Crosstex Energy's CEO Discusses Q4 2011 Results - Earnings Call Transcript

| About: Devon Energy (DVN)

Crosstex Energy (XTXI) Q4 2011 Earnings Call February 28, 2012 11:00 AM ET

Executives

Jill McMillan - Director of Public and Industry Affairs

Barry E. Davis - Chairman, Chief Executive Officer, President, Chief Executive Officer of Crosstex Energy GP LLC, President of Crosstex Energy GP LLC and Director of Crosstex Energy GP LLC

William W. Davis - Chief Operating Officer of Crosstex Energy Gp Llc - General Partner of Crosstex Energy Gp, L.P.- General Partner and Executive Vice President of Crosstex Energy Gp Llc - General Partner of Crosstex Energy Gp, L.P.- General Partner

Michael J. Garberding - Chief Financial officer Crosstex Energy Gp Llc - General Partner of Crosstex Energy Gp L P - General Partner and Senior Vice President of of Crosstex Energy Gp Llc - General Partner of Crosstex Energy Gp L P - General Partner

Analysts

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Sharon Lui - Wells Fargo Securities, LLC, Research Division

James Jampel

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2011 Crosstex Energy L.P. Earnings Conference Call. My name is Laura and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Jill McMillan. Please proceed.

Jill McMillan

Thank you, Laura. And good morning, everyone. Thank you for joining us today to discuss Crosstex Fourth Quarter and Full Year 2011 Results. On the call today are Barry Davis, President and Chief Executive Officer; Bill Davis, Executive Vice President and Chief Operating Officer; and Mike Garberding, Senior Vice President and Chief Financial Officer.

Our fourth quarter and full year 2011 earnings release was issued early this morning. For those of you who didn't receive a copy, it is available on our website at crosstexenergy.com. If you want to listen to a recording of today's call, you have 90 days to access a replay by phone or webcast on our website.

I will remind you that any statements that might include our expectations or predictions should be considered forward-looking statements within the meeting -- meaning of the federal securities laws. Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements, and we undertake no obligation to update or revise any forward-looking statements. We encourage you to review the cautionary statements and other disclosures made in our SEC filings, specifically those under the heading Risk Factors.

Before I hand off the call, I want to announce that Crosstex will host an analyst event in Dallas on Tuesday, March 27. The event will include a half-day presentation with breakout sessions, followed by an evening of entertainment. We'll provide an overview of our corporate strategy and update on our guidance and an in-depth operational review of our assets. If you're interested in attending, we've posted the invitation on the homepage of our website. You can also go to www.crosstexinvestorevent.com for more information. Also, if you want more detail, please feel free to contact me as well and we hope you're able to join us. I will now turn the call over to Barry Davis.

Barry E. Davis

Thank you, Jill. Good morning, everyone, and thank you all for joining us on the call today to discuss our fourth quarter and full year 2011 results. I will start today by quickly reviewing our financial results and outlook for 2012, and then I will briefly run through our 2011 accomplishments. Bill Davis will then provide some more detail on our growth projects and provide an operational update, and Mike Garberding will discuss our financial results and 2012 guidance.

Looking briefly at our 2011 financial results, we had strong year-over-year growth with adjusted EBITDA of $214 million for the year, a 15% increase over 2010. Distributable cash flow was $121.3 million, up 33% from 2010. These solid results allowed us to increase our distributions 23%, and our dividends 38%, comparing the fourth quarter of 2011 to the fourth quarter of 2010. In 2012, our core assets and growth projects will continue to provide us with a strong cash flow platform. We are forecasting adjusted EBITDA to be in the range of $205 million to $245 million. We anticipate continued strong distribution and dividend growth in 2012 with fourth quarter distributions projected to increase more than 10% and dividends to increase more than 20% over the fourth quarter of 2011. Mike Garberding will provide more details about our fourth quarter and full year 2011 results and 2012 guidance later in the call.

Now I want to take a minute and review what we accomplished in 2011. We began the year by outlining our objectives and I'm proud to say that we achieved those goals by successfully executing our plan. Operationally, our first objective was to maximize the earnings and growth of our existing businesses, and we accomplished that. In the Barnett Shale, we completed 2 gathering system expansion projects that we expect will contribute average throughput of over 100 million cubic feet a day in 2012. We anticipate these projects will generate average annual cash flow of approximately $18 million. Our aggregate cost for these 2 projects was approximately $35 million. We've optimized and expanded our strategically-positioned LIG system in Louisiana to link LIG assets with our processing and NGL assets in Southern Louisiana. As a result, we continue to see increasing volumes in our plants. In North Louisiana, we continue to benefit from our solid contracts in the Haynesville. Our north LIG system has a weighted average contract life remaining of about 5 years, which insulates us from drilling fluctuations in the near term. In Southern Louisiana, we restarted the Eunice fractionator which plays a key role in the success of our Cajun Sibon pipeline extension project. We also expanded our rail and truck deliveries, significantly increasing the volume of NGLs fractionated. We expect this business to grow further in 2012 with more producer activity.

Our second objective in 2011 was to enhance scale and diversification. As you know, we took major steps to strategically expand our operations into new core areas and services by initiating 4 significant growth projects in 2011. Our Cajun Sibon NGL expansion pipeline project is moving forward on schedule, and we have raw make supply and ethane sales agreements in place. We continue to expect pipeline construction to begin in the third quarter of this year and the facilities to be operational in the first half of 2013. In the Permian Basin, we've made progress with regards to our Apache joint venture, and the first assets associated with the JV are already in service and performing better than expected.

During the first quarter of 2012, the Deadwood plant and Mesquite Terminal began operations, and we expect our cryogenic gas processing facility to be operational in the second quarter. Entry into the Eagle Ford shale was initiated through an equity investment in Howard Energy Partners. This investment project is still in the early stages, but we believe there are many exciting growth projects on the horizon. We don't expect to see distributions on our investment until after the middle of 2012 because we intend to initially reinvest all cash flow from Howard Energy into other related growth projects.

Lastly, we further enhanced our facilities in Southern Louisiana with the addition of crude oil and condensate logistics capabilities which became operational in January. We've been receiving crude by rail since the beginning of January and made our first barge of deliveries at the end of January. We continue to enhance those facilities and are working on additional expansion opportunities that would add storage and crude logistics and truck unloading spots. This phase of enhancement should be completed by the end of 2012. Bill will update you a bit more on these projects in a moment.

From a financial perspective, our 2011 accomplishments include ending the year with a debt-to-EBITDA ratio below 4.0, reaching a target we set some time ago. We have no near-term debt maturities and strong liquidity with over $400 million available on our revolver. Consistent with our goals, we have maintained a solid financial position, a strong balance sheet and improved long-term capital structure and increased financial flexibility. Taking a look at the commodity price environment, WTI crude has been trading at just above $100 per barrel, and Brent crude has been trading at just above $115 per barrel. Brent crude pricing has a higher correlation to Natural Gas Liquids prices, which have been trading around $1 per gallon. The relatively low gas price compared with crude and NGL prices has prompted many gas producers to refocus their spending to drilling programs aimed at rich gas and crude areas. Consistent with this, we've seen drilling decline in both the Barnett and Haynesville Shale plays. However, Crosstex has not been directly affected so far. Chesapeake recently announced their decision to reduce their rig count and shut-in gas in the Barnett and Haynesville. We believe they shut in approximately 1 Bcf a day of production between the 2 plays. But Crosstex has not been affected by these reductions because the gas at Chesapeake shut-in was being delivered to other pipelines. Differently, Devon has said they do not currently plan to reduce their drilling in North Texas. They will maintain approximately 10 rigs working in the Barnett Shale focusing on liquids-rich areas. Devon has an inventory of about 2,500 drilling locations in the Barnett that are rich in NGLs and we expect to benefit from their development. In fact, today, our processing facilities are operating at near-full capacity due to this focus on rich gas in Texas. Crosstex currently processes around 1/3 of all of the gas it gathers in the Barnett and Bill will talk more about this later.

We continue to see high demand for midstream infrastructure. According to a recent study, an average of $8 billion to $10 billion will be spent annually on infrastructure over the next 25 years. We believe we're in a great position to continue to take advantage of the unprecedented opportunities that this market offers.

Before I turn the call over to Bill, I'd like to briefly provide some color about our strategy in 2012. We will remain focused on maximizing the earnings and growth of our existing businesses while enhancing the scale and diversification of our assets and our operations. We will run our assets efficiently and manage our balance sheet conservatively. We will continue executing the growth projects that are underway and pursue new opportunities related to them. And we will maintain our strategy of enhancing our scale and diversification by expanding our NGL business, expanding our crude oil business and developing gas processing and transportation projects in new rich gas areas. And we expect to expand our footprint into other developing rich areas. Now Bill Davis will update you on our operations.

William W. Davis

Thanks, Barry. Good morning, everyone. Our core businesses performed extremely well in 2011. And as Barry said, we took some important steps to enhance our scale and diversification by initiating several key growth projects which I'll introduce here at the beginning. I'd like to start with our joint venture with Apache Corporation in the Permian, one of the hottest areas in the country. In our joint venture, we each hold a 50% interest in the $85 million gas processing project in Glasscock County which we refer to as the Deadwood plant. Separately, outside of the joint venture, we acquired and refurbished the Mesquite fractionator and rail terminal which is connected to the West -- Chevron West Texas NGL pipeline. To date, production is exceeding what we anticipated and we have accelerated delivery of new n liq [ph] compression to meet our customers' needs. We expect to start a new cryogenic processing plant in the second quarter of 2012.

In early February, we announced that we have long-term supply commitments to proceed with the construction of our Cajun Sibon pipeline extension. This project will enable us to offer our customers an integrated NGL transportation, fractionation and marketing alternative to Mont Belvieu. Specifically, we have contracted approximately 40,000 barrels per day, or nearly 60% of the capacity under long-term agreements. With additional agreements being negotiated, we expect a new pipeline will begin operations at or near its initial capacity of 70,000 barrels of NGLs per day. We continue to expect pipeline construction to begin in the third quarter of 2012 and for the facilities to be operational in the first half of 2013. Moving forward, we could expand the system to grow capacity to approximately 120,000 barrels per day of NGLs if customer interest warrants, and we are continually evaluating demand. Financially, the current capital estimate for the base project is $230 million.

Our crude terminal project is underway in South Louisiana as well. The modification of our Riverside facility has been completed for the transloading of crude from railcars to barges. We're in an advantageous location from a market standpoint because we have access to LLS markets at a premium to other domestic crude pricing, and we're leveraging our position to capitalize on the interest we're seeing in our abilities to move crude. Volumes are ramping up and by the second quarter, we expect to handle 5,000 to 6,000 barrels per day and plan to expand capacity to approximately 20,000 barrels a day by year end. This will represent fee-based margin for us.

Turning to the Eagle Ford, our equity investment in Howard Energy Partners served as our entry into this important shale. To date, Howard's midstream assets are performing as anticipated, and the construction side of the business is exceeding expectations. We're excited by the position of the Howard assets in the Eagle Ford and are confident they can create many growth opportunities for us.

Now I'll turn to the rest of our operations. As you know, Crosstex holds a franchise position in the Barnett Shale where we have a short-term and long-term strategies for the play. As part of our short-term strategy, we will continue to focus on maximizing system operational capabilities. We expect our North Texas gathering and transmission volumes to be roughly flat during 2012 compared to the average for 2011. We expect processing volumes will be higher as compared to last year due to the continued focus on rich gas. Recently in the first quarter, we have seen a rapid increase in volumes at our North Texas plants, the highest levels we've ever achieved and we're extremely pleased with this. A lot of this new rich gas is due to completion of the second phase of our Benbrook expansion and remaining wells are being brought online now. Barnett recently reached the production rate of approximately 6 Bcf a day in the fourth quarter of 2011, an all-time high according to Powell Shale Digest. And cumulative production has exceeded 11 Tcf now. About 85% of our dedicated acreage is in the core and Tier 1 areas of the play, and based on our studies, more than 50% of future production volume is expected to occur within 3 miles of our existing infrastructure. Rig efficiency, extensive knowledge of the play, pad drilling and improved well recoveries have helped to mitigate the impact of fewer drilling rigs on overall production. Barnett is a material play where 70% to 80% of the wells are more than 1 year old, indicating a stable production plateau has been reached. To date, more than 15,000 wells have been drilled in the Barnett, and based on our studies, 15,000 locations remain to be drilled. With the major infrastructure already in place, it is very efficient for us to handle new volumes.

In 2011, throughput on our North Texas pipeline averaged approximately 352,000 MMBtu per day versus 339,000 in 2010. Fourth quarter 2011 throughput was about 354,000 MMBtu per day compared with 342,000 in the third quarter of '11. Throughput in our North Texas Gathering Systems in 2011 was 773,000 MMBtu per day versus 730,000 in 2010. Fourth quarter 2011 throughput was 782,000 per day versus 779,000 in the third quarter of 2011. Our North Texas plants processed 249,000 MMBtu per day compared with 209,000 in 2010. And they processed 252,000 per day in the fourth quarter versus 258,000 in the third quarter of 2011. As I said, today in the first quarter, we are completely full in our North Texas plants.

Turning to Louisiana. Our LIG pipeline system provides 440 million cubic feet per day of fully contracted takeaway capacity for gas from the Haynesville Shale. In addition to the Haynesville, producers are evaluating the Austin Chalk and Tuscaloosa Marine shale. There continues to be activity around these plays by producers who are targeting these liquid-rich production horizons. If successful, these plays can provide great transportation processing and fractionation opportunities for our LIG and PNGL facilities and systems. We're watching the activity closely, but it's a bit early to predict when or if these plays will be successful.

In 2011, throughput on our entire LIG system averaged approximately 912,000 MMBtu per day compared with 902,000 MMBtu per day in 2010. Our fourth quarter 2011 LIG throughput was 919,000 MMBtu per day versus approximately 859,000 in the third quarter of 2011. Throughput in the third quarter was lower due to customer plant maintenance and other operational issues and the plants have come back online during the fourth quarter. For the full year 2011, LIG processing volumes were 247,000 MMBtu per day versus 283,000 per day in 2010. Volumes declined year-over-year due to lower average wellhead volumes upstream with the Blackman plant and volumes that were bypassed around the Gibson plant for delivery to the PNGL Pelican plant. In the fourth quarter of 2011, LIG processing volumes were 259,000 per day compared with 236,000 per day in the third quarter of 2011. The increase was due to the greater spot purchases of pipe-to-pipe gas into the Gibson plant early in the fourth quarter of 2011.

We continue to see many additional opportunities to link our LIG and PNGL systems and take advantage of the current processing environment and producers search for liquids-rich gas. For example, we're bringing new supply from interstates through LIG into the Pelican plant beginning last November. Moving to Southern Louisiana, our PNGL assets, strong processing margins, higher NGL railcar volumes and increased fractionation piece helped improve results from this business. Our full year processing volumes in 2011 were 829,000 MMBtu per day compared with 874,000 in 2010. Plant inlet volumes were down due to the decline in Gulf of Mexico production. In the fourth quarter of 2011, processing volumes averaged 811,000 MMBtu per day versus 699,000 in the third quarter of 2011. Plant inlet volumes for the fourth quarter were up due to strong processing at our Pelican and Blue Water gas plants offsetting the declines in Gulf of Mexico volumes. We have leveraged LIG interconnects to provide additional volumes into Pelican for processing, about 215 million per day at their peak.

During 2011, we fractionated approximately 1.1 million gallons per day of NGLs compared with 900,000 gallons per day in 2010. NGLs fractionated during the fourth quarter of 2011 amounted to about 1.2 million gallons per day versus approximately 1 million gallons per day in the third quarter of 2011. The improvement was due to increases in NGL rail imports and increased NGL volumes from our plants. Lagging fractionation capacity has continued to push fractionation piece higher across all regional markets, and we have been updated from our available fractionation space in Louisiana.

During the third quarter earnings call, I discussed some operational challenges that we were facing in PNGL. As our results show, most of the operational challenges I discussed have been resolved, with the exception of a deepwater pipeline connection upstream of the Pelican plant. We expect this connection to be completed later this year. At Eunice, we're installing an amine treater to handle carbon dioxide levels, which reduce ethane recoveries containment plant capacity. We expect this treater to be in service in the second quarter. And finally, our Blue Water plant, which was down for repairs in the third quarter, was operational during most of the fourth quarter.

Looking forward, we will continue to focus on increasing our NGL and crude business and maximizing the value of our gas plants through strong processing. We anticipate increased NGL and crude oil throughput and expect the Gulf of Mexico declines will be offset by new gas contracts. We'll focus on the execution of our Cajun Sibon NGL project and continue to develop and conclude additional NGL and crude projects we have identified.

Now Mike Garberding will discuss our fourth quarter and full year 2011 financial performance.

Michael J. Garberding

Thanks, Bill. In our earnings release, you'll find reconciliations of certain non-GAAP items to their GAAP equivalents which we'll discuss in the call today. Please refer to the earnings release for these reconciliations. In addition, our 10-K will be on file this morning with the SEC which you can access for more details on our results.

As we report our results and financial condition in 2011 and give 2012 guidance, we feel we're in a great shape and strategically positioned for our next phase of growth. We ended the year at the top end of our guidance on EBITDA, distributions and dividends with an average distribution coverage of approximately 1.4x, and an end-of-year debt-to-EBITDA ratio under 4x. We're able to achieve this while spending greater than $100 million on growth capital with no equity issuances.

From a balance sheet perspective, we currently have over $400 million available on our credit facility which we amended in January of this year. This gives us ample liquidity to manage our business and cover our 2012 growth capital program, which is currently estimated just under $300 million.

Before we turn to guidance for 2012, I want to give a brief overview of our fourth quarter 2011 results compared with third quarter 2011, which we believe illustrates the strength of our existing business platform. The partnership realized adjusted EBITDA of $54.6 million in the fourth quarter of 2011, an increase of 9% from the third quarter of 2011 EBITDA of $50.1 million. Gross operating margin for the fourth quarter was $97.8 million, an increase of $6.8 million from the third quarter of 2011. This increase was primarily the result of favorable processing environment and increased processing volumes. We have continued to see strong processing margin throughout 2011. During the fourth quarter, we had a weighted average NGL price of $1.37 per gallon and an NGL-to-gas ratio of 432%, compared with the weighted average NGL price of $1.41 per gallon and an NGL gas ratio of 371% in the third quarter of 2011. This translated into approximately $29 million of our fourth quarter gross operating margin coming from commodity-based opportunities. However, we ended the year with approximately 70% of our gross operating margin coming from fee-based gathering transportation and processing activities, margin that is not sensitive to commodity prices. The increase in distribution coverage for the year took into consideration the increase in margin from the commodity-based opportunities. We continue to add positions to our hedge or commodity exposure in 2012 and 2013. Currently, we've hedged approximately 72% of our target percentage of percent of liquid volumes and approximately 94% of our target percentage of processing margin volumes for 2012. We have also begun to layer on hedges in 2013. To date, we have hedged 50% of our propane, butane and natural gasoline target percent of percentage of liquid volumes in 2013, as well as 22% of our ethane target percentage of percent of liquid volumes in 2013, the focus on the latter half of the year. In aggregate, we have hedged approximately 35% of our target percentage of percent of liquid volumes for 2013. As in the past, we only use product-specific hedges in the forward liquids market.

Turning briefly to Crosstex Energy Inc., the corporation had a year-end cash balance of approximately $6 million, which will continue to grow as a portion of the distributions it receives each quarter are added to its cash balance. This cash will be used to make it's 2% matching contributions on any equity raises by XTEX, fund miscellaneous expenditures and build reserve for potential income taxes payable in the future. As we have said, we don't currently envision any significant income taxes to be paid by the corporation in the near future. It is anticipated that new unit holders at XTEX could expect an estimated tax shield of at least 80% for 2012.

For 2012, we are providing preliminary low, midpoint and high guidance that is based upon a range of commodity pricing assumptions and other factors. We are forecasting our midpoint of 2012 adjusted EBITDA to be approximately to $225 million and associated distributable cash flow of $134 million. Key drivers to the growth in the business are the start-up of the Permian operations, including the Apache joint venture which is expected to contribute between $12 million and $18 million for the year, an accrued logistics business which is expected to contribute between $8 million and $10 million for the year. The Cajun Sibon project, which represents a large portion of our estimated 2012 growth capital, is not expected to begin operations on the first half of 2013. Depending upon changes to commodity prices and other factors affecting the business, adjusted EBITDA could range from $205 million on the low side to $245 million on the high side. You'll note that we have coverage of 1.1x or above for each of our guidance cases. And since last year, we have assumed a 1.3x coverage for the midpoint of guidance, given that approximately 25% of our 2012 gross operating margin is expected to come from activities sensitive to commodity prices. Our guidance assumes the weighted average liquid price will be between $1.04 per gallon and $1.38 per gallon, implying a Brent crude price of between $0.93 and $1.23 per barrel. We have also assumed the average Henry Hub gas prices of between $3 and $4 per MMBtu, which implies the natural gas to liquids ratio of between 307% to 543% for the year. If you are to look at today's current commodity market, we're around $1.02 per gallon for the weighted average liquid price with gas prices around $2.50 per MMBtu which translates into a natural gas liquids ratio of approximately 468%.

Assuming actual results are within the range of guidance, we expect the partnership could pay distributions in the range of $1.28 to $1.41 per unit for the year, and we expect the corporation could pay dividends in the range of $0.44 to $0.55 per share assuming the receipt of a per unit distribution in the range stated above from the partnership. Assuming the midpoint of guidance that, that is -- this is consistent with our goal of at least a 10% growth in 2012 distributions, and have at least a 20% growth in 2012 dividends that we discussed this past year, that Barry mentioned in his opening remarks. The guidance also assumes growth capital of approximately $294 million and maintenance capital of between $16 million and $18 million. The gross capital estimate includes projects that have been approved by the partnership, as well as additional project opportunities with the high probability of being executed in 2012. Most of these projects like Cajun Sibon have 6- to 12-month lead times on their developments, and the impact to 2012 cash flows are minimal.

There are a number of variables, particularly around our financial guidelines, that could affect the payment of distributions and the dividends. Of course, the payment and amount of any distribution or dividend will be subject to approval by the respective Board of Directors of the partnership and the corporation and to economic conditions and other factors existing at the time of determination. We'll provide additional color on this guidance during our scheduled analyst event for the buy-side and sell-side analyst community on March 27, and we look forward to seeing many of you for additional overview of Crosstex's operations and financials. If you have questions or more information, please contact Jill McMillan or myself.

Now I'll turn the call back to Barry.

Barry E. Davis

Thank you, Mike. As you can see, 2011 was a great year. We successfully carried out our plan to grow our existing business and maximize our contributions to the bottom line. Our focus on high return projects in our core areas during the last 3 years resulted in record earnings for our North Texas, Louisiana and natural gas liquids businesses. In 2011, we also enhanced the size and scope of our assets and operations, which provides us with an important platform for growth. While we accomplished what we set out in 2011 and enhanced value for Crosstex investors, we will not stop here. We remain focused, first and foremost, on executing our strategy to create value for all of our shareholders. In 2011, we celebrated 15 years as a company, a landmark achievement. And today, we are as well positioned as ever, with great assets and great people to take advantage of the unprecedented growth opportunities ahead. Our vision remains unchanged: to be the best midstream energy solutions provider in the industry.

That concludes our prepared remarks, and I will now turn the call back to our operator, Laura, and Bill, Mike and I will be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Darren Horowitz from Raymond James.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

A couple of quick questions, Barry. First, recognizing locations of your assets in the core and Tier 1 areas within North Texas, can you give us a sense for the contract structure on that 1 Bcf a day gathering volume? I'm just trying to get a sense for when you've been discussing with producers like Devon, for example. Have they given you any price sensitivity to say that if the forward curve for gas remains where it is today, then x amount of volume could get curtailed?

William W. Davis

This is Bill, Darren. I would say that I'm not going to put words in Devon's mouth. You've seen their announcement that they are -- aren't currently intending to scale back drilling in the Barnett Shale. I don't know that very many of those producers are intending to curtail production at these levels. I certainly haven't heard that, other than the announced curtailments. If that -- does that answer your question?

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Yes, it answers part of it, Bill. Is the contract structure then -- I mean, is it just all fee for volume? Or are there any take-or-pay contracts or...

William W. Davis

We have a few of the take-or-pay type contracts, but most of our contracts in the Barnett are acreage dedications, where the production comes to us, if it's drilled and produced.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Can you give us a sense for how much of that capacity is going to be coming up for renewal, both this and next year?

William W. Davis

None.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

None?

William W. Davis

Yes, none of the contracts are that short term in nature.

Darren Horowitz - Raymond James & Associates, Inc., Research Division

Last question for me, and Barry, you kind of hit on this and it seems like from a synergistic standpoint, one of the biggest opportunities that you guys have. But can you give us a little bit more color on linking that LIG and -- that LIG system with PNGL. I mean, it seems that there are more opportunities outside of interstate connections like north of the Pelican plant and maybe even further downstream, either additional treating opportunities at Eunice or the ability to expand capacity further maybe with some outlet pipeline capacity to some PEG chems. Can you just give us a sense for how you're thinking about the kind of interaction between those segments developing over the next couple of years and possibly quantify what you think the associated CapEx could be?

William W. Davis

There are some really large projects, Darren, that could come out of that. We were -- have been discussing a couple of them internally in the last few days, including some of the work around the second phase of the Cajun Sibon expansion that we were talking about which would be a very large incremental capital expenditure in the order of $230 million, again, on top of the initial expenditure. As you say, there are a number of opportunities. Our LIG team and our PNGL team are busy evaluating those and they have successfully executed some in recent days including the 215 or so of gas that LIG is bringing to Pelican now off of interstates. So we'll continue to work those opportunities, and there a lot of opportunities to improve operating results there as a result.

Barry E. Davis

This is Barry. I would compliment our teams. When you look at the guys that we have operating and executing on the PNGL and LIG assets, there's probably an average tenure there in excess of 20 or 25 years. And we only recently moved those to under common operator -- operations leadership. And we've really seen some good benefit from that. So what we have total confidence in is that there is an opportunity to integrate those assets. Our teams right now are able to see it and execute on it. So as dynamic as the marketplace is, we feel really good about that and think that, that will result in some good continued improvement there.

Operator

Your next question comes from the line of Sharon Lui from Wells Fargo.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

With regards to your guidance for 2012, are you also assuming that LIG pipe and processing volumes remain relatively flat?

Barry E. Davis

Yes.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

And then, I guess, in terms of the growth CapEx guidance that you provided, it looks like it's a little bit higher. Is it just an acceleration of spending for Cajun Sibon? Or do you actually have additional projects in that number?

Michael J. Garberding

If you think about the number, about 60% of the number is Cajun Sibon, then another 20% to 25% is related to finalizing the work in Permian with Apache joint venture in Mesquite and the last being really the crude terminals. So from an overall size standpoint, the large increase you saw from our initial discussion on guidance really is the Cajun Sibon pipeline.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. And then also, I think that you indicated that the current NGL pricing is about $1.02. Just wondering if that's net of hedges. It seems like it's a pretty big discount from Belvieu pricing.

Michael J. Garberding

General range, you're seeing ethane has come up so that price has come up since then. So when you look at a market price, but again we've seen between $1 to $1.10 as of late.

Sharon Lui - Wells Fargo Securities, LLC, Research Division

Okay, great.

Barry E. Davis

Sharon, that will be based on ethane at that time of about $0.52 and so the weighted average prices what we're referring to there is $1.02.

Operator

[Operator Instructions] Your next question comes from the line of James Jampel from Hite.

James Jampel

You mentioned that your debt-to-EBITDA at the end of the year was 3.9. Are you comfortable running much ahead of that, much above that as you go through your CapEx program this year?

Michael J. Garberding

Yes, when we think about how we want to run the business long term, we think it makes sense given the cyclical nature of this business to be somewhere around 3.5 to 4x. When we have projects like Cajun Sibon that are fully contracted fee based, we can see that we'll come up a little bit above 4x this year. But ultimately, once that project comes up and running in the first half of 2013, that gets back down into the range of where we want to be. So again, given the structure of this project that we think it makes sense to have the debt to EBITDA rise a little bit knowing the completion time is about 12 months -- or 12 to 18 months from today.

James Jampel

So are you saying that you may not necessarily need equity to complete the project?

Michael J. Garberding

No, I didn't say that. I just said we're comfortable having a debt to EBITDA a little bit north of 4x during the project construction cycle. When we talk about financing a project, like we said in the past, we'll look to finance our capital on a basis of 50% debt, 50% equity, with retained cash being considered equity. And just as an example, in 2011, we have retained cash of just under $30 million.

Operator

There are no further questions at this time. I'd like to turn the call over to Barry Davis for closing remarks.

Barry E. Davis

Thank you, Laura. And again, thank you to all of you on the call today. It gives us great pleasure to give you a great report. We continue to look forward to the good things in the future and are seeing you here at the analyst meetings coming up, or as we report to you next quarter. Thank you again for being on the call and have a great day.

Operator

Thank you. That concludes today's conference. You may now disconnect. And have a great day.

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!