Crosstex Energy, Inc. (XTXI)
March 27, 2012 2:00 pm ET
Jill McMillan - Director of Public and Industry Affairs
Michael J. Garberding - Chief Financial Officer and Senior Vice President
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 and Executive Vice President of Crosstex Energy GP LLC
Stan Golemon - Senior Vice President of Engineering & Operations of Crosstex Energy GP LLC
Royston Lightfoot - Senior Vice President of Business Development
Looks like we've got a few more folks coming in. If everyone wants to have a seat. Great. Well, thank you for coming and good afternoon, and welcome to the Crosstex Analyst Conference. We are so excited to have you and we especially thank you for your interest in Crosstex. My name is Jill McMillan, I am the Director of Public and Industry Affairs. I manage the Investor Relations for the company. I see many familiar faces in the audience. For those of you that I haven't had a chance to meet, I hope to get to know you more later today. I will say that we have a very busy and full day ahead of us. We will start off the meeting with a 1.5 hours presentation led by our President and Chief Executive Officer, Barry Davis. He will provide a in-depth operational and financial update. After the 1.5 hours presentation, we will take a short 20-minute break where we will reconvene back in this room for a 2-hour breakout discussion, where each of you will have ample opportunity to ask lots of questions to the management team.
Speaking of questions, we would -- you're more than welcome to ask questions during the presentation, however, you will have plenty of time during the breakout sessions to ask those questions. If you do choose to ask a question during the analyst presentation, please speak up or wait until someone can come to you with a microphone so that those that are listening on the call can also hear the questions that are asked. We will be webcasting the analyst presentation for those on the call as well.
And just a few friendly reminders, for those of you that have cell phones, if you could just do me a favor and put them on silent, I would greatly appreciate it.
Last but not least, we will end our evening and try to give all of you New Yorkers the true Texas barbecue experience. We have Sammy's Bar-B-Q, which is right around the corner. So we'll have live entertainment and a whole bunch of really fun activities planned for you so we hope you're able to make dinner.
And without further ado, I'd like to introduce our Chief Financial Officer, Mike Garberding.
Michael J. Garberding
Thanks, Jill. We do enjoy this time because it gives us a good opportunity, really, to tell our story. You look at how 2011 shaped up, we think we laid out a real good plan and did really well executing on that and we think, as you'll see, 2012 should be consistent with how we do that. So again, that is our goal for today. When you look at agenda, Barry is going to start with the strategic vision, Bill is going to spend some time walking through our base assets. Stan and Royston will then walk you through each of our growth projects and I'll finish up talking about the financial picture for the company.
So before we kick off, I want to introduce the team but -- when you talk about teams, the great Charles Barkley had a funny comment last week. During the Sweet 16, one of the announcers was talking about, saying, "Hey, don't the best athletes always win?" And Charles, in his own way, says, "Well, if the best athletes always win, why are not a bunch of gazelles playing basketball?" You're thinking Barkley's right, right, it goes back to sort of the Bobby Knight era of coaching. You want the team that's going to work hard, execute on the plan and deliver results. And again, when you talk about a team, this team has really been through a lot, so. And if you -- each of us have really been through the last 4 years together and now on this side of executing on the growth, we feel we have a very good team in place to continue to push this company forward.
Key people on the team, as everyone knows, Barry Davis, CEO; Bill Davis, COO; Joe Davis, SVP, General Counsel; Mike Burdett, SVP, Commercial; Stan Golemon, SVP E&O; Steve Spaulding, SVP PNGL; Royston Lightfoot, SVP, Business Development; Brad Iles, Corporate Development and then you met Jill. So with that, each of this team will be involved not only talking about the presentation but would be part of the breakout as far as really spelling out what we're going to do as a business during 2012.
Before Barry starts, we're real proud, this is actually our 15th year as a business and company and there's a nice video and when you watch the video, you get a really good taste of who we are and then -- and what we do, when you see the people we have and how we do things and I think that really differentiates us as a company. So take a look at this video and again, it gives you a good view of prospects.
Barry E. Davis
When we started Crosstex a little over 15 years ago, we developed a mission statement that we felt like really accurately reflected what we wanted to do as a company. And right in the middle of our mission statement, we said we wanted to improve the quality of life for our people. I think in that video, you see that the quality of life is pretty good. Even in the best of times and the toughest of times, we believe that the experience that we've been able to share here together has been life-giving and I just want to thank you, guys, because you have had a big part in that. From the time that we did the IPO in 2002 to today, you have always been there to support us and we appreciate that.
Now before you think that it's all about life, let me remind you that our mission statement starts with, to improve the quality of services for our customers and it ends with, after the middle of improve the quality of life for our people, it ends with, and to improve the returns to our shareholders.
So we've got a great balance in what we wake up thinking about every day and we think the enthusiasm that you see there is really driven by the clarity of that message. Today, we're excited to share with you the latest update in the story of Crosstex. You're going to see that in various formats and we think that that's kind of what's fun about today, you'll see a number of videos that really demonstrates the quality of our assets. You'll see in live the quality of our people, both by the presentations that we'll make throughout the day, as well as the way we represent the rest of our team. And lastly, what we think you're going to see is the incredible quality of opportunities that we see ahead for Crosstex. These are great times and we're very thankful to be where we are.
The headlines. That if you leave today getting anything, we want you to really hear the message that we continue to see very strong performance and execution around our business plan. In 2011, we hit on every mark and in 2012, as we begin the year, we've got great energy and enthusiasm because of that.
The second thing we want you to hear and we think you're hearing it in a lot of places today, is that this is a terrific industry environment in which we operate. Never before have we seen the number of opportunities and the abundance of opportunities for companies to do things in this space.
Thirdly, we want you to know that we are extremely well-positioned as a company and organizationally to participate and to take advantage of the terrific industry environment.
And lastly, because of all of the things that we've done and we think that you will see clearly throughout today because of the preparations that we've made, the developments that we have achieved, the opportunities that we have defined, right now, it is all about execution, okay? We don't have to reach for that next big thing. All we got to do is execute what's right in front of us and I think as we've demonstrated over the last 2 or 3 years, we do that as well as anybody in the industry. So today, we look forward to sharing the story.
Let me start, just a couple of highlights off of this slide on -- starting on Slide 8. Our organizational structure is very simple. We have a classic MLP structure with a publicly-traded general partner in a C Corp structure. As many of you heard us say a number of times, we did the first ever GP IPO in 2004 when we IPO-ed our XTXI. Key holdings, as you can see in our MLP, GSO continues to hold the position that we created there in January of 2010, with about a 22% interest in our partnership.
Classic GP incentive structure is demonstrated on the bottom right of the slide. So as I said, a very pure and typically structured master limited partnership.
Our assets are extremely well-positioned. We started the year of 2011 with what we were describing as 3 core assets and in each of those positions, we had an industry-leading or an extremely well-positioned asset base. I'll describe those and then I want to describe the 3 additions that we were able to make in 2011.
Starting with North Texas. We've got one of the industry-leading positions there, moving over 800 million cubic feet a day or about 20% of the production coming from the Barnett shale, an asset position that we've developed over the last 7 or 8 years and a very strong position. Moving over into Louisiana. We have the largest intrastate system in the state with over 2,100 miles of pipe, moving over 900 million cubic feet a day, a very well-balanced system from the north to the south, essentially covering the entire state of Louisiana. And thirdly, is our Processing and Natural Gas Liquids business, which we call PNGL, which was an integrated processing and NGL fractionation and marketing system on the Gulf Coast of Louisiana.
Last year at this time, many people, in fact I think 1 or 2 of the headlines from the analysts after this meeting was kind of the question of, what's next? The good news is, even though we didn't tell you a whole lot about it last year because we were in early stages of development, we have added 3 things that we would describe as answering the question to what's next. We started with an investment in the Eagle Ford, so kind of moving over into South Texas. We had been working for several months trying to find the right opportunity to participate in what was at that time, the hottest shale play and continues to be one of the hottest shale plays in the county. We found the best opportunity was to partner with an existing management team, many of you would be familiar with Mike Howard, who was formerly with Energy Transfer. We put together a strong partnership of the management team led by Mike Howard and a financial provider for Quanta construction and then our participation for roughly a 35% interest in the company. Most recently, we've added GE to that structure and actually have -- our interest has declined minimally. Let me leave the rest of that story for someone else to tell later.
The second of our answers to the question of what's next, moving over into the Permian. We were able to complete a project with the Apache to build an infrastructure for them in their rapidly developing crude play in the Permian. There, we're building a processing facility, we also had to create a way to get liquids out of the area so we acquired and revamped the Mesquite terminals.
Thirdly, we added at the end of the year, crude infrastructure on the Gulf Coast, basically looking at our assets and saying, what can we do with these assets to take advantage of, essentially, a market that needed access to St. James market? So we used our barge terminal and rail terminal facilities there, added facilities and retrofitted for crude and we're currently moving substantial volumes in there now, with strong plans for growth over the next -- over the coming years. So in total, we now have exposure to what we would call 6 asset bases and as we go throughout the day today, we will continue to try to answer the question of what's next. We do think that to continue our diversification and growth is a critical part of what we're focused on.
So looking at 2011. I guess we get one more chance to really tell you what a great job your company did in 2011 to execute on the plan that we put together. Our plan, it consisted of many execution items, but these 4 points on Page 10 represent the highest of our objectives, starting with maximum utilization of our existing assets to create the best possible profitability. And then secondly, growing those assets to make sure we're taking advantage of every opportunity that exists around them. Outstanding year last year as we hit the high end of our EBITDA forecast. We had 15% growth year-over-year on EBITDA from essentially the same-store assets.
Secondly, and with a very balanced approach, we wanted to have and to enhance our scale and our diversification. And as I said, we were able to add 3 new core areas and have strong execution on that point.
Thirdly, and this actually was at the top of the list, we believe that we needed to improve organizationally from a safety standpoint. And let me tell you where we were, we were basically kind of a best-in-class safety performance going back to 2008, '09 and then we started to see a decline in the performance to a little less than industry average and that was unacceptable for us. So we went -- we did a lot of work during 2011, primarily to enhance the awareness of the behavior that we wanted to drive throughout the organization. As a result, we had best-in-class safety performance in 2011, a 70-plus percent improvement in our safety statistics and a great outcome on something that we needed to make changes in the organization.
Lastly, because of this great work, we're in very strong financial position. We end the year with very strong coverage, better than 1.4x coverage on our distribution and that includes a 23% increase over the 4 quarters from 2010 through 2011. Our debt-to-EBITDA is less than 4x, which is consistent with our objective and we continue to be very focused on maintaining the liquidity that we need in our business. So in summary, 2011 was a fantastic year that really puts us in a great position as we go forward.
On Slide 11, just a couple of points. First of all, our EBITDA for 2011 was, again, 15% improved over 2010, essentially the same-store assets. We're projecting a continued growth in net EBITDA as we look into 2012 with our guidance midpoint at $225,000.
Looking at our distributions, we grew distributions at 23% from the fourth quarter of 2010 to the fourth quarter of 2011. Our dividends grew at 38%. When we look at 2012, our guidance is to continue to see strong double-digit growth of 10% or better for the distribution and 20% or better for the dividend. All of this while maintaining very strong, and I would say, again, sector-leading coverages on our distribution.
So enough of that. What are we going to do going forward? We start every year, in the fourth quarter, say in at the beginning of October or middle of September, looking at the future and what we want to do for the coming year and years ahead. As we stopped this year, the first thing we do I always, is ask the question of what's going on in the industry? What are the critical trends that we're seeing that really drives us? And this is the top, what we would say really are about 10 critical trends that we see going forward.
Number one, is that we're in a very robust industry environment. Many of you have seen the forecast that we will continue to see as much as $8 billion to $10 billion a year of infrastructure build in the midstream space. That's actually projected to be an average over the next 25 years or some $250 billion of investment in the midstream space going forward.
Secondly, because of that, being such a robust and opportunity-rich environment, we are seeing lots of competition. And lots of capital that are trying to get in -- is trying to get into this space, lots of management teams, lots of organizations that are expanding rapidly, so things are competitive. That necessitates that we seek to take advantage of our strengths, our advantages in the things that we're doing to grow.
Thirdly, we will continue to see, we believe, for the foreseeable future, a focus on rich gas and crude. Fourthly, we believe size and diversity are highly valued in the marketplace both by our customers and by our shareholders. We see a significant difference in yield, obviously, from the larger diversified MLPs, from what we're seeing. Our objective is to continue to grow and to continue and to diversify in order to improve our yield in the marketplace.
Lastly, we believe capital markets are strong today, but as we saw last fall, they are volatile and it will be very important for us to manage our balance sheet very carefully as we go forward. And certainly, we want to be very efficient in the way that we manage that.
So our plan, the good news is when you can basically assess the market, assess your own performance and sit back and say, we just need to keep doing what we're doing, and that's what we're doing in 2012.
Our top 2 objectives are exactly the same as what we were doing in 2011. We will continue to maximize the earnings of our existing assets and seek to grow them in every opportunity that exists around those assets.
Secondly, we want to continue to expand our footprint and to grow outside, if you will, of our current core areas to enhance scale and diversification and also to take advantage of the opportunity to create value in these new places.
When we look outside our current assets or expanding beyond our current services, the places that we're going to look are, first of all, in the NGL business and I think that's pretty obvious. One, because of the focus of the developments in that space; but two, our organizational capabilities are very strong in the NGL space and I think you'll see that throughout today.
Secondly, we've been saying now for about 18 months that we saw a tremendous opportunity developing in the crude space, and that was a little odd for us to say that 18 months ago, but I hope that it is warming up on you because we -- it is something that we have done, is to build an organizational capability. Our terminal-ing operation in South Louisiana, we expected in the Permian with our Mesquite facility, we ultimately will be able to use it for crude terminal-ing, but that's really only the beginning. We think there is tremendous opportunity to provide the infrastructure in the crude business. We believe the bottlenecks that exist in that infrastructure are kind of where we were 5, 6, 7 years ago in the gas space. So terrific opportunities and we want to be positioned to participate in that.
And lastly, we want to keep doing what we've been doing as it relates to the gathering, processing and transmission business, but looking to grow it in the places that we already exist and expanding into places that we aren't today.
So looking at the NGL space. This slide is really to give you a picture of what we see happening on Slide 14, in the NGL space in the next 3 or 4 years. First of all, we expect to see an additional 1.4 million barrels of NGLs growth over the next 5 years. That's going to get to the market via the projects that have been announced and you can see, it is demonstrated by the green arrows here, which in aggregate, represent 1.7 million barrels of new NGL pipeline capacity coming into Mont Belvieu. Big supply of NGLs coming to Mont Belvieu looking to the marketplace in the Gulf Coast. The good news is, our Cajun-Sibon essentially extends us to be equivalent to the Mont Belvieu. So today as we explain that project in detail, what we hope you will see is that essentially, it creates a connectivity to Mont Belvieu that makes us look like Mont Belvieu from a standpoint of being able to receive raw-make NGLs. What makes us different is that we, basically, on the back end of our fractionators, go right into the petrochemical and refinery markets, so we are essentially all the way into the industrial plants and the market areas. So providing more than just fractionation, providing direct access to the market. We think that positions us to do well in our NGL expansions.
As we've described it, Cajun-Sibon, we've now began to describe it as Phase I and Phase II. Phase I is 70,000 barrels a day with completion in the second quarter of 2013. Phase II, we will give you great detail or some detail, not great detail, but some detail as to the development of that. It is in an early stage development and we believe it could be expanded by an additional 50,000 barrels to be completed in 2014.
Our Mesquite fractionator is a way for us to participate in the rapidly growing NGL market or supply in the Permian. We're basically bringing product by rail from Mesquite terminal into our South Louisiana facilities. And then lastly, we are looking at a number of opportunities trying to expand the value chain approach in the NGL space. We think we can go further downstream than where we are currently as we are also growing upstream.
Now moving to the Crude business. Why would we focus there? As I said earlier, we see a rapidly growing crude supply. Forecasts today are somewhere between 4 million and 6 million barrels of additional crude will be developed in the United States over the next several years. That is a game changer. The need for infrastructure is going to be incredible, we have to do something to overcome the differentials that we're currently seeing and is represented on this slide, Slide 14 (sic) [Slide 16].
Just to give you a feel, we basically, in 2011, saw a Brent premium to WTI in the bottom right of $16. The projection is that in 2017, that will continue to exist and could grow to $20. So what that's telling us is, that we don't see the infrastructure being created that will essentially allow to close that gap, if you will. Over the same period of time, we do see that in the St. James market or the Louisiana Light Sweet market going from a $16 differential down to about a $5 dollar differential over that same period of time. So for that particular market, we do see lots of infrastructure build that will help expand the capacity to move into that market.
So 2 things: growing supply and secondly, differentials that create opportunities. Something with which we are very familiar and I'd say, we have executed on very well historically in the gas and NGL space.
As it relates to the Crude business, we are already completed Phase I, we're moving product today in Riverside and Eunice, we have a capacity to move up to 6,000 barrels a day between those 2 facilities. Our recent projection is, we think, over the next few months, we will reach that capacity of 6,000 barrels a day. Phase II is an additional 10,000 barrels a day that we believe we can complete by around the end of the year or first quarter 2013. We're currently working on commercial development of that. Phase III, we are also working on an engineering study and the commercial development, which would basically be a unit train operation into our Riverside facility, which could be completed early 2014 and would expand our capacity up to 40,000 barrels day.
So significant opportunities in the Crude business. But let me tell you, this is just really the tip of the iceberg. I mean, it is a strategy of ours to expand significantly in this space beyond the things that you're seeing here. We think that would really be a great add for us organizationally, so we're looking at what we would describe as platform opportunities in the crude oil space.
Gathering, Processing and Transmission. What we're doing there is looking at essentially what we've done since the beginning of the company to really go in and provide the necessary and critical infrastructure and services required by producers where we're seeing new production developed or we see bottlenecks. Today, we're working in several basins and we think that throughout today, you'll get a better feel for those basins in which we think there's an opportunity for us in the near term.
We are completing -- in this space, we are completing now our Apache project, we're flowing today in Phase I, Phase II we'll be bringing on the cryogenic plant, which will happen in the second quarter.
Secondly, we are working very aggressively with the Howard group and the acquisition of Meritage creates a number of follow-on opportunities that we think for enhancement of that platform.
Third, Louisiana continues to be a great place for us. We're one of the well-positioned asset bases and operations there, and we see opportunities to continue to grow that business.
Lastly, we are looking at other basins. Again, these are some of the things -- the ones that we're looking at, but we're basically looking at all the new shale plays.
So that's the beginning. Basically, what you've heard from me is that we're in a great position, I think we're coming out of the year 2011 with a lot of momentum as we saw strong distribution growth, we are projecting to be able to continue that distribution growth going forward. I would say, industry-leading, sector-leading growth going forward. We have a strong asset position with great opportunities right in front of us. So we appreciate the introduction.
Now I'm going to turn it over to Bill Davis to go into a little bit more detail about our existing assets before we move into kind of the what's next or the growth after that. Before we do that, you're going to see another video. And again, this video is saving us, what, a full day of driving around in a bus, so I appreciate the fact that in about 2 minutes you're going to get to see everything that would have taken you 2 days to drive around North Texas and you didn't have to endure this terrible weather we're experiencing. Thank you.
William W. Davis
Good afternoon. Thanks for being here today. It's a pleasure for me to be here with you at our conference. My name is Bill Davis, and my job this afternoon is to orient you or reacquaint you, probably in most cases, with our 3 main legacy assets in North Texas: the LIG asset and the PNGL asset. We're going to begin in North Texas, which I believe is Slide 23 for those of you on the call.
The North Texas there, it currently constitutes approximately half, just under half of our total cash flow as a company. We began work here in the 2003 with a joint venture, a small joint venture with a producer in Denton, Texas, just north up here. That led to some discussions with Cheape and then those discussions ultimately led to the underwriting of our North Texas pipeline, which is depicted here in red across the top of the slide. After that, in 2006, our development in North Texas really accelerated with the acquisition of the Cheape midstream assets in conjunction with Devon's acquisition of Cheape's upstream assets. So the bulk of what you see here in purple and the plants that are depicted here were all built generally by us since that acquisition.
Devon and Chesapeake are the 2 largest producers on our North Texas assets, producers currently are running a total of about 6 rigs on our assets, all of it is directed at rich gas activity. The recent start-up of the second phase of Benbrook depicted here has filled our plants to capacity over the last week against the nameplate capacity of about 200 million cubic feet per day. We've had 284 million cubic feet per day of gas in those plants, so they're more than full. 40% of the volumes today that we're gathering in our North Texas system are rich gas volumes.
As a result of this new rich gas production, we think our volumes, our average volume to gather in North Texas in 2012 are going to be very consistent with what we saw in 2011 despite the relatively limited lean gas drilling activity we're seeing in the area. We averaged gathered volumes in 2011 of about 773 million BTUs, 773,000 MMBtus per day, against the capacity we estimate in the gathering system of about 1 BCF per day. Those numbers are a little apples and oranges and that I'm giving you capacities volumetrically and the throughputs based on the energy equivalent that we bill in but the numbers are close enough that I think you get the sense. North Texas pipeline transported approximately 352,000 MMBtus per day against the capacity of 375 million cubic feet per day. So overall, we're getting excellent use of the capacity of our assets here.
As we don't have a need for any significant capital investment in these assets in the immediate future, we'll be in a mode of harvesting cash flow here for the next few years, it would appear. Turning to Page 24.
We can look at what the Barnett shale has been doing as a play overall. Despite the drop-off in the rigs in the Barnett shale due to improved rig efficiency, the extensive knowledge of the play by the producers, the pad drilling techniques that they've implemented and improved completion techniques, we've actually seen productions in the area increase to the 6 BCF per day level in the fourth quarter last year. That's a new record in the play. In addition, the Barnett set another landmark last year or recently, by surpassing 11 Tcf of cumulative production out of the area. So obviously, this is a very important resource in our country's energy needs.
Our 2 most recent capital projects in North Texas were the Benbrook and the Fossil Creek projects which you all will remember being introduced to this time last year. There, we had an aggregate between the 2 projects, capital investment of about $38 million with annual cash flows resulting from that of about $20 million a year. So excellent leverage of our existing infrastructure to create those projects. And as we just mentioned, the recent initiation of production from the second phase of Benbrook has completely filled our rich gas capacity in the system.
As I've said, and you could see on this chart, volumes in 2012, this is the chart on Page 25, volumes in 2012 are going to be very consistent with what we saw in 2011 and the operating income will also be very consistent with 2011. We do see a slight decline against the midpoint of guidance in our operating income going from '11 to '12, and that's just because we've assumed we benefit less from some of the non-contracted revenues that we got the benefit of in 2011 than we'll get in 2012.
You can also see on this chart, when you look at the orange at the top of these bars here, that there's very, very limited commodity sensitivity in North Texas. Basically, the yellow and the blue indicate the fee-based activity that we have in North Texas and you can see, it dominates our revenues in North Texas. According to a study we had performed by Netherland Sewell a few years ago and then updated several times since then, there are currently 15,000 or so locations remaining to be drilled in the Barnett shale. Half of these locations are within 3 miles of our assets, which is to say, we'll have an excellent opportunity to compete for that gas as it gets developed in the future. Devon alone has indicated they have, just in rich gas locations, 2,500 to be developed in the near term, which they expect to drill at a rate of 350 to 400 wells per year. They are continuing work right now with the 10 rigs in the area. Chesapeake, as you probably saw, recently announced the shut-in of some production both here and in the Haynesville, none of that shut-in impacted us, those volumes were not being delivered to our assets.
But obviously, a lot of the 15,000 locations that remain to be drilled in North Texas are going to depend on lean gas economics. So likely, they're not going to be drilled for a while. In the meantime, the reserves won't go away. We'll get the benefit of them in the future.
Meanwhile, our strategy is to optimize our current position in the field through some of the strategies you see listed here both in the short term and the longer term. We have a franchise position in North Texas and we plan to continue to leverage that position to maximize our performance. We obviously are looking for acquisition and consolidation opportunities with producers and other midstreamers in the area. We feel like we and they can benefit from cost-saving synergies from such combinations. Our team has implemented several such actions in the past year that have created incremental revenues and cost savings for both us and others in the play, and they continue to work on new initiatives. These generally, individually, are not terribly significant but in the aggregate, they become quite meaningful and they continue to grow.
Next, we'll turn to our LIG asset. Beginning on page -- Slide 28. On this map, LIG is the red system that basically goes from the northwest of the state in the Haynesville and Cotton Valley area that you see depicted on the map, down into the market areas in the southern -- southeastern part of the state along the river between Baton Rouge and New Orleans generally. Also on the map, in green, you can see our NGL system down here in the southern part of the state, which we'll talk about a little later in the presentation.
LIG is approximately 2,100 miles of pipe with about 1 Bcf per day of transportation capacity. And in 2011, it actually transported a little over 900,000 a day of gas on the system. So pretty full in terms of capacity. In addition, we have the Plaquemine and Gibson processing plants here in the southern part of the system connected to LIG that have a capacity combined of about 335 MMcf per day, and in 2011, actually had volumes of about 247 per day on those assets.
You can think of LIG as really 2 different -- 2 distinct systems with the dividing line right here sort of in the middle, what we call the waist of LIG. Up here in the north, you're basically doing firm transport business for a fee, bringing gas from these northern developments in the Haynesville and Cotton Valley, down into the interstate markets that cross LIG and dropping that gas off into those markets.
We initially expanded into the Cotton Valley developments here in 2007 with about $240 million per day of capacity at that point in time and then in response to the Haynesville announcements in 2008, stepped that capacity up to about 465 million a day -- in 2009, I should say.
In the south, we're generally bringing gas into the market areas from either on-system wells that we're connected to, some of this gas from the north and then to balance the system, we have to take gas off of interstates, we basically are buying that gas and then reselling it into the market areas to create a margin.
You can also see painted on this map here in the middle, the areas for the Tuscaloosa Marine Shale and the Austin Chalk area that are being worked pretty hard by a number of the producers right now. We're watching developments in these plays very closely. As of this date, it's a little early to have any results to report. We have heard rumors of some completion results that seem fairly positive but as of yet, there's nothing that we can confirm.
Not shown on this map down here but you'll see it show up on a PNGL map in a little bit is the Miocene and Wilcox plays that are being developed. They've had some significant activity and developments there and we expect we'll see some benefit from those in a few quarters, a little bit later down this year. All of these plays can be extremely significant to both LIG and the PNGL, whether they result in crude and condensate production that we can transload through our new crude facilities at Eunice and Riverside, or whether they result in gas getting into one of our many processing plants here in Louisiana and then the liquids get pushed through our fractionators in the state.
Going to Slide 29, we're trying to show you a little bit here more clearly about how the LIG system operates mathematically. As I said earlier, in the north, we've got about 440 million a day of firm transport contracts that we take into the interstate markets and drop off in LIG. Producers pay us a fee for that service whether they use the space or not, and we're generally dropping that gas off into 1 of the 4 interstates crossing LIG at this point: Tennessee, Trunkline, Columbia Gulf or ANR.
Then we bounce about 145 million of that gas every day, this middle box that you see depicted here. We actually buy that gas back after we get to the interstates and we use that to transmit down into the southern part of the state into the market areas that I talked about earlier. The reason that's 145 million is that's generally all the capacity we've got through that section of LIG that I was referring as the waist a little earlier. So that's what we can bring down to the south.
And then despite that Haynesville gas, which we're getting in the northern part of the state, being so lean, there's still enough Cotton Valley rich production co-mingled into that stream, that with today's processing economics, we can generally take that gas into Plaquemine and have it processed there for an incremental margin before taking it into market areas to sell.
Most of this gas on the southern part of the system here that we're referring to is gas that were buying and then reselling into the market. There is a decent amount of it however that we're transporting into the market areas for a fee on behalf of producers in the area.
On Slide 30, some history of the results at LIG. You can see that over the last several years, LIG has been a very consistent $80 million to $90 million a year cash flow generator, with also a high level of consistency in its volumes. You can also see that there is a fair amount of commodity processing sensitivity in LIG and it's interesting to look at the history of how those numbers have gone up and down.
If you look at 2009 here, probably one of the worst years in recent memory for processing economics, we generated about $25 million of processing-based margins on the LIG system. If you look at last year, which is probably one of the best years ever in processing economics, we generated $45 million of process commodity-related margins. So you'd see from best to worst case, in recent times at any rate, commodity-based sensitivity on LIG would swing up or down about $20 million from $25 million to $45 million.
Similar to North Texas in LIG, we have a real franchise asset here. Our challenge is to ensure that we're maximizing the cash flows at every opportunity. As we do so, we're watching very closely all these new plays I made reference to earlier in the presentation, and taking advantage of all our connectivity across the state. As you probably recall, in the days when there were basis differentials in the gas market, we were able to create nice arbitrage margins on the LIG system, taking advantage of that connectivity. Should we get basis differentials again, we'd obviously take advantage of that in the future. But we have found some interesting ways to extract other synergies between the overlap, between LIG and the PNGL assets and that has shown up in some of the improved results lately and it's a significant part of the improvement in the fourth quarter that we saw last year.
As these new plays develop in the Tuscaloosa, Marine and the Austin Chalk and the Miocene/Wilcox, we expect to be able to add to those synergies between the 2 assets.
Now we'll move to our Processing and Natural Gas Liquids assets or the PNGL system. As I said, it's depicted in green here on Page 33. This system historically has been, basically, processing plants, straddling interstate pipelines coming out of the Gulf of Mexico and offering processing services, extracting the liquids and then pushing them down into the fractionation market, so it was basically driven by offshore processing.
Obviously, offshore Gulf volumes have declined precipitously in recent years and as a result, this market is well over-served with processing capacity. Now with resumption of permitting in the Gulf, we are seeing activity start to rebound. Currently, there are about 40 rigs active in the Gulf, which is getting close to pre-Macondo levels of activity, that's up from almost 0 not very many months ago. As I mentioned earlier, we can see the Miocene/Wilcox depicted on this -- here on the map, and it's a level-- it's accessible from both onshore and the shallow gulf and it seems of significant activity from which we expect to benefit in the not-too-distant future.
On this system, we currently have over 2 Bcf a day of processing capacity located at the various processing plants around the system that you see in blue on the map. In addition, this Cajun Sibon is now being extended from Eunice back into the Mont Belvieu area with our Cajun Sibon expansion. With that, we're going to increase our fractionation capacity on the system, and when that's completed, we'll have over 90,000 barrels a day of fractionation capacity on the system. We also have here -- Riverside here at Napoleonville, 2 NGL storage wells with about 2.4 million barrels of capacity.
As you know, we've changed the business model at this asset to be less dependent on Gulf Coast -- Gulf of Mexico processing for success. We've begun to import substantial quantities of NGLs by truck and rail for fractionation and marketing through our fractionators at Riverside, Eunice and Plaquemine. We've also connected gas from onshore supplies from LIG and from the interstate markets for processing on an opportunity basis. And more recently, we've implemented our strategy to import crude and condensate for transloading through Eunice and Riverside, taking advantage of access to the premium LLS markets.
Going to Page 34, you can see how this has impacted our results just at Eunice going from 2008 to our expectations for 2012. In 2008, we had operating income at the Eunice facility of $4.4 million. Fast forward to 2012, we anticipate seeing that increase to $23 million this year through the addition of the condensate stabilization project that we're doing, new opportunity processing, the increased volumes of raw make truck and rail volumes coming in particularly from the Permian with our ski [ph] plant going into operation and then new volumes that we're able to bring in after installing amine treating at the Eunice plant.
Similarly, if you look at the overall PNGL asset, you can see that the historical results from 2008 were a little over $10 million of operating income, and we're anticipating in 2012 that'll increase to over $70 million of operating income. These results, obviously, do not include the results of the Cajun Sibon expansion, which will come on at about the middle of the year in 2013 or a lot of the other projects, and there is a long list of projects that are being created by the team in our North -- in our South Louisiana processing and NGL assets. And these volumes in 2012 are going to come from, once again, the transloading of crude and condensate through Eunice and Riverside, the new NGL volumes, particularly coming from the Permian Basin and some of the new processing volumes that I pointed out on the prior slide.
Moving to Slide 36. We have put on this strategy slide some of the ideas that are being developed for future implementation by the PNGL team. That includes the expansion of the Cajun Sibon project by 50,000 barrels a day from the initial 70,000 barrels a day to 120,000 barrels a day of capacity, adding NGL storage caverns at Napoleonville in response to customer needs and then further expanding Riverside's crude business to handle unit trains as Barry alluded to earlier. These are all projects that are in the pre-feasibility stage, but they appear to be very doable in the next few years. They represent a fairly substantial capital commitment on our part in the aggregate in excess of $400 million with potential for extremely good returns on investment based on our analysis to date. The local markets are extremely interested in seeing these projects advance, and so the PNGL business unit becomes a key growth driver for us in the next few years. I think after another video, well I know, after another video, Stan and Royston will then present to you some of the other growth projects that we're working on as a company. Thank you.
Very good. For those of you I have not met before, my name is Stan Golemon. I lead the Engineering and Operations organization, and I and Royston Lightfoot, who leads our business development effort here at Crosstex, are going to tell you some of about our defined growth projects. Those, being the ones that we essentially have moved to the execution phase, are very close to the execution phase.
First project we're going to talk about here is the Cajun Sibon project. Now the Cajun Sibon project is driven by the market forces in the state of Louisiana. When you look at it -- or actually when you great into the breakout sessions, Steve Spaulding is going to give you a lot of detail relative to those market forces and why there's a big need to move NGLs and especially FA over to Louisiana. But to give you the 100,000-foot perspective of the market from an operations guy point of view, Louisiana is short on ethane. Ethane is the primary feedstock of choice over in Louisiana. And with all the NGLs coming on into Mont Belvieu from the Eagle Ford, Midcontinent and all of the other plays over to the west, we're going to have a really big surplus of ethane. So with that was born the Cajun Sibon project, and that's basically how to get ethane and NGLs over to the state of Louisiana.
Looking at the actual project here, and I'll try to use this laser pointer here. Our project basically is to take NGLs from the Mont Belvieu area, pick them up from the pipelines and move them about 130 miles over to Louisiana via a 12-inch pipeline, a new pipeline. At that point then, we are expanding our Eunice fractionator. It's currently 15,000 barrels a day of capacity. We'll expand it to 55,000 barrels a day of capacity, and then we'll be able to fractionate those 70,000 barrels or so that are coming over from Texas at either Eunice or through our Riverside fractionator, which is connected by pipeline to Eunice. Then at that point, that provides an opportunity to market those products and NGLs over in Louisiana and provides our customers, who are shipping the NGLs in the Mont Belvieu, a good alternative to Mont Belvieu as their sole market.
We'll go to the next slide here. Okay, to give some specifics here about the actual contracted for the NGLs and for the Cajun Sibon project, back in February, we announced that we had sufficient supply to go ahead and move forward with the project. Right now, we have approximately 40,000 barrels a day actually contracted for a long-term contract to move from Texas over to Louisiana. Now this is about 60% of the total capacity of the pipeline. We are still expecting the pipeline to begin construction here in 2012 in the third quarter. The project itself, as far as the full project, should be done around the end of the first half of 2013. Even though we only have 40,000 barrels contracted at this point, we're actually in negotiation with several other parties to provide NGL supply, and we expect at the beginning of the operation of the pipeline to move closer to the capacity of 70,000 barrels a day.
To give you just a little project update as far as what we've physically done and executed in the project, we placed the order for pipe back in early March. So we crossed that threshold to commitment there by making multi-million expenditure for the pipe. We also have filed all our permit applications with both the Corp of Engineers and the state of Louisiana for our air permit. So we've gone in that step and we started acquiring right of way. During the development of the project, we had already surveyed the entire pipeline route, so we're able to move very quickly into the purchasing of right of away.
Let me back up there just a little bit and say one other thing about Cajun Sibon. This is Cajun Sibon Phase I project. As both Barry and Bill alluded to, we also have on the drawing board a Cajun Sibon Phase II project. And I'd say that's really in what I'd tell the study phase right now, looking at the physical feasibility of moving those NGLs over to the markets in Louisiana. What really happens or has to happen there to physically do that is, we're looking at adding pumping stations here in the middle of the pipeline and over here at Eunice to be able to incrementally move that 50,000 barrels a day through that 12-inch line. Once we get over into the Eunice area there, we have connectivity here with Riverside and we also have, it's not shown here, developing connectivity with our Plaquemine fractionator, which is a very small fractionator. So we then have the ability to expand these fracs in this area to fractionate the additional volumes and spend additional capital dollars that we need to in order to move these purity products between Eunice and Riverside. So it basically is a build-on type project.
I'd love to tell you more but at this point, it's really very developmental. I think we're looking at all the options associated with it. It would be premature to say that there's a defined exact option that we want to go with here, just because of the timing on developing the project. If the market allows, basically, for the need for the additional supply over in Louisiana, we're continually checking with our customers, seeing that they feel like the supply and the demand and justify that, and if it does, we will move forward with the project.
Next, I want to talk a little bit about our Permian Basin entry. Our Permian Basin entry is with a joint venture with Apache Corporation. Apache Corporation right now in the greater Permian Basin area is running or will run in 2012 30 rigs, plan to drill at least 600 wells, and a matter of fact, yesterday, Steve Farris announced that they probably will increase their capital expenditures in the greater Permian Basin from $1.7 billion to $2 billion. So you may ask yourself, with that and all the competition in the area, many plants that were already indigenous to that area, how is it that we essentially wedged our way in there to a joint venture with Apache out in a very highly produced area like the Permian Basin.
Well it comes off of 2 points there. First of all, we came up with a creative solution here at the Mesquite terminal for moving NGLs out of the Permian Basin and over to Mont Belvieu. And I'll touch on that in just a few minutes, is exactly what that creative solution is. Second, we were willing to enter a joint venture in order to -- and basically have Apache participate in that and build a high-efficiency plant right there in the middle of their production. You can see Apache's gathering system right here. So we are basically building a fit-for-service or a built-for-service type plant, that would cater to Apache's needs. So those are what I call the 2 key factors, that, and our relationship that we had among our commercial people and some of the commercial people of Apache that allowed us to make that entry into the Permian Basin.
Now when you look at our joint venture here, it’s a 50-50 joint venture here for gas processing and the field that Apache calls the Deadwood field. So this is now the Deadwood gas plant. We take gas into this facility back in February. We started up the plant. We started the 20 million a day refrigeration plant that basically got us on line and got us moving NGLs out of the Deadwood area.
Right now, we're constructing our 50 million standard cubic feet a day cryogenic plant. The cryogenic plant will come on in the second quarter of this year. And with that, we'll be able to take the vast majority of the gas that Apache anticipates coming out here out of the Deadwood area. Dependent upon what's going on in the particular moment, they have a good concentration anywhere from 11 to 14 rigs that will actually feed the gas coming to our plant.
The second portion is that Mesquite terminal that I referenced earlier. Mesquite, what this is, it was an old fractionator with rail access. And we went in and bought this old fractionator and we modified the fractionator, and we modified the rail system to be able to handle the NGLs that we anticipated, coming not only from Deadwood, but also from other third parties. So what we do is we deliver NGLs to Chevron here at Deadwood. We're also straddling Chevron here on the Mesquite terminal. So we then pull off equivalent barrels from Mesquite for both the Deadwood barrels and for third parties that we have contracts with. And we take that -- we take the ethane out of the NGL mix. When we take the ethane out of the NGL mix, we then have a vapor pressure product that is suitable for shipment on rail. So we take those, that heavier product, load it on rail and we ship it over to our Eunice facility, our Eunice frac in Louisiana. So you can see, when you go to this method, it's basically because all the pipelines are full going between the Permian Basin and Mont Belvieu with NGLs. I mean, rail is a more expensive way to go than pipeline. But we had to come up with a creative solution to do this because there just really wasn't any pipeline space. What we do with the ethane product, which has some propane in it, is we re-deliver that to our West Texas pipeline. So really, this was a different way of looking at things. It was a way that allowed us to do this project and basically provided us this [indiscernible] end with Apache and in the Permian Basin.
Now we do own the Mesquite facility 100%. It's not part of the joint venture. We did make sure though that this is absolutely necessary for the -- until the pipelines expand in that area for us to be able to operate Deadwood. We are also looking at some expansion projects at Mesquite. We're evaluating aggregating NGLs by trucking in NGLs into Mesquite from these plants or like JT [ph] plants, or don't have an opportunity to get to a pipeline with their NGLs. And we're also looking at propane sales. Both of those projects should go on beyond the actual time frame of the NGL pipelines coming on in the Permian Basin.
All right. With that, I'm going to turn things over to Royston, and he's going to tell us some about of our entry into the Eagle Ford through our joint -- excuse me, our investment in Howard Energy Partners.
Thank you, Stan. My wire, you all hear me there? I think you forgot a slide. All right. I would like to update you today on our partnership with Howard Energy. As Barry mentioned earlier, last year, we formed a strategic partnership with Howard Energy. We've been looking to get in the Eagle Ford for a couple of years and then figured this was our best opportunity. So we did a joint venture with them last year. The original deal -- sorry, wrong button. The original deal involved these 2 red lines on the map. They were primarily high-pressure gathering systems that delivered gas to larger pipelines to get out of the area.
The strategic partnership between us is a little unique because Howard Energy offers the construction side of the business also. There's very few mid-stream companies who actually come up with the projects, develop and operate them and can also do construction. So because of that, it allows us to go out and do additional deals that maybe other people don't have the opportunity to do.
As I've said, the footprint on the pipeline is rather large. By the time we get to the end of our Meritage acquisition, then we'll have about 450 miles of pipeline, which covers 6 counties down there. And that's pretty unusual for a startup to have that big of a footprint. The Meritage, I can say, will have 450 miles, covering 6 counties and multiple pay zones. The Meritage acquisition that we just announced this past month is the blue pipeline that I showed you earlier. It has 103 miles of startup pipe in September, that involved a lean gas system. Most of these producers down there have been drilling for the dry gas the past couple of years and as the economics have gotten worse, what they've done is come back up to the shallower zones, which is shown on this picture to the right here. Because there are some wet areas in there, they're not part of the Eagle Ford, but they're in the same area, so they can come up to the Escondido and Olmos and hit wet gas. So because of that, we were able to go in and create a rich-gas system of approximately 70 miles. So now we'll end up with 100 miles of dry gas gathering, 70 miles of rich gas gathering, about 145 million a day of amine treating and dehydration. So 160,000 acres attributable to the system. It will get a long-term, fee-based contract with no direct commodity risk.
It's another example of what we're able to do by going out there and utilizing both partnerships. Our expertise and their expertise will provide a lot of engineering and diligence for them to go out and do the Meritage deal. At the end of the day, GE ended up coming in. They wanted to get into the Eagle Ford also. So they are now partnering this and so it's roughly 30% for each: us, Quanta and GE and management [ph] owning the rest.
And with that, I'll turn it back to Stan. He'll discuss a little bit about our crude.
One of the things we're really excited about is our entry into the Crude business in South Louisiana. It's more of the crude logistics business, moreso than you talk of commodity-based business. Looking at the diagram here, this is of our Riverside facility. Riverside is our 30,000-barrel-a-day NGL fractionation facility down in along the Mississippi River in South Louisiana. And what we did is we came in here and we modified one of our tanks to bring crude in by rail and modified our rail, where we could bring in crude, offload it into the tank, intake the tank and offload that onto barge and then barge out NGLs via Mississippi. Now this represents fee-based business for us. So it's a type of business that we really like. It's an opportunity for us to, not wear commodity risk but to basically gain fees to the logistical portion of the business.
We do have additional expansion plans here at Riverside. If you look at it, we have the ability to expand by adding another tank here. And by adding additional the rail lines, or we refer to that really as Phase II. Phase I, the part that we've already done, is ramping up on volumes now. We began receiving crude in January. We expect volumes in the second quarter of 2012 to be in the 4,000 to 6,000 barrel-a-day range.
The Phase II that I referred to, is an opportunity for us to install this tank, and we can then transload on the barge and also make a pipeline connection into one of the supply lines leading to the South Louisiana refineries. And that should give us an additional 10,000 barrels a day of capacity. We're currently negotiating definitive agreements in that and through the commercial process. When those contracts are signed, then it'll take us approximately 9 months to implement the project. So we're looking at either late 2012 or early 2013, when we expect this project to come on line.
We have an even further addition to Riverside that we're evaluating. That is what we refer to as Phase III, not necessarily the most original naming fashion. But Phase III involves bringing in unit trains to the Riverside facility. It's not fully shown here but we own quite a bit of acreage, that extends out from Riverside. And because of that, we're able to go in there and have a large area in order to lay track in there. For those of you who are not familiar with unit trains, unit trains are special purpose trains that are essentially carrying 100 or more cars specifically to your location with your one product as opposed to manifest trains, which are carrying things like furniture and freight and grain to multiple locations. So with the advent or with the ability to bring in that unit train, with this Phase III expansion, we're starting negotiations with groups that would allow us to bring in Canadian crude. We have access here -- or the rail access is to CN railroad. So that railroad runs essentially north and south, all the way from Canada down here to Louisiana. So we're well-positioned basically to take crude from the Bakken and crude from the Canadian oil sands projects. So we entered in negotiations with these groups for supply. We're going through the engineering feed study, and they've started to get an idea what the capital cost associated with this project is and what the timing is associated with the project. Assuming that we're able to make the commercial commitments that we need, then we have the opportunity to bring that crude down in here to Riverside. Because we have access to all sorts of diluents, we have the ability then to enter contracts to ship back on the dead head section of the rail project diluents such as natural gasoline or butanes back to Canada which has, as you know, very heavy crude oils that are hard to move without some type of diluent in them.
Before we get to that slide, let me tell you about one other project here. It's not shown here on 45 but it's our project at Eunice. At Eunice, we have set up in order to take in high-pressure condensate. We rail and truck in high-pressure condensate. Basically what we do is we take the lighter stuff out through stabilization process and then we transload those liquids, those condensates back onto different trucks there to -- for our customers to take that to market. And that also represents fee-based business for us.
Now this slide, to say the least, it's complex. But the good thing about it is, it represents the complexity of the business when it comes to NGL and crude oil logistics. I'm going to touch on a couple of points here about this slide. But I'm going to leave it to you guys to study this on your own, if you're looking for more detail. Looking at it here, we have 3 facilities. We have our Eunice fractionator, our Riverside fractionator and our Napoleonville storage domes. These facilities are connected by pipelines. That allows us basically to shift raw make NGLs between the 3 facilities. Also we're able to shift purity products here between the dome and the Riverside facility. So they're really one super system here that we're able to move volumes around, with some restrictions, to different portions of the super system.
The thing that is interesting about this is we no longer just bring in NGLs or raw make NGLs by pipeline in the units and then on in the Riverside. We bring in NGLs just about any way that is physically possible. We bring in the NGLs to both Eunice and Riverside by truck, we bring it in by railcar, and we bring it in by pipeline. When it comes to purity products, we have one more thing there. We bring it in by truck. We take it out by truck, rail, pipeline and we take it out by barge. Like I said, this is kind of a complex slide. But the interaction between these facilities basically gives us an opportunity to serve a lot of different markets in Louisiana. And basically, we're getting paid there not only for the fractionation but also our logistics ability to deliver those products to market.
I hope you've seen here that these projects tie real well with our growth strategies. If you'll remember, our growth strategies are basically to expand our NGL business, to enter the crude business and to -- just like Governor Perry, wasn't there a third one in there somewhere? And to -- what was our third one? Oh, yes, and begin a new basins wet gas. That was Royston's part. So you look at it, the new basins where wet gas basically entering the Permian Basin with Apache, the growth and entry of our Crude business there, you've got your Riverside and your Eunice project and then also with your expansion of the NGL business, you're looking at your Cajun Sibon I project. And on the drawing board there, for your Cajun Sibon II project.
So with that, we're going to see one more video, a video of our South Louisiana assets. And after that, I'm going to turn it back over to our Chief Financial Officer, Mike, to move to the next segment of the program. Thanks.
Michael J. Garberding
I'm actually feeling pretty good about this as Stan went through that last slide. I'm not sure I could easily explain that one. But as you see on Page 48, given everything we talked about today, we feel we're really well situated from a financial perspective moving into this growth phase. When you look at the goals, again, we set out financially and where we are today, it again -- we wanted to be from a debt EBITDA standpoint below 4x in 2012 and here we are 4 quarters in a row below 4x. And again, we achieved that while spending greater than $100 million in growth capital; we achieved that while growing distributions by greater than 20%, dividends greater than 30%; and we achieved that by having no equity issuances during that time period. So again, I think we've set ourselves up very well from balance sheet flexibility to move in the growth phase. We just want to ensure to have adequate liquidity. That's always key. Again, one of the messages Barry mentioned going into '12 is you'd have choppy capital markets and you always have to be cognizant of that. So again, we put ourselves in a situation to where we have more than $400 million available liquidity, just to take advantage if we need to.
Now lastly, again coverage. We're different than some other companies in how we think about it. But again, we'd love to take advantage of every commodity opportunity we can. But those commodity opportunities are not always going to be there. Some will be. The Crude business we're building is -- we believe this will be a long-term business. Some of the processing optimization is purely reflective of the current market and the volumes coming to us and a good pricing opportunity. So again, we'll be thoughtful on how we think about that with respect to our distributions. So again, it allowed us to end 2011 with a 1.4 coverage and expectation for midpoint of guidance of 1.3x in 2012.
On Page 49, this is something we have to talk about too, which is really the stability of the business. So when you think about the business for the last couple of years, we've really focused on having 70% to 80% of the business fee-based. Like Bill said, at North Texas, over 90% of the business between processing and gathering is fee-based. And then PNGL, for example, has taken a business that was 100% commodity-based and has transformed itself within a period of years to 2011 to where 50% of it was fee-based, based on fractionation and marketing products. So again, it builds a good core to build from to where you have the upside of the commodity through the PLL and processing margin of the 20% to 30%. But again, you have the solid fee-base you're getting day in day out, which gives the support for the distribution stability. You'll notice in the red section, in 2012, that again, the fractionation piece of business continues to grow as compared to prior years. And as you see, the projects we talked about, we expect that piece to continue to grow on in '12 and '13.
This is something, again, Bill talked about it in how we think about the business. You start with the base business and what we say is very stable business. LIG is a great example. When you look at a 5-year run rate of a business and be between $80 million and $90 million every one of the years and you think about during that time period, Haynesville didn't come really on to the middle. That business has continued to transform itself and take advantage of opportunities and continued to provide that stable cash flow.
As Bill mentioned, we think there's a lot of growth opportunities above and beyond that, but that business really provides us solid foundation, same with North Texas. Again, it's in a great position today that you saw the latest projects we have, or what we'll call them, bolt-on projects that are capitalized and provide good run rate earnings. So again, a business that provides about $120 million run rate cash flow over the period and will continue to provide that.
The growth, as Bill mentioned, was PNGL. You go back in time, no different than what you saw on the slide for Eunice to where it was barely earning $4 million a year in 2008, and here you fast forward and it's over 5x that. The PNGL business is the same way. In 2008, we arrived at $10 million. You're 5x that in 2011, almost 7x that in 2012. And again, that doesn't even count the Cajun Sibon and for the crude opportunities we talked about. So again, the assets have really positioned us for continued growth and continued opportunity.
Growth for the business. It is a step change for us. So you're looking where we were and where we're were going. But again, like I said in the first slide, we've positioned ourselves to do this and take advantage of it. So 2012 capital projection is $294 million. A big chunk is Cajun Sibon, about 60% of that. And that lines us up well for expectations in what you see in 2013. The total project cost is $230 million, so expect to see a difference to roll in the first half of 2013. Like I mentioned before, Permian represents about 15%, crude represents about 10% and the remaining business is that $47 million.
If you think about growth cap on a forward basis, just like we mentioned last year, this business we think at a minimum level is about $150 million to $200 million growth capital business. When you start talking about the projects, Royston and Stan added to that, that can become incremental to that. But we do think we set ourselves up nicely to continue to build on what we've done in 2012 on into future years.
Maintenance capital is a little higher in '12 than it was in '13. Typically, you're going to see you go up and down based on planned maintenance cycles. This is mainly driven by PNGL. If you think about run rate maintenance for this business, probably a better rule of thumb to use is somewhere around what we saw in 2011. As we expand, that will change but on base business, that's about a good estimation. Everyone saw our guidance with our earnings release, and Barry hit the high points which is the $225 million EBITDA distribution, growth expectations greater than 10%, dividend growth expectations greater than 20%.
From a contribution standpoint, we mentioned the key contributors really were the Apache joint venture, which we said would contribute between $12 million to $18 million and the crude, which would contribute around $10 million to $12 million for the year. Again, if you look on the bottom half of the page, the key driver to the swing when you look left and right, is really the commodity prices and how we can take advantage of those. The commodity prices today, if you compare to the middle column, so from a weighted average NGL price, you're probably more just north about $1.05, crude price more $125 and gas price more $2.20. So again, we take advantage of those different price movements within our P&L and processing margin, and I'll walk through that in a minute. We have a table which helps you sort of look at prices and determine how those prices impact our business.
Something we get lots of questions on is really how do you think about the growth projects and what do they represent. So we're trying to help people understand about how we think about them.
So let me start to walk through the geography of Slide 53 to give people a perspective on the growth projects. So the black box represents really the sort of high-low guidance of a project or what kind of distribution or potential operating income you can have from the projects. Again, we have the different colors, whether it's crude, Apache, Howard, Meritage or Cajun Sibon on there from left to right. When you talk about crude, there's 2 different colors. Again, the dark blue in the bottom is crude that we've discussed, which is really the Phase I, which is implemented and executed upon. The more light blue on top of that in the box is the potential crude we talked about, which is really the Phase II and Phase III of Riverside. Again, those were mentioned as in-progress or we're still working on commercial agreements. But what we wanted to know here was is again, opportunity around those. Again, like Stan mentioned on the crude side, longer-term fee-based income, which we think is good opportunity and we think we have an advantage just because of the location of existing assets and what we can do with those. So as you can see, moving from '13 to '14, there's some pretty good opportunities just on the crude side of the business.
When you look at the yellow line, you can see the step change in Howard. We originally talked about Howard and what kind of expectations we have, just the addition of Meritage and how we think of that. We think that can be a big change from when you move from 2012 to 2013 or what we're going to see there. And as Royston said, that's really the start for us. Again, that's just taking advantage of the current system. And then, we will continue to work on next steps around that, that we think we have just with growth on system.
Lastly, Cajun Sibon. We're moving forward. Construction has started. As Stan said, we're ordering 5 and you look at that project, our expectations are that it will be full based on the process of executing our commercial agreements during the time frame for commercial operations. So just in 2013, you can see the expectations of 2 quarters. Then ultimately on run rate, as we've said before, being a 5x project. You have opportunities on Cajun Sibon somewhere between $45 million to $50 million. We'll come out with better estimates on capital for these projects as they move forward, specifically with the crude projects. But the purpose here really is to give people guidance and how do they think about what kind of opportunities we're working after.
When you think about the base business going forward and how it links up with the base business, as the year moves on, we can give better guidance on that because that's, a lot of time, is driven by producers and their thoughts around the system. As everyone in the room knows, they sharpen their pencils and give us better information as the year closes, as far as what kind of capital projections they'll see. So -- but again, it should give people a good representation of opportunity and growth projects.
Hedge positions. This slide is similar to what we've shown in the past. Again, just to make sure people understand how this works. When you look at the numbers, it's gallons for that period. So, for example, when you see the 7.01 under Total VAR Volumes for Q1, that's total gallons expected for that first quarter. So when we think about hedging, we have total volumes. Then we'll have what's called Total Hedgeable Volumes. And differential between is -- we know on hedgeable volumes, we're going to get the volumes. An example there would be if a producer has an election to switch between a fee and a [indiscernible] contract on a monthly basis, we don't have the certainty we're going to have the physical gallon. So we don't consider that a hedgeable contract. So when we think about hedging, we look at it as compared to our total hedgeable volumes.
And again we'll have a little difference on hedgeable volumes and what we target because we do have some seasonality impacts we take into consideration more towards the quarter. For 2012, we consider ourselves pretty fully hedged other than some ethane on the back end. I mean, as everyone knows, the ethane market is very backward dated and somewhat a liquid. It is more for us because again, we only use product-specific hedges. We don't use crude as a proxy for any of this. So with that, we typically leg in to the ethane positions as we move forward in time. We have, though, put positions on in 2013, specifically for POL and processing margin, as you see, which is news as compared to last time when we have put on ethane and propane positions in those outer years. We do want to be about fully hedged for a rolling 12-month period and that's our continual goal.
This is something we used last year and again, I'm on Slide 55, of how you can think about the sensitivities on processing. We've tried in the past years creating rules of thumb to help people think about next price movement causes what potential operating income. So we've done this, create the tables to help people dial their own price and figure out the potential impacts to what kind of operating income of the business.
So if you start in the top left hand corner, you're using the natural gas price and the NGL to gas ratio to come up with thoughts around a weighted average liquids price. And then that works and drives ultimately the potential impact to the business. So if you start at the yellow box, the yellow box represented at the midpoint of guidance. If you go down the $20 million to the red box, that's the low point and then you can go up to the green box, that's the high point of guidance. So that net flip of total of $40 million potential change in guidance. The separate 2 boxes at the bottom represent the potential impact on POL and processing margin.
So we think this gives people a good understanding of how do you think about your price deck and then what kind of potential positive or negative impact that it had to the business. One thing, as you saw from our guidance is that our base case for gas forecast was about $3.50. And today, we're seeing more of the $2.20, with the forward market probably $2.50 range. So again, that represents opportunities for us on processing margin. However, you also have seen the weighted average [indiscernible] price come down a little bit, just due to the change in ethane and propane.
The couple of points I want to make before I turn it over to Barry, but again, I think what you've seen from us is again, we position ourself, we think, from a balance sheet perspective to take advantage of this growth. We think we've done very well to make sure that we have access to capital no matter what happens during this market, again, because it is a choppy market. And as I started off, we think we have a good plan in place just like we did in 2011, and we lay out and we just execute on our plan. And we believe, as in the past, that's what we're going to do.
So before turning it over to Barry for closing remarks, the last asset video to see the new Permian assets.
Barry E. Davis
Well, we've read a lot to you today and among the many things that you might have heard, one of the thoughts that you might have had as you listened would have been just what a complicated and dynamic business this is. It seems like that you could listen to our story at the beginning of every year and it sounds like there's a lot of new startup, a lot of new things being done with the assets. And what I would tell you that is true, it is dynamic, it is a complex business and that's what we love about it. We love it because effort matters. The diligence of our team does matter. We can create value by that. Creativity does matter as we've demonstrated in the Apache project and the many things we've done over the last 15 years. There is always an entrepreneurial aspect of it or an execution aspect of it that really matters in this business. And that's what gets us excited. But if you boil it down, there really is -- I mean, it does get pretty simple. We are in the business of providing infrastructure and the services that are required to get energy products from their point of production to their point of consumption. We've always done that in the dry gas and the rich gas business. We've had an exposure to the NGL business for the last 5 or 6 years. And so now, what we're saying is we're going to continue do what we've always done. We're going to expand significantly in the NGL space, and we have a terrific opportunity with great people and assets to do that.
And then lastly, we've said that we are going to create a presence in the crude business so that we are able to provide that same infrastructure and that same services that we've provided in the other products over the years. So that's the story that you've heard today. Let me tell you that the good news is, among all the new things that we're working on, I think you guys should rest assured. And I know there are certain people in here today that would want to hear that we don't have to reach for what's next. If all we do is continue to execute with precision around the plans that we have and the defined projects, we're all going to be looking forward to seeing each other next year and the year after and the year after, because we're going to have sector-leading growth, double-digit growth, if all we do is execute the existing assets and the existing defined projects. Now it isn't our intent to only do that, we've always strived to do more than just kind of what's there in front of us. So our plan is to do more than that.
Lastly, what I would say is that our commitment to you is to continue to be good stewards and to continue to wake up every day thinking about the execution of the plan that we lay out today. We appreciate your encouragement, which we get often, to stay focused and to adhere to the good plans that we have and the disciplines that we have around our financial position, and our balance sheet and those things. So thank you for listening to the story today. We've got a great opportunity now for a quick break. And then we're going to do some small group breakouts, and we'll have a great opportunity for a Question and answer.
Actually, Jill is coming forward and probably has a message that I have already messed up. So...