Access Midstream Partners, L.P. Management Discusses Q3 2013 Results - Earnings Call Transcript

Oct.30.13 | About: Access Midstream (ACMP)

Access Midstream Partners, L.P. (NYSE:ACMP)

Q3 2013 Earnings Call

October 30, 2013 9:00 am ET

Executives

Alyson Gilbert

J. Michael Stice - Chief Executive Officer of Access Midstream Partners GP LLC, President of Access Midstream Partners GP LLC and Director of Access Midstream Partners GP LLC

David C. Shiels - Chief Financial Officer of Access Midstream Partners GP LLC and Principal Accounting Officer of Access Midstream Partners GP LLC

Robert S. Purgason - Chief Operating Officer of Access Midstream Partners Gp Llc - Gp and Director of Access Midstream Partners Gp Llc - Gp

Analysts

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Stephen J. Maresca - Morgan Stanley, Research Division

TJ Schultz - RBC Capital Markets, LLC, Research Division

Jeffrey Birnbaum - UBS Investment Bank, Research Division

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Abhiram Rajendran - Crédit Suisse AG, Research Division

James Spicer - Wells Fargo Securities, LLC, Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Lin Shen

Operator

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

Alyson Gilbert

Thank you, Elysium. Good morning to everyone. Thanks for being with us this morning as we discuss our third 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 may 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 we'll turn the call over to Mike.

J. Michael Stice

Thanks, Alyson, and good morning, everyone. We appreciate you dialing in this morning. As usual, Dave and I will make some prepared remarks on our third quarter results, and then Bob will join us in answering any questions you might have.

Our operating teams continue to execute well on numerous projects across all our operating regions. The execution, in combination with our 100% fixed fee business model, has generated the positive financial results, allowing us to return additional value to our investors in the form of a $0.05 per common unit step-up in our distribution.

The distribution to our common unitholders has now increased from the minimum quarterly distribution of $0.3375 at our IPO to $0.535 today, a total increase of almost 60% in just 3 years. In addition, our unit price has increased from $21 at IPO in 2010 to over $50 today.

The unit price and distribution increases have combined to provide our investors with a total annualized return of more than 37% over the last 3 years. We have delivered on our promises to investors and will continue to do so as we execute our business plan in 2014 and beyond.

As you know, we have provided guidance on EBITDA, capital expenditures and our distribution expectations through the end of 2015. Today, I want to give you some additional color on the project activity in several of our operating regions that makes up the material part of the $3.5 billion of CapEx we plan to invest from 2013 through 2015. This construction activity enhances Access Midstream's leadership position in these key basins and combines with our contractual growth to contribute increasing EBITDA in 2014 and 2015.

Our Eagle Ford team continues to make outstanding progress on the build-out of our gathering systems in South Texas. In 2013 alone, we will connect more than 500 wells to our gathering systems. We are completing our scalable sour gas treating facilitates to cost-effectively handle the high H2S content found in the basin. In the Eagle Ford, we expect our total investment to be $1.7 billion by the end of 2015, with more than 950 miles of pipe in the ground. At the end of 2015, most of the capital for the backbone of our gathering systems will have been invested, and any future capital investment beyond 2015 will be primarily related to well connects.

Likewise, in the Marcellus, we repeatedly set new volume records during the third quarter of 2013, with the current daily record volume of just under 2.42 Bcf per day of gross throughput occurring in early September. Remarkably, the bulk of this throughput comes from only 2 counties in northern Pennsylvania. This year, we decreased our WOPLs or wells waiting on pipeline count from 259 at the beginning of the year to 125 at the end of the third quarter, with that number expected to further decline to less than 100 by the end of 2013. We will connect over 200 wells in the Marcellus in 2013. By the end of 2015, we anticipate having invested $1.8 billion in this basin, which highlights our gas gathering leadership position in the Marcellus.

In our Cardinal joint venture with Total and Intervest in the Utica, we expect to have compression facilities online with 500 million cubic feet a day of throughput by the end of this year. These construction efforts are another impressive accomplishment. At the end of 2012, these facilities were simply concepts on paper. To install almost 500 million cubic feet a day of capacity in a year's time is an extraordinary achievement made possible through a collaborative effort with our contractors, suppliers and partners. The downstream market served by these facilities include processing and fractionation facilities owned by our Utica East Ohio joint venture or UEO, where M3 has done an equally outstanding job bringing over 200 million a day of processing capacity online in record time.

The Kensington processing plant and the Harrison fractionation facility are world-class facilities strategically placed in the heart of the Utica wet gas development. Our ability to deliver on our construction commitments for our producer customers has been heroic, but I think the performance reliability of these facilities, subsequent to startup, has been equally impressive and, frankly, unmatched in the region. We expect the Kensington facility to have full capacity of 600 million a day available in the second quarter of 2014, and we expect the Harrison facility to have over 135,000 barrels per day of fractionation capacity available in the second quarter next year. I should point out that both the Kensington and Harrison facilities were designed with future expansion in mind and that we have begun construction on a new site in Leesville that will be home to another 200 million cubic feet a day of processing capacity.

The assets and facilities in our Cardinal and UEO joint ventures give access and unmatched competitive position in the Utica, with a vertically integrated system able to serve our producers customers from the wellhead through the fractionation process.

Our total investment in the Utica region at the end of 2015 is expected to be $2 billion. I hope this additional color on the scope of ACMP's operations helps explain why our total invested capital at the end of 2015 will give Access leading gathering and processing positions in the Eagle Ford, Marcellus and Utica basins to go along with our similar positions in the Barnett and Haynesville basins. I've chosen to highlight these positions due to our current capital investment in these areas, but we have growing positions in the Niobrara, Permian and Mid-Continent as well.

Finally, Access continues to be committed to conducting our business in the safest and most environmentally sound manner possible. In the third quarter, we had no lost time incidents. However, we incurred 1 OSHA recordable incident during the quarter. While our total recordable incident rate or TRIR for the first 9 months of the year was 0.34 and reflects that we are one of the safest companies in the industry, our goal continues to be 0 recordable and 0 environmental incidents.

Before we take questions, Dave has some commentary on the third quarter financial results. Dave?

David C. Shiels

Thank you, Mike. Good morning, everybody. Third quarter of 2013 adjusted EBITDA totaled $227 million, an increase of $107 million or 90% compared to the 2012 third quarter. Distributable cash flow totaled $171 million in the 2013 third quarter, up 99% compared to the 2012 third quarter. With a stepped-up distribution, the resulting distribution coverage for the third quarter was 1.51x.

Gathering volumes for the third quarter totaled 3.8 Bcf per day, an increase of 34% over 2012 third quarter. As a reminder, these throughput volumes include volume from our equity investments, primarily in the Marcellus, but not revenue -- 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 third quarter was $261 million, an increase of $105 million or 67% over last year's third quarter.

Total CapEx spending was $399 million for the third quarter. The primary drivers of capital were the Utica, where we invested $169 million; the Eagle Ford, where we invested $81 million; and the Marcellus, where we invested $75 million. Our total capital expenditures in the third quarter kept us in line with our total-year public guidance of $1.7 billion to $1.8 billion for 2013.

We continue to invest significantly in our liquids-rich regions, and those liquids-rich regions should account for about 80% of our total capital investment for 2013 and 50% of our EBITDA by the end of this year.

The Eagle Ford region continues to perform extremely well. Over $245 million of capital expenditures in the Eagle Ford during the first 9 months of 2013 contributed to third quarter 2013 throughput of 295 million cubic feet per day, resulting in revenue of just under $75 million.

Marcellus throughput averaged more than 1 billion cubic feet per day for the third quarter, net to ACMP's interest, an increase of more than 50% year-over-year. The vast majority of the increase in throughput is related to our original equity investment in the Marcellus.

Chesapeake continues to exceed its EBITDA commitment for the Marcellus equity investment. Therefore, we did not recognize any income associated with this commitment in the quarter.

In the Barnett Shale, average throughput decreased from 1.24 Bcf per day in the third quarter last year to 1.06 Bcf per day this year due to decrease in drilling activity by Chesapeake and Total.

Our last year's earnings -- on last year's earnings call, we -- on last earnings call, we provided a range of $40 million to $45 million for the amount of revenue we expect to record in the fourth quarter associated with the Barnett MVC. We are now increasing that range to $50 million to $55 million and have adjusted EBITDA by $17.5 million in the third quarter. Adding this amount to the $20 million we reflected in adjusted EBITDA in the first half of the year, we have now adjusted EBITDA by $37.5 million for the first 9 months of 2013 or 3 quarters of the low end of the new range of revenue we expect to record at the end of this year.

Haynesville throughput averaged 632 million cubic feet per day in the third quarter, an increase of 94% compared to 2012 third quarter, as volume from the Mansfield system acquired in December of last year more than offset a volume decrease on the Springridge system.

The Haynesville and Barnett regions have long-term volume protections through MVC and fee redetermination mechanisms.

Mid-Continent average throughput was 584 million cubic feet per day, a slight increase compared to the 2012 third quarter. A combination of a 2.5% annual fee escalation and rate redetermination effective January 1, 2013, contributed to a 16% revenue increase in the Mid-Continent.

Our third quarter financial results were outstanding, and the consistent results generated by our best-in-class fixed-fee business model have given us the ability to step up the distribution from $0.485 last quarter to $0.535 this quarter. We expect to deliver sustained 15% annual distribution growth from this new baseline. The distribution represents an increase of 23% versus the third quarter last year and 10.3% increase versus this year's second quarter. The distribution will be paid on November 14.

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

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Gabe Moreen of Bank of America Merrill Lynch.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Questions from me in terms of, I guess, Mike, just your latest discussions with Chesapeake, how that relationship has been going with the new management team there and whether you think that, I guess, translates to potentially any changes in your CapEx budget for '14 or '15 or where you might be spending that CapEx.

J. Michael Stice

Gabe, thanks for the question. Obviously, I'm meeting with Doug Lawler, the new CEO of Chesapeake, on a frequent and regular basis. I'm very impressed with his approach, obviously rightsizing the organization, focusing on kind of net profitability at the drill bit. I see a future for Chesapeake that's very bright. Clearly, they're headed in the right direction to become healthy. I do anticipate changes that we're going to need to adapt to as they change their drilling plans. I'm actually thrilled with what I'm seeing at Chesapeake on a variety of fronts. But probably the most important front is, as you know, as Chesapeake's successful, we're successful. With the acreage dedications that we have from Chesapeake in all of these prolific basins, it's very encouraging to see the actions that Doug's taking and his management team are taking to right the ship. So I'm very excited about it.

Gabriel P. Moreen - BofA Merrill Lynch, Research Division

Great. And then if I could shift gears to the Utica in terms of just talking about maybe some of the processing capacities you've got available to be contracted in terms of some of the plants you've got available -- or you're building right now, when you think you might talk about firming up, I think, some of the capacity around those expansions? And then related to that, I mean, do you think in expanding -- announcing additional expansions in the Utica beyond what you already announced, do you think that's a 2014 event or do you think you're probably going to wait a little bit longer to see how the Utica develops?

J. Michael Stice

There's obviously already in the works 800 million a day of processing capacity, 600 million a day at Kensington and another 200 million a day at Leesville. You saw Aubrey's announcement here recently, where AEP has acquired some acreage from Intervest in our footprint. We also secured 15,000 acres of that dedication for our processing facilities, specifically at Leesville. I think the decision for incremental processing capacities, specifically from the joint venture of Chesapeake, Total, others, will likely have to come later in 2014. So rather than a decision being made this year, I think it might be deferred to next year because we really need to see what the drilling plans for Chesapeake are going to be. I really don't have any insight into that at this 10 [ph] seconds [ph]. There's no doubt that there is a lot more reserves there than have been committed to processing to date. So, obviously, I'm anticipating quite a bit of an expansion at some point, but frankly, the timing is unknown to me.

Operator

We'll go next to Stephen Maresca of Morgan Stanley.

Stephen J. Maresca - Morgan Stanley, Research Division

Impressive volumes in the Marcellus. I'd like to start there with a question, just on those record dry gas volumes. Can you talk about any evidence of changes that you may be seeing now going forward in drilling activity, just due to the basis issues that are cropping up in the Northeast? Is that going to impact you guys going forward or are you not seeing that now and don't expect to?

Robert S. Purgason

Stephen, we're -- this is Bob. We're not really seeing huge changes on the producer side. The economics still appear to be good in that not only with Chesapeake, with other producers that we're in touch with. And there's new capacity coming on in November from a downstream perspective. So my own view is this is kind of a summer, winter differential play, where the Northeast markets will absorb the gas in the summer -- I mean, excuse me, in the winter. And then in the summer, there are going to be periods where folks are not fully contracted on their space, have trouble placing their gas, depending on what storage levels are. It's not going to impact our activity, though, and we continue to see strong growth in that area.

J. Michael Stice

Steve, this is Mike. One thing I would just comment, too, you have to be impressed, I believe, in the Marcellus and in the success the producers have had in developing that northern part dry gas region. It has been every bit of what it was built to be.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. I appreciate that. Switching to Utica, you laid out some numbers on Cardinal in terms of where you'd be at the end of the year, 500 million; Kensington, at second quarter, 600 million; Harrison, I think 135 million is what you said. Can you just remind where -- what of those is cost of service and what of those is -- has volume sensitivity to it? And any thoughts that you could give in terms of how you think the volumes will ramp on those over the next year, I guess.

J. Michael Stice

Yes, Steve, you got to think about the Utica as really 2 different businesses. You've got the gathering business, where we have our compression capital gathering effectively pipeline, delivering the rich wellhead processable gas to these processing facilities. And in that piece of the business, it's all under a cost of service protection methodology, where you have both capital and volume protection. The processing in fractionation is more of your traditional fixed-fee relationship, where you do have some volume and most of the capital risk. However, it's important to note that the terms and conditions under those contracts, they give us rights to effectively the first 600 million a day of gas out of that basin. So we have quite a bit of certainty around being able to fulfill the obligations under the first 600 million a day. And likewise, in the incremental 200 million a day, we probably have line of sight to half or 100 million a day of that supply as well. We also have some protections, contractual protections, around the quality of the gas that ultimately is going to the fractionator so that we don't have any barrels of capacity exposed there. And we further have the ability to understand how the ethane rejection is going to take place so that we're not commercially harmed if the producer chooses, due to macroeconomic pricing terms, to ethane-reject. We are protected from that economic impact as well. So as you can tell, the processing fractionation is under different commercial terms than Cardinal's gathering and compression.

Stephen J. Maresca - Morgan Stanley, Research Division

Okay. I appreciate that. And a final one for me on the distribution. You stair-stepped this quarter. You mentioned you'll go back to the target of 15%, but yet you had another really robust quarter with the 1.5 coverage, which is great. How often do you think you'll be reviewing, doing other stair steps? Is it fair to say, if you continue to run coverage above 1.3 or 1.4, you'll consider another stair step? Is that the threshold? And how should we be thinking about it?

David C. Shiels

Yes, Steve, I don't think it's as simple as that. So I think this was an opportune time for us to step up. We got great line of sight as we continue to evolve in the business to the 15% sustained distribution growth that we talk about going forward. Clearly, our coverage, with the success and the execution of the business, has gotten extremely high. So we thought it made perfect sense, given the line of sight, to the distribution growth. No material change to how we'll fund the business going forward. So it makes perfect sense to deliver some of that excess cash back to the investor. But I don't think it's as simple as being over a certain number on coverage that leads to a step-up. There is multiple factors, and we, of course, work this conversation hard with the GPs and the board. But there are multiple factors in the decision, and we thought this was a very opportune time. And we thought $0.05 was the right number.

J. Michael Stice

So, Steve, as you know, that's a board-level decision, and there was no conversations with the board about any kind of formulaic approach. It will be a rigorous assessment of the condition of the business and where we are relative to that coverage ratio and what the right thing to do is for both our investors and for the growth of the business.

Operator

We'll go next to TJ Schultz of RBC Capital Markets.

TJ Schultz - RBC Capital Markets, LLC, Research Division

I guess just kind of switching gears to the Haynesville. Can you just remind me of this fee redetermination process looking into 2014? Is this something where you look solely back at volumes in 2013 and determine a rate to get to those returns? Or do you look at a different period here, just given the time line you've had Mansfield and Springridge?

Robert S. Purgason

Sure, Gabe. So -- or TJ. Thinking about the Haynesville, you have to break it into 2 components. Our Springridge business that we've had is under -- we'll call it the standard redetermination contract, that on an annual basis looks back at past performance, sees how that compares to our original schedule. And then fees are adjusted with a cap of 15% max, given the financial performance of the business, both from a revenue and a capital and a compression cost perspective. So we do anticipate that we'll be kind of at the max there because there's not been volume growth in the Haynesville, as you've seen. As to the Mansfield component, that is a different contract. We have a 5-year minimum volume commitment that ramps up. We have -- that's detailed in the Ks and Qs. And you can take a look at -- there's a big step-up in that minimum volume commitment next year. So we really are anticipating additional rigs moving into the Mansfield side of the Haynesville to start to underpin that minimum volume commitment with some real gas in terms of gas flows for next year. So think about that in 2 businesses. That one then has no fee adjustment other than just an escalation. It's really the minimum volume commitment that drives the Mansfield system.

J. Michael Stice

And the only thing I would add to that, TJ, is that -- and you probably saw the transaction that Chesapeake did with EXCO here recently, where on the northern part of the Mansfield system, EXCO acquired some of that acreage, and they tend to be and are already showing signs of being much more aggressive in drilling up that Mansfield. So, obviously, that volume will contribute towards the MVC commitment. But we are seeing already an increased activity level in the Haynesville.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Just lastly, Dave, sorry if I missed it, but what have you raised on the ATM so far?

David C. Shiels

No material amount, TJ.

Operator

We'll go next to Jeff Birnbaum with UBS.

Jeffrey Birnbaum - UBS Investment Bank, Research Division

So a kind of related question to the distribution step-up question that Steve asked and how Dave mentioned there won't be changes to funding in the business. In the past, I know you've talked about how you like a certain amount of excess coverage for dry powder for -- from internal cash flows for CapEx, bolt-ons, that sort of stuff. And, Mike, you've always -- also spoken about how you see Access as a potential consolidator in this space. So with M&A accelerating across the sector, kind of what are your latest thoughts there on opportunities and what you're seeing out there today?

J. Michael Stice

Sure, Jeff. Obviously, there's been quite a few deals that have been announced. It's fair to say that we've looked at them all. As I mentioned to you before, we're highly committed to ensuring that any acquisition that we would look at would be accretive and would be attractive to our investors. Frankly, we've seen deals that wouldn't accomplish that for our investors. And so we have not been successful to date, but that's not to say that we don't see opportunities out there in the marketplace today that could be encouraging and could fit our portfolio quite well. You can imagine that those discussions are ongoing, and I'm obviously not prepared to make any announcements here today. But it plays into your question around coverage ratio and kind of that decision -- one of the factors that Dave highlighted in that decision on whether or not you would use a step-up distribution or not. We like that -- the fact that we have that reasonably high coverage ratio. We like the fact that we've got good access to dry powder, and we're excited about some of the opportunities that are out there. But it's just simply too early for us to declare success or be able to tell you that we have a line of sight on an opportunity. But we continue to aggressively evaluate and pursue those, and we hope to, at some point, find the right deal for the right transaction, that consolidate some of these positions in these basins that we already have a leading position in.

Operator

We'll go next to Darren Horowitz of Raymond James.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Mike, I appreciate all the color on the 2014 and 2015 growth outlook. That's where I just had a couple of additional questions. My first, as you guys in the Utica, in particular, are talking further with producers, has there been any additional progress regarding a condensate solution yet? I know that you had talked about maybe central delivery points that would minimize trucking, transport cost and, obviously, benefit the net back to the producer. And I'm just wondering if we're getting to the point where something like that needs to happen or possibly you even think about laying condensate pipes next to your existing liquids pipes.

J. Michael Stice

Well, Darren, thank you for the question. And, obviously, there have been ongoing conversations with the producers in the basin. There's a variety of incumbents in the area that probably have some pipelines that could be repurposed. I think everybody on this phone call knows that the current premium market for condensate natural gasoline is as a diluent in Canada. And so when you think about taking our current supply in the Utica, which is becoming abundant quickly, and finding its way to that premium market, the current solution is truck to central delivery points and rail to that market. The future solution will clearly be a pipeline running from the Utica basin west, potentially accessing Southern Lights and then going north into Canada. And so I do anticipate a project like that being developed. I think it's fair to say that the volumes have not achieved the critical mass necessary to justify that repurposing and that reconfiguration of some of the existing pipelines and, frankly, the new pipelines that have to be laid. But as every basin develops, this is the process it goes through. You generally go for the higher-cost interim solutions, secure the kind of volumes that it takes to justify the capital investment for the longer-term solution. And I think that's a 2014 phenomenon.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Okay. And then switching gears a little bit. I know that you had spoken about possibly some rail offloading opportunities and being in line to participate in that with regard to what Williams is doing at Echo Springs. So I was wondering if that's progressed any further, if you have a better idea of what the capital commitment could be and the timing, please?

J. Michael Stice

So you -- Darren, you really need to take a trip. I don't know if you've been to the Utica. You should go and look at our Harrison Hub. You will be most impressed with the rail loading facilities that have been built there. These are world-class, and we have direct access to all the main rail lines there. And we built a system that handles not just the propane and butane but all the capability to do the condensate NGLs at a point in the future when that obviously makes more sense. So we're already in a place to where that infrastructure is in place, and now it's just a matter of making sure the producer needs it. And when they need it, we're there to deliver it. Most of the condensate is currently being trucked away at the wellhead. So it's not being aggregated there. We're building storage capacity at Harrison Hub to be able to facilitate that in the future. So we're way ahead of the game in providing that rail facility.

Operator

[Operator Instructions] We'll go next to John Edwards of Crédit Suisse.

Abhiram Rajendran - Crédit Suisse AG, Research Division

This is Abhi Rajendran calling in for John. A couple of quick questions. Your EBITDA stepped up pretty nicely from 1Q to 2Q and then in 3Q, obviously. Is there any reason we should not expect another step-up in 4Q, which should pretty much put you towards the high end of your full year guidance for this year?

David C. Shiels

Well, I think, clearly, the business has good momentum going into the fourth quarter. So I anticipate ongoing performance. And when you add up the numbers, I think it's clear, if we deliver another quarter in the fourth quarter like we did in the third quarter, we're at the high end of the $800 million to $850 million. So we're not guiding to the fourth quarter, specifically. But with the trend, as you described, and if we can replicate the third quarter in the fourth quarter, we will be in the high end of that range. That's what the math shows.

Abhiram Rajendran - Crédit Suisse AG, Research Division

Okay, great. And then in the third quarter, you guys saw revenue growth of roughly 70%, with the volumes up about 34%, 35%. Can you talk a little bit about the drivers on the rate side that are driving revenues and how we should think about that going forward?

J. Michael Stice

Yes. I think probably the way to think about -- I always think about volumes, and that's specifically your question in the terms of exit rates. And if you go and look at our exit rates as of September 30, of our total 3.72 net Bcf per day, you see about 1.05 coming from the Marcellus on a net basis; similar volumes from the Barnett Shale, 1.05; Eagle Ford is in the early stages, so 310 million a day is our exit rate on 9/30; Haynesville, 580 million a day; and, of course, the Mid-Continent, which is a compilation of a number of different areas, 560 million a day; leaving the Utica and the Niobrara at fairly low numbers as of 9/30. But as I mentioned in my opening remarks, the ramp-up in the Utica is significant, we'll be at 500 million a day by the end of the year. So I think from a volume standpoint, you can see that these businesses are growing at a pretty nice clip. The way I'd like to answer your question, though, when you think about the portfolio, you probably ought to think in terms of where is our capital invested? And if you look across all of our portfolio, there's a couple of points that I'd like to make in answering your question, Abhi. One is we're very well diversified. So of our little over $10 billion in invested capital at the end of December 2015, after this $3.5 billion has been spent. Roughly 20% of that portfolio will be invested in the Barnett, 17% in the Marcellus, 15% in the Haynesville, those combined to be kind of dry gas plays. So you're roughly 50% exposed to the dry gas part of the equation. And then the remaining: 16% will be invested in the Eagle Ford, 12% in the Mid-Continent, 19% in the Utica. And when you add that up with miscellaneous that we have in the wet gas plays, you have another 50% invested in the wet gas. So when I think about your question and, specifically, how we placed our bets, not only are we diversified across a variety of very prolific basins, we're also well-balanced relative to the macroeconomic principles of dry gas-driven economics for the producer versus wet gas-driven economics. So I think that bodes really well for our future.

David C. Shiels

And I'll just add, Mike, from an average fee perspective, when you're looking year-over-year, we got a big benefit from adding Eagle Ford to the portfolio, right? It's a high fee area, generally. And then we also have the impact of the redeterminations and the fee escalations that are significant impacts year-over-year. So we have favorable fee mix from the addition of the Eagle Ford to the portfolio and then the redeterminations and the fee escalations.

Abhiram Rajendran - Crédit Suisse AG, Research Division

Great. And just one last quick one, if I may. Your operating expenses have been relatively well-controlled despite the ramp-up in revenues. I'm just wondering how we should think about continued improvements in terms of OpEx as a percentage of revenues going forward over the coming years?

David C. Shiels

Yes. I'll let Bob add some specific color to activities in the business to drive OpEx improvement. But I'll tell you, first of all, as you go through our press release, we have substantial operations that are equity investments. So it can be challenging to compare OpEx on a per Mcf basis or a volumetric basis year-over-year. But I would say, generally, with our increasing scale, when you look at it on a net consolidated basis like we do internally, our increasing scale is driving OpEx favorability significantly, as we've grown the last couple of years significantly -- in particular with the addition of the CMO assets in December. So we continue to get the scale benefit from adding assets to the portfolio. It can be a little challenging to see that as you look at how we're accounting for the equity investments.

Robert S. Purgason

Yes. And I guess the thing I'd like to add is how proud I am of our Barnett and Haynesville teams. Where volumes have declined, they've kept their per unit operating cost very much in line with where the business has gone. And then in these growth basins, as Dave said, we get that scale benefit of growing volumes. So what you're seeing is there's not an equal offset because of the strength of the performance in the Barnett and the Haynesville on cost. And we're still getting in the growth basins good leverage on the operating cost side.

David C. Shiels

And I would just pass my compliments on to Bob and his team because that has been an extraordinary effort as these dry gas basins tend to decline. Bob's team has redeployed resources and have managed their operating cost, frankly, better than I've ever seen anybody. So it's been a great job. I would think there's another component of operating cost that you ought to be aware of, if you're not picked up on it in the past, is that we've been going through a major transition effort. The transition away from Chesapeake in creating independence has been an enormous undertaking this year and will trickle into part of next year. We're roughly 92% complete with that transition. So we've had a bit of a headwind this year. So the results that you're seeing have been over on top of that effort, which has driven both some capital projects and IT, as well as some operating costs. I think we will see for the first time in 2014 what our OpEx is going to look like from a G&A perspective in supporting the business 100%. And we're working really hard to turn what was a synergy while we were a part of Chesapeake into a further cost savings as an independent. I must admit, when I headed into this separation, I really did feel that our G&A was going to go up because it just seemed rational that having taken advantage of the incremental cost within Chesapeake, I was going to see, as an independent entity, an increase in cost. But we have been thrilled, Abhi, on how we've been able to manage those costs and make decisions that effectively reduced the costs. So I think you're going to continue to be impressed with our cost management.

Operator

We'll take our next question. We'll go to James Spicer of Wells Fargo.

James Spicer - Wells Fargo Securities, LLC, Research Division

Just hoping you could provide an update of where you are today in terms of third-party volumes and whether your thoughts around the progression there have changed at all.

J. Michael Stice

So, James, my thoughts have not changed. To me, it's our future, right? We have to, on one front, balance our portfolio of customers. We currently still have a large percentage of our revenue with Chesapeake, logically, because that's where we came from, in all that acreage dedication. But we also need to be providing that service to third parties. And so I remain committed to the goal of getting our revenue exposure to Chesapeake down below 50% but, more importantly, have that revenue exposure to other new producer customers up to 50%, so expanding our service-providing efforts to a much broader producer base. We are seeing some progress. We're getting some onesie-twosies, is what I would refer to them, in third-party volumes. The number of customers that we actually serve has gone up significantly, but it hasn't made -- it hasn't moved the needle yet just because of our large acreage dedication and, obviously, the accelerated development that we're seeing from our Chesapeake-operated acreage dedication. So we remain committed to the goal. Our view has not changed, and we're staying the course. So we are excited about some of these transactions that Chesapeake has done, like the one I referenced earlier in the Haynesville with EXCO, where we naturally convert to a new producer customer in the form of EXCO.

Robert S. Purgason

James, let me just add a couple of comments. We see good non-Chesapeake activity in the Eagle Ford. Obviously, with Aubrey's business in the Utica, the South Marcellus area is an area where we are having success with independent producers. And I think if you look at kind of from when we went public initially to today, we've increased from originally 22 shippers who were not Chesapeake to 49 today. So I think we continue to see progress one at a time. It's just hard to move that revenue needle because of the scale of the base business. But the team's working diligently, and we're very pleased with the progress we're making.

James Spicer - Wells Fargo Securities, LLC, Research Division

Yes. I understand and appreciate the update. Do you have the actual percentage of Chesapeake volumes on your system today?

David C. Shiels

Yes. It's roughly 75%.

Operator

We'll go next to Michael Bloom of Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Actually, this is Sharon. Just a question on your investments through 2015, especially the areas where you have cost of service contracts. Should we think of, I guess, the returns being at least the long-term targets at that point in time? Like for the Eagle Ford, I think you indicated that you have like about $1.7 billion of investments by the end of 2015. Should we -- I guess, should our model sort of reflect at least your targeted returns at that point in time?

Robert S. Purgason

Sharon, one thing to remember. We've talked about our cost of service rates and the way that levelized rate is designed. And given that, you find in several of the plays where you don't immediately hit that mid-teens return, but that's what gives us good EBITDA growth continuing out past the capital spend initial period. So I think you might overstate things a little if you immediately went to the targeted return in the first year of operation. You need to ramp that up over time, but obviously, it's compounding at that rate. So we're getting good value out of that as it ramps up. But it's a little challenging to model, but that's really the way to kind of think about it.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And then, I guess, for the Eagle Ford, should we anticipate, I guess, spending to level off after 2015 since most of the infrastructure would be placed during that time period?

Robert S. Purgason

I think the activity in the Eagle Ford related to Chesapeake should -- that's a good assumption. We're continuing -- and we're not guiding -- but continuing to work on projects in the Eagle Ford that would be bolt-on in nature, that are not acquisition types, and we'll hope that, that spending will backfill a little bit. But the bulk of the infrastructure is built out.

Operator

We'll go next to Lin Shen of HITE.

Lin Shen

Given your strong balance sheet and also your ATM program, do you think you can keep your organic growth projects self-funding this year and in the near future?

David C. Shiels

Yes. Lin, x M&A, of course, we feel very confident that the ATM program is enough to help us fund the growth program that Mike and Bob have described. So from an equity perspective, our small ATM program is sufficient. The balance will be debt-funded, excluding any M&A activity.

Lin Shen

Great. You have a $300 million ATM program for this year, yes? Do you plan to use all of them this year? Or what's your plan?

David C. Shiels

No, no, no. The $300 million is a 12-month program, which we haven't even started using yet, effectively.

Operator

At this time, we have no further questions. I would like to turn the call back over to our speakers for any additional or closing comments.

J. Michael Stice

Well, thanks again for everybody calling in this morning. As you can imagine, we're very excited about our quarter. We had an outstanding quarter from virtually every perspective that you'd like to judge. I personally am thrilled that we were able to step up our distribution for our investors. We think that's clearly an exciting message for our unitholders. And we have a very bright future with regard to this 3-year organic growth capital program. And so we're committed to executing on that growth, and we're also committed to managing our operating costs as we see shifts in our portfolio, driven by some of the changing dynamics over at our -- at Chesapeake.

So thanks again for joining us in the call, and I look forward to next time.

Operator

That does conclude today's conference. We thank you for your participation.

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