Crosstex Energy's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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 |  About: Devon Energy Corporation (DVN)
by: SA Transcripts

Crosstex Energy Inc. (XTXI) Q4 2013 Earnings Conference Call February 28, 2014 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2013 Crosstex Energy Earnings Conference Call. My name is Mark and I will be your operator for today. 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 for replay purposes. I would now like to turn the call over to Jill McMillan. Please proceed.

Jill McMillan

Thank you, Mark, and good morning, everyone. Thank you for joining us today to discuss Crosstex's fourth 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 fourth quarter and year-end 2013 earnings release yesterday evening and the 10-K will be filed this morning. For those of you who didn't receive the release, it is available on our website at crosstexenergy.com. 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 plans, 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.

Today, we will also discuss certain non-GAAP financial measures and you'll find the non-GAAP reconciliations to GAAP measures 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 over the call to Barry Davis.

Barry E. Davis

Thank you, Jill. Good morning, everyone, and thank you for joining us on the call today. Our primary objectives in 2013 were to enhance our size, scale and diversity while expanding our fee based businesses to generate steady and reliable cash flows. Looking back on the year, I'm pleased to report that we did just that. We grew our asset base, invested capital where it made sense and we are well-prepared for the future.

There were three major events that helped us achieve these objectives, the completion of the first phase of Cajun-Sibon expansion project, our expansion projects in the Permian, and the announcement of our transaction with Devon to create EnLink Midstream.

On our Cajun-Sibon expansion project, the completion of phase one in November was a significant milestone which allows us to benefit from increasing market demand in the robust southeastern Louisiana NGL market. The focus, deep experience and commitment of our team was instrumental in the execution of this project. Phase two of the project is under construction and scheduled for completion during the second half of this year.

Once completed, we expect our Cajun-Sibon expansion project collectively to contribute $115 million to $130 million to our annual EBITDA, a big step-change for our NGL business that we believe will create even more opportunities as the demand for NGLs continues to grow along the Gulf Coast.

The Permian Basin is one of the areas that we identified early last year as a target for growth. We are investing almost $300 million in our assets, including our Deadwood joint venture with Apache Corporation, the Mesquite fractionators and the Bearkat gathering and processing complex, to take advantage of growing production in this region. The Permian is an important growth area and we are confident our footprint here will be an integral part of EnLink Midstream success moving forward.

Moving to our transaction with Devon, in October of last year we announced our agreement to combine our midstream assets with Devon's U.S. midstream assets to create a new leader in the midstream energy industry. We announced in January that EnLink Midstream will be the name of the new company, and continued upon shareholder approval on March 7th and closing of the merger, EnLink Midstream will begin trading on the New York Stock Exchange with the ticker symbol ENLK for the master limited partnership and ENLC for the general partners.

EnLink Midstream will have a diverse geographic footprint and a strong financial foundation, enabling us to provide innovative customer solutions and drive robust growth. We will benefit from an investment grade credit profile which allows us to refinance Crosstex's existing debt and provides future access to capital at a lower cost. We project $25 million in synergies from refinancing Crosstex's legacy bonds and credit facilities alone. Mike Garberding will update you on the progress of this refinancing later in the call.

In addition, we see opportunities to capture approximately $20 million of operational synergies optimizing compression, processing and overall asset utilization. This transaction is a win-win for shareholders, customers and employees alike. Our equity holders will benefit from strong future growth of distributions and dividends for years to come, driven by stable cash flows from fee-based services, a strong growth outlook and sponsorship from Devon. Our customers will benefit from a strong partner able to offer tailored solutions and access to a broad asset base. And our employees will benefit from working for a strong and growing company.

Importantly, this combination also joins two well aligned and strong cultures with an emphasis on our people, safety and environmental responsibility. Yesterday, we announced EnLink Midstream's new Boards of Directors and additional details on our organizational structure and leadership team. We are excited to work with this experienced group of individuals which includes Devon's CEO, John Richels, as Chairman of the Board.

Moving to the day-to-day business operations, I will continue to serve as Present and CEO and serve on both of the EnLink Midstream's boards. Mike Garberding will serve as Executive Vice President and Chief Financial Officer and Joe Davis will serve as Executive Vice President and General Counsel. We are reorganizing our operations into two primary business units. The first is gas gathering, processing and transmission which we will refer to as the Gas Unit, and the second is gas liquids, crude and logistics which we refer to as the Liquids Unit.

Steve Hoppe will join us from Devon and has a long history on their leadership team and deep midstream experience. He will serve as Executive Vice President and President of the gas gathering, processing and transmission business. Mac Hummel will join the team as Executive Vice President and President of natural gas, liquids and crude. Mac also has an extensive background in the midstream industry at Williams where he has led various businesses including their NGL business. We are confident the management team has the proven track record and the experience to lead this new endeavor.

And finally, upon completion of the transaction, Bill Davis will retire as Executive Vice President and Chief Operating Officer of Crosstex Energy. Bill has over 30 years of leadership in the energy industry including over 12 years of outstanding service here at Crosstex. He played an important role in the execution of our objectives to grow and diversify the business, and I congratulate Bill on his retirement from our Company.

As we look to the future, EnLink Midstream will be well-positioned to secure and execute sizable organic development and acquisition opportunities across the midstream value chain, driving growth over the near and long term. Our strong financial foundation and strategic positioning will provide us with opportunities for growth from four separate avenues.

The first avenue of growth will come from drop-downs. As we showed the market in our transaction announcement presentation on October 21, Devon's midstream assets will be owned 50% by the general partner and 50% by the limited partnership. Our end goal is to transform EnLink Midstream into a pure-play GP model with the MLP acquiring the remaining 50% interest in Devon Midstream Holdings from the general partner, and our current plan is to start those drop-downs in the beginning of 2015.

Additionally, Devon has granted EnLink Midstream the right of first offer on their Access Pipeline, a pipeline system that serves Devon's growing thermal heavy oil production in Canada, and there are other Devon-owned midstream assets in the Midcontinent, Permian Basin and Eagle Ford that could potentially become drop-down opportunities for us in the future.

The second avenue of growth is providing midstream infrastructure and services to Devon in the future. Devon will be our largest customer accounting for more than 50% of EnLink Midstream's combined estimated 2014 adjusted EBITDA. EnLink Midstream will be well-positioned to capitalize on sponsor-related opportunities, supporting Devon's upstream growth needs and serving in new basins.

The third avenue of growth is from organic development to serve a broad and diverse group of customers and end-users. We are excited about the growth opportunities that could arise from our expanded platform including Devon's legacy midstream assets, which were previously built and operated with a focus on Devon. In many cases, these assets can be expanded or optimized to serve additional customers.

The fourth avenue of growth is from M&A activity. With its strong financial position, EnLink Midstream will be in a great position to acquire complementary and strategic assets both adjacent to core areas, as well as entirely new areas.

Turning to our results, we delivered solid financial performance in 2013 with growth in our distribution and dividend rates. Our adjusted EBITDA for 2013 was $215 million and distributable cash flow was $126.3 million. We increased distributions and dividends again in the fourth quarter, ending the year with total distributions of $1.36 at XTEX and total dividends of $0.52 at XTXI. Looking to the future, we are confident that we have found the right partner at the right time to create a larger, stronger company that can deliver sustainable growth and enhance value for all our stakeholders.

With that, I'll now turn the call over to Mike Garberding who will discuss our fourth quarter financial results in greater detail.

Michael J. Garberding

Thanks, Barry. Good morning, everyone. First, I'll provide an update on our 2014 outlook for EnLink Midstream and then review Crosstex's fourth quarter and full year 2013 financial performance. We issued guidance for EnLink Midstream on February 19 which was consistent with the financial outlook we provided on our Devon announcement in October. From second quarter to the fourth quarter of 2014, we expect approximately $525 million of combined adjusted EBITDA at EnLink Midstream, including $375 million of adjusted EBITDA at EnLink Midstream Partners L.P.

While these projections do not include first quarter impacts due to the timing of the shareholder vote on March 7, on an annualized basis we expect approximately $700 million of combined adjusted EBITDA at EnLink Midstream, including approximately $500 million at EnLink Midstream Partners L.P., which is consistent with our original guidance. These figures exclude operational synergies which are still being worked through. Until closed, we are still operating as two separate companies.

Projected distributions for fiscal year 2014 are expected to be approximately $1.47 per common unit at EnLink Midstream Partners L.P., and approximately $0.80 per common unit at EnLink Midstream LLC. The payment and amount of distributions will be subject to approval by the respective EnLink Midstream Board of Directors and to economic conditions and other factors existing at the time of determination of each quarterly distribution.

Expected growth capital expenditures at EnLink Midstream Partners L.P. in the second quarter through the fourth quarter of 2014 are approximately $300 million. Expected maintenance capital expenditures in the second quarter through the fourth quarter of 2014 will be approximately $80 million at EnLink Midstream and approximately $50 million at EnLink Midstream Partners L.P.

Also, we wanted to provide some clarification on drop-downs. Once our E2 projects are complete and in operations, which we expect to occur in the second quarter of 2014, we plan on dropping down our interest in those assets into the partnership. No other drop-downs besides the E2 assets are included in our 2014 guidance projections. We do not expect to start dropping down the Devon midstream assets until the beginning of 2015, and we expect to begin working with Devon on the drop-down of the Access Pipeline upon project completion, which should be expected in 2015 as well.

When we announced the transaction with Devon in October, we mentioned our intent to refinance Crosstex's legacy debt and achieve approximately $25 million of financial synergies. We have successfully obtained new revolving credit facility commitments with investment grade terms for both EnLink Midstream investment entities. EnLink Midstream Partners L.P. has entered into a $1 billion unsecured revolving credit facility. EnLink Midstream LLC has received commitments on a $250 million secured credit facility. The funding of these facilities discontinue upon the completion of the merger and contribution transactions with Devon. We are pleased with the terms of these facilities and the banks that are partnered with us and we believe we have ample capacity to finance new developments, drop-downs and acquisitions when those needs arise.

We're also working on refinancing our current unsecured debt. We have already exercised an equity clause of $53 million on our $250 million 7.125% bonds. We are looking at options to refinance our $725 million 8.875% bond that became callable this February. From a ratings perspective, we are still working through the process with the new ratings expected at transaction close.

We expect EnLink Midstream's investment grade credit profile to give us much more favorable interest rate on these bonds, thereby giving the Company a lower cost to capital. Our long-term plan for EnLink midstream is to maintain leverage of around 3.5x debt-to-EBITDA or less. We will provide more information on EnLink Midstream's guidance projections at our Analyst Day presentation in Dallas on May 12.

Turning to Crosstex's fourth quarter 2013 financial performance, we delivered stable financial performance despite some challenges we faced in the fourth quarter. The partnership realized adjusted EBITDA of $53.9 million for the fourth quarter of 2013, a slight increase from the third quarter of 2013 adjusted EBITDA of $52.5 million.

Gross operating margin for the fourth quarter of 2013 was approximately $96.1 million or 3.9% from the gross operating margin at third quarter of 2013. For the quarter, our fee-based business accounted for approximately 84% of gross operating margin, which continues to provide a solid base of cash flows.

The key drivers of our fourth quarter results were, first, the volume ramp-up of our Cajun-Sibon phase one expansion project has been slower than expected. This is a large scale project and it takes some time to get equipment lined out. We are also impacted by colder than normal temperatures constraining the overall flow of NGLs into the main fractionation complexes. The pipeline is currently running at near full capacity, while the unit's fractionator has experienced start-up issues with certain equipment. Bill will discuss more about this later.

Second, we had a strong utilization from our railcar import facilities to capture seasonal pricing uplifts in our PNGL segment, offsetting a challenging gas processing environment. Finally, with respect to ORV segment, the continued condensate production delays, less volume on our brine disposal due to well issues and weather conditions in the fourth quarter had a negative impact on our production growth. We are still waiting to realize the expected growth. Bill will provide additional details.

As Barry mentioned, we ended the year with adjusted EBITDA of approximately $215 million and distributable cash flows of $126 million. In our last quarter call, we discussed our expectations to end 2013 towards the low end of guidance for the year. Our results were impacted by the timing of the Cajun-Sibon start-up and the slower than expected ramp in ORV condensate volumes. We've been working to resolve these issues as we move forward in 2014 and expect to be successful in our endeavors.

For the fourth quarter, we increased both the distributions at XTEX to $0.36 and the dividend at XTXI to $0.15 due to the solid performance of our legacy assets and the growth outlook we see in the near-term horizon for Cajun-Sibon, Bearkat and the Devon transaction. Our distribution coverage was 0.99x for the full year. We continue to believe that coverage ratio of 1x to [indiscernible] is stubborn given the overall reduced commodity exposure in our business.

With that, I will turn the call over to Bill who will provide an asset update and take you through some of the exciting growth projects we are working on.

William W. Davis

Thanks Mike. Good morning, everyone. During the fourth quarter, we continued to make significant progress on our growth projects. We're pleased to report that our Cajun-Sibon phase one pipeline expansion is operating within targeted capacity, currently handling 60,000 to 65,000 barrels per day based on producer nominations.

At our Eunice fractionator in South Louisiana, we have experienced start-up issues with certain new pieces of equipment, including pumps, compression and boilers. Eunice plant volumes are currently ranging between 35,000 to 55,000 barrels per day depending on equipment performance and availability. We are addressing these equipment issues and have fixed most of them, and expect to have them all resolved in the near future.

Construction progresses for Cajun-Sibon phase two. This expansion will increase the Cajun-Sibon pipeline capacity by an additional 50,000 barrels per day to a total of 120,000 barrels per day. We're also constructing a new 100,000 barrel per day fractionator at our Plaquemine gas processing complex and expanding pipeline capacity from Eunice to the new Plaquemine fractionator. We expect phase two to come online in the second half of 2014.

Our North Texas legacy assets continue to perform well, despite reduced drilling in the area. Our long-time goal has been to reposition these assets and we are excited about the many synergies and opportunities the transaction with Devon creates in North Texas.

As Barry mentioned previously, we announced plans to expand our operations in the Permian with our new Bearkat processing complex and gathering system. This project includes treating, processing and gas takeaway solutions for regional producers. The new build processing complex located near our existing Deadwood joint venture in Glasscock County will have an initial capacity of 60 million cubic feet per day, increasing our total operated processing capacity in the Permian to approximately 115 million cubic feet per day.

In February, we announced the construction of a new 35-mile, 12-inch diameter high-pressure pipeline that will provide additional gathering capacity in the Bearkat and further expand our platform in the region. This is just the type of expansion project we like to see in these types of developing resource plays. These projects are underwritten by long-term fee-based contracts and provide gas takeaway solutions for constrained producer customers in Howard, Martin, Glasscock and Reagan counties. We expect significant growth from our Permian assets when the first phases of Bearkat come online in the second half of the year.

In the Eagle Ford, we continue to see strong results from our investment in Howard Energy. The Reveille processing plant became operational at the end of the year as expected, and in December, Howard announced the planned construction of two major liquid handling facilities in the region. The Brownsville Terminal and the Live Oak Stabilizer will significantly increase Howard's platform of services in South Texas and both are expected to be completed in mid-2014. We received $17.5 million in distributions from Howard Energy in 2013. This is slightly above expectations and we continue to be pleased with this investment and the growth around it.

Also Alinda Capital Partners acquired a 59% interest in Howard in late 2013 by buying out the ownership interest of Quanta, GE and others. We have retained our 31% ownership in Howard. We see this as a positive for our investment, in part because the Alinda acquisition valued our interest at over 2x our original investment. We also are aligned with Alinda Capital Partners on our growth plans for Howard Energy and expect to take advantage of the many opportunities seen in the prolific Eagle Ford Shale play.

In Louisiana, our Bayou Corne permit was finally issued in December and construction on the pipeline reroute is underway, which will allow us to resume service through the line restoring system throughput to previous levels. We now expect this to be complete in the first half of 2014.

In the Ohio River Valley, we remain positive about the long-term opportunities while recognizing several changes to our original outlook for the Utica. As of the fourth quarter of 2013, approximately 760 have been drilled in the region but only 216 are producing, and we're seeing more gas and less oil than we had originally projected. Total production for the Utica was flat compared to the third quarter.

The continued delays in much-needed gas gathering and processing capacity have delayed wells from coming online and continue to impact our near-term growth expectations for gathering the associated condensate production. We anticipate volumes will grow significantly as these shut-in wells begin producing with the completion of the midstream infrastructure. We are well-positioned for the long-term growth in the region and continue to identify and develop additional opportunities to extend and expand our existing footprint.

With that, I'll turn it back over to Barry.

Barry E. Davis

Thank you, Bill. Before we end the call, I just want to acknowledge that if all goes as planned, this will be the last Crosstex earnings call. It's been an incredible 18 years and I sincerely appreciate the hard work and commitment of all Crosstex employees that has helped us build this Company into the leading midstream provider that it is today. We have grown from a company of just nine people in 1996 to a premier publicly traded set of companies employing over 700 people with a strong reputation in the industry.

I'm excited about our future as EnLink Midstream but not without looking back fondly on all that Crosstex has accomplished. We are well-positioned to create value for our owners well into the future and we look forward to the transaction closing in the very near future.

With that, operator, we'll now take questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Darren Horowitz from Raymond James. Please proceed.

Darren Horowitz - Raymond James

A couple of quick questions. Mike, first one with regard to the updated pro forma guidance for EnLink Midstream Partners, and I appreciate all the color on that, you outlined the adjusted EBITDA of – I'm sorry, can you guys hear me?

Barry E. Davis

Can you just start again?

Darren Horowitz - Raymond James

Yes, not a problem. The first question, Mike, was just around that updated pro forma guidance for EnLink Midstream Partners, the $375 million, and I appreciate that it's from the second to the fourth quarter, but it now includes about $25 million of those financial synergies around the refinancing that you mentioned. So am I right in thinking that that suggests that the base EBITDA is about $25 million lower on an annualized basis?

Michael J. Garberding

No, the financial synergies should really only impact DCF. So when we think about that, right, so again this does not include any operational synergies yet as we mentioned. We're still working through those and as we gain greater traction on those, we'll start talking about those with the market.

Darren Horowitz - Raymond James

Okay. Do you have at least a rough forecast as to when you think the timing and magnitude of when that will be reflected in the income statement, or is it still too early to tell?

Michael J. Garberding

It's still too early. Again like I mentioned, we're still operating as two separate companies, and as we really start integrating those teams together, we can do that deep-dive. We do have a good working relationship together. So again, it should be quicker than longer just because of that.

Darren Horowitz - Raymond James

Okay, that makes sense. Back to the E2 drop-down that you just outlined, it's included in the 2014 guidance. If we think about the scale of those assets, which I assume are still three compression facilities that are doing about 300 million a day in capacity and assets to stabilize somewhere between 15,000 and 20,000 barrels a day condensate, what's the associated EBITDA and DCF that we can expect from those?

Michael J. Garberding

We haven't specifically talked about what you're going to see from an EBITDA and DCF. What we have said though is from an investment standpoint, we've invested right now at about just a little bit north of $80 million. When we do these projects, we've typically seen these projects in that five to six times.

Darren Horowitz - Raymond James

Okay.

Michael J. Garberding

There will be again, just as you know, in any growing area, a ramp-up of that though with time.

Darren Horowitz - Raymond James

Yes, that makes sense. And then last question for me on the legacy LIG system, just looking at the operating margins that you guys reported in the fourth quarter and the expectations this year, can you give us a sense for the magnitude of those legacy North Louisiana contracts rolling off and what else you've got built into the guidance from your blending volume perspective?

William W. Davis

This is Bill, Darren. Those contracts on FTE on North LIG generally have a four to five year average remaining volume weighted life on them. Today, there's about 285 million per day of FTE commitment on those assets. Our guidance assumes the existing contracts continue to roll off as per the contract life. So we don't have anything built into the guidance that would offset that. We basically use current pricing for commodity processing and so forth, so pretty much status quo.

Darren Horowitz - Raymond James

Okay. Thank you, Bill.

Operator

Your next question comes from the line of John Edwards from Credit Suisse. Please proceed.

John Edwards - Credit Suisse

Bill, congratulations on your upcoming retirement.

William W. Davis

Thank you.

John Edwards - Credit Suisse

Just to follow-up Darren's question on the contract roll-off on the legacy LIG systems then, so in your guidance in terms of anticipated revenue, you're assuming relatively flat. Is that the right way to think about it?

William W. Davis

We assume the existing contract terms. So basically whatever the term of the contract is, is what the guidance reflects, with no modifications assumed.

John Edwards - Credit Suisse

Okay, great. And then, you also mentioned in your remarks regarding volume expectations in Ohio River Valley, they are not coming in according to what your originally thinking was or at least not on the schedule you're thinking, I'm just curious, your thoughts on when you think those volumes will get to plan, and also if you could talk about where they are relative to plan, is it say three quarters, is it half, I mean just can you give us an idea of magnitude relative to the original plan?

Barry E. Davis

John, this is Barry, and I'll address the ORV question. First of all, we've been reminded of the challenges associated with a development play like the Utica, and there are just always early stage challenges that show up in the infrastructure build and just getting things done on the timing. In our numbers, as you know, that was reflected basically in a slower ramp in the condensate production as well as some logistical issues and mechanical issues in our brine business, not to mention weather which really kind of kicked-in in the second half of the fourth quarter and continues a little bit into the first quarter of this year, so just a number of things that really show up in the development of a play like that.

That being said, we continue to be very optimistic about the resource play in general. The volume ramp, we would still project to be similar to what we have in the past. In the third quarter, we said the volumes were in excess of about 20,000 barrels a day of condensate and crude production there. What we haven't seen is much of a ramp from there over the last four, five months, and again, that's primarily the result of weather and infrastructure challenges.

We would still project that we're going to see a big ramp, and we think that that's supported by recent communications around well productivity. We've seen wells in excess of 30,000 or 30 million cubic feet a day. So, strong results, we're still seeing things that have slowed things down, we're optimistic about the future and think that there will be opportunities for us to continue to expand there.

John Edwards - Credit Suisse

Okay, great, that's really helpful. And then also you brought up the weather, can you quantify approximately from an EBITDA standpoint what you thought the weather impacts were for the quarter?

Barry E. Davis

John, we really haven't done that. I would – I mean it mostly is in the ORV area but we have seen some weather – and one of the things that Bill didn't mention is part of the ramp-up in Cajun-Sibon has been impacted by the – we have more ice days than we have rain days in South Louisiana, so that's unusual, but we did have some weather issues but we haven't quantified it in the numbers.

John Edwards - Credit Suisse

Okay, fair enough. And then last question, and I don't know if you'll be able to address this until the close of the combination, but you laid out four different avenues of growth, the drop-down, midstream services, organic, M&A, if you could weight one of those aspects one to another, how would you say weight what you think the growth opportunity is between those four areas?

Barry E. Davis

John, I would point you to May 12. I think we're going to give you a really nice roadmap to those opportunities at that time. And at this time, I'd simply say, I think there are significant opportunities across all four of those avenues. And clearly, you can do the math on the drop-down potential. With an initial valuation of $2.5 billion or so of the assets, it went up to the GP, and then look at the size of the Access project. So, it's significant on the drop-down but it's also significant in the other avenues as well.

John Edwards - Credit Suisse

Okay, fair enough. Thank you very much.

Operator

We have a question from David Askew from Wunderlich.

David Askew - Wunderlich Securities

Just wondering if you guys could maybe provide a little bit more timing guidance on the in-service of Cajun-Sibon 2 and the Bearkat plan?

William W. Davis

The Cajun-Sibon 2, to get real specific on it, should be sometime in the September, October timeframe roughly. In terms of Bearkat, there will be a couple of phases of its implementation as well. We think we'll have the first phase of Bearkat this summer, the second phase in the fall.

David Askew - Wunderlich Securities

Okay, thank you. And then, would you anticipate any other mechanical issues with the phase two or is work being done to address potential issues before they arise?

William W. Davis

We are doing what we can to address those in advance, yes.

David Askew - Wunderlich Securities

Okay, thank you. And then just...

Barry E. Davis

David, just to expand a little bit on that, we would look at the characterization of those issues that we faced as being things we'd like to think of as one-time things that are associated with specific equipment and the fact that we were going into an existing plan, but the reality is that in big projects like this with a lot of equipment, you're typically going to see some issues. But certainly we're going to do everything we can with what we've learned from the issues we've seen in phase one, but can't predict if those won't exist in phase two.

David Askew - Wunderlich Securities

Okay, fair enough. And then I guess on the synergies, I mean without being too much more specific, operational synergies, what area would you see the most opportunity, is it in the Barnett? And then, are there also opportunities for synergies on the maintenance CapEx side along with the OpEx side?

Barry E. Davis

David, first of all, let me say we're going to see significant synergies on the corporate G&A level. When you push two companies together like this, obviously you had redundancies. The good news is, it didn't result in headcount reduction, but it does result in savings for us because we already had a lot of those G&A things built into our organization. So a big part of it will come from that, and that will come immediately.

The second thing is, when you look at where the overlap is, it is primarily in the Barnett and almost exclusively in the Barnett. So that would be the second area that we would expect to see operational synergies. We've been working as much as we can prior to the close to identify and to get those things moving, and I think by our May 12 Analyst Meeting, we'll be able to give some pretty good detail as to what we think the outcome will be there.

Michael J. Garberding

On maintenance capital, you are correct, we do expect to see synergies, because if you think of the majority of the wells that are being drilled in those areas, it's really infill drilling with connection to existing systems. So we do think there's a lot of optimization also around the maintenance capital when we get in there.

David Askew - Wunderlich Securities

Okay, thank you. And then I guess just finally kind of bigger picture in the ORV, can you guys kind of characterize the competitive landscape? I mean there's been a condensate pipeline and supportive project announced and just kind of how that might be impacting you guys' thinking in the sort of outlook for regional development there around condensate solutions?

Barry E. Davis

Yes, again David, we're very optimistic about the resource play in general. We think there's going to be a lot of midstream assets built here, and that's been well documented. We believe the condensate project that we are working on still makes a lot of sense and we are still working very closely with our producer customers to build out that infrastructure that we know is necessary. We're not going to be trucking large volumes of condensate for very long before we are moving into pipeline. So we think that's still a great opportunity for us.

David Askew - Wunderlich Securities

Okay, thank you guys, and congrats, Bill.

Operator

Your next question comes from Ethan Bellamy from Baird. Please proceed.

Ethan Bellamy - Baird Equity Research

In the original presentation, you guys outlined 95% fee-based pro forma for 2014. You anticipate that when you start the drop-down in 2015 and beyond, that you'll stay at or above that level and just in terms of how the Devon contracts with EnLink go?

Michael J. Garberding

Ethan, this is Mike. Yes, we anticipate staying in that general range. When you look at it, it grows at 95%, because again all the assets that we are [keeping] (ph) there under the fixed-fee contract that we've talked about, and we'd expect that future drop-downs from Devon would mirror contractually what we've done today.

Ethan Bellamy - Baird Equity Research

Okay, that's good. And with respect to EnLink, Crosstex is now aligned with a – has that changed position with other producers? I mean on the one hand you've got more resources, but on the other hand you're aligned with what might be a competitor of some of those other folks that you work with. I'm just curious if this changed the dynamic of the relationships at all?

Barry E. Davis

Ethan, this is Barry. We're very thankful that to-date we've seen no negative reaction and really don't expect to going forward. We will remain an independent company. We'll remain independent in terms of the way that we approach the business. And Devon has always been a very large customer for us. We just expanded that, and so we've not seen a negative reaction and think it's been a very positive from our financial capability, our ability to be creative in the structuring of deals with producers we think that comes from that financial capability will be important and really will be a net positive.

Ethan Bellamy - Baird Equity Research

Thank you, Barry. And Bill, congrats, it's nice to see going out on top.

Operator

Your next question comes from the line of Jerren Holder from Goldman Sachs. Please proceed.

Jerren Holder - Goldman Sachs

Recently, Canadian Natural announced an acquisition of some of Devon's assets in I guess Canada. I was just wondering if that changes anything, the outlook for drop-down opportunities related to the midstream assets up there, how do you guys think about that?

Michael J. Garberding

Jerren, this is Mike. That does not – again, there were some miscellaneous midstream assets associated with that, and so the main assets from a Canadian perspective were around the Access Pipeline. So from our perspective, it does not.

Jerren Holder - Goldman Sachs

But I guess related to the Access Pipeline, from a production standpoint I guess there's a change, not having Devon control or even main support of that, does that change anything or is it that the volumes coming on the Access Pipeline is from a variety of producers?

Barry E. Davis

Jerren, to be clear, Devon has retained the heavy oil project that drives the Access Pipeline. So there would be no impact as to that. They also retained obviously their position in the Access Pipeline that represents the opportunity for us. So, no negative. We do think from a broader perspective, the things that Devon has done recently from a strategic standpoint to focus on fewer resource plays is a net positive to us. We think that, one, their focus on these areas will drive production to our facilities that are associated with them. Secondly, the assets that they sell represent opportunities because we expect that those assets would result in hands of people that would be more aggressive in their development because they would become core properties hopefully for those people that acquire them. So, in all, we see the things that have been done by Devon in the last couple of months have been very positive for us.

Jerren Holder - Goldman Sachs

Great. Thank you for the color.

Operator

I would now like to turn it over to Barry Davis for closing remarks.

Barry E. Davis

Thank you, Mark. I appreciate it. Guys, as you can tell from our tone in this call and the tone of our communications, these are exciting times for us. We're working hard to execute on our growth projects and to complete the transaction with Devon here in the very near future. The steps we've taken in 2013 positions us well to create value for our equity holders as we march into the future. As EnLink Midstream, we will not only be one of the largest, but also one of the best midstream companies in the U.S. We look forward to providing you with more information on our progress at our analyst meeting on May 12 in Dallas. Have a great day and a great weekend. We appreciate all of your support.

Operator

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

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