Spectra Energy Partners' (SEP) Management Citi 2014 Global Energy and Utilities Conference (Transcript)

| About: Spectra Energy (SEP)

Spectra Energy Partners, LP (NYSE:SEP)

Citi 2014 Global Energy and Utilities Conference Call

May 14, 2014 1:00 PM ET


Pat Reddy – CFO

Julie Dill – Chief Communications Officer


Faisel Khan – Citi

Faisel Khan – Citi

So we are going to keep going with the afternoon session here. With me today from Spectra Energy and Spectra Energy Partners is Pat Reddy, the Chief Financial Officer of Spectra Energy and this is going to be a round table session. So we we'll just hear just a few opening brief remarks from Pat and then we'll kick it off to Q&A and there is lot of things going on in Spectra, so we're eager to hear about all your activities. Thanks Pat.

Pat Reddy

Well, thank you Faisal and I also have with me today Julie Dill, who is our Chief Communications Officer, is going to be in there. Thank you all for joining us. As Faisal said, it really is an exciting time not just to be in the industry, but to be part of Spectra Energy, because I know, a lot of companies in this space are talking about their backlog and the work ahead.

But we've been executing on the gas side and now on the oil infrastructure side, since our spin from Duke in 2007 and the backlog of opportunities ahead of us have continued to grow and grow pretty dramatically and I think you'll see in the next few minutes that the quality and the breadth of the projects we have ahead of us are really outstanding. So I can't start a presentation without -- well, I first have to mention the Safe Harbor Statement.

As you know -- what we’ll talk about today involves forward looking statements, but my favorite way to begin the presentation is with the map of our facilities. This is a little more of a stylized treatment, not the typical map and this is one that my boss Greg Ebel loves, he calls it where the lights are in is just to make the point as the night time satellite shot of our footprint that we've worked hard over the years in terms of being relevant to our customers to make sure that first our gas pipelines and now our oil pipelines start in very competitive base and so that we can access some of the most attractive sources of supply.

And then we connect to the fastest growing market. So for example, on the gas pipeline side, we serve four of the five fastest growing markets and we get all the way behind the same game, we don't stop part way there and the problem with we are stopping part way of course is you can encounter pretty sever pipeline pipe competition subject to basis differentials and that kind of thing and we've worked hard over the years to avoid that.

So enough about where we operate, let me just jump into what we are excited about and where our growth is going to come from. We’ve been talking about a pretty healthy backlog of projects for a couple of years now and that backlog of opportunity has crept up to $35 billion. And I'll talk more specifically about each of the categories on that stack bar chart where we've categorized our growth.

At the bottom, the chart is in service. So those would be projects that we either acquired or placed into service in the past twelve months. The green portion of the bar projects an execution and yellow is advanced development and then in blue on top, the lighter blue, our projects that are little bit further out in the horizon, but where we are at -- we either have partners or we are in active discussions or advanced planning, so certainly not just ideas, but things that have momentum.

I talked about the $35 billion involves projects that we placed into service in 2013 and those don't look out to the end of the decade through 2020. And I’ll talk a little bit about the milestones that we've met in the first quarter against those projects. So first, let me just mention our big SabalTrail pipeline into Florida, we won the competition last year to build that new 1 bcf a day pipeline, to serve Florida power and light. I am also pleased to tell you that we've executed a president agreement with Duke Energy off of the pipeline to serve their proposed generation facility in Citrus County, Florida. So another high quality anchor shipper on that pipeline.

We've gotten off to a great start with the team on the ground and we're on track to submit our FERC filing for the project in October with the view of placing the pipeline into service in 2017 just as planned. We have our Algonquin Incremental Market or AIM project as we call it, it's a $1 billion build to increase the West to East capacity of our big Algonquin pipeline by about 350 million cubic feet per day.

On top of that, we also have our Atlantic bridge project that I'll talk about in a minute that's a further extension on Algonquin. The AIM project is a 100% subscribed by virtually all of the major local distribution companies in New England and we submitted our FERC filing for AIM this in February and we expect to receive our FERC Certificate in the first quarter of 2015 again right on our plans scheduled.

We're advancing nicely on what we call our NEXUS project which will bring supply to cities in Michigan and Eastern Canada by delivering Utica and Marcellus Gas around the great lakes. The project will serve Eastern Canadian and Midwest LDCs and a number of Appalachian producers. We are pleased to report that three local distribution companies have now signed president agreements to utilize about half of the projects currently forecast capacity and we also expect producer contracts to follow during the year. I think it's becoming increasingly apparent to producers that they don't want to run the risk of getting stuck behind the pipeline that's full.

At the beginning of the year, we announced our Atlantic Bridge project to further expand our Algonquin pipeline. Since then, we've conducted a very successful open season. And we had strong interest from 33 parties that have oversubscribed for the pipeline by many times for this expansion, which is targeted about 200 million to 300 million cubic feet per day with the 2017 in service date.

We sometimes get the question with that level of interest, why don't you just upsize the project? And the reason is that we prefer to do it in phases. There are customers that need service in the near-term and if we had a bigger project, we'd take longer to complete it, so we'll do it in phases, which just means stay tuned for Son of AIM and Son of Atlantic Bridge. Particularly for the emersion generators, we see a lot of pent up demand building there.

We have a host of longer-term opportunities that we're also pursuing. We are looking at opportunities in the Gulf Coast area to continue to support both LNG exports and growing industrial demand, particularly from the pet-chem plants that have announced either new build or expansion to come on line in the 2017 and beyond timeframe.

We also have projects to serve electric generators and other customers in the Mid-Atlantic and South East regions to the United States and of course our 50-50 joint venture with Philips 66, that we call DCP Midstream is on their way with another 2 billion of projects in the development phase. And as you know, that CapEx in that business is self-funded by the venture.

So, in addition to the backlog of projects that we're pursuing, we've had a very busy start to the year and a very strong first quarter. Our EBITDA being up about a $175 million year-over-year, about half of that attributable to weather and strong commodity prices, but the half reflecting just strong growth through expansion of our business with new projects coming into service last year.

Our EBITDA crossed $1 billion mark in the quarter, so a very strong showing there. Our distributable cash flow levels, both at Spectra Energy and the parent and at Spectra Energy Partners, the MLP are very robust. Our coverage ratios were very strong exceeding our first quarter expectations. And to backstop the growth and to fund it, we have strong investment grade balance sheets at the parent and at the MLP.

So clearly, we're executing on our plan. We're running our system very safely at the same time, this past winter tested everybody's system and we didn't have any deliverability or reliability issues at all, while we did set throughout records on our big pipelines like Algonquin and Texas Eastern, 25 out of 30 days set records in that period.

We've got strong fee-based cash flows that continue to underpin our growth. We're targeting a 9% CAGR in our dividend growth at Spectra Energy through 2016 and 8% to 9% CAGR in the distribution growth at our MLP, Spectra Energy Partners.

So, we are executing on growth, we are off to a good start in the new year and with that, I'll just pause and hopefully we can have a good discussion and answer any questions you might have.

Question-and-Answer Session

Faisel Khan – Citi

Thanks Pat. So we were talking a little earlier about last year when you were here, we had this panel on the Marcellus and whether it was going to be a friend or foe and foe meaning that would will there be so much supply that there won't be any more demand for long-haul pipeline capacity from the Gulf Coast to the Northeast. And it turns out that we've gone beyond that local consumption and now we're going to get gas out. So you guys have -- I guess my first question is are you surprised that how quickly the producers sort of came around assigning capacity, sort of from the time that we talked last year towards the end of the year and your sort of outlook meeting that you guys held in January or February?

Pat Reddy

It's ironic what a difference of a couple of years can make. I remember when I joined Spectra in 2009, we were just starting to get questions from analysts and the rating agencies about the potential for stranded or devalued capacity on long haul trunk line pipelines that were originally designed as you know to move gas from the Gulf of Mexico to the North East and we had lots of reasons why we didn't think that was going to happen, our high renewal rates and the fact that most of our investments had been on the Northern half of our pipeline in the last couple of decades. But still a lot of consternation about who is going to need Gulf gas and how are you going to use that part of your pipeline.

And at the same time, there was a lot of talk about the Marcellus and how strong it was coming on. And what we were seeing is that the actual production uptick was lagging the expectation and that works fine from our perspective because it enabled us to incrementally expand our system kind of like a bellows and accordion rather than result in a lot of new builds or a Greenfield build.

But we also told our producer community that it was going to be a limit to how much blending Texas Eastern could do. And as of the couple of years ago, we had more than 100 interconnection agreements with Marcellus producers, but we'd take rich gas that was off spec and blended would dry gas coming out from the Gulf.

And you can understand as a producer, you don't want to enter into it the 20-year fixed fee demand charge kind of contract for expansion before you have to. But we've been saying now for a couple of years that, that string was running out and we're approaching the end of our ability to do that. And so I think what we saw in the last year is that the producers accepted the fact that, that was coming to an end and that they needed a contract for additional supplies output as the Marcellus is now about 17 BCF a day headed to 20 and we just need more infrastructure.

You saw a pretty dramatic illustration of what new pipe can do to basis differentials when we put our New Jersey, New York expansion in place that can move about 800 million cubic feet a day in the Manhattan, the differentials between Manhattan and Philadelphia on the day it started, November 1st came in quite nicely.

So, it's all kind of an unfolding about the way we expected it's and just winding up the rubber band.

Faisel Khan – Citi

Okay, great. And so if we look at sort of all the projects that you guys have lined up to move gas back down to the Gulf at about 2 BCF a day I guess against between TEAM '14, TEAM South open and the Gulf markets expansion. Is this all a low-hanging fruit not that's sort of been picked off here by your customers or is there a sort of more of these sorts of quick turnaround projects that you could sort to bring to bear on your system?

Pat Reddy

Oh, good question. So I know some of our -- the folks in our space have just started to talk about either repurposing or either redirecting flows on their pipes. I would just say that maybe a little bit under the radar screen, we've been asked this now for three or four years, we've got the five projects that Faisal mentioned, that are going to make our Texas Eastern pipeline increasingly bidirectional, we will be able to move the same 5 bcf a day for Marcellus North into the North East markets. And as a result of these projects that come online between now and 2016-2017, we'll be able to move 2 bcf a day South.

So for example our Gulf markets project is underpinned by participants in the Cameron LNG project and even though that project isn't completely through the regulatory process much less still, the sponsors recognize that there is onto your point, Faisal, is only a finite amount of relatively inexpensive existing capacity that could be taken out. And so we're under contract now for 600 million a day to flow gas out from the Marcellus to the Cameron LNG region for those facilities.

So, now one thing that -- we have a kind of pipeline called a telescoping system, so if you imagine a telescope with the IPs being the smaller end and the lands at the end being the thicker end, imagine that that's what our pipeline looks like going from the Gulf to the Northeast, it starts off small and then builds up in the Marcellus forward we can move about 5 bcfs a day, but up to there, we can only move around 2 or 2 plus bcf.

So there will be a finite amount of easy expansion without a lot of capital commitment and I think that's what Greg referred to you on the call. It doesn't mean we can't do more than that, it just means that beyond that it will involve more new facilities and paralleling a pipe and that kind of thing. So I think it will still be a very attractive option for producers and end users that want to move that gas out, it's just I think most of the low hanging fruit in the last three or four years we've already harvested.

Faisel Khan – Citi

So, I guess the question is when do you start having those conversations to the producers about that I guess little more expensive capacity on account. Is that this conversation happened now or is it something that producers are just going to wait and see what happens over the next couple of summers?

Pat Reddy

What I think is if they are happening now with respect to gas and the Utica, I mentioned our NEXUS project and we're three distribution companies taking about half of the capacity. The producers have started to get serious in discussions with us about timing of meeting capacity, so that we can face that. And so I think we're actually seeing it now, I think Utica development just like Marcellus has lacked a little bit the initial expectations.

It just always takes a little bit longer for the drilling to occur and the production to ramp up, because as you know, in any given formation, each part of the formation is not created equally. You've got to prove up for the more liquids rich portions are just like happened in the Marcellus, and I think the same thing is happening in the Utica.

So with respect to moving gas from North to South, those are discussions that are already taking place how quickly the results going in open or signing contracts, it's probably 12 to 18 months I would imagine.

Julie Dill

And then when we think about these projects, because it seems like they don't require a tremendous amount of capital. The returns seem quite attractive. I know you guys talk about sort of this 10% return on capital sort of number. But it would seem to me that these projects offer a much higher return than that. Is that fair to say or is there something that I am missing that happened along the lines? May be there is customers that step away or that get backed out because of -- because they were moving gas North before?

Pat Reddy

We're actually going to be able to flow gas both North and South, we have, what we call sort of the neutral or null point on this system where above the null point gas is flowing North and below its flowing South and that point can move up and down the pipeline on any given day depending on how demand shifts.

So we're not really looking at squeezing anybody out. But as you know in our model, we elected years ago to pursue straight fixed variable rates and all that means is that we've recovering on a monthly demand charge, a return on our investment. So volumes were to build, we wouldn't have more profits but likewise, if volumes decline, we wouldn't make less. That was just the option that we picked years ago.

So under FERC regulation, we're allowed. If it's a system and on system expansion we charge the system rate, if it's an off system expansion we charge the negotiated rate and the negotiated rate is whatever the market will bear on up to our maximum pipeline tariff rate. And most, I think virtually all of the expansions that we've done have been at the maximum tariff rate.

And so between rate cases, you don't get into cost allocation or cost sharing or revenue portion that you just charged the rates that you are permitted under regulation to charge. But to your point given that fairly modest incremental investment to be able to move this 2 bcf south, the returns on that investment are very attractive and when we talk about the 10% to 12%, that's really across our portfolio of investments and will be at the low end, some at the high end. And we just want to stay in that that fair way which again would be at least the returns above our cost of capital.

Faisel Khan – Citi

So with these, is there a highest end in terms of return on capital?

Pat Reddy


Faisel Khan – Citi

Excellent. What is that number?

Pat Reddy

That's for me to know.

Faisel Khan – Citi

Okay, fair enough. As -- I guess also as we -- as you look at the investments and these expend is a backhaul projects and then you look at the liquids pipeline that you have in your system and sort of the EBITDA growth you have on that system with also a very little amount of investment taking place on growth.

I guess how are we looking at sort of financing the growth at SEPs, are we going to have an excess coverage for a while and that's going to help finance sort of stable pipeline in a few of these other projects along with the distribution growth you talked about, is that all sort of doable in that sort of calculus.

Pat Reddy

I think it's very doable and so here's how we're approaching it Faisal. If you think about the four business segments that we have, in the U.S., all of our gas and oil transmission and storage assets are housed in our MLP Spectra Energy Partners. SEP is going to fund from the outset new projects and expansions. So we'll be doing SabalTrail at the MLP for example. We're doing it was partners, so we are looking to have about 50% of the overall investment or about a 1.5 billion to be done.

And the main build is going to be accomplished in the 12 months between mid '16 and mid '17, so not too long of a drag on cash flow at the MLP level. So and at the MLP, we expect to finance growth about 50-50, so we'll be issuing equity for about half of the requirement in debt for the remainder of it.

The other operations we have been in the U.S. and outside of SEP, is our 50-50 joint venture DCP. And that entity is self-funding. So we have the LLC, the joint venture with Phillips 66 that can issue debt and then we have the MLP, DCP Midstream Partners that issues both debt and equity. We've completed almost 1.2 billion drop down earlier in the year to DPM. And so it's ramping up in scale quite nicely so that it can -- it raised over 700 million of equity in connection with that drop and did it very comfortably.

So it's getting to a point where it can fund three-fourths at least of the 5 billion to 7 billion of CapEx that DCP has ahead of it. So the parent company doesn't need to put capital and in fact we'll continue to get our quarterly distributions from the partnership, so we don’t have to think about CapEx there.

As the distribution company we have about 1 billion of capital year earmarked for growth at Union Gas to serve their customers like Enbridge for example in Toronto. And the nice thing about their set up is under their incentive regulation model they're allowed to earn immediately on incremental growth CapEx without a lag and without following a rate case. So that is relatively self-funding, they issue their own debt.

In Western Canada, the bigger investment there a few years out for additional gathering and processing plants and then ultimately in the 2017 or '18 timeframe, building an LNG pipeline. And I thought, they have met with some banks that have advised large Canadian infrastructure companies.

Those deals can be -- if you have a very high quality counterparties like BG and A rated company, long-term contract, the financing can be structured much like a utility financing with the same rating as a parent company, so BBB or A in that instance and equity could be raised in an MLP like vehicle outside of where they wouldn't involve SE equity to fund it.

So I think we've got a lot of flexibility being both at the strong [inaudible] parent to help the growth in Canada and then doing the most of our, really all of our investment in the U.S. at SEP.

Faisel Khan – Citi

So just coming back to the SEP, so obviously all the natural U.S. natural gas pipelines on SEP. And on the -- and the liquids pipelines are in there too. You guys talked about sort of the potential to expand the Express-Platte system. You said that that was on the drawing board and that obviously would be a major project. Yeah, where are you with sort of customer interest and when do you start doing the work on sort of the engineering and planning and how big of a project could that be?

Pat Reddy

Well our timing in acquiring Express-Platte was obviously very good in hindsight having closed March a year ago. We've filled the pipeline up, we've optimized the rates, rolling from committed rates to market based rates and which is part of the ramp up that you saw in our February slide that shows the liquids EBITDA almost tripling between now and 2016. And so what happened almost immediately at the time that we announced the acquisition was that, because of the unfortunate situation with pipelines like Keystone having been held up and questions around how quickly Northern Gateway could get permitted or a trans-mount and our Energy East and the belief that if we're going to have 7 million barrels a day of incremental oil production in North America is probably room for all of those pipelines and more.

So many of the refineries that we have relationships with across Express-Platte is kind of a process of reverse inquiry as they began to look at their options with projects like Keystone being delayed, they had to step back and say gosh, why if these projects are delayed another two or three years?

What if they never get the -- what are my options. And so we've got an established path and right away, we referred to what is [inaudible] the line, but the fact is that Express today, nameplate capacity is 280,000 and I think we'd be -- we're looking at something more like 750,000 barrels in a twining. And we've done the preliminary in engineering and are satisfied that the cost of a pipeline of that 20 would be very competitive with alternatives that are out there.

It really is though towards the end of the decade, we've done enough work to know that it's viable, we've had enough of reverse inquiry to believe that there is interest in seeing us move forward. We would have to amend our existing presidential permit. I think that would be very much like seeking a permit, a fresh, the only advantage we might have is that the path in the right away it's already established, we wouldn't be breaking any new ground, but that’s obviously a little bit further out in time probably around the $8 billion or $9 billion at the 100% level, something of that size. We'd be inclined to seek a partner, don't know exactly how that would unfold.

One of the reasons for talking about it even now it's in the fairly early stage is just to be clear that in buying Express-Platte, it wasn't just an opportunistic acquisition that we were going to tuck into the MLP. We've been -- since we sold TEPCO, we've been looking to get back into the liquids transportation business and wanted to do with enough scale and with enough -- with the right operating people and commercial people that can help us grow that platform, and I think this is a very good next step for us.

Faisel Khan – Citi

Thanks. And if looking at kind of -- looking at some of your further opportunities on the liquid side, you guys have talked about this Inland California Express opportunity. We've heard from a number of other participants of this conference this week from other companies trying to build a rail terminals in California that the permitting process and just this is more difficult to get some of these facilities built even in a place like Central California where they would probably welcome it. What are you guys seeing in the permitting process and are you seeing any sort of delays or push back from sort of interested in the state to do something like this?

Pat Reddy

Well, I'd just say, we are not exactly at that point. We were approached by Questar after we announced the Express-Platte acquisition and asked that we be interested in participating in a feasibility study with them and we indicated, we would be and I think that’s really where we are.

You know it's Spectra Energy, we've never been one to start new projects on spec and build it and expect that we'd sell it out our model is always have that, whether it's approved or a gas pipeline, have it be fully subscribed with creditworthy parties, long-term contracts, then go through the permitting and the regulatory process and construct it.

And I would think we do the same thing here where we'd have a robust open season and then the market will determine whether their parties out there that will sign long-term agreement to the extent that would make it go. I don't think we're at that point of knowing that yet though.

Faisel Khan – Citi

Okay. And then just shifting back to some of the other opportunities you might have at Spectra Energy Partners. It seems like the export -- the amount of gas that's going to be export to Mexico is going to grow over the next two years and can you talk a little bit about how you guys might participate in that?

Pat Reddy

Well, we have pipelines that go through the Eagle Ford region and the Eagle Ford formation doesn't stop at the U.S.-Mexico border and there is a need for our gas to be imported by Mexico for a period of time and that's something that we'll take a hard look at, we've certainly looked at it over the years. And just because of all the opportunities we’ve had in the North East and elsewhere, it hasn’t been a priority area of focus, but with the -- what appears to be a new openness on the part of the Mexican government and PEMEX to consider alliances or joint projects with U.S. companies is something that we are taking a fresh look at but nothing to announce today.

Faisel Khan – Citi

Any questions? I should have asked earlier but…

Unidentified Analyst

Do you view DPM this quarter, I mean there has been questions in the past as to how long it's going to lay in the portfolio and --

Pat Reddy

Sure. Fair question. So sometimes you look at a mature company like Spectra and you'd say, how did you grow to be what you are and used to tick out a clean sheet of paper today, would you love them same and the answer I think clearly is no. I mean the reason we are in gathering and processing today is that decades, ago when FERC decided to take pipelines out of the merchant business, so they -- we don't buy gas for customers anymore.

They didn't -- back then used to be a gas pipeline, still a lot of the gathering and processing for producers and brought the gas to the pipeline. And so when we exited the merchant business, we didn't exit gathering and processing, it is still a vital service that we provide to producers and it is the business we're growing over the years, we are very good at it, we've bought on dips and rolls up to the point that today we are the largest processor of natural gas and the largest producer of natural gas liquids in North America.

And it's been a very profitable business for us, it's always cash flow positive with oil down the 30 bucks a barrel in a difficult year like 2009, the returns we earned over 10% to 12% and in good years, there are mid-20s up to 30%. The one thing it brings along with it is volatility in our gap earnings and I guess that about 20% of our EBIT is commodity sensitive.

But we start from the concept of when people propose things and we sort of back up and say what is that we are trying to solve here. If you are ever in a business that isn't the good fit, it isn't -- you are not hitting the numbers, it's not meeting the objective in the portfolio, then sell it. Write your tax check and move on. But the fact is we've got a great business, we've got a strong partner, they have got 5 billion to 7 billion of growth ahead of them. And so why would you want to exit that? So if the question is, not is it a good business, but is it structured optimally or do you think you are getting full credit on some of the part spaces because of how you organize, that’s some of the things that we’ve been very willing to look at, we’ve looked at it over the years.

The only thing I would say about that is that the good news is we’ve been extremely tax efficient, the difficult moves is that it's a result of that. We and our partner, each have pretty significant negative tax basis. So an obvious thing to do though forgetting about commodity exposure for just a minute, would be to take the 64 processing plants at the partnership, drop them all down at the MLP, it's a public entity that trades daily, we could just be the GP of the MLP and that would be great.

The challenge with that is that there is still a fair amount of commodity sensitivity in the plants that haven't been dropped down and the parents, where is that risk today? So we keep the risk and drop the assets down, but then there will be a fairly large chunk of the business owned by the public and that we'd be back stopping the quantity exposure. So that doesn't seem quite right. You'd have to make up for that with the GP take.

But some of the practical considerations are that [inaudible] is triggering tax free capture, yeah, that substantial assets at the LLC, we’ve got 2 billion or 3 billion of debt at the LLC, there'd be hundreds and millions of make whole if you just wanted to pay off the debt. So the reason for not doing that really has more to do with other ways to address tax consequences and commodity sensitivity and all I can say about that is you can trust that. We and Phillips 66 always look at that. We -- it's always sort of top of mind that there are better ways to be organized, better ways to be more transparent and less complicated.

Then I think one of the things we talked openly about in our February guidance day, our analyst day was that we are picking up the pace of drop downs by trying to average about a 1.5 billion a year over the next three years and we did a 1.02 billion drop and we have those 50 cities talked about another 350 before a year end. So I think that's eminently doable for us. And then the other thing, that's happening is that call it 40% of our margin is PLP, but increasingly in many basins producers wants fixed fee. And so over time, I think more of our business will migrate to see and that will be more compatible with the drop down in kind of a three to five year time frame.

So I think core is a difficult word. We try not to be in love with any of our assets if they are good fit, fine if they are not a good fit, you think about doing something else with them, but we don’t feel that way about DCP.

Unidentified Analyst

Just a quick question to follow up on. You said that when you do build assets, you have never done it on spec. But I am actually hearing a lot about in the Eagle Ford in particular, Midstream companies and then it is a building a quite a bit -- capacity on spec and basically just taking the word of the E&P producer community and their forecast and then building. And so A, can you just may be talk about that and how that would compete with your plans?

Pat Reddy

Okay. Now we are certainly seeing that and the Eagle Ford is a good example. And part of that, I'm going to on is that private equity has come into the area and developers like that where it isn't there core business, they are interested in building a plan and then flipping it. And it may or may not fill up at the time, it's completed some of them or maybe only half utilized.

That’s not our model, we tend to basically partner with producers, we -- they share their drilling data and well logs and there are expectations that how production is going to ramp up and give us a look out in time about if we're going to keep pace with them, how often do we need to build another 200 million cubic feet a day plan, so we get some visibility on that.

And so there is a relationship that develops around that. And then one other I think differentiating factor, ours is a complicated business in some ways but in another way in terms of what our competitive advantage is, it's a simple business, it's a lot like real estate. It depends on where is your footprint, how close are you to production, how close are you to markets, is it cheaper to expand attach new production if your main system is close by. My point being, if all you do is show up in a basin with the checkbook, that's not a differentiator.

In the Eagle Ford, we have six plants that are completed that are now linked together; we call it a super system. So we are not big enough in the areas to dictate anybody what the rate is going to be that they are going to pay for processing. But what we can sell as opposed to that single plant sponsor is 99.999% up time. Because you know in these processing plants, every two or three years you're going to go down for a month of two for plant maintenance.

And unfortunately every still off you are going to go down for an unplanned offset and it's a bad day when you have to call your producer, customer and say we got to shut you in, because if that happens very often or for very long, you can damage formations. And so that's what we are focusing on, it's having scale, there are some basins that we are not in today that we’d love to be in but we are not going to pay it a kind of premium to buy somebody that's there. And back to my analogy, we are not willing to just show up with the checkbook and say pick me.

Faisel Khan – Citi

Great. Thanks Pat. Appreciate it right of time. So --

Pat Reddy

Okay. You're very welcome.

Faisel Khan – Citi

Yeah. Thanks for coming at the conference, I appreciate the time.

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