Crosstex Energy LP Management Discusses Q3 2013 Results - Earnings Call Transcript

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Crosstex Energy LP (XTEX) Q3 2013 Earnings Call November 8, 2013 11:00 AM ET


Good day, ladies and gentlemen, and welcome to the Crosstex Energy LP 2013 Third Quarter Earnings Conference Call. My name is Jasmine, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Jill McMillan, Director of Public & Industry Affairs. Please proceed.

Jill McMillan

Thank you, Jasmine, and good morning, everyone. Thank you for joining us today to discuss Crosstex's third quarter 2013 results. On the call today are Barry Davis, President and Chief Executive Officer; Mike Garberding, Executive Vice President and Chief Financial Officer; and Bill Davis, Executive Vice President and Chief Operating Officer.

We issued our third quarter 2013 earnings release yesterday evening, and the 10-Q will be filed this morning. For those of you who didn't receive the release, it is available on our website at If you want to listen to a recording of today's call, you have 90 days to access the replay by phone or webcast on our website.

I will remind you that any statements that include our expectations or predictions should be considered forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements, and we undertake no obligation to update or revise any forward-looking statements.

We will also discuss certain non-GAAP measures and reconciliations of those non-GAAP items to their most directly comparable GAAP measure, and you'll find the non-GAAP reconciliations in our earnings release. We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors.

I will now turn the call to Barry Davis.

Barry E. Davis

Thank you, Jill. Good morning, everyone, and thank you for joining us on the call today. It has been an exciting time for us on a number of fronts since our second quarter call. Our primary objective has been and will continue to be defining and developing the right opportunities in a growing energy market. And to achieve that, we have focused on executing our strategy to enhance our size, scale and diversity, while expanding our fee-based businesses to generate steady and reliable cash flows.

There were 3 major events since our last call that will help us achieve this objective: our agreement with Devon; the completion of the first phase of our Cajun-Sibon expansion project; and our announcement of a new gas gathering and processing complex in the Permian.

First, I'll discuss the Devon transaction, which is very exciting news for us. On October 21, we announced that we have agreed to combine substantially all of Devon's U.S. midstream assets with Crosstex, creating a new company, which we believe will be one of the best positioned midstream businesses in the U.S. At closing, the transaction will result in immediate and significant accretion to Crosstex's distributable cash flows. We expect to announce the new names, ticker symbols and the exchange listing for the new entities before the closing of the transaction, which is expected to occur in the first quarter of 2014.

The new company will be significantly larger, with approximately $700 million of annual adjusted EBITDA before synergies, more than double the size of Crosstex today. We will have geographic reach that includes the Barnett Shale, Permian Basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus. And the combination of our assets and operations will allow us to serve our customers in a more efficient and cost competitive way, from the producers in the field, to the refiners, chemical manufacturers and large industrial users that we serve.

With a stronger financial position, the new company will be positioned to grow. We will be working on organic development and acquisition opportunities, driving growth over the near and long term. The new company's balance sheet will be of investment-grade quality. We also expect the new company will have improved cash flow stability from its expanded size and greater diversity.

Nearly 95% of the new company's margins will be fixed fee and leveraged towards liquids-oriented businesses. Integration planning is underway, and we look forward to completing the transaction in the first quarter of 2014.

This week, we announced the completion of the first phase of our Cajun-Sibon expansion project. The Eunice fractionator began operations this week at a rate of about 15,000 barrels of NGLs per day and will continue to ramp to full utilization. The pipeline is currently delivering about 25,000 barrels of NGLs per day to Eunice, Riverside and other delivery points, and is expected to be moving about 70,000 barrels per day by the end of 2013. This project positions us to take advantage of increasing demand for NGL products on the Louisiana Gulf Coast, driven by petrochemical expansions and exports. We're excited about the abundance of future growth opportunities in this region from our expanded NGL platform.

Phase 2 of the Cajun-Sibon project will increase the pipeline's capacity by 50,000 barrels per day to a total of 120,000 barrels, and includes the installation of a 100,000 barrel per day fractionator at our Plaquemine facility.

The second phase of the expansion project is scheduled for completion in the second half of 2014. When complete, the Cajun-Sibon expansion projects are expected to add a total of about $115 million to $130 million in adjusted EBITDA.

At the end of October, we announced that we will build a new gathering and processing complex in the Permian called Bearkat. Bearkat is a great example of the types of projects we are able to develop to serve growing production in these types of developing shale plays. This project is initially supported by a long-term, fee-based contract. Our initial investment of approximately $140 million will include gathering, treating, processing and natural gas takeaway solutions for regional producers. As production in the region grows, we intend to expand the system to meet our producer customers' needs. Our announced agreement with Devon should make us even better able to make these types of investments and create additional opportunities moving forward.

Turning to our financial results. For the third quarter, we are pleased with our performance. Adjusted EBITDA was $52.5 million, compared with $55.2 million in the third quarter of last year. Distributable cash flow was $32.8 million for the quarter, an increase of approximately 21% from the third quarter of 2012. We have already announced a $0.01 increase in the distribution and the dividend to $0.34 per unit and $0.13 per share. Mike will provide more detail on the results. But overall, we are in line with our forecast.

As we look ahead to 2014 and beyond, I'm confident we found the right partner at the right time to create a larger, stronger company that can deliver sustainable growth and increasing returns to our shareholders. We look forward to the tremendous growth opportunities ahead for our company.

I'll now turn the call over to Mike Garberding, who will discuss our third quarter financial results in more detail.

Michael J. Garberding

Thanks, Barry. Good morning, everyone. My comments today are focused on Crosstex's third quarter financial performance. We will provide additional information on Crosstex's financial outlook post merger with the Devon midstream assets in the first quarter of next year.

Crosstex's financial results for the third quarter are in line with expectations. For the quarter, our fee-based business accounted for approximately 87% of gross operating margin, which continues to provide a solid base of cash flows. The partnership realized adjusted EBITDA of $52.5 million for the third quarter of 2013, an increase of approximately 4% from the second quarter 2013 adjusted EBITDA of $50.7 million. Gross operating margin for the third quarter of 2013 was approximately $100 million, up 5% from gross operating margin in the second quarter of 2013.

Key drivers of the third quarter results include: First, margins were higher in our PNGL segment. This was driven by higher fractionation volumes at our Riverside and Plaquemine facilities, from increased truck and rail margins, and a temporary restart of the Blue Water processing facility due to short-term gas quality improvements. We also benefited from a full quarter of volumes at our Riverside crude terminal, which started Phase 2 operations in June; second, we saw increases in volumes and margins in our ORV segment, even with some operational disruptions in the gathering and processing infrastructure, which has reduced available crude and condensate volumes. Bill will talk more about this later. And third, our North Texas segment declined by approximately $3.3 million in gross operating margin due to underlying declines in gathering volumes.

In addition to these drivers, we booked a noncash impairment expense of $72.6 million related to the shutdown of the Eunice processing plant, as mentioned on our second quarter call.

As Barry mentioned, we increased distributions by $0.01 to $0.34 per unit for the quarter, due in large part to the completion of Phase 1 of the Cajun-Sibon expansion project and impending cash flow growth. Our distribution coverage was 0.99x for the quarter and was 1.02x for the first 9 months of the year.

We continue to see low ethane prices similar to what we saw in the second quarter and we don't really expect any improvement in ethane or other commodity prices in the near term. As an example, ethane prices averaged about $0.25 per gallon for the third quarter. With these current market conditions, we expect fourth quarter performance to be largely in line with third quarter performance, except for the impact from the startup of the Cajun-Sibon Phase 1.

Consistent with our outlook provided last quarter, we expect growth capital expenditures for the year to fall within the $500 million to $550 million range. We've raised approximately $390 million in equity so far this year, which gives us flexibility in financing our growth projects.

We continue to maintain our strong liquidity position and currently have approximately $76 million of borrowings under our $635 million credit facility. We ended the quarter with a 4.4x debt-to-EBITDA ratio. As we said in our announcement call with Devon, we intend to refinance our debt facilities and expect have an investment-grade quality balance sheet following the transaction's close.

Turning to Crosstex Energy Inc., on a standalone basis, the corporation had cash on hand of approximately $1.4 million and $47.3 million of borrowings outstanding under the credit facility as of the end of the third quarter of 2013. We are using XTXI's cash and the subsidiaries' credit facility to fund our E2 development capital. This cash balance excludes cash held by E2, our Utica-focused development company.

We will consider dropping the assets down to the MLP level, but we don't expect that to happen before the end of the year.

I will now turn the call over to Bill, who'll provide an asset update and take you through our exciting growth projects.

William W. Davis

Thanks, Mike. Good morning, everyone. The highlight for us coming out of the third quarter is the completion of Cajun-Sibon Phase 1, which we announced yesterday. This project connects our Eunice fractionator in South Louisiana to Mont Belvieu supply pipelines in South Texas. Line fill was completed in the first week of October and commercial operations started shortly thereafter. The Eunice fractionator began operations this week at a rate of approximately 15,000 barrels of NGL per day, and will grow to approximately 50,000 to 55,000 barrels per day by the end of this year. The pipeline is currently delivering approximately 25,000 barrels per day of product to Eunice, Riverside and other Louisiana delivery points, and will start ramping up to approximately 70,000 barrels per day, as Eunice reaches full capacity in the next few weeks.

The completion of Phase 1 was a significant milestone. The focus, deep experience and commitment from our team was instrumental in the execution of this project, and I commend them for their tireless efforts.

The second phase of the Cajun-Sibon expansion is scheduled for completion in the second half of 2014 and includes expanding the Cajun-Sibon pipeline capacity by an additional 50,000 barrels per day to a total of 120,000 barrels per day. This phase also includes constructing a 100,000 barrel per day fractionator adjacent to our existing Plaquemine natural gas processing complex, modifying the Riverside fractionator facility and constructing several natural gas and NGL pipelines to expand our market connectivity and flexibility.

Also in Louisiana, our LIG pipeline system continues to provide transportation, processing and fractionation for the Haynesville, Austin Chalk, Tuscaloosa Marine Shale and Miocene/Wilcox plays. We have been ready for months to begin construction to replace the lost section of our 36-inch pipeline near Napoleonville, but don't yet have the necessary permits. I think, the industry, in general, has experienced permitting slowdowns. And we have certainly experienced it with this project.

With this pipeline out of service, we will continue to see transmission volumes impacted until it is restored, which we now expect to occur in the spring of 2014.

In the Ohio River Valley, we saw good growth in crude and condensate volumes. We completed some of the projects that we identified for these assets at the time of acquisition, notably, the rail terminal expansion at Black Run. We are well positioned for further growth, as production continues to expand in this area.

Drilling continues at a good pace, with approximately 90 rigs currently in operation within 100 miles of our assets. Midstream infrastructure, particularly gas gathering and processing, is coming online and allowing new volumes of condensate to be produced, which is currently the target for growth for our existing assets. The current total condensate volumes produced in the Utica and Marcellus have increased to approximately 20,000 to 25,000 barrels a day, as compared to approximately 15,000 barrels a day in the second quarter. Of the 600 wells that have been drilled in the region, only 169 are currently producing, and we anticipate condensate volumes will grow within 6 months to approximately 60,000 barrels a day, as these shut-in wells begin producing with the restoration and completion of midstream infrastructure.

While we grew the business in the third quarter, we have also seen some challenging circumstances in the fourth quarter, and in the near term, we see some factors impacting our performance. The balance of midstream infrastructure and well production was negatively affected by the recent fire at Blue Racer Midstream's Natrium plant. The shutdown of this site and curtailment of the wells behind the plant are temporarily diminishing the available condensate barrels in the area. Our transportation network, including truck, rail, barge and pipeline, can manage the unique challenges presented by this type of product. And we're working with producers and users to develop these markets.

We are supplementing our logistics assets with stabilization and compression facilities through our investments in E2. The initial installations are nearing completion and will soon be operational. As previously stated, the E2 investment consists of 3 compression and condensate stabilization stations in Monroe and Noble Counties, and will have capacity to compress approximately 300 million cubic feet per day and stabilize approximately 16,000 barrels per day of condensate. These stations are supported by a long-term, fee-based contract with Antero Resources.

The positive track record and dependability of our ORV truck fleet and operations personnel, who average over 20 years of experience in the region, continue to set us apart as a provider of choice in the area. We are actively marketing our hubs at our black rail -- Black Run Rail and Bells Run Barge Terminals and have received heightened interest from other parties regarding potential product movements. We are also investigating the entire condensate value chain and are diligently developing opportunities to stabilize and further process condensate in the refined products. Overall, we remain on track with our initiatives in the Ohio River Valley and continue to execute against our plans.

In West Texas, our Deadwood gas plant, located in the Permian Basin, continues to receive inlet volumes near its total capacity of 55 million cubic feet per day. Our planned Bearkat plant will have initial capacity of approximately 60 million cubic feet per day and will be located near the Deadwood joint venture assets in Glasscock County, Texas.

With Bearkat, our total operated processing capacity in the Permian will grow to approximately 115 million cubic feet per day. The plant will be fed by a new 30-mile high-pressure gathering system that will provide additional capacity for producers in the Glasscock and Reagan County area. The entire project is expected to be completed and operational in the summer of 2014.

These are exactly the type of projects that we have referred to when generally describing the investment opportunities that our teams are pursuing. The growing production in places like the Permian continues to create demand for investments and our services and provides value for our unitholders and shareholders.

In North Texas, our gathering, processing and transmission volumes in the Barnett remained strong through the third quarter. Our plants remain full and continue to benefit from steady production in the liquids-rich areas of the play. Looking to the future, we're excited about the many synergies and opportunities that the proposed merger with Devon creates in this region.

In South Texas, we continue to see strong results from our investment in Howard Energy. Howard's Reveille processing plant is on schedule and is scheduled to be operational by the end of the year. We anticipate a distribution from Howard in the fourth quarter, which should be similar in size to the distributions we received in the first 3 quarters of this year.

Now I will turn the call back to Barry.

Barry E. Davis

Thank you, Bill. As I hope we successfully conveyed today, these are exciting times. We are working hard to execute on our growth projects and look forward to closing the transaction with Devon, which we expect to occur in the first quarter of next year. We believe the combination will position the new company to not only be one of the largest, but also one of the best midstream companies in the U.S.

That completes our prepared comments. And I'll turn it over to the operator and we'll take questions now.

Question-and-Answer Session


[Operator Instructions] Your first question comes from the line of John Edwards from Crédit Suisse.

John Edwards - Crédit Suisse AG, Research Division

Just -- Barry, maybe I missed it, just your -- I mean -- and obviously, Bill was describing the kind of all the different sections, but it just seems like volumes have been coming down a bit or down year-over-year. So I guess, if you could just narrow it down, these are sort of incidental things. You've got the sinkhole that's being addressed. I guess, rigs are moving away from North Texas, so volumes are down a little bit there. Is there anything else we should be -- I mean, I don't know if there's anything else other than what you've already said on that or maybe you can give us some extra insights on that. Because obviously, you're investing in other things to push volumes on the up -- to the upside.

William W. Davis

Yes, I would say that we've been very pleased with the performance in North Texas this year. Producers have been really active in the rich liquids area of the play. And so we've seen some good volumes, and of course, our plants have stayed full. I think, everybody knows that dry gas drilling economics in the Haynesville and the Barnett just aren't there for producers right now. And so, yes, we're seeing the obvious results from that in those areas. Clearly, we're offsetting that with the growth in our NGL business, and then growth in our crude business. So on balance, we're real pleased with where we are from a volume standpoint, John.

John Edwards - Crédit Suisse AG, Research Division

Okay. Fair enough. And then, as far as -- so as far as the Ohio River Valley then, I mean, aside from this issue that hit, I take it that you're actually continuing to look to expand in that area. In terms of order of magnitude, can you maybe provide a little more insight on that?

William W. Davis

Yes, we saw good growth in our crude and condensate volumes from Q2 to Q3 this year on the order of 30% increase in those volumes. As I said in the remarks earlier, we think, overall, condensate volumes will basically triple over the next several months, as the wells that are currently shut-in in the play begin to come on production. And so we would expect to continue to maintain our market share as those volumes grow. So we're excited about what we're seeing in the area.

Barry E. Davis

John, this is Barry. Let me say additionally, there has been one substantial change in the assumptions that we made at the time of the Clearfield transaction, and that is the development of the crude volumes, which you know and others on the call know hasn't developed the way that we anticipated 1.5 years ago when we completed that transaction. I think, we've adjusted our strategy to focus on the condensate play and are hitting our plan, as far as the development that we want to occur there. We have focused on the execution of improving the assets, the rail terminal, the barge terminal. So we're prepared for larger volumes. We still believe that we've got great leverage from those assets that can be achieved. But we have been challenged by the lack of the crude development. I'd also say that we've seen a better response from the existing processors. When you look at where the rich gas processing has occurred to date, it has primarily been from players who were in that area with existing facilities and they've expanded those facilities. But we still believe that it is very early in this play. I think you can look down to the Eagle Ford, for example, and you can see that 5 years after development has started there, you're still seeing new plants. For example, our Reveille plant in Howard. So there's a long road ahead. We think that we're well positioned and we'll execute on the long-term growth plan that we have for that area.


And your next question comes from the line of Justin Agnew from Robert W. Baird.

Justin J. Agnew - Robert W. Baird & Co. Incorporated, Research Division

Can you give us a little color on how short the Louisiana NGL market is right now and whether that presents additional potential for expansion, let's say, Cajun-Sibon Phase 3?

Barry E. Davis

Yes. Bill, you want to go ahead?

William W. Davis

Yes, I'll take it and you can supplement. Yes, right now, as we've said before, the ethane market in South Louisiana is short about 200,000 barrels a day of native production. And so we're supplementing that with Cajun-Sibon 1 and 2, as well as supplementing the other liquids that are needed in that area. I think, overall, the market is, on all liquids, is undersupplied by about 0.5 million barrels a day right now. So we see lots of opportunities that, that creates for our team to take advantage and grow our NGL business and we are following up on that behind Cajun-Sibon 2. As we've hinted at in the past, we've got a number of projects that we think are going to allow us to continue to grow our NGL business in South Louisiana.

Justin J. Agnew - Robert W. Baird & Co. Incorporated, Research Division

Got it. And then, over on the Devon side, at what pace is the parent developing new assets that can eventually be dropped down that are not already in the MLP?

Barry E. Davis

Yes, Justin, we're excited about the assets that we're getting day 1 from Devon. We've talked a lot about the opportunities that we think exist there for optimization, exploitation with a pure midstream mindset that we have. And so we think there's great opportunities around those assets. In addition to that, we've also pointed at some existing infrastructure that Devon has. For example, the access pipeline that's being built in Canada right now. So we believe those assets represent an additional leg of growth that we can get through the Devon transaction. Thirdly, and what you referred to, is really the opportunities for new areas of development, we all know that as one of the top 5 independent E&P companies in America, Devon is very active right now in looking at new places and new basins that they can grow. The Permian Basin is a good example. They're currently very active, have a very large acreage position there. So as they develop those positions from an E&P standpoint, we clearly will come alongside them to be involved in midstream infrastructure build. Folks have asked how incentivized Devon will be for that to happen and for the midstream infrastructure to be built by us or dropped down into us. And you don't have to look further than the 70% ownership that they'll have in the general partner and more than 50% in the master limited partnership. And then, also, the efficiency of financing that can be done at the MLP level versus up top at an E&P level. So we think there's tremendous growth ahead. And then, you combine that with what we have already had as a robust growth vehicle, if you will, we think that there's lots of growth ahead.


And your next question comes from the line of TJ Schultz from RBC Capital.

TJ Schultz - RBC Capital Markets, LLC, Research Division

I guess, you've talked about the $1 billion of projects behind Cajun-Sibon 1 and 2, and how the combination here, I guess, de-risks your ability to move on these. If you could just maybe discuss what looks possible as we move into next year. Obviously, you've got the Permian G&P moving along. If you could talk about Permian crude opportunities, if there's potential there, some of the ORV condensate and processing or Louisiana LPG. Just in general, how does the combination here accelerate your plans into next year to move on this $1 billion of projects?

Barry E. Davis

Yes, TJ, I'll start and see if Bill or Mike want to add. What I would say is part of the answer that I just gave to the last question, I think, kind of goes to that. And that is we have historically had a robust $1 billion backlog of projects, and you're now beginning to see us deliver on those that are post Cajun-Sibon 1 with the Bearkat plant. We've also said that we think there will be substantial additional growth around the NGL business. We are making progress on those projects. We believe that in the fairly near term, we'll be able to come to you with a fairly substantial chunks of that, that will happen following Cajun-Sibon. The third area of growth that we've highlighted has been the ORV. We are spending and investing capital right now in infrastructure there, larger chunks could come in the form of services that we'll provide along the condensate service chain, that being condensate pipelines, stabilizations, splitters, terminals. So those things are being worked. And we still feel really good about the $1 billion of backlog kind of being a good way to describe the size of that opportunity. Lastly, the Eagle Ford, Howard continues to do well. We think there will be additional investment opportunities there. So now, again, though, as I said in the last answer, that $1 billion represents what we think is really 1 of 3 legs of growth that can happen going forward, given the combination with Devon.

Michael J. Garberding

And TJ, this is Mike, from a de-risking standpoint, it's really 2 things. One, when -- the Cajun-Sibon is now in service, it gives us greater capability to execute on those downstream projects. And then, with the lower cost of capital with the new entity, it gives us a more advantageous financing vehicle, as well as a better overall return to unitholders and shareholders.

William W. Davis

Yes, I'd just add on to what Mike is saying there. I don't see that it accelerates the timing of the projects we were working on as much as it improves our financial capability to deliver returns from them. But further, I would add that the credibility that we get is already enhancing our conversations with people in the marketplace. I think, we're going to be a more credible partner for them, and that will increase the suite of opportunities available to us.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Maybe if I can just go back to the ORV. I think, you still mentioned, you're comfortable hitting plan as you shift focus to condensate. But as you have a longer-term view, are you still okay relative to your initial expectations? I think, it was maybe $50 million of additional spend driving the multiple down over a 3-year period. As the area gets more competitive, is this now a function of getting a certain market share of that condensate ramp that you mentioned?

Barry E. Davis

Yes, TJ. I think, the -- it has gotten more competitive. I think, the midstream providers geared up for a faster pace of development up there. And so what -- you do have some competitive pressures right now on margins. We've seen some of that. But we still feel good about our plan to get this ultimately to a 6 multiple of investment to cash flow. And I think we're on track for that. As we've mentioned, in the fourth quarter, we believe we would have seen nice growth there over the third quarter, had we not seen some infrastructure that has disrupted that marketplace, we think there's as much as 20% of the condensate, specifically in the Utica, that is off the market right now because of the plant shutdown at the Natrium. So we still feel good about being able to execute the plan. But it's a competitive marketplace, and there's a lot of intensity to that right now.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. On E2, when is the right time for the drop down to the MLP?

Barry E. Davis

TJ, what we've said is when we complete the compression and stabilization facilities, which started out as 2 stations with Antero, and then we added a third station, which was good news, but it probably extended out a little bit, the drop down, into sometime in 2014. We'll now have to consider kind of where the Devon transaction closing is. And so, when we look at all of that, we would say that probably in the first half of 2014 for a fairly broad range of timing, which could be a little bit beyond -- a little bit later than what we indicated earlier, I think, that we had said originally around year end.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Just, Mike, lastly, in the ORV, for the third quarter, do you have a breakout for margin between crude and brine?

Michael J. Garberding

Yes, we talk about that, if you look in the earnings release, on the breakout between the 2.


And your next question comes from the line of Sameer Panjwani from Raymond James.

Sameer Panjwani - Raymond James

I'm on for Darren Horowitz. Just real quick, when Devon released their results earlier this week, they said that the midstream assets exceeded guidance. And so I'm just kind of wondering if that was already built into the $700 million EBITDA estimate on the combined new business or if that's something we should view as an incremental benefit on top?

Michael J. Garberding

Yes, thanks for the question. This is Mike. No, as far as how we think about the business, the guidance we gave is a good guidance for what you consider sort of a full run rate guidance because it's really defined by the contracts that will be put in place at the time of the drop down of the assets. So the guidance we gave, overall, of assuming $700 million, is good guidance.


And your next question comes from the line of Matt Niblack from HITE.

Matt Niblack

So with all of the investment opportunities that you have now, one of the main drags you see in this type of situation on an MLP, LP in particular, is the need for financing. Can you maybe speak to how you plan to access the equity markets throughout the -- throughout your investment period here on these projects? How soon you might need to come? And then, have you thought creatively about doing pipes or issuing equity to Devon? And any other context you could provide on your overall strategy for financing?

Michael J. Garberding

Yes, this is Mike. A good question. I think, when you think about it, you start with the opportunity we have, that we talk about starting with an investment-grade quality balance sheet. Like we mentioned in the call with Devon, out of the chute, we're looking at somewhere around a 2x debt-to-EBITDA. When we talked about our forward plan financing, we talked about really maintaining the business really in that 3 to 3.5x from a debt-to-EBITDA standpoint. So just the difference between those 2 gives us a lot of run room on executing our organic projects. With regard to type of financing, just the relationship with Devon and then having assets at XI and EX and what we can do in a very good balance sheet, gives us a lot of flexibility. So I think that's what we're really excited about, is the different growth aspects we have and what can we do with the different parties. So have we looked at specific types of financing? We'll always look at them. But again, our goal, long term, is really to get the best cost of capital for the projects.


And your next question comes from the line of Sharon Lui from Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Just wondering if you can maybe touch on the integration plans with Devon, whether the process has started yet or it should really ramp in earnest after the closing. Maybe if you could just talk about like employee reaction and, I guess, your ability to retain key management during this time period?

Barry E. Davis

Sharon, it's a great question and certainly one that we are very focused on right now. The good news is that we're really getting a small number of assets and a very, I would say, uncomplicated set of assets. So we think the integration and the transition, while big, we think it's going to go very well. Also, we do have the people coming over from Devon that have been running these assets, starting with Steve Hoppe, who has been their head of all midstream business previously, will come over and will run as the business unit head for us, continue to run those assets. So we think we've got the right people coming over. We'll have the right continuation of their roles. Secondly, we think the assets will be fairly simple to integrate. And then, most importantly is we're very focused on it and we're all over it early. So we don't anticipate any challenges in that regard.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay. And I guess, based on your commentary, so are there -- it seems like there's no really overlapping assets that you would look to divest.

Barry E. Davis

Well, we have overlap really in one area, which is North Texas, in the Barnett Shale, their assets are adjacent, I'd say more adjacent than overlap. And so we will have opportunities to really seek efficiencies there, do things in a way to optimize those assets. But from a divestiture standpoint, I'd say no. We're really getting 4 big assets. I left out Gulf Coast Fractionators at Mont Belvieu, which is a non-operated 39% interest. But we're really getting 4 big assets. And so divestiture is probably not part of that picture.


There are no remaining questions at this time. I would like to turn the call over to Mr. Barry Davis for any closing remarks.

Barry E. Davis

Thank you, Jasmine. Before we end the call, I just want to reiterate that this is an exciting time for Crosstex. We are well positioned to create value for our shareholders well into the future, and we look forward to the transaction closing in the first quarter of next year. Thank you for your support and we look forward to talking to you soon. Have a great day.


This concludes today's conference. Thank you for your participation. You may now disconnect. You all have a great day.

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