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OGE Energy Corp. (NYSE:OGE)

Q2 2012 Earnings Call

August 2, 2012 9:00 a.m. ET

Executives

Peter Delaney - Chairman and Chief Executive Officer

Sean Trauschke - Vice President and Chief Financial Officer

Keith Mitchell - President, Enogex

Todd Tidwell - Director of Investor Relations

Analysts

James Dobson - Wunderlich Securities

Chris Shelton - Millennium Partners

Brian Russo - Ladenburg Thalmann

Operator

Good day, ladies and gentlemen, and welcome to Q2 2012 OGE Energy Earnings Conference Call. My name is Sandra and I am your operator. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder this call is being recorded for replay purposes.

I’ll now hand the call over to Mr. Todd Tidwell. Please go ahead, sir.

Todd Tidwell

Thank you, Sandra. Good morning, everyone, and welcome to OGE Energy Corp’s second quarter 2012 earnings call. I’m Todd Tidwell, Director of Investor Relations. And with me today, I have Pete Delaney, Chairman, President and CEO of OGE Energy Corp.; Sean Trauschke, Vice President and CFO of OGE Energy Corp.; and Keith Mitchell, President of Enogex.

In terms of the call today, we will first hear from Pete followed by an explanation from Sean of second quarter results, Keith will review the Chesapeake announcement, and finally, as always, we will answer your questions. I would like to remind you that this conference is being webcast and you may follow along on our website at oge.com. In addition the conference call and accompanying slides will be archived following the call on that same website.

Before we begin the presentation, I would like to direct your attention to the Safe Harbor statement regarding forward-looking statements. This is an SEC requirement for financial statements and simply states that we cannot guarantee forward-looking financial results but this is our best estimate to-date. In addition, there is a Regulation G reconciliation for EBITDA in the appendix along with our projected capital expenditure.

I will now turn the call over to Pete Delaney for his opening remarks. Pete?

Peter Delaney

Thank you, Todd. Good morning everyone and welcome to our call, second quarter 2012. As you know we reported earnings of $0.95 per share compared to a $1.04 in 2011. Year-to-date earnings of a $1.33 per share, slightly ahead of last year’s earnings per share of $1.29 for the same period. Our consolidated earnings guidance is unchanged for 2012, we are comfortable with our $3.40 to $3.60 per average diluted share estimate. Sean will discuss our guidance in more detail later in the call.

Regarding the second quarter, both businesses delivered solid results compared to last year, considering weather benefitted the utility about $0.15 last year, and considering that 33% drop in natural gas liquids prices and the 50% decline in natural gas prices quarter-over-quarter. And despite these headwinds, gross margins improved at both OG&E and Enogex.

On the utility side, primary earnings drivers were sales growth, recovery of transmission investment and various other utility investments including the Crossroads Wind Farm. Enogex gathering and processing volumes were up 3% and 29% respectively. These higher volumes more than offset the decline in margins resulting from lower commodity prices. For the second quarter Enogex processed a record amount of natural gas, nearly 1 trillion BTUs per day.

However, higher expenses, primary depreciation caused overall earnings to decline. While posting solid second quarter results we continued to move key initiatives forward, growing both businesses and keeping our utility and midstream assets earnings mix at approximately 70% for utility and 30% for our midstream businesses, and we continue to expect to grow earnings at 5% to 7% annually and grow our dividend along the way as well.

We are on plan to complete our smart meter deployment this year and our primary focus in that regard will shift to extracting value for our customers. A large part of that value proposition is demand and response, providing customers their hourly energy usage information and products with which to control their usage. We have about 30,000 customers signed up in that program on track with our expectations and we expect several hundred megawatts demand response for the next several years, again, which should set us up to be able to defer the need for increase in generation capacity past 2020.

Meanwhile, a billion plus transmission build is well under way with two of the lines completed in May and we filed an application this week for recovery under the rider approved as part of the Oklahoma rate case settlement. On the subject of the rate settlement, we remain on plan overall but our initial expectation for ’12 was for a larger rate increase. However, the first quarter ground on, with our decision we began to plan for a potential modest increase. We lowered our base capital spending and operating plans that quarter to mitigate future regulatory lag. While we were reluctant to accept the settlement, we believe that accepting the 10.2 ROE and getting a rider for SPP transmission project, positions us for the future. The future including escalating environmental spend and continued transmission expansion.

And given the circumstances we believe the settlement was in the best interest for the company. We are committed to achieving the same high levels of customer satisfaction reliability despite the modest increase as we continue to drive for efficiencies. And we will work with the commission staff as always to build the framework for timely recovery of our future environmental expenditures. On the last call we indicated that our current estimate of environmental compliance cost could be well over a billion depending on the outcome of various legal proceedings.

As you know the Tenth Circuit Court of Appeals granted a stay in the implementation of the EPA’s regional haze federal implementation plan, and we expect a final decision by the court in the first half of 2013. Under that timeframe the new compliance date would be the first half of 2018. Regional haze by far has the largest impact on our customers and we hope this stay will enable OG&E and the state to reach to an accommodation with the EPA. If our legal and settlement efforts are not successful we will be read to comply with the regulations.

This quarter we have included $120 million of project cost for low NOx burners on seven units, to be spent in the 2012 and 2016 timeframe. We have also indicated that compliance with utility Mac would most likely require DSI and activated carbon injection at a estimated cost of $310 million. Compliance with the Mac rules for OG&E primarily relates to mercury and acid gases. However, the extra year may be required to complete installation in the 2015-16 timeframe after our testing is completed by this year.

As known in the last call, a well position portfolio at Enogex helps us stay with our game plan although the operating environment continually changes around us. Our large dedications in the most profitable wet gas basins in the U.S. provide a degree of protection from the decline in natural gas prices. We continue to experience robust drilling activity in these regions despite lower gas prices. Our original 2012 guidance was for processing volumes to grow 15% for the year, and we are not projecting growth of over 20%.

As of today, we have brought online 320 MCF of the 600 MCF per day plant expansion, with remaining capacity to be available by the end of 2013. While we have a much larger portion of fixed fee contracts, lower liquids price have reduced our profitability. But we have not experienced a reduction in drilling associated with lower natural gas liquids prices in these regions, and our volume gains were able to offset the impact of lower prices year-over-year.

We are pleased to announce today the acquisition of some of Chesapeake’s gathering assets in the prolific Greater Granite Wash area. Along with these assets we received a significant acreage dedication of approximately $500,000 net acres for 15 years under a fee-based arrangement. This is a significant step towards our objectives in regards to scale, diversity and long-term growth. Keith will discuss this acquisition in a few moments.

Before turning it over to Sean a final note about the health of our service areas economy. June unemployment rates for the state were 4.7% and Oklahoma City’s unemployment rate of 4.5% was the lowest in the nation for large metro areas. Like other parts of the nation, Oklahoma is in the midst of a robust oil and gas environment which is driving the low unemployment rate. This is good for both Enogex and for the utility. We are now adding almost 8,000 customers a year and total customer count should eclipse 800,000 sometime in 2013.

Now I would like to turn the call over to Sean who will review our financial performance in more detail. Sean?

Sean Trauschke

Thank you, Pete, and good morning. For the second quarter we reported net income of $94 million or $0.95 per share as compared to net income of $103 million or $1.04 per share in 2011. Year-to-date consolidated earnings per share were $1.33 in 2012 compared to $1.29 last year. The contribution by business unit on a comparative basis is listed on the slide.

At OG&E, net income for the quarter was $73 million or $0.74 per share as compared to net income of $79 million or $0.79 per share in 2011. Looking at some of the key drivers. Second quarter gross margin came in stronger as we saw an increase of $9 million or 3% despite weather which was milder than last year’s record setting summer. I will discuss the drivers for the increase on the next slide. O&M and depreciation were $15 million for the quarter. The increase was due to additional assets being placed into service including the Crossroads Wind Farm and various other investments. I would like to point out that $8 million of the increase had a revenue offset for the recovery or various utility investments.

Net other income decreased over $4 million due to lower AFUDC equity resulting from the completion of the Crossroads Wind Farm. Interest expense was $4 million higher mainly due to the long-term debt issuance we completed in May of 2011 and the associated lower AFUDC debt. I would also like to point out that utility earnings were lower for the quarter but year-to-date were a penny ahead of last year.

Now turning to the second quarter gross margin. As I mentioned earlier, utility margins were up for the second quarter despite the impact of weather compared to 2011. There were three primary drivers for the increase in gross margin. First was the recovery of various utility investments, including Crossroads and smart grid. These increased gross margin by $11 million. Second, our SPP transmission increased gross margin by $6 million. And lastly, growth from new and existing customers increased gross margin by $4 million. Partially offsetting these increases was mild weather compared to 2011.

Looking closer at weather, cooling degree days were 27% above normal yet 10% below the second quarter last year. This translated into $14 million in lower gross margin compared to last year but $6 million in higher gross margins compared to normal for the quarter. The weather impact year-to-date on gross margin was $25 million lower than 2011, but a positive $2 million for the year compared to normal. We added nearly 8000 new customers to this system compared to the second quarter of 2011. And on a weather normalized basis, residential megawatt hours sales grew just under 1% while oilfield sales were up 9%, and industrial sales grew 4%.

Turning to the second quarter of Enogex earnings. Although gross margin did grow by $8 million or 7%, OGE’s portion of Enogex’s earnings per share decreased from $0.25 in 2011 to $0.21 in 2012. And I will discuss gross margin on the next slide but first I would like to review some additional drivers for the quarter. Operating expenses increased $7 million, primarily as a result of higher depreciation expense due to higher levels of plants and service. Net other income fell nearly $4 million, partially due to the recognition of the $2 million gain for the sale of certain gathering and processing assets in 2011. Lastly, the impact of ArcLight’s change in ownership resulted in $1.1 million variance quarter-over-quarter.

Year-to-date OGE’s portion of Enogex earnings was $0.46 per share compared to $0.44 per share in 2011. Now turning to gross margin for the second quarter. Enogex’s increase in gross margin came from the gathering and processing businesses as they continue to show solid growth. Gathering volumes were up 3%, processable volumes grew 29%, and condensate volumes increased 35% compared to 2011. As Pete mentioned earlier, volume growth offset most of the impact from lower NGL prices. NGL prices decline from $1.24 per gallon in 2011 to $0.83 per gallon in 2012. In addition, ethane volumes dedicated to Conway were in rejection for much of the quarter.

While natural gas prices declined from $4.36 per MMBtu to $2.23 per MMBtu, Enogex’s volumes continue to grow. Finally, condensate contributed nearly $15 million to gross margin on a 9 million gallons of production compared to $11 million of gross margin on nearly 7 million gallons of production in the second quarter of 2011. Year-to-date condensate margins were $33 million compared to $24 million in 2011, and gallons produced were $19 million compared to $15 million for the same period last year.

Before addressing guidance and moving on to your questions, I would like to cover a few additional topics. You will notice that our capital expenditure forecast has increased. At the utility we have included $120 million for low NOx burners. Recall the low NOx burners were part of the state implementation plan in response to the regional haze requirements. Regarding the utility Mac rule, our compliance date is 2015 with the possibility of a one year extension to 2016. Our plan for Mac is dry sorbent injection and activated carbon injection at a cost of approximately $300 million. We hope to complete our testing of DSI and ACI by the end of the year, at which time we will provide our CapEx plans to comply with the utility Mac rules.

The two controls that we will need under regional haze are being litigated, as Pete mentioned earlier, and accordingly the timing and cost of the compliance expenditures is unknown at this time. We were very pleased that the Tenth Circuit granted a stay of the EPA’s federal implementation plan under regional haze that would have required, by 2017, scrubbers or fuel switching at four of our coal units. We now will have five years from the effective date of the final rule to be in compliance.

Turning to Enogex, you will hear from Keith Mitchell, President of Enogex in just a moment, but I did want to speak to their capital expenditure. We have included an additional $320 million of capital expenditure for 2012 and 2013 associated with infrastructure build out of this acreage dedication and asset purchase. We anticipate ArcLight contributing approximately $60 million in 2012 as a result of this announcement, and their ownership percentage is expected to be near 20% by year-end. And their average ownership for 2012 should be just over 19%.

In addition, we are also closing today on a three-year $250 million term loan at Enogex at LIBOR plus 150, which will be used to finance system expansion. We are mindful of our credit metrics and this deal is priced inside of our revolver. So in that sense we found a cheaper source of short-term borrowing and created more liquidity. We expect to term this out with long term debt issued in the future, as these significant acreage dedications begin generating more EBITDA.

Before turning the call over to Keith, I would like to mention that our 2012 outlook is unchanged with consolidated earnings projected to be between $3.40 to $3.60 per average share. You can see the guidance ranges for each business on the slide. We did tweak some of the price and volume assumptions we discussed earlier, and I would refer you the second quarter 10-Q filed this morning with the SEC for additional information.

Overall, we feel comfortable with where we are today relative to our guidance. Looking forward at the utility, July weather has been 23% above normal but still well below the 2011 when July was 44% above normal. We still have August and September left regarding third quarter earnings, and as you know the bulk of utility earnings comes from the second and third quarters. At Enogex, we are maintaining our guidance despite the significant drop in commodity prices which has been offset by strong volume growth.

With that I will turn the call over to Keith to discuss the acreage dedication.

Keith Mitchell

Thank you, Sean. Enogex is pleased to announce this morning a 15-year acreage dedication with Chesapeake in the Greater Granite Wash area. This is a dedication of approximately 500,000 net acres, nearly 800 square miles. In addition to the acreage dedication we will be purchasing approximately $70 million of gathering assets. The acquired pipelines are shown on the map that we have provided in dark blue. We hope to close the deal in early September after the customary closing conditions and the HSR process has been satisfied.

This agreement is significant for a number of reasons. Enogex will now have acreage dedications of over $2 million net acres, primarily within the Greater Granite Wash and the Cana Woodford plays, which we have also outlined on the map and located within the counties highlighted in yellow. This transaction further expands our footprint to the Northwest into the liquid rich areas of Northwestern Oklahoma and the Texas Panhandle. The fee based arrangement reduced our exposure to commodity price volatility and at the same time should allow for steady and consistent volume growth.

One important feature to emphasize about the Greater Granite Wash is the number of pay zones in the underlying geology which are also noted on the map. These multiple layers provide a number of opportunities for producers to exploit high levels of drilling density and which provide support for our volume growth. We believe this deal when combined with our existing position will provide long-term volume for years to come.

Thank you, and I will now turn the call back over to Pete.

Peter Delaney

Operator, I think we are ready to open up the line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from [Anthony Crowd] from Jefferies. Please go ahead.

Unidentified Analyst

Some questions on, I guess the acquisition. In the press release you guys mentioned that the acquisition would be accretive to 2012 earnings. Could you sort of give us a range or what we should estimate from that acquisition? And then also maybe in 2013-2014, what type of EBITDA or contribution you expect from these two acquisitions?

Sean Trauschke

Sure, Anthony, this is Sean. You know for 2012 I think you should just model that we are going to get couple of pennies out of that for this year. For ’13 we initially, out of the gate, we noted to you what capital we will be deploying next year for that. I am not a position to kind of give you an EBITDA forecast for next year at this point. But we would expect it to be greater than it is this year.

Unidentified Analyst

What about if you can't give an EBITDA, and again you may not even want to give this, what's your expected return on the acquisition? We know how much you guys are deploying next year.

Sean Trauschke

I don’t think we are going to give that number but obviously it is accretive and we are very excited about it.

Operator

Thank you. Your next question is from Jay Dobson from Wunderlich Securities.

James Dobson - Wunderlich Securities

Maybe following on the last question, can we talk maybe then a little bit about volumes? Just what the new acreage might do to volumes looking forward into ’13, ’14. Maybe less interested in ’12, but if you have comments there.

Sean Trauschke

This is Sean. No, you noticed that we also increased our processing volumes in our guidance this year. This is in anticipation of the performance we have seen year-to-date, but also in anticipation of increased drilling in this area. So when we moved our volume, our processing volumes up from 15% to now 20% to 25%, that reflects some of this activity.

James Dobson - Wunderlich Securities

Okay. But I guess I am looking out to sort of ’13, ’14, I’d appreciate, you haven’t given guidance but this would be sort of a partial year. Which actually is also another question, when would this actually close, but what would you think the volume additions would be in ’13, ’14, more on a run rate basis?

Sean Trauschke

Yeah, we are going to -- we haven’t given that number for ’13 and ’14 yet. We are going to close on this. We hope to close within the third quarter and certainly will be active in building out this infrastructure. And we will certainly update, and like we did this year, we will provide the ’13 and ’14 volume next year. But you should expect, and I think where you are headed is, your thesis is correct. This should be incremental to the 15% volume growth we originally had out there for ’13.

James Dobson - Wunderlich Securities

Okay. Great. And then, I will throw it you Sean but maybe it goes to Keith. Really you guys are doing a great job moving the Enogex business to higher percentage of fixed fee revenues. As we look to these additions and obviously 500,000 net acres is big but maybe not as big from a volume perspective. Put into context, what that will do to the fixed fee portion of revenues as a percent of total revenues when I look out to ’13 or ’14.

Sean Trauschke

You know, certainly it should increase it. I don’t think it’s going to increase it materially, Jay, only because a lot of the contract mix depends on the contracts we have with certain producers. But this is a fee-based contract so you should expect, to the extent that that drilling ramps up, that our fee-based percentages will increase as well.

James Dobson - Wunderlich Securities

That’s great. And then just shifting to the utility. With now, sort of rate case behind us, what's the outlook for the next rate case? Appreciating you did get out of this one with some riders that maybe can extend that runway a little bit.

Sean Trauschke

Sure. As I think about Oklahoma you should expect us, as we have already filed this week for the retail transmission recovery, you are going to see us continue to do that as those plants come into service, those lines come into service. Additionally, you will probably see us file for a recovery as soon as we begin this environmental compliance plan. As we think about Arkansas, you should think about us -- we are going to be filing for the recovery of the Crossroads Wind Farm there. And as you know, in Arkansas we have a hypothetical capital structure there, so we are not earning close to our allowed return there. So we will continue to evaluate the timing of the rate cases there. We have got to get that return up. It is higher than it has been historically but it’s still not high enough. And we are earning roughly about 6.5% there in Arkansas on a allowed return of 9.95%. So you should expect us to be working hard in Arkansas.

As it relates to Oklahoma, Pete mentioned that we have adjusted our capital spending plans to better align it with depreciation and amortization such that we don’t incur any regulatory lag. We are adjusting our operating plans really with eye towards, we see increasing costs coming down the path as a result of environmental spending. And so we really want to ease that impact to customers. Our goal in Oklahoma is really to file for these transmission environmental recovery, and try to minimize the rate impact to customers going forward.

Operator

Your next question is from Chris Shelton from Millennium. Please go ahead.

Chris Shelton - Millennium Partners

Quick follow up. I know you had mentioned that the volume growth for 2012, you are now expecting 20% volume growth versus the previous guidance. Is that correct?

Sean Trauschke

Yes, it is.

Chris Shelton - Millennium Partners

And is that -- do we think about that as organic or does that include the acquisition?

Sean Trauschke

The large portion of it is organic but certainly if we close at the end of the third quarter, we will get some benefit from this recent deal.

Chris Shelton - Millennium Partners

Okay. So I guess, is the right way to think about it that the increase in that projected growth for this year is from the acquisition or are we actually ahead of schedule I guess on where you thought you would be on volume growth, even without the acquisition.

Keith Mitchell

Yeah, this is Keith. We have seen continued activity in the rich areas where we already exist in spite of the acquisition, and we have seen growth continue in these areas. So the growth is attributable to organic growth within our current area and then we will also get a bit of a bump on the acquisition.

Chris Shelton - Millennium Partners

Okay. Great. And then as far as organically, is the 2013 15% processable volume growth, is that still valid or is that kind of under review, I guess?

Sean Trauschke

Yeah, Chris, this is Sean. For right now that is. We will certainly update that in the future but for right now it is 15%. But keep in mind that’s also off a higher base.

Chris Shelton - Millennium Partners

Right. And then switching to utility quick. Now that we are through the rate case, where do you expect in the Oklahoma jurisdiction to earn on an -- earned ROE is what I am trying to ask. Is there some regulatory lag or would you expect to be able to get pretty close to your authorized ROE?

Sean Trauschke

So for trailing 12-months, assuming some pretty weather last year, we are probably earning close to 10% right now, Chris. As Pete mentioned, we did adjust our capital expenditure, our base capital expenditure to better align it with depreciation and amortization. So we shouldn’t see a significant lag on the capital side. And we are focused on keeping our cost low and not letting them get outside of inflation. So we are focused on earning close to our allowed return. And outside of the riders, we do not have any growth projects that we are not recovering right now. As I mentioned before, you are going to see us make fillings for the recovery of the retail portion of transmission and likewise we will do something similar relative to environmental. So I think we will see -- we will be focused on earning close to that 10% as we go forward.

Chris Shelton - Millennium Partners

Understood. And then at FERC, can you remind me the allowed out there?

Sean Trauschke

It’s 11.1%. And with the formula rates and the CWIP, we are going to earn right on top of that.

Operator

Your next question is from Brian Russo from Ladenburg Thalmann.

Brian Russo - Ladenburg Thalmann

Just curious, what's your NGL assumption for the remainder of the year?

Sean Trauschke

From a price per gallon standpoint?

Brian Russo - Ladenburg Thalmann

Yes.

Sean Trauschke

$1.04.

Brian Russo - Ladenburg Thalmann

Okay. And is that kind of consistent? Are you comfortable with that given where kind of spot NGL prices are today?

Sean Trauschke

Yes, we are. So Brian, I think that’s a really good question. Originally, we put a $1.04 per gallon NGL price out, back in February. But that assumed ethane recovery and this $1.04 assumes rejection at Conway. And as you know, Todd has explained many times that ethane on a volumetric basis is the largest portion of our barrel. And so it’s just by coincidence the price per gallon is the same. But we are assuming rejection at Conway.

Brian Russo - Ladenburg Thalmann

Okay. Understood. And can you just give us an idea of the mix of the volumes that go to Conway versus Mont Belvieu.

Sean Trauschke

You know Brian, we haven’t disclosed a precise percentage but our expectation is that towards the end of the year we ought to be close to about 40% going to Belvieu.

Brian Russo - Ladenburg Thalmann

Okay. Great. And on the CapEx, additions at Enogex and ArcLight’s contribution, $60 million. Does that imply that they are only funding 19% of these projects?

Sean Trauschke

19% of these projects. No. Remember, we are not necessarily looking at this on a project by project basis. We look at it in the aggregate. And so the $60 million is really representative of what we need to maintain our own credit metrics and maintaining our earnings guidance.

Brian Russo - Ladenburg Thalmann

Okay. What's ArcLight’s full year equity contribution?

Sean Trauschke

This year?

Brian Russo - Ladenburg Thalmann

Yeah.

Sean Trauschke

60, up to 60. That was kind of an approximate number. But we started the year, we did not anticipate any contributions from ArcLight. With this recent acquisition we think it could be as high as $60 million.

Brian Russo - Ladenburg Thalmann

Okay. Understood. And just the 5% to 7% CAGR, just remind us what's the base year to use for that?

Sean Trauschke

2010 and $3.10.

Brian Russo - Ladenburg Thalmann

2010 and $3.10.

Sean Trauschke

Yeah. And that was a -- we set that on a weather normalized basis. 3.10.

Brian Russo - Ladenburg Thalmann

Okay. And then lastly, the environmental cost recovery that you mentioned earlier. Are you going to just file for a rider or will that have to be filed for in the context of a rate case?

Sean Trauschke

So what we have committed to to date is the $120 million with regard to the low NOx burners. If you look in the CapEx table, Brian, that’s spread over many many -- five years. So it’s not a big number in any individual year. I think our expectation is that we would complete those projects and then go seek recovery. Something similar to what we are doing on the transmission, as it relates to low NOx burners. Obviously, when we get in -- if we have to go down the path on scrubbers, I think that’s a different animal.

Brian Russo - Ladenburg Thalmann

Okay. And Keith, maybe just one question on a long term strategy. Just given where the stock is trading, the implied value of Enogex is well below some of the other publicly traded comps. And I am just wondering what are your thoughts on the longer-term strategy to realize fair value for that subsidiary. Either as a part of OGE or maybe as a separate entity?

Peter Delaney

Well, Brian, as we set out several years ago with the ArcLight transaction and one of the issued and one of our objectives there was to help improve valuation we were getting at that time. To be able to expand Enogex and invest in Enogex to a magnitude much higher than we had been able to do historically, and minimize dilution to our consolidated shareholders while we continue to grow and expand the scale, diversity and to lock-in long term growth for Enogex. So we feel that we are making great progress with the ArcLight partnership with the objective we set forward.

At the same time we have shown with ArcLight that we do obviously keep an eye on creating value for shareholders. And to the extent that we feel that we are not getting the value we need we will do what we think we need to do to close that valuation gap. You know we do have a long term focus and I think we are excited, as Sean said and Keith, about this opportunity we have now with Chesapeake, with the net 500,000 acres to really execute and provide some long term growth. So we are moving in the direction, we are keeping that eye on valuation and we are committed to, if we need to do something to close that gap, we are going to close the gap. So I think directionally we haven’t changed and I think we are just trying to position ourselves to -- of course you are talking about MLP to improve our optionality, if you want about it that way and position ourselves to be able to do that, then that’s the right thing for us to do for our shareholders.

Operator

Thank you. You have no more questions I will now turn the call over to Pete Delaney.

Peter Delaney

Thank you, operator. Thank you everyone for joining us this morning. In closing I would just like to say our management team remains very excited about the opportunities for us here at OGE Energy to continue to deliver great service to our customers and to build shareholder value. And as always, I want to recognize our members for their hard work, commitment and thoughtfulness in capitalizing on those opportunities and then executing our plan. I hope you all have a great day. Thank you again for joining us this morning.

Operator

Thank you. Thank you for your participation in today’s conference cal. That concludes the presentation. You may now disconnect.

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