Inergy's CEO Discusses Inergy Midstream's Acquisition of COLT Crude Oil Logistics Hub (Transcript)

Nov. 6.12 | About: Crestwood Midstream (CMLP)

Inergy, LP (NRGY) Inergy Midstream Acquisition of COLT Crude Oil Logistics Hub Call November 5, 2012 11:30 AM ET

Executives

Mike Campbell – SVP and CFO

John Sherman – Chairman and CEO

Brooks Sherman – President

Bill Gautreaux – President, Inergy Services

Will Moore – VP, Corporate Development

Analysts

Darren Horowitz – Raymond James

Brian Zarahn – Barclays

Brett Reilly – Credit Suisse

Elvira Scotto – RBC Capital Markets

Ethan Bellamy – Baird

Selman Akyol – Stifel, Nicolaus

Noah Lerner – Hartz Capital

James Jampel – HITE Capital

Operator

Good morning. My name is Holly, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Inergy Midstream Investor Call. (Operator Instructions)

I’d now like to turn today’s conference over to Mike Campbell. Please go ahead.

Mike Campbell

Thank you, Holly, and good morning, everyone. Welcome to the Inergy Midstream investor conference call to discuss the acquisition of the Crude Oil Logistics Hub.

With me here today is John Sherman, Chairman and CEO; Brooks Sherman, President of Inergy LP; Bill Gautreaux, President of Inergy Services, our NGL supply logistics business; and Will Moore, Vice President of Corporate Development.

I trust that everyone has seen the press release issued this morning and has access to the presentation materials that have been posted to our website. The outline of our call today is such that John Sherman will cover some highlights of the acquisition for the partnership, and then Brooks Sherman, Bill Gautreaux, and I will walk through the transaction in more detail. We will then open up the call for Q&A.

Before we get started, I would like to read a short forward-looking statement disclaimer: in our discussion today, we may communicate certain forward-looking information, various risk factors, including regulatory proceedings, commodity prices, and weather conditions, among others that may cause actual results to differ materially from any projections or estimates in these forward-looking statements. We provide a detailed discussion of these risks factors and others in our SEC filings, and we encourage you to review these filings.

With that I would like to now turn the call over to John Sherman. John?

John Sherman

Thanks, Mike. Good morning. First let me congratulate our counterparty on this transaction. Chris Keene and the Rangeland team and EnCap Flatrock have developed a great asset. The location, the scale, and capabilities of this complex are outstanding. We inherited a solid customer base that we expect to grow, and this asset was designed for cost-effective expansion that we believe will result in high-return bolt-on projects for our investors.

With the recent divestiture of our propane operations, we repositioned the partnership as a pure-play midstream business with a strong financial position. Since then, we have focused on organic growth and expansion projects around our existing assets and growing our NGL logistics business. Concurrently, we’ve been evaluating acquisition opportunities that meet our criteria for investment. We are focused on the rich shale plays, targeting infrastructure that moves fundamental supply to premium demand markets, assets that complement and extend our existing operations, and deals that are immediately accretive and bring expansion opportunities that enhance economic return.

This transaction does a lot for us. First, it’s a franchise asset in the Bakken. It’s immediately accretive and grows to be more so over time. Income is derived from fee-based, contracted cash flows. It diversifies our earnings from both a geographic and product standpoint. It’s in a developing shale play with lots of opportunity. And it complements what we do today.

Bottom line, this is an exciting deal for Inergy, and I expect it will lead to more opportunity.

I’ll now turn it over to Brooks and the rest of the team for a detailed description of the transaction.

Brooks Sherman

Thanks, John. I’m on page 3 of the presentation that was on our website. I’ll do a couple of pages here before I turn it over to Bill to talk about the business.

But on page 3, on the transaction, NRGM has executed a definitive agreement to purchase Rangeland Energy, LLC or the COLT Hub for $425 million subject to certain performance milestone and customary working capital adjustments. What we mean there is that we’ll pay $415 million up-front for the business. Additional $10 million will be paid into escrow pending a signed contract on a small added rail piece.

The COLT Hub is an integrated network of crude oil railcar loading, pipeline, and storage assets strategically located in the Bakken. It provides our customers outbound throughput via rail and pipelines. Inbound throughput comes in via pipe and truck, with 720,000 barrels of storage capacity there. The acquisition of the COLT Hub is really an expansion of our existing refinery services platform and is an early entry for us into another great shale play.

The run rate EBITDA that we see of this business is $58 million. That’s where we’ll be – the run rate we expect to be – at October 1, 2013, so a full-year fiscal 2014, that’s our expectation, about a 7.6 times multiple pay.

You see in the presentation that 90% of the capacity is contracted or committed under long-term take-or-pay contracts. Over the course of the next 11 months, new contracts coming online leading to the full utilization of 120,000 barrels per day of rail capacity and contracted, leading us to that $58 million. The transaction is immediately accretive. We believe creates a long-term strategic and further economic value, and at the $58 million EBITDA run rate, the accretion to NRGM is about 9%.

Page 4, three high points on the strategic rationale, the long-term strategic value that we see. The crude and NGL logistics are highly compatible, and it’s a good platform for us for growth. This is a newly constructed crude terminalling system, an integrated network of railcar loading pipeline and storage assets, creating a source of liquidity and access to crude oil import-dependent PADD I and PADD V markets. So today, this asset is supplying PADDs I and V that are otherwise import-dependent. It’s the largest rail terminal storage – has the largest rail terminal storage capacity in the Bakken, with access to multiple downstream markets through those facilities, and it’s really a first-mover advantage in building a regional crude hub.

Stable cash flow supported by take-or-pay contracts with multiple customers, the average life of those contracts approaching four years. Large creditworthy refiners are those customers, and so it provides good diversification of NRGM’s cash flow at increase scale.

Bill will talk more about this in a just a second, but the crude oil logistics are similar to our existing NGL logistics, and this facility is physically much like our West Coast facility. So it’s something that we know and something we can grow. It assures flow assurance for the producers to downstream markets through the virtual pipelines that we call out here, and it’s really an expansion of our refinery services.

And with our West Coast business, the access to California PADD V creates a great link for us. It’s a platform for growth. Existing facilities were built with the intent to increase the capacity and expand the offerings. And there are organic growth opportunities to blend this transaction multiple down over time.

Bill?

Bill Gautreaux

Good morning. If you would, please refer to page 5. Let me just start by saying that this asset was – the vision for this – was coming from some highly qualified management team in both crude logistics and understanding of the commercial drivers of the crude market overall. They had a broader vision for this asset base. The intention was to create a significant point of liquidity.

We believe it’s a best-in-class asset. It’s in a great location. 68% of the wells currently drilling in Bakken are within a 50-mile radius of this asset. A number of them are in Williams County. The asset was built with the intention to be scalable and with the intention of high degree of pipeline connectivity. So ultimately to get Bakken crude to the premium refining markets at Pad I and V, but also to provide a point of liquidity and access to multiple pipelines.

If you turn to page 6, we’ll talk a little bit about the asset itself. These are newly constructed assets.

The COLT facility is in Epping, North Dakota. They began operations in May of 2012. They can load 120,000 barrels a day in unit train railcars. They are Class 1 certified. Believe it’s the only facility currently able to load a 120-car unit train. There is a double rail loop allowing a loading of a 120-car unit train within 10 hours.

They have a connection to BNSF at the high-velocity delivery point on their system. The facility is designed so that there are no horizontal curves or vertical curves, so in a great location for connectivity to the rail facility.

There is a large truck-unloading facility, eight truck bays, total of about 65,000 barrels a day of capacity.

We have 600,000 barrels of dedicated crude storage. It’s currently the largest crude facility – storage facility in North Dakota. There are five 120,000-barrel working capacity tanks at the COLT facility. Connected to the COLT facility is what we refer to as the COLT Connector. It’s a 21-mile 10-inch bi-directional pipeline that connects the COLT receipt and rail-loading facility to the Dry Fork Terminal.

Currently the COLT facility has interconnected with the Banner Hiland Partners pipeline gathering system. There is a planned interconnect with Bear Tracker gathering system. And this facility has very similar operating characteristics to the North Coles Levee Inergy West Coast facility in Bakersfield.

If you turn to page 7, you’ll see an aerial view of the facility, showing the double rail-loading loop. A covered rail-loading facility, which is a unique characteristic of this facility, prevents interruptions during the harsh winters here. One of the only facilities of its kind with a covered rail loading apparatus.

You can see the tank farm there with a large opportunity for expansion. We think this facility, currently holding 5 crude storage tanks, is capable of holding up to 15 to 20. And then off to the right, you’ll see the truck station and the pipeline interconnectivity.

Flipping the page to page 7, we move on to the Dry Fork Terminal overview. This is located at the intersection of four…(Technical difficulty)

Operator

Ladies and gentlemen, this is the operator. On behalf of the conference center, we’d like to apologize for the technical difficulties that did occur on today’s conference call. To resume the conference call, I’ll turn the call over to Mike Campbell.

Mike Campbell

Good morning again, everyone, and we apologize for the technical difficulties that InterCall is having. We hope that everyone has been re-establishing their lines on the call.

We are going to resume where we left off, or were cut off, and continue through the materials that we have to present today. So with that, I’m going to ask Bill Gautreaux to pick up where we he left off, and we’ll continue the conference call.

Bill Gautreaux

Okay. So sorry about the disconnect, guys.

So let’s do a real quick backup here. We had started on page 5; we talked about the facilities map, basically the vision for this asset as a point of liquidity, a high degree of pipe connectivity, storage and unit train loading capability. We went on to the specific COLT Terminal asset overview on page 6, talking about some of the capacities and connectivities and storage. And we were just getting to the Dry Fork Terminal overview.

As we discussed, the COLT Terminal is connected to the Dry Fork Terminal by the COLT Connecter, which is a 10-inch, 21-mile bi-directional pipeline. The Dry Fork Terminal has 120,000 barrels of working storage capacity. It has connections with the Tesoro pipeline, the Enbridge pipeline. It is at the intersection of Beaver Lodge/Ramberg, a pipeline hub junction. And there have been a number of discussions and evaluations of potential interconnects, including ONEOK, Hess, TransCanada. We talked about the connection agreement with Bear Tracker earlier.

So, again, the main points here are, this is an integrated asset base providing takeaway for Bakken producers, both by pipe and by rail, and providing storage. It is in a tremendous position relative to where the Bakken production is taking place. It is a best-in-class asset, and it is providing liquidity for PADD I and PADD V refiners who were looking to access lower-cost Bakken crude.

So with that, I will turn it back over to Mike.

Mike Campbell

Thanks, Bill. I’m on slide 9, just to cover the financing plan. NRGM has a committed financing plan in place. In connection with the transaction, we have entered into an agreement to sell to intuitional investors $225 million of NRGM units at a purchase price of $21 per unit, representing approximately 10.7 million new units. This common unit sale is conditioned upon and will close concurrently with the COLT transaction. The $21 purchase price for the common units represents an approximate 7.6% discount based upon Friday’s closing unit price, adjusted for the $0.385 fourth fiscal quarter distribution that the PIPE investors will not receive.

In addition to the common unit private placement, we’ve obtained a $225 million committed unsecured bridge financing facility to ensure availability of capital at closing, and we intend to access the long-term debt capital markets prior to closing the transaction. I’ve outlined the sources and uses on the bottom of page 9, and I believe those are self-explanatory.

The bottom line on the financing around this transaction is that we have fully equity financed the deal, and the response from the investors was very positive. When we look at NRGM’s leverage on a trailing basis, pro forma for this transaction, we see it’s just under four times. And as we look forward to 2013, we see driving that leverage to the area of about 3.6 times.

Before we open the call up for Q&A, I’d like to take a moment to provide our preliminary adjusted EBITDA outlook for NRGM. With an assumed closing date of early December 12 for the Rangeland acquisition we would expect the adjusted EBITDA for NRGM to be in the area of $180 million for fiscal 2013.

Included in this expectation is the Marc I Pipeline entering firm service on December 1, our Finger Lakes project coming online in the spring of 2013, and as Brooks has previously covered in our prepared remarks, as we move through fiscal 2013, Rangeland has certain contracts that begin during the year, resulting in the adjusted EBITDA ramping up incrementally.

Taking all of these items into account, when we get to the end of fiscal 2013, we would expect the exit annual run rated of adjusted EBITDA for Inergy Midstream to be in the area of $215 million. That would exclude any potential dropdowns from NRGY, any further organic projects that I have not discussed above, and any future third-party acquisition activity.

We expect to provide more color regarding fiscal 2012 at our analysts conference in early December. And with that I’d like to now turn this call back to the operator for the Q&A. Holly?

Question-and-Answer Session

Operator

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

Mike Campbell

Good morning, Darren.

Operator

Darren, your line is open.

Darren Horowitz – Raymond James

Hello?

Operator

Darren, go ahead.

Darren Horowitz – Raymond James

Yeah. My line is live, can you hear me?

Mike Campbell

Yes, Darren, go ahead.

John Sherman

Yeah, Darren. We got you.

Darren Horowitz – Raymond James

Okay. Yeah, good morning, guys. Bill, with regard to the organic expansion opportunities that you talked about, whether or not it’s the extension of that Banner gathering system or the connections into Bear Tracker or Dry Fork or some of that additional storage capacity, can you give us a better idea of what you think the aggregate scale and scope of the opportunities that you’re considering looks like? I’m just trying to get a sense for the timing and the magnitude of where that blended transaction multiple could get to over the next couple of years?

Bill Gautreaux

Yeah. Darren. I think, as we said, currently the facility can load 120,000 barrels a day of unit trains. That is fully contracted at this point. There is an expansion opportunity on the second loop of the system that could allow us to add an additional 40,000 to 80,000 barrels of unit train loading capacity. I think the 40,000 is a much easier grab than perhaps the 60,000 or 80,000. So I think initially, we will be working urgently on evaluating that expansion and picking up ongoing discussions with refiners who have demand for that volume. And so that’ll be one of the first things that we look at.

But I can’t give you specific ranges on what that multiple could go down to, but I would just reinforce once again that this is going to a beginning for us in this marketplace. A big part of our attraction here is what we think is the scalability of this asset and the way that it was designed with expansion in mind, and connectivity. And we will be bringing a lot of NGL expertise and focus to this area in trying to determine how we can provide those services as well. And so definitely expansions of the existing business lines there, both loading capacity, potential storage expansions, and greater pipeline interconnectivity. But I think we will also be looking at expanding the services as well.

Darren Horowitz – Raymond James

How do you think about, Bill, the balance between adding more CapEx to link up your asset footprint in the Northeast versus linking up the West Coast NGL assets? Because it would seem to me that this is one of those strategic platforms where you can kind of get the bi-directional benefit. Am I thinking about that the right way?

Bill Gautreaux

Well, I think the biggest relationship between this asset and our existing platform is really the refinery services business that we have embedded in Inergy Services, where we’re already dealing with both East Coast and West Coast refiners who are the primary customers for this facility now and where we think a lot of the growth lies beyond just also creating some pipeline connectivity for producers and marketers that want to go to other locations.

Darren Horowitz – Raymond James

Got you.

Bill Gautreaux

And so I think that the main synergy there is really with the NGL refinery services business rather than, for instance, our dry gas storage operations up in Marcellus.

Darren Horowitz – Raymond James

Yeah, I was more thinking along of kind of leveraging the vertically integrated approach to building out the Bakken facility, similar to what you did on the East Coast, and maybe the opportunity ultimately to move a lot of those incremental barrels to the East, because it seems like that’s the biggest area of demand pull?

Bill Gautreaux

Well, certainly the East is where we’ve seen the greatest build-out of receipt facilities. I think currently there’s either completed or announced almost 700,000 barrels a day of receipt facilities. And Bakken shipments are still plus or minus around the 300,000 barrel a day range. And so, yeah, we absolutely would see demand coming from the East Coast, and some of the demand in the current contract system is East Coast, but certainly a lot of it is PADD V.

Darren Horowitz – Raymond James

Okay, that’s all I had. I appreciate it, Bill.

Mike Campbell

Thanks, Darren.

Operator

Your next question comes from the line of Brian Zarahn, Barclays.

Mike Campbell

Good morning, Brian.

Brian Zarahn – Barclays

Can you talk a little about how this transaction came about. This is entering the crude business and expanding over to the Bakken, sort of stepping out your geographic exposure. Can you talk a little about this?

Will Moore

Yeah, this is Will. We as a management team have been looking for additional areas to make investments, both geographically and product-wise. And we really feel like, in order to be a completing midstream company here, which is a new focus of the company, and we want to be able to provide midstream solutions in both crude, NGLs, and natural gas.

And so we’ve been looking at different investment opportunities, and this one fit all of our investment criteria, as well as we got a new entry point into the Bakken, which we think is either the number one or number two crude play in the United States right now. So I think it’s a combination of what Brooks said at beginning of the call, when you look at high-quality assets and a great shale play with – that’s immediately accretive and with strong existing customers that help underpin the business. This transaction just hit on all those characteristics and made a lot of sense for us from that perspective.

Brian Zarahn – Barclays

And in terms of the assets are relatively new, I’m assuming that maintenance CapEx is fairly low. Can you give us any color as to what your maintenance CapEx assumptions will be?

Mike Campbell

Yeah, Brian, this is Mike. You are right. Maintenance CapEx for this business is fairly low, I think in the neighborhood of $0.5 million to $1 million as we kind of get out of the gates here.

Brian Zarahn – Barclays

Okay. And then, last question from me on your contracts. You mentioned your average life is about four years. Are those fairly evenly distributed, or are some contracts significantly longer? And also, are there any inflation escalators on the contracts?

Will Moore

Yeah, this is Will again. Most of these contracts are four and five years, which really kind of blends it down to four. We’ve got one that’s a little shorter. But they average four to five years if you look at it. And those do have inflation adjustments in them every year.

Brian Zarahn – Barclays

Thank you.

Operator

Your next question comes from the line of Brett Reilly, Credit Suisse.

Brett Reilly – Credit Suisse

Good morning, guys. Is there any way you guys could speak to the utilization of the assets currently, just to get a sense for kind of where we are in that ramp up?

Will Moore

Yeah, this is Will again. This facility, like we said, is brand new, and the customer contracts are coming on kind of in a staged manner. We just had one come online November 1. That contract ramps up through the course of the next 12 months. We have another significant contracted piece coming online December 1. And then the Rangeland team actually executed an amendment to an existing contract that added volume and extended the term of that contract prior to signing on Friday.

And if you look at that, what we’re seeing today from our customers is most customers are either using all of their capacity or exceeding their capacity at this time. In this early stage, we have a little more flexibility because of the ramped nature of the contracts, and so we’re actually allowing some customers to go over their firm volumes. So we’ve seen pretty high utilization from an asset that’s only been in service here five months.

Brett Reilly – Credit Suisse

Got it. And is there any way to break down, of that $58 million in EBITDA, the amount between storage, rail loading, and the truck facilities that you have?

Will Moore

Yeah. I mean, most of that comes through the rail load-out, in terms of the majority of the EBITDA, and that’s the component that is primarily take-or-pay – all the rail load out is take-or-pay. And so that’s where you’re driving most of the revenue. There are some take-or-pay storage contracts and pipeline contracts as well. And then you have a little volumetric fee on primarily how the product enters the facility, whether that be through truck or pipe.

Brett Reilly – Credit Suisse

Okay, and then any concerns longer term about the viability of rail four years down the road when those contracts do roll?

Will Moore

Bill, you want to take that one?

Bill Gautreaux

Yeah. Certainly we looked very hard at the alternate takeaway capacity, both pipe and rail. What we relied heavily on is the quality of this customer base, the needs of these PADD I and PADD V refiners. How many barrels are currently moving today by rail. And we looked at a number of different projections on what Bakken production’s going to be, what we think rail demand could be, and how that optimizes in from a pricing standpoint.

And bottom line is that we believe that the amount of Bakken that’s going out by rail is going to increase substantially over the next several years, and that we have a pretty high percentage of the market right now with our current contract base. We would actually see our percentage of market share going down significantly, but also being able to maintain our current rates and an expansion.

Brett Reilly – Credit Suisse

Got it. And then just lastly, how many acres of land is the facility on today? And I guess of the total, is there a significant portion that’s unutilized right now? Just trying to get a sense of how much room you have up there to expand?

Bill Gautreaux

Yeah, I believe it’s about 318 acres, plus or minus, and that’s certainly part of the attraction here is around COLT there is some significant expansion opportunity.

Brett Reilly – Credit Suisse

Okay. Thanks, guys.

Operator

Your next question comes from the line of Elvira Scotto, RBC Capital Markets.

Elvira Scotto – RBC Capital Markets

Hi, good morning. Just a couple of follow-up questions for me. I guess, number one, was this a negotiated transaction or did this go through an auction?

Will Moore

This is Will again. This kind of transformed from a process into a negotiated transaction. We had the opportunity – it was brought to us through a relationship we had to negotiate this on an exclusive basis.

Elvira Scotto – RBC Capital Markets

Okay, great. And then just thinking longer term, how should we think about your expansion here? Are we looking at sort of increasing your footprint in the Bakken, or are we looking at trying to get into some other crude midstream infrastructure longer-term for NRGM?

Will Moore

I think the answer there is yes. I mean we’re going to be diversifying this asset footprint. I think you heard Bill talk about the move to NGLs and bringing our expertise there, as well as expanding on the existing services that are already provided at COLT.

But we also think this could anchor additional investments – crude investments for us in other geographic regions as well, and we’re evaluating those on a kind of real-time basis, and those look to be pretty attractive, both from a feasibility and return standpoint.

Brooks Sherman

Yeah, Elvira, this Brooks. I think we are – this is a crude business, so it’s different than the natural gas business that we’re in in the Marcellus. But I would use that as an example of us having bought assets there, expanded upon those assets, and made further acquisitions to grow to the level that we are there today in both natural gas and liquids. And this, we think, could provide a similar opportunity in another great shale.

Elvira Scotto – RBC Capital Markets

And then, just sort of playing on that, in terms of people, do you think you’d need to hire more people in this area?

Bill Gautreaux

We are retaining all the existing operating employee relationships. Our Bakersfield operation will have oversight of the plant operations of this Rangeland asset, and then our commercial team in Kansas City will have P&L and development responsibilities.

And we are in some discussions with some people out of the crude space, as well part of the management team here at Rangeland, to at least add one crude-related person in Kansas City as part of our senior commercial team.

Elvira Scotto – RBC Capital Markets

Great, thanks. That’s all from me.

Bill Gautreaux

Thank you.

Operator

Your next question comes from the line of Ethan Bellamy, Baird.

Ethan Bellamy – Baird

Hi, guys. Congratulations on the deal. A few questions for you. Mike, are there – how much are the one-time deal-related costs, and how should we expect those to be spread out over the quarters?

Mike Campbell

What we’ve got in the presentation, Ethan, is including kind of the long-term financing costs, we’ve basically estimated about – just under $9 million.

Ethan Bellamy – Baird

Okay, and any specific quarters? How should we see those –

Mike Campbell

Well, generally, we would look to long-term finance this transaction before we close. Some of that is going to be capitalized, so it won’t get into any quarters. We’ll provide potentially more granularity on how that plays out at our analysts conference.

Ethan Bellamy – Baird

Okay, and with respect to potential seasonality on this asset, what sort of weather risk are you thinking about here? And has this terminal been prone to flooding in the past, and if so, how long was it down?

Will Moore

Ethan, this is Will. The seasonality – these guys have done a great job of, when they built this facility, putting in a covered rail loop. We’ve got a little capital to make other improvements that will make it easier to operate during the harsh winter. So we feel like, from a facility standpoint, we’re well covered off.

And I would say this facility has gone a lot further than some of the other rail facilities, being able to ensure service during tough weather conditions. This facility historically has not been prone to flooding. We had a flood up there two years ago and didn’t have any significant flooding onsite there. It’s built up a little bit, and so have less of a concern.

But we think this is a great asset. And the guys that built this have really thought about building in a way that prevents interruption from either mechanical or weather type of problems.

Ethan Bellamy – Baird

Okay. And then with respect to the existing customer base, we’ve obviously got new pipeline export capacity coming out, and I’m just curious if there are any customers that you know will be going away at the end of their contract to use pipelines. Is that something that you have any visibility on that, meaning you’d have to potentially go replace those volumes with a different customer at the end of the contract?

Bill Gautreaux

Yeah, I think that’s something we’ve certainly looked a lot at. All of our customers are PADD I and PADD V refiners, and at least at this point, there’s no visibility towards any kind of pipeline solution to those markets.

And currently, they are really competing for the ability to get this Bakken crude into their feedstock slate, and we’re seeing more demand for this capacity than we’re able to supply, which is why we’re looking at the expansion and want to execute around that as quickly as we can.

And so the – four or five years is a long way off, but I mean from everything we’re seeing from these PADD I, PADD V refiners, this is a long-term strategy on their part.

And I think looking at the receipt terminal build-out that you’re seeing on the East Coast – and to some extent the West Coast – supports that.

Will Moore

Yes, and, Ethan, I would just add to that. As I mentioned earlier, Friday, the Rangeland team executed an extension of an existing contract with a PADD I refiner. So there we were seeing guys looking to extend their deals and positioning themselves long term, as Bill said. And that’s a pretty fresh data point, being last Friday where we had that kind of activity going on.

Ethan Bellamy – Baird

Okay, that’s helpful. And then one last question with respect to the rail export capability. Is there any specific line or operator to which you’re exposed that we should think of as maybe a bottleneck or – and just somebody that we should be watching specifically?

Will Moore

Yeah, Ethan, this is Will again. We’re only connected to BNSF at this time, but we think that’s the best system to be on, especially if you look at the concentration of our customers and the trip times that have been averaged here.

We’ve actually been seeing trip times of five days round trip between this facility and PADD V, and we think that’s phenomenal. BN right now is doing 2 to 3, they say, unit train loads out of the Bakken today, and they have publicly said they could do 14 a day if necessary.

But we think being on the BN system is a great advantage of this system, and we see the ability to grow long term as they continue to grow.

Ethan Bellamy – Baird

Thanks, Will.

Bill Gautreaux

Yeah, and I’ll just add. The facility’s on the high-velocity section of that railroad. And the management has worked hand in glove with the railroad all along the way, and they are very enthusiastic about this business, and even to the point where those railroads will try to compete versus new pipeline build-outs.

Ethan Bellamy – Baird

Okay. Thank you. Congratulations.

Bill Gautreaux

Thank you.

Will Moore

Thanks, Ethan.

Operator

Your next question comes from the line of Selman Akyol, Stifel Nicolaus.

Selman Akyol – Stifel, Nicolaus

Thank you. Good morning.

Bill Gautreaux

Good morning.

Selman Akyol – Stifel, Nicolaus

With all the connection at Dry Forks, are you guys thinking at all of either trading for your own account, doing any logistics from that standpoint? Or would this all just be contracted out?

Bill Gautreaux

Yeah, this is Bill. I mean, our – right now, we’re 100% contracted. As I said, we’re seeing more demand for the same type of contract service.

I think getting this facility expanded as quickly as we can and contracting that incremental demand, and then looking at new ways to expand the asset base, that’s going to be our focus.

Certainly through our Inergy Services business, we’re involved in the supply and logistics side of the business, and marketing product for producers to end users. So we have that capability. But initially that is not our focus.

If anything, I think, one of the traits of this facility is that it was one of the first open-access facilities, whereas a lot of the other facilities are either owned by a producer trying to get their product to market or a proprietary merchant, and so we’re sensitive to that as well.

Selman Akyol – Stifel, Nicolaus

Fair enough. And then in terms of just customers, can you talk about, like, your top three customers account for how much of your revenues? Or is there any way -to put brackets around this?

Bill Gautreaux

I would just say that we’re dealing with some of the premiere refiners.

I think Rangeland put out a press release where a couple of the customers were identified, including Tesoro. And certainly this asset is strategically located to their facilities, both their Mandan refinery, interconnectivity to their pipeline. And so it gives them the ability to continue to gather their own crude, supply their local refinery, come into the COLT Terminal, go across to our pipeline to both their pipeline and local refinery, and then also to balance back out of the COLT Terminal and to take that crude by rail to Anacortes.

And so that is certainly one of the strategic relationships that we’ll be working to continue to execute and grow on.

Selman Akyol – Stifel, Nicolaus

All right, thank you.

Operator

Your next question comes from the line of Noah Lerner, Hartz Capital.

Noah Lerner – Hartz Capital

Thanks, everyone. The question was already asked. So I just want to wish you the best of luck and congratulations.

Will Moore

Thanks, Noah.

Bill Gautreaux

Thank you.

Mike Campbell

Thanks, Noah.

Operator

And your next question comes from the line of James Jampel, HITE Capital.

James Jampel – HITE Capital

We were always hoping to get a little bit more into NRGM, and we’re a little disappointed that there doesn’t seem to be any liquidity for NRGM in this transaction. Can you comment as to why you went the way that you did?

Mike Campbell

Well, James, this is Mike Campbell. NRGM is – we took that entity public last December. And at current, we are not shelf-eligible – we’re not a shelf registrant. We won’t be able to file that shelf until January.

So we felt very strongly in financing this transaction that it was important for us to really put away the equity around this purchase price and fully finance that, take away any perception that equity was yet to come.

So we feel very good. We’ve got a strong slate of high-quality investors in the PIPE, and hopefully that answers your question.

James Jampel – HITE Capital

Is there any lockup on the PIPE shares?

Mike Campbell

There is. There will be an 8-K filed later today that’ll outline the PIPE and the documentation around that. But there is a 90-day lockup, and it goes both ways.

James Jampel – HITE Capital

I see. And looking at this asset, and say who could by this asset? The name Inergy didn’t come first to mind for us, as to who was going to potentially buy this asset. Can you give a little more color as to how you guys won it?

Will Moore

Yeah, this is Will. And I think it’s a number of things. We were looking to diversify, like I said, both geographically and product wise. And then you couple that with kind of the financial flexibility that we have, post the Suburban transaction, with two public entities and very low leverage at both of those entities. And you couple that with the seller’s desire to get a transaction done in the near term.

And I think it was just a nice culmination there on all fronts, where we were able to meet their goals and move fast enough and provide them a transaction that was a all-cash deal. I think that added a lot of value to us being able to win this thing.

James Jampel – HITE Capital

I see. And how should we think about synergies between this operation and your existing operations?

Will Moore

I think most of –

Bill Gautreaux

Let me give one example. I mean, before this announcement, we’ve had discussions for the past several months with one of our large customers around our Bakersfield facility about the – they really came to us about the possibility of building out a crude receipt facility there. They also have acreage in the Bakken and were interested in the proximity of our facility to other crude pipelines in the California market. And so that’s kind of an example of some of the synergies that we think may be there with existing assets, but certainly another big one for us is that these same crude producers, to some degree, have some wet gas associated with their production, and our background on the NGL side, we think, will give us some opportunities to provide additional services.

James Jampel – HITE Capital

Okay. Thank you.

Will Moore

Thank you.

Mike Campbell

Thanks, James.

Operator

At this time, there are no further questions. I’ll now turn the conference back over to Mike Campbell for closing remarks.

Mike Campbell

Thank you, Holly. And once again, I want to reiterate, we apologize for the technical difficulties experienced on the call today. We thank you all for joining the conference and appreciate your interest in NRGM. Thank you.

John Sherman

Thank you.

Operator

Thank you. This does conclude today’s conference call. You may now disconnect.

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