Enbridge Energy Partners' CEO Discusses Q3 2012 Earnings Results - Earnings Call Transcript

Nov. 2.12 | About: Enbridge Energy (EEP)

Enbridge Energy Partners, LP (NYSE:EEP)

Q3 2012 Earnings Call

November 1, 2012 12:00 pm ET

Executives

Sanjay Lad – Director Investor Relations

Stephan J. Wuori – Executive Vice President Liquids Pipelines & Director of General Partner

Stephen J. Neyland – Vice President Finance of General Partner

Stephen J. Wuori – Executive Vice President Liquids Pipelines & Director General Partner

Terrance L. McGill – President, Director of General Partner

Darren J. Yaworsky – Treasurer

William M. Ramos – Controller

Leon A. Zupan – Executive Vice President Gas Pipelines & Director

Analyst

Brian Zarahn – Barclays Capital

Russell Payne – Wells Fargo

Sharon Lui – Wells Fargo Securities, LLC

TJ Schultz – RBC Capital Markets

James Jampel – HITE

John Edwards – Credit Suisse

Noah Lerner – Hartz Capital

Operator

Welcome to the third quarter 2012 Enbridge Energy Partners, LP earnings conference call. At this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Sanjay Lad, Director Investor Relations.

Sanjay Lad

Welcome to the 2012 third quarter earnings conference call for Enbridge Energy Partners. This call is being webcast and a copy of the presentation slides, supplemental slides, condensed unaudited financial statements, and news releases associated with it can be downloaded from our website at www.EndbridgePartners.com. A replay will be available today and a transcript will be posted to our website shortly thereafter.

As a reminder, the partnership’s results are also relevant to Enbridge Energy Management or EEQ. I will be available after the call for any follow up questions you may have. Our speakers today are Leon Zupan, President Gas Pipelines Enbridge Inc. and Steve Neyland, Vice President Finance. Available for the Q&A session we also have Steve Wuori, President Liquids Pipelines Enbridge, Inc., Terry McGill, Senior Vice President Natural Gas Operations and Engineering, Darren Yaworsky, Treasurer and Bill Ramos, Controller.

Our legal notice; this presentation will include forward-looking statements. The risks associated with forward-looking statements have been outlined in the earnings release and the partnership’s SEC filings and we incorporate those by reference to this call. This presentation also contains certain non-GAAP financial measures. The reconciliation schedules for these non-GAAP measures to comparable GAAP measures can be found in the investor section of our website.

Please turn to Slide Three. I will now turn the conference call over to Leon Zupan, President Gas Pipelines Enbridge, Inc.

Leon A. Zupan

Welcome to our third quarter earnings calls. Mark Maki who normally has been taking these calls is unfortunately not able to join us today so I’ll be filling in for Mark. On the call today we are joined by Darren Yaworsky who has succeeded Dave Wudrick as Treasurer of the partnership. Darren’s strong treasury, corporate finance and banking background is complimented by his tenure as the treasurer of the Enbridge Income Fund and will provide strong continuity to the partnership’s treasury office. So, welcome Darren.

The management team at the partnership congratulations Dave Wudrick on his new opportunity within liquids pipeline at Enbridge, Inc. and we’d like to thank him for his leadership in overseeing the partnership’s financing program as treasurer over the last three years. We wish you well Dave and best of success in your new role.

As it relates to our agenda this morning, I will discuss some of the key fundamentals, our focus on operational excellence and our long term growth outlook and then pass it over to Steve Neyland to present our financial results. Please turn to Slide Four.

Over the past year, Enbridge, Inc. and the partnership have announced a series of liquid expansion programs to access new markets in North America with the underlying objective of delivering energy that we North Americans need in a safe, reliable and timely manner. The backdrop for Enbridge’s liquid market access programs are strong crude oil supply fundamentals arising from the unprecedented growth outlook in North American crude oil production from Canadian oil sands, the Bakken formation and other new shale oil plays in North America.

Looking at the overall supply push and demand pull picture, you basically have the biggest resources in western Canadian sedimentary basin construction and the Bakken that are both connected to the Enbridge main line system. Our business is focused on connecting new supply to market demand and the partnership’s Lakehead system is ideally positioned to participate in Enbridge’s market access programs.

The partnership’s growth projects will deliver substantial economic benefits to the producing regions, the refinery hubs we serve as well as the communities along the expanded pipeline routes. As you can see, listed on the right, we are providing access to a very, very broad market.

Now let’s move to Slide Five. In the US, two markets under served by Canadian and Bakken oil are Eastern and Gulf Coast refineries. Now historically these refining centers have relied on a combination of supply sources including Gulf of Mexico and offshore imports. Enbridge has made great progress in establishing a new and much needed corridor to the US Gulf Coast refining market. Earlier this year, Enbridge announced plans to upsize the capacity of its US Gulf Coast Liquid access projects as both the Flanagan South and Seaway Pipeline expansion projects yielded strong support from the shipper community.

The partnership announced complimentary low cost expansion projects to our Lakehead system to help facilitate the US Gulf Coast market access program. This will involve pump station additions as no new pipe is necessary to expand our capacity on the Alberta Clipper and Southern Access pipeline since large diameter pipe was used when these projects were first constructed.

These Lakehead expansion projects just tapped the first layer of that potential mainline expandability leaving plenty of scope for further expansions to meet future shipper needs. Specifically, our Alberta Clipper pipeline is expandable to deliver up to 800,000 barrels per day into Superior Wisconsin and our Southern Access pipeline is expandable to deliver 1.2 million barrels per day into the Flanagan Terminal. The partnership is actively participating in discussions with shippers to commercially underpin another expansion of the Alberta Clipper and Southern Access pipelines to take these systems to their full hydraulic capacity.

Please turn to Slide Six. As it relates to our North Dakota Bakken strategy, we continue to make solid progress in our growth projects in the region and we are on track to bring these projects in service early in 2013. The Bakken pipeline expansion project will introduce an incremental 120,000 barrels per day of takeaway capacity and the Bakken Access program will offer 100,000 barrels per day of gathering and truck loading and unloading facilities and our Berthold Rail facility will provide 80,000 barrels per day of takeaway rail capacity to move these gathered volumes to market.

A Phase I of the Berthold Rail project entered service during the later part of the third quarter and currently provides 10,000 barrels per day of takeaway capacity with the remaining coming in service during the first quarter of 2013 and we will be able to accommodate [Unitrain] movements at that time. The partnership is positioned to offer a safe, secure, and economical corridor for incremental pipeline take away from the region.

Let’s move to Slide Seven. The Eastern markets are a natural outlet for the growing light crude oil production from Western Canada and the Bakken and as many of the refining centers in this region consume light crude oil. At the same time, we have seen refinery capacity conversions to accommodate a heavy feedstock in the Midwest. The partnership and Enbridge, Inc. together have announced projects that are the foundation of the Eastern Access Initiative.

As shown on the map, this includes expanding Line 5 from Superior Wisconsin to Sarnia Ontario, expanding the Spearhead North pipeline into Chicago, the Line 6B replacement will increase the capacity to 500,000 barrels per day, twining the Toledo pipeline and reversing Line 9 with deliveries into Montreal. These are the building blocks to match growing domestic crude oil supply to Eastern demand centers that have traditionally been served by foreign imports. The partnership is making good progress on these commercially secured growth projects and we are actively evaluating the next phase of pipeline expansion to facility the company’s light oil market access initiative by expanding the corridor to Eastern markets.

Please turn to Slide Eight. As noted during the Enbridge Investor Day earlier in the month, the next big pipeline project pursuant to the company’s light oil market access initiative is the Sandpiper pipeline project which would effectively provide the next high volume export from the Bakken region. We are engaged in advance discussions with our customers to commercially secure the expansion project to meet their needs.

The map highlights the company’s six key elements to unlock access to the best markets for the unprecedented growth in light domestic crude oil supply. Without market access producers will continue to experience sustained price discounts and as mentioned earlier, the key differentiation between the Enbridge plan versus other solutions out there is the diversity of our premium markets that the partnership’s Lakehead system is ideally positioned to access and participate in with these programs.

Please turn to Slide Nine. Commencing early 2013 we have a number of growth projects coming online that will elevate the partnership’s distributable cash flow profile. These growth projects are predominately underpinned by a long term low risk commercial framework in the form of cost of service and demand based contract structures which support our 2% to 5% annual distribution growth rate.

With such a large capital program current year distribution coverage is expected to be below one times. The partnership managed through a period of subpar distribution coverage during the last sizeable capital expansion period in 2008 and 2009 during the construction of the Alberta Clipper and Southern Access pipelines.

Although subpar coverage is inherent to prefunding equity capital, our track record demonstrates our commitment and financial discipline to manage through these robust expansion periods. The partnership continues to target low term distribution coverage of 1.05 to 1.1 times, the long term low risk commercial underpinnings of these accretive growth project provide us with a high level of confidence in our distributable cash flow growth.

Please turn to Slide 10. Achieving our long term objectives requires a focus on daily operations, safety, system integrity, reliability, environmental protection, and sound project execution. These are all top priorities of the Enbridge management team. The company established an operational risk management plan which is essentially our roadmap of programs that are delivering and will sustain an industry leading position in safety and system integrity.

As noted on the chart to the left, we are focused on integrity management, safety and environmental protection, controlled systems, leak detection and incident response with the underlying objective of operational excellence and the goal of zero incidents. Enbridge and the partnership are committed to achieving industry leadership in all these areas and we continue to make the operating and capital investments necessary to achieve this objective. It sets the foundation and gives us the capability to operate and execute our growth program.

Enbridge formed the major programs group almost five years ago now and the group has enabled enhanced focus around the underlying engineering, procurement and construction deliverables through diligent project development and front end planning, supply chain management, lifecycle, gating controls, deep field experience and robust regulatory and permitting management major projects has established strong execution focus and capability. To our proven track record, Enbridge and the partnership have demonstrated solid project execution performance by delivering capital projects on time and on budget. Execution in both areas is critical to our success.

Please turn to Slide 11 and I will now turn the call over to Steve Neyland to discuss our financial results.

Stephen J. Neyland

Third quarter adjusted net income of $117 million was $10 million lower than the same period in 2011. The quarter was unfavorably impacted by lower natural gas liquids prices, lower natural gas volumes on assets within our dry gas producing regions, and increase operating and administrative expenses in our liquids and natural gas businesses which were partially offset by higher revenues from our liquids pipeline systems.

The main items eliminated from these adjusted results are unrealized non-cash mark-to-market net gains and losses, additional environmental costs net of insurance recoveries associated with the incidents on Line 14 and 6B and other items noted in our supplemental slides. Adjusted earnings per unit for the third quarter was $0.29 compared to $0.38 for the same period of 2011. Lower adjusted earnings coupled with the increased weighted average number of units outstanding in 2012 compared to the third quarter in 2011 resulted in lower earnings per unit when compared to the prior year. Our as-declared coverage ratio on a year-to-date basis was .83 times.

Please turn to Slide 12. For our liquid segment adjusted operating income of $153.5 million for the third quarter was $16.2 million and 9.5% lower from the same period in 2011. Third quarter 2012 adjusted operating income was $2 million lower than the second quarter. Over prior year the third quarter operating levels increased due to an increase in index transportation rates on our systems as well as increased revenues associated with our Cushing storage facilities. The higher fee based revenues were more than offset by increased operating and administrative expenses attributable to higher pipeline integrity expenses, an increase in regional property taxes and workforce additions.

We’ll continue to incur high pipeline integrity costs through the balance of the year as we proactively manage our systems by running the latest technology inspection tools through our pipelines. Volumes on our Lakehead system were 1.76 million barrels per day during the quarter which was 2.8% lower quarter over prior quarter primarily due to the significant scheduled and unscheduled upstream and refinery maintenance activities.

During the quarter we increased our total estimate related to the Line 6B incident by $25 million to $810 million to reflect continued monitoring and restoration efforts. We booked $170 million in insurance recoveries during the third quarter bringing the cumulative amount collected to $505 million. We are continuing to make progress in the collection of the remaining $145 million that is covered under our insurance policy.

Please turn to Slide 13. Adjusted operating income of $60.2 million for the second quarter was $6.8 million higher than the same period from 2011 and was $16.9 million higher than the second quarter of this year. The increase in third quarter natural gas adjusted operating income over prior year was primarily due to additional revenues realized from our condensate stabilization services including a favorable prior period adjustment and was partially offset by lower natural gas liquids prices, lower volumes from our assets positioned in dry gas producing regions, and higher operating and administrative costs.

Higher operating and administrative expenses was a result of higher work force related costs and an adjustment to write down line pipe to net realizable value. Natural gas lines on our East Texas system were lower than the previous quarter as drilling continued to decrease in the third quarter due to the weak natural gas price environment. Anadarko systems remained active and modestly increased quarter over the second quarter of this year as producers continued to pursue rich gas in the area.

Please turn to Slide 14. We continue to make progress on our organic growth capital program for 2012. We have decreased 2012 capital expenditures forecasts by approximately $300 million in the current year to $1.81 billion. The adjusted spend profile will push the majority of the $300 million and change into future periods. The decrease in the current year forecast in capital spend does not impact the timing of anticipated project end service dates.

The partnership’s liquidity position remains strong as we had approximately $2.1 billion of available liquidity at the end of the third quarter. We enhanced the partnership’s liquidity through three specific actions over the quarter: first, in early July we increased our bank credit facilities by $675 million; second, we extended our $2 billion credit facility from September 2016 to 2017; and lastly, in September we closed an underwritten public offering and sale of 16.1 million Class A common units including an overallotment option yielding net proceeds of $446 million.

Next, to enable additional financing flexibility Enbridge Energy Management or EEQ filed an equity shelf registration with the SEC earlier this month. In the future, management may consider a public offering of EEQ’s shares as an additional source of funding. Looking forward, we will continue to exercise prudent financial management to bring our capital projects into service both on time and on budget and maintain our investment grade credit rating.

For further details on our financial results, I encourage you to review our supplemental slides that are posted on our website.

Please turn to Slide 15 and I’ll turn it back over to Leon to address key takeaways.

Leon A. Zupan

A few points of emphasis before our Q&A. First and foremost, it’s about managing the safety and integrity of our system and managing the execution of our growth. The long term outlook for the partnership remains strong and we are well positioned to grow distributable cash flow based on the previously announced organic growth projects that enter service in 2013 and 2014. These accretive growth projects strengthen our pipeline systems and are secured predominately by long term low risk commercial framework including cost of service and demand based contract structures which support our 2% to 5% annual distribution growth target.

Our business is mostly about connecting supply to market demand and the partnership’s Lakehead system is ideally positioned to participate in Enbridge’s market access programs. We are in advanced discussions with our customers to commercially secure the next round of pipeline expansions to enhance take away from the North Dakota Bakken region and to upside our Lakehead pipeline system through low cost expansions which will further solidify our long term distribution growth outlook.

I will now turn it over to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brian Zarahn – Barclays Capital.

Brian Zarahn – Barclays Capital

On the Lakehead and North Dakota systems are you expecting an increase in volumes in the fourth quarter or do you still see some downtime or some seasonality there?

Stephen J. Neyland

I think generally on the Lakehead system our anticipation is that things will improve to some extent given the significant number of turnarounds we saw both upstream and downstream in the quarter. Some of those are finishing up as we roll into October but our anticipation is that we’ll see some improvement there. As it relates to North Dakota it has been pretty much steady as she goes type of prospect so we’d continue to anticipate that also.

The other thing we’re noting is that there are additional upstream projects that are coming online in the oil sands, predominately Exxon’s Kearl project. It will be worthy to keep an eye on it and see what the timing is there. I don’t know if Steve Wuori has anything to add relative to that?

Stephan J. Wuori

No, I think you covered it pretty well Steve. I think the volumes certainly were affected by the upstream and downstream maintenance activities in the quarter. Since then those have gone away. We’ve also seen a five or six day shutdown of the Keystone line in the past couple of weeks that would have pushed volumes over to us. So, it’s hard to tell exactly how it’s going to go but certainly the structural maintenance issues are largely taken care of now.

Brian Zarahn – Barclays Capital

Can you give any additional cover on your Sandpiper pipeline project and talk a little bit about is rail going to be an impediment potentially to this project moving forward?

Stephan J. Wuori

I think rail, as you know is very much a reality in North Dakota and we’re participating ourselves with the Berthold project. I think that the appeal of rail right now is it’s accessing markets that pipes can’t access such as the Eastern Gulf Coast or Philadelphia as two examples. I think that’s going to continue until pipe capacity to those areas is secured. Sandpiper though is intending to feed into our main line system that has market extensions that are being built from it to the Gulf Coast, possibly to Patoka and Eastern [Pad 2] and then Line 9. So it really is to feed that Bakken in there.

So I think as you see more market access developed for Bakken crude and other light crude you will see less rail and Sandpiper is intended, in its timeframe to feed into that, keeping in mind that Sandpiper will not be in service until probably early 2015 so rail will be a reality as it is today through that period.

Brian Zarahn – Barclays Capital

One more questions, your cap ex spending shift a little bit declining $300 million from your prior guidance, can you give us a sense of what you’re looking at for 2013 in terms of cap ex?

Stephen J. Neyland

Yes, our 2013 cap ex profile is predominately the same which I believe, it was $2.2 billion is the number that we’ve put there. Again, that’s net of the joint funding agreement that’s in place with Enbridge, Inc. We’re sticking with that so there is, as it relates to the change in the cap ex, there’s a number of things, there’s a smaller amount that is going away, the larger amount is just being pushed out into both those times periods. But again, the project end service dates have not moved. It’s just as we move through the major projects lifecycle it’s a refinement of our estimates as to timing of the actual spend.

Operator

Your next question comes from Russell Payne – Wells Fargo.

Russell Payne – Wells Fargo

A quick question, what is the hydraulic max for Alberta and some of these other systems to get crude further south to be able to then go potentially east?

Leon A. Zupan

As we mentioned in the notes there we’ve got the Alberta Clipper project which can go up to 80,000 barrels per day and we have the Southern Access which would be taking it away to Superior to markets further south and east which can go all the way up to 1.2 million barrels a day. That would be what we would target as our hydraulic maximum capacity for those two lines. We might be able to do a little bit better with DRA depending on how things shake out once we actually complete further expansions there but those are the two numbers you should be focusing on.

Russell Payne – Wells Fargo

From Eastern Canada is there a logical way to get crude down to the east coast of the US? Any thoughts there?

Stephan J. Wuori

I think the primary purpose for Line 9 in its initial reversal will be for Eastern Canadian refineries. It is possible to use vessels to move crude from Montreal as an example, down to Philadelphia. But I think our view would be that’s going to be a fairly minor thing at the beginning.

Russell Payne – Wells Fargo

Obviously Trans Canada is also looking at getting crude east. Is there enough demand for all of these projects in your opinion?

Stephan J. Wuori

Well I think it’s a little early to say. The Trans Canada project, I think, they said the timing would be sometime after 2018 so there’s the issue really of the timing where Line 9 will be in service by mid ’14 so there really is a difference in timing between the two. I think we’ll just have to see how things evolve. There certainly isn’t enough demand in Eastern Canada to support a lot of pipe capacity beyond Line 9 when its fully expanded. But then the question becomes what about export to places like Philadelphia or even across the Atlantic and that question has yet to be resolved.

Russell Payne – Wells Fargo

The one final question, are these expansions that you’re primarily talking about out of the Bakken and for your Lakehead system, are they at market rates or are they going to be rolled into your overall Lakehead tariff system?

Stephan J. Wuori

Generally speaking the expansions on the Lakehead system are all being done on a cost of system basis. A lot of them under what’s called a facilities support mechanism so there’s a cost of service approach where the EEP Lakehead system doesn’t take volume risk. It’ll remain of course common carrier and therefore it will be subject to the rates that are published.

Operator

Your next question comes from Sharon Lui – Wells Fargo Securities, LLC.

Sharon Lui – Wells Fargo Securities, LLC

Just following up on the previous question, for the Sandpiper pipeline what types of contracts are you negotiating with shippers at this point?

Stephan J. Wuori

We really aren’t able to talk about that right now. We are in discussions with shippers on the best approach to take with Sandpiper. Sandpiper could be a contract line or it could be a common carriage line and we are accessing what’s best for Sandpiper right now so stay tuned.

Sharon Lui – Wells Fargo Securities, LLC

Any thoughts or estimates around the capital for each of these potential growth projects?

Stephan J. Wuori

I think what we’ve been notionally saying is that the entire light oil access initiative there on Slide 8 is about $5.5 billion project in its totality. As time goes along and we start to announce the pieces of that more formally we’ll give more indication of what the capital is but it’s about a $5.5 billion program.

Leon A. Zupan

Just to emphasize that, that could be some combination of Enbridge Energy Partners and Enbridge, Inc. so Steve is exactly right, that’s the number that we’ve noted. I just wanted to emphasize the fact of how that gets a portion between the entities and how that gets put together is yet to be determined.

Sharon Lui – Wells Fargo Securities, LLC

Any thoughts in terms of the percent interest in Eastern Access in terms of reducing or lowering it at this point in time?

Stephen J. Neyland

As you know, we hold the option to reduce the amount of ownership in Eastern Access from current 40% to 25%, that’s an option that is there until the end of this year. So we continue to evaluate that and we’ll want all of you to stay tuned to our ultimate decision and I think like any good financial manager, we like to hold that option as long as possible and make sure we’ve accessed all our upsides and downsides before taking action. Again, right now we’re obligated to make a decision prior to the end of the year so we’re continuing to look at it.

Operator

(Operator Instructions) Your next question comes from TJ Schultz – RBC Capital Markets.

TJ Schultz – RBC Capital Markets

I guess just on Slide 12 looking at the operating income trend for the liquids segment, given some outlook for better volumes, what do you think on moving forward can trigger an uptick on operating income? Maybe if you could talk a little bit more about some of the operating and admin expenses and the outlook for growing income in this segment given some of the enhanced pipeline integrity issues that you’ve talked about and the higher property taxes?

Stephen J. Neyland

I’ll take a crack at that and then let the group add on to any comments. A couple of things one, just from a macro supply standpoint we still continue to see rising Canadian oil in Bakken volumes so we look to take advantage of. Additionally, as we move into 2013 we have a number of Bakken projects that will come into service to facilitate that growth on the revenue side. As it relates to op ex, we’re certainly taking a very aggressive approach associated with insuring the security and safety of our pipeline system so we’ve been spending a significant amount as it relates to inline inspections of our pipelines.

We’re continuing to do that throughout the year. While those will continue to run [inaudible] tools, it’s certainly been at a stronger rate than it was in prior quarters and so there may be some moderating of that that will reduce operating expenses in future periods. I think those are a few trend items to think about as you move forward.

TJ Schultz – RBC Capital Markets

Just kind of staying on the Bakken it seems like there might be some increased interest to rail volumes to the west coast. Is this something you expect or any additional thoughts here? Is this something you think will provide any opportunity to increase volumes through the Berthold station?

Stephan J. Wuori

I think right now there are volumes that are moving west to Tesoro refinery in Washington State. Probably some that are making their way to California. I think the one to watch would be Kinder Morgan’s announced intent to reverse the El Paso gas line and put it into oil service west to California from the Permian and that could change the dynamics of how California gets supplied with light oil and possibly relieve a little bit of the Cushing bottleneck. So that’s one to watch when you start looking at California and comparing rail options to let’s say California or to Washington State versus pipeline options.

I think there will be movements that go that way from the Bakken. I think the Berthold facility is not primarily, from the look of the contracts, we have not primarily directed in that direction but of course once it’s on the rail it does have a choice of destination.

TJ Schultz – RBC Capital Markets

I’m sorry if I missed this but in the natural gas segment, can you quantify the condensate stabilization service impact in the quarter or what was the favorable prior period adjustment?

Stephen J. Neyland

Maybe I’ll just expand on that too. The prior period adjustment, from a run rate standpoint we had a couple of notable items. One is the favorable prior period of approximately $7.5 million the other one going the other direction is we had operating cost expenses of approximately $4.5 million related to a write down of line pipe we had to fair value. So you can think about those two on a net basis, that might be the helpful way to think about things.

TJ Schultz – RBC Capital Markets

Just lastly, what’s the expected timing right now for the Line 5 expansion to be in service?

Stephan J. Wuori

That’s Q1 of 2013.

Operator

Your next question comes from James Jampel – HITE.

James Jampel – HITE

You mentioned the use of EEQ as a potential financing source and I’m wondering if the idea there is to primarily enhance liquidity in the security?

Stephen J. Neyland

I think as we look at the size of our capital program on a go forward basis it’s obviously significant and so as we look for a means of flexibility EEQ is one mechanism that has been lightly used as we look historically. Today, we think it’s a good adder and it’s not certainly a solution to our go forward financing so it will be a way to as, some of our management here has used the technical term of spackling in some of the financing that we need to do, we look at that as a good option. It’s not driven by a liquidity driver per say but just another means to accomplish the job we have in front of us.

James Jampel – HITE

Would you anticipate a potential public offering or more of a private placement?

Stephen J. Neyland

We leave all those options on the table certainly, but doing the shelf enables us to be well positioned when we feel it’s appropriate we could then fairly quickly move towards a public offering.

Operator

Your next question comes from John Edwards – Credit Suisse.

John Edwards – Credit Suisse

I was just curious going back to Sandpiper, do you think there’s enough demand for both Sandpiper and the other major competing Bakken pipeline proposal that is out there?

Stephan J. Wuori

That really depends on whether other proposals move forward or not and also as we were talking earlier about the effect of rail. There certainly is the production profile depending on which forecast you believe looks robust enough considering where we are today at 600,000 barrels a day or under out of the Bakken moving to in our forecast about one million barrels per day and in some forecasts as high as 1.2 million to 1.3 million in the next three or four years.

So certainly there is supply scope to supply pipes but it’s going to take more than a generality to figure that out and I think Sandpiper is what we are moving forward with because we do see the demand for that tranche. I think the key thing is you never want a pipeline up to the ragged edge of the forecast because pipes are in place for a long time you want to make sure that those pipes will be utilized and that’s what we’re doing with Sandpiper.

Operator

Your next question comes from Noah Lerner – Hartz Capital.

Noah Lerner – Hartz Capital

I’m going to phrase this gingerly and I’ll understand if you need to tap dance around it. But, I’m just curious what your current thinking might be as far as the geopolitical outlook now that we’re coming down here south of the border for a political decision about bringing additional volumes and additional pipelines in the future across the Canadian US border either as an opportunity for growth or as a determinant for expansion whether by yourselves or some of your competitors?

Stephan J. Wuori

I don’t really know Noah if there’s a reason to dance around it. Frankly, I think that regardless of the outcome next Tuesday, and my absentee ballot went in a couple of weeks ago, it’s clearly that Canadian crude moving to the US is very attractive as we look at a North American overall energy security picture and production rising in Canada as well as in many areas of the US. So I think that the outcome of the election, I don’t think is really impede or change the general direction that’s being taken which is that there is a lot of production in the US and growing production also in Canada.

I think for us the key issues is what are the best markets for that production? The rail gives you the best picture as to what happens when there are large arbitrage opportunities that develop. You can pay $10, $12, $15 a barrel on the rail if the differential is $20 at Tidewater somewhere as it is today. That goes away if those differentials go away. But, I really do think that the growing volumes of Canadian crude, certainly Canadian heavy volumes which will first be needed in Upper [Pad 2] for conversions that for example BP Whiting and Marathon at Detroit and then down in the Gulf Coast which is what our planning in South and Seaway projects are all about. That’s I think pretty clear that the demand is there, the supply is coming and so that’s a match. So I don’t really think that there’s a real political overlay to the picture of Canadian crude moving into the US.

Operator

I would now like to turn the call over to Mr. Sanjay Lad for closing remarks.

Sanjay Lad

That concludes our call for today. Thank you for your participation and I will be available for any follow up questions you may have.

Operator

Thank you for joining today’s conference. This concludes the presentation. You may now disconnect.

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