Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Spectra Energy Partners, LP (SEP

Goldman Sachs Power, Utilities, MLP and Pipeline Conference Call

August 12, 2014 9:30 AM ET

Executives

William T. Yardley – President-US Transmission & Storage U.S.

Pat Reddy – Chief Financial Officer

Unidentified Analyst

I’m very pleased to be joined by Jamie Welch, who is the CFO of Energy Transfer Equity, and also by Bill Yardley, who is the President of U.S. Transmission for Spectra Energy Partners. So, we’re just kicked off both Bill and Jamie. Kind of give us some overview of what you really focused on this year, what your goals and objectives, whether it’s a corporate level or the asset level, maybe just kind a give us brief overview what you focused on that.

William T. Yardley

So thanks for having us, I appreciate this. I would say we are internally and now externally we are talking about our drive to 35 so it’s a $35 billion build out of our assets North America wide. And, it falls into a number of buckets, it’s really between 2013 and 2000 so we’ve got $6 billion of that done much of that in U.S. we’ve got another $8 billion that’s in execution, so these are projects that are on the glide path success and then the balance on the horizon for things that where we can see a way a way to get there, we just maybe get some contracts.

It’s really spread throughout the enterprise, I would say the early moving is in the U.S. Transmission business, so my unit we’ve got no surprise to anybody here there is an awful lot of growth in the U.S. for transmission. And, we’ve got a real nice footprint, first mile, last mile plus cutting rate through the Marcellus Utica, it’s provided us with an awful lot of opportunities, a lot of execution that I talked about is in that whelm.

And then, of course in the other areas we perhaps a little bit longer term, our liquids business we’re on the Express-Platte oil pipeline that’s got some extendibility again a little bit longer term perhaps even a twinning, West Coast business we have a terrific footprint in British Columbia and of course, we’re raise to get LNG to the Coast if something transpires there.

And, honestly Union Gas has some nice expansion, they are at a nice point, inflection point in the gas grid being right the Manager of the Dawn Hub in Ontario, which is one of the top two or three most active hubs in North America and of course right just north of the Marcellus and Utica. And, there are DCP businesses, we’ve seen some nice growth a couple of billion dollars in execution there as well, good gathering and processing projects there. So, I guess I would sum it up by saying we've got – what we've got to get done is we've got to sort of protect what we've got which is a very and I see no issues there. We've got to execute on what we've on that $8 billion with projects and then we’ve got to originate those new projects are on the Verizon.

Unidentified Analyst

Okay, thank you.

Jamie Daniels

With that, I would say we’re dealing with natural gas you’re really going to be dealing with Regency and ETP within our overall family, we have 72,000 miles of natural gas pipelines between vertical small scale gathering and obviously the larger interstate sort of 42-inch dominated, much like Bill, we are doing our own project right now in the Utica, which we called rather which is 820 miles of new pipeline and almost of which is going to be 42-inch and sort of get people and off-ramp either up to dawn where we’ve got 1.3 Bcf a day turn to the Gulf, using on truck one.

Yes, our view is getting a lot of Marcellus Utica gas out whether it’s basically hitting it North and congestive Canada or down south given obviously the LNG build out that we see between Cameron Freeport shale’s with Lake Charles and to the – with Corpus Christi happens or trying to one through six potentially for China that’s obviously going to be tend amount in particularly as we look at obviously what has happened as far just takeaway capacity for the entire in the ranges of the world of what's going up here in the NorthEast.

On the gathering side with Regency we announced was on Thursday the joint venture with all break with American energy midstream or I think its actually AEM where as I think AEU is actually that is the one of the main ship is on the river project and so all - is going have 10 Bcf a day I mean he will - he will be the new guerilla are in about five years.

And look now operate it more I think its would be very unwise to bet against him I think he is determined individual and someone whose got incredible track record of success. So I think you more probably more likely then not he will be incredibly successful and he will sort of keep between Spectra, Williams, Kinder energy translate trying to who will keep all of us busy for a long period of time and that will be a great thing,.

So we look at on the natural gas side as sort of the same look its for us we like what we’ve got Eagle Ford to us is much more on the liquid side than it is anything else we have a desire to continue to see tremendous amount of gas coming to the Gulf just given our interstate network that we have, obviously at some point in time capitalizing on that and seeing basis return will be a good thing from an ETP standpoint certainly since I think 2008 was the last time they actually saw anything with the any basis volatility other than a little in the first quarter this past year. So I think we will continue to sort of see the activities instead of drive it across the family partnership that we have.

Question-and-Answer Session

Unidentified Analyst

Great. So let’s start off just sort topically talking about the Marcellus and the Utica and sort of Appalachian in general. I think that’s are few very topical for most investors and companies that are in the play, maybe just Bill if you, as you think about not just what you are doing at Texas eastern in terms of back hold also the industry.

How much more can we squeeze out of these pipes to get out of Appalachia and when do we start to move to the point where we are really having serious conversion about Greenfield pipeline out of western Pennsylvania and Ohio into some other markets to clear that base which is looking like it could give you saturated or some one telling you that based on what the basis differentials are you. Can you just talk through your assets and sort of the industry and where they are going?

William T. Yardley

Sure. I would say we are getting there very quickly. The origin gas out of Marcellus is best sums up by saying okay we've got a few pipelines there, Texas eastern is a pipeline that we own sort of to versus that region, initially its displacing gulf gas four or five year ago. Then we started to see it become a pipeline that need to be by directional so now all the gas coming north is benign displaced and we are starting to move gas out. So we've got a series of projects to move about 2.5 bcf out of the Marcellus, Utica region back down the pipe to feed some of the Gulf Cost activity.

So those were the sort of easy things to do and then now we are into the next level which would be okay we have to add a little bit of pipe, a little bit of looping, add compression as a appose to just simply reversing it, get folks out to some of the Gulf pipelines that may not necessarily be directly connected to Marcellus, but are connected to the Gulf and I think Jamie could comment on that too part of getting gas west side of the Marcellus is to connecting with the numbers of the pipes that are under utilized to the Gulf.

But that’s starting to involve a fair amount of Greenfield and then for Nexus and then for Rover you are looking at billion dollar pipelines, multiple billion dollar pipelines that are headed actually to a market and I would argue that it almost becomes the center Marcellus and Utica becomes sort of the head of octopus and then you have got produces and just get me somewhere and the cheap stuff is kind of gone.

Unidentified Analyst

Its very interesting Jamie, I mean if I'm not mistaken I think rover the tariff on that is going to be something like $0.55 to $0.80 if I look at some of the different destinations going out, it seems like the producer interest in getting out of the basin is very strong at this point, I mean you think about Henry Hub Gas at $4 and someone is willing to put up for somewhere at that tariff level, it just shows that there is a lot of demand, I mean how much more do you think we can see on that side. How much action demand for that producers, is there you’ve already signed up almost 3 Bcf a day forever. I mean it’s actually on this comment on that.

Jamie Daniels

While I think this is Rover to watch is one of – is a project that is very much produces to push, not demand over produce to push. And that the focus is being on getting them to liquid destinations we’re in fact there is - much more liquidity for the gas they can think about hedging, they can think about various ways to maximize the value of their product.

820 miles which is Rover is all pretty much our new build, the connection point obviously the trunk line and in down to somewhat and I agree with Bill that what we’re seeing west is you take it to the Panhandle Trunkline system and but we’re going to quickly run out of capacity because without adding incremental compression and looping zone take it so far.

And then the question is then what and then we’re going to be in Greenfield and Greenfield in Pennsylvania as we can test discuss the family and I am sure Bill can but we have looked at more on the context divestiture with the Marina. So Marina West and obviously Marina East in an easy building and then our phased.

It’s just hard and as a result you’ve got that brings up its own set of challenges and issues and how you actually you can make a project to reality, because the fundamentals couldn’t be as attractive as you want. But, if you actually can’t physically build that because there are tremendous local political impairments then unfortunately you’ve got a think of either wise around or another word that just one basically just wants basically just force up the drawing board.

So, I do think there are thinks up – there is a lot of constraints that we saw to see and that’s why you want to see you’re outside of the NEXUS or outside of the Rover, you want to see projects like this happen every month.

William T. Yardley

All right, we are both perfectly say we actually talk about the Northeast and talk about Boston in the New England market, you’ve got a project we’re working on Kinder Morgan, obviously has a big one that they’re working on. I mean is it likely that we can actually get any of the tough time to build in very constraint sort of very congested from a population standpoint perspective Connecticut, Massachusetts something like stay through it is very, very difficult whether it’s power lines or pipelines, whatever it else I mean what is the likely it actually getting, these constraints with very strong we saw gas and New England at a $120 and I think one point this vendors, so how do we get through all those.

Huge opportunities and yet extremely high, so I am from Boston I would say same way my friend Jamie. So yes, want to be just described we have got the - pipeline around from the end of Texas during New Jersey up to Boston and the Marathons pipeline which actually comes from the west coast into new Northern Massachusetts. So, we’ve got two projects actually one that begins in 2016, it’s fully contracted by local distribution companies a traditional customers of expansion on our pipeline, we've got a second one coming in 2017 which is the next – we just put into expectation again for local distribution companies in the region, somewhat smaller, but together about half a Bcf a day that’s a nice size – a nice chunk of capacity came into the region.

But again, it’s all LDC driven the issues in the Northeastern and in New England particularly is that there hasn’t been the incentives for the electric generators to sign up the capacity, they just don’t get paid for that. And its the construct within New England that’s been setup and functional over the years, but it was great when gas was 20% of generation portfolio in the region and now its over 50%, you simply cant have coincident peaks and they came very close to having serious issues this past winter.

Unidentified Analyst

Shortage of power types of issues, yes.

William T. Yardley

That’s right shortage of power and I think the ISO has done some nice things to use some temporary oil back up, I think this year they may use might use oil - LNG as well, because if you can remember in 10-year ago when were going to be the LNG importer there were three new terminals constructed in the Boston area and North up to the main and new - of board and a lot of that can be used and is used on peak to sort of dampen things.

But I do believe that there has got to be a larger solution specifically for power generation and the way we are going about it juts the way we are done – we've gone about Texas eastern out of the Marcellus which are these 200,000, 300,000, 400,000 a day expansions coming across each year. We've been successful in that for a decade when it was Rex before coming in before it was the Marcellus and we are doing the same thing on - which is a lets just increment this things and honesty the way the politics are lining up it’s the only way that I can see something getting done.

Unidentified Analyst

Jim you mentioned the – I’m wondering if you can just dive in a little bit more on the NGL side right, because its been a place where – there is a lot of focus for producers on getting out and then all of a sudden there were couple of big Y grade pipelines that seemed like they have stumbled a bit and producers seemed like they are more focused on gas. I'm just can you give us a sense of where your customers heads are in terms of how they – what do they when they want to do with the liquids, do you they want to fractionate it locally, they want to move it as purity versus Y grade. Would you conversations look in like in terms of maybe getting the markets or facility expanded, what's the demand overseas for some of the NGLs, can you just talk through the market dynamics?

Jamie Daniels

Some are purity some thinking on the sort of on a local fracknation side and I think between what we see it with SXO with MarkWest and others obviously, we’ve got Marina East franchise which is obviously split between propane and ethane two third ethane, one third propane that goes to Marcus that in often end up in U.K. Long-term contract that been sort board about really that the Marina East following the same right away because to Bills point I mean if you not effectively in same ditch he might be thrown into ditch because it is very difficult to try that basically – once you’ve got the recipe and that successful use it again if you can.

So Marina East doesn’t required tremendous amount of new pipe the open season is closed I think Mike getting again on Thursday when it is cost sets of day with us will report in a couple of weeks. I think everyone, most people are optimistic I think it’s going to go I think that optimism is probably well founded and we will just come back to Boston report exactly what this is going to look like.

Unidentified Analyst

Okay.

Jamie Daniels

That we plan to expand Marcus Hook if we can, but there is only a certain amount of available land around this that we could actually go and expand its very different in New England term which is also they SXO term of which is water born which is got a tremendous loading rates its 24 hours its not its got tremendous amount of storage on side and it just I really suited to any water born activity.

Marcus Hook is little more of challenge and I think that what since we are constrained by how much of that land we have and implement how much incremental storage we can add or always be somewhat constraint. That then it brings you the question I think of what else we seeing as far as natural gas liquid pipeline you know with it bluegrass that the kinder project look we see liquids have got to get out its not much like natural gas right now its trapped it has to get out. Question is where is it go and how do you actually make it a reality…

So obviously bluegrass is sort of post pound and we’ll see what happens with the kinder project but our expectation is that there will be yet a couple of effectively natural gas liquid pipelines. This tremendous amount of our activity that will remain and as we saw with I think that one of the reports issued last week. The amount of gas activity we’re seeing the Marcellus and Utica continues to go up.

So, we are going to deal with some way and look this only so much ethane rejection we can actually put up in the gas stream. So, we’ve got no other choice we have to find solutions to our problems and we will, but they may not be very – they maybe a little more comp alluded then they are easy to actually make reality.

Unidentified Analyst

So, one question, and then we will move on to another topic, but you’ve guys have been around more and I have been better and long enough to see some basins look really attractive, but then suddenly aren’t so attractive. The Haynesville for example. The Barnett what’s the risk that we are all super excited about the Northeast right now, and suddenly we turn into – that the Haynesville gathering pipeline and it has 30% utilization.

Unidentified Company Representative

I would be surprised, I think the proximity to the major markets, and the existence of enough pipes to get it rolling and the number of new projects that we’ve got and I think you’ve got to find a gas and producing it cheaper and cheaper. So I really believe that the Marcellus and now the Utica is just a confluence of supplier, we’re taken the Gulf of Mexico production and we put it in Southwest.

Unidentified Company Representative

Yes, Bill I think the amount of gas receiving at the Utica probably surprised to all of us. And the fact in Marcellus we always new had the prospectively of being incredibly rich and it is, but the Utica now is much richer than any of the store, so the two of being side-by-side makes and those point most of our infrastructure by the way, when you think about it sort of where we build it 25-years, 30-years ago. Actually, focuses on the Northeast, so we have most of our infrastructure up there it also happens to be where everyone wants to live, in which case that creates it own set of challenges but nonetheless it’s sort of – its ideally suited for doing things around and given the infrastructure that exist.

Unidentified Analyst

Very good. Lets shift topics a little bit and talk about LNG and I know Jamie this is one of your favorite topics to speak on so, you mentioned Lake Charles, I mean I have a million of questions I could ask you, but maybe just walk us through, where you are in terms of going to FID I know that’s a plan potentially for 2015. And then, what are all the things that are going around in your ahead in terms of the negotiations you are doing from a contracting standpoint from a E&P standpoint, just kind of give us a quick overview and perhaps some follow-up on that.

Unidentified Company Representative

Okay, sure. So, we field our FERC authorization of which they were three, back on March 26 of 2014. A requesting authorization to April 1, 2015. For liquefaction 15 million tons per annum, three trains, APCI technology and products chemical. We have been negotiating with BG on a suite of agreements; because BG has designed the facility they are going to be the construction manager, the operator, and also the customer.

So, they provide a full complement of skills it relates to their risk allocation and their control over the project. We are very much the owner and financier of the project. It has been very much structure like almost like a pipeline project and that it is risk allocation over to our customer, they take all the risk it relates to performance construction performance in our operating basis and they basically play us board.

So, we’ve got a risk metrics here, which we think is very different and what you see with being pass Freeport and we’ve now done with our BG contracts, so they’re going through internal process and they will be hopefully executed in September as far as on the E&C side as concern, we have gone out with an invitation attainder to three different consoling and we are expecting responses back at the end of November.

And we will expect a notice of schedule review, notice of schedule for environmental review from the folk. Probably in September, which we remain that we got drafty, is. Probably light full that within set us on the clock. Our hope is that we can get this done and our expectation is that a everything is taken longer and we sort of realize of that’s a little bit of gain as the experiences of Cameron and Freeport have shown as. But we – I think pretty confident that we can get done by April within FID in June of next year.

We have BG this part of the overall rent should we have they took 2.6 Bcf a day trunkline system so upstream. That’s on a 25-year contract basis post, 23 COD. So puts contract that’s 2046 and that obviously deck tails in the overall economics that we have. So we pretty excited by I mean what we’ve done as we created a bit of a bond.

So really does look like our interstate pipeline business, which feel for give me if I we look at in a little bit like a bond I mean it sort of pretty straight line it’s straight fix variable except when you gets to expanded but obviously you get, but you have nothing wrong with that. It’s great cash flow and you’ve taken all the risk out of it, that’s what you suppose to do, but we’ve brought that methodology to be on what we did for the LNG project.

Unidentified Analyst

I mean just a little bit more in the risk is there any will you have zero volume risk you will have no constructions sharing risks et cetera. Anytime in risk in terms of there is still late.

Jamie Daniels

Well if there is delay so if there are costs overwhelms which obviously is hallmark of the LNG business. Because when you miss by mile and I think there is probably enough folks in the energy space to that had LNG exposure and sort of either lift or regret it or otherwise at least have a tail. In our context if it runs over you’ll get gross step and either if a time offer cost. So you really are made in different as to what happens.

Unidentified Analyst

And then last question I guess its counter party risk right.

Unidentified Company Representative

Yes you’re long BG’s...

Unidentified Analyst

How do you think about that risk?

Unidentified Company Representative

Well if you don’t like BG credit and then you could probably use in the ideal project for you, because on a per annum basis you have cost of $2 billion of cash flow from BG, I mean it is a massive amount of cash flow.

Unidentified Analyst

It’s not hard to hedge that I guess.

Unidentified Company Representative

Yes, well as big as they are and then probably a little bigger than Spectra, and a little bigger than us and sort of the – that probably had the right – the size of the new - yes it is quite a bit of credit exposure.

Unidentified Analyst

So Bill let’s talk about LNG for you, and I guess first just from the gas pipeline perspective when we look at the market at least our analysis 80% of the supply for the next five years are going to come from North East effectively Marcellus and Utica and something like 60% of the demand growth it’s going to come from the Gulf Coast area I think about that right.

It sounds like good for Texas eastern but does it actually make some fiscally flow of gas all the way down to the Gulf Coast when you have a lot of market that are lot closer the Midwest, Chicago and think about the South East and the power generation demand that’s growing there. Are we actually going to be flowing a bunch of gas all the down to the Gulf to sort of the LNG facilities.

William T. Yardley

Absolutely and we are today, I would say it depends on the pipeline some pipelines will have some nice markets on the way down to the Gulf that perhaps would get more uptick is there. But I would say a lot of the long haul pipelines are simply going to be repurposed and as I mentioned earlier the low hanging fruit is somewhat contracted for. -, but our first two reversal projects that we signed a couple of years ago going to service this November and then throughout 2015, 2016, 2017 we give up to that to that 2.5 Bcf level moving south.

One of the project Gulf market is fore Cameron LNG the three participants that are in that project as well as some producers, so again that the combination of supply push and market pull and they have certainly got a leg up on the rest of the LNG, North American LG export business in the gulf but I think is a fair need in fact I wouldn’t be surprised as I mentioned earlier that you don’t see more expensive infrastructure put in place to come that.

Unidentified Analyst

More something than we actually made a Greenfield pipeline.

William T. Yardley

Possibly or more extensive looping.

Unidentified Analyst

I think about Rover as a $4 billion trade I mean that’s...

Jamie Daniel

Yes, it’s between $3.8 and $4.4.

William T. Yardley

Cost of that the pipe to Gulf Coast is got to be multiples for that.

Unidentified Analyst

Yes, although the countries of Rover and build I mean part of issue that you have with then your pipeline is yes when you start to get up in the Michigan and other areas I mean its an easy to go build to get about lots of way into the political impairments I mean just you got lot of not houses and lot of loverly real estate and its very difficult and problematic to basically navigate.

William T. Yardley

I never thought that color 1.5 bcf pipeline of boutique project I think it is next to some others and in just what Jamie saying when we look at connecting we’ve been trying to connect Texas eastern with on and off a long time ever since we bought the West Coast assets back in then two and it’s a combination of market full supply pushing the Jim you said closer you get to your objective in the populated areas which is where got months ago more difficult that to see you’ve get to try your best to take advantage of the existing lines or existing infrastructure is possible and that’s we try to do with NEXUS to get into that.

Unidentified Analyst

And then builder’s strick with LNG you guys you mentioned I think in European remarks do you have saw that Canadian LNG pipeline I guess when we think about that economics of Canadian LNG just seems so much less compelling potentially than U.S. Gulf Coast LNG which people are trying to Henry Hub its feels like by we’re in that I guess talk about the economics on the upstream side and sort of the liquid faction side how that created with that a lot of its get builder any of that get build and you’re positioning relative to you’re pretty to soft builds or certainly you’re big competitor of there since Canada.

William T. Yardley

We too have a partnership with BG.

Unidentified Analyst

That’s right.

William T. Yardley

For our river project so that’s our West Coast connector and I guess if you step back and look at a map in North America and you look where LNG wants to go you take a look at the West Coast and Canada the BG gas is there that would be a nice place to export and so I think all the logic is there for a project to got. The Gulf Coast deliver with the infrastructure in place with the relative easy of permitting and with the Brown Field size that we there certainly got a leg up and I think one question will be is there are not LNG coming out of the Gulf to satisfy some of the four large demand is it make other projects look less economic.

I would say though that when you look at what’s happening in Western Canada and specifically in British Columbia we’ve got an enormous amount of shale gas it traditionally gas so much in Canada it would be flowing to that’s the market frankly that are now currently being served by Marcellus and Utica and it is blocking out everything block out the Gulf and it is blocking out Canadian exports.

So you’ve really got an awful lot of trapped gas in British Columbia and Alberta which is going to need a home and point on the map where you think that’s going to go other than export. So I would say that a few projects being considered I think number one the partnership with BG and number two we’ll route that we have selected puts us in position that if one project does get built then we have a very good shot at that.

The other thing to remember the Spectra as a whole we’re on the most scenarios we’re somewhat of a winner no matter what project happens in Western Canada, because we’ve got – we've a largest gathering processors of gas in British Columbia closer to a coast obviously and so I think we've got a nice opportunity if we can get our act together and if something does happen in western Canada.

Unidentified Analyst

Okay. Lets just shift away, so we've talked about the Appalachia, we talked about LNG other sort of supply and demand drivers in gas in particular outside of those two area and maybe again coming back to Bill, for you whether its New England or whatnot it does seem like power generation, he is going to be one of the big demand drivers here, but we have a market structure in power that doesn’t encourage merchant generators to sign up the capacity right, how do we get through all of that issue right, it just feels like something that could be stuck for years in regulatory health in that…

William T. Yardley

you know some of these issues are unique to deal with New England, so I think we should first give credit to those areas where power generation has been signing up for long-term projects. so our – project going into Florida essentially it’s the power generation there with large regulated choice that are able to back and get their cost recoveries for large infrastructure projects and in fact that’s a great model, it’s the areas where you see merchant generation that there is not the incentive, they are taking a very large risk if they sign up for $1 worth of capacity.

Honestly I think one of the things we've talked about New England is to have either the electric distribution companies, so they have no generation in New England, or the local distribution companies that are in gas service sign up for the capacity if I can use the phrase B sort of the adults in the room when all else around them is sort of breaking that I mean we know there is an issue, the electric distribution companies have an awful lot of savings, if generation isn’t available for them I think they have got an incentive to say well how to get more pipeline capacity in here even though we’re not the ones doing the generating.

So I think there is a ray of light that something happens where the actual counter party ends up being the electric distribution company. Backs after that could be the gas distributors that amount of work, so well we – as I mentioned in the Northeast we’ve done a expansion for every local distribution company that area for the last two years, and I wouldn’t surprised if that sort of it’s a back up to getting something that. I think everybody knows it’s going to happen, it’s become so political, the $60 million [ph] governors and initially got together very nicely and I get them credit – we got to do something come out of - already you’re seeing a little bit of stream and we just – we can with that happen.

Unidentified Company Representative

And then, Jamie may be protect about you and your – on you gas pipeline system I guess how do you think about the option value of only that system got of lot of function valuated in the interested business you mentioned with the basis and how you can sort of [indiscernible] take advantage of think there, which you talk about taking some of the start to service, I think your Balkan pipeline, I think going to trunkline [indiscernible] crude oil, how do you think about the option value of gas longer-term relative to maybe get into the crude oil business in bit away.

Unidentified Company Representative

The one thing for maybe the [indiscernible] trunkline was and there is actually two pipeline in the same structure, like so we took one of the 3-inch out of service and going to [indiscernible] process, haven’t expect the [indiscernible] in quarter, but have the ability to take it out of service and deposit from natural gas to crude. We are constantly looking at all of the pipelines with our system and we say what’s the [indiscernible] because I think what we thought before when the original intend of when a particular asset project pipeline was build and what exist today maybe very different.

And we look at trunkline and say 36-inch we can basically move 400,000 barrels per day, add incremental pump stations we can make it 570, which is effectively what we can take on the 30-inch pump station for [indiscernible] that is a much greater return even then if we kept a natural gas service and effectively back haul. Our back haul capability I think on trunkline I think [indiscernible] said was just under 1 Bcf a day. With that incremental looping without adding real incremental compression and that’s sort of about the Max I think for that particular system. So, we are consistently had looking at what make sense.

I think Bill’s point on generations are good one I think of that with the worldwide 10 years, 15 years ago, we just signed up with we have LDCs and we have vertically into better utilities. If you go out of the guys [indiscernible] or you go us [indiscernible] still have vertically integrate utility that able to basically support basically supported a 15-year or 20-year contractual commitment but if we have to go and deal with Jack Frisco or David Clan those guys going to look at me their duration is so small and so short was very hard for Bill or for us or anyone in a business hey listen there is a long life assets we particularly like that to match contract loss with asset loss recognizing we are not looking for 50-year but 15-years wouldn’t be bad.

I mean even crude’s are little bit a oxymoron because most people want 7-year or 10-year so it’s a little difference than all the natural gas business, but they had merchant generated they say I am looking for 12-months ever green 24-months its really hard and so we run our businesses just like Spectra runs the business or kinder runs the business and we sell basically firm non interpretable capacity and we will sell it out because that maximize cash flow but we will have some interruptible capacity and then it’s a lock of door and if you get bad weather and stuff like then you ca just add lock.

So I think it’s a really interesting issue that we have that’s much bigger than anytime that we could spend on this panel on but it is more and more of an issue as we go forward and I think it will take the Northeast to go dark it s only then in crisis as we encountered which we have the big black out like 10-years ago now and then as we start and oh shit we got to do something about its we can’t like led happened this all the time I mean we suppose to be on the cutting edge of being the most industrialized economy on the planet.

And yet we have sort of periodic blackout that get at for Boston and New York that would be that’s a good press good thought and its difficult because these are three in four year efforts and its not like your attention tomorrow until it is great to let solve the problem tomorrow. Right now we are looking at 2018 before we saw specifically that issue now incremental capacity for other reasons come into the region perhaps Bcf common project will help but it’s frankly in for a local distribution company’s

Jamie Daniels

But I would say Ted the interesting thing I think that we sort of maybe become the view point on as a result of the Bakken and Rover which can combined is what $9 billion of capital when you go to producers or you had a customers you have to an end-to-end solution and what that they for tells me that they connect the part sort of go from open access gathering to another connector and then you ask producers go connector somebody else that somebody else.

My sense is that’s just a that’s last that’s just too hard for producers will customers that deal with multiple sources to synchronies effectively volume and capacity commitment for themselves but if you offer the end-to-end then its described what the end-to-end mean what that is you really got to mean to despite regard or ourselves or kinder because we are not talking about billon dollars projects in here we talking about four and five billion project and not everyone has the balance sheet to do that either than the Spectra of the world and ourselves and the Kinder and apprises , the lain it’s the all I mean we are talking about the project now that are massively increasing in size scale, complexity as well as cost.

Unidentified Analyst

Adapted to that experience to that as well like

Unidentified Company Representative

Yes, that how you are right. could you done this?

Unidentified Company Representative

T

That’s what we do and its an extremely attractive market to get into this – we will get into the gas infrastructure business well its not sane of our it’s a feeling our process so I do believe that the established organization that’s are that is into this has done it, are they going to be one just to solve the session.

Unidentified Company Representative

Here investor [indiscernible] getting higher tough four or five billion and they think about the Rockys express right and third minute so they was going to be four and suddenly it was 7.5 and it was too late and our really pipeline I can get the list of all the pipe line partners that had issues how do we mitigate cost over run delayed that taking in labor market all those things. How do we get through all those issues? Is the things that varies he is absolutely it strike the quarter see into everybody and I think with Richard Marries

Unidentified Company Representative

When you try to do things on a straight has to sound spreads that you have to deal with because the spread are different areas of pipeline you got to navigate thing that you don’t anticipate particularly with green field so you have no idea subsurface what you are going to find and [indiscernible] that you find something its like oh my god and exactly you find an ancient as tech city somewhere so that city is beneath the middle of Illinois got that somewhere from the added then [indiscernible] and these are really shows you got to content with then and I think our investor and outer have the same concern and feel and all you can do is make sure that you good on your obvious still cost you really look at the rights away you try that you basically filed by helicon and we have done so many aerial trips over the right away looking down trying to see okay where have you got river crossing where we got water shed where are the potential risk points and trying to navigate away from it, but it’s hard. And, I think that more congested you get into the Pennsylvania – sort of the Texas Eastern so it’s sort of like well, this is yes, challenge.

Unidentified Company Representative

The pipeline we build into Manhattan and we’re service with the end of last year, 6 miles of Greenfield pipe and it was extremely challenging starting off with some €5,000 out of that in our backyard, which we really building of the Texas Eastern system. First, when we saw, there was great, one of the most important sort of finds in New York City, but [indiscernible] it was done, in just your point. If you are not going in the ditch, and the existing ditch or improving your existing line that 60 miles was $1.2 billion. And, now we’re talking about hundreds of miles. That can be [indiscernible].

Unidentified Analyst

With shift years, so last topic talking about industry structure, obviously very top of mine, even more so today with Kinder [indiscernible] we can’t hedging we’re starting with it’s a [indiscernible] get all the energy transfer and [indiscernible] time. What is the right way to go to market as a midstream operator, does it make sense to have multiple subsidiaries as you do how our General Partner on top with incentive distribution structure and all these things, with better to be simple and clean, I think of enterprise, I think of Kinder now to say, we’re going to market as one entity and that’s what we’re going to do. I kind of think about the industrial logical, but what you’re doing best of your competitors doing.

Unidentified Company Representative

Maybe the four of the MLP model, is that we’ll own meet by destiny that we can grow to be about 5% distribution growth forever. It is I think enrich is probably the first to have sound this is what happens when KMP can only grow so quickly and ETP can only gross to quickly and you’re [indiscernible] on top, they given the age of the KMP units, there is no shield. IDR cash flow, sure all of you understand is ordinary income, it is not shielded cash flow, when your cash tax is go up and increase upstairs, and your growth rate goes down, you’re in the worst of the roads.

So, the interesting thing about the KMR [ph] transaction when you think about is really ten year like most of the questions that we’ve got on the whole [indiscernible] is it really nothing more than a cash flow exchange and great in [indiscernible] structure. We’re in the benefit is the cash flow exchange where the KMP and the ETP unit holders and they’re going to take the $20 billion of tax attribute the next 14 years and all the holders going to get it was April because it taxable exchange that’s all it is. It is a fascinating compare and construct where we are which is I think we see if we will just ETP we would probably have much of the same issue. But we have the proliferation of MLPs of which we currently or with accessible end up we will have four and with LNG will have five.

And we see that each one is different, each one has a different cost of capital, each of has a slightly different credit profile, each one has it own different talents. So Regency is much more GMP as long hole crude ETP is long hole dry gas interstate, interstate and liquids will be retail and LNG will be LNG that’s what its both to do. It will allow us to probably push off the point at which we have this issues because a member we are flow through upstairs for our considerable period of time.

It will also because we got different maturities at different MLPs so we have ETP and high puts regency should be in high puts but next year subset will be in high puts once three step drop down and sort of get them through a certain level of drop down. LNG will be over time that cash flow that we don’t believe worry about 20, 20, 20 21, which will be the next generation of investor and other that we have to continue with.

But it is very different as we sort of think about it so at the end of the day do we all end up with the same destiny probably the question is how far can you push it off before you have to get there, because I would contented and I think we always contended even with the redemption of distribution growth the ETP.

Its hard to grow mature MLPs at much of our 5% it just I mean build it just this is just hot and I look at sort of Spectra which obviously as ASP and I wonder as the world gone full cycle so five years time this came one company all at again become [multiple speaker] we go back to the cycle and I guarantee that where will be.

Unidentified Analyst

That’s over under…

Unidentified Company Representative

Because all that happen is it this was a reset it was like a poor and refresh, poor refresh bring it back to get and then certain people go we not growing 10% doesn’t work it and then what are you doing for me today and which type will then much like I think with Spectra I am created obviously that the pipeline interest with into SEP and I will see you got DCP and DPM you create these vehicles because you react to way the markets what they give and we are driving business that at the end of the day cost of capital for us outside what we can do on the engineering side and operating side cost of capital drives our business.

And drives return and how much investors like our stock and our units and what we do and what we don’t do and have activist jump on our hedge saying you should do this, you should do that, why don’t you do this? We can only deal with the tools we have available, but it is a fascinating, its almost as fascinating as talking about sort of the whole merchant generation , where the whole energy picture goes next, but we just deal with what we know and that’s what we got right and we will do the best with we can.

Unidentified Analyst

I'm going to leave a little time for Q&A, but Bill I don’t know if you want to comment at all about structure in terms of where you are any kind of thoughts on changes.

William T. Yardley

I’ll give the non-CFO version of it. So yes we are in a very good spot with our MLPs fairly early on extremely low cost of capital and the ability to compete where we need to compete, and then we have an awful of assets in Canada which we are not bringing back to the MLP for various reasons and we have a SE Corp that also have a low cost of capital and is a good platform for acquisitions. So I think from a purely competitive standpoint I think we are ideally structured today.

Unidentified Analyst

You don’t feel constrained when you are bidding for projects by cost of capital in other words.

William T. Yardley

Absolutely no, in fact I would argue that based on competitiveness we've got one of the lower costs of capitals out there.

Unidentified Company Representative

Well certainly I mean that’s the case but SEP, PC.P6 but also in the SE Corp model, its not clear to me that that’s not a great way to do it, particularly if you are farming in a lot of your assets , because to you its because to an owner its just potential we are softening capital. So with a substitute for equity capital because I could actually recycle some effectively pipeline interests that are more mature get cash back and use that to go to point growth rather than issuing equity, then I'm going to make a lot of investors happy, its another option, so yes that’s probably more [indiscernible] but you know that’s the – but they are the things you just think about how do you try to get as much value as you can from the business you operate.

Unidentified Analyst

Good. I want to open it up for questions, if there is anybody in the audience that has question, I think we have someone here with mics but I’ll open it up if there is anyone [indiscernible].

Unidentified Analyst

Hey howdy. Question on the industry structuring kind of I guess saying fast name times right now, we've also seen sort of the in between modes been with [indiscernible] doing the capping of the IDRs at 25%, do you think – is that sort of level which you kept high splits out of 25%, do you think that that makes it a longer term solution to have the separate GP and LP or do you think eventually you know like you said [indiscernible].

Unidentified Company Representative

I'm going to differ it to the CFO.

Pat Reddy

Okay. Capping doesn’t necessarily solve the problem right and I think capping – the problem with capping or the issue with the issuing units without IDRs is permanent, but we have always at the – for the energy transfer we always taken the view point you always want maximum optionality. So have an idea subsidy of certain duration you can always it grace if we have to you can always go for longer period if you thought you need it.

I think its driven by different growth drivers with underlying businesses, 25% cat sort of interesting I mean I think gas for the 25% cash on the propane side. Some of the really old NLPs have the 25% threshold, but whether its 25% whether its 50% on it really changes the paradigm sort of look at its about how you can support the underlying operating business without and make sure but its got a competitive cost of capital continue to grow and its not being cannibalized.

Unidentified Analyst

I mean maybe put in another way do you think there is a equity cost of capital or eventually just want to splitting the bid. Is it 10% or 11% equity cost of capital?

William T. Yardley

Well, I think your for the mature – for the mature entities we seem that whether it’s a WPC for ACMP or itself 6.5%. You are embedded cost our if you will. So cost of equity capital is between $0.10 and $0.11 but the time you sort of Rich was at 0.6% taken on the idea cash flow were 35% at ETP, but when you start to get into that round then you really that becomes more difficult.

These are the projects have to be richer, you have to buy things cheaper or find business is that a cheaper I mean yeah one point in time obviously dry bulk was all their age you can buy dry bulk four, five times EBITDA or high so you can put them inside the model of a 12 time, 15 time traded entity that’s a great try.

Its you can still might it work 10% to 11% I think when you start getting much over that I think you really are starting to – you are really challenging that proposition you are look at that you look at credit metrics because there is only so places go I mean you look at some like at Atlas with APL with they got it was 7.5% underlying yield 4.7 times debt-to-EBITDA and they do preferred security I mean that’s so why doing something with that an idea impact. So I think you look at what ever tools in the tool box you can find.

Unidentified Analyst

One question may be one more and will be wrap it up.

Unidentified Analyst

So many entities, do you really have ongoing forward additional target that can hit value to the existing four, five entities that you would like to have like now, or is it something that you are not that interested. Can you also dissect some of the existing assets and sort of create some new business available.

William T. Yardley

Yes. So L&G by itself is in fact the dissection of our existing business, we just moved like Charles out of effectively what was ETP, it was originally bought from the guys at Duke way back when they bought the chunk line pan handle business. We migrated out of ETP up to ETE and sort of moved it out. We did it for a couple of reasons, one is well there is a credit reason to it, because you have $11 billion or $12 billion of overall gross capital, that’s a lot of dent to put on your balance sheet and what anyone says the writing edges don’t really like a huge amount of debt on a long period of time without any cash flow. It distorts the credit metrics and gives them some element of concern.

There are other businesses that we have that we see that we could actually migrate out in sort of incremental vehicles under ETE, that would then continue to proliferation of sort of partnerships, but I do think that there are some industrial logic to it and we do see – for us the retail business is another subset, right buying subs and then migrating out to subsidy and sort of creating the retail business full encapsulated within the [indiscernible] petroleum partners makes [indiscernible].

So there are other things we see and we know that we would like to potential do. Are there other targets? Yes, I mean with the number of entities we have there are different entities that make different sense, that may have a different level of industrial logic breach of ongoing partnerships and so – what are there 120, 130 mlps there are numbers that sort of make a lot of sense for – that either have overlapping assets, taken into different basins, add to our skill set, they really do continue to build and help us evolve with that business.

Unidentified Analyst

Very good. Well I think we will leave it at that and please join me in thanking our panelists for the interview.

William T. Yardley

Thank you. Thanks Ted, thanks.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Spectra Energy Partners' (SEP) Goldman Sachs Power, Utilities, MLP and Pipeline Conference Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts