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Targa Resources Partners LP (NYSE:NGLS)

Q4 2013 Earnings Conference Call

February 13, 2014 10:00 AM ET

Executives

Jennifer Kneale – Director, Finance

Joe Bob Perkins – CEO

Matt Meloy – SVP, CFO and Treasurer

Analysts

Darren Horowitz – Raymond James

Bradley Olsen – Tudor, Pickering

T.J. Schultz – RBC Capital Markets

Ethan Bellamy – Baird

Norman Kramer – Kramer Investments

Michael Blum – Wells Fargo

John Porter – Goldman Sachs

John Edwards – Credit Suisse

Operator

Good day ladies and gentlemen, welcome to the Targa Resources Fourth Quarter 2013 Earnings Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder this call is being recorded.

I would now like to introduce your host for today’s conference Kneale, Director of Finance. Please go ahead.

Jennifer Kneale

Thank you, operator. I’d like to welcome everyone to our fourth quarter and full year 2013 investor call for both Targa Resources Corp and Targa Resources Partners LP. Before we get started I would like to mention that Targa Resources Corp, TRC or the company and Targa Resources Partners LP, Targa Resources Partners or the partnership have published their joint earnings release which is available on our website www.targaresources.com. We will also be posting an updated investor presentation to the website after the call. Speaking on the call today will be Joe Bob Perkins, Chief Executive Officer and Matt Meloy, Chief Financial Officer.

Joe Bob and Matt are going to be comparing the fourth quarter and full year 2013 results to prior period results as well as providing additional color on our results, business performance and other matters of interest. I would like to remind you that any statements made during this call that might include the company’s or the partnership’s expectations or prediction should be considered forward looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934.

Please note that actual results could differ materially from those projected in any forward-looking statements. For discussion of factors that could cause actual results to differ please refer to our SEC filings including the partnership’s Annual Report on Form 10-K for the year ended December 31, 2012 and quarterly reports on Form 10-Q.

With that I will turn it over to Joe Bob Perkins.

Joe Bob Perkins

Thanks Jen. Welcome and thank you to everyone for participating. Besides Matt, Jen and myself, there are several other members of the management team will be available to assist in the Q&A session. For today’s call, I’ll start off with high-level review of performance and highlights will then turn it over to Matt to review the partnership’s consolidated financial results, segment results and other financial matters. Matt will also review key financial matters related to Targa Resources Corp. Following Matt’s comments, I’ll provide some concluding remarks and then we’ll take your questions.

We are pleased to announce that 2013 was a record year for Targa on multiple fronts. Record adjusted EBITDA of $629 million, record logistics and marketing division operating margin of $424 million driven by key organic growth projects that came online during the year.

Record field gathering and processing volumes, record distributable cash flow of $440 million and of course, increased distributions for TRP and increased dividends for TRC. We placed over $1 billion of projects and service in 2013 largely supported by fee-based contracts. This impactful level of strategic CapEx was combined with a unique strategic acquisition of the Badlands properties, which we closed at the end of 2012. Yes, 2013 was the transformative year we predicted. The underlying fundamentals of our business are very strong and 2013 EBITDA was on the strong side of our guidance.

We are pleased that we ended 2013 with a very strong fourth quarter driven by first, higher than expected contributions from key organic growth projects that came online in the second half of the year particularly fractionation and export projects at Mont Belvieu and Galena Park. Demand for propane and butane exports was very robust in Q4 and the first phase of our export expansion project came online in September or Q4 operations. Our new facilities performed very well exceeding our expectations.

Second, full year contribution and increasing quarter-over-quarter contribution from our Badlands operations in North Dakota. Third, increasing field gathering and processing volume growth year-over-year as producers kept the pedal to the floor continuing to development acreage across our basins of operations. And four, higher NGL and natural gas prices in Q4 that help to offset the operations impacts of very cold weather in the quarter and help to offset some of the lower prices realized during the first part of the year.

And with those positive drivers, our record year was accomplished despite the impacts of fire at our Saunders plant that reduced Versado volumes and an incident to the third-party NGO pipeline from our VESCO facility that impacted VESCO performance earlier in the year.

The additional export and fractionation capabilities drove another year of record operating margin for our logistics and marketing division up 39% compared to 2012. This was driven by daily LPG export volumes that more than doubled as a result of the September completion of phase one of our expansion coupled with increased export volumes through improved operational efficiency at Galena Park and Mont Belvieu in the first three quarters of the year.

We also saw continued strong producer activity across all areas of our field gathering and processing segment. Volumes were up in North Texas, Sand Hills and SAOU and they would have been up at Versado except for that temporary negative impact of Saunders fire.

We also benefited from contributions from the Badlands assets in 2013. With increases each quarter we raised the partnerships full year 2013 distribution 11% over 2012 consistent with our original 2013 full year distribution guidance of 10% to 12% that we gave you in the fall of 2012.

At the TRC level our full year 2013 dividend was 35% higher over 2012 above our original 30% plus dividend growth guidance given for the year. We continue to expect to deliver full year 2014 distribution growth of 8% to 10% (later corrected by the company to 7% to 9%) at the partnership and expect to exceed 25% TRC dividend growth for 2014. Later in the call, I’ll discuss our expectations for 2014.

Our 2013 distribution coverage track just as we said it would finishing slightly over 1.0x for the year and 1.4x coverage for the fourth quarter reflects the strong performance of our businesses with several expansion projects online.

I would also like to discuss our thoughts on some of the domestic propane market issues you may have been reading about particularly the impact in the Mid-West. While Targa doesn’t have assets in the Mid-West and do not even have a Mid-West region we have responded to the market with our transportation assets and terminals outside the region helping to serve the market needs.

For example we are actively moving product or helping others move product to areas of need and our facilities and equipment are running essentially filled out to help with the temporary logistics constrains. But, even with available propane in storage, we have reached physical limitations of our transportation assets namely trucks, railcars, barges and rack capacity and just how much propane we can move. The factors impacting the tightness in local propane markets have been widely published and discussed.

For example, inventory levels going into the winter for the Mid West were the lowest in 10 years made worse by a late and extensive crop drying season. By contrast, Gulf Coast inventories were slightly above the 10-year average as we entered winter. And then the coldest winter in over 20 years hit the Mid-West in successive waves plus the region experienced some key supply disruptions from two Mid-West refinery shutdowns, major pipeline outage, lowering the typical region supply, which normally supports market.

In that context, we support the emergency transportation measures such as extending working hours for truckers taken by states to accommodate the regional issues and we’re continuing to do what we can to help meet the market demand.

I’d like to conclude our introductory remarks with the great big pat on the back to our entire team for Targa’s performance in 2013 and Targa’s very strong positioning for the future. I think the following data points are pretty impressive, 2012 adjusted EBITDA of $515 million, 2013 adjusted EBITDA of $629 million and 2014 EBITDA guidance of $750 million or higher and that is combined with additional growth projects in process that will contribute in the future. We really could end the call on that note, but I’ll turn it over to Matt in return perhaps repeating myself in a few minutes. Matt?

Matt Meloy

Thanks, Joe Bob. I’d like to add my welcome and thank you for joining our call today. Joe Bob discussed some full year 2013 records and highlights, so let’s now turn our attention to Q4 results.

Adjusted EBITDA for the quarter was a record $215 million compared to $131 million for the same period last year. The increase was primarily driven by 73% increase in operating margin from our logistics and marketing division resulting from a full quarter of contributions from our export expansion and CBF Train 4.

Our gathering and processing division margin increased by 40% driven by contribution from Badlands and higher inlet volumes across all our field GMP systems except Versado, which was negatively impacted for two months due to the fire at the Saunders plant. Saunders is now running again and Versado would have also had higher volumes if they were not for the temporary interruption.

Overall, operating margin increased 49% for the fourth quarter compared to last year and I will review the drivers of this performance in our segment review. As we have mentioned before please not that we benefit from the receipt of certain minimum contract payment at year-end that we do not otherwise see in the first three quarters of the year. In Q4 approximately $15 million of our operating margin was from the receipt of take or pay, reservation fee deficiency or other such contract payments. Net maintenance capital expenditures were $18 million in the fourth quarter of 2013 compared to $80 million in 2012.

Turning to the segment level, I’ll summarize the fourth quarter performance on a year-over-year basis starting with our gathering and processing business. Our field gathering and processing operating margin increased by approximately 56% compared to last year driven by contribution from Badland increasing volumes and higher commodity prices. These effects were partially offset by the impact in an early and cold winter third-party operational issues and the fire at the Saunders plant in Versado. Fourth quarter 2013 natural gas plant inlet for the field gathering and processing segment was 785 million cubic feet per day and 9% increase compared to the same period in 2012.

All of the field GMP business units other than Versado had higher natural gas inlet for the quarter. Natural gas inlet volumes increased by approximately 16% of those North Texas and SAOU and 4% at Sand Hills. For the segment, we also benefited from higher commodity prices in the quarter. Condensate prices were 12% higher, natural gas prices were 7% higher and NGL prices were 7% higher compared to the fourth quarter of 2012. Fourth quarter results for the field segment also benefited from volumes in our Badland system where natural gas inlet and crude oil volumes were up significantly in Q4 and where operations effectiveness is improving.

We previously indicated that we expected our Badlands crude oil gather volumes to be at least 20% higher in Q4 over Q3 and actual volumes ended up being 24% higher illustrative of the progress that we continue to make an extending our system footprint even in with the onset of winter.

In the coastal gathering and processing segment operating margin increased 6% in the fourth quarter compared to last year although we saw a reduction in total natural gas inlet volumes in the coastal segment NGL production increased by 5% and operating margin increased by 6% as a result of the volumes moving to more efficient and better located plants in the Targa system.

Turning now to our logistics asset segment. Fourth quarter operating margin increased 110% compared to the fourth quarter of 2012, due primarily to higher export and fractionation volumes partially offset by increased operating expenses associated with additional assets and service and higher system maintenance cost. Export activity at our Galena Park Marine Terminal on the Houston ship channel increased again this quarter with the first phase of our international export expansion project complete and running. We benefited from robust international demand for both propane and butane during the quarter and loaded an average of 124,000 barrels a day or 3.8 million barrels per month. In the marketing and distribution segment operating margin for the segment increased 25% over the fourth quarter of 2012 due primarily to increase LPG export activity.

With that let’s now move briefly to capital structure and liquidity. At December 31st, we had $395 million of outstanding borrowings under the partnerships $1.2 billion senior secured revolving credit facility due 2017. With outstanding letters of credit at $87 million revolver availability was about $718 million at year end. Total liquidity including approximately $57 million of cash on hand was approximately $775 million.

At December 31st, we had borrowings of $280 million under our accounts receivable securitization facility early in December we entered into an amendment to increase our facility to $300 million and extend the termination date to December 2014. On a debt compliance basis which provides us adjusted EBITDA credit for material growth projects are in process but not yet complete and makes other adjustments our total leverage ratio at the end of 2013 was 3.6x near the middle of our stated range of 3x to 4x on a compliance basis.

In the fourth quarter, we received gross proceeds of approximately $142 million from equity issuances under our after-market equity program, which allows us to periodically sell equity at prevailing market prices. In 2013, we were very pleased to raise approximately $525 million of gross proceeds under this program, subject to market conditions; we believe that we could potentially use the ATM program to meet our equity needs in 2014 while always reserving the ability to utilize other equity offering forms if appropriate. So far this year in the ATM, we have raised gross proceeds of $57 million and we expect to be back in the market in the near future.

Next, I’d like to make a few comments about our hedging and capital spending programs for the year. The contributions from fee based capital projects placed in service in 2013 our fee-based operating margin was over 50% in every quarter increasing to approximately 62% in Q4 and 57% for full year of 2013. We expect operating margin to be approximately 60% to 65% fee-based during 2014.

For the non-fee based operating margin relative to the partnership’s current equity volumes from field GMP, we estimate that we have hedged approximately 70% of 2014 natural gas and approximately 20% of 2014 combined NGL and condensate. We are less hedged than in previous years but our diversity and fee-based improvements reduce the need to hedge commodity prices to previous percentages across all commodities.

As you probably know the recent run-up in propane and ethane prices is primarily in the spot market and in the prop month with significant backwardation in the forward market perhaps driven by forward market liquidity most energy commodity pricing is faced with significant backwardation. And we do not feel the need to hedge additional NGL volumes at this time, but we will continue to evaluate the appropriate timing for additional NGL hedges over time as well as natural gas and oil hedges.

Moving to capital spending, we now estimate approximately $650 million of gross capital expenditures in 2014 with approximately $1 billion of gross CapEx placed in service. We continue to expect maintenance CapEx net to our interest to be approximately $90 million.

Next I’ll make a few brief remarks about the results of Targa Resources Corp. On January 14th, TRC declared a fourth quarter cash dividend of $60.75 per common share or $2.43 per common share on an annualized basis representing an approximately 35% increase for the full year 2013 versus the full year of 2012.

TRC’s standalone distributable cash flow for the fourth quarter 2013 was $27 million and then declared $26 million in dividends for the quarter. At year-end, TRC had $84 million in borrowings outstanding under its $150 million senior secured credit facility and $9 million in cash resulting in total liquidity of $75 million.

That concludes my review. So I’ll now turn the call back over to Joe Bob.

Joe Bob Perkins

Thanks Matt. We know that year-end call always seems a little long. We thank you for your attention. To wrap up the final portion of our prepared remarks, I’d like to briefly review some thoughts on 2014.

At this time last year, we said that 2013 would be a transformative year for Targa given the $950 million that we spend on growth CapEx up and drive a record on a number of fronts and further increasing our scale and diversity combined with integrating Badlands, I’d say 2013 was really transformative. After declaring transformative success for 2013, I wonder if we can say that 2014 will be transformative also. I think we asserted that during our November Investor and Analyst Meeting and we also believe that is true today.

We will continue to deploy significant capital in 2014 in organic growth opportunities across our business. Continued producer activity is driving opportunities across our gathering and processing and downstream businesses and we are not expecting slowdown in 2014. Although it has only been a couple of months since we forecasted $590 million in major project CapEx for Investor Day, we have updated that list and have approved a couple of projects that are on the development radar screen. The 2014 estimated total for the major project list is now $650 million after we made additions in cost and timing estimate updates.

Our Board recently approved the construction of a new pipeline in the Permian Basin in associated compression D high and treating facilities. That new pipeline will connect our SAOU and Sand Hills systems. It’s about 35 miles of pipe about $30 million of investment including the facilities and it is a strategic investment providing us with some key synergies. It will allow us to move volumes across the two systems and serve producers between the systems.

In the near term it provides a very quick augmentation of processing capacity that was spilling up at Sand Hills creates an almost immediate ability to serve the high activity and growing producer volumes in the Sand Hills area by sending volumes to High Plains. It also helps more quickly fill the more efficient 200 million a day High Plains Plant, which is currently under construction and expected to be in service in mid-2014. It provides flexibility and additional insurance for Targa and our customers. And the pipeline allows us time to contemplate the optimum location for an additional plant capacity across the two interconnected systems which have multiple plants and multiple NGL and residue takeaways, some of us have wanted to do this for a long time.

Our Board also approved an additional plant in the North Dakota, doubling the current processing capacity in support of robust producer activity in the Bakken Three Forks place. We’re still working on the details and timing for that new plant but I’m happy to say it was approved. I mentioned in the expected mid-2014 completion of our High Plains Plant and I want to update you on some of the other projects that you know are currently underway.

After significant delay due to greenhouse gas permitting issues our 200 million a day Longhorn plants in North Texas is expected to be in service in the second quarter. Producers continue to be active in the Barnett combo where we have been using a third-party to process gas that is in excess of our current capacity. So we’re glad that Longhorn will soon be in service. When Longhorn is operational, it will be more efficient and more flexible on ethane rejection than our other plants. This plant and its residue in NGL outlets will also increase North Texas system flexibility, while creating reserve processing capacity to meet continued growth introduction over time.

Moving to Galena Park and Mont Belvieu, the second phase of our international export expansion is underway. As we mentioned previously the expansion will be completed in stages during 2014, it will be fully operational by the third quarter of 2014. We have already completed the new 12 inch pipeline and it is in service at this time. In North Dakota, we were able to make a lot of progress at Badlands in 2013 although started slower than anticipated we made significant progress during the year and are continuing to expand our system and capabilities to support producer customers.

In 2014, we will continue to build out the system with an estimated additional $190 million of CapEx spending. For 2013, we exceeded the volume expectations that we provided to you for Q3 and provided you for Q4 and we expect to double our average 2014 volumes over 2013. Our primary frustration as we had said before with Badlands is the pace of progress on the write-away of the Fort Berthold Indian reservation. We will continue to work with the tribe, the BIA and others to just improve the situation. We don’t have the same kind of write-away issues on the portion of our system that is not located on the reservation.

I should also mention the current status of Train 5, we received that permit in late December and the timing of construction will be depending on market demand. In December, we announced that we had entered into an LOI with Kinder Morgan to form a joint venture for new fractionation facilities to help support the needs of potential customers on the Kinder MarkWest Utica, Marcellus, Texas pipeline that’s a mouthful of abbreviated UMTP. We’re currently working with Kinder Morgan and jointly discussing our service with producers and the result of UMTP’s open season will help determine that timing.

Similarly the design for and timing of Train 6 will be determined by growing market demand whether from the Utica Marcellus or elsewhere the Permian, the Eagle Ford, we expect this demand to continue as long as E&P companies are active and continuing to seek access to the market hub.

So as we have discussed, the fourth quarter was the strongest quarter ever for Targa and it is obvious that Q4 2013 exceeded our expectations. Primarily as the result of some factors that might not affect 2014, you certainly would not want to extrapolate take or pay reservation efficiency payments received in the fourth quarter into each of the subsequent quarters. Also as we discussed before, our 2014 guidance does not include activity at our export terminal beyond what we had contracted or had expected to contract of long-term market rates. In Q4 we benefited from high international demand for propane and butane both long-term and short-term or so called SPOT.

Early in Q1, we continue to benefit from high international demand for exports both SPOT and our long-term contracts. More recently we have seen some of that short-term SPOT demand diminishes prices in the U.S. rose relative to other global markets. It’s difficult to forecast what will happen to SPOT demand exports for the rest of 2014. In such SPOT export demand and SPOT rates are non-included in our guidance as we’ve said before. On other business fronts despite weather impacts particularly in Q4, we are pleasantly surprised by volume performance across the board. The volume improvements over time were already included in our guidance.

Those who were at our Analyst Day know that we used $0.90 per gallon weighted average NGL price in our 2014 guidance. Obviously, we’ve seen prices significantly higher thus far in Q1. But again, its difficult predict what will happen with prices for the rest of the year.

For example, our weighted average NGL prices for January range from $0.93 a gallon up to $1.14 a gallon and that same average barrel is currently at $1.01 a gallon. So given some of the factors, I just discussed you probably can tell that we feel comfortable indicating at this point that we expect 2014 EBITDA to be $750 million or better. I warned you earlier in the call I will have to repeat myself at the end. I really think that the following EBITDA data points are pretty impressive and should be kept in mind.

2012 adjusted EBITDA of $515 million followed by 2013 adjusted EBITDA of $629 million followed by a 2014 EBITDA guidance of $715 million or better and additional growth projects in process that will contribute to the future. As I mentioned earlier in the call we continue to expect to deliver full year 2014 distribution growth of 8% to 10% (later corrected by the company to 7% to 9%) of the partnership and expect to exceed 25% TRC dividend growth for 2014.

So with that we’ll open it up to questions. I’ll turn it back over to you operator.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question comes from Darren Horowitz from Raymond James. Please go ahead.

Darren Horowitz – Raymond James

Good morning, guys. Thanks for all the color around spot shipments regarding propane and butane. I just have one quick question there and this is with regard to the Galena Park Terminal. I know that you guys could do somewhere between 5.5 and 6 million barrels a month. Can you just remind us what the spot volume was and more important looking forward, I know that you are thinking about engineering to do a dock five, so does the thought process changed there with regard to the contracted mix or if you move forward with dock five expansion, would it be similar to the first two expansions where it was just about all take or pay long-term contracts?

Joe Bob Perkins

That was a little longer than one quick question. But thank you, Darren. I did provide some color on what was going on with exports. You are correct our published name plate capacity is 5.5 to 6 million barrels after the second phase of our expansion. The additional dock work that you mentioned is underway and there is nothing different about our expectations of the need for that additional dock work. I think that answered your question, didn’t it?

Darren Horowitz – Raymond James

Yes. I appreciate that. And Matt just a quick question back to your guidance and the basis for the 2014 guidance. Can you just give us a little bit more color around the hedge percentages for NGL and condensate production that’s built in. And also if you could just outline the processing contract mix between what you guys have allocated for fee POL or POP, I’m just trying to get a sense for the variability for those West Texas assets?

Matt Meloy

Yes, sure. We have – I think we said about 20% of our NGL in condensate is hedging into 2014 and that’s included in our guidance. The contract mix we have really hasn’t changed a whole lot over time for the field out in the Permian or Texas primarily percentage of proceeds that’s commodity sensitive and that’s the volume that we do hedge. We did provide a sensitivity in our guidance that had a $0.05 NGL move would equate to about 2% EBITDA and I think we’re still comfortable with that sensitivity.

Darren Horowitz – Raymond James

Okay. And then Joe Bob last question just curious about the development or the evolution of all those Badlands assets obviously when you look at the ramping gas inland volumes in crude oil gathering volumes and what you’ve laid out for 2014 guidance, it would argue that you would probably have to send more than $180 in CapEx to keep up with the production.

So I’m just curious how much incremental gathering capacity do you think that you’ll need going into 2015 and more importantly it would seem like adding incremental 20 million cubic feet a day processing plants is probably not going to be enough. So if you could just give us your thoughts on how 2015 in terms of CapEx development could shape up that would be helpful? Thank you.

Joe Bob Perkins

Okay. First to kind of correct everybody understands we’ve got about 38 million a day of processing capacity right now in the Badlands. But that’s a bit of a misnomer because you eat NGLs and not MCFs, and this is very high liquid content gas. But in any event that 38 million a day rating for our current capacity with some work in the additional plant will go up to about 80 million a day, so we’re doubling the plant capacity hopefully here in the recently short-term.

In $180 million of CapEx really is our best estimate for 2014 try to meet the producer demand and most of that is focused on just handling our dedicated acreage as we build out the footprint and the plan for that footprint.

Darren Horowitz – Raymond James

Thank you.

Operator

Thank you. And our next question comes from Bradley Olsen from Tudor, Pickering. Please go ahead.

Joe Bob Perkins

Good morning, Brad.

Bradley Olsen – Tudor, Pickering

Hey, guys, quick couple of questions. Obviously, quarter was very strong versus the 750 and up guidance range you provided and you also provided some helpful adjustments like the $15 million of contract true ups. Would it be fair qualitatively to say that when thinking about kind of a $750 million annual run rate and the difference between that and the $215 million less the $15 million of true ups that the remaining margin uplift that you realize in Q4 was largely due to dock activity above and beyond what was contracted?

Joe Bob Perkins

Brad, I did enumerate, I will kind of repeat that we had high international demand for SPOT. I said that first so it was the largest factor and we benefited from that and secondly we had volume increases that exceeded expectations despite a very cold winter and I said thirdly that prices were up considerably from the $0.90 a gallon. And without giving you the exact numbers that’s pretty much in rank order.

Bradley Olsen – Tudor, Pickering

Okay. And so the actual fee-based volumes on the dock were the biggest factor and I guess, I can just imply form all that, that those were significantly above what the actual contracted volumes on the dock were expected to be?

Joe Bob Perkins

All we had in our guidance was what contracted volumes were expected to be.

Bradley Olsen – Tudor, Pickering

Okay, great. And another question on kind of the condition or of the export market as you see it. Obviously most expansions including yours on the dock side have been focused on refrigerated international grade propane. Is there anything that you’re seeing as a result of inventories getting drawn down here domestically on the propane side that shifted market interest towards more expansions focused on the Butane market?

Joe Bob Perkins

Yes. I won’t try to speak to other person’s expansions. But our original capability had both propane and butane semi ref and if you went back over time that was probably up to even a third butane. As we expanded our export project it gave us the capability to handle more butane as well and most of our term contracts give customers the right for butanes. You have refrigeration you can refrigerate butane, you have pumping capability and pipes and dock capability the butane can go with it and sometimes it goes on the same shifts.

Bradley Olsen – Tudor, Pickering

Okay, great. So the latest international expansion I guess it’s appropriate to think of that as being butane capable as well as refrigerate propane capable?

Joe Bob Perkins

Yes. And we’ve got separate systems and yes you have to think of it that way. That’s the right way to think about it Brad.

Bradley Olsen – Tudor, Pickering

Okay, great. And one more question. I know I probably asked this one on every quarterly call but are you seeing anything in the condensate markets where you operate that would either encourage you or discourage you incrementally as you think about potentially setting up some kind of split or export facility on the Gulf Coast for heavier NGLs and we condensate?

Joe Bob Perkins

We’re still involved in discussions, I think that demand remains high and we’ve got some facilities that are pretty well positioned for the right project.

Bradley Olsen – Tudor, Pickering

All right, great. Thanks a lot guys.

Matt Meloy

Yes. Thanks Brad.

Operator

Thank you. And our next question comes from T.J. Schultz from RBC Capital Markets. Please go ahead.

Joe Bob Perkins

Good morning T.J.

T.J. Schultz – RBC Capital Markets

Good morning. Good quarter, just if some of the spot exports continue or just in general as you look at 2014 if were to see some of these results turned above your expectations on EBITDA how do you look at balancing kind of growth versus coverage longer term? Would your preference be to build additional coverage this year or is there up side to that kind of targeted distribution growth range if some of these trends continue?

Joe Bob Perkins

I understand the question which kind of started with an, if. If it was high just because of some unexpected spot cargos then I’m going to build coverage with it and that was how you started the, if. I feel very comfortable with our distribution and dividend guidance and dividends guidance had a level or exceed that level.

T.J. Schultz – RBC Capital Markets

Okay, great. Everything else I had has been asked. Thanks.

Matt Meloy

Thanks.

Operator

Thank you. And our next question comes from Ethan Bellamy from Baird. Please go ahead.

Ethan Bellamy – Baird

Good morning guys. What could or better in EBITDA guidance look like assuming everything runs smoothly and conversely if we had a $75 crude price this year what would be the biggest kind of threat to guidance would it be volumes or the CapEx budget? I just want to understand better that kind of upside and down side scenarios?

Joe Bob Perkins

Two separate questions, on the first question the or/better, depending on the cause is I don’t know another way to explain my or/better I think I underlined it in my notes if I didn’t emphasize that I meant to and I don’t think it’s going to be worse. Then you said what happens with $75 crude price, is that a differential cost to WTI is that a world recession and what are the expectations of producers or what the price is going to be in the future will determine their activity. As long as producers remain active I don’t see down side to our activity or our guidance.

Ethan Bellamy – Baird

Okay. The Panama Canal expansion looks like it might be hitting some trouble with the contractors there. Do you think that that caps the LPG export opportunity or with the volumes just go elsewhere?

Joe Bob Perkins

We don’t think it caps it, I’m sure I’m not the Panama Canal expert. We know some people believe that the Panama Canal will sort of orb the difference in transportation and that it won’t matter it will be a little bit, the transportation will be a little bit shorted but pay the difference at the Panama Canal. So none of our contracts are dependent on that Panama Canal getting finished our contract, some of our contracts go beyond that dimension so I’m sure its impacting the users of those contracts think about their shipping but I don’t see it as a major difference. I see it as a potential upside to exports longer term once people figure out how to use it.

Ethan Bellamy – Baird

Okay. With respect to the propane deficit and price by recently, do you see that as transitory or are there any lasting changes or impacts or opportunities for you from recent pricing?

Joe Bob Perkins

My view is that the recent pricing and logistic issues are transitory issue. The longer term issues and trends haven’t changed. This was a very, very cold winter and propane wasn’t in the right places.

Ethan Bellamy – Baird

Excellent. Thank you very much.

Operator

Thank you. (Operator Instructions) And our next question comes from Norman Kramer from Kramer Investments. Please go ahead.

Norman Kramer – Kramer Investments

Good morning, Joe Bob. It was a really good quarter. My question revolves around ethane, have you been any clarities regarding experts of that gains and do you have any thoughts about this area plans to think about going into this part of the business?

Joe Bob Perkins

We have had discussion about ethane exports. We understand the technology, we could do that. The challenges of an export project start first with challenges on the other side of the water combined with the willingness for that customer to term up supply at Mont Belvieu base pricing. If we receive such contract we would undertake such project and it would take couple of our years to get done after the announcement.

Norman Kramer – Kramer Investments

Okay, thank you for that. And second question, from your presentation you have I think three facilities on the ship channel, are there any expansion plans on the other two that are in some sort of your thought process at this point?

Joe Bob Perkins

Well, taking them in order of activity, the Galena Park expansions have been going on for some time and we got a little more land and little more space and the ability to do more things in the future at Galena Park. Moving next to channel view great deal of activity, we acquired acreage after we first acquired the project. We’ve added tankage and we got other projects in the works. And I sort of addressed that relative to the condensate splitter question a little while ago. Patriot, we purchased has less activity on it but it’s nicely located most likely to help with condensate splitter or other petroleum logistics opportunity. But it could have some utilization associated with our LPG exports down the road, it’s nicely situated.

Norman Kramer – Kramer Investments

Okay. That’s it from me. Thank you very much.

Matt Meloy

Thank you [indiscernible].

Operator

Thank you. And our next question comes from Michael Blum from Wells Fargo. Please go ahead.

Michael Blum – Wells Fargo

Hi, good morning, everybody.

Matt Meloy

Good morning Michael.

Michael Blum – Wells Fargo

Just a couple of quick questions really. One, you’ve just seen a lot of assets trade hence in West Texas in Permian and I’m just curious if that’s change anything from a competitive standpoint from your perspective or your systems really just kind of captive to where you’re sitting?

Joe Bob Perkins

The assets, the major assets change enhance in the Permian have not really affected competitive landscape. In my opinion the big change is just so much activity in this giant trend going from vertical to horizontal and there is a lot of room to go on that too alright. If you look at the percentage of horizontal in the Permian Basin we like our position and we try to play primarily in, around and between those positions SAOU nicely positioned on the east side of the Permian Basin, Sand Hills and what you might call sort of SAOU southwest of the Permian Basin and we’re linking those two together which really gives you sort of coverage and ability from the west side of Sand Hills all the way to the east side of SAOU. Then I like to mention Versado just because it’s so fun to see that throughput volume growing after waiting for the shale revolution to get to it and we’re expanding with pipe to underutilize processing capacity there.

Michael Blum – Wells Fargo

Thanks that’s very helpful. The other, in the past you’ve talked about a shallow backlog of project, I think the $1.5 billion type range obviously you got the 650 for 2014, has that number changed at all or is that still kind of in the range that you’re looking at?

Joe Bob Perkins

Those are our official numbers right now. I think that put out a new Q1 investor presentation on the web for this call or immediately afterwards and that’s what those numbers will still reflect.

Michael Blum – Wells Fargo

Okay and then my last question actually on that presentation was just curious if there is anything in that slide that’s going to be different from or incremental to what’s been discussed on this call today?

Joe Bob Perkins

No, there should not be. I repeat.

Michael Blum – Wells Fargo

Thank you.

Operator

Thank you. And our next question comes from John Porter (phonetic) from Goldman Sachs. Please go ahead.

John Porter – Goldman Sachs

Good morning, obviously a great quarter but just wanted to a sense of the I guess the financial impact of the throughput that was constrained by operational issues in the cold weather in Q4, if you could provide that number?

Joe Bob Perkins

There were ups and downs associated with that description. First on the gathering and processing side plants performance very well considering the weather but there was some impact during the cold waves. That impact was more than offset by sort of unexpected strong performance not in the cold wave and pricing. Then the wholesale propane and our natural gas liquids logistics businesses just worked very, very hard to try to help meet demand and there were some cost involved with that and there were some profits involved with that. I sort of gave a description of impact of Q4 that might not repeat in 2014 and then it quite hit that list.

John Porter – Goldman Sachs

And as far as what you’re seeing in the first quarter had some of those trends kind of roll through so far, what do you say?

Joe Bob Perkins

We had a repeat of some of that in the first part of January.

John Porter – Goldman Sachs

Okay and looking at the Bakken on the natural gas infrastructure side are you guys, how is the outlook there and obviously you have your hands full with your crude oil expansion program there but in turn to adding on a processing plant or incremental infrastructure, what’s like the outlook there?

Joe Bob Perkins

I guess in addition to saying that we were adding processing capacity because that was large enough on the radar scope that we thought we should mention and the Board approved it outside our authority. We are – we continue to be active along with needing more processing capacity you have to sort of, we continue to add pipe and more important we’re adding compression to meet those customer’s needs and is that the color you were looking for?

John Porter – Goldman Sachs

Sure, yes. I guess beyond the additional, yeah that’s fine, thanks.

Operator

Thank you. And our next question comes from John Edwards from Credit Suisse. Please go ahead.

John Edwards – Credit Suisse

Yeah good morning great quarter. Just following up the last question, so net was whether a positive or a negative on the fourth quarter and so far in the first quarter has a net and positive or negative?

Matt Meloy

I mean there is mix, it would depend on whether it’s the older the NGL marketing division. I mean if you look across the field segment we report by area than volume then you’ll see slightly incremental down North Texas, SAOU the volumes were down 15 million a day across our field that was after the Saunders fire as well as some weather impact for the other areas. The wholesale business, it’s seasonal and we expect more margin to be here in the Q4 and Q1, but we don’t necessary get into that specific and you can go back and look at historical quarters in trends.

Joe Bob Perkins

I would say if you include the impact of price into weather that you would have to say that weather was net positive to us, every way I’ve cut the numbers. But that’s – yes because of the price park in there and because we performed very well despite really rugged temperatures I’m proud of the operation.

John Edwards – Credit Suisse

Great. Thank you very much.

Operator

Thank you. And I’m not showing any further questions at this time. I would now like to turn the call back to Mr. Joe Bob Perkins for any further remarks.

Joe Bob Perkins

Thank you, operator. And thank you everyone who have attend and patients on this call. We love talking about the business, hope we covered the things you wanted to cover. If you have any other questions feel free to contact Jen, Matt or any of us. Good day.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day.

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