Midcoast Energy Partners, LP (NYSE:MEP)
Q2 2014 Earnings Conference Call
July 31, 2014, 09:00 AM ET
Sanjay Lad - Director, Investor Relations
Gregory Harper - Principal Executive Officer and Director, General Partner
Stephen Neyland - Vice President, Finance of General Partner
Terrance McGill - President and Director, General Partner
Jonathon Rose - Treasurer
Noor Kaissi - Controller
Sunil Sibal - GH Securities
Jerren Holder - Goldman Sachs
Praneeth Satish - Wells Fargo
John Edwards - Credit Suisse
Good day, ladies and gentlemen, and welcome to the second quarter 2014 Midcoast Energy Partners LP earnings conference call. My name is Chantelle, and I will be your facilitator for today's call. (Operator Instructions) I would now like to hand the call over to Mr. Sanjay Lad, Director of Investor Relations. Please proceed.
Thank you, Chantelle. Good morning, and welcome to the 2014 second quarter earnings conference call for Midcoast Energy Partners.
This call is being webcast, and a copy of the presentation slides, supplemental slides, condensed unaudited financial statements and news releases associated with it can be downloaded from the Investor section of our website at midcoastpartners.com.
A replay will be available later today, and a transcript will be posted to our website shortly thereafter. I will be available after the call for any follow-up questions you may have.
Our speakers today are Mr. Greg Harper, Principal Executive Officer; and Mr. Steve Neyland, Vice President, Finance. Available for the Q&A session, we also have Mr. Terry McGill, Chief Commercial Officer; Mr. Jonathan Rose, Treasurer; and Ms. Noor Kaissi, Controller.
Moving forward to Slide 1. This presentation will include forward-looking statements. Any statements made or discussed today that do not constitute or are not historical facts, particularly comments regarding the company's future plans and expected performance, are forward-looking statements.
Actual results or outcomes may differ materially from those that may be expressed or implied. The risks associated with forward-looking statements have been outlined in the news release and the partnership's Annual Report on Form 10-K and other SEC filings. And we incorporate those by reference for this call.
This presentation also contains certain non-GAAP financial measures. The reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found in the Investors section of our website.
Please turn to Slide 2. I will now turn the conference over to Mr. Greg Harper, Principal Executive Officer.
Thank you, Sanjay. Good morning and welcome. I'm pleased to be with you on the call today and very pleased about the recent developments at Midcoast Energy Partners, and I am excited about the Partnership's long-term outlook.
During the second quarter, we executed on our first dropdown since the IPO from our parent, Enbridge Energy Partners. We declared our initial quarterly distribution increase, and while still a work in progress, we are encouraged by improvement in the underlying base business.
Our business development team is aggressively pursuing opportunities to secure accretive growth, including actively evaluating potential acquisition opportunities, while continuing to develop organic growth projects in our base business. In this light, I am pleased to announce the addition of Dave Weathers, to our leadership team at Midcoast, as Vice President of Business Development.
Reporting to me, David will lead our U.S. midstream business development function in support of our growth strategies. David is an industry veteran with a proven track record of executing on successful growth initiatives. These actions among others, that management is actively undertaking, will position Midcoast Energy Partners to deliver visible and disciplined growth to our unitholders.
As it relates to our agenda for this morning, I will review the strategic priorities for our business, then pass it along to Steve to discuss our financial results for the quarter, and then come back to provide a business development update and close with our growth outlook.
Let's move forward to Slide 3. I would like to highlight some of the strategic priorities for Midcoast Energy Partners. In order to achieve our vision of becoming the leading natural gas and NGL midstream infrastructure developer, operator and service provider, management is actively taking steps to strengthen our underlying business, and enhancing our cash flow certainty, by seeking to capture new business with fee-based demand charge underpinnings. These actions will solidify our foundation, as we progress into 2015.
Second, we are focused on executing on our $1 billion organic growth program through 2017. We are working diligently in the near-term to attract and secure new business to our existing G&P footprint, while looking for opportunities to strategically step out from our existing asset base to diversify into new basins and enhance market access.
Next, we are aggressively pursuing accretive acquisition opportunities that extend our reach, increase our scale, expand and enhance our scope of business, all of which will enable us to diversify our revenue base. Lastly, we will continue to position MEP for future dropdowns from our sponsors, Enbridge Energy Partners and Enbridge Inc. We plan to grow this business and achieve our mid-teens distribution growth targets.
With the early completion of the first dropdown, we are not only positioned to pursue any acceleration in the planned future dropdown schedule of the remaining interest in the gas business from EEP, but also have the ability to pursue greenfield and acquisition opportunities outside the existing asset footprint, including any potential opportunities from Enbridge Inc. Executing on these strategic priorities will position MEP, as we target top-tier growth to our unitholders.
Flipping to Slide 4. I will now turn the call over to Steve, who but will be back to discuss our business development and growth outlook, and provide a few closing remarks. Steve?
Thanks, Greg. Let's lead off with a recap of our second quarter results, and then discuss the outlook for our business. Starting with the table on the left, adjusted EBITDA, attributable to MEP's ownership interest in Midcoast Operating, was $16.7 million, with distributable cash flow of $14.9 million, resulting in one times distribution coverage.
We would also like to note that the cash flow contribution from the recently completed dropdown will further strengthen our distribution coverage in the second half of 2014.
Today, MEP has declared a quarterly cash distribution of $0.3250 per unit or $1.30 per unit on an annualized basis. This is a quarterly distribution increase of $1.25 cents per unit, representing a 4% increase over the minimum quarterly distribution. At the Midcoast Operating level, we reported second quarter adjusted operating income of $5.5 million and adjusted EBITDA of $44.7 million.
Turning to the volume charts on the right. The Gathering, Processing and Transportation segment's operational performance during the second quarter stabilized, and we expect volumes to progressively ramp up over the remainder of the year.
Lower natural gas and NGL volumes on our systems negatively impacted segment gross margin by approximately $17.4 million when compared to the second quarter of 2013. The decrease in segment gross margin was partially offset by increased revenue associated with contractual and minimum volume commitments in East Texas.
Moving to the right side of the slide, you can see wellhead volumes sequentially increased approximately 4% for the second quarter versus the first quarter of 2014. Current results continue to be impacted by reductions in volumes, due to reduced drilling activity by certain producers in our asset regions and expected loss of a major customer in Anadarko region.
New production in the Anadarko region is coming on to replace this volume loss. Also, reduced dry gas drilling in the East Texas region is partially offset by rich gas drilling coming on, albeit at lower production levels.
Moving down to the system wide NGL production chart, we have represented a portion of NGL production related to the previously disclosed customer loss in our Anadarko region. The chart illustrates the increase in base level NGL production, which is up 3% over the first quarter of 2014.
We are rejecting approximately 10,000 barrels per day of ethane at certain plants situated in the Mid-Continent. Gross margin in our Logistics and Marketing segment decreased over the same period in the prior year, primarily due to lower natural gas and NGL volumes from our gathering and processing business.
Lastly, as it relates to MEP's distributable cash flow, we received cash in excess of equity earnings from our 35% joint venture interest in Texas Express, which was a positive $3.8 million addition to MEP's distributable cash flow in the second quarter.
The second quarter incremental cash in excess of equity earnings is a catch-up from an under-distributed first quarter. MEP's distributable cash was negatively impacted by $1.8 million non-cash lower cost or market adjustment in this quarter.
While our financial results from the first half of 2014 have been lower than expected, we are looking forward to the second half of 2014, where we expect operational and financial results to continue to improve. With that being said, we expect to come in near the low-end of our financial guidance range for the adjusted EBITDA and distributable cash flow. As well, full year volumes are expected to be near the lower-end of our original volume forecast.
Having executed our dropdown more quickly than originally planned, it provides immediate accretion and will contribute to distributable cash flow growth. As Greg noted, we remain confident in our ability to deliver on mid-teens distribution compounded annual growth target through 2017, and we are well-positioned for future dropdowns.
As we progress through the balance of 2014, we'll look to manage our financial levers in order to deliver our guidance, and position us for success in 2015. For further details on our financial results for the quarter, I encourage you to review our supplemental slides that are posted on our website.
Let's move forward to Slide 5. The chart on the left shows expected 2014 capital expenditures. The values in the top portion of the chart are at 100% for Midcoast Operating, and the amounts will be proportionally shared between Enbridge Energy Partners and MEP, based upon our relative ownership interest.
Construction of the Beckville plant in East Texas is proceeding as scheduled, with $105 million of capital spend forecasted in 2014. Expected growth capital associated with well connects will be approximately $55 million.
We also expect to spend approximately $105 million on expansion capital, including additional compression to support new volumes, potential pipeline extensions and step-out projects, and other growth enhancements.
Maintenance capital activities of $60 million is forecasted in 2014. And our operations team is actively managing our system to ensure safe and reliable operations, while maximizing the efficiency of our assets.
The amount of forecasted joint funding for Enbridge Energy Partners is $185 million, based on EEP's 61% ownership interest in Midcoast Operating through June 30, 2014, and its 48.4% ownership for the balance of the year. Net of joint funding, MEP capital expenditures are forecasted to be approximately $160 million.
At the end of the second quarter, MEP had approximately $861 million of available liquidity, which includes $375 million of unutilized capacity in our credit facility; $250 million under our working capital facility; and $236 million of cash and cash equivalents.
The announced dropdown of the additional 12.6% interest in Midcoast Operating for $350 million closed on July 1, 2014. The transaction was funded entirely with debt subsequent to the second quarter period end. As MEP looks to maintain a cost-effective capital structure that meets our funding needs and positions us to execute on our growth program, we plan to secure term debt in the future.
Please turn to Slide 6. I'll now turn it back over to Greg, to discuss our business developments and growth outlook.
Thank you, Steve. As I mentioned at the beginning of the call, strengthening the underlying business is a key strategic priority for Midcoast management. We have included several charts here on the right, which illustrate leading activity indicators for our three asset regions.
Although not a guarantee for future development, drilling permits, well starts and rig counts in our areas of operations continue to show encouraging signs. Attractive producer economics in these regions are expected to continue to incentivize producers to drill, as they pursue liquid-rich developments.
Construction of our Beckville plant is proceeding on schedule for the first quarter of 2015 in service. This new plant will position our East Texas system to attract incremental rich gas supplies from the Cotton Valley play to our system. We have recently made significant investments in developing our NGL infrastructure in East Texas to secure critical NGL takeaway capacity.
In the first quarter, we announced the completion of an NGL pipeline from both our Longview plant and the future Beckville plant site to access the Mont Belvieu market hub. Preliminary construction activities began in the second quarter to connect our Henderson plant complex to this NGL outlet, and is expected to be complete in first quarter 2015.
Providing multiple NGL takeaway outlets from our plants, provides optionality, alleviates NGL takeaway capacity constraints, and enhances system reliability. Our extensive asset footprint in the East Texas region is well-positioned to capture expected NGL-rich production growth in the Cotton Valley play, and to potentially expand into nearby developing plays such as the Eaglebine.
In North Texas, we have optimized our systems to offer low pressure services, which extends field life for producers. We are currently expanding system capacity in the region to capture rich opportunities in the Marble Falls formation.
As it relates to our Anadarko system, we expect development of the liquid-rich plays to continue, due to the prolific nature of the wells, favorable economics from the associated rich gas, and established gathering, processing, stabilization and NGL takeaway solutions our systems can provide customers.
Midcoast will compete aggressively to capture new rich gas opportunities, extend our geographic reach and look to diversify our asset footprint. Potential opportunities also exist to optimize and enhance our systems to generate higher margins from our existing base business, such as compression projects, plant upgrades like refrigeration and tiered gathering services.
During the second quarter, committed volumes on the Texas Express NGL system stepped up by approximately 40,000 barrels per day to 123,000 barrels per day in June. The full year 2014 committed volumes are expected to average approximately 107,000 barrels per day and committed volumes are expected to continue to ramp up in the coming years.
We are making strategic investments throughout the NGL value chain through our Logistics and Marketing segment. We continue to build upon our strategy to enhance NGL takeaway and net-backs, not only from our existing asset base, but also in other active production areas as well, where there is underdeveloped infrastructure and inadequate takeaway.
The Logistics and Marketing group is working to actively secure new NGL and condensate delivery points, which provide pricing optionality, enhanced optionality, optional reliability, add scale to the business and broaden our customer base.
We are also expanding our capabilities to handle off-spec products. The ability to reliably handle and effectively market these products for producers is a value-added service that augments the scope of our business, as we look to extend our portfolio across the NGL value chain.
New regulations allowing the export of distilled stabilized condensate, opens new opportunities and markets to us, and a potential to capture higher net-backs and utilization of our stabilization assets.
Let's move forward to Slide 7. As previously mentioned, we executed on our first dropdown acquisition since the IPO of additional interest in Midcoast Operating from Enbridge Energy Partners on July 1. We acquired an incremental 12.6% ownership interest for $350 million in cash, increasing our total ownership to 51.6%.
The transaction was funded entirely with debt. The partnership announced its first quarterly distribution increase of $0.0125 per unit or a 4% increase. This results in $0.3250 per unit quarterly cash distribution or $1.30 per unit on an annualized basis.
As it relates to our distribution growth philosophy, I am a firm believer in serial increases, and management intends to recommend quarterly distribution increases going forward to the Board of Directors for approval, based on our line-of-sight on distributable cash flow growth.
We expect MEP to be well-positioned for the future dropdowns from our sponsors and/or other potential strategic acquisition opportunities. The backdrop of prospective dropdown opportunities from our sponsors, complemented by a robust organic growth program and acquisition mindset, position us to drive visible EBITDA growth at Midcoast Operating, and supports our targeted mid-teen distribution growth through 2017.
Please turn to Slide 8. Let me emphasize a few points in closing. The execution of the first dropdown since our IPO is an important first step, providing momentum to our plan to deliver mid-teens compounded annual distribution growth through 2017.
We will continue to position MEP for future dropdowns, and evaluate opportunities to accelerate future dropdowns on the remaining interest in Midcoast Operating in conjunction with the funding needs of our parent, Enbridge Energy Partners.
In conjunction with the first post-IPO dropdown, we're pleased to have announced our initial quarterly distribution increase, which represents a 4% increase over the minimum quarterly distribution rate.
As I just mentioned, going forward, we intend to recommend quarterly distribution increases to the Board prospectively, as we execute on our objectives of securing accretive growth. In addition, we will, of course, evaluate the level of distribution increases, based on how well our growth strategy is executed.
As far as our current operations go, we have good indications of increasing natural gas production development in our asset regions, and expect volumes to progressively ramp up through the balance of the year. We have also taken proactive steps to manage our cost. And these ongoing efforts are reflected in our second quarter results as well.
Our business development team has been augmented. Our commercial teams are aggressively pursuing new organic growth projects and potential accretive acquisition opportunities, while securing new business with contract structures that are consistent with our key strategic priorities of enhancing our business cash flows certainty, extending our reach, increasing the scale of our enterprise, enhancing the scope of our business, and geographically diversifying our asset base.
Let's move forward to Slide 9 as we wrap up. I've told this story a couple of times at conferences and investor events now, and it's worth repeating. This is the story of how War Emblem, with a new jockey, who had never met the horse before, on the day of the race, stumbled out of the gate in the 2002 Kentucky Derby. He got up and went on to win the race, and then added another win at the Preakness two weeks later.
This story is an excellent allegory for MEP. We had a slow start since the IPO, with some challenging business headwinds, but we're now up and running, and starting to hit our stride coming out of the second quarter. Our race is a long one. We're just barely getting around the first turn. We have a great foundation of assets, with strong supportive sponsors, and we continue to execute on our strategic priorities and deliver on our financial targets. We expect to deliver top-tier distribution growth in returns to our unitholders. Sanjay?
Then I'll turn the call over to Q&A. Chantelle?
(Operator Instructions) Your first question comes from the line of Sunil Sibal of GH Securities.
Sunil Sibal - GH Securities
Congratulations on completing the first top-down. A couple of questions for me. So it seems like some of the plans that you've indicated, especially in the Anadarko basin, better activity as well as the well-completion activity is following a pretty healthy trend. I was just kind of curious, the impact on the volume, is there a bit of a lag there in terms of your particular volume growth that you expect as a result of this improvement in the producer activity?
So you asked about that what we think production growth in the Anadarko region is. And it's not just, I think, the Anadarko region. We are also looking at some production coming down from Mississippi Lime, as well as other producers or gatherers are getting constrained in their processing. So we would expect growth in that region coming up through the balance of the year. I mean, that's in our line of sight. Terry? Do you have anything to add?
No. I think the severe weather, obviously, in the first quarter slowed down the drilling. And everybody is up hitting their stride now in the summer. But we are seeing a lot of activity.
Sunil Sibal - GH Securities
And then a couple of questions related to the numbers. So with regard to the DCF that was reported this quarter, it seems like you benefited from about $3.8 million excess of equity earnings from Texas Express NGL pipeline. I'm just curious does this $3.8 million correspond to all of Midcoast Operating? Or it just corresponds to your other interest in the Midcoast Operating?
Yes. So the $3.8 million is effectively Midcoast Energy Partners' component of that additional cash in excess of distributions. And just a note is, we are seeing good things from Texas Express. And so we have additional cash that is distributed to us over and above the first quarter. So on a run rate basis, there's a bit of a catch-up in there.
Yes. And so I'd look at it as we were short in the first quarter and a part of this was first quarter and part was second quarter.
Sunil Sibal - GH Securities
And then on your 2014 CapEx expectations, it seems like you made some adjustments bringing down the expansion capital as well as maintenance capital, most on the expansion capital side. I was wondering if you could talk a little bit about, which region is most of that production coming from?
I'll ask somebody about the region, but just from a compression perspective is where the area is and it's more of an optimization of our existing compression assets and where we want to put them, versus installing new capital for compression. So it's really, I would say, across the various regions. And it's just more looking to optimize what we have versus spending new capital.
Your next question comes from the line of Jerren Holder of Goldman Sachs.
Jerren Holder - Goldman Sachs
I just wanted to talk, I guess, a bit about the segment earnings. It seems like its a little bit volatile looking at this quarter's performance relative to the first quarter. Obviously, the Gathering, Processing, Transportation segment really improved, but then you saw a big swing in Logistics and Marketing. Just wondering if you could talk a little bit about like stability of cash flows kind of going forward, what we should expect?
Yes. Well, we can't wave a wand between now and the balance of the year, and over when we kind of came out here. So my intent is to, as I mentioned in my remarks, is to grow more of a demand-based business. And that will help, I think, underpin those cash flows.
Certain segments, obviously the ELTM side is going to have some volatility in their earnings. But what I like to see is limiting the downside of that business and having more upside.
The Gathering business, again, as we add demand charges and fee-base, we'll have more of that underpinning and support there. But again, our existing contract structures are a lot of acreage dedication, so we are kind of at the mercy of the drill bit on the volumes.
But again, vision here and what we're trying to deploy, and Terry and his marketing teams are trying to deploy, is, as we re-contract, as we go out and pursue new contracts, is to add more foundation to our revenues at each of the business lines.
Jerren Holder - Goldman Sachs
And going back to, I guess, your expansion capital. Obviously, you have some bigger projects you're spending your capital on, Beckville, for instance. But can you talk a little bit about the smaller bolt-on projects? Some of what you're doing, expected kind of return profiles of those, and how you expect those to kind of ramp up, et cetera?
Yes. Well, I mentioned two. I guess the one we finished in the first quarter, and we have two NGL lines we are putting in, in the East Texas region. One that was completed in the first quarter and another that's under construction will be completed in the first-quarter 2015 commensurate with the Beckville Plant. So those are two examples probably contribute or amount to maybe $30 million total capital, yes.
And as far as EBITDA multiples, you'd like to build stuff for the six times range, where people are buying stuff for much higher. So that's what I would use for your rule of thumb. I was going to say the compression and other activities as we look to put in low pressure systems.
Jerren Holder - Goldman Sachs
And just lastly, on the third-party acquisitions, what are you seeing out there, just in terms of what you're looking at, regions, et cetera? How is that kind of progressing as you pursue that as a strategy?
Yes. So regions, and I'm truly want to diversify the basin. So at some there's a lot of activity just outside of our footprint in the Permian. So there's some things that are being shopped around in the Permian Basin, and has also new business activity opportunities in the Permian, which is very exciting.
But where the growth is with producers, where we have really good solid producers that are good drillers and developers in regions, Marcellus is one of those, Utica is another area, that I'd like to pursue. And we are seeing a few things coming up in those areas.
But there's still a lot of money out there chasing deals, though. So I mean the whole idea and with the new member of the business development team, and getting that where we have people going out actually looking for deals before they go to RFP, is one side I have on that area.
Your next question comes from the line of Praneeth Satish of Wells Fargo.
Praneeth Satish - Wells Fargo
Just a couple of quick questions. I guess just going back to Texas Express for a minute. Is it fair to assume that distributions in the second half will be higher than the first half because of the ramp in demand charges? Just wondering if you could provide any more clarity there?
Yes, I'll take that. So yes, we would expect we'd be increasing somewhat in the second half relative to the first, because of changes in transportation requirements or FT transportation for some of the shippers. That is stair-stepped up a bit in the second half.
Praneeth Satish - Wells Fargo
And will there be any lumpiness in the second half like there was in the first half or is it going to be uniform over the two quarters? Texas Express?
Yes. It's possible because, as it relates to the DCF calculation, the cash that's being distributed to us, that's in excess of our earnings. How those distributions get made and the timing of those could be a little bit lumpy. And so you're seeing a bit of that in the $3.8 million. And as Greg noted, is part of the catch-up for first quarter.
Yes. I guess as a reminder, we're the 35% owner, but we're not the operator.
Yes. But there is great signs on Texas Express. The utilization is up and obviously coming into the first quarter is a little slow getting it up and running, but now it's running and getting a lot of interruptible service as well.
Praneeth Satish - Wells Fargo
And then I guess it looks like in the last two quarters, gathering volumes in North Texas have been increasing, but the processing volumes have come down a bit. I'm just wondering if you could talk about the trends going on in that basin that would contribute to that.
Looking at numbers.
There's a lot of drilling going on in North Texas. It's not all over the area. It's in particular spots. So one of the things I was going to bring up, the previous caller asked about growth projects. One of them we have is a 20-mile pipeline expansion in that in North Texas to bring on additional volumes. It's a very, very rich gas. It's small volume gas. It's really an associated gas for all practical purposes. But we are holding flat, slight increasing on the volumes.
But what do you see on NGL volumes?
Yes, so I think we have a -- it's not the NGL production, but it's the allocated volumes effectively going to the inlet of the plant in North Texas. I think that the point is, is it's holding fairly steady as it relates to an inlet standpoint and then as it relates to your point, Terry, additional volumes. We've seen a bit of an uptick. So it is a good point, but I think it's fairly a fairly modest difference.
Praneeth Satish - Wells Fargo
And just last question for me. For the Beckville Plant, how long do you anticipate it will take to get that plant to capacity?
That's a good question. We are looking at -- of course, if any time you start the plant, you have a certain period of time of commissioning. So we are looking at trying to get up and running in the first quarter for January, and that probably gives us a period of time for commissioning.
Right now we would have, I believe, about 120 million, we could put into the plant if it were sitting here today. So my guess, it will not take very long. I think we'll have the gas. The gas will be available quicker than the plant will be commissioned and ready. You know, you start the plant to find out, to work the bugs out of it, so it can take one, two months just going through the checklist, the punchlist.
Your next question comes from the line of John Edwards of Credit Suisse.
John Edwards - Credit Suisse
Steve, could you just remind us, you indicated that you expect to be at the low end of the guidance range. Could you remind us what that guidance range is? And then you're coming at the lower end, how that's going to potentially impact dropdown decisions going forward?
I'll answer the latter, as Steve looks at the numbers. But look, as I mentioned and Steve alluded to on the call, and I just think, I said this in a couple of conferences, there are certain controllable things that we have this year to ensure we deliver on our mid-teens and greater CAGR over the 2017 period. Obviously, managing expenses, if we have lower production coming in, then we're going to manage our expenses around that as well as maintenance capital. If equipment is not being used, then we can manage maintenance capital as well. So those are two other knobs.
And then the other is the dropdown. And accelerating the first dropdown wasn't a strategy we executed on to help underpin our distributable cash flow. So accelerating the second is something that we'd like to consider at MEP. Obviously, it's up to our parent at Enbridge Energy Partners to decide that relative to their capital needs. But they are a very supportive sponsor, and they understand that we have targets to hit and expect to hit. So we will lobby accordingly. Steve?
Yes. John, to your question on the numbers, so the DCF for MEP for guidance was $75 million to $95 million. And then as it relates to the adjusted EBITDA for MEP it was $105 million to $125 million. And so you look at our numbers where we are today, the second half, we expect it to be better than the first half for the reasons that Greg noted. But as we talked about in the prepared remarks, we do expect to be near the low-end of that guidance range that just mentioned.
John Edwards - Credit Suisse
And then, Greg, maybe you could talk a little bit more. I think you may have alluded to that there's a possibility of looking at dropdowns from the grandparent. And maybe you could talk a little bit about that potentially.
Well, Enbridge is a big entity. We have natural gas assets outside of the GP&P footprint on the Gathering and Processing side, offshore assets, assets and Vector and Alliance, and those areas, and as we look at other potential acquisitions that may be bigger pipe and different things on the gas side.
So I'm just looking at the portfolio of Enbridge Inc. I think Midcoast portfolio is the first to focus on. However, there could be advantages to do other dropdowns from Inc. that could be advantageous to both parties, or all parties, all three, if we look at it in a certain way. But my job and Steve's job is to ensure that we hit our targets. We have lots of levers to work with within the Enbridge family, and we will ensure that we evaluate all those levers.
John Edwards - Credit Suisse
And then lastly, regarding, obviously, volumes have been a bit of an issue here. It appears things are stabilizing. I'm just curious to what extent competition has been influencing or impacting the ability to stabilize your volumes? Maybe if you could talk a little bit about that. So perhaps give us some additional confidence that volumes will start to ramp back up.
Terry, do you want to talk about region maybe?
It wasn't necessarily competition. We lost our customer in the Anadarko. It was more of an internal issue for that customer. It's not so much the competition as it is the producers themselves. We've seen producers go off to different areas. Then there's been a period of kind of a lull and then farm-out start.
And in the areas that are dedicated to us, where they've sold something, and then the new guy comes in and drills, which has been great. But there is mainly, I think it's not so much been the competition, as it's been the shifting targets of the producers, as they kind of maneuver into their areas they want to exploit.
Yes, I think that's a great point Terry makes. Competition is still fierce and in these basins it is fierce. But he makes a great point about producer elections. And we had one producer in the North Texas area, Anadarko area that did a major deal in Eagle Ford. And that's where they're going to be focusing, is the Eagle Ford now. They'll have somebody that's coming in to farm out their production in our footprint, but that takes a little time for them to get ramped up.
We have another producer in the East Texas region that has sold properties -- no, two producers have sold properties. And we expect the folks that are buying those properties to want to drill a little more actively than the producers that sold. But it just takes some time to get their legs under them to do that. So you're exactly right, Terry. Its more producer sorting out their acreage and where they are playing, relative to our positions.
All right. Sanjay, do you want to close?
Great. Well, thank you, Chantelle. We appreciate you participating in our earnings conference call this morning. As a reminder, I will be available for any follow-up questions you may have. Thank you and have a great day.
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.
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