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Executives

Martin Salinas – Chief Financial Officer

Analysts

Darren Horowitz – Raymond James

Yves Siegel – Credit Suisse

Ross Payne – Wells Fargo

Helen Ryoo – Barclays Capital

Energy Transfer Equity, L.P. (ETE) Q2 2011 Earnings Conference Call August 4, 2011 9:30 AM ET

Operator

Good morning and welcome to the Energy Transfer Conference Call. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to your host for today Mr. Martin Salinas, Energy Transfer’s Chief Financial Officer. Please proceed, sir.

Martin Salinas – Chief Financial Officer

Thank you and good morning all. Thanks for joining us today. It has to be a very busy quarter for us and we have a lot to talk about so let’s jump right in. I’ll talk about providing an overview of the ETP and ETE’s financial results for the second quarter and give an update on our pending Southern Union acquisition along with some of our growth initiatives before opening the line for questions.

I’d also like to encourage you to get into our website to access the earnings releases we issued yesterday after the market close. As always during the call I’ll make forward-looking statements within the meaning of Section 21E of the SEC Act of 1934 based on our beliefs as well as certain assumptions and information available to us. As always, I’m joined by Kelcy, Mackie, John McReynolds and other members of our senior management team to answer your questions after our prepared remarks.

Let’s start by reviewing ETP’s second quarter 2011 results. And we’re pleased to report that adjusted EBITDA for the quarter was $388.1 million up approximately 15.6% in the second quarter of last year largely as a result of contributions from our Tiger and SEC pipeline plus the acquisition of LDH Energy's NGL assets, for Q&A Lone Star NGL. As you recall Tiger was placed in service in December of 2010 and SEC was placed in service in January of this year. Both pipelines have contractual ramp-ups of demand fees of the course of the year. So we expect to see continued growth in not only in the third quarter but also in the fourth quarter of this year.

I’d also like to remain everyone that year-over-year growth in our Intrastate segment was offset by the sales of NEP to ETE in May of last year which contributed $12.4 million of adjusted EBITDA to ETP in the second quarter of 2010. Adjusted EBITDA from our other segments as a group was more or less flat year-over-year as modest growth in our Intrastate transportation and Midstream segments was offset by similar decline in our retail propane segment. We also experienced distributable cash flow growth of $23.3 million with distributable cash flow for the quarter of $222.3 million compared to $200 million in the second quarter of last year.

From a distribution rate perspective ETP will pay its unit holders $89.38 or roughly $3.575 on an annualized basis per unit on August the 15th. And based on our how assets are performing the continued execution of placing assets in service not only on time but also within budget and increased distributable cash flows from these projects we’re confident that we’ll increase ETP’s distribution rate in the very near future.

So let’s look at our business segments and I’ll start with our Interstate business. Our Interstate operating income for the quarter was $135.7 million compared to $127.8 million in 2010 and was affected by several factors. First we experienced an increase in transportation fees of $2.9 million over the second quarter of last year due to demand fee increases offset by a decrease in fees earned on interruptible transportation services. The declines in interruptible volumes resulted from the weak basics differentials we continue to experience across Texas.

In addition, margins from sales of our natural gas and other activities increased $2.4 million in the second quarter of 2011, primarily reduced in increase in sales of NGLs offset by lower margins from system optimization activities. We also saw our storage margin recognized under fair value accounting increased $7.6 million primarily driven by unrealized gains on natural gas inventories during the quarter adjusting for non-cash gains and losses on derivatives and inventory between the two periods our storage margin actually decreased $10 million primarily due to lower withdrawal rates, tighter storage spreads this year compared to last year. And as it relates to our storage facilities we had just over 50% of storage capacity roughly 39.5 Bcf contracted under fixed-fee contracts with the remaining contract terms of one to three years. And as of June 30th we had approximately 38.5 Bcf in the ground for our own accounted Bammel for expected withdrawals during the 2011 and 2012 winter season.

Now looking at our Intersate Segment where we achieved operating income $ 49.8 million for the quarter as an increase of 17.6 million from second quarter of last year and was primarily driven by higher transportation revenues from our Tiger pipeline. And as I mentioned earlier we expect to see additional revenue increases from Tiger over the course of the year due to contracted demand fee ramp-ups.

In terms of volumes we saw an increase of 1.2 Bcf a day for the quarter again primarily driven by volume shift in the new Tiger pipeline offset by slightly lower volumes on the Transwestern Pipeline compared to the same period in the prior year. For FET, which is our 50:50 joint-venture with Kinder Morgan we recorded an equity in earnings at $5.2 million and received cash distributions of 8.6 million for the quarter. We also expect to these results increased during the remainder of 2011 and into 2012 as demand fees on FEP increased.

And as it relates to FEP both we and Kinder Morgan made capital contributions totaling $309 million in July of 2011 along with post deed from a $600 million term loan maturing in July of 2012 to repay outstanding and borrowing under FET's credit facility. We then terminated the facility and entered into a $50 million revolver maturing in 2015.

Now, highlighting our Midstream segment where our operating income increased by $18.1 million to $68 million for the quarter compared to 49.9 million in Q2 of 2010. Our inlet volumes in our Godley plant were slightly higher for the quarter to a fixed day construction related shut down at our LaGrange plant resulted in total NGL production being down a little more than 300 barrels per day to approximately $50,800 per day for the quarter.

The robust NGL pricing environment also resulted in higher a concentration of volumes under fee based contracts from our customers which cause of slight decline in equity NGL volumes. Gross margin for our Midstream segment increased 34.3% compared to Q2 of 2010 based on several factors. Increased volumes in our North Texas System resulted in increased fee based revenues of $3.7 million that compared to the same period last year. Additionally, increased volumes resulting from recent acquisitions and other growth capital expenditures located in the Louisiana provided an increase in our fee based margin of$ 5.8 million over the second quarter of 2010.

Our non-fee based gross margin increased $15.2 million primarily due to higher NGL prices. The composite NGL price increase of the three month ended June 30th 2011 to $1.33 per gallon up from $0.98 per gallon in the second quarter of last year. In addition, our recently acquired interest in the Sea Robin processing plant, which is part of the Lone Star JV, provided $0.9million of margin during the quarter. The increase in other Midstream gross margin was related to losses of the $0.6 million from marketing activities compared to losses of $10 million during the same period of last year. In addition we experienced a $3.6 million increase in processing margin for third-party processing capacity utilized.

Now, let’s turn to our NGL Transportation and Services segment which operates to our Lone Star JV and as a remainder Lone Star which is 70% owned by ETP and 30% owned by Regency acquired the assets from LDH Energy on May 2nd of this year. Since closing average NGL transportation volumes have averaged approximately 128,000 barrels per day and NGL fractionation has been about 14800 barrels per day during the period.

Gross margin for the period was $45.6 million and operating income for the period was $27.6 million. I was very pleased with how these assets are performing especially since they are above the economic rebates the deal on. And we have provided a break-out of this segment in our earnings release.

I would also like to point out Lone Star has been validated by ETP so in our adjusted EBITDA and EPS calculations found in our earnings release we’ve made an adjustments to remove Regency 30% non controlling interest in the JV. And in our Propane segment our operating income for Q2 2011 was a loss of $8.7 million compared to a loss of $6.4 million in Q2 of 2010. This is view to year-over-year volume decline of less than 1% and higher overhead expenses. And just as a remainder the retail propane business is seasonal with the majority of earnings falling in the first and fourth quarters of the year.

I’d now like to provide a summary of on our growth CapEx starting with what we incurred during the second quarter. We invested $380.7 million during the quarter $293.1 million was spent in our Midstream Intrastate transportation and storage and NGL segments primarily on our Eagle Ford Shale Projects and approximately $79.3 million was spent in our Interstate segment primarily the expansion of our Tiger pipeline. The remainder was spent in our propane and other segments.

As we turn our attention to the rest of the year we expect to spend between $450 million and $500 million in our Midstream and Intrastate transportation and storage segments $70 to $90 in our Interstate segment $100 million to 150 million in our NGL segment and $10 million to $20 million in our propane segment.

For our total estimated growth CapEx budget between $630 million and $760 million for the remainder of 2011. And I also like to note that spending for our NGL segment includes 100% of Lone Star because Lone Star as I mentioned before it’s fully consolidated in our financial statements. We will receive however capital contributions from Regency for their 30% share of gross CapEx related to Lone Star. That’s roughly $30,000 to $40,000 for 2011.

From a maintenance CapEx perspective we spent $29.4 million in the second quarter of 2011 and expected to spend an additional $60 million to $70 million in the second half of this year. In addition we expect to contribute between $190 million and $210 million to our joint-ventures other than Lone Star.

Before I take to you on Southern Union as well as other growth initiatives we like to highlight ETE’s financial results for the quarter. ETE had distributable cash flow of $115.5 million in the quarter two of 2011 an increase of $2.1 million from the second quarter of last year. Couple of items to point out that impacted ETE’s quarterly results. First, expected cash distributions from ETP and Regency increased 7.2% or $11.3 million when comparing quarter two of this year with quarter two of last year.

Not that ETE is interested in Regency were acquired in May of 2010. ETE also incurred $9 million and acquisition related cost this quarter associated with the pending Southern Union merger. That compares to $12.8 million in cost related to the Regency Transaction incurred in the second quarter of 2010.

In addition interest expense was $12.1 million higher in Q2 of this year versus Q2 of last year primarily due to increase in interest expense resulting from the September 2010 bond offering to refinance ETE’s term B loan revolver borrowings as well as $168 million in interest rate swap breakage cost.

Also, a full quarter’s worth of distributions paid. On Series A units issued to GE with the Regency Transaction occurred in the second quarter of this year compared to the second quarter of last year. Regarding distributions to ETE unit holders on June 30th we announced an increase of $0.65 per common unit from $0.56 per unit since $0.525 per unit on a quarterly basis which will be paid on August of 19th at an increase of 11.6% in the distribution paid last quarter and a almost 16% increase year-over-year.

Now, an update on the pending acquisition of Southern Union by ETE, and as you know ETE and Southern Union announced an amended agreement on July 19 whereby ETE will acquire Southern Union’s outstanding shares for $44.25 per share in cash and ETE common units. Under the terms of the revived agreement Southern Union’s shareholders like to exchange each of their common shares for $44.25 of cash or 1.0 times ETE common units or a combination of the two.

Now the maximum cash component has been set at 60% of the aggregate consideration and the common unit component has been set fixed at 18 plus rate between 40%and 50%. Any elections in excess of either the cash or common unit limits will be subject to proration.

The transactions has been unanimously approved by the Board of Directors of both ETE and Southern Union and ETE has received revised support agreements from Southern Union shareholders in connection with the revised merger agreement representing 14% of Southern Union’s total shares outstanding. We have elected to pre-elect to receive ETE common unit as their consideration set to same proration as all other shareholders.

And in connection with the revised merger agreement ETE has signed an amended agreement to sell Southern Union’s 50% interest to Citrus Corp which owns 100% of the Florida Gas. Transmission pipeline system to ETP for total consideration of $2 billion that consisting of 1.895 billion in cash and $105 million in ETP common units. The obligations of ETE as it relates to Citrus drop down are to be assumed by Southern Union community project closing of ETE Southern Union merger. The proceeds received from ETP will then be used upon a portion and the merger consideration and to repay the existing Southern Union related debt to maintain appropriate investment-grade credit ratings.

We continue to move forward from an approval perspective. We filed an amended S4 last Monday and if you may have seen in our press release issued in Friday the July of 29th the waiting period under HSR has expired. It’s a big step forward for us.

We’ve also filed with Missouri Public Service Commission and we think we are still on track for closing in the first quarter of 2012. Financing to complete the cash portion of the Southern Union merger transaction without even secured and we are well underway on evaluating alternatives for more permanent financing to be put in place at or near closing. And we remain very excited about this transaction and believe it will deliver significant long term value to the Energy transfer family as Southern Union was its more than 15,000 miles of Interstate pipeline and 5500 miles of gathering and processing pipelines will allow us to transport more product to more energy consuming markets thereby strengthening our competitive position and further diversifying our operations and cash flows.

Now, I’d like an update on development from Lone Star. With the acquisition behind us we have turned our attention to addressing the high demand for NGL transportation and processing that were seeing in the marketplace. So that end the JV recently announced plans to build a new 100,000 barrel a day NGL fractionation facility announced our view as well as the new 530 mile NGL pipeline from West Texas Jackson County. The pipeline will have minimum capacity of approximately 130,000 barrels per day and maybe upsized depending on ongoing negotiations. We believe both the fractionator and pipeline are expected to be in service at the first quarter of 2103. We are very excited about the natural gas liquids business potential and expect to see robust demand for the foreseeable future even more so with the Southern Union merger as consummated.

We along with our JV partners at Regency are evaluating several additional growth opportunities and look forward to strategy growth at Lone Star for the next several years. Next, I’d like to briefly update u on our announced Eagle Ford projects. Beginning in October of last year we announced approximately $1.15 billion of investments in the Eagle Ford Shale. The first of are Dos Hermanos and Chisholm pipelines have already been taken in service and taking one of the rich Eagle Ford mainline project is on track to be completed by year-end.

All-in-all we expect to play 500 miles of new pipeline and at least 720 MMcf a day of processing capacity in service line of second quarter of 2013. We expected to see a significant cash flow ramp-up from these projects in the next year or two with projected EBITDA multiples of six to eight times and roughly 1.55 billion in growth CapEx we are investing in the Eagle Ford.

And looking at our Tiger pipeline and I'm excited to report the construction of the 400 MMcf a day expansion has been completed two months ahead of schedule and $20 million under budget and our pipeline service on August 1, once again demonstrating our securability to bring assets and service. And as you recall the expansion project was starting construction in March of this year was original in schedule to go in service in October at a original cost of $180 million.

I would also like to say a few words about the Double E Crude oil JV with Enterprise product partners. But we recently announced a two week extension to our open season at the request of interest of shippers while we don’t want to get into specifics during the first open commitment period because of the regulating nature of the process a number of shippers have demonstrated significant interest in sizable volume descriptions and we’re looking forward to providing you with more detail at the exploration of the open commitment period on or surely after August 12.

And I would like to say a few closing remarks before taking questions. Your are witnessing a transformational period for Energy Transfer and our vast network of assets. With the addition of Southern Union’s assets the acquisition of Lone Star and our investments in the Eagle Ford and Permian basin combined with our existing asset base we will be the premier energy partnership providing a full suite and Midstream services for our customers.

We will be more geographically and operationally diversified with significant source of stable fee based revenues across our various segments. A combined footprint will allow us to derive significant unit holder value in objective we will continue to execute on day-in and day-out.

That wraps up my prepared remarks. Operator, let’s open up the lines for some questions. Thank you everyone.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And your first question comes from the line of Darren Horowitz with Raymond James. Please proceed.

Darren Horowitz – Raymond James

Good morning guys. Just a couple quick questions, Martin, first as it relates to the Lone Star pipe that you were talking about the 130,000 barrels a day, how much of that capacity right now is subscribed and, more importantly, as you're looking at the scale and the scope of possibly expanding that line or leveraging off of that line for additional services throughout the supply chain how do you think of about the first move that you should make?

Mackie McCrea

Hi Darren.

Darren Horowitz – Raymond James

Just a couple of quick questions. Martin, first as it relates to the Lone Star pipe that you were talking about the 130,000 barrels a day. How much of that capacity right now is subscribed and, more importantly, as you're looking at the scale and the scope of possibly expanding that line or leveraging off of that line for additional services throughout the supply chain how do you think of about the first move that you should make?

Mackie McCrea

This is Mackie. As we announced in our press release we originally had signed about 65% to 70%. We are very close to expanding that to north of 85% to 90% and back of – have decided to order 16-inch pipe of that project because of our ongoing negotiations.

Darren Horowitz – Raymond James

Mackie, do you still think that you're going to be at $700 million or you think you can do a little bit better?

Mackie McCrea

Definitely

Darren Horowitz – Raymond James

At the estimated cost of the project didn’t it.

Mackie McCrea

No, we do anticipate to be under that because we have offered our route. So are very optimistic that we’ll be under that number.

Darren Horowitz – Raymond James

Okay. From a bigger picture perspective and I know that Kelcy’s talked about this a good bit. When you guys think more not just about NGL takeaway from the Permian and West Texas, but more importantly about crude oils and condensates, how do you think about gaining greater exposure there to moving a lot of that product to east?

Mackie McCrea

Well, we are – announcement and hopefully we’re able to announce that project is being built here soon and with multiple negotiations we have gone on throughout the Eagle Ford and also some amount in West Texas we do believe that with this very significant potential for growth and our partnership. There has been a number of announcements on crude oil and condensate lines about the Eagle Ford but there’s also a need for significantly more infrastructure. We are having ongoing negotiations and hope to get in that business soon.

Darren Horowitz – Raymond James

Okay. Thanks for the color, Mackie.

Mackie McCrea

You bet.

Operator

And your next question comes from the line of Yves Siegel with Credit Suisse. Please proceed.

Yves Siegel – Credit Suisse

Thanks good morning, everybody.

Mackie McCrea

Hi.

Yves Siegel – Credit Suisse

Just on the Darren’s question by going to a 16-inch pipeline, how much more capacity does that enable you to do or to get to?

Mackie McCrea

Yves, similar to transporting natural gas it depends but instead of compressors of course you use pumps for liquids, so depending on how many pumps and how closely spaced they are but it could range anywhere from a 150,000 barrels to a 300,000 barrels per day.

Yves Siegel – Credit Suisse

Okay, wow. And then in terms of how should we think about the capacity on the fractionator? Is that basically fully subscribed as well, based on what you're doing with the pipeline here, or how should we think about that?

Mackie McCrea

Yeah, it’s fully subscribed. We are contemplating the next fractionators.

Yves Siegel – Credit Suisse

Alright. Good for you. And then my last question really high level here and based on Martin's last commentary. How do you all think about the risk profile of the company going forward if you're successful in terms of executing the business plan?

Mackie McCrea

Yeah, Yves. This is Kelcy here and I’m pleased correct me if I’m giving if I didn’t exactly get the questions right but the Southern Union acquisition as Martin said in this closing remarks it creates a great amount of diversity, it gives us access to areas that we previously did not access as Mackie was talking about our Lone Star loan but there’s really the Southern Union Gap Service’s assets are very, very complementary to grow in that business. So, we only see that we’re going to be less vulnerable to this basis it’s just really hammered us. You know that, Yves I mean if you looked at the basis that exist today it is very difficult during the pure natural gas business to make much money. It’s just very, very good for. And this gives us more exposure to margins that we really need some partnership.

Yves Siegel – Credit Suisse

Great. You I guess where I was going with that is having a diversified footprint and thinking about fee-based versus commodity-based. I don’t want to lead you in terms of saying lower risk profile, but I would think that somebody could come to that conclusion?

Kelcy Warren

Yeah, we certainly have. I mean, we have been very aggressive in the Southern Union acquisition for good reasons we don’t believe that anybody else in the world, but I think we know that. And so however it’s been hard yet where we are, but we’re very very excited about what that acquisition does for us and what all these projects do for us moving into the transportation of natural gas liquids was a big step for us. We were two ends out it. We were missing business opportunities with our customers, because we did not provide all of the services that we’re requiring. So, Yves, we’ve made a lot fixed steps here in the last several months and we’re very excited about our future.

Yves Siegel – Credit Suisse

Good luck, guys.

Kelcy Warren

Thank you.

Martin Salinas

Thank you.

Operator

And your next question comes from the line of Ross Payne with Wells Fargo. Please go ahead.

Ross Payne – Wells Fargo

How are you doing, guys?

Martin Salinas

Hey Ross.

Ross Payne – Wells Fargo

Martin, first of all, can you just kind of talk to us a little bit about your ideas on staying investment-grade. You've said that for some time, but just kind of reinforcing that maybe for some of the bondholders. And secondarily, as it relates to Southern Union, are you still thinking that that stays investment-grade based on the current plan of action on the acquisition?

Martin Salinas

Yeah Ross, I mean absolutely in terms of commitment and our continuing thoughts on the remaining investment-grade at ETP and certainly from an ETE perspective supporting regency in that endeavor as well. I think as we sell back in ‘08 and ‘09 while we were not out of the capital market, it was costly, but we were able to do it. It was just important for us as we continue to move forward not only with Southern Union merger, but supporting Mac and his team in terms of growing the business in the various areas where we’re focusing. So, doing a lighter amount of equity and debt ensure our leverage metrics are appropriate for our risk profile size of business or scale of operation, and certainly keeping close contact and communication with the rating agencies to ensure that they have a good feel for our plan at this paramount. So, that remains with respect to the Southern Union as that settles and we do the dropdown of Citrus and we look at other potential transactions occurring from larger Southern Union ETE merger, our intend is certainly to right-size or recalibrate the credit metrics across the entity and the volunteer to support the credit metrics where we think that’s important as well as we move forward here.

Ross Payne – Wells Fargo

So you’re also thinking Southern Union stays investment-grade here, Martin?

Martin Salinas

That’s certainly I mean we’ve had a lot of discussions with the rating agencies. They’ve given us somewhat of a path. Playbook obviously to work to and we’re going to have to be keen on that.

Ross Payne – Wells Fargo

Okay. And finally, two other things, intuitively, given Williams’ absence here and coming back with another offer, do you think they'd kind of back away here? And finally, how do you – how should we look at this right of first offer on the gathering system if Williams were to come back in?

Martin Salinas

Yeah, we can’t comment on Williams. I think from my understanding – my prepared remarks, we’re moving forward as this transactions belongs to us. We’ve filed the S4. We’ve gotten through HSR. We’re looking forward to getting through shareholder approval which we hope will occur and we expect to incur in late September. So, we’re moving forward as this Southern Union will be a part of the Energy Transfer. What was the second question?

Ross Payne – Wells Fargo

The right of first offer.

Martin Salinas

Oh, right of first offer, right. Yeah, Energy Transfer Partners does have a right of first offer and again we’ll look at what ETP can do from a capital markets’ perspective again back to my comment of maintaining the investment-grades, they’re right now, if the rating agencies said “Martin, that's going to cause a downgrade of ETP and ETP doesn’t do it. And that’s plenty simple because of our commitment to keeping ETP investment-grade. So, we’re going to work on that. We’re going to sharpen the pencils again around that potential dropdown and other potential transactions coming out of the larger merger and we’re going to do what’s right for all unitholders here.

Ross Payne – Wells Fargo

Great. Thanks so much, Martin.

Martin Salinas

Yep.

Operator

And your next question comes from the line of Helen Ryoo with Barclays Capital. Please proceed.

Helen Ryoo – Barclays Capital

Thank you. Good morning, Martin.

Martin Salinas

Good morning, Helen.

Helen Ryoo – Barclays Capital

A couple of clarification question on the West Texas NGL line. So I think you mentioned that you're currently running close to 90% subscription on your original 130, so I guess you're subscribed almost up to 120 at this point, and since you're ordering a bigger pipeline, your minimum capacity would be about 150? Is that correct?

Mackie McCrea

No, let me correct a little bit of what I’ve said or clarified. We’ve been at press release where we have got 65 to 70% signed of the neighbor made in press release. On other contracts that we’ve signed and ongoing negotiations, we’re highly optimistic we’ll have 85 to 90% of that capacity in the near future subscribed. As part of the 150,000 a day, that was the low end of what an 16-inch would move from West Texas to Houston.

Kelcy Warren

You know I’ll take this on this. I think West Texas to Houston you’re going straight to the expansion. And I’d like to talk about the existing line what capacity is running at and then the expansion, because Helen is grouping the two.

Mackie McCrea

Okay. We have the existing line and most of our line today is moving about a 140,000 barrels a day. And then we do….

Helen Ryoo – Barclays Capital

Right.

Mackie McCrea

Sorry…

Helen Ryoo – Barclays Capital

Right. Yes. And if you were to install the 16 line, you would add another 150 at least?

Mackie McCrea

Yes, yes. Everything worked well. Everything I’ve just talked about as far as our new pipeline project is the 106,000 and 300,000 a day in that topper, there would be additional volumes on top of the existing assets that we have today. So, yes, ultimately we anticipate moving 300,000 plus barrels minimum in both of our platforms the existing one and our new platform project.

Helen Ryoo – Barclays Capital

Right. But just to clarify, since the 16 line could add another up to 300, then that means with the existing 140 that that would give you 440?

Mackie McCrea

Ultimately, yes.

Helen Ryoo – Barclays Capital

Okay. Got it. Got it. There's another competing pipeline from DCP. Do you think there's room for both your project and DCP lines to come to fruition, given what you see from the supply profile out of West Texas?

Kelcy Warren

Helen, this is what we know. We know our line is being built. It’s not – we really – we see a lot of announcements in our industry where people say that they’re considering, they almost announced something. We know our lines being built, we know we’ve upsized it to 16-inch, but the facts that you just saw just a month ago we’re going to have a very large amount of capacity. We believe that that will be sufficient to address the customers’ needs however if the DCP does in fact build their San Jose line to the Permian Basin, very likely there will be more pipeline capacity than there is, they don’t stipulate. And therefore we’ve got to do our job and likely do customer commitments for a long-term that makes us somewhat immune to that overcapacity situation.

Helen Ryoo – Barclays Capital

Okay. I appreciate that. And then just what you give – I think in the past you've talked about potentially increasing distribution in the third quarter, if I'm not mistaken. Is that still on the table?

Martin Salinas

Yes certainly is, I mean Helen we came to the second quarter we’re very happy with the results. I think when you look at the diversification of our cash flows we’re seeing some weaknesses in part that we have experienced over the last couple of years. The good news is in fact it doesn’t get worse than that when you got a penny basis across Texas. We lifted the low gas price environment. We’re seeing a lot of upside in our midstream business with the acquisition of LDH. We’re seeing healthy margins there and as I mentioned in the call better than what we had budgeted or estimated from a deal of phenomenal perspective. So, they get a lot of credit and a lot of confidence going into latter half of this year. FEP and Tiger are working by the way they should be and that’s continuing to bring the Tiger expansion on sooner than we expected. And we thought that would happen in the first part of October and here we are in the first part of August. And then it’s online and going through the additional volumes. So, a lot of confidence going into the latter half of this year that we resume distribution rate.

Helen Ryoo – Barclays Capital

Okay, great. Thank you very much.

Martin Salinas

Thank you.

Operator

And at this time there are no further questions in queue and I’d like to turn the call back over to Mr. Martin Salinas for closing remarks.

Martin Salinas – Chief Financial Officer

Great, thanks Jason. All thanks again this morning. A lot of great things happening here at Energy Transfer and a lot to look forward to. And thank you for your time.

Operator

Ladies and gentlemen this concludes today’s conference. Thank you for your participation and you may now disconnect. Have a wonderful day.

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