and the dollars associated with that. And we'll take a close look at it. We're going to meet our goals of 1.1 times coverage ratio with these pipelines as the level of increases. As I stated in our prepared remarks, we're going to get there whether soon or later and we're still to evaluate that.

Michael Blum - Wells Fargo

Okay, great. Thank you.

Kelcy Warren

Thank you.

Operator

Next we will go to the line of John Edwards with Morgan Keegan. Please go ahead.

John Edwards - Morgan Keegan

Yeah. Good morning, everybody.

Kelcy Warren

Good morning, John.

John Edwards - Morgan Keegan

I just wondering if you could give a little more color on the what's your yield that paid from moving gas intrastate and how basis differentials are, when you think that's going to recover?

Kelcy Warren

John, the way our business works and we think we do a pretty good job, in fact we know we do a really good job this week. We charge for a service. And as Marty mentioned, so much of our businesses demand -- but we strive to do is not performed that service hydraulically. In other words, let say, a producer willing to move his gas from Barnett Shale to Fayetteville.

If we do our jobs correctly it could be the gas gets delivered to Fayetteville not in fact have been source somewhere in East Texas and hopefully maybe in the Haynesville and so the Btus that we're delivering the Barnett shale may impact go to another location as in the near proximity 70 of the Barnett shale.

By doing that, we drive benefits and fuel that we keep -- that we charge, but we didn't need to use, that's one thing. Now as commodity prices are fallen in course of that is fallen as well.

Well also that creates capacity. So, therefore on the paper we may have sold out the full capacity of lion (ph). They operating at more efficiently, we created capacity but that is interruptible capacity -- that is capacity that you cannot count on, it varies day-to-day depending on how the producers nominate their gas or they ask for that service to be called (ph) and so its virtually impossible to hedge that.

So, if there is a small part of our business to that is probably less than 40% but it is impacted. So what you'll see is our margins in that business, the delta in other words between parts of Texas that have been let say 25 to $0.35 in that range for the last several years on average have now fallen down into the single-digits. That's just reality.

And you know, the business will always be this way. It's a way have been since up and doing at 30 years and it will continue to do that and it will recover to get us well but right now we are experiencing those reduce margins.

John Edwards - Morgan Keegan

Fine. So and then what Kelcy when do you think that's going to recover?

Kelcy Warren

Typically recovers when you see a recovering commodity prices. Obviously the producers willing to pay more for services that this is receiving $6 for gas versus $3 first for gas that's just with macroeconomics of it. But it also recovers seasonally. Right now we've got -- we had a really hot summer. John you've being at Texas, you know what I mean.

John Edwards - Morgan Keegan

Yeah.

Kelcy Warren

It's going to be over $100 in today. I think we've had over 30 days of 100 degree temperatures. Well that sounds like that would be really good for Texas intrastate, but it is really not. We make money especially the way our system is configured, where we move gas across the state, out of the state. We have that capability.

So, we're experiencing the summer where gas wants to stay here. It's not kind of time displayed in the North East and that will change probably change of in another month or 45 days, I expect to see things cool off here. And gas will begin to try to walk to lead the state and of course that's what we tend to do a little better.

John Edwards - Morgan Keegan

Okay. Great, thank you very much.

Kelcy Warren

Thank you, John.

Operator

Thank you. We'll go over the line of John Tysseland with Citi.

John Tysseland - Citigroup

Hi, guys, Good morning.

Kelcy Warren

Good morning, John.

John Tysseland - Citigroup

Just real quick question on I guess your gas store opportunities in and around on and off system. With the in the curve despite market have taken the near term, do you have -- do you see any opportunity to take advantage your short capacity over the course the next 6 to 8 months?

Kelcy Warren

Sure, what we have done for the last three or four years has fully turned our towards best our larger facility in some more of a third party business, we also in the last couple years have for and receive the for 311 so, we can now offer intrastate service provides storage facilities in the Houston area but also the -- still leads and over to the Carthage and then some of our other pipeline. And intrastate markets going for these. So, yes we do see opportunities grown with our customer base because of when our storage combine with our pipeline network and all.

John Tysseland - Citigroup

Can you remind me what the length operating some of those third party contracts are and have you seen any rollovers recently and are you seeing any kind of uplift in those rollovers?

Kelcy Warren

Yes, primarily in those three regions (ph) from three seven years, we have rolled over some in several the one below rollover the last six months they have rollover at highly or slightly markets.

John Tysseland - Citigroup

Is that -- how much is the -- that something that you're continued throughout next I guess six months and how much of your portfolio do you expect to roll in 2009 approximately?

Martin Salinas

Prior to answer but that's not exactly, where commodity -- but our goal is to reach the level of 70-75% of our storage capacity build under long-term fee based agreement. So, we'll do that prudently as possible over the next six to 12 months.

John Tysseland - Citigroup

And then for the remaining 25 to 30% is that how do you view that year-over-year in terms of opportunities in the market today versus last year?

Martin Salinas

What we do is we utilize that in a number of ways. Let's look at the spread between spring and the late summer and in summer and fall into the winter. We also provide swing services on our ROE and daily basis, our plans throughout the state that is facilitated in our balance facility.

So, provides a lot of opportunity from an operational standpoint as well as from a spread standpoint on a seasonal changes in gas prices.

John Tysseland - Citigroup

All right. Thanks guys.

Kelcy Warren

Thanks John.

Operator

From the line of Louis Shamie with Zimmer Lucas. Please go ahead.

Louis Shamie - Zimmer Lucas Partners

Hi everyone. Just a little bit of a follow-up on John's question, regarding the gas that you haven't storage at Bammel. I think that was a 32 Bcf that you have a title to? Just an estimated how much margin you blocked in there and ended back and be realized Q4, Q1 upcoming?

Kelcy Warren

We don't provide the guidance on that so our numbers. But we do things as we look at the demand in the winter -- you'll see some it go through in November-December, again depending on temperatures. We'll see that coming out and then I've been told that will come out first quarter of 2010.

Louis Shamie - Zimmer Lucas Partners

Okay. And in terms of where the spreads have been kind of throughout this year as you can walk in them in I mean as it something like this the $2 an Mcf range or?

Martin Salinas

Yeah. I'll say that its between about 15 to but in what we've seen last couple of months and what's the, the winter prices have been published at, as Matt indicated earlier and given the flexibility that we have, we will continue to look at growth opportunities as the calendar presented so, with the very spend it around, we might have another 8% of opportunity to capture and with the merger on a daily basis.

Louis Shamie - Zimmer Lucas Partners

That's great. And then the other question was on regarding the CapEx that you've been spending at the interest rate segment and kind of be the impact there, can you give kind of and some estimate of what the economic impact is that we can see in 2010 versus 2009 from all these projects ramping up?

Martin Salinas

When you look at our CapEx for 2009 and I'll take capital contribution for the joint ventures. And that's in both they're all growth CapEx. And you look at the timing of the projects as they come in service. And we had a number of projects coming in late '08 and early 2009, where you'll see a full benefit of that cash flow and EBITDA in 2010. We look at 2009 and we're about to not going to stated complete this project. MET will be in service. Already Trans 85 or agents terms Trans 85. You'll get the full benefit of that.

So we'll continue to see it as we are optimistic that the end market will recover in 2010 and we'll see a factor of business that we -- customers to be in and I think we'll see that in 2010 and factor that in. And you're really looking at the larger project, Tiger SEP coming in service in late 2010 or early 2011. And then you're really looking at the larger project Tiger, FEP coming in servicing and late 2010 always 2011. And we'll see those benefits roll in and those perceptively FEP. Have you build that are in terms your model the cash flow that start coming in. In a very visible our fee base are not deductibles to volume or ...

Louis Shamie - Zimmer Lucas Partners

Sure. And that what's going to be driving your distribution growth going forward?

Martin Salinas

Yes.

Louis Shamie - Zimmer Lucas Partners

Okay, great. Thanks a lot.

Martin Salinas

Thanks

Operator

Next we will go to the line of Baird Rybowski with RBC Capital Markets. Please go ahead.

Unidentified Analyst

Hey guys. Just a couple of quick questions. Hi, how are you? Maintenance CapEx for the rest of 2009 and 2010, and the 2010 CapEx expectation?

Martin Salinas

We've not given guidance on 2010 CapEx other than what --- there's been committed between Tiger, FEP. From the maintenance, the remainder of '09 that stated, we expect to be at a $100 million on an annual basis. Then we said about 44 million unit days are calling another 50 to 60 of the remainder of the year. Just to meet our maintenance requirement.

As we have been in a motto with an every dollar and we screwed that every project and they would like to want get the later handful. They might have that to meet our standard of pipeline operator are being done. There were good news at a time in 2010 as we look at how the year chased up.

Unidentified Analyst

And you kind of answered part of my next question which was going to be what is your appetite in the project in terms stretching on that a little bit. You guys, do you seem to have more access to capital markets some of your peers and does that kind of help the outlook so maybe taking on initial projects at this point or is there any appetite at this point?

Kelcy Warren

There is a very strong appetite. We're going to remain very disciplined. We're seeing some projects that are been done these days before taking risks that we don't believe it's appropriate for our business. And we're going to remain just pulling that on that matter. However, I'll tell you, we're going to be extremely aggressive coming into 2010 from a growth project standpoint and also M&A standpoint.

Unidentified Analyst

Okay. The only thing I had the follow up with that, just kind of looking to Midstream business. Do you see the possibility of volumes being shutdown or declining significantly here for the rest of the year, I mean I know we are going in strong season for natural gas but there does appear to be some risk.

Kelcy Warren

Yes there does. And it's a really good point and I personally don't see a lot risk of shutting especially in our world I think we'll some of the course in the region and some of the other areas that where the bases is so live and they've impacted more but I think really what we're seeing and overall this tends to suggest that we'll be recovering from this market, hopefully in not to distant future.

Hopefully may be in 2010. But we're seeing a volume decline that the rig count from the shell have impacted the volume. It's just reality now. But fortunately for us we make majority of our income is made from -- we still we enjoy the commodity presence. And so we're seeing volume declines in some of those places and we're not experiencing much shutting and all and I don't expect.

Unidentified Analyst

Okay. Thank you.

Kelcy Warren

Thank you.

Operator

Next we will go to the line of Ross Payne with Wells Fargo (ph). Please go ahead.

Unidentified Analyst

How are you doing, guys.

Martin Salinas

Hey, Ross.

Unidentified Analyst

I got a little bit late so I apologize some of these question been asked. Just want you to point just little bit on the basis differentials, second of all we didn't about volume some, any particular price or specific areas that have shown abnormal weaknesses and finally on that same note, what you're hearing about rigs moving to other shales side of the Barnett, just any comments on that would be helpful? Thanks.

Kelcy Warren

Ross, First of all the basis, as we mentioned before, is this really contracted -- in fact -- in cost base that has greatly contracted. Many reasons for that, the primary reason is, it's very seasonal. We've had a very hot summer in Taxes. Gas tends to more stay here goes to power plant. And therefore, you just don't have the demand to move gas out of stake, and that you know we benefit from that demand, when we have a lot more gas in Texas from that demand that helps us.

So, that's what thing. Also, its just commodity sense that you see basis contractual like this and you will to the end of time, as that -- this is a very cyclical business, as much as everybody would like to talk that away, I suggest that its not it is. But it will always be very cyclical, well running MLPs, managed their way through that, they managed coverage ratio, distributions various things and we're certainly -- we're proud the way we're offering our business.

And then the Ross the other question was about weaknesses in pipes, you said?

Unidentified Analyst

I said any particular pipes that are having more weaknesses than others. Also we're we've heard certainly with the Barnett for other shales to secure acreage there. Is that what you're seeing as well any comment there?

Kelcy Warren

As far as pipes, sure. Its not a great place to have your gas right now as Carthage. That's not the right place to be. It's funny Waha has been relatively strong which is not good for us. By the way we like to take gas away from Waha. So I would say generally you can kind of look at the seasonality of the weather that the North East has been so mild, we're just now seeing temperatures of any meaningful major -- so mild in the North East and very hot in the middle part of the country.

As it relates to rig counts, we've seen dramatic rig counts reduction. I would say probably the average reduction of the big driller in the Barnett shale is probably 50% of where they were during the peak of 2008. That's substantial and so we've got a caught up now with the wells at debt to EBITDA. We comes soon at production. And we've seen those rigs move to places like the Haynesville and the Marcellus and areas like that.

Unfortunately, we're not in the Marcellus. We will be a very substantial player in the Haynesville. As Marty discussed with Tiger. But yes we've seen rigs not only reduce from a total rig count of the nation but we've seen rigs move out of areas like the Barnett Shale and even the Bossier and move to places like the Haynesville.

Unidentified Analyst

Finally, some housekeeping items, what was the debt at Mid-Cont at the end of June and also are you guys holding on to inventory in Propane if so, how sizeable is that? And also you probably gave us earlier, what is the, the total growth CapEx written on. Thanks.

Martin Salinas

On your first question relating to mid MEP and 1.3 drawn on the credit facility at the MEP level that's pretty much maxed out that what you're seeing the fund remaining CapEx is equity contributions on the both sponsors.

We looked given the pipeline and service, what we looked have a permanent structure MEP, given where the credit markets are today and we saw a cash do a deal. I think it was yesterday, a very attractive rates that we're optimistic in a good cap structure there in MEP. As it relates to your question on propane, not a lot of inventory in propane and it's not how do we business.

We'll look at securing firm commitments from our customers and then back that up with propane hedges on the purchase side to log in the margin. We're now gearing up for a lot of that reentering into to the fall, in two months as of June that our propane (ph).

On CapEx, we expect it's been growth wise about 250 to $300 million for the remainder of the year, pretty in line with what we goes to at the beginning of the year, same cost come inline. And most of that is fun, see a production on Tiger, as well as the completion of -- and this is starting at September 1st.

Unidentified Analyst

Very good, equity contribution, I assume that?

Martin Salinas

No, that didn't. Equity contribution 320 to 340 for MEP and it call as another 160, 180 per FEP.

Unidentified Analyst

All right. Okay that's all from me. Thanks.

Kelcy Warren

Thanks a lot.

Operator

Our last question comes from the line of Steve Seagull (ph) with Credit Suisse. Please go ahead.

Unidentified Analyst

All right. Thanks. Good morning, everybody.

Kelcy Warren

Good morning Steve.

Unidentified Analyst

FERC 30 day, stay on FERC any updates that you like to talk about there?

Kelcy Warren

For the first time ever, I knew you'd asked the first question and I really won't answer but I can't. We're prohibited from talking about, I'll say however I can't say this so I think everything that we've said publicly before we stand behind today and but we by agreement with the first we cannot disclose how we stand in that process but I'd like to say we stand behind everything we've said applicable.

Unidentified Analyst

Okay, great. And then the second question is what when you think about prioritizing acquisitions. Could you discuss what those priorities are not too long ago I think Kelcy you said you like in Okalahoma. Any thoughts of priorities and what might be the most probable next place that you guys might expand into?

Kelcy Warren

Yeah. In fact, even if you go back to several years ago, when you not first met and there is many key on this call before these statements that questions have been asked about what keeps you out of this campaigns and in your -- and we've stated publicly that we are concerned about basis contraction and we didn't want to be vulnerable to those basis contraction, we're seeing some of that today. As we stated that we also received lot of these position further east we've been successful on positioning ourselves to the west but we've not achieved that goals totally on moving to the east. In addition, we've stated that we want to be in all the major producing basis with the rigs and leave and go to another one, we're benefiting we're hedged as we have exposure to those areas.

We feel like Oklahoma is a place that we need to be a better position. And we're continuing to work on that. We are continuing to work on our the presence in the Marcellus. And we're continuing to work on expanding our pipeline systems further east. Whether that's a South East or whether it's North East. We're pursuing both of those regions.

Unidentified Analyst

If I could just a quick a quick follow-up. You have the normal returns on the organic growth project that you did historically, especially intrastate Texas. What you're expectations -- what kind of returns you like to see going forward, or what achievable I guess you've like to see as hard as you can get what might be achievable?

Kelcy Warren

Yeah. It will, of course, with our cost to capital. We shifted, I would say around first of the year to expectations of 20% and above, half internal rates return. And we have a -- we are now coming off of that. Question was asked earlier if we intend to be aggressive with growth CapEx as well as M&A and the answer is yes. Our expectations, because our cost to capital has improved, have reduced as relates to our expectations have internal rate of return.

Unidentified Analyst

Okay. Thank you guys.

Kelcy Warren

Thank you.

Martin Salinas

So, everybody thank you for the questions and time. I look forward to results. Thank you.

Operator

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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