SemGroup Corporation's (SEMG) CEO Carlin Conner on Q4 2016 Results - Earnings Call Transcript

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SemGroup Corporation (NYSE:SEMG) Q4 2016 Earnings Conference Call February 24, 2017 11:00 AM ET

Executives

Alisa Perkins - Vice President and Treasurer

Carlin Conner - President and Chief Executive Officer

Bob Fitzgerald - Senior Vice President and Chief Financial Officer

Analysts

Christine Cho - Barclays

Tristan Richardson - SunTrust

Shneur Gershuni - UBS

Elvira Scott - RBC Capital

Michael Blum - Wells Fargo

Justin Jenkins - Raymond James

Ryan Levine - Citi

Craig Shere - Tuohy Brothers

Operator

Good morning, ladies and gentlemen. Welcome to the SemGroup Corporation Fourth Quarter and Full Year 2016 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. To ask a question you may press star and then one on your telephone keypad. To withdraw your question, please press star, then two.

I would now like to turn the call over to SemGroup’s Head of Investor Relations, Alisa Perkins. Please go ahead.

Alisa Perkins

Thank you, Austin. Good morning everyone. We are glad that you could join us today for our fourth quarter and full year 2016 conference call. I hope that you’ve had a chance to review our press release and earnings presentation that can be found on our website. Today we also filed our 10-K with the SEC.

I would like to remind everyone that today’s presentation may contain projections and forward-looking statements as well as certain non-GAAP financial measures. We encourage you to read our full disclosures and our latest press release, slide presentation and SEC filings for a discussion of those items. These materials contain reconciliations to GAAP financial measures.

Hosting the call today is Carlin Conner, our CEO, and Bob Fitzgerald, our CFO. With that, let me turn the call over to Carlin.

Carlin Conner

Thank you Alisa, and good morning everyone. We are pleased to be here today to review SemGroup’s financial performance in 2016 and to share our expectations for 2017. Yesterday we released SemGroup’s 2016 fourth quarter and full year earnings results. We also announced a quarterly dividend. On Slide 4 of our earnings presentation we provide a summary of our financial results and highlights for the year. Overall, I would characterize 2016 as a year of achievement in spite of continued pressure on our customers and in our markets. Even with these headwinds and lower asset utilization, Adjusted EBITDA came in within our guidance range for the year and we delivered stable returns back to our shareholders. Capital expenditures for 2016 also came in within our expectations with a portion of our CapEx being pushed out to 2017 related to the timing of certain projects. I will go into more detail on CapEx in a few moments, but first I would like to provide an overview of our major projects and accomplishments for the year.

Construction on the Maurepas project continues to progress. Our cost estimates remain on budget and we expect project construction completion in late second quarter. In Alberta, construction on our 200 million cubic feet per day Wapiti gas plant in the Montney is moving forward as the site is cleared and preparations are being made for the installation phase. In the STACK, work is underway on our 16-inch crude pipeline that will connect Glass Mountain Pipeline to the STACK, bringing crude to Cushing. This growing area has strong economics for producers and we are busy working on other crude and gas projects that will leverage our existing infrastructure in the region. We successfully merged Rose Rock Midstream into SemGroup to simplify our corporate structure. In addition, we completed our first-ever SemGroup equity offering. We took these proactive measures to keep our balance sheet strong and enhance our flexibility to capture organic growth opportunities and potential M&A.

Now to Slide 5. This slide gives a more detailed look at our 2016 capital expenditures, which came in a little over $300 million, including $52 million related to maintenance CapEx. As you can see from the chart, the majority of the growth CapEx was spent on the Maurepas Pipeline project with other major spending including the completion of our Isabel Pipeline and SemCAMS’ expansion projects. The decrease from guidance of approximately $45 million is primarily related to the timing of expenditures for Maurepas Pipeline.

Before I hand the call over to Bob, I want to provide a brief update on our Mexican asphalt business. As you know, we ran a marketing process for the sale of the asphalt business and received interest. However, ultimately, we have decided to hold that asset and focus on enhancing its value as we move forward.

Now Bob will provide a review of our 2016 results and highlight our 2017 guidance.

Bob Fitzgerald

Thanks, Carlin. Turning to the fourth quarter results on Slide 6, SemGroup reported net income of $12 million compared to a net loss of nearly $5 million for the third quarter 2016. SemGroup posted fourth quarter consolidated Adjusted EBITDA of $66.2 million, about $5 million less than the prior quarter, based largely on lower SemCAMS contributions. On a full year basis, Adjusted EBITDA in 2016 was $282.8 million compared with $305.3 million for 2015, well within our guidance range of $270 million to $320 million. Non-operating factors negatively impacting our 2016 results compared to our guidance included the absence of NGL Energy Partner’s cash distributions of approximately $16 million and unfavorable foreign currency impact of $4 million.

Now turning our operating results, the Crude Transportation segment reported slightly lower earnings for the fourth quarter. Although we posted higher volumes for Glass Mountain Pipeline and our Field Services business, these were offset by higher G&A costs largely due to a change in our allocation methodology following the merger of Rose Rock Midstream. This change in corporate overhead allocations impacted all three Crude segments during the quarter. Fourth quarter volumes for Glass Mountain Pipeline were up nearly 6,000 barrels per day sequentially, reflecting the completion of pipeline repairs and bringing online a new truck and loading facility in November. White Cliff’s Pipeline posted fourth quarter volumes of 115,000 barrels per day, in line with our expectations. The Crude Facilities segment Adjusted EBITDA was up about $4 million compared to the prior quarter due to an annual take-or-pay true-up in December pertaining to our Platteville truck and loading facility.

Crude Supply and Logistics Adjusted EBITDA dropped by $5 million sequentially as contango and marketing margins were significantly compressed during the last half of the year. For the full year we made over $20 million in Adjusted EBITDA in our Supply and Logistics segment. We, like others in the industry, are dealing with challenging margin realizations as lower production volumes in key basins, coupled with growing producer minimum volume commitment, are sharpening competition for leased barrels. I’ll provide more comments in our future expectations for this segment during the guidance update in a moment.

Turning at SEMGas, Adjusted EBITDA was consistent with previous quarter as processing volumes remain flat with an uptick in October volumes offset by adverse weather conditions and slower well completions in December. SemCAMS’ Adjusted EBITDA was down $6 million compared to the third quarter as slightly higher volumes were more than offset by higher operating expenses as well as a net unfavorable impact of one-time items of approximately $3 million. During the fourth quarter we made a one-time incentive payment of about $4.5 million to producers to keep a large production unit flowing. This agreement is subject to a partial clawback provision through 2018. Somewhat offsetting this payment was a $1.4 million one-time payment received by SemCAMS from a customer pertaining to a project completion payout. Fourth quarter Adjusted EBITDA for SemLogistics was flat compared to the prior quarter as all availability capacity is contracted. SemMaterials Mexico EBITDA was up slightly due to higher sales volumes. Lastly, Corporate and Other Adjusted EBITDA was favorable to the prior quarter due the change in corporation allocations to our crude segment mentioned earlier.

Moving on to Slide 7, our leverage and liquidity position, SemGroup ended the year with a debt compliance leverage ratio of 3.1 times and total liquidity exceeding $1 billion. We intend to use our liquidity to fund our growth projects including Maurepas Pipeline, the Wapiti sour gas plant in Canada, and the crude STACK project.

Now to our 2017 guidance on Slide 8. SemGroup anticipates 2017 Adjusted EBITDA between $270 million and $310 million. Key assumptions underpinning our guidance are outlined on this slide. We expect the Maurepas Pipeline System to be completed late second quarter. We are forecasting our non-joint venture transportation volumes to increase by 5% to 10% driven by increasing Field Services volumes as well as higher volume on our Wattenberg Oil Trunkline. During 2017 we expect White Cliffs volumes to average 100,000 to 110,000 barrels per day with volumes remaining relatively steady during the first nine months before we expect to see a minor step down in volumes in the fourth quarter due to commitments on a competitor’s pipeline. Glass Mountain Pipeline volumes are projected to average 75,000 to 80,000 barrels per day for the full year.

Our Northern Oklahoma gas processing volumes are forecasted to average 280 million to 300 million cubic feet per day as we expect volumes to drop slightly during the first half of the year before producers begin to deploy additional rigs starting this summer. In Canada, our forecast includes a one-month plant turnaround during the second quarter. These large plant maintenance projects occur once every four or five years and this year we’ll be bringing down our K3 plant. The turnaround will have a negative impact on our total average processing volumes for the year. Management expects to deploy approximately $500 million of capital expenditures in 2017, which includes approximately $60 million for maintenance projects and $180 million for the completion of Maurepas.

I’ll now turn the call over to Carlin for some final comments.

Carlin Conner

Thanks, Bob. In summary, we had a productive 2016 and I’d like to thank our teams for their contributions during the year and for the tremendous progress that we made to drive SemGroup forward. We simplified our corporate structure and we prefunded our capital needs for 2017. We persevered through the challenges of a rather weak energy market, conservatively managed our balance sheet and delivered returns back to shareholders.

We remain focused on growing our business in a very disciplined manner. Consistent with our growth strategy, we leveraged our footprint to capture new opportunities in two of the most active resource plays in North America, the Montney and the STACK, where we are investing more than $0.25 billion in new infrastructure. These two projects are excellent examples of the type of smart, high-value growth opportunities we are executing in and around our operating footprint. We continue to target organic growth projects in the 5 to 8 times EBITDA range.

This brings me to our thoughts about SemGroup’s dividend growth rate. As we highlighted last May, we remain committed to targeting annual dividend growth of 8% over the next several years. Our challenge is to balance the opportunities to reinvest in high-return growth initiatives like Maurepas, Wapiti and the STACK pipeline, while maintaining balance sheet flexibility and providing returns to shareholders.

To better manage this process, we are changing our approach from an incremental quarterly dividend increase to an annual dividend step-up policy. I want to stress that this is not a mutually exclusive exercise of choosing to reinvest in the Company or return capital to shareholders. We believe that we can do both and we will do both in 2017. We believe that this is also consistent with more traditional C Corp companies. We expect to review our dividend policy later this year and we’ll shape our annual dividend increases based upon our business environment, while keeping a close eye on our longer-term dividend growth targets.

We remain extremely active on the M&A front. It’s still a very competitive environment and we continue to diligently pursue opportunities in line with our strategy to achieve basin and customer diversification as well as leverage existing assets. On a day-to-day basis our focus for 2017 remains unchanged. Our highest priority remains to safely and reliably serve our customers with a variety of midstream services and offerings. As our customer base diversifies and the market continues to show signs of strengthening, I am confident that SemGroup will sustain and build upon the stable, long term value that our shareholders have come to expect.

With that, I’d like to thank you for joining us today. I would now like to turn the call over for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from Christine Cho with Barclays. Please go ahead.

Christine Cho

Hi everyone. I wanted to start with the dividend evaluation for later this year. Can you just give some more color on the thought process there? As we move through the year do you think that CapEx could increase or alternatively decrease from current levels? It seems like you had $60 million of unidentified CapEx in the natural gas segment so I’m not sure what you’re baking in. Does leverage and/or dividend coverage have to be at certain levels? Any updates on how you’re thinking about that would be helpful.

Bob Fitzgerald

Hi Christine. This is Bob. I’ll take that. Carlin might add a couple of comments here. As we look at our capital program I’d say we’re pretty comfortable with the capital forecast that we’ve provided. As you noted, we have fully committed pretty much all of the $500 million that we guided to other than there’s $60 million there that we’ve got a placeholder on a project that we’re very comfortable with. We’re just close to finalizing it. We’ll have more information on that in the future. So I don’t think capital is going to be changing that much going through the year. If anything, there’s an opportunity to maybe increase it going forward.

The dividend guidance that Carlin was talking about is something that we want to look at. How we’re reinvesting into other growth projects that might come up into the future, what our balance sheet looks like, what our leverage position looks like, but we are committed to growing the dividend; we’re just not going to be doing it incrementally.

Christine Cho

Okay. Then on the leverage, CapEx is higher this year versus last year while the midpoint of the EBITDA is just modestly up. Should we think that you’re willing to go above the target leverage as long as you have line of site to come back down, and how long are you willing to stay at elevated levels?

Bob Fitzgerald

With a $500 million CapEx program we clearly are expecting to see sequential growth in our leverage position over the year as we tap into the billion dollars of liquidity to fund our growth projects. We expect to be around the target threshold range of 4.5 times during the year, and we’re comfortable with that, as you say, as long as we have good visibility in watching that leverage come back down. We’ve got a lot of key growth projects that are going to come online towards the end of the year that’s going to generate a significant amount of cash going forward.

Christine Cho

Okay. Then last question, in the prepared remarks you talked about what happened with the sale of the Mexican business. What are the things that you can do to enhance the Mexican business that could make it more attractive for a sale later on?

Carlin Conner

This is Carlin. I think the main focus for us is once you go through a process is to take a step back and try to look at the market that you’re in and figure out what can we do better to increase the value? We are the market leader in asphalt supply in Mexico by 4X. We have a great research and development team. We’re working with the government in developing road paving standards, so we have a lot of good things to work off of, and we’re going to continue to leverage that. We’ll see where we go from here.

Operator

Our next question comes from Tristan Richardson with SunTrust. Please go ahead.

Tristan Richardson

Just curious. I appreciate the comments around sort of the puts and takes in the Canadian business in the fourth quarter. I’m curious is renegotiations in that segment have any impact on sort of either rates or per volume profitability for the segment, either in ’17 or just longer term.

Bob Fitzgerald

Hey Tristan, this is Bob. We don’t really see any rate changes going on within that business other than the one-time item that we talked about here on our prepared remarks, that we made a payment to keep a big production unit flowing. Other than that, our regular rates that we’re incurring as we’re doing our processing and gathering, we expect those to remain the same going forward.

We do expect obviously some volume volatility for SemCAMS in 2017, driven obviously by the turnaround that we’re going to have at K3 in the second quarter. In that regard, I would tell you that we expect our volumes in the first half to be a little bit volatile as we get ready for the turnaround and then execute the turnaround during the first half. Then they’re going to grow sequentially I think throughout the rest of the year in the second half as we bring on some projects, particularly some of the KA expansion and debottlenecking project that we’ve been working on since last year.

Tristan Richardson

Great, Bob. That’s helpful. Then just lastly, I guess kind of another cut at the dividend question. Curious, you know, kind of moving to more of an annualized discussion rather than quarter by quarter, should we take that to mean that you’re commentary for growth of 8% in ’17 is maybe more of an exit growth rate target?

Carlin Conner

Well, when we talk about—this is Carlin, by the way, Tristan. When we talk about targeting an 8% growth rate over the next several years, and that we’re going to be reviewing the dividend late this year, we will be taking a look at that at that time, not before, whether or not we—at what level we will increase the dividend, and it will be based on the business circumstances. We firmly believe that reinvesting capital back into the business at the attractive multiples that we have been able to achieve is the best use of that capital. Short of having that availability then we’ll take a look at what we need to do with that capital.

Tristan Richardson

Great. Fair enough. Thank you guys very much.

Operator

Our next question comes from Shneur Gershuni with UBS. Please go ahead.

Shneur Gershuni

I was wondering if we can start off with kind of your outlook with respect to CapEx. Understand that you’ve sort of outlaid the numbers, your expectations for this year and you’ve got a placeholder in there as well too. I was wondering if you can talk about projects that are not quite at the development stage or ones you’re not ready to FID yet. Sort of thinking about the shadow backlog, when you think about what you’ve got and what you’re evaluating, is it something that’s kind of in the $200 million to $300 million bucket for the next couple of years? Or is it something that’s more like $700 million to a billion dollars? I was just wondering if you can give us a little bit of color on the shadow backlog?

Carlin Conner

This is Carlin, Shneur. Good question. As we’ve talked about in the past, really don’t like to talk to the size of projects that are kind of, as you call it, in the backlog, the shadow backlog. We have good line of sight on opportunities in and around our footprint that we feel pretty good about executing. Can’t really give you the quantum of CapEx or even range of CapEx at this point, but it’s significant and we really are excited about the opportunities that are unannounced at this point that are driving, in our mind, some of the planning going forward and the optimism that we have.

Shneur Gershuni

Okay. So, you know, sort of tied together, the last four dividend questions that you just got, what kind of message are you sending with the 8% growth rate for this year as you sort of think about future years? Is that sort of a baseline number that you think you can grow at given the coverage ratios that you have, in terms of the scale of the backlog that you’re contemplating? If the backlog ends up being less than what you’re thinking, does that result in a higher dividend growth? I was just wondering if you can sort of talk to how you sort of optimize your coverage ratio, your growth rate, your dividend growth rate, versus reinvesting in the Company itself.

Carlin Conner

This is Carlin again. If you recall, back in May, when we talked about the 8% growth rate, we also talked about targeting a coverage of 1.5 times. As we move into reviewing this dividend policy, as the business evolves and as opportunities that were in model either become part of the execution plan or fall off, we will obviously have new numbers to review, and we will take a look at that point in time what those cash flows look like and what the internal needs for capital will be, and manage that. Leverage, of course, is very important to us, as well, managing it. So, it’s managing all those metrics collectively and then looking at our projects at the same time.

Shneur Gershuni

Right. So, is it fair to conclude that you would expect to be funding the equity portion of your CapEx going forward out of your excess coverage and we really shouldn’t see you in the equity market for larger projects because of this coverage, and reinvest in opportunities?

Carlin Conner

Well, as we’ve said, we’re funded for 2017. Depending on the size of projects beyond that, we’ll have to take a look at what’s the best way to finance those projects, but the idea would be that we would definitely try to use as much capital internally generated as possible, balancing different objectives of returning some—some returns to our shareholders, managing leverage, but also being very efficient with our capital.

Shneur Gershuni

That makes perfect sense, I’m happy to hear that. I’m just wondering if we can talk about your 2017 outlook. You’ve got more Maurepas coming online, you’ve got Glass Mountain, and so forth. I kind of would have thought that your 2017 guide would have been a little bit higher than where it shook out, when I sort of think about the midpoint. I realize that the recovery is not balanced. Is there some areas in your footprint that are not recovering as fast as others or where you’re seeing some weakness? Is it specifically the turnaround you talked about in your prepared remarks? I was just sort of wondering if you can sort of discuss the bottom and top ends of the range, you know, where the sensitivities are that we should be thinking about.

Bob Fitzgerald

Hey Shneur, this is Bob. I’ll take that one. Great question. As we look at our 2017 EBITDA guidance, I would say the one area that I’d point to that we do believe, and we forecasted to be pretty soft in ’17, obviously, is our Crude Supply and Logistics. In that sense, when we look at the first half of the year, at least, we’re not expecting to generate much of any EBITDA contributions from that segment. Those margins have been very compressed. We do get some value from our supply and logistics activity in our other crude segments. Most of the barrels we touch in supply and logistics actually utilize our facilities and utilize our transportation networks, whether those be pipelines or trucks.

So, it’s still a good business. We do think it’s going to be pretty tough in the next six months at least, much like we saw in the last six months of 2016, and right now our forecast thinks it’s going to recover slightly in the back half of the year, but we’re going to kind of wait and see on that. So we’re not going too far out over our skis on how we see that growth happening in 2017.

Beyond that, it’s just going to be the usual volume sensitivities that we tend to talk about over time, which I think we gave you some pretty good ranges on the slide.

Shneur Gershuni

Okay, and one final question. It seems like there’s some capital being invested in the DJ? At least is seems to be stepping up a little bit. How would that translate for you? Could you be above the minimum volume commitments on White Cliffs, you know, towards the fourth quarter of ’17, into ’18, or is there still too much capacity [indiscernible] off-take that we’ve seen?

Carlin Conner

This is Carlin. We really are encouraged by the capital that’s flowing back into the DJ on the E&P side, and some of that may be reflected in our forecast, but I think there is upside to our numbers with respect to the DJ. We are above our MVCs. We talk about 100 to 110 a day in our forecast, which, as you know, our MVCs are 77 a day. We’ll see what happens in the back half of the year when Saddlehorn comes on line with their next tranche of MVCs, but we feel fairly confident that we’re going to retain a lot of barrels. Our very prescriptive and very focused tariff response last year to try to make sure we attract heavy producer volumes, or large volumes that are produced in large quantities with our shippers, was very successful. We hope that we can continue to use that program going forward.

Operator

Our next question is from Elvira Scott with RBC Capital. Please go ahead.

Elvira Scott

I’m going to apologize in advance for another dividend question, but I’m really trying to reconcile your comments. So, at the end of the year you’ll review the dividend policy, but then at the same time you’re targeting annual dividend growth of approximately 8% over the next several years. So, how should we be thinking about this dividend growth? I mean are we looking at numbers that can jump around from 2% growth to 10% growth to 5%, or can we expect something a little more, you know, maybe 6% to 10%? I don’t know, just help me reconcile these two comments on evaluating at year end and targeting 8% over the next several years.

Carlin Conner

Yes, I think what we’re trying to say, Elvira, is that at the end of the year, when we take a step back and look at where we are with our projects, we look at what’s coming down the path for us going forward, looking at our leverage, looking at all those key metrics, we’ll make a determination what that dividend growth rate needs to be in ’17, if any, but obviously we see strong cash flows coming in the back half of the year. So that’s a discussion we’re going to have at the end of the year. Really, I don’t think we’re saying anything inconsistent. We’re saying exactly what we said last May, that our model shows 8% growth rate over the next several years.

Q - Elvira Scotto

Okay. So, is this something, then, you would do every year, evaluate at the end of the year what that growth rate is and whether just to take that cash and pay it out or grow the dividend? Is that how we should be thinking about this?

Carlin Conner

Well, we definitely, today, have said that we were no longer going to be looking at this quarterly. We’re moving to what we call a step-up policy, that we’ll look at it once a year at the end of the year, and that’s what we’re going to do, and, again, taking into consideration all the factors that would govern good dividend policy.

Q - Elvira Scotto

Okay, great, thanks. Then can you quantify either the time or the volume impact of the K3 turnaround?

Bob Fitzgerald

Sure, Elvira. This is Bob. Right now, we’re looking at potentially around 75 million to 100 million cubic feet a day reduction in the second quarter, depending upon how well we can move some of those lines around, but that should give you kind of a ballpark number for the impact in 2017.

Q - Elvira Scotto

Okay, great. Thanks a lot for that. Ten just my last question is what’s the latest thinking on the UK business?

Carlin Conner

This is Carlin. Still, it’s going very well. All of our available capacity is spoken for, so we continue to do well in the UK. As we’ve talked about before, it is not a core asset and we’ll continue to grow the value of that business, and I think we’ll take a look strategically on what our next steps would be some time later this year.

Q - Elvira Scotto

Great, thanks. That’s all I had.

Operator

Our next question is from Michael Blum with Wells Fargo. Please go ahead.

Michael Blum

Hey, I’ve got some more dividend questions, and I’m sure you’re excited by that. So, I guess the first is just a simple question. Which quarter is the one quarter now that you’ll be kind of evaluating whether to increase or not, or how much, et cetera?

Carlin Conner

Well, we talk about late this year, so it’s going to be third or fourth quarter.

Michael Blum

Okay. I just wanted to also, I guess, clarify, would you also be contemplating a potential dividend cut or is that kind of off the table?

Carlin Conner

Well, again, we’re going to be reviewing everything. I can’t imagine a cut, but we will review everything at the end of the year, in the second half of the year, when we take the time to take a step back, look at the business, and make sure that we are very disciplined in our dividend policy.

Michael Blum

Okay. Then, I guess, just conceptually, what you’re thinking about here is, you know, if you find, let’s say, a whole bunch of additional projects that you can bring to the finish line, that your thought is you’d rather devote free cash flow to funding that, rather than necessarily dividend increases. Is that kind of conceptually the right idea?

Carlin Conner

A balanced approach. I think what we talk about is we would like to reinvest, but we also know we need to return to our shareholders capital, as well. So, it’s a balanced approach, is how we look at this, and shaping the dividend based on the expectations of the business, the needs for capital, and again, being very disciplined about the dividend policy.

Michael Blum

Okay. Thanks a lot.

Operator

Our next question is from Justin Jenkins with Raymond James. Please go ahead.

Justin Jenkins

Great, thanks. I think we’ve covered most of what I had, and I think we’ve had enough fun with the dividend for one day, but on the Maurepas Pipeline you mentioned late 2Q completion. Is that construction completion or is that when you expect the pipe to start up, or are they one and the same?

Carlin Conner

Currently, in our numbers, we have the pipeline generating earnings for the back half of the year, the back six months.

Justin Jenkins

Okay, perfect. Thanks for that. Then any update maybe on getting additional commitments to expand the project further downstream to other customers?

Carlin Conner

Yes, we continue to have great conversations. I think the recent developments around pipelines getting improved and potentially cap line being reversed creates I think more liquidity in St. James of some of the desired crudes, that some of the refiners that we’re talking to today really desire. So, I’m very optimistic that we’ll be able to do something with the expansion.

Justin Jenkins

Great, thanks, Carlin, and then last one for me. I guess the Glass Mountain volume guidance for ’17 looks pretty robust to me, especially relative to the 4Q run rate. How much of that uplift is from the Isabel connection and the new STACK connection versus maybe just better regional volumes that would have flowed into the system, anyway?

Bob Fitzgerald

Yes, we’ve seen some Isabel contributions already here in the last two months of 2016, so that will continue going forward. I think, Justin, the way to think about that increase is threefold. One is we will be growing organically some volumes with new contracts and commitments that we’re negotiating. Two is that there is a step-up in minimum volume commitment from a key shipper that we have, that’s going to be triggered this year, in 2017. Lastly, with regard to the STACK, there’s nothing in 2017 for the STACK because that pipeline will be finished—we’re targeting it at the end of the year, the fourth quarter. So, we haven’t put anything in this year for that.

Justin Jenkins

Perfect. Thanks for the color, Bob, and have a good weekend, guys.

Carlin Conner

Thanks, Justin.

Operator

Our next question comes from Ryan Levine with Citi. Please go ahead.

Ryan Levine

Regarding Maurepas, it seems like the language in your presentation changed from Q2 to late Q2. Should we be reading into that subtle change or is everything on time and on budget and on schedule?

Carlin Conner

Yes, well, we’ve always said second quarter, and I think we’ve—as we get closer, we’re kind of zeroing in a little more—I guess more focused, and now we’re looking at late second quarter construction complete, and as I mentioned, as we model those cash flows we’re showing those cash flows coming on for the back half of the year.

Ryan Levine

Okay. Then, regarding Maurepas expansion opportunities, is the uncertainty around US tax policy weighing into any of your conversations with the refiners in the region?

Carlin Conner

I do not believe that has come up at all in these conversations.

Ryan Levine

Okay, and then the last question for me. Regarding the 100 to 110 barrels per day on the White Cliffs assumption, is there a recount assumption that backs that forecast?

Bob Fitzgerald

Yes, right now, we’ve got a forecast which I think, based on the public comments made by some of the key producers we’ve got, Anadarko is running at six rigs, we’ve got Noble running a couple of rigs. Both are very bullish about their capital funding going into the future, so we do expect there to be some additional growth in volumes coming through there, but we’re basically expecting that we’re going to keep holding onto what we have. The lines are going to remain sticky until we hit that fourth quarter change that’s going to happen with the Saddlehorn MVC stepping up.

Ryan Levine

Great. Thank you.

Carlin Conner

Thanks, Ryan.

Operator

Our last question comes from Craig Shere with Tuohy Brothers. Please go ahead.

Craig Shere

On the CapEx questioning for incremental projects, any color around the timing you might expect some of this to roll in? You mentioned that $160 million is already baked into the 2017 guidance, but there could be upside from there. Are we still focused on opportunities around the Maurepas bolt-ons, SemCAMS Duvernay and SemGas STACK opportunities? Is there much more outside of that?

Bob Fitzgerald

This is Bob, Craig. I think with regard to our future capital, as we were mentioning earlier, and as you noted, we’re very confident in the ones we have. As far as any additional projects, those areas that you’ve talked about, we tend to look at our key footprint areas for expansions that aren’t included in the 500, whether that’s in the STACK, as you mentioned, or up in Maurepas or up in Canada. Those are key areas that we do continue to focus on, but it’s a little premature right now to say how much and when and what that could look like. We’re working through it with our BD groups and we’ll continue to focus on that.

Craig Shere

Okay. I’m sorry, maybe I didn’t pick up on everything in the SemCAMS discussion, but it seems like volumes were up a couple percent sequentially, but even after $3 million of net one-time items, EBITDA was off sequentially from third quarter. Any more color around the drivers for fourth quarter performance and any kind of direction or color into ’17? I know you gave some guidance there about the volumetric impact on the turnaround in the second quarter, but any more color would be helpful.

Bob Fitzgerald

So, looking at the fourth quarter of ’16, in addition to the approximately $3 million of one-time items that were unfavorable in the quarter, we also had higher operating costs that we weren’t able to pass through. Operating expenses up in Canada tend to be a bit volatile depending upon activities going on in power, et cetera. So depending upon where we’re at, we tend to have that either as an increase or decrease quarter-over-quarter, so it creates a little volatility.

Looking at 2017, the best guidance I can give you right now is to focus on Page 8 of the slide deck, where we have the volumes forecasted with the turnaround. So, I expect it to be pretty lumpy during the first half of the year in terms of EBITDA generation, and then sequentially growing in the last two quarters of the year.

Craig Shere

Okay. Mexican/US relations are not exactly on a high note at the moment. Carlin, do you see this impacting efforts to pursue energy deregulation growth opportunities south of the border?

Carlin Conner

We have not seen any evidence of that yet. Of course, we’re paying attention to those relations and how that could impact projects on the energy reform front. We’re actually making great progress on energy reform. We look forward to hopefully being able to talk about some of our successes down there soon.

Craig Shere

Okay. So it sounds like that that could be one of these non-disclosed opportunities that could come up this year. Are we talking something that could be meaningful, at least, you know, north of $50 million, in terms of investment?

Carlin Conner

It could be, and we’re not going to talk about CapEx that’s unannounced at this point.

Craig Shere

Okay. I think that does it for me. You all kind of commented already—I think Bob said that on supply and logistics, you’ve got about zero in the first half. Was there some more color about what you’re assuming in the second half?

Bob Fitzgerald

No, no more color, Craig, other than I just wanted to highlight that we don’t expect a significant turnaround in the first half. I guess when we look at the second half, we do think there’s a possibility for some level of improvement of the differentials, but that will be very back-ended loaded. So, we’re not putting a lot of contribution on that segment for the whole year.

Operator

This concludes our question and answer session. I would like to turn the conference back to Carlin Conner for any closing remarks.

Carlin Conner

Thank you again for your time today. We appreciate your continued interest and support of SemGroup. Have a good weekend.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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