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Executives

Peter Delaney – President, Chief Executive Officer

Sean Trauschke – Chief Financial Officer

Keith Mitchell – President, Enogex

Todd Tidwell – Director, Investor Relations

Analysts

Anthony Crowdell – Jefferies & Co.

Ashar Khan – Visium Asset Management

Brian Russo – Ladenburg Thalmann

Jay Dobson – Wunderlich Securities

Sarah Akers – Wells Fargo

OGE Energy Corp. (OGE) Q3 2012 Earnings Call November 7, 2012 9:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Third Quarter 2012 OGE Energy Earnings conference call. My name is Jenade and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question and answer session. If at any time you require operator assistance, please press star followed by zero and we will be happy to assist you. As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Mr. Todd Tidwell. Please proceed.

Todd Tidwell

Thank you, Jenade, and good morning everyone, and welcome to OGE Energy Corp.’s Third 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 third quarter results, 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, that this is our best estimate today. In addition, there is a Regulation G reconciliation for EBITDA in the appendix, along with projected capital expenditures.

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

Peter Delaney

Thank you, Todd. Good morning. For the third quarter of 2012, we reported earnings of $1.87 per share compared to $1.80 in 2011. Year-to-date earnings were $3.20 per share, ahead of last year’s $3.09 per share for the same period, and our consolidated earnings guidance for $3.40 to $3.60 per average diluted share is unchanged for 2012. We are on track and remain comfortable with our guidance.

Regarding the third quarter, higher earnings were driven primarily by the solid performance at the utility. Although weather was above normal, quarter-over-quarter earnings were negatively affected by milder temperatures compared to the record summer heat in 2011. Higher earnings this year reflect the higher quality of earnings at the utility. Compared to 2011, in addition to positive weather and the AFEDC impact, 2012 earnings were based primarily on real-time cash recovery of transmission projects and other investments, customer growth, and only a slight benefit from weather.

In Enogex, we are integrating the Chesapeake Energy acquisition into our operations and among other things looking to minimize the capital required to meet their production needs. As with the Cordillera acquisition, we are in the building infrastructure phase that precedes the gathering of the natural gas volumes. Volumes, while up for the year 2%, were slightly down for the quarter. Gathering revenues still increased this quarter due to higher rates. This is contrast to processing volumes of 24% in the third quarter, reflecting the completion of the South Canadian Wheeler plants, the return to service of the Cox City plant, and the liquid rich nature of the production. These higher processing volumes and gathering revenues more than offset the decline in processing margins resulting from lower commodity prices.

While gathering volumes are below earlier projections, the fundamentals continue to look strong. Volumes are still growing, just not at the rate we had projected. This is a result of the Chesapeake deal closing later than expected and the number of wells connected at closing was lower than anticipated. In addition, several of the large acreage dedications have several zones with producers concentrating on oil. While natural gas volume projections are lower, our processing volumes are higher than expected and our condensate volumes associated with oil-focused drilling are higher as well. Sean will discuss this in more detail.

O&M expense control has been a focus of ours, as reflected in the quarter’s results. We have major initiatives underway at both businesses to keep our costs in check. Going forward, we have many opportunities to invest in the company, and cost control is fundamental to bringing value to our customers and investors alike. Capital investment is required, of course, to develop acreage dedications such as those announced by Enogex in recent months, and cost control will reduce the time required until these capital investments turn into earnings growth.

At the utility, the transmission projects are translating into earnings growth today with transmission margins up some $21 million year-to-date. By the end of 2014, as you know, we will have over 1.5 billion of transmission rate base. Perhaps more transformational is investment at the utility as our smart meter deployment is nearing completion. I’ve mentioned before our primary mission now is to extract as much value operationally from that investment. A key part of the smart grid program is our demand response goal of realizing about 300 megawatts of peak demand savings, lowering peak demand by providing customers their hourly energy usage information, day-ahead variable pricing, and ability to control their usage. We have about 35,000 customers signed up on that program, on track with expectations. We were able to shave about 70 megawatts off our peak this summer, which was an important first step in our goal of allowing us to defer the need to increase our generating capacity past 2020. We’re also looking to continue to control costs by developing and leveraging off new capabilities developed from automated metering infrastructure.

On the regulatory side, this past month we received approval in Oklahoma to recover the retail portion of two Southwest Power pool transmission projects now in service. As you might recall, this was part of our rate case settlement. We hope such riders can provide a pathway for timely recovery for future projects as they are placed into service, for at the present time we do not plan on filing a general rate case in Oklahoma any time soon. In Arkansas, we have filed for recovery of the Crossroads wind farm and expect decision in the first quarter of 2013. At the current time, we are focused on the recovery of the Crossroads wind farm in Arkansas and the retail portion of our transmission investments. However, an overriding objective in Arkansas is to reduce our regulatory lag associated with investing in that jurisdiction. This will necessitate the use of recovery mechanisms apart from general rate cases, the cost of which limit their frequency relative to the amount of earnings. Our recent steps to reduce investment will help reduce regulatory lag as well.

On the environmental front, the 10th Circuit Court decision regarding regional haze is still pending and our timeline for a decision has not changed. We expect a decision by summer of 2013. We are still on track to install low-NOX burners on seven units in the ’12 to ’16 timeframe at a cost of about $100 million. Regarding MATS compliance, we’ve indicated that DSI and ACI, depending on the amount of required particulate removal and estimated cost of 155 million to 310 million are the most likely solutions, and we will share the results of our current DSI and ACI testing on the fourth quarter call.

At Enogex, our primary focus is on integrating and realizing value from recent investments in processing plants and gathering pipeline expansions. We are well positioned to expand the footprint through our recent acquisitions and acreage dedications, and as I mentioned earlier, it will take time and resources to fully exploit these opportunities. We’ve seen this firsthand this quarter as gathering volumes were basically flat and now are projected to grow between 4 to 6% for the year. While the largest adjustments were due to the initial volumes associated with the Chesapeake transaction and dedication of rigs to oil zones with less gas production, we believe that basins are still as prolific and the rig activity is consistent with our earlier expectations. We continue to experience a great deal of activity on these dedications and we are not adjusting our 10 to 15% gathering volume growth rate for 2013. Processing and gathering volumes are still expected to grow significantly, but in this environment the ramp rate is slower than expected. We continue to anticipate volume growth from all major producers and continue to see additional opportunities to expand our footprint in the prolific areas of the mid-continent.

I am pleased with the company’s performance this year. Year-to-date, we are ahead of last year’s record earnings, reflecting a higher normalized earnings power. The utility, which represents 75% of our business, continues to perform and exhibit growth due in part to a very healthy local economy. The unemployment rate for Oklahoma City is 4.5%, the lowest in the nation for large metropolitan areas. Driven by a robust oil and gas environment, our service territory is growing. We are adding almost 8,000 customers a year and we are projecting about 800,000 customers in total before the end of 2013. The midstream business is growing in a low commodity price environment with a strong portfolio that should continue to allow it to grow in the coming years.

Now I’d like to turn the call over to Sean to review our financial performance in more detail. Sean?

Sean Trauschke

Thank you, Pete, and good morning. For the third quarter, we reported net income of 186 million or $1.87 per share as compared to net income of 179 million or $1.80 per share in 2011. Year-to-date consolidated earnings per share were $3.20 in 2012 compared to $3.09 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 167 million or $1.69 per share as compared to net income of 159 million or $1.60 per share in 2011. As Pete mentioned in his comments, the quality of our earnings is stronger in 2012 due to the real-time recovery of transmission projects and our various riders. Third quarter gross margin came in stronger as we saw an increase of 9 million or 2%. Weather, though positive compared to normal, was much less of a factor compared to 2011. I will discuss gross margin on the next slide.

Now looking at some of the other key drivers, as we have mentioned on previous calls, we are focused on controlling our O&M costs which were basically flat for the quarter, and we remain on plan for the year. Depreciation was 9 million higher for the quarter, and the increase was due to additional assets being placed into service, including the Crossroads wind farm and two new transmission lines.

Turning to interest expense, the increase is not due to any incremental debt at the utility this year but rather it is attributable to lower AFEDC debt associated with the investments made last year. Consistent with what we’ve provided in our earnings guidance, our income tax expense was 13 million lower in 2012 primarily due to the federal renewable energy tax credits associated with the Crossroads wind farm. These federal tax credits were 17 million higher compared to 2011. Please keep in mind that these tax credits are passed through to customers by lowering our revenue requirement for Crossroads.

As I mentioned earlier, utility margins were up for the third quarter. There were four 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 8 million. Second, our SPP transmission projects created a positive gross margin variance of 6 million. Third, growth from new and existing customers added another 4 million in gross margin. We’ve added nearly 8,000 new customers to the system compared to the third quarter of 2011, and on a weather-normalized basis residential megawatt hour sales grew at 9/10ths of a percent. Oilfield sales continued to grow and were up nearly 2% for the quarter.

Finally in 2011, OG&E refunded nearly 5 million to customers in a fuel cost settlement. Partially offsetting these increases was milder weather compared to 2011. Looking closer at weather, cooling degree days were 18% above normal but 7% below last year for the third quarter. This translated into 12 million in higher gross margin compared to normal but 16 million in lower gross margin compared to last year.

Turning to the third quarter at Enogex earnings, gross margin grew 10 million or 9%. OGE’s portion of Enogex earnings per share decreased slightly from $0.19 in 2011 to $0.18 in 2012. I’ll discuss gross margin on the next slide, but first I would like to review some additional drivers for the quarter.

Similar to the utility, O&M expenses are on plan for the year and are down slightly for the quarter. Higher depreciation expense was due to higher levels of plant in service, and you’ll notice that we had a 4 million variance in taxes other than income. This was associated with the sales tax from the recent Chesapeake acquisition and this was a one-time non-recurring item which was included in our base economics. Interest expense increased almost 4 million in part due to higher debt levels used to fund system expansion. Lastly, the impact of ArcLight’s increase in equity ownership resulted in a 4.1 million variance quarter-over-quarter.

Enogex’s increase in gross margin came from the gathering and processing businesses as they continued to show solid growth. Gathering margins were up, driven by higher fees and offset by a small decline in volumes. Process volumes grew 24% and condensate volumes increased 29% compared to 2011. As Pete mentioned earlier, processing volume growth offset most of the impact from lower NGL prices. NGL prices declined from $1.24 per gallon in 2011 to $0.83 per gallon in 2012. Natural gas prices declined from $4.30 per Mmbtu to $2.74 per Mmbtu. Condensate contributed nearly 10 million to gross margin on 7 million gallons of production compared to 7 million of gross margin on nearly 5.5 million gallons of production in the third quarter of 2011. Year-to-date condensate margins were 43 million compared to 31 million in 2011, and gallons produced were 26 million compared to 20 million for the same period last year.

At the transportation business, the primary factor for lower gross margin were imbalances. As we have mentioned in the past, imbalances are a normal component of the midstream business and are driven by the timing of settlements. Enogex’s margin continues to grow even as natural gas liquids prices have fallen more than 25%. This reflects the benefits of the changes we have made to our contracts to reduce the commodity exposure to the business, and we anticipate this trend to continue as we expect the volumes on key pole arrangements to continue to decline.

Before turning to your questions, I did want to discuss our guidance, which remains unchanged on a consolidated basis between $3.40 and $3.60 per share. Looking at the utility, we are basically on plan and with a small benefit of weather, we now believe the utility will be at the upper end of the $2.60 to $2.70 per share range. At Enogex, the guidance projection is unchanged between $0.80 and $0.95 per share. On the last call, we mentioned ArcLight would contribute up to 60 million in 2012, and this past month they contributed 45 million, bringing their equity interest in Enogex holdings to approximately 20%. For the full year, we are projecting an average ownership percentage of approximately 19%. Please see our 2012 10-Qs on file with the SEC for additional information. As is our custom, we will provide 2013 earnings guidance, financing plans, and 2013 and ’14 Enogex volume assumptions on the fourth quarter call in February.

This concludes our prepared remarks, and now we’ll open it up for your questions.

Question and Answer Session

Operator

Thank you. [Operator instructions]

Your first question comes from the line of Anthony Crowdell with Jefferies & Company. Please proceed.

Anthony Crowdell – Jefferies & Co.

Good morning, guys. Hopefully one easy question and one maybe not easy. The first thing is, you said you’re projecting declining key pole volumes or percentage of your entire contracts. I just want to know where your targets are. Is there a target level for where you think your key pole volumes would be? And then second is you talked about Chesapeake and I guess the ramp rate is slower. I wanted to turn the topic to maybe SCOOP and what Continental was talking about on their call maybe it was a month ago, a month and a half ago, and what you think the potential is at Continental.

Sean Trauschke

Okay. Hi Anthony, this is Sean. I’ll start and then we’ll turn it over to Keith, our President of Enogex. So we don’t have a target goal as far as what our fixed fee and key pole contract mix looks like. As we’ve said for many quarters now, we do see the key pole percentage declining over time. That’s driven not only by our interests but also by those of the producers. As far as the SCOOP announcement related to Continental, we’ll turn that over to Keith.

Keith Mitchell

Yeah, Continental, we’ve been working very closely with them and we’ve been aware of kind of this area for a while. You probably heard their announcement. It is a very, very exciting area. They continue to grow and have very good results down there. We are in the process of a build-out into that area. We’re extending our header. We’ve even upsized the diameter of the line down there, so it’s an area that continues to develop and area that we continue to look to grow into. But this is something obviously that we’ve been working with them for quite some time.

Anthony Crowdell – Jefferies & Co.

At the end of it, so when you’re fully developed or the potential for Continental, I mean, would they represent, I don’t know, 10% or 20% of Enogex’s total processing volumes of the product you guys receive? What do you think Continental could represent?

Keith Mitchell

Well, I wouldn’t want to speculate on what percentage. Obviously they are growing are a customer with us, but I think that they are still trying to figure out exactly how big this area could be.

Anthony Crowdell – Jefferies & Co.

Is that something we can get clarity on the fourth quarter call, or it’s just really dependent upon Continental’s drilling schedule?

Keith Mitchell

Well, we learn more every day. Certainly I would expect to know more in the fourth quarter call, but there’s still a lot going on down there. There’s still acreage being acquired, so I don’t that we’ll know everything as far as how that will develop.

Anthony Crowdell – Jefferies & Co.

Great. Thanks for your time, guys.

Keith Mitchell

Thank you.

Operator

Your next question comes from the line of Ashar Khan with Visium. Please proceed.

Ashar Khan – Visium Asset Management

Hey, how are you doing?

Peter Delaney

Hey Ashar.

Ashar Khan – Visium Asset Management

Can I ask you, with nearly three quarters in and the fourth quarter is not such a big quarter respectively, where are you on the overall guidance? Can you tell us – is it midpoint, upper or lower? Can you elaborate, and if you can’t, just the reason why you can’t with the fourth quarter nearly 10, 11, 12% of the whole pie?

Sean Trauschke

Yeah Ashar, I think we mentioned at the utility, we’re ahead of plan. We saw we got the little bit of that weather benefit there, and that’s why we said we’d be at the high end of that range, and obviously there’s a $0.10 range there so we’ll be at the high end there. I think overall, as Keith and Pete were talking about with respect to the volumes and the ramp-up there related to Enogex, if we see a lot more volumes come through than we were anticipating, certainly we’d be at the high end there. So we’re comfortable with where we are right now, Ashar, and we’re very comfortable we’ll be within our guidance range certainly at the high end of the utility, and we certainly are optimistic for the future.

Operator

Your next question comes from the line of Brian Russo with Ladenburg Thalmann. Please proceed.

Brian Russo – Ladenburg Thalmann

Could you reiterate your comments on the processing volume ramp-up? I think you mentioned it’s slower than expected. Can you reaffirm the 2012 prior volume guidance and 2013 prior volume guidance for processing?

Sean Trauschke

Yes Brian, this is Sean. It was really not the processing volumes, it was gathering volumes. We haven’t changed the processing volumes guidance, and so we originally had thought that gathering volumes would grow 10 to 12% this year, and we revised that down to 4 to 6%. And on that, I’ll turn that over to Keith to kind of talk about some of those drivers.

Keith Mitchell

Sure. The biggest driver was when we raised our guidance earlier, we were anticipating—looking at the Chesapeake deal, we hadn’t closed it yet. As we got into the due diligence and prior to closing, we could see that we’d need to make some closing adjustments, and we did. So that’s really the driver as far as the gathering. There’s still a lot of rigs running in the area. The number of wells that we’re now connecting per month are, I would say, ahead of what we had anticipated. Our volumes that we anticipated at closing is very much in line with what we’re seeing, so I think that’s what it is. But we did not adjust our processing volume guidance at all, and so we feel very good about the area and the drilling, and there’s still a lot of activity out there.

Brian Russo – Ladenburg Thalmann

Okay, so just to confirm, you’re still assuming 20 to 25% processing volume growth in ’12 and 15% processing volume growth in 2013?

Keith Mitchell

That’s correct.

Brian Russo – Ladenburg Thalmann

Okay, great. And just on the SCOOP and the Continental announcements, would the potential investments that you might make for infrastructure be incremental to what’s in your CAPEX slide?

Sean Trauschke

We have some capital in there in the CAPEX for that area. If that area starts developing faster or gets more prolific, then we would adjust that accordingly, or vice versa. But there’s some in there based on what has been defined to us so far.

Brian Russo – Ladenburg Thalmann

Okay. And your existing acreage dedication, say in the Grady County where it seems to be in the heart of the SCOOP, I imagine you guys have right of—do you have right of first refusal on that infrastructure build-out, or any details on any existing contracts you have with Continental?

Keith Mitchell

We have a large acreage dedication with Continental, which means we will build the infrastructure needed to serve that acreage. There is some additional acreage that they continue to acquire that we will continue to talk with them about and see if that makes sense to add or not.

Brian Russo – Ladenburg Thalmann

Okay. And just on a related topic, it seems like Continental was in need for infrastructure in the Bakken play. Is that a potential opportunity for Enogex going forward?

Keith Mitchell

You know, we’re always looking at opportunities. I don’t know that that’s one that we would want to do, but we certainly would look at that. It’s an area that if infrastructure is needed, we’ve been working with Continental very well in a lot of areas so it’s something we’d always look at.

Brian Russo – Ladenburg Thalmann

Okay, and then switching gears to the utility, should we assume going forward that your O&M expense could remain relatively flat, and that could kind of preserve your ability to earn your allowed ROE?

Sean Trauschke

That’s our objective there, Brian.

Brian Russo – Ladenburg Thalmann

Okay, great.

Sean Trauschke

You know, you’ll have some obvious salaries and wages and things like that, but we’re continually looking for opportunities to mitigate those impacts with other savings, and our goal and objective is to earn close to that allowed return.

Brian Russo – Ladenburg Thalmann

Okay. And then I may have misunderstood the comment on the transmission rate base in 2016. Could you just kind of—

Peter Delaney

’14.

Brian Russo – Ladenburg Thalmann

In 2014. Would you mind just reiterating what you said earlier?

Peter Delaney

Yeah, my comments, Brian, that our transmission rate base at the end of 2014 should be about $1.5 billion, reflecting all the investment we’ve made over the last couple years, and then—you know, it’s just about 700. We’re probably halfway through, I think, on that investment with about 700 million or so spent to date and another 800 million ahead of us.

Brian Russo – Ladenburg Thalmann

Okay, and what’s the transmission rate base for 2012?

Sean Trauschke

About 370 million or so. And Brian, let me clarify that for a minute. That’d be the FERC portion, okay?

Brian Russo – Ladenburg Thalmann

370 million is FERC portion? Eighty-five percent?

Sean Trauschke

Yeah, and so the other part of that is what would be allocated to the retail jurisdiction. So we probably—to Pete’s point, we’re about halfway through. 370 of that 700 is probably FERC; the balance is Oklahoma and Arkansas portion.

Brian Russo – Ladenburg Thalmann

Okay. And then the total transmission rate base is growing to 1.5 billion in 2014?

Peter Delaney

Right.

Sean Trauschke

Yes.

Brian Russo – Ladenburg Thalmann

Okay, and 85% of that would be FERC?

Sean Trauschke

No, probably closer to about 800 million will be FERC.

Brian Russo – Ladenburg Thalmann

Eight hundred million – okay, got it, got it. Thank you very much.

Operator

Your next question comes from the line of Jay Dobson with OGE Energy. Please proceed.

Jay Dobson – Wunderlich Securities

Wow, that’s a promotion!

Peter Delaney

Welcome, Jay!

Sean Trauschke

Welcome aboard!

Peter Delaney

Let me ask you a couple of questions, Jay!

Jay Dobson – Wunderlich Securities

I hope I have the answers! Good morning, hope you guys are well.

Peter Delaney

Doing well here. Hope you are.

Jay Dobson – Wunderlich Securities

Very well, thanks. Hey Sean, could you go back through the tax rate? I didn’t know whether the 17 million you were talking about was third quarter specific or whether that was year-to-date, so just parse us through what was the renewable portion of the $12.5 million benefit in the third quarter and then sort of what other elements were in there that would have driven the tax rate.

Sean Trauschke

Yeah. You know Jay, it’s almost entirely attributable to the production tax credits associated with Crossroads, and the 17 million was just there in the quarter.

Jay Dobson – Wunderlich Securities

Was in the quarter – okay, got you. Perfect. And then back to sort of an earlier question, so if I do this right – and pardon me if I haven’t – it looks like OG&E is about $2.76 12-months trailing, so by saying you’ll be at the higher end, fourth quarter is going to be lower and you’re talking about some challenges in Enogex which volume growth could move that around. Is that what gives you sort of the uncertainty around still with fourth quarter remaining, just a $0.20 range on guidance?

Sean Trauschke

I would have said—I guess I’d say it a little different, Jay. If I think about where we are year-to-date at the utility, we’re sitting at 2.55. We had a very strong fourth quarter last year, had some weather benefit in there too. Certainly if we made $0.19 again, we’d be above that number – you’re exactly right. But we are forecasting kind of normal weather.

At Enogex and your comment about challenges, I think we are growing and the business is growing, processing volumes are growing, condensate volumes are growing. We just haven’t seen the speed or the ramp-up associated with the gathering volumes that we were anticipating, but if those volumes pick up and prices pick up, we’ll be even better.

And Jay, I think the point that Keith and I have been trying to convey is—and I hate to overuse the word timing, but we know they are going to drill. What we don’t know today is, are they going to drill in the next 30 days or is it going to be 60 or 90 days out. But we are very confident they are going to drill.

Jay Dobson – Wunderlich Securities

No, that is fantastic. And then just last question on the MATS compliance, I appreciate Pete, you said you’d have some results in the fourth quarter. But have you actually started the DSI and ACI testing yet?

Peter Delaney

Yes. We started beginning of October, and we’ve had some testing in the past for brief periods and it was encouraging. We said now we’ve needed to do some testing over a more continuous operating period, and so we should have that done this year. Of course, we need to get all of the analysis done and hopefully we’ll be able to report it in our results on the fourth quarter call. That impacts the capital from if we’re trying to—how effective it is, and a lot has to do with where you inject this into the process. So if we can make it—the more efficient it is, the less capital is required to comply, so we’re looking forward to getting those results.

Jay Dobson – Wunderlich Securities

That’s great. And where exactly are you doing that? Is that Sooner and Muskogee, or is it just one of those plants?

Peter Delaney

Sooner.

Jay Dobson – Wunderlich Securities

Awesome. Great. Thanks so much.

Peter Delaney

You’re welcome.

Operator

Your next question comes from the line of Sarah Akers with Wells Fargo. Please proceed.

Sarah Akers – Wells Fargo

Hey, good morning everyone. With the focus on oil drilling in your area, do you see any opportunity to participate in any crude gathering projects, or is the existing infrastructure sufficient to support the development there?

Keith Mitchell

Hey Sarah, this is Keith. We are working with some producers on that, both I would say wellhead gathering as well as gathering over to maybe some more liquid points or unconstrained points. Nothing to talk about that we’ve finalized, but we have had discussions with producers in the area.

Sarah Akers- Wells Fargo

And just as a follow-up, does the SCOOP represent kind of an opportunity to break into the oil gathering specifically?

Keith Mitchell

Well, I don’t know that I can go into a lot of detail like that. I will tell you that as we go out there to buy right-of-way for well connects, we are buying multi-line right-of-ways that would include oil lines and water lines and gas lines. Whether or not we actually become the one that owns the pipe for the oil, that’s yet to be determined.

Sarah Akers – Wells Fargo

Great. Thanks a lot, guys.

Operator

Your next question is a follow-up from the line of Brian Russo with Ladenburg Thalmann. Please proceed.

Brian Russo – Ladenburg Thalmann

Yes, thanks for the follow-up. Just to be clear on the gathering volumes, previously you had guided 10 to 15% of gathering volume growth in ’13. Is there upside to that given the timing lag of some of the volumes you expected to see in 2012?

Sean Trauschke

No, there is upside certainly there. I think we’ll firm all this up on the fourth quarter call, Brian. You know, a lot of it depends on how much they grow this year. It will be a big driver for how much incrementally they’re going to grow next year, but we do think there’s upside.

Brian Russo – Ladenburg Thalmann

Okay, good. And then any read through on ArcLight’s funding this quarter? I think it was less than what you had previously projected. Just curious what the trends are in their investments.

Sean Trauschke

Well, I think when we announced the Chesapeake acquisition, we were still finalizing the details of the transaction, looking at our forecast for the balance of the year, and we just said they could fund up to 60. We finalized that. We looked at our credit metrics at Enogex and determined that we really needed 90 million of contributions into the business and we each contributed 45 million of that. As far as next year, we’ll see where that ends up. Neither OGE nor ArcLight are interested in putting money in there that is not getting put to good use and making a return, so we’re pretty slow to make contributions; and really, we tackle this kind of almost on a quarterly basis and so we’ll lay all that out for you in February.

Brian Russo – Thalmann Ladenburg

Okay. And then lastly, I noticed a little bit of movement on the Enogex CAPEX. Any insight there?

Sean Trauschke

You know, I think that just kind of lines up nicely with what Keith was talking about with some of the timing. We’re seeing some other things develop faster, some things develop slower; but it’s really just timing and you’ll see that ’13 has kind of inched up a little bit and ’12 kind of inched down a little bit.

Brian Russo – Thalmann Ladenburg

Yeah, okay. Thanks a lot.

Sean Trauschke

All right, thanks Brian.

Operator

And at this time, we have no further questions. I would now like to turn the call back over to Mr. Pete Delaney for any closing remarks.

Peter Delaney

Thank you, Operator. Well, in closing I’d like to say that the management team here remains excited about the opportunities we have ahead of us at OGE Energy, and of course I want to thank our members for their hard work, commitment and thoughtfulness in capitalizing on these opportunities and in executing our plans. Thank you for joining us on the call and have a great day.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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