Sunoco Logistics Partners LP (SXL) Q4 2016 Results - Earnings Call Transcript

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Sunoco Logistics Partners LP (NYSE:SXL)

Q4 2016 Earnings Call

February 22, 2017 5:00 pm ET

Executives

Michael J. Hennigan - Sunoco Logistics Partners LP

Peter J. Gvazdauskas - Sunoco Logistics Partners LP

Analysts

Kristina Kazarian - Deutsche Bank Securities, Inc.

Shneur Z. Gershuni - UBS Securities LLC

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

Patrick C. Wang - Robert W. Baird & Co., Inc.

Michael Blum - Wells Fargo Securities LLC

Timm A. Schneider - Evercore Group LLC

Jean Ann Salisbury - Sanford C. Bernstein & Co. LLC

Jeremy B. Tonet - JPMorgan Securities LLC

Tom Abrams - Morgan Stanley & Co. LLC

Jerren A. Holder - Goldman Sachs & Co.

John Edwards - Credit Suisse

Lin Shen - HITE Hedge Asset Management LLC

Operator

Welcome to Sunoco Logistics Q4 2016 Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

I would now like to turn the call over to Mr. Mike Hennigan, President and CEO. You may begin.

Michael J. Hennigan - Sunoco Logistics Partners LP

Thank you, Shaun. Good afternoon, everyone. Welcome to Sunoco Logistics Partners' conference call to discuss our fourth quarter 2016 results. I'm Mike Hennigan, President and Chief Executive Officer for the general partner. Joining me today is Pete Gvazdauskas, our Chief Financial Officer; and also on the call is Mackie McCrea.

In the course of our remarks and in the subsequent Q&A session, we'll be referring to slides that have been posted on our website entitled Fourth Quarter 2016 Earnings Conference Call, and we may be making some forward-looking statements. In that regard, for the purpose of facilitating the discussion, I refer you to slide number 2.

Starting with some commentary on the crude market. For the last three months, the WTI market has stayed mainly in the $52 to $54 range after a rapid move upward from the low $40s. The market began to move up on the expectation of OPEC's production cuts and world demand growth, but remains range bound on the basis of the current reality of the inventory overhang. The inventory overhang is real, and each week when the EIA reports come out, with more overall inventory, prices tend to soften. However, we continue to be bullish crude price for the remainder of the year.

The catalyst for the upward movement in price will be inventory declines that should begin in the next couple of months. Once the overhang in the U.S. starts to decline, we should see a further impact on price. The crude market structure is changing, as contango has disappeared from the Brent crude market and WTI contango is down to under $1 per barrel from March through December.

Also, the sweet-sour differential has narrowed in the world market, which seems to indicate that the OPEC production cuts are happening. We expect to see inventory liquidation as the incentive to store barrels decreases. We expect all the inventory overhang to be eliminated in 2017.

One key differential that we are watching closely is the Midland-Cushing differential. We continue to be bullish about the production growth in the Permian Basin. As you know, most of the growth in U.S. drilling rigs has occurred in the Permian. During the past year, approximately 75% of the new rigs have been in the Permian.

Industry forecasts estimate that the Permian production is growing at the rate of 400,000 to 500,000 barrels per day per year. This growth is reducing the surplus takeaway capacity that currently exists in the Permian. We expect that the balance between the production and takeaway capacity will be tightening by the second half of 2017, resulting in wider differentials between Midland and Cushing.

Even though the challenges we've seen over the last two years will continue into 2017, we remain bullish on the long-term prospects for increased U.S. production and the need to accommodate ever-increasing global demand. We also remain bullish on opportunities for the long term despite the short-term challenges, as we have concentrated our expansion plans in two high-growth potential areas: the Permian and the Marcellus/Utica Shale basins. These two basins provide the best long-term growth outlook of any of the U.S. shale areas and continue to be our major focus.

With regard to our fourth quarter 2016 financial results, we're pleased to report EBITDA of $321 million and distributable cash flow of $247 million. This brings our full-year 2016 results to a record $1.23 billion of EBITDA and a record $943 million of distributable cash flow compared to 2015 full-year EBITDA of $1.15 billion and distributable cash flow of $874 million. That's an 8% increase in distributable cash flow, despite some very challenging conditions, and a crude market where the Midland-to-LLS differential dropped significantly from approximately $4 per barrel in 2015 to under $2 per barrel in 2016. We are pleased that we are continuing to grow our year-on-year DCF, despite the loss of red bar opportunities in the market and some of the challenges we've encountered in 2016.

Now, let me give some specifics in each of our business segments for the full-year 2016. Our Crude segment generated $687 million of earnings in 2016 compared to $656 million in 2015. Important for us to point out that our year-on-year crude volumes are up 200,000 barrels per day, despite having declines in the Oklahoma and Eagle Ford areas.

Turning to our NGL segment, we generated $317 million of earnings in 2016 compared to $333 million in 2015, limited by the cold box design issues on our Mariner East 1 system that we previously discussed. Although it continued to limit us in the fourth quarter, the redesign was completed in October and we believe this issue was behind us with the system now at approximately 70,000 barrels per day.

Moving to our Refined Products segment, we had very good results with $229 million in earnings in 2016 compared to $164 million in 2015, with growth in our pipeline business and our marketing terminals business. Our contributions came from primarily our Allegheny Access pipeline and our Eagle Point, Marcus Hook and other product terminal facilities, as well as our pipeline joint ventures.

As we look forward, we recognize that 2017 will continue to be a very challenging environment since we are encountering Midland-to-LLS crude differentials that are under the 2016 average of $2 per barrel and are actually below $1 per barrel in the quarter.

We've realized from a big picture standpoint, our earnings expectations and financial plans were significantly delayed as a result of longer-than-anticipated process for regulatory approvals on both the Bakken project and the Mariner East 2 project. We originally thought that both projects would be online by the end of 2016. So although we're disappointed in the delay to our plan, we are pleased to be moving forward.

The outlook has become very positive from a variety of standpoints and we're happy to give the following updates. First, we along with our partners in the Bakken Pipeline project perceive the (07:36) complete the last phase of its construction, and we expect to commence commercial operations in the second quarter. Despite the delay from the original end of 2016 anticipated start, it's exciting to be looking forward to bringing this project online.

Second, we're very pleased to report that construction has begun on our Mariner East 2 project throughout Pennsylvania, after receiving the PA DEP Chapter 102 and 105 permits. We're targeting an end of third quarter completion pending the construction progress. Having the project in service ahead of the 2017-2018 winter, we'll ensure the adequate supply of propane to the local markets.

In addition, this project has been permitted for two pipes and we are moving forward on that basis. We have received additional commitments during our current open season, and we're excited to see what additional commitments we've received during the remainder of the open season now that the permits have been issued. Receipt of the PA DEP permit has been a key factor in the discussions to date, and it's obviously the reason we kept extending the open season.

We believe that our pipeline system from the Marcellus/Utica basins to our Marcus Hook facility, will be the safest and most environmentally responsible as well as most economically effective mode of transportation compared to the alternatives to bring natural gas liquids to market. This project will bring feedstocks to the Delaware Valley and create a manufacturing rebirth in Southeastern Pennsylvania, utilizing local production.

The economic impact and the creation of family-sustaining jobs will impact families all across the Commonwealth in a very positive way, as we move forward to the next phase of the project where approximately 6,000 construction jobs are being implemented quickly in addition to the 2,200 workers currently engaged in construction at the Marcus Hook Industrial Complex. We believe this project is the largest investment in the Commonwealth of Pennsylvania to date, providing a great mechanism to move PA natural resources to the local, regional, and international markets.

In the meantime, the Marcus Hook portion of the project has been under construction and we are expecting that one of the additional cryogenic propane tanks will be completed in June, and the butane cryogenic tank will be completed in July. Once these tanks are operational, we're expecting to be able to bring in additional NGLs via our expanded rail system in both the Marcus Hook and at Eagle Point until the pipeline construction is complete. Overall, we're very pleased to be moving the Mariner East 2 project forward.

Another specific area of promise in the NGL segment is our development of the Marcus Hook Industrial Complex as an energy hub on the East Coast processing and distributing Pennsylvania natural gas liquids. Bringing manufacturing back to Marcus Hook, continues to be an area of focus in our plans. We've had discussions with many companies who have interest in manufacturing in Marcus Hook, that have been waiting on the PA DEP permits to be issued. Now, those discussions can reenergize and move forward.

Also in the crude area, as mentioned earlier, we continue to be bullish on the potential growth in the Permian Basin. We announced last quarter that we've entered into a strategic partnership with ExxonMobil, where ExxonMobil owns 15% of a joint venture that we call Permian Express Partners and the JV is the preferred provider of midstream services to ExxonMobil.

We couldn't have been more pleased when Exxon announced their acquisition of 250,000 acres in the Delaware Basin, very closely situated to our Delaware Basin pipeline. We've had a great kickoff to our partnership and believe that the growth here will be substantial in the next several years. Recent industry forecast for the Permian Basin has shown some really strong growth numbers in 2017 of 400,000 to 500,000 barrels per day of increased production, which will put overall production at approximately 2.6 million barrels per day by yearend.

The next sequel of our Permian growth strategy is a pipeline project that we are calling, Permian Express 3. We have executed 11 crude projects to date and this is a continuing expansion of our pipeline network and takeaway service from the Permian Basin. We expect to launch an open-season process for PE3 in the next couple months, as shipper interest is becoming very robust and we want to give the market the opportunity to secure space on an asset system that reaches back to the Delaware Basin, has a significant terminal presence in Midland, can get to the upper PADD II Mid-Continent market or to our world-class 26 million barrel crude terminal in the Gulf Coast in Nederland, Texas.

PE3 will be capable of providing approximately 100,000 barrels per day of capacity by midyear, as our capital expenditures have anticipated this next phase of growth. We believe this is only the first of our numerous additional infrastructure developments in this area, due to the success of the producers and our recently announced joint venture with ExxonMobil.

In the Midland Basin specifically, we continue to see growth on our gathering pipes that were part of the Vitol acquisition, and we have a new gathering line that is connected to our Midland Terminal going in service next month. In response to the success that producers are having in the sweet spot of this basin and where our gathering is located, two additional expansion projects are underway on the gathering systems feeding our Midland Terminal.

As the production continues to ramp up in both the Delaware and Midland basins, we have developed a series of expansions for long-haul takeaway capacity from the Permian. This phased approach has been designed to sync up with the steady projected growth in the area.

Beginning with the first phase, 100,000 barrels per day of PE 3 and continuing through the fourth quarter of 2018, we have the ability to complete utilizing existing infrastructure. A number of projects that would lead to an additional 200,000 barrels per day of capacity for a total of 300,000 barrels per day of additional takeaway capacity to our Nederland Terminal and other potential Gulf Coast locations. Once complete, we will have takeaway capabilities of approximately 1 million barrels per day.

To accommodate the Permian production growth as well as the anticipated in-service date of the Bakken pipeline, we anticipate expanding our Nederland Terminal. This will include additional storage and further dock enhancements to allow our customers the flexibility to serve the local demand or conduct business exporting their crude to foreign markets.

Now let me turn to give an update on the financing side. Previously, we've reported on two significant strategic initiatives related to our capital needs, specifically involving our Bakken pipeline project which included a project refinancing and a sale down of our interest to accommodate additional strategic partners.

First, we along with our partners have closed the $2.5 billion project financing facility. In addition, we reduced our ownership in the project by half to accommodate two more strategic partners, Enbridge and Marathon, where we received $800 million when that deal closed last week. Overall, these two events brought in over $1.1 billion in cash.

Once completed, the Bakken project will be the premier takeaway project from North Dakota shale area, and as such we're excited about the addition of two additional strategic partners, Marathon and Enbridge, who can bring even more volume to this robust system. By selling a portion of our interest at a premium to our projected capital cost and at the same time adding two additional strategic partners, a win-win has been created for all the partners involved in the project.

Our debt-to-EBITDA ratio was 4.4 times as of December 31 on our revolver covenant basis, which does not reflect the cash that we've received from the Bakken transaction. Had the Bakken deals closed on December 31, our debt-to-EBITDA would have been 3.8 times. As always, we manage our balance sheet to maintain our investment grade credit ratings.

In summary, the weak crude prices in 2016 and domestic crude declines have taken a toll in the Midstream sector resulting in weaker margins for movement from one location to another. It is hard to imagine a worse combination of circumstances than those in 2016 and early 2017. It's not only our job to manage through this difficult time period, but also to focus on the actions that we are taking to be stronger in the years ahead. We believe that our strategy is sound and our foundation is strong.

During 2016, we faced numerous headwinds, but with the recent completion efforts underway for the Bakken pipeline, the stabilization of crude prices leading to accelerated production growth in the premier oil plays in North America, the acquisition of a Midland gathering and terminal system and the announced joint venture with ExxonMobil, as well as the anticipated completion of Mariner East 2, we are well positioned for growth in 2017 and forward. We believe we have the premier platform in the Permian, Marcellus and Bakken basins to drive long-term growth.

We'd like to close by making a few comments about the next exciting chapter for Sunoco Logistics. The merger announced in the fourth quarter combining SXL's assets with the Energy Transfer Partner assets creates a powerful platform that will provide an unparalleled service offering to the market and additional stability and growth for our investors in the years ahead.

Combining the crude groups into one team and the NGL groups into one team provides better clarity for the market and allows the individual teams to synergize to a greater extent than ever before. We've spoken to many investors and have conveyed how excited we are to move to another level so that we can provide the premier level of service to the market. The timing of the SXL-ETP merger is positive as the market continues its recovery in 2017 while the Permian and Marcellus areas are kicking into another level of unprecedented growth in U.S. energy production.

With that, I'll ask the moderator to open the line for questions.

Question-and-Answer Session

Operator

Thank you, sir. We will now begin the question-and-answer session. Our first question is coming from the line of Kristina Kazarian of Deutsche Bank. Your line is open. You may begin.

Kristina Kazarian - Deutsche Bank Securities, Inc.

Afternoon, guys.

Michael J. Hennigan - Sunoco Logistics Partners LP

Good morning – I mean, good afternoon, Kristina.

Kristina Kazarian - Deutsche Bank Securities, Inc.

So, good updates on the DEP permits. But can you talk a little bit more on ME 2, is it under construction right now, where subscription levels are? I know you alluded to this a little bit, and actual expectation on online time.

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. Thanks, Kristina. So, as you already know, construction has been ongoing in Ohio, also been ongoing in the Marcus Hook facility, but by getting the PA DEP permits, we're now excited to continue that construction throughout Pennsylvania. So, the mainline throughout Pennsylvania is the new key that we're now able to move forward on. We're excited about that. And as I said in my prepared remarks, we're looking at completion at the end of the third quarter.

As far as the commitments, Kristina, we have not been public with our commitments. One of the things that we have been doing is continuing to market additional commercial contracts, which we call ME 2X. We're excited to announce that we are moving forward with two pipes in the ME 2 project at this point. We've received enough commitments to move forward, but we still have that open season still open because we didn't know when that the DEP would issue the permit. So, we still have the open season in progress. So I can't give more commentary than that, other than that we're really excited to have construction ongoing throughout the state and we're building two pipes, so, ME 2 and ME 2X are both going forward. And we're looking for some additional commentary after the open season closes.

Kristina Kazarian - Deutsche Bank Securities, Inc.

All right. And then exciting on the open season for PE3. Just to make sure I got it downright, it's 100,000 barrels per day with an open season coming in the next couple months. And then also, thinking about the other 2,000 barrel a day capacity that I think you mentioned, is that primarily driven by XOM and their new acreage? Are those the kind of key drivers behind moving on PE3 and the additional capacity? Am I thinking about that right?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I think you're thinking about it right. Overall, we had previously said that we could expand PE2 by 200,000 barrels per day. We're now saying that we can take that system up 300,000 barrels per day with 100,000 barrels per day of it coming relatively quickly, and then the additional 200,000 barrels per day after that can be staged as production is needed. But I think you're right on; the two main drivers that are occurring is, one is ExxonMobil and our joint venture with them as we stay close to their production needs, as well as the new Midland platform that we have with the Vitol acquisition that we acquired in the fall. I mean, both of those are the major drivers that we're seeing that are exciting us about additional capacity for our system.

Kristina Kazarian - Deutsche Bank Securities, Inc.

Perfect. And then last one from me. Can you just remind me where we stand right now and what the final steps are to kind of getting the merger done and what I should be watching for?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. We're still in the SEC review process. We expect that to complete shortly. Right now, we're expecting the record date for the merger to be February 27. We're expecting at this point, hopefully to have the proxy out in early March and expecting a close sometime around mid-April.

Kristina Kazarian - Deutsche Bank Securities, Inc.

Perfect. Thank you, guys.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome.

Operator

Thank you. The next question on queue coming from the line of Shneur Gershuni of UBS. You may now begin.

Shneur Z. Gershuni - UBS Securities LLC

Hey, guys.

Michael J. Hennigan - Sunoco Logistics Partners LP

Hey, Shneur.

Shneur Z. Gershuni - UBS Securities LLC

I just wanted to follow up on some of the previous questions. With respect to your comments about Mariner East 2X and Marcus Hook, first on Mariner East 2X, you've got enough commitments to move forward. Is the return profile on the commitments that you've secured the same as what we would expect for Mariner East 2, or do you still need a few more commitments to sort of get that return?

And then secondly, in your prepared remarks, you talked about additional opportunities with respect to Marcus Hook. Are we talking about the PDH facility that had been talked about a while back?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah, Shneur. So, to the first part of your question, whenever we move forward, we want to make sure that we have enough commitments to meet our minimum hurdles that we've decided internally is what is needed to move forward. So, we've reached that. ME 2, as a project, has always been about two pipes. We wanted to do that from the beginning. We permitted for two pipes so that's always been the project's goal. ME 2X was a commercial side to that where we said we needed to have more commitments in order to move forward.

We received those commitments as we were anticipating, but the delicacy right now is, we didn't know when we were going to get the PA DEP permits. So, we've been continuing to open that season up and continuing to extend it. So, I can't really give a lot more commentary on that right now because we're still in open season currently, but I think you hit it on the head. I mean, we've made a major milestone change that we'll now enable these discussions that we've had for quite some time that really got stalled because we were in that holding pattern waiting for the regulatory process, which turned out to be extremely detailed and extremely thorough to take longer than we anticipated, but that process kind of stalled a little bit of that manufacturing discussion which you were referring, but now that's starting to kick up again. So, pretty excited that we're now moving into that next phase, and hopefully, over the next couple months, we'll have some more to share.

Shneur Z. Gershuni - UBS Securities LLC

And your CapEx budget assumes that you're funding the whole thing. You're not looking to do any JVs on ME 2X at this stage, right?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, we said many times that we're open to either strategic or financial partners, if in fact we come to the conclusion that it's a better deal than our base case. Along a similar path, because we had not been able to move forward with the construction throughout Pennsylvania, some of those discussions also were stalled a little bit. So, all of that is now picking up momentum. We see a tremendous amount of momentum now that around mid-February we were issued the PA DEP permits, a lot of activities occurring since that time. Now that we have that construction is beginning. So, we anticipate those discussions to pick up and see where they go.

Shneur Z. Gershuni - UBS Securities LLC

Okay. And just transitioning to the Permian for a second here. You've announced some pretty sizable potential increases on Permian Express 3 and so forth. Can you talk about how you think that's going to impact your red-bar earnings? When I sort of think about the amount of capacity that you're adding, some of your competitors have announced capacity additions. Are we ever going to see a return of spreads that would allow the red-bar earnings to accelerate? Or do these announcements potentially mute or delay that type of a recovery?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, Shneur, it all depends, obviously, on how robust the production actually occurs. Our personal view is, we are going to see some widening of those differentials. As you know, 2016, we essentially had no red-bar. And in fact, those differentials were lower than most people even would have expected. So, it depends on whether we see this growth. But we happen to be in the bullish camp that we're going to see that 400,000 to 500,000 barrels of production in 2017 and 2018. So, although there's been some capacity increases, at the same time, I think there's going to be some pretty robust production growth. So, we do see that supply versus takeaway capacity tightening up, and we expect differentials to widen. To what level, obviously, we'll have to just wait and see.

I've also been a believer it's not just that macro takeaway versus production, it's where do those assets take you? Do you get to the right places? Do you have enough flexibility? Are you able to segregate the quality of the assets? I think they're all the things we think we can bring to the marketplace and kind of differentiate ourselves and give a very good crude offering.

Shneur Z. Gershuni - UBS Securities LLC

And finally on that, when I think about crude oil acquisition, the segment or the business, will it generate a shipping history on DAPL at all? Will that be an area where you could see some opportunity for red bar?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. So, we haven't disclosed any shippers. So, as you know, our typical mode is to not disclose any of the shippers on the assets. So, I won't commentate on that at all. What I will tell you, though, is, our main focus continues to be, and that of our partners is, to develop as much fee-based business on those assets as we can. And it's pretty common knowledge that the ETP guys have done a terrific job of soliciting and securing a lot of commitments for that Bakken pipeline project. So, my hats off to our family there for the terrific job they did getting commitments at the levels they did.

Shneur Z. Gershuni - UBS Securities LLC

Great. Thank you very much. Appreciate the color in fact.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Shneur.

Operator

Thank you, sir. Next question on queue is coming from Brandon Blossman of Tudor Pickering Holt and Company. You may now begin.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Afternoon, Mike.

Michael J. Hennigan - Sunoco Logistics Partners LP

Hey, Brandon. How are you?

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

I'm good. I feel like I'm beating a dead horse here a little bit, but on ME 2 versus ME 2X, is that a parallel project? Do you lay them both the 16-inch and 20-inch pipe in on the same trench? And I see on your presentation here that you have the ME 2X as a 2018 project versus 3Q 2017. Is it staged or is it a parallel project?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. It's actually, it would have to be built sequentially. So, we consider it at the same time, but there will be some delay. So, think of it as the ME 2 pipe gets laid first, and then behind that spread, then the ME 2X pipe would be laid second. Or as we call them all, the ME 2 pipes. So, both pipes get laid "at the same time," but it's actually sequentially, Brandon, if that makes sense. So, it actually lags a little bit. So, the one pipe goes in and then followed by the other behind it. So, technically it's at the same time, realistically it lags a little bit because it has to be done sequentially. Does that make sense to you, or am I being clear?

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

No, actually, it's quite helpful. So, yeah, I understand that and it does make sense. Any color on how we should think about ethane versus C3+ in terms of capacity on the full project once it's fully in service?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. No real color there at this point because the open season is still open. What I can tell you is, our goal is to move whatever the market wants to move, and the offering is very wide to move whatever petroleum products are wanted to move. So, we're here to provide the service and provide as much flexibility as we can. And we've been pretty excited at the wide variety of interest that different people have had.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. Fair enough on that. And then CapEx, as we move through 2017 for ME 2 broadly, any color on in terms of how much money has been spent to-date and kind of the order of magnitude of what is left to be spent?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. Brandon, we haven't given a lot of color there either. Again, not that I'm beating the dead horse this time, but the ME 2X portion of the project, until we see the outcome of the open season, we know we're a go at a certain level. And much like ME 2, we're hopeful that we have a similar outcome, but the design that occurs in Marcus Hook, the refrigeration capacities, those types of things, still need to be determined, so that'll be all part of the process.

Hopefully, you're getting the flavor that we were kind of in a stalled mode for a while, in a waiting period while the regulatory process played out. And now that we've gotten the go ahead, the excitement and the discussions are happening pretty rapidly. But it's going to take a little bit of time to develop that over the next couple months while this open season continues to play out.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. All fair enough. And then just a quick follow-up on CapEx. DAPL, it looks like you pulled down, the project pulled down another $300 million or so. Are you pretty close to fully spent on that project for 2017? Anything incremental that we should model in?

Michael J. Hennigan - Sunoco Logistics Partners LP

No new color to add there as well, Brandon. You can talk more on the ETP call tomorrow morning, but the expectation for capital is still in line with what we've disclosed publicly before.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

All right. Fair enough. Thank you very much, Mike.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome.

Operator

Thank you, sir. Our next question on queue is coming from Brian Zarahn of Mizuho. Your line is open. You may begin.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

Hi, Mike.

Michael J. Hennigan - Sunoco Logistics Partners LP

Hey, Brian.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

I guess, circling back to the Permian. For the Phase 1 and 2 of PE3, is that expanding the Delaware Basin type and then expanding PE2? Is that how we're thinking about 100,000, 200,000 barrel capacity expansions?

Michael J. Hennigan - Sunoco Logistics Partners LP

Think of it as mainly the PE2 system, but we now have a pretty integrated system, but they're also somewhat separate. So, but think of it as mainly the PE2 heart of the system is where most of the expansion is occurring, but there is also pieces to it. That's why we said 100,000 barrels pretty immediately that we can bring online. And then we have this additional 200,000 barrels that'll be in various steps depending on where that growth is. But I think you're thinking along the right path. I mean, we expect growth in both the Delaware where we've been putting a lot of concentration recently, as well as in the Midland area. And if you remember from my prepared remarks, we're adding gathering lines in and around our new terminal in Midland. So, I think both of them are going to come into play. And then there's a couple perturbations that we'll give more details at a later date. But it's mainly around the PE2 system. That's why we're sticking with the name PE3.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

So, it's mostly adding horsepower to PE2 is the main part of the expansion?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah, generally. So, when we originally did this, and we had mentioned it earlier that we had designed the diameter of the pipe to allow for expansion. So we knew that was going to be the case. So, incrementally, as you mentioned, a little bit more pumping capability, a little more tankage. Again, one of our strategic goals, as you know, in 2016 was to have a terminal in Midland, which now gives us more flexibility than we had previously. And then having the ability to take barrels to Nederland, which we continue to grow out gives us that more flexibility because as we move forward, quality segregation, flexibility, those things are mattering more and more to our shippers.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

So, given the expansion, is it existing infrastructure? Do you need open season commitments to move ahead? Or will you just move ahead given the costs are likely fairly reasonable?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. We like the process of doing an open season so that the whole market knows as much about the offering as it can. So, as you know, in all of our projects previous to this, we tend to do the open season process. We've had some pretty strong discussions with people as to knowing what our plans are expected to be, but then we like to open it up to the full market to see that everybody gets a fair shot at it.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

And then related to that, on Nederland, any additional color on the planned expansion? And how do you view longer term the crude export opportunity out of Nederland?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. No more additional color there, Brian. We're not going to give specifics. Again, we're in some pretty detailed discussions on growing that terminal. So, I need to keep that a little quiet. But yeah, we've been anticipating for quite some time that the Nederland terminal was going to be a large export facility. So, we've been gearing up for that. Obviously, over the last year or so, U.S. production was not growing the way we expect it to grow in 2017 and 2018, but as light crude production predominantly occurs in many of these basins, there's going to be a need for additional exports, and we think we have a terrific facility that can do that.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

And then last one for me. You've both bought and built assets in the Permian. You're moving ahead with PE3. Are you going to continue to lean more organic? Or do you see more potential acquisition opportunities?

Michael J. Hennigan - Sunoco Logistics Partners LP

So, we're a believer and always looking at both. So, one of the things that we found ourselves often was being second in the acquisition or third in the acquisition world. We like to bid and compete for additional assets, so both is the right answer from our mind on a go-forward basis. Obviously, we don't control the acquisition market, but we're participating in as many processes that are available out there.

As you know, though, we try and maintain a discipline as to what is the right number. We're pretty excited about our Midland acquisition. A terminal and gathering system for a little under $800 million is a nice fit to what we believe is a lot of growth in that area. So that was one that we're very pleased to get. There's others out there that you're familiar with that we'll evaluate, but we also know that we have a lot of organic opportunities. And one of the opportunities that we've talked about pretty publicly that we want to jump all over is the synergies available to us once this merger gets completed. We won't have that miss among the family on having two separate ideas on how to progress forward. Our one team concept, we think, is pretty powerful that we'll be able to deliver synergies much more efficiently than we were able to in the past.

Brian Joshua Zarahn - Mizuho Securities USA, Inc.

I appreciate the color, Mike.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Brian. Thank you.

Operator

Thank you, sir. Next question on queue is from Patrick Wang with Baird. Your line is open. You may begin.

Patrick C. Wang - Robert W. Baird & Co., Inc.

Hey. Good afternoon. Thanks for taking my question. Just really quick, can you comment at all on current build multiples in the Permian? And how those have changed? Do you expect Permian Express 3 to come on in-line with your portfolio average?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I can't comment for others. What I can comment on is, the way we've staged this in our strategy is, whenever we have existing pipe that can be expanded, obviously, that's at a much lower multiple than greenfield pipe. Our 300,000 barrels of expansion that we believe we can do with 100,000 barrels in the short-term and an additional 200,000 barrels is all with existing infrastructure on the mainline pipe system. So, there's no essentially new build pipe. So, it should be at a considerably lower multiple than what you're probably thinking is from an acquisition and/or a new build standpoint.

Patrick C. Wang - Robert W. Baird & Co., Inc.

Okay. Good. Thank you. And then going back to Mariner East 2 really quick again, are there any major sort of make-or-break type deadlines left now that you've gotten the PA DEP approval? Or can we say that the biggest hurdles are now behind us? Is there anything really left to watch closely that could possibly impact that 3Q startup date?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, we believe, at this point, the biggest hurdle was receiving the PA DEP permits. It's been, like I said, a long detailed process, extremely thorough. You probably saw from the public announcement from the DEP, how much effort was put in and the amount of hours and experts and everything that was brought into the project. So that's the major hurdle that it's been sitting there for quite some time. And we're just glad to have that behind us. And with that behind us, we believe, like I said in my prepared remarks, that construction has already begun. We started as soon as we were able to get going. And we're looking for completion by the end of the third quarter.

Patrick C. Wang - Robert W. Baird & Co., Inc.

Okay. That's helpful. Thanks a lot. That's it from me.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Patrick.

Operator

Thank you, sir. Next question is from Michael Blum of Wells Fargo. You may now begin.

Michael Blum - Wells Fargo Securities LLC

Thanks. Good afternoon, everyone. On Mariner East 2, I just want to make sure I understand, I guess, the capacities. So, Mariner East 2 is 275 million expandable to 450 million; that's the 20-inch line. And ME 2X is a 16-inch line, which could add another 250 million. Do I have that all right?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. You do, Michael. That's correct.

Michael Blum - Wells Fargo Securities LLC

Okay. So, I guess my question then is, by the fact that you're proceeding with ME 2X, does that mean that ME 2 is going to be the full 450 million and does that also imply that you basically contracted that 450 million, so you feel confident you're going to need ME 2X?

Michael J. Hennigan - Sunoco Logistics Partners LP

No. I wouldn't draw that conclusion. So, when we went into ME 2, the project, like I said from the beginning, that project has always been in our mind at two pipe system. And one of the things that we felt was available to the market was the synergies of doing two pipes at the same time and then the synergies inside Marcus Hook of expanding the capacity of the refrigeration and the tankage and all that type of stuff. So, no, you should not read into it. It means that ME 2 is full. What you should read into it is, it gives us more flexibility which we were hoping for, more upside and long-term growth because we are very bullish Marcellus Utica growth. We are very bullish that there's a lot of markets.

The local market is important to us as the regional market as the international market, because at the end of the day the shippers are the ones who chose where to go. We're just trying to provide that service and that flexibility. So, the way we've approached this is, make sure we get enough commitments to meet the hurdles, but have a system that's growable with what we think is a lot of growth over the next bunch of years out of this basin.

Michael Blum - Wells Fargo Securities LLC

Okay. And does that mean that the full capacity will be available on day one?

Michael J. Hennigan - Sunoco Logistics Partners LP

No. So, what we have is, on day one, let's talk about when the first pipe starts up, because as I mentioned earlier, there is a sequential building; when the first pipe that starts up you'll have the 275 million, which we've been talking about all along. And then we have the sequential capabilities to upsize the 275 million to the 450 million, as you stated, as well as the additional 250 million capacity in the other pipe. So, think about it as a phasing system that's going to be very flexible to provide a lot of different opportunities and then phase up as the growth is needed.

Michael Blum - Wells Fargo Securities LLC

Okay. Great. And then my other question is just, slide 6, you have your blue bar/red bar slide, and it basically shows zero red bar earnings in 2016. So, I just want to make sure I'm looking at that correctly. And you're saying you had zero marketing earnings in 2016?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah, that's pretty correct, Michael. As you guys know, Pete's done a great job in the past of trying to blur that line between blue and red, as it's more of an art than a science. But yeah, what we're trying to show with that is, there's basically, essentially, no red bar opportunities. Now, again, don't take it to be exactly that there's not one dollar, because our red bar is in a lot of different areas. But you should take it that, essentially, there's not much there.

Michael Blum - Wells Fargo Securities LLC

Okay. Thank you very much. Appreciate it.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome.

Operator

Thank you, sir. The next question on the line is coming from Timm Schneider of Evercore. You may now begin.

Timm A. Schneider - Evercore Group LLC

Hey. Good afternoon, guys. Quick question on Mariner East 2. It's going to be a massive amount of LPGs kind of hitting Mariner East 2. I was just wondering, how much of that is for the domestic market? Obviously, a lot of that is seasonal.

And then, secondly, on the export side, how are those contracts structured? Maybe you guys aren't the right ones to ask, but, I mean, who are the off-takers here? Is that a contract that they're doing with the E&P guys? Are they're signing up for capacity or is it some of the end users that are signing up for capacity on that pipe? Just interested as to where the stuff is headed.

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. To your first part, I can't really answer the question because it's really up to the shippers. They decide which markets. Obviously, they look at the best economic example. What we're trying to do is give them the flexibility. Everybody realizes that the Northeast has a winter demand that's much more than the summer demand. So there's that local flexibility.

The regional areas, I mean aside from just the Pennsylvania, New York, Delaware markets, there's markets that are very regional based. And then obviously, there is the international arbitrages. So, the shippers at the end of the day decide which way that they want to go. Some of them term up, some of them go spot; it's really up to them. We're not part of that if what I would say. Our whole goal here has been blue bar fee-based earnings and our whole Mariner system to-date has been essentially blue bar fee-based and allowing shippers to decide.

To your second question is, we've seen an array of both. So, we use the term of we always go out and talk to both producers and consumers. We look at both the supply and the demand of the market. At the end of the day, usually, there's bilateral agreements that occur between those parties where one of those parties will determine themselves to be the shipper. What we're looking for is, obviously, a creditworthy shipper that is going to be our customer, but it's usually linked to a bilateral deal that's been done between those two parties.

Timm A. Schneider - Evercore Group LLC

Okay. Got it. And then secondly on the Permian, just higher level question. As you guys kind of look at that landscape in the Permian in the context of, obviously, you've been around for a long time. How competitive is it in that basin? Just kind of sourcing barrels on the gathering side and then putting them through the various crude systems, it just seems like it's a little bit of an enigma when you kind of look at it from the outside.

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I don't know if there's a stronger word than extremely competitive, but it's as competitive as you can imagine. There is a lot of really talented companies out there all trying to compete with each other. So, I don't know how strong a word I can give you, but it's extremely competitive.

Timm A. Schneider - Evercore Group LLC

Okay. Got it.

Michael J. Hennigan - Sunoco Logistics Partners LP

As far as how do you win out, the way we've thought about success for us is to be the best service provider we can be. In 2016, at the early part and kind of end of 2015, we determined that one of the things that we were missing from our portfolio was a terminal in the Midland area. We were either going to build it as part of the SunVit venture that we had. At the time that was our goal, because we couldn't control whether something would come up for sale, but once Vitol decided to sell, we competed and we're successful there. So, part of what we try and do is, always look at the offering that we have.

And then going back to the merger is, one of the things that the one-team concept we'll be able to do that not many others can do is, go into that producer, or consumer, whatever, and have a full array of services. If it's crude, if it's natural gas, if it's natural gas liquids, anything that the individual's looking for, if it's Delaware Basin, Midland Basin, Gulf Coast, Mid-Texas, Midcontinent, we think that the way to beat the competition is to try and put ourselves in a position that offer the best service. And that's one of the things that we're excited about doing once we have the merger complete.

Timm A. Schneider - Evercore Group LLC

Okay. Got it. And then actually I'm going to sneak in one more on Marcus Hook, I guess. Obviously, with the ME 2 expansion again, a lot of barrels that will move through that facility, and I understand that you don't really have salt on storage up in the Northeast, at least in that area, because it's all granite (49:23). What's kind of the contingency plan? Let's say, a ship doesn't show up and some of that product starts backing up. Does that back up in the pipe? Or is there room to actually build out some of these granite mine storage caverns? And is that something that's kind of high on the priority scale? Or is it something you guys don't really worry about at this point?

Michael J. Hennigan - Sunoco Logistics Partners LP

It's a good question, Timm. It's one that's been often misunderstood in the market. So, we'll have storage at both the supply or the origin point as well as the destination, which is Marcus Hook. What we don't have and we never planned to have is the type of storage that's in Mont Belvieu, and our belief there is that amount of storage isn't needed.

One of our goals has been to try and educate the market that you need enough storage to conduct business, but this commodity is similar to the other commodities like gasoline and diesel and other commodities of hydrocarbon and petroleum products in the U.S. So, once you have enough storage to handle your business then you should be in good shape.

What I will tell you and everybody, I believe, knows is, Mariner 1 has been on since the end of 2014 into the early part of 2015. We have not had one storage issue. We've been moving propane for as long as, what's now, over two years. We've not had one storage issue there. We've been moving ethane for quite some time now. So, I think we've put ourselves in a position where we have adequate storage to run the business. And it's been two-plus years now of propane activity and we haven't had one storage issue. So, I think we've put our shippers in a good position to have enough storage to conduct business, but not too much storage that you're burdening them with excess costs.

Timm A. Schneider - Evercore Group LLC

Okay. Got it. And then lastly, do you guys expect ME 2 and ME 2X to pull a lot of these barrels that are going down to Gulf Coast on rail off that rail system and on to yours? Just kind of wondering what that supply picture to the Gulf Coast looks like post, because it's obviously much more economic, I would assume, on ME 2?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah, we've been a believer for a long time that the best economics are the shorter route and not going all the way to the Gulf Coast, because in our view we've maintained that the NGL supply-demand balance in the U.S. is essentially long; all the hydrocarbons. So if you believe that, and I know there's some debate on it, I don't think there's much debate on propane or butane, but ethane there's been some debate.

But in our view, U.S. NGLs will be long, so it doesn't make a lot of sense going through the Gulf Coast on a macro basis, and the Northeast offers some more flexibilities, more markets, more options for the shippers to have flexibility. So we do think it's a better option for us and that's partly why we've wanted to make sure we have growth potential in our system.

Timm A. Schneider - Evercore Group LLC

All right. I appreciate all the color. Thanks, guys.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Timm.

Operator

Thank you, sir. Our next question on queue is from Jean Ann Salisbury of Bernstein. You may now begin, ma'am.

Jean Ann Salisbury - Sanford C. Bernstein & Co. LLC

Hi, guys. In general, it seems like there has been a little more expansion capacity on Permian pipelines than I originally believed. So we used to think, for PE3, about 200,000 barrels a day and today we're up to 300,000. Is that close to the max on your existing infrastructure, or is there other sort of secret expansion capacity past that besides laying new pipe?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I mean one of the things we're very proud of is, we have some terrific engineers that when they get looking at the system, they'd come up with more and more ways to bottleneck. And you're right, we originally – our original thought was we could expand that system by approximately 200,000. We're now very confident, it could be 300,000. There's no secret hidden agenda other than we've got some smart people looking at, okay, find the next limit and then see if you can find additional capacity.

So, we think there might even be some more upside for us at this point, but we're very comfortable publicly saying that with existing infrastructure, we know we can stage up 300,000, we know we can do 100,000 pretty quickly, the other 200,000 would be staged, and then we're going to put those engineers back to work again and look and see what else we can do.

And then the other really important part for us is to synergize with the ETP assets in a better way than we've done in the past. So I think you're going to see a little more out of us from a family standpoint across looking at assets and developing more opportunities. And hopefully, that's going to be the excitement that you're going to hear out of us in the future.

Jean Ann Salisbury - Sanford C. Bernstein & Co. LLC

That's helpful. Thanks. And on a related note, some operators have been talking about drag-reducing agents, adding as much as 20% throughput to pipes. Is that something that could increase your Permian throughput more without new pipes or maybe you're even already using that?

Michael J. Hennigan - Sunoco Logistics Partners LP

Drag-reducing agent is one of the tools that people can use. 20% seems pretty high to me, but I am not an expert in that area by any stretch. We don't use it a whole lot. I mean, there's times when I think it's appropriate. But you're now asking a question well below my radar screen, so I'm going to have to punt on the details on it.

Jean Ann Salisbury - Sanford C. Bernstein & Co. LLC

No problem (54:54). Thanks a lot. That's all for me.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome.

Operator

Thank you, ma'am. Next question on queue is from Chris Sighinolfi of Jefferies. You may now begin.

Unknown Speaker

Hey, guys. This is Corey (55:08), just phoning in for Chris. I'm going to apologize since I have another ME 2 question. You said in the prepared remarks that you've received additional commitments for ME 2 or perhaps a portion of ME 2X, and you also alluded to the fact that petroleum products can find their way onto that pipeline. Can you comment whether or not those additional commitments you had received include refined products?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I'm not going to comment on it, Corey (55:34). Our offering is for the full range. So while the open season's open, we're not going to comment. What I can tell you is, because this regulatory process has taken longer than we expected, we've had the opportunity to sit down with many people and really talk out the system and what its capabilities are. And it gave us the chance to explain more openly what the flexibility would by and how the system would work.

And the good news for us is, some additional commitments have been signed up. We're anticipating more, to be perfectly honest with you, because a lot of people knew that we would keep the open season open, while the permitting process was in play. We didn't know when that would come to conclusion. So, right now we're set open until sometime in March. But it wouldn't surprise me at all that we have to extend that a little bit more, because like I said, our phone has been pretty busy recently with a lot more detail around the system now that we are actually moving the construction forward throughout Pennsylvania.

Unknown Speaker

That's really helpful. And then maybe if you can provide some color. I think the last update we got for CapEx on just the ME 2 portion was about $2.5 billion. Just wondering if that's still a close proxy to what should be spent in totality? And then whether or not you can comment as to what's been spent to-date on that pipe?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. We can't give you a lot of color there, Corey (57:06). What I can tell you is – what we said is, when we originally started the process and the project, we came out with $2.5 billion and we had a certain level in our mind as far as commitments that we were meeting in order to make that a go. We were pleasantly surprised to get much more commitment than we anticipated, so we moved into the next step which was to upsize the project.

So, if you recall, originally we were thinking 16-inch even for the main ME 2 line. We upsized that to 20, we upsized the tankage requirements. So, we've been gradually creeping up the size of the system. Obviously, we have more to go there that we're still not sure about. Over the next, say, month or two or three, we'll find out exactly what the market wants as far as this open season that we've had open, and then we'll actually try and bring some closure to what we're doing inside the facility.

So, the only thing I can tell you is think of it as modular. We're trying to build this very modular, so we are putting ourselves in a position where we can add refrigeration, and then add another step of refrigeration, and another step of refrigeration. We can add a tank, and then another tank, and then another tank. So our goal here is to grow this sequentially and continue to phase it up, while the Marcellus/Utica continues to grow.

Unknown Speaker

So more than $2.5 billion, I think, is kind of what we should be expecting there, at least for what's been announced?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yes. And the more and more it is, the more and more happy, we're getting more and more commitments.

Unknown Speaker

Okay. That's good. And just one last one, if I could. Can you remind us what's been said or if there are any updates on the DAPL open season? I think there was another one that re-commenced after the Enbridge and Marathon had discussed to promote. Is that closed or is that still ongoing? Just any update there you could probably provide would be helpful.

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah, Corey (59:06), I'm going to let that go through tomorrow, and let the ET guys who've had the point on that. All I can say and I've said this many times is, Mackie and Lee and the team there deserve tremendous credit for what they've done with that project. We're happy to be a part of it, and they can give you a lot more detail on that. So I don't want to steal their thunder, and let them give you a little more detail in that area.

Unknown Speaker

Got it. I understand. Really appreciate all the color, guys. Thank you.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Corey (59:33)

Operator

Thank you, sir. The next question on queue is from Jeremy Tonet of JPMorgan. You may now begin.

Jeremy B. Tonet - JPMorgan Securities LLC

Good afternoon.

Michael J. Hennigan - Sunoco Logistics Partners LP

Hi, Jeremy.

Jeremy B. Tonet - JPMorgan Securities LLC

Hi. I just want to follow up as far as the Permian takeaway, just a little bit more there. As far as the ability to squeeze out more takeaway on maybe outside of Permian Express or the other systems, if other players expand their kind of what feeds into your pipes or anything like that, if you work with others, is there any other kind of incremental takeaway that you could add to your system?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I mean, we're always looking at those types of opportunities. And like I said in my earlier comments, a lot of our concentration right now is finding the synergies between the ETP assets and the SXL assets. We're putting a lot of emphasis right now as part of that process, to look at all the assets within the Energy Transfer family and find the optimum opportunities for which assets belong in which services.

I'm beating this dead horse, but I think there's going to be a lot of excitement and a lot of synergies develop as a result of that. I know that for a fact because we're in the process of doing that and I can see what it's doing, and we're just excited that the market will see that over time.

Jeremy B. Tonet - JPMorgan Securities LLC

Great. Thanks. And with multiple players' ability to kind of add modular capacity, just saying in the Permian there, do you think that differentials kind of just moved towards transportation costs for an extended period of time? Or do you think there are red bar opportunities that could emerge later this year or next year?

Michael J. Hennigan - Sunoco Logistics Partners LP

You're asking for the crystal ball, which I don't know that I have. But I could tell you, my opinion is, we'll have volatility. Right today there's excess capacity, so right today the takeaway exceeds the production. It's our view that it will tighten up. If in fact what we believe to be some pretty robust production occurs, we think that tightening up will occur in the second half of this year and then it'll be tight for a while, and then it'll loosen up again as some capacity comes on, and then it'll go back and forth. So our view is, expect volatility, but overall we think it's going to be much tighter in the next 18 months than it's been in the last 18 months.

Jeremy B. Tonet - JPMorgan Securities LLC

That makes sense. And one last one, if I could, maybe just asking on the quarter. As far as that Pennsylvania flooding, if you were able to quantify that or any other kind of items like that that kind of weighed on the quarter a bit there?

Peter J. Gvazdauskas - Sunoco Logistics Partners LP

Sure. This is Pete, Jeremy. On the Pennsylvania situation, that was approximately $5 million.

Jeremy B. Tonet - JPMorgan Securities LLC

Great. Thanks.

Peter J. Gvazdauskas - Sunoco Logistics Partners LP

You're welcome.

Operator

Thank you, sir. Next question is from Tom Abrams of Morgan Stanley. You may now begin.

Tom Abrams - Morgan Stanley & Co. LLC

Thanks. A lot of good information, Mike. I appreciate all these great answers. So just what's left up here in the Mariner system, I'm guessing refined products, I'm guessing seasonal nature of the propane demand. I'm just wondering, if we just think about that pipe being used for multiple things during a year, if it would set up for you some red bar opportunities?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, Tom, I think you hit it on the head that we do think there's going to be a lot of different opportunities that are going to occur based on what the shippers are looking for. We mentioned in a couple other calls that we have some potential connections in the middle part of the state that had been talked about, that kind of again stalled when the regulatory process took longer than we anticipated. Those have picked right back up now that we're in the construction mode.

So, I think you hit it on the head. We're going to see a lot of different ideas out of a lot of different shippers as to how they strategize, whether they're going to target local production or the regional or the international markets. So our primary focus will always be blue bar first. That's the way we run this business. Given an opportunity, we always talk to shippers about, blue bar is the way we want to set it up. We're not opposed to red bar, as you know, we've seen in other systems. But to-date, the activity in the Northeast Mariner system has been predominantly blue bar.

Tom Abrams - Morgan Stanley & Co. LLC

All right. And then over in the Permian, it sounds like what you're talking about maybe some under-utilized ETP intrastate gas pipes being repurposed to liquids, and I'm just wondering if there's enough of that kind of thing available to obviate the need for a new big pipe out of that basin?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, again, I can't speak for somebody's need for a new-build. I don't personally believe a new-build is needed, at least in the immediate term. Our personal view is, we have a lot of opportunity to synergize our system. Like I said to you, we've been on the record of saying, we have a 200,000 barrel a day expansion that we're now publicly saying it's 300,000. We're on the record saying, we know there are synergies between the ETP assets and the SXL assets. We're working through that right now.

We're also seeing that our Midland terminal is providing some more opportunities that we didn't have on our plate, say, a year ago. So overall, we're pretty bullish that at relatively low multiples that we'll be able to add capacity, increase flexibility and provide a better offering to the shippers. So we're excited about trying to differentiate ourselves in what, somebody asked me earlier, is a very, very competitive space.

Tom Abrams - Morgan Stanley & Co. LLC

Excellent. Well, thanks a lot. Good luck.

Michael J. Hennigan - Sunoco Logistics Partners LP

Thank you, Tom. You're welcome.

Operator

Thank you, sir. Next question on queue is from Jerren Holder of Goldman Sachs. Your line is open. You may begin.

Jerren A. Holder - Goldman Sachs & Co.

Thanks. Good afternoon. Thanks for taking my question. Just wanted to start with maybe the fourth quarter results for the Natural Gas Liquids segment. Was there anything else besides the cold box issue that led to the lower NGL's acquisition and marketing margins and volumes?

Peter J. Gvazdauskas - Sunoco Logistics Partners LP

Sure. This is Pete. And yes, you hit the first part by taking down the cold box to do that work. We have lower volumes, even lower than we had in the third quarter. And then if you're just taking a look at maybe versus the fourth quarter of 2015, the butane and gasoline spreads had contracted pretty significantly. And so, we didn't have that uplift seasonally that we traditionally have had in past years.

Jerren A. Holder - Goldman Sachs & Co.

Got it. Thanks. And then, maybe switching back to Permian Express 3, is there anything – any regulatory approvals you guys need as you kind of think about either of the phases to ultimately get that done?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. There's always some permitting and approvals that you need, so we'll go through that process just like we do in any other project.

Jerren A. Holder - Goldman Sachs & Co.

Okay. And then lastly on – as you kind of think about red bar earnings, a couple of years from now as you expect Permian capacity to tighten up, what do you think potentially red bar earnings could recover to? Obviously, in the past you guys have generated hundreds of millions of dollars. Do you see that as possible?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. I mean, if the market tightens up and the spreads widen, we're going to be prepared to capture those red bar earnings. Just like someone asked earlier is, I don't really know for sure when they're going to be available. Our business model is just to be prepared when they are. I mean, we do expect the tightening coming up in the next 18 months, so we'll just have to wait and see. We don't count on it, but we are prepared if it's there to us, take advantage of it.

Jerren A. Holder - Goldman Sachs & Co.

Okay. Thank you.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome. Operator, are there any other questions?

Operator

We have Shneur Gershuni of UBS. You may begin.

Shneur Z. Gershuni - UBS Securities LLC

Hey, Mike. Just a quick follow-up question to your response to Brian. When we think about the 100,000 – with respect to PE3, when we think about the 100,000 expansion and then the potential for 200,000, you sort of implied that it's mostly on PE3 or the PE system versus backward integrating into the Delaware.

I guess, the question I'm asking is, at the end of the day if everything gets built, how many more barrels of crude can get to Nederland or further along on the Exxon system? I mean, how much incremental takeaway are we really talking about here? Is it 100,000 and 200,000 of gathering in the system? Or are we talking about 300,000 barrels can actually hit Nederland?

Michael J. Hennigan - Sunoco Logistics Partners LP

So Shneur, it's the latter. 300,000 barrels is the takeaway that could go all the way to the Nederland facility.

Shneur Z. Gershuni - UBS Securities LLC

Okay.

Michael J. Hennigan - Sunoco Logistics Partners LP

So it could be supplied from gathering, it could be supplied from the other areas. But I think you should be thinking about it as the main heart of the system will be an expansion on the PE2 mainline system. But all 300,000 is going to be able to get to the coast.

Shneur Z. Gershuni - UBS Securities LLC

Perfect. Thank you very much. Thanks for the clarification.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Shneur. Thanks for the question.

Operator

Thank you, sir. Next question is from John Edwards of Credit Suisse. You may now begin.

John Edwards - Credit Suisse

Yeah. Good afternoon. Thanks for taking my question. Just follow up a bit here on Shneur. So by our calculation, and correct us if we're wrong, with this additional takeaway on the Permian Express 3 that it would take takeaway capacity by the end of 2018 to around 360,000 (01:10:08). Is that right, if we're thinking about the incremental?

Michael J. Hennigan - Sunoco Logistics Partners LP

John, I'm not going to comment on the overall, that's up to you guys to do that. What I can comment is that, we'll be about 1 million barrels of takeaway in our system once we phase in the 300,000 of additional.

John Edwards - Credit Suisse

Okay. And I guess, – all right. Just as a follow-up then, just I mean if this Permian production continues to ramp, lot of forecasts out there that it will be to at least 4 by 2020. I mean, is there room for a Permian Express 4 or Permian Express 5? I mean, if the demand is there, you keep going with this?

Michael J. Hennigan - Sunoco Logistics Partners LP

Well, we certainly hope so. So our goal has been, as I mentioned a couple times is, to make sure that when we spend new capital that we get as much expansion capability as we can out of it. So, we knew early on that when we did our PE2 mainline pipe, we were trying to size it for some upsides. So you're seeing part of that now, but yeah, we're really hopeful that at some point the market will need PE4 and PE5, that would be great.

John Edwards - Credit Suisse

Okay. Great. Thanks. That's it for me.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, John.

Operator

Thank you, sir. Next question is from Michael Blum of Wells Fargo. You may now begin.

Michael Blum - Wells Fargo Securities LLC

Thanks. Just do you have a growth and maintenance CapEx estimate for 2017?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yes. No, we haven't given that yet at this point, Michael. Like I said, we've got too many things up in the air as far as the merger going. We've got a lot of activity looking at synergizing our capital system there. We have the open season still open for our ME system, so we can't really get to a conclusion yet, so we have a little bit more color there. So we don't really have an update that we're going public with yet.

Michael Blum - Wells Fargo Securities LLC

Okay. Thanks.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome.

Operator

The next question is from Lin Shen of HITE. You may begin.

Lin Shen - HITE Hedge Asset Management LLC

Hey, good afternoon. Really appreciate taking my call. I just want to clarify that for Permian Express 3, I guess the first 100,000 is just you need to add more pumps and some storage too, so it should be coming along very quickly. But for additional 200,000, are you going to need to add in more loops or some more complicated works so you'll need permit also and take a long time?

Michael J. Hennigan - Sunoco Logistics Partners LP

No, we don't think so. You had it right. The first phase is relatively quickly. That's why we said, we'll have that online in the next couple of months once we go through the open season and see what the market needs. But all parts of this expansion are a combination of what you were just referring to. It's pumps, it's storages, it's finding the bottlenecks that our engineers have been terrific at, and trying to figure out a way to increase the capacity in system at the lowest possible cost.

So, it's more the latter that we described as opposed to a new mainline system. And again, I want to emphasize that we'll be looking to synergize with the SXL and ETP assets where we think there's some synergies there that we're working on currently that we know will provide some more capacity to our system.

Lin Shen - HITE Hedge Asset Management LLC

Great. And also in the open season, you'll be able to start – you already have a discussion with the shipper. So what kind of the industries they're talking about? Is there midstream should charge or other E&P to ship crew from Permian to either Gulf Coast or Cushing? I guess, they're spread so narrow now, so is that kind of tariff based on the current curve or based on the people's outlook?

Michael J. Hennigan - Sunoco Logistics Partners LP

Yeah. So I can't comment on what the tariff would be. But you got the process right, so you have a lot of discussions. And at the end of the day, we make a determination as to what the market needs from a capacity standpoint and where we set the tariffs. And then ultimately, we launched the open season around that.

Obviously, as I mentioned, we're going to put an open season out, so I'm not going to comment yet. But eventually, it becomes public for the shippers to see and evaluate and determine whether they want to sign up for that service. So you got the process right, but I can't give you any inside baseball on that.

Lin Shen - HITE Hedge Asset Management LLC

Great. Thank you very much. I appreciate it.

Michael J. Hennigan - Sunoco Logistics Partners LP

You're welcome, Lin.

Operator

Thank you, sir. That is our last question on queue. I'd like to turn the call over back to Mr. Mike Hennigan.

Michael J. Hennigan - Sunoco Logistics Partners LP

I'd just like to thank everybody again for joining us for our call. As always, Pete will be available for follow-up questions. Thank you so much for your interest in us, and we appreciate it.

Operator

And that will conclude today's conference. Thank you for participating. You may now disconnect.

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