Crestwood Equity Partners' (CEQP) CEO Robert Phillips on Q2 2014 Results - Earnings Call Transcript

| About: Crestwood Equity (CEQP)

Crestwood Equity Partners LP (NYSE:CEQP)

Q2 2014 Earnings Conference Call

August 6, 2014 09:00 A.M. ET


Mark G. Stockard – VP, Investor Relations

Robert G. Phillips – Chairman, President and CEO

Mike Campbell - SVP and CFO

Heath Deneke – President-Natural Gas Business Unit

Bill Gautreaux – President-Liquids & Crude Business Unit

Joel Lambert - SVP and General Counsel and Corporate Secretary


Gabe Moreen - Bank of America Merrill Lynch

Jeremy Tonet - JP Morgan

Michael Blum - Wells Fargo

Ethan Bellamy - Robert W. Baird

Jeff Birnbaum - UBS Securities


Good morning, ladies and gentlemen thank you for standing by. Welcome to the Crestwood’s Second Quarter Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). This conference is being recorded today August 06, 2014. I would now like to turn the conference over to Mr. Mark Stockard. Please go ahead sir.

Mark G. Stockard

Good morning. We hope you had a chance to review our two news releases we issued this morning. This call is a joint call to discuss both Crestwood Midstream Partners and Crestwood Equity Partners.

Before we begin, I would like to remind you that during this call we’ll make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 based on the assumptions and information currently available to management. Although management believes that these expectations are reasonable, we can give no assurance that they will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ.

In addition, we’ll be discussing certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributable cash flow. Reconciliations to the most comparable GAAP measures are included in the news releases that each of the partnerships issued earlier this morning. These press releases are posted on the Investor Relations section of our website at As a reminder that information reported on this call speaks only as of today, August 06, 2014 and therefore, time-sensitive information may no longer be accurate at the time of any replay.

With that, I’ll turn the call over to Bob Phillips, Chairman, President and CEO of the General Partners of Crestwood Midstream and Crestwood Equity.

Robert G. Phillips

Thanks Mark, and good morning. I know it is early so thanks for all of you -- to all of you for joining us. We had another very good quarter of growth at Crestwood. We had solid growth in all of the areas. Drilling as you know continues at a strong pace across the entire industry and certainly in the areas that we have invested capital. Drilling continues at a very strong pace.

Our projects are now coming online on schedule. Our operations teams are now delivering flow assurance to our customers, which was one of our four strategic pillars when we merged the companies last year. Of course we continue to suffer from some downstream constraints in some areas but that is to be expected and certainly almost all the areas have been experiencing downstream constraints in the high growth shale play. So, that will continue for the next couple of years as infrastructure gets built out in some of these plays.

We think our business is now running like we forecasted it would after the merger last year. Mike is going to cover all the details of the quarter so I am going to go directly to the growth areas and give you some color region by region starting with the Marcellus. We had a very strong second quarter. Drilling as I said continues at a torrid pace by Antero in our southwest area and by the dry gas producers in our northeast area. We got a great set of assets in the Marcellus which we all continue to believe here will be the leading natural gas and liquids growth area for the country over the next five years or so. So we are pleased with our competitive position there.

Our gathering volumes hit a new record during the quarter. For the quarter average we are currently running on our daily volume report which is a nominations based report. We are currently running in the 640 million to 650 million a day range. I know [Doc] [ph] cringes when I give those numbers because they are not real accounting numbers but it is the score card that we used to track our business on a daily basis and it comes directly from our measurement teams. So we are pleased with where we are at about 640 million to 650 million a day on the Antero gathering system.

Up substantially from our second quarter average and well along the way to our 750 million a day forecasted exit rate for 2014. We certainly have completed the projects which we outlined in the press release. Don’t need to go into details there but Heath Deneke who runs our gas businesses is here to answer any questions that you might have about either our gathering business or our storage and transport. Storage and transport I might highlight had a great quarter in the second quarter showing continued growth to drive gas supplies, trying to get the market and it highlights how well positioned our pipeline systems are and our storage facilities to serve that growing dry gas supply area. In Northern Pennsylvania we are very, very well positioned. To have that kind of volume growth and utilization of our assets during a shoulder quarter like the second quarter was quite surprising to us and we are very pleased with that.

To go over the Bakken, our oil play is continuing to grow rapidly. We handled a total of 200,000 barrels a day in the quarter, another record for us, 200,000 barrels a day of crude oil. I think if there is an area of the country where our value change strategy is beginning to pay off this is probably the area. As you know we have the Arrow gathering system. We acquired a trucking business, two trucking businesses during the first half of the year. We have pipeline system at COLT which interconnects with all of the major pipelines and we are negotiating with some of the new pipelines that have made announcements and plan to come to the area. And as we have said before we continue to have the leading crude by rail loading facility in North Dakota. So I am very pleased with our Bakken assets and our Bakken competitive position in the second quarter.

Producers came back strong obviously in an effort to make up for lost time in the first quarter. Due to the winter we connected a lot of wells. During the quarter, the new wells they are telling we are now performing better than we had originally thought. We have got a lot of drill but uncompleted wells behind the system or ducts. We are catching up on our expansion projects, many of which will be completed in the third quarter and fourth quarter and add substantially to volumes that are available by the producers and we are expecting strong drilling activity in the second quarter of that year.

Oil prices are holding up well in that area. Producer economics continue to be strong. As we survey all of our producers, we see signs of increased development activity. It is worthy to note that Whiting by Kodiak during the quarter and Kodiak has a substantial acreage position and in that announcement Whiting indicated they would be increasing drilling activity on the FBR which is our area of dedication. So, lot of exciting things going on there.

COLT continues to serve more customers. We started two new contracts in the first half of the year. The BNSF our railroad is doing better about getting rail cars. Even now we continue to be the leading CBR facility by volume in the Bakken and we have an important expansion project, probably the last one for a while. The third R&D track, which will enable us to bring a third unit train into the facility to be on standby to load as soon as the first and the second trains move out, that will enable us to hit our design capacity of 150,000 to 160,000 barrels a day of loading at the COLT facility.

Moving to the Powder River Niobrara, another area, that while it didn't perform particularly well in the second quarter due to downstream processing constraints at the Tallgrass Douglas facility, drilling continued, the DUC inventory continues to increase, our new $120 million a day processing plant is on schedule for our fourth quarter in service date. And we also got good news there from our producers Chesapeake and RKI.

The two producers dedicated to our system announced an acreage swap that results in Chesapeake owing an increased amount of acreage and a higher net interest in that acreage on the area dedicated to our Jackalope system and our new Bucking Horse plant. And as a result of that announcement Chesapeake increased that the wells in that -- announced that the wells in that area were performing much better than expected and that they would likely increase their drilling activity as well in 2014.

So we are looking forward to potentially a full plant when we put it in service and the possibility to start on a second plant expansion there with our joint venture Access in the Powder River Basin Niobrara.

The Barnett also had a very good quarter, a rebound quarter if you will with Quicksilver resources increasing their drilling activity and also having some very good luck down hole on enhanced recovery techniques and just generally operating the field at lower pressures which provides uplifted production. We saw our dry gas, our rich gas area flat quarter-over-quarter which means that the work that they have done to improve production has offset the normal production plant, more importantly they have a rig running up in the northern dry gas area on our Alliance System. The wells that they are drilling up there, the Texas Motor Speedway wells they announced are coming in far better than they thought.

The exciting news there in addition to a big increase, almost a 25% increase in dry gas volumes quarter-over-quarter, the big news recently Quicksilver announced they are going to have a much more aggressive drilling plan in 2014, excuse me 2015 and that is being supported by their two partners INI, the Italian National Oil company and Tokyo Gas which bought a quarter of the field last year. So we are very excited about Quicksilver's plans to improve volumes across our Barnett Systems.

Also, point out that in that Quicksilver press release they highlighted much lower well cost, much higher IPs and EURs and as a result very, very satisfactory 35% to 40% economics for the producer even at these gas prices. So we are excited about that.

So that kind of covers the color on the regions. I think we are making good progress in all of our areas, have a number of other projects that Heath would be happy to talk about.

On the NGL side, I think we laid out the seasonal variation in the level of NGL business that we typically do. It's not unexpected that you go from a first quarter based on a record winner demand for LPG products and natural gas to have a pretty sizeable fall off in the second quarter. Second quarter this year was a low demand period. As a result, NGL prices specifically propane and butane were both reduced and then went flat across the strip that has an impact on people's interest in storing NGLs earlier in the season. And so we had a slowdown in activity but we very much expect that NGL business to pick up in the third quarter and have a very, very strong fourth quarter and we are well positioned to do that, get back on track with the earnings contribution from our NGL business which as you know is largely owned by CEQP.

I want to touch on three last items in the press release. One, a very important financing that we completed, we closed $500 million long term financing this quarter under very good terms for us. It covers 2014 and a large part of our 2015 capital spend. Robert Halpin is here. He negotiated that deal, happy to answer any questions that you might have about the terms of that preferred equity issuance. Secondly, as distribution coverage as you know we held distributions flat again for the second quarter in an effort specifically to improve our coverage ratio, this was midyear strategy change for us which we announced in earlier call and made clear to our investors through our public information. And that strategy change was based on direct feedback that we got from our investors. They wanted to see a high growth business, but they wanted to see quality earnings and improving coverage ratio and a decreasing leverage ratio. And so we have accomplished both of those this quarter, showing good improvement in our coverage ratio up to 0.96. In the second quarter a pretty material decrease in our leverage ratio as a result of the preferred equity financing and so we are pleased with that. We expect continued improvement in the second half of the year and hope to get back to a resumption of distribution increases sooner rather than later.

We know and understand that that decision at CMLP has an oversized impact on CEQP. We absolutely understand that and we have explained that I think in great detail in the CEQP press release. But I would also say that when we resume distributions we will simply catch up faster and that's the point that I will make about CEQP. We understand that we have a temporarily low coverage ratio at CEQP. We are not happy about that but we also know that, when we resume distribution increases at CMLP, we will simply catch up faster, it's just mathematical.

Finally on the revision to guidance we didn't want to make revision to guidance after the first quarter. We wanted to at least get to the midpoint of the year and be able to reflect on what we have accomplished in the first half and then have a clear vision of what the actual operating assumptions will be in the second half of the year. We have now reached that point, so we lowered guidance slightly at CMLP to reflect both the tough first quarter and as well as some challenges that we have had to get merger savings that we depended on and we included in our 2014 guidance. And we thought we would get those earlier in the year.

Let me just give you some color on that, things that we are working on, that we are getting done now but expect it to get done much earlier in the year. IT savings from rolling off of almost exclusive outsourcing platform, we have gotten a lot of that done but it really is kicking in mid-year as opposed to the first of the year. HR savings from blending payroll and benefit systems again, we are getting that done now. We are putting those plans in place, we are beginning to save money from our historical outsourcing cost, but we didn't get those things done at the beginning of the year. So we are not getting a full year benefit of that.

Truck operating expense reductions through an equipment replacement plan, again we thought we were going to get that kicked off earlier in the year. We have certainly got it kicked off. We expect to complete it by the end of the year, but we are not going to get that full year run-rate of reduced trucking and transportation operating expenses like we thought.

Same with supply chain and insurance consolidation savings through the integration, again we have plans in place. We have kicked those off; we are beginning to see meaningful reductions in cost associated with supply chain around a much larger spend. We just didn't get that done at the beginning of the year and so we are not going to get a full year benefit of that. So those were the primary reasons for lowering guidance.

I think I have touched on all of the strategic issues Mike and given color around the regions. So, I will turn it over to you to cover the details of the quarter and then we will be happy to answers question for the group. We also have Bill Gautreaux who runs our NGL and crude business, Bill is on the line from Kansas City and happy to wait and to answer questions as well. So Mike, turn it over to you.

Mike Campbell

Thanks Bob. As with our normal practice, this morning as Mark pointed out we distributed two separate press releases one for Crestwood Midstream or CMLP and a separate release for Crestwood Equity Partners or CEQP. I will first go through the results of operations for CMLP and then cover CEQP separately.

As we have discussed in the past conference calls, we closed the merger of Inergy Midstream and Legacy Crestwood on October 7, 2013 and as a result of that reverse merger accounting treatment we report consolidated results of CMLP back to June 19th, of last year, the date that Inergy Midstream and Legacy Crestwood came under common control.

In today's discussion I will be making comparisons between the second quarter and the first quarter of 2014 as well as some references back to the third quarter of 2013, which represents the first quarter where we presented full period combined merger results. These comparisons provide better context as prior year's second quarter numbers include only the operations of Legacy Crestwood.

Moving on to the results for CMLP, in the second quarter of 2014 CMLP reported adjusted EBITDA of approximately $109.7 million, an 11% increase from the first quarter of 2013 and a 29% increase over the third quarter of 2013. As Bob said, our results in the second quarter continued to reflect volume growth in each of our reporting segments and increased contributions quarter-over-quarter adjusted EBITDA results.

In the gathering and processing segment, gathering volumes averaged just over 1.2 billion cubic feet a day and compression volumes averaged 471 million cubic feet a day. In the storage and transportation segment, volumes averaged 1.69 billion cubic feet a day and in our crude oil business segment, we gathered at Arrow and loaded across the rail rack at COLT, an average of 167,000 barrels a day of crude, gathered 29 million cubic feet a day of natural gas and 19,000 barrels a day of produced water.

Our reported results in the second quarter included a $6.5 million non-cash accrual for the Antero earn-out of $5.2 million of non-cash equity based compensation expense and $1.5 million of significant transaction related expenses. As of June 30, 2014 we have fully accrued the Antero earn-out. As we discussed in the past, the $40 million earn-out is expected to be paid in the first quarter of 2015 and relates to the original 2012 acquisition agreement with Antero. That agreement stipulated that the Antero produced gathering volumes exceeded certain hurdles over the 2012 through 2014 timeframe; the earn-out will be paid.

Now turning to the EBITDA contribution of each of our three segments. In the gathering and processing segment EBITDA excluding the non-cash accruals for the Antero earn-out totaled $51 million in the second quarter compared to $48.2 million in the first quarter of 2014. The higher results in the second quarter were due to increased Marcellus gathering volumes which increased 10% over the first quarter to 585 million cubic feet a day, increased Barnett gathering volumes which increased 13% over the first quarter to 439 million cubic feet a day, and increased compression volumes in the Marcellus which increased approximately 5%.

Gathering volumes in our other operating areas declined approximately 22 million cubic feet a day in aggregate due primarily to natural production decline rates and downstream third party scheduled maintenance in our Niobrara system.

Looking forward to the third quarter we continue to see increased gathering and compression volumes in the Marcellus. As discussed gathering volumes averaged 655 million cubic feet a day for the month of July and compression volumes averaged approximately 555 million cubic feet a day reflecting the addition of the start compressor station which we bought online in July and that added about 55 million cubic feet a day of capacity to our eastern area of dedication.

Moving on to the storage and transportation segment, EBITDA totaled $37.8 million, a 3% increase over the first quarter reflecting continued strong demand for storage and transportation services due to increased Marcellus production and favorable basis differentials along our pipeline systems. EBITDA for this segment increased approximately 13% since the third quarter of 2013.

In the NGL and crude services segment, EBITDA reported for the second quarter increased to $34.7 million representing a 32% increase over the first quarter of 2014. The higher EBITDA reflects a 4.7 million increase attributable to higher gathering volumes of crude natural gas and produced water on the Arrow system, a $3.2 million increase due to higher crude oil loading volumes at the COLT Hub, and approximately $1.3 million contribution during the second quarter from our newly acquired trucking operations in the Bakken.

Again -- Arrow system improved significantly in the second quarter following the extremely cold weather that we experienced in the first quarter. Looking at the crude volumes at Arrow those increased to 56,000 barrels a day representing a 27% increase over the first quarter. Natural gas volumes increased to 29 million cubic feet a day, a 44% increase over the first quarter. The produced water volumes increased approximately 53% from the first quarter.

At the COLT Hub, rail loading volumes increased substantially in the second quarter with loading volumes averaging approximately 112,000 barrels a day, a 14% increase over the prior quarter. We continued to expect volumes to increase in the second half of 2014 when construction of our additional release to departure track at the facility is completed. The facility is contracted with take or pay commitments totaling approximately 150,000 barrels a day. So we expect volumes will continue to grow to at least this level when the additional track is completed. And will provide increased operating flexibility to our customers.

We have been pleased with the addition of the Red Rock and LT trucking operations that we acquired this year. Crude oil and water transportation volumes averaged about 36,000 barrels a day in the quarter. And while we only owned those businesses for a partial quarter, again they contributed about $1.3 million increase to EBITDA on the second quarter.

In the corporate area which includes general and administrative expenses not allocated to our operating segments, expenses totaled 21.3 million in the second quarter compared to 24.1 million in the first quarter. The decrease was primarily attributable to transaction expenses incurred in the first quarter related to Arrow acquisition and the merger. Excluding the transaction cost and non-cash equity compensation expenses corporate expenses were about just shy of a million dollars higher than in the first quarter primarily due to increased personnel expense.

Now turning to the distributable cash flow of CMLP, in the second quarter 2014, DCF totaled $81.5 million. A 16% increase in DCF for the quarter was due primarily to the $10.8 million increase in adjusted EBITDA, $2.7 million of increased cash received on deficiency payments related to minimum volume commitments, and that was partially offset by $2 million increase related to the timing of some of our maintenance capital spending.

On August 14th, CMLP will pay a $0.41 per unit quarterly distributions to unit holders of record as of August 7th and our DCF coverage ratio was 0.96 times for the second quarter which continues to show improved coverage as we have discussed in this morning's press release.

Now moving on to CEQP and as a reminder in all of our SEC reporting, CEQP consolidates CMLP results. In addition, similar to CMLP's discussions results included in this morning's CEQP news release reflect the combined merged operations of Inergy and Crestwood subsequent to June 19th of last year. In my discussion again at CEQP, I will be comparing second quarter of 2014 results to the first quarter of 2014 for context.

We report consolidated adjusted EBITDA of $117.7 million for the second quarter of 2014 compared to the adjusted EBITDA of $116.6 million in the first quarter. To calculate CEQP's standalone operations adjusted EBITDA which includes our NGL supply logistics operations and the Tres Palacios storage business. We should track the reported adjusted EBITDA from CMLP of $109.7 million to arrive at approximately $8 million of adjusted EBITDA attributable to the standalone operations of CEQP in the second quarter.

Adjusted EBITDA for CEQP's standalone operations was approximately $17.7 million in first quarter of 2014. Again that decline reflecting the seasonality largely in our business.

CEQP's adjusted EBITDA in the second quarter included a $12 million contribution from the NGL supply logistics business and an adjusted EBITDA loss of $2.3 million from the Tres Palacios storage operations and $1.1 million of corporate expenses excluding transaction cost and non-cash equity based compensation expense.

The $9.7 million decrease from the first quarter was made up of approximately $6.3 million decrease from our NGL supply logistics business due to again the seasonal nature of that operation in third quarters as compared to the first and fourth quarters of each year. And a $3.6 million decrease attributable to lower utilization and storage rates at the Tres Palacios facility. These decreases were partially offset by $1.2 million decrease in corporate expenses as I discussed.

Now turning to the DCF of CEQP, distributable cash flow attributable to CEQP totaled $13.4 million in the second quarter compared with $19.7 million in the first quarter. That decrease was due to the lower adjusted EBITDA as we have discussed and again the timing of certain maintenance capital spending attributable to our CEQP assets.

On August 14th CEQP will pay $0.1375 per unit cash distribution to unit holders of record on August 7th. Before we go to the questions let me just briefly touch on our capital spending and balance sheet liquidity at both CEQP and CMLP.

During the first half of 2014, CMLP's growth capital spending and joint venture contributions totaled approximately a $191 million. We continue to estimate the growth capital spending to be between $400 million and $425 million for the full year of 2014. Substantially all of our growth capital for 2014 is expected to be at the CMLP entity. As of June 30th, CMLP had approximately $412 million drawn on our $1 billion revolving credit facility. And our debt to adjusted EBITDA as defined in our credit facility was about 4.6 times.

As of June 30th at CEQP, we had approximately $404 million drawn on our $550 million revolving credit facility and the debt-to-adjusted EBITDA ratio at CEQP as defined in that credit facility was about 4.1 times.

As Bob touched on and as we have announced in June, we issued $300 million of Class A preferred units and received a commitment of an additional $200 million of Class A units that we expect to be issued through and before September 30, 2015. This strategic equity capital commitment provides us substantial liquidity and the financial flexibility to complete our growth capital projects through the remainders of 2014 and into 2015.

Additionally our registration statement for ATM program that we have discussed in the past became effectively silly and we now have ample equity channels to effectively fund our growth capital program and we remain committed to building that financial flexibility and long-term balance sheet strength by managing leverage and liquidity targets. So I think that concludes my remarks. And I think operator with that we will go to the Q&A.

Question-and-Answer Session


Certainly. We will now begin the question and answer session. (Operator Instructions). Our first question will come from Gabe Moreen with Bank of America Merrill Lynch.

Gabe Moreen - Bank of America Merrill Lynch

Hey, good morning everyone. On the Barnet incentive tariff with Quicksilver, I am just kind of wondering if you can talk a little bit more about your expectations on volume, what you I guess feel Crestwood is going to be getting from that, that arrangement I think, two to lower the tariff for Quicksilver and whether they have kind of given you additional commitments to extend the duration of that relationship?

Heath Deneke

Hi, its Heath Deneke here. So, hopefully let me know if you can hear me okay. But generally the -- we negotiated the incentive fee structure really to incentivize Quicksilver to add a rig into the Barnet ridge area of our system. Now they are currently running the rig in the dry gas areas with the incentive fee reduction that was provided for them. It does -- they have secured a contract with another rig through mobilizing into the area and we expect them to do that later this year.

So our expectations are over the next two years we will see rig activity in the area. They have at least advised us up to 12 new wells that are likely to be drilled in the first half of next year and completed in the first half of next year. So from that standpoint we think it’s a good deal for Crestwood. The other portion of that incentive fee structure is that Quicksilver will be responsible for any capital costs associated with connecting those wells. So we kind of view any new wells under this limited incentive fee program you know will really come to us - on the margin [inaudible] straight to the bottom line in terms of additions to revenues.

Gabe Moreen - Bank of America Merrill Lynch

Okay, got it. And then my second question has to do with the preferreds, and just thinking I guess two fold, one is sort of timing on drawing down the rest of the equity there between now and 3Q 2015 and then also in thinking about your coverage ratio and when you want to resume distribution growth. Should we be thinking about cash distribution coverage being at 1x on a cash basis or also inclusive of the PIK securities?

Unidentified Company Representative

Sure Gabe, to your first question on the preferred equity and the commitment and when we plan to draw on that going forward. I think as Mike pointed out we have a -- we drew $300 million of that $500 million commitment at closing. The balance of the $200 million, I think a fair assumption would be that we would draw that in pretty steady course up until the 9/30/2015 time frame. If you think about our capital plans as Mike pointed out in the 2014 time frame we are still looking at $400 million to $425 million of total growth capital. I think that we will be pretty steady in terms of our utilization of the preferred between now and the ultimate commitment in September of 2015.

Mike Campbell

Gabe, in reference to your second question, this is Mike, relative to the coverage and resumption of distribution growth at CMLP, we continue to be confident in the continuation of our adjusted EBITDA growth and DCF growth throughout the remainder of the year and as we see it really in the back half of the year we see ourselves covering distributions on an exit rate in the fourth quarter at in excess of 1.1 times and from a 2014 perspective on an LTM basis covering distributions at one times. So our goal is to see a continuation of that improvement in coverage and then the ultimate resumption of distribution growth at CMLP is driven by our desire to get over one times coverage.

Gabe Moreen - Bank of America Merrill Lynch

Got it, thanks guys.


Our next question will come from Jeremy Tonet with JP Morgan.

Jeremy Tonet - JP Morgan

Good morning.

Robert G. Phillips

Good morning Jeremy.

Jeremy Tonet - JP Morgan

Just wanted to check on the guidance, the reduction that you talked about here, it seems to me that this kind of reflects kind of one time weakness in the beginning of 2014 and not really kind of a change to where you think that baseline earnings are a forward trajectory of the businesses. Is that the right way to think about things here?

Mike Campbell

Jeremy I think that's a fair assessment. Again the first half of 2014, I think is reflective and reflected in our additional guidance. As well we remain confident in the continuation of growth in our businesses throughout the back half of the year and I think that's a fair characterization.

Jeremy Tonet - JP Morgan

Great, and then just one last one Bob, I was wondering if you might be able to comment on any updated thoughts on backlog of organic growth opportunities that you guys might be able to capitalize on given your footprint?

Robert G. Phillips

Well, we have several regions that we are working aggressively with our BD people but it is the same regions that we operate in today and the Marcellus, the big opportunities there are around our northeast storage and transportation assets. We continue to be just overwhelmed with the amount of new supplies that producers are currently drilling and plan to drill over the next year or so as gas prices firm up in that area. As you know every time there is a new project it fills up immediately and there is continued drilling and then we got basis differentials and so there is this continuing need for infrastructure development. We are right in the middle of play; we had a very effective open season starting in March, closing in May. We announced in this press release, signed almost a 120 million a day of new customers. In addition to that some of those customers signed up for additional capacity and extended the term of their existing agreements.

So, having said that we are in very good position in that area to build another couple of expansions. We don’t have anything to report right now but I know the team is in active negotiations both to expand the existing facilities further through compression adds as well as laying new pipe in that area. So we will wait until we have something to announce.

In the Bakken we finally have a wellhead to burner tip, midstream value chain. I didn’t get a chance to mention it in my color and it's not really evident from the press release unless you add all the crude volumes up. You can see that we have gathering system now moving about 65,000 barrels a day; we have got a trucking business moving probably 30,000 to 40,000 barrels a day. On any day, we just took out 10 million a day of firm capacity on to sort of to physically link Arrow and COLT we are adding pipeline expansions and gathering expansions to our COLT Hub pipeline facility. And then of course we have got the final phase I expansion of the R&D track to get us up to the full 160,000 barrels a day.

So, when you add all that what we did in the second quarter was almost entirely Bakken barrels with 10,000 barrels a day, roughly moved down in our Douglas Terminal and PRB Niobrara but about 190,000 barrels a day of kind of wellhead to burner tip type of activity.

From that we expect to see continued expansions around the Arrow system to the south of the river to the south of the lake expanding to the north and to the west or other producers that might be in other areas but looking for an alternative outlet. We see the opportunity to expand tankage in that area; there is simply not enough tankage. So we have a tank project going where we are going to provide our Arrow producers with a significant amount of tankage and allow much more flexibility in getting all the barrels to markets on a daily basis as opposed to what we have all experienced in the past six months and that is almost a day to day downstream constraint on one of the take away pipelines. So we have got that project working as well and that should improve profitability through the system.

In the Powder River Basin Niobrara we really are beginning to feel like particularly with the Chesapeake announcement that our plant project is going to be pulled roughly on day one and we are going to move directly to a second plant project. Heath you want to comment on that, you know more about that.

Heath Deneke

I think it is right. We expect to have the first plant in during the fourth quarter and the combination of inventory plus our plant will be more efficient from an NGL recovery standpoint. We would expect the plant to virtually fill out during the -- in the initial few days of operations. And beyond that as Bob mentioned Chesapeake in their recent announcement where they acquired RKI's interest in the southern area within our Jackalope area of dedication, where they announced an increase in rigs are currently running three a day. They have a pretty large set of drilled but uncompleted wells and have announced that they may increase rig count up to 5-7 from where they are at current levels.

So, I think all of that activity if we fill up our plant you know would suggest that we think we will have another plant expansion opportunity as well. And in addition to Chesapeake and the Powder River and our operating footprint, we are seeing pickup from other drilling (inaudible) companies in the area as well that might help support another expansion.

So nothing too firm to commit to at this point but we definitely see the good prospects there.

Bill Gautreaux

We have got roughly $60 million a day moving through the system now. I know it's a little bit less on a second quarter average but the only processing plant in the area had a lot of downtime and unscheduled maintenance and downstream NGL constraints during the second quarter. So, we really should be on about a run rate of $60 million to $65 million a day. Chesapeake's got 47 DUCs that just came out of their, I think yesterday's second quarter announcement. They got 47 DUCs. These wells are coming on better than we had originally thought so it's a combination of the current drilling rig rate for the next six months or so, plus the 47 DUC. I mean mathematically builds up the plant on day one if you get flushed production and all those wells are completed at the same time.

So I think with the optimistic view that Chesapeake has about the acreage, their increased networking interest in the acreage, and the incentive and the lower cost that was another important part of the announcement was they have significantly lowered their well cost down to a much more manageable level which gives them higher producer economics. We think we are going to be on track for potentially a second plant and these are large plants and large scale plants and a big opportunity for us to be part of the infrastructure solution out there.

So Jeremy you know we can go on and on, we got a project in the Delaware Permian that we are just getting up and running. We have completed the plant, the processing plant in the second quarter or in July and the producers are just now starting to ramp up drilling. They had not pre drilled wells or completed ducts or drilling (ph) on completed wells like they do in a lot of other regions. They went off, they took the rigs to another area. Now they are back and so they are going to start their drilling program in September. We expect that plant to be build up reasonably quick given the very impressive initial IPs from the Bone Spring and Wolfcamp wells that are being drilled in that area and that might also lead to a second plant expansion in that area. I know the BD are working with producers trying to go ahead and get that project underway.

So that's four areas that frankly we got a very full 2015 capital program already and if we can add any of those to it, then I think we are going to use up that preferred equity capital that Robert and Mike raised in the second quarter. So I feel very positive about our growing book of business in 2015 and on.

Jeremy Tonet - JP Morgan

That's all very helpful, thanks for the color.

Bill Gautreaux

Okay thanks.


Our next question will come from Michael Blum with Wells Fargo.

Michael Blum - Wells Fargo

Hey good morning everybody. Two questions, just on the delay in capturing the full cost savings synergies from the merger what -- when -- what quarter would you expect to kind be at a full run rate in terms of capturing that and where would corporate G&A, it's obvious you have been trending down but where would that sort of settle out you think.

Robert G. Phillips

I think the quarter that I expect to be at run rate 4Q. That's when we have had roughly a full quarter on our new IT platform which reduces a substantial number of collective outsourcing contracts for our entire IT platform. Remember, IT and gathering businesses not just helpdesk and desktop services, we have a massive set of status systems and measurement polling systems that interconnect with all of our wellhead delivery points, a couple of thousand at this point in time. So, the ability to roll that all into one coordinated system has been quite a challenge for us but we are making good progress on that.

Server consolidation and things like that, we didn't get those original contracts terminated until mid-year. We are now on the new contracts and so we are starting to see some cost savings relative to our pro forma -- pre-merger expenses. Same thing on HR, our consolidation of our payroll system is largely going to be complete by the fourth quarter and so we will begin to see cost savings there.

One of the larger items that I mentioned was a replacement of our trucking fleet. We have a substantial number of trucks from the former Inergy, many of them were aged with increasing maintenance expense and increasing operating expense. I think we have replaced approximately 100 out of about 400 at this point in time. So, I think we are about a quarter of the way through. We expect to get completely through that replacement sometime by the end of the year.

So, again I think that's a fourth quarter occurrence and then supply chain is an ongoing process. The more we spend, the more we had expected to save relative to pre-merger cost and I think that we will be in better position by the end of the year than we certainly are today. We just brought in a new executive within the last 30 days to manage that business and get us back on track on the expected cost savings.

Having said that, I am kind of at the run-rate of about $3 million a quarter, in terms of what we think that we can get done, once we get to that point. I think that will be a substantial savings against the backdrop of knowing that our company is growing and it's growing substantially and we are growing regionally and geographically and we are growing in areas such as project management and business development that frankly we didn't contemplate when we poured the original 2014 budget.

So we have had, it is indisputable, we've had increased employee cost in compensation and benefits and increased back office costs associated with just simply a growing business. So, as I have done many times in my career you have to think of pro forma cost savings. On a snap shot basis, there was a point in time in which we are going to merge these two companies and we looked at the infrastructure and we felt like we could save $15 million a year or so. At that point in time, when we took a snap shot of the business and we are still measuring that and we still have a score card and we are still reporting to our Board on a quarterly basis what those cost savings are pro forma to the original combination of the two businesses.

But having said that, the company is growing as well so it's a little bit of apples and oranges but I would expect a $3 million a quarter run-rate by the fourth quarter.

Michael Blum - Wells Fargo

Okay. So, if I am hearing you right that 21, the 24 down to 21 million could drop by another 3 million the net of any increase in basically in the overall business.


That's exactly right net of any increase in the overall base business.

Michael Blum - Wells Fargo

Okay, great. Okay helpful. Thank you and then you had put out a presentation kind of around NEPTP (ph), there was some volume guidance and other sort of metrics. Is that all still valid or should we -- is there an updated version of that we should look for.

Robert G. Phillips

You mean the five year plan?

Michael Blum - Wells Fargo


Robert G. Phillips

The volumes -- the slide showing the volumes ramping up over the next five years on a dry gas and rich gas basis.

Michael Blum - Wells Fargo

Yeah and also you had run by systems for Arrow for example for the year.

Bill Gautreaux

Yeah, hi Michael that the short answer to that and this is kind of in line with Jeremy's question from earlier but I think that the outlook from volume perspective across all of our systems is still intact with that presentation. I think that if you look at the guidance revision kind of as Jeremy's question alluded to, it's more a function of kind of what's happening in the first half of the year and some of the delays in the first quarter attributable to whether and some downstream constraints in the second quarter and so I think from a volume metric perspective in the back half of 2015 that's still good information, and in line with the guidance that we provided back half of 2014.

Michael Blum - Wells Fargo

Okay thank you and then last question just any updated thoughts on Tres and the ultimate plan to move those assets down to CMLP and anything else you can -- you are thinking about in terms of what you can do to improve the performance of that business.

Robert G. Phillips

Yes, I will answer the strategic question, regarding the drop down and then Heath can chime in with any updates he feels are relevant about the actual management of the business right now and where the market is. Obviously the market is not in a good position. It has not improved dramatically since we really got our head around the business in the third quarter of last year. We have looked at a lot of different scenarios for how to improve value. We certainly have the two most important cost reducing opportunities in play right now. We've still not heard from the firm but we expect to relatively soon and still feel highly confident that our abandonment application will be approved as it is. That will result in a significant decrease in operating expense next year as well we are making good progress with the local taxing authorities and hope to have a settlement sometime in the second half of the year that will result in additional cost savings in 2015, so both of those were important on the cost side.

From a dropdown standpoint, we are still not ready to drop Tres. We want Tres to stabilize and we want to be able to show in good conscience through our conflict committee process which will be required for a drop down between CEQP and CMLP. We want to show a positive five year outlook to base the valuation on. We just simply still don't feel like we are there. We think that the business has likely bottomed and that we are very optimistic about how things are going to improve over time particularly given the draw of the Mexican gas demand and the LNG facilities but as you know that demand increase really doesn't ramp up for a couple of years.

So, we would like to stabilize the business now in the current market, add some value to it, we are working on number of transactions that are absolute value adders including converting some of those caverns to NGL service as an example. We are just simply not ready to announce anything, to the extent that we can add some value through some contract additions or some other pieces of business maybe even non-traditional lines of business, then I think we will have a better visibility to valuations and a better valuation will enable our conflicts committees to run a process that makes sense for both partnerships and at that point in time we will be ready to drop it down.

The NGL business of course is just simply on a seasonal decrease right now. It will bounce back up in the winter. Heath, you want to talk about the current market...

Heath Deneke

Yeah, I think the cover I would add -- I think you covered the longer-term outlook that we continue to view very positively as demand continues to grow both from LNG exports most in demand as well as just general increases in industrial and power generation demand in the regional market. But as we re-guided here in 2014 for the rest of the year, couple of things I would like to point out, I mean one we are not forecasting a material improvement in those market conditions for the rest of the year and so we are -- I think there is some upside particularly around wheeling and short term firm storage services as we get to the winter in quarter and so I think that's a potential uptick relative to where we got it but again not reflected in the re-guided amounts.

And the second thing, I would like to point out is just on the cost saving side, while we are hopeful and expecting third quarter sometime in the second half of the year. We had not reflected incremental cost savings in 2014 as a result of that as well. So, again if we were to get a favorable ruling there is a potential to see some increase -- some savings realized in the second half of the year. But for the most part, we are thinking we are pretty well set up for a rebound to some degree in 2015.

Michael Blum - Wells Fargo

Great. Thank you very much everybody.

Robert G. Phillips

Michael let me just add one thing to that, let me be clear. We absolutely intend to move towards a drop down as soon as we think that it's prudent for both CEQP and CMLP. We continue to work aggressively to find partners or customers that feel the same way that we do and that is that, this is a very unique sort of circumstances; that it is going to change and it is going to change rapidly. Once it starts changing, once that markets starts balancing down there, we are going to find those partners and/or customers that feel the same way we do about the long-term value of the Tres Palacios asset.

Once we do that, then we are going to move quickly to drop those assets down in the CMLP. So our strategy has not changed, we have just been delayed due to the persistent imbalance of gas supplies and demand in South Texas and largely along the Gulf Coast. It's not any different than any other facilities down there that had long-term contracts that started expiring over the last 12 months or so. And we certainly fall into that category, that was a just quirk of timing as to when those original contracts were put in place back when Inergy purchased the asset from the developer.

Having said that, we know that there is some precinct transactions out there, where similarly situated storage facilities are starting to sell to buyers and we think that at a fair price, at market value when we think that that is a very positive trend and we think that's going to add some value to our efforts around Tres over the second half of this year. But we still very much plan to complete a drop down sometime next year as soon as we can stabilize the valuation on Tres and we think it is coming.

Michael Blum - Wells Fargo

Thanks Bob.

Robert G. Phillips



We will move next to Ethan Bellamy with Baird Financial.

Ethan Bellamy - Robert W. Baird

Hey guys. Good morning what's the financial exposure if any from the (inaudible).

Robert G. Phillips

We are investing that right now, we are actually about to report to our Board. Joel Lambert, our General Counsel is here, he has been managing both the investigation as well as the negotiations with the insurance company. So, I will let Joe give you a quick update on that.

Joel Lambert

Yeah, that's great thanks Bob. The (inaudible) we reported to our insurance carriers immediately when we found out about it. We have a $200,000 deductible on that policy and we believe we ultimately be able to recovery beyond the deductible all of our remediation costs related to that.

Ethan Bellamy - Robert W. Baird

Okay, so no big reserves or anything like that coming.

Joel Lambert

That's correct.

Ethan Bellamy - Robert W. Baird

Okay that's good and Bob, obviously one of the more interesting things that's come up lately has been the Devon Crosstex transaction, is that type of transaction something that you are actively pursuing or interested in accomplishing for CEQP?

Robert G. Phillips

It is Ethan and I think we have been pretty vocal and pretty public about that. Crestwood is uniquely positioned because Inergy was uniquely positioned before we merged with two public stocks, GP and LLP. So, clearly we recognize the inherent value created by Devon and Crosstex on their combination. I just saw that they had another announcement which effectively is part of the drop down story and so if we could somehow reconfigure Crestwood into a drop down story with a world class partner like Devon who kind of perpetually created Midstream MLP qualifying assets that would be a strategic transformation for us and certainly it's an option that we have thought about and it's the type of transaction we have had discussions with potential partners on. We don't have anything imminent to report, but I think we have been pretty clear that if there is a producer or a utility out there, that fits that characterization of being number one committed to building a Midstream franchise. Number two, understands the power of drop down economics particularly through the GP or through ownership of CEQP if you will.

And number three is an investment grade credit because we know that's important to us as well. As we compete for these large scale infrastructure projects, our cost to capital is going to be increasingly important to us to create value for our investors. So those are the three elements that we are looking for and we certainly have our head up and we are looking around right now, but haven't found the perfect partner yet.

Ethan Bellamy - Robert W. Baird

That's helpful. One last question, you added a crude oil marketing team in Denver, has that added value and are they adding any risk?

Robert G. Phillips

It is beginning to add value and they are not adding any risk because they are all back to back sales. The reason for the crude oil marketing team out in Denver which by the way, we liberated from Shell and so they are a very experienced team particularly in the Rocky Mountains they have been in the Rockies both as sellers of leased crude and buyers on behalf of refineries for a number of years. So they know the Bakken region, they know the Powder River Niobrara region and the Rockies in general and that's the reason, why we identified went after those specific individuals.

It's a small team, our expectations are fairly low in the first half of this year. They are starting to make solid purchases largely focused around our existing assets. Their first transaction was actually purchasing Arrow crude off of the system downstream and trying to enhance both the price for the Arrow producers as well as add a little margin downstream before the crude actually got all the way to the refinery. And so I think July was our first month there and I just sat through a meeting yesterday, in which it was abundantly clear to me that that crude marketing team did in fact enhance the net back price for the Arrow producers.

So that was their first criteria and we are pleased that they did that. It's a fairly small volume initially. We are now looking at areas in the Bakken as well as in the Powder River Basin to add truck injection points along existing pipeline systems. That's an important element of the strategy because we also acquired 48000 barrels a day of trucking capacity in the Bakken and we are beginning to move trucks into the Powder River Niobrara as well. So this crude marketing team which will be focused on not only enhancing the Arrow volumes and the volumes that we have under contract in the Powder River Basin but they are also going to be enhancing and working with our trucking division.

One final note, you might recall that last year we announced, we had purchased two unit trains to use for proprietary business. We expected at that time to be able to use those unit trains at the COLT Hub to take up additional capacity. I think the reality is now that our capacity is full at COLT and we are likely going to be using those unit trains in other areas such as our Douglas crude by rail loading facility down in the Powder River Niobrara where we are expanding from about 10,000 barrels a day to about 20,000 barrels a day.

So the crude marketing team not only is looking for lease barrels particularly from the producers that we are gathering for but as well they are going to be there to enhance the value for the Arrow producers, to the extent necessary bring additional barrels into COLT but right now, we are fully contracted at COLT and then finally to enhance value and use our trucking business in our two new unit trains that we will begin to receive in the first quarter of 2015.

So it's a low volume business right now, there is no risk at all because these are back to back transactions with local Rockies refiners that those guys have had good relationships with over the years and so. I think it is an optimization move. It is not likely to move the needle but it's all part of our value chain plan to control as many barrels as we can and try to get as many margins on those barrels as we can. While improving economics for our producers so that they will grow more and our customers so that they will buy more from us.

Ethan Bellamy - Robert W. Baird

Appreciate that comprehensive answer, thanks a lot Bob, have a good day.

Robert G. Phillips

Okay, thank you.


Our next question will come from Jeff Birnbaum with UBS.

Jeff Birnbaum - UBS Securities

Good morning everyone, sorry for just kind of I know we are going over a bit here so I will try and make it quick. Two quick questions, on COLT volumes are certainly improving. I know it is kind of difficult to estimate but any idea on maybe a range of NBC's you think you might realize in the back half of the year and do you think that the 2Q number is a good run rate or is that likely headed higher?

Robert G. Phillips

If by NBC, you mean the take or pay contracts that we have with the customers that loaded COLT, okay. So I think the easy answer is we are well above the NBC levels. They are not really NBC's they are take or pays. And our largest volume commitment there or take or pay commitment is our contract with Tesoro. Tesoro clearly has the ability to load well more than their 60,000 barrel a day take or pay contract. So from our point of view we are well past that at this point in time.

We do have some historical deficiencies that we build, that we expect to collect in the second half of the year, and I think we noted that in the press release as an addition to distributable cash flow. But this is an ongoing process in the Bakken. We highly value our contract with Tesoro. We are working very hard to make sure that they as our primary customer are getting the kind of service that they contracted for but I think as a practical matter we are above the minimum levels at this point in time. So there really should not be any new take or pay contract deficiencies going forward. To the extent there are, it's likely to be a debt caused by a downstream constraint or simply poor service by the railroad that prohibits the customer from getting their rail cars in there.

We certainly have the ability to load right now over a 150,000 barrels a day because we have actually had days within the last month or two where we have loaded more than 150,000 barrels a day. So it's not the loading capacity that is the constraint or causes the NBC or the take or pay deficiency. It is literally the ability of the customers to get their trains there on time and to get the railroad to take them away. So it's probably more than you wanted to know but I think from an operational standpoint we view ourselves as being -- of having the operational capacity well above the NBC. So there should not be a continuing growth of deficiency payments that we are trying to collect.

Jeff Birnbaum - UBS Securities

Yeah, thanks, it is very helpful. And then the one other question I had on Arrow and it looks like we are getting close to about 50% utilization on some of those assets even factoring kind of when the current expansion is completed in 2015 and as you mentioned 3Q run rates are even a little sequentially ahead of 2Q, producer M&A so they could help as well. So it is kind of how are you thinking about, at what point you would start committing capital to additional expansions there?

Bill Gautreaux

This is Will. I think, when you look at the way the contracts are setup there, most of the additional capital out there is needed for the expansions actually paid producers in terms of additional well connect. The base system is already in place and it is just a matter of optimizing around that base system with incremental capital for compression on the gas side or possibly looping on the crude and water side of the infrastructure that's out there. And so we see as we exit 2014 moving into 2015 the volume growth that you are seeing quarter-over-quarter already, we expect that to continue. But also they kind of -- the operational leverage that we have there and the returns that are generated by the capital that's already invested in the ground today increases over time.

So, I think the overall theme is we are behind a little bit coming out in the first of the year but already through July and the first part of August receiving volumes some more in line with our expectations. We have to spend a little capital to optimize a system to make sure we are capturing all the volumes that are available to this system. So we are in the process of doing that today and expect that to be complete and ongoing as volumes ramp up over the next 6 to 18 months.

Robert G. Phillips

Well, I think specifically we have two compression projects underway right now for the gas system and then three line loop projects which should help all three products.

Jeff Birnbaum - UBS Securities

That's right and those are all expected to be completed. So line moving in the third quarter and then the compression in the fourth quarter?

Robert G. Phillips

Yeah, you know, we didn’t get a chance to mention this, but we think we are on track for about 90 well connects by the end of this year which is really kind of spot on to where bought the business back in November and where we thought we were going to be. Importantly the wells are better wells than we thought and IP and 30 day production is actually much stronger than it was just six months ago when we observed in due diligence the completion of wells in the third and fourth quarter of last year.

So the producers are doing a much better job on their completions. These are all multi well pads now and the IP rates on these wells are sufficient that we think we are kind of at a sustainable 65,000 barrel a day run rate right now but heading north pretty quickly over the next couple of months as several large pads come on which should put us right into about October, November when we are going to start talking to our producers about our 2015 plan and at that point in time we should see their drilling programs for 2015. And our guess right now based on our current intelligence is that we are going to be actually connecting more wells next year than we did this year.

So we are in a constant state of evaluating system capacities for crude, gas, and water and they are all three in different phases right now but the good news is we are seeing steady growth for all three commodities and we are seeing and this is really important, we are seeing material increases in downstream take away for these as well. The crude has been a constant problem over the last six months because the three downstream pipelines almost on a daily basis have some type of curtailment or constraint or upset that causes us to need to store in the field larger volumes than we originally had designed for and that's the reason for the big tank project there at the Arrow CDP.

Importantly Oneok (ph), if you follow Oneok (ph) has announced numerous expansion projects both on their gas pipeline system as well as their processing complex and so we think that's going to alleviate any downstream constraints as well. And on the water side we have been very active in not only loading up our existing saltwater disposal wells but contracting for additional capacity. And so we are beginning to feel a lot more comfortable that we have the system to handle the production and the downstream takeaway is not going to be constraint that it has been over the past six months or so and hopefully that will result in a very robust 2014 and a lot of visibility to grow from the asset when we get there.

Jeff Birnbaum - UBS Securities

Thanks. Thank you very much that was a very comprehensive answer.

Robert G. Phillips



That will conclude our question and answer session. I will now turn the call over to Mr. Bob Phillips for closing comments.

Robert G. Phillips

Operator we appreciate you and we appreciate all the attendees and my last statement is simply that I think we are getting back on track and I feel very comfortable and very good about the company at this point in time. We are seeing solid growth in all of our areas and we are building the organization right sized to be able to manage the business well but also grow the business at this historic time for new infrastructure opportunities.

So it is a balancing act for us, it's not lost on us that the strategy changed to improve the coverage ratio had an oversized impact on CEQP. We are remedying that as quickly as we can but the progress is good and the direction is correct and as you know CEQP will bounce back very, very fast once we resume distributions at the CMLP level.

That was the upside potential of doing something meaningful with Tres and our growing NGL business largely focused on new NGL supplies coming out of the Marcellus and the Utica and fitting those into our historical LPG infrastructure business with truck, rail, and storage in the northeast and all of our refinery and PetChem traditional customers up there. I think it lays the ground work for a lot of growth over the next several quarters. We are finally getting to a point where we are caught up and we are catching up and we are starting to look forward again.

So that's a good place to be and I am proud of our team and proud of how they persevered over the first couple of quarters of this year. Hope that our investors recognize the challenges that we faced and the accomplishments that we have made so far. The second half will be very important for us but I think we have got good traction to continue our improvement and get back on this distribution increase track that we had hoped for at the beginning of the year. So with that operator we will close the call and appreciate everybody attending today. Thank you.


Ladies and gentlemen, this concludes the Crestwood second quarter earnings conference call. Thank you all for your participation. You may now disconnect.

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