Plains All American Pipeline, L.P. (NYSE:PAA)
Q3 2013 Results Earnings Call
November 5, 2013 11:00 AM ET
Roy Lamoreaux - Director, Investor Relations
Greg Armstrong - Chairman and CEO
Harry Pefanis - President and COO
Al Swanson - Executive Vice President and CFO
Mark Reichman - Simmons
Cory Garcia - Raymond James
Paul Jacob - Credit Suisse
Ladies and gentlemen, thank you for standing by. And welcome to the PAA and PNG Third Quarter Results. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session (Operator instructions) As a reminder, this conference is being recorded.
I would now like to turn the conference over to Director of Investor Relations Mr. Roy Lamoreaux. Please go ahead sir.
Thank you. Good morning. Welcome to Plains All American Pipeline and PAA Natural Gas Storage Third Quarter 2013 Results Conference Call. The slide presentation for today’s call is available on the Investor Relations section of our website at paalp.com and pnglp.com.
I would mention that throughout the call we would refer to the companies by their New York Stock Exchange ticker symbols of PAA and PNG respectively. As a reminder, Plains All American owns a 2% general partner interest in all of the incentive distribution rights and approximately 61% of the limited partner interest in PNG, which accordingly is consolidated into PAA’s results.
Today’s presentation will include certain information regarding the proposed merger of PNG with PAA. This presentation does not constitute an offer to sell any securities and investors should look to the registration statement and proxy statement relating to the proposed merger that will be filed with the Securities and Exchange Commission and will be available on the Securities and Exchange Commission’s website at sec.gov.
In addition to reviewing recent results, we will provide forward-looking comments on the partnerships’ outlook for the future. In order to avail ourselves with the Safe Harbor pre-concepts that encourage companies to provide this type of information, we direct you to risks and warnings set forth in the partnerships’ most recent and future filings with the Securities and Exchange Commission.
Today’s presentation will also include references to certain non-GAAP financial measures such as EBITDA. The non-GAAP reconciliations sections of our websites reconcile certain non-GAAP financial measures to the most directly comparable GAAP financial measures and provide a table of selected items that impact comparability of the partnerships’ reported financial information. References to adjusted financial metrics exclude the effect of these selected items. Also for PAA, all references to net income are references to net income attributable to Plains.
I would also note that in mid-October Plains GP Holdings LP which indirectly owns an approximate 20% economic interest in PAA’s general partner interest and incentive general rights prior to initial public offerings is now traded on the New York Stock Exchange on the ticker symbol PAGP. We will provide additional comments on PAGP later in the call.
Today’s call will be hosted by members of PAA’s management team. The call will be chaired by Greg L. Armstrong, Chairman and CEO. Also participating in this call are Harry Pefanis, President and COO of; and Al Swanson, Executive Vice President and Chief Financial Officer. In addition to these gentlemen and myself, we have several other members of our management team present and available for the question-and-answer session.
With that, I’ll turn the call over to Greg.
Thanks, Roy. Good morning and welcome to everyone. Yesterday after market close, PAA reported solid third quarter 2013 results. Third quarter adjusted EBITDA totaled $480 million, which exceeded the midpoint of our guidance by $50 million or approximately 12%.
Overall, crude market conditions for the quarter were generally in line with expectations incorporated into our guidance that meaningfully less favorable than that experience in the third quarter of 2012. Compared to last year's third quarter, adjusted EBITDA, adjusted net income and adjusted net income per diluted unit decreased by 4%, 12% and 27%, respectively.
The quarter-over-quarter decrease in the adjusted EBITDA is the direct result of a $45 million decrease in our Supply and Logistics segments due to the change in market conditions I mentioned previously.
Partially offsetting this decrease, a non-baseline cash flow was $23 million increase in PAA’s fee-based Transportation and Facilities businesses, and the summary of our third quarter  results is on slide four.
As reflected on slide five, these results marked the 47 consecutive quarters that PAA is delivering result in line with or above guidance. Additionally, PAA has increased its distribution in each of the last 17 quarters and in 36 out of the last 38 quarters.
For the third quarter of 2013, PAA declared a distribution of $0.60 per common unit or $2.40 per unit on an annualized basis. This distribution represents a 10.6% increase over the partnership distribution paid in November 2012 exceeding the upper end of our 2013 targeted increase of 9% to 10%.
Distribution coverage was 111% for the third quarter and 145% for the first nine months of 2013. Based on achievement of midpoint guidance, we expect full year distribution coverage will approximately 139%.
Yesterday evening, PAA furnished financial and operating guidance for the fourth quarter and full year of 2013, as well as preliminary guidance for 2014. Primarily as a result of PAA’s third quarter over performance, we increased the midpoint of PAA 2013 full year adjusted EBITDA guidance to $2.24 billion, an approximately $50 million increase over the full year guidance we have provided last quarter.
PAA’s preliminary guidance for 2014 as reflected on slide six, targets the midpoint for adjusted EBITDA were approximately $2.18 billion. This guidance incorporates an approximately 20% increase in our fee-based Transportation and Facility segments as a result of our ongoing capital program and assumes baseline -- market conditions for our Supply and Logistic segment.
The mid-point of our guidance assumes our Transportation and Facility segments will comprise approximately 75% of total adjusted EBITDA with the preponderance of the Supply and Logistics contributions comprise of baseline pre-equivalent activities related primarily to our crude oil gathering activities.
We believe market dynamics are such that volatility and market structure and basis differentials could provide above baseline opportunities during 2014 for our Supply and Logistics segment. This view is supported by PAA’s meaningful presence in substantially all the primary North American production areas, as well as our ability to participate in substantially all aspects of the Midstream crude oil value chain.
As a result, PAA’s position to deliver solid baseline performance in typical markets and above baseline performance at market structure and bases differential remain volatile and transportation bottleneck persist. The timing and impact of such developments are difficult to predict with any accuracy and thus are not incorporated into our baseline 2014 guidance.
With respect to distributions, we are targeting to achieving a November 2013, November 2014 distribution growth rate of approximately 10%, while continuing to maintain healthy distribution coverage.
The midpoint of our 2014 preliminary guidance range implies the distribution coverage of approximately 112% with the low and high-end of the guidance range equating to 105% and 119%, respectively.
As shown on slide seven, at the midpoint PAA would retain more than $160 million of cash flow and excessive distributions to be applied towards the financing of our 2014 expansion capital program. I would note that our 10% distribution growth target excludes the impact of any significant acquisitions.
In addition to the significant organic growth activity, we also had a fair level of financing activity during the quarter, as well as initiated two strategic transactions, one involving our majority-owned subsidiary PNG and one involving the IPO of minority interest in PAA’s general partners.
With respect to PNG as described on slide eight, last night PAA entered into a definitive agreement to acquire the outstanding publicly traded units of PNG. PAA plans to file a Form S-4 with the SEC in the coming days that will describe, among other things, the proposed transaction, the rationale for this transaction, the background and negotiations leading up to the execution of the definitive merger agreement and the factors considered by the independent committee of the PNG board. Subject to timing considerations associated with the SEC review process and soliciting required unitholder vote, we are targeting to be in a position to complete this transaction by the end of the year or shortly thereafter. In any event, we fully anticipate that the transaction will close prior to the early February time period when PNG would normally establish a record date for a quarterly distribution with respect to the fourth quarter of 2013. In other words, we expect that PNG’s public unitholders will have received PAA common units and will be eligible to receive a distribution on the PAA units held on the normal February record date.
I would also note that as previously announced, PNG will be paying a quarterly distribution of 35 and three quarter cents per common unit on November 14 to holders of the common units as of the record date of November 4. Given regulatory limitations and the level of information that is included in PNG’s third quarter earnings release as well as the information that’s already available to the public, will soon be available once the Form S-4 has been filed. We have suspended the issuance of any guidance regarding PNG.
Additionally, we do not intend to provide any additional information or take any questions regarding PNG’s performance or the proposed transaction on today’s call. We appreciate your understanding and call for cooperation in this regard.
We will provide a few comments relative to the general partner IPO during Al’s section and also in my closing remarks. Throughput the remainder of today’s call, we will discuss specifics of PAA’s segment performance relative to guidance, our expansion of capital program, financial position and major drivers and the assumptions supporting PAA’s fourth quarter 2013 financial and operating guidance.
With that, I will turn the call over to Harry Pefanis.
Thanks, Greg. During my section of the call, I’ll review PAA’s third quarter operating results compared to the midpoint of our guidance, the operational assumptions used to generate our fourth quarter guidance, and provide an update on our capital program.
As shown on Slide 9, adjusted segment profit for the transportation segment was $205 million, which is slightly above the midpoint of our guidance. Volumes were 3.7 million barrels per day and adjusted segment profit per barrel of $0.67 were in line with the midpoint of guidance.
As discussed in our last conference call, we reduced the August guidance for the second half of the year by approximately $15 million related to proactive shutdowns of certain pipeline segments in Western Canada due to flooding conditions at certain water crossings and precautionary replacement of some of these water crossings.
We currently estimated for second half impact of these shutdowns to be between $5 million and $10 million with the majority of the impact already reflected in our third quarter performance. Adjusted segment profit for the facility segment was $150 million, $15 million above the midpoint of our guidance. Volumes of 120 million barrels of oil equivalent per month was slightly below the midpoint of guidance and adjusted segment profit per barrel was $0.42 or $0.05 above the midpoint of our guidance. Our performance in this segment was driven by lower expenses, primarily related to timing of certain costs and a favorable mix of product recoveries from our NGL facilities, partly offset by lower than forecasted rail loading plus unloading revenues and volumes.
Adjusted segment profit for supply and logistics segment was $124 million, $34 million above the midpoint of our guidance. Volumes of approximately 1 million barrels per day were in line with the midpoint of our guidance and adjusted segment profit per barrel was $1.34 or $0.35 above the midpoint of our guidance. Our performance in this segment was primarily driven by favorable NGL sales margins, for the most part, this is an acceleration of margins previously expected in the first quarter of 2014.
Maintenance capital expenditures for the third quarter of 2013 were $42 million and were slightly lower in our forecast for maintenance capital expenditures for the year by $10 million to a range of $165 million and $185 million.
Let’s now move to Slide 10 and review the operational assumptions used to generated our fourth quarter 2013 guidance. For the transportation segment, we are forecasting midpoint to adjusted segment profit of $218 million, volumes to be 3.9 million barrels per day and adjusted segment profit to be $0.61 per barrel.
Our fourth quarter transportation guidance includes benefit of recently completed organic growth investment, including projects in both the Permian and Eagle Ford areas and the impact of the sale of our Rocky Mountain refine product pipeline assets which is schedule to early this month.
For the facility segment, we are forecasting midpoint adjusted segment profit of $149 million, capacity to average 122 barrels of oil equivalent per month, due to higher rail volumes and adjusted segment profit to be $0.41 per barrel.
For the Supply and Logistics segment, we are forecasting midpoint adjusted segment profit of $177 million, volumes to be approximate $1.1 million barrels per day, and adjusted segment profit to be $0.70 per barrel, reflecting a seasonal increase in NGL sales of volumes and crude oil price differentials that are more favorable to us as were in the third quarter.
I’ll now move on to review our capital program which is shown on slide 11. We have fine tuned our full year estimates resulting in an increase in our 2013 capital program by $50 million to $1.665 billion. This increase is primarily due to timing of projects and to lesser extent higher cost on couple of projects.
By the end of the year we have invested approximately $2.6 billion and currently approved projects with the vast majority of these investments schedule to be reached full run rate cash flow in 2014 and beyond.
Our preliminary capital program for 2014 total approximately $1.3 billion to $1.5 billion and our bias is definitely to be upper end of the range. We have number of projects in the Permian Basin that are being advanced but not yet finalized.
Slide 12 provides an update on the expected in-service timing of some of our larger approved projects. I’ll spend a few minutes providing update on some of these projects. We expect to begin construction on our Cactus Pipeline in the first quarter of 2014 and are targeting an in-service date by the end of the first quarter of 2015.
In conjunction with the Cactus Pipeline we are expanding our Eagle Ford joint venture pipeline from 300,000 barrels a day to 470,000 barrels per day. This expansion in expected to be in-service by the end of the second quarter 2015.
Phase II of our Mississippian Lime Pipeline which extend the system to Coldwater, Kansas is expected to be impartial service by the end of the year and in the full service by the end of first quarter 2014. Our Western Oklahoma Extension is also expected to be in-service by the end of the first quarter 2014.
In Canada, our focus is primarily been on the expansion of our fractionation capacity and the development of additional storage cabinets for both NGL and condensate service at our Fort Saskatchewan facility. While we are elected to discontinue the joint venture development of the Western Reach Pipeline system we are continue to evaluate opportunities to participate in the expected growth of NGL volumes in Alberta’s deep basin region.
With regard to our rail projects, our Tampa, Colorado loading facility is expected to come into service this month and our Yorktown, Virginia facility is expected to be in-service in December.
We expected unloaded facility in Bakersfield, California and expansion of our Van Hook, North Dakota loading facility to be in service by mid 2014. We’re also developing a rail loading project in Canada, which we expect to be in service in the first quarter of 2015.
Finally, note that a completion of both our Gulf Coast Pipeline and our Bakken North line has been moved to 2014, primarily due to timing of permits a right way.
With that, I’ll turn the call over to Al.
Thanks Harry. During my portion of the call, I will review PAA’s financing activities, capitalization, liquidity and guidance for the fourth quarter and full year of 2013. I will also discuss PAA’s 2013 distribution coverage and financial positioning.
As reflected on Slide 13, in the third quarter, we completed several financing transactions. First, we completed a $700 million offering of 3.85% 10-year senior unsecured notes.
Next, we renewed our $1.6 billion, five-year senior unsecured revolving credit facility and our $1.4 billion three-year senior secured hedge inventory facility. These facilities now mature in August 2018 and August 2016 respectively.
Additionally, we established our $1.5 billion commercial paper program which provides a more cost effective financing source relative to our credit facilities. Finally, through our continuous equity offering program, PAA issued approximately 1.2 million units in the third quarter raising approximately $69 million in equity capital.
As illustrated on Slide 14, PAA ended the third quarter with strong capitalization and credit metrics that are favorable to our target. At September 30, 2013, PAA had a long-term debt to capitalization ratio of 48%, a long term debt to adjusted EBITDA ratio of 3.1 times and adjusted EBITDA to interest coverage ratio of 6.7 times. Our committed liquidity at the end of the quarter was approximately $2.9 billion. We used the majority of the proceeds from the senior note issuance to temporarily pay down approximately $600 million of our short term hedged inventory debt. If this inventory were funded with short term versus long term debt at September 30, this would equate to a quarter turn -- 0.25 times lower long term debt to adjusted EBITDA ratio, reflecting our proactive prefunding for our capital investments.
Moving on to PAA’s guidance as summarized on Slide 15. We are forecasting midpoint adjusted EBITDA of $545 million and approximately $2.24 billion for the fourth quarter and full year of 2013 respectively. As Greg mentioned, our guidance for the fourth quarter assumes less robust market conditions than we experienced in the fourth quarter of 2012 and in the first nine months of 2013, which specifically impacts guidance furnished to our supply and logistics segment where we have assumed near baseline profitability with a typical fourth quarter seasonal uplift in NGL sales. For more detailed information on our 2013 guidance, please refer to the Form 8-K that we furnished yesterday.
As represented on Slide 16, based on the midpoint of our 2013 guidance for implied BCF and distributions to be paid throughput the year, our distribution coverage is forecast to be approximately 139%. This equates to PAA generating and reinvesting over $450 million of cash flow in excess of distributions in 2013. Given our strong capitalization at quarter end, proceeds from the expected refined products pipeline sales and our projection for retained BCF for the balance of the year, we have pre-funded the equity capital needs associated with our remaining 2013 expansion capital program and our preliminary 2014 capital program.
However as a result of our visibility for continued organic growth capital investments and our desire to stay well capitalized to participate in potential acquisition opportunities, we intend to continue to opportunistically pre-fund our organic growth and capital needs through our continuous equity offering program. Accordingly, absent significant acquisition activity, we do not expect to execute in overnight or marketed equity offering during the balance of 2013, or 2014.
Before turning the call over to Greg, I would note that the PAGP offering was priced on October 15 after the close of the third quarter. Including the partial exercise of the underwriters’ overallotment option, a total of 132.4 million shares were issued, representing an approximate 21.8% interest in PAA’s general partner, which is the equivalent to a 20.4% economic interest. Accordingly, although we will file a Form 10-Q for PAGP within 45 days of our registration statement being declared effective, we have not included any financial information regarding PAGP in today’s presentation. PAGP’s only asset are its economic ownership interest in PAA’s general partner and incentive distribution rights. As the control entity, PAGP consolidates PAA and the general partner into its financial statements.
Accordingly, during future calls, we do not intend to cover PAA’s GAAP results, instead, we plan to include a schedule that reconciles PAGP’s distributions from PAA’s general partner with the distributions to PAGP’s shareholders as well as a summarized consolidating balance sheet. Using information based on the third quarter balance sheet and related distributions, which predates the IPO, pro forma illustrations of these schedules are included in the appendix of today’s presentation.
With that, I will turn the call over to Greg.
Thanks Al. As demonstrated throughout this call, PAA continues to deliver solid operating financial performance and we remain on track to meet or exceed each of our goals for 2013. Given the recently completed initial public offering of Plains GP Holdings, PAGP now owns an approximate 20% economic interest in PAA’s general partner and the incentive distribution rights. PAGP’s [upsea] structure provides a tax efficient mechanism for PAGP to increase at ownership level in the future to potential sales of ownership interest by other owners of the general partners.
In contrast to PAA, which is a flow-through entity for tax purposes and issues K-1s to its partners, PAGP is a taxable entity and will issue 1099 to its shareholders similar to a typical corporate structure. However, as a result of the amortization of deductions associated with PAGP step up and tax basis, we do not expect this entity to incur current taxes on any material amount for several years.
The primary drivers for the PAGP public offering, which provide a targeted level of liquidity for our general partner owners and establish a public mark for the interest they retain as well as provide a healthy flow for PAGP’s public shareholders. Although a secondary consideration, the FC structure also has the potential to provide the Plains organization with a structural acquisition tool not previously available.
PAA’s general partner owners have been very supportive of PAA’s growth and we expect that certain of these same owners will continue to control the general partner for the foreseeable future. In structuring PAGP, we were careful to preserve the general partner’s ability to make timely, appropriate adjustments to the incentive distribution rights in order to facilitate PAA’s future growth through the acquisitions. We also made a conscious decision to preserve PAA’s strong credit profile and financial flexibility by maintaining very modest levels of debt at PAGP.
Looking forward, we see a positive constructed environment for the Midstream crude oil sector and believe that PAA is one of the best positioned companies within that sector. A comment also, North American crude oil focused drilling activity and projected crude oil production growth, are expected to increase utilization of existing Midstream infrastructure as well as required construction of new Midstream assets.
As a result of PAA’s significant asset position and substantially all the major producing regions, with active involvement throughout the crude oil Midstream value chain and its proven business model, we believe PAA is exceptionally well positioned for the expected environment.
As reflected on Slide 17, over a 10-year period, solid execution of our business model has allowed PAA to deliver compound average annual distribution growth of approximately 8.3%, while maintaining average distribution coverage of approximately 137%. I would note that this time spent includes a multi-year period of uncertainty related to the great recession and the associated financial market chaos for which we proactively elected to slow distribution growth.
Following the end of the great recession and the commencement of the Renaissance to North American crude oil production, PAA’s distribution growth increased averaging approximately 10% per year since November 2011, while at the same time generating distribution coverage of nearly 150%.
Underpinned by expected fee based cash flow contributions from PAA’s ongoing expansion capital program and healthy distribution coverage, we have established a 10% distribution growth target for PAA in 2014. As a rest of PAGP’s structural leverage to PAA’s growth through the incentive distribution rights, we should equate to distribution growth of PAGP of approximately 20% with further upside as PAA issues units to fund its growth.
Looking beyond 2014, we believe the combination of the favorable crude oil environment, PAA’s current and planned expansion projects and solid execution of our business strategy will enable PAA to continue to deliver attractive distribution growth for many years to come.
We also believe that significant acquisition represent an opportunity to further increase our distribution growth rate and/or extend our future growth visibility. If the industry encounters unexpected adverse developments, we believe PAA’s strong balance sheet provides downside protection as well as enhances its ability to capitalize on attractive potentially distressed acquisition opportunities.
In conclusion, we are very excited about the future of PAA and PAGP. We thank you for participating in today’s call and for the confidence that you have placed on us for your investment in PAA, P&G and PAGP. We look forward to updating you on our activities in our next call in February.
[Don], we are now ready to open up the call up for questions.
(Operator Instructions) And we will go to the side of Mark Reichman with Simmons. Please go ahead.
Mark Reichman - Simmons
Good morning. Just wanted to perhaps crude by rail, it looks like the rail volumes were 218,000 barrels per day during the quarter, which was down a little bit from the second quarter and you are guiding to 265,000 barrels per day in the fourth quarter which should reflect your count. If I remember correctly, I think in the second quarter you were kind of expecting higher volumes in the third, fourth quarters and also even full year volumes to average 250 versus 232. So I was wondering if you could just address kind of how you project crude by rail volumes ramping in 2014, and at which facilities and also address the timing of Bakersfield?
Yes, Bakersfield mid-2014, I think we mentioned that in the call. The part of the difference between what we forecasted earlier and what happened in the third quarter was timing on both Tampa and Yorktown, both of them have been delayed mainly by weather. So and then also in the third quarter, saw a little bit of an impact, saw some stronger differentials in the Bakken area, which falls crude from some of the rail facilities to pipes over, saw a little bit of an impact from that, not tremendous, but the bulk of it was really the timing on the in-service dates on those facilities.
Yes, Mark, it’s also a great question, to kind of get the issue out there. I think going forward, as differentials fluctuate in general, you are going to see some volumes move from pipeline to rail, or from rail back to pipeline when it’s available. Certainly we have seen that already on our assets in the U.S. And I think going forward you are going to see a similar phenomenon happening in Canada as well. That’s going to, in some cases, for company like ourselves that has both pipe and rail out in an area, it makes a difference on the margin but the volume probably is going to show up on one [customer] or the other one. And there are certainly areas where we may see volumes get all the way or sent to us that aren’t necessarily a one for one balance.
Next we’ll go to the line of Cory Garcia of Raymond James.
Cory Garcia - Raymond James
Just circling back to Bakersfield a little bit. I know some of the California refiners have actually cited some permitting delays out there for the rail and unloading facilities. Curious as to how you guys are looking at that facility in terms of the ultimate scale and ultimately the flexibility of the facility to bring in Canadian heavies as well as access a number of different light U.S. shale basins?
It’s currently -- that’s currently permitted, it can move unit train, 65000, 70,000 barrels a day. But the facilities are such that we could move two unit trains a day but we increased in our -- I mentioned some nettings for the increase which we have recently -- we are in the process of making. So ultimately we will bring them both light and heavy, but actually part of the probably lighter crudes and sort of a unit train a day type of volume.
Cory, I would also add, it’s one of the things that’s pretty unique about PAA’s system is, again we integrated our rail activities with our pipeline. So our rail and loading facility will see kind of at head waters if you will of our pipeline distribution system into California. So as long as we can unload at our facility, we can then feed our pipelines to go to Bakersfield as well as to the LA market and we have connections that would allow our shippers to get to the northern markets in San Francisco area. And so we are working hard to not only rate our ability to unload more rail cars at Bakersfield to be able to be on one unit train but also to expand, we believe, certain of our pipeline capacities, we will fill up with we think some of the slack in our existing pipelines and we want to basically increase capacity on a few of them to be able to see future volumes through there as we see volumes ramp up from rail and loading.
Cory Garcia - Raymond James
In terms of connectivity to your pipeline system it’s sort of the one unit train match right now before you maybe need to put forth capital in the pipeline, or could you get to the unit trains type of levels without really extending the pipeline network?
It’s a little trickier than that. We have the capacity on the -- we have some integrity work we need to complete online 63. So without the completion of the integrity work online 63, we would probably be limited to a unit trend data in South. Now that doesn’t limit us going North, but on our pipes going South, we have one year trend. So we have a flex set of little bit of integrity work that needs to be completed on Line 63. When that’s completed I will certainly have a capacity to move posting unit trends data.
Yeah. On that expansion of Line 63, again it’s not building new pipeline. It’s basically beginning permits to be able to doing in tasks and so we are subject to the same maladies that others are in California, but it takes a little bit of time there but we are not talking about having a loop of pipeline or any thing else. We are just talking about activating the pipeline which is currently inactive.
Cory Garcia - Raymond James
And it needs to be all that permitting out there. I appreciate the color guys.
Thank you. Next, we will go to the line of Paul Jacob with Credit Suisse. Please go ahead.
Paul Jacob - Credit Suisse
Yes. Good morning, guys. I just wanted to spend a bit of time on the transportation segment. I saw that this quarter, the refine products volumes seem to have dropped on a sequential basis. And I was curious, is that a result of pending asset sales or what you are seeing on the refined product side…
Well, we close on the segment on one of the refined product pipelines July 1st. So we filled our Albuquerque systems and that’s the main reason for the volume product. We also had some weather impacts in the -- with the flooding in Colorado that impacted the Rocky Mountain system in the quarter.
Paul Jacob - Credit Suisse
Okay. That’s helpful. And then on the Mississippi Lime, it sounds like you are going to have that on towards the end of the year or early next year, just curious with the ramp in volumes is likely to look like?
Yes. Impartial surface, one has been serviced right now, somewhere about 30,000 barrels a day. So the extension that the Colorado will be hard to service by the end of the year, I think we have got -- I think we can close our -- it's embedded in the mid-Continent growth for 2014.
Paul Jacob - Credit Suisse
Okay. So in utilization, that should be pretty much 100% when it comes on, I guess that’s what I am trying to get at?
Well, it could be a 150,000 barrel a day pipeline. So it was -- when we had -- when we developed it, it was -- we had some excess capacity in it already. So I think over time our ramp-up was probably forecasted the ramp-up to around 100,000 barrels of oil. So about two-thirds utilization with excess capacity depends on what developments happened up there.
Paul Jacob - Crédit Suisse
Okay. All right. That’s helpful. That’s all I had. Thanks guys.
(Operator Instructions) At this time, gentlemen, no one is queuing up, please continue.
Thanks, Martha. And thanks to everybody that is participating in the call and that chooses to dial back in or listen to the replay. We look forward to updating you on our call in the near future. Thanks.
That does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference Service. You may now disconnect.
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