Tallgrass Energy Partners' (TEP) CEO David Dehaemers on Q3 2017 Results - Earnings Call Transcript

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About: Tallgrass Energy LP Class A (TGE)
by: SA Transcripts

Tallgrass Energy Partners LP (TEP) Q3 2017 Earnings Conference Call November 2, 2017 4:30 PM ET

Executives

Nate Lien - Treasurer

David Dehaemers - President and Chief Executive Officer

Gary Brauchle - Executive Vice President and Chief Financial Officer

Bill Moler - Executive Vice President and Chief Operating Officer

Matt Sheehy - President, Rockies Express Pipeline LLC

Analysts

Tom Abrams - Morgan Stanley

Selman Akyol - Stifel

Colton Bean - Tudor, Pickering & Holt

Ethan Bellamy - R.W. Baird

Operator

Good day, and welcome to the Tallgrass Energy Quarterly Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Treasurer, Mr. Nate Lien. Please go ahead, sir.

Nate Lien

Thank you, Brian. Good afternoon, and thank you for joining the Tallgrass Energy quarterly earnings call as we discuss TEP and TEP GP results from the third quarter of 2017 as well as our recent commercial developments, all of which were released through our joint press release and 10-Qs this afternoon.

Joining me on the call this afternoon are David Dehaemers, President and Chief Executive Officer, Bill Moler, Executive Vice President and Chief Operating Officer and Gary Brauchle, Executive Vice President and Chief Financial Officer.

Before turning the call over to David, let me remind you that this event is being recorded and a replay will be available for a limited time on our Website. Additionally, our comments today will include forward-looking statements and estimates. These forward-looking comments are subject to various risks and uncertainties and reflect management's views as of November 2, 2017.

Please refer to our filings with the SEC, which are available on our Website, including our 10-Ks and 10-Qs, which provide discussions of factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations. Note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statements. Please also refer to our earnings release for reconciliations between the non-GAAP financial measures referenced in this presentation and the most comparable financial measure or measures calculated and presented in accordance with GAAP.

With that, let me now turn the call over to David for his opening remarks.

David Dehaemers

Good afternoon everybody and thanks to everyone for joining the Tallgrass Energy Third Quarter Earnings call. I'll apologize in advance if I have a little bit of a coughing fit. I have what my wife fondly calls a man cold. Anyway, thank you for joining.

As many of you saw in our earnings release, the third quarter was a standout and record quarter for TEP with continued strong performance in our operating segments and increased earnings and distributions from REX. Some with which is a result of the receipt of the settlement payment from Ultra, more to come on that. All of this contributed to TEP's 17th consecutive quarterly distribution increase. And I think everybody probably on the Webcast has a sheet that I hope is up on your screens.

So, the screen that everybody sees there it's our fifth anniversary here on November 13 from when we bought the assets which are now mostly Tallgrass today, so that was back in November of 2013, sorry, November of 2012. So, we're running into our fifth anniversary and we've put that up on everybody's screens just to keep in front of you all of the things that we've accomplished which we think is a lot and a lot of which we're proud of over the last five years.

Where I left off was is that we have increased our annualized distribution from when we started at IPO 4.5 years go from $1.15 to currently $3.78 and we also have had TEGP's ninth consecutive quarterly distribution increase, again, at IPO 2.5 years ago from $0.53 annualized to currently $1.42.

Another thing I would like to kind of call out before we kind of dive in a little bit deeper here is Bill Moler, our Chief Operating Officer and I recently had a chance last week to go out into the field. One day we left Kansas City, went to one of our compressor stations on REX in Ohio and then we went to Illinois, went to Hays, Kansas and then Douglas, Wyoming. We did that all in one day. The next day we went from Douglas, Wyoming to Sterling, Colorado to Denver and then back to Kansas City.

We saw approximately 150 of our employees out in the field, that's out of about 350 or a total workforce of 675 and I guess the reason I'm telling you that, although not financially, everything we accomplish at this company could not be done without our entire workforce who, again, I'm very proud to have.

Now, before Gary and I summarize the financial statements, financial metrics for the quarter, let me first update you on the execution of our growth and commercial activities at Tallgrass. On last quarter's call, I mentioned that we hoped to execute on a couple hundred million dollars of M&A opportunities or organic growth projects by the end of the year. That was in addition to the approximately $350 million that we had already announced when I made those comments. Five days after the call last time, we announced the acquisition of the crude oil gathering system in the Powder River Basin for just under $40 million.

With that we expect to directly connect this gathering system in the Powder to Pony Express system which will serve two strategic purposes. One, it will further our strategy of being a comprehensive midstream service provider in the Powder River Basin and two, it will continue to make Pony Express one of the most diverse oil pipelines in the country; both from a supply, five common stream standpoint and a deliverability; three refineries and Cushing standpoint.

With that we've had some late breaking news today that I'm going to let Bill tell you about here real quickly and then I'll come back.

Bill Moler

Thanks Dave. Just before the call we received word of a delegated order coming down from the Federal Energy Regulatory Commission granting Tallgrass interstate gas transmission to Section 7B authority necessary to abandon approximately 50 miles of 16-inch pipeline from Labonte Compressor Station to Guernsey. This order was received in a record ten weeks. With the order in hand, we will now turn to converting that line to crude oil and building the North/South line up to our Outrigger acquisition gathering, oil gathering system in the Powder River Basin. This will allow Powder River Basin Oil to have a direct connection to Pony Express at Guernsey.

David Dehaemers

Picking that back up and following on to the things that have happened since our last call are then again on September 12 we announced a binding open seasons supported by binding precedent agreements for 600 million cubic feet a day for the Cheyenne connector pipeline, that is a Tallgrass Energy project and associated hub just south of Cheyenne, Wyoming.

The open seasons have closed, and we continue to work with one additional party in addition to DCP and Anadarko or WES to secure additional lives for the project. These projects are very attractive with or without additional volumes. We expect the cost of the Cheyenne connector to be approximately $200 million to $250 million depending on the final capacity. We expect the Cheyenne hub, a REX project, to cost approximately $70 million to $100 million depending on the ultimate size of the project.

These projects serve three strategic purposes; one, continuing the transformation of REX into the North America's premier northern most natural gas header system, two, increasing volumes into REX in the long-term and three, providing DJ natural gas volumes and outlet for additional markets.

The oil gathering acquisition, the Cheyenne connector and the Cheyenne hub more then fill the bucket that I foreshadowed for you on last quarter's call. Importantly, they are the most recent examples of our successful transformation from a dropdown growth MLP to a significantly sized MLP with a substantial footprint achieving sustained growth through organic projects and acquisitions.

I would also suggest that TEP and TEP GP equity prices where they are, with where they are, you are getting a free option on the upside that is possible from sizable M&A with us not to mention a couple of dropdown assets that still remain at TDEV and I'll remind everybody those are another 25% interest in REX as well as a 2% interest in Pony Express.

Finally, I would tell you that we are working on somewhere between $50 million and $225 million of the acquisitions that could be announced prior to the end of the year. I won't be surprised if we get at least some of that, if not all of it.

Now, let's review the third quarter financial results driving our distribution increases. Adjusted EBITDA for TEP was $238.7 million or if you were to include the quarter's net deficiency payments, adjusted EBITDA would have been $241 million. TEP's DCF for the third quarter was $215.5 million and coverage for Q3 was a very strong $1.99 times.

In September one of our Pony Express shippers used previously shipped incremental volumes and I'll remind you that incremental volumes are volumes that a contracted shipper ships in excess of their MVC's. When they do that they also paid us for them, but they are able to use those incremental's in the future to basically not have to pay their MVC 's in the future and we had one shipper do that.

So thus, their volume of incremental balance and their cash flows were reduced in this third quarter. Frankly with the inclusion of those cash flows, DCF and coverage would have been $221.3 million and 2.05 times respectively. We do expect this will continue in the fourth quarter if it continues how it is with this particular shipper they will be out of incremental charges and resume payments for their MVC 's in Q1 of next year.

TEP increased its quarterly distribution to $0.945per unit or $3.87 annualized which is the increase of 18.9% over the third quarter 2016 distribution. TEP GP increased its quarterly distribution to $0.355 per share or $1.42 annualized which is the increase of 35.2% over the third quarter 2016.

I'm going to turn the call over to Gary to go over his financial comments and then I'll wrap it up and we'll get into Q&A.

Gary Brauchle

Thanks Dave, good afternoon everyone. Before I discuss the segment performance, I will point out for you that we have reorganized and renamed our segments this quarter as follows. Natural gas transportation which includes type, trailblazer and our ownership and operation of REX, crude oil transportation which includes the Pony Express system and gathering, processing and terminalling which includes our processing facilities in Wyoming, the Douglas Gas Gathering System, the Powder River Crude Oil Gathering System, our water services business and Tallgrass Terminals.

So now onto the segment financial performance. The National Gas Transportation segment produced recorded adjusted EBITDA of $160.4 million inclusive of TEP's proportionate distribution from the $150 million ultra-settlement payment to REX.

In addition, REX generated approximately $13.5 million of revenue from the sale of incremental Zone 3 capacity during the quarter and that was on approximately $246 million cubic feet per day of volume on average over the quarter.

As a reminder, that volume in revenue is over and above the 800 million cubic feet per day of fully contracted capacity that the Zone 3 capacity enhancement project brought online early this year. We will continue to optimize the additional Zone 3 capacity when it's available and, in fact, we do have good line of sight into doing so again in Q4.

Our crude oil transportation segment generated distributable cash flow to TEP of $68.2 million driven by another solid quarter at Pony Express. Average daily throughput at Pony Express for the third quarter was approximately 270,000 barrels per day as compared to our contracted volumes at just over 300,000 barrels per day and again, we remind you that we generally get paid on contracted volumes, not throughput volumes.

Earlier in the year Dave predicted that additional or actual volumes, would be plus or minus 10% of contracted volumes and this quarter, again, demonstrated that. The gathering, processing and terminalling segment generated adjusted EBITDA of $15.5 million for Q3 which is, in fact, $5.4 million more than it generated for the entire first nine months of the prior year for 2016, so obviously we're very pleased with the growth of this segment which has been delivered both organically and through the acquisitions of Tallgrass terminals and the Powder River Gas and Oil Gathering Systems.

Next, let's review our balance sheet like we typically do. In mid-September TEP issued $500 million of 5.5% coupon notes due 2028, so ten-year paper, with an investment grade covenant package. The proceeds of which paid down our revolver borrowings. I'll take this opportunity to remind some to model us very closely to review your Q4 interest costs for TEP to make sure they include the impact of this long-term debt issuance.

At the end of the third quarter, TEP had approximately $870 million of liquidity available on the revolver. Importantly, TEP's leverage as of quarter end was approximately 3.1 times based on the trailing 12 month adjusted EBITDA as calculated according to our credit agreement. This is on the end of our three to four times long-term leverage target and that obviously indicates ample leverage capacity at TEP.

And with that, David, we'll now wrap up our prepared remarks.

David Dehaemers

So, I'm sure I'll receive additional questions - we will receive, additional questions during the Q&A session in a few minutes. But I first want to address a couple of things that we're hearing questions about often.

The first is what's going to happen with Pony Express cash flows in 2020 and beyond. Our response to that question is that Pony Express will continue to be a large diameter long-haul pipeline connected to multiple grades of crude oil originating from multiple supply basins and delivering clean neat barrels to liquid storage and trading locations.

In addition, it will continue to connect multiple refineries that consume hundreds of thousands of barrels of crude each day; simply put, Pony Express will be well utilized and will generate substantial cash flows for a long, long time.

Some of the same questions and circumstances I will remind you surrounded REX five years ago. I think everyone reasonably would agree on this call that we did an outstanding job of addressing them with regard to REX and, in fact, I would suggest with strong conviction that we were the only ones that saw value in REX, period, five years ago.

We are doing, and will continue to do the same with Pony. Pony is not, will not, be dependent on any one customer, grade of crude, supply basin or delivery point. I think that's very apparent given the comments that Bill told you about relative to the abandonment order that we received from the FERC today that is going to allow us to direct connect into the Powder River.

Our pipeline at Pony continues to deliver strong volumes. In fact, at floated average of 270,000 barrels per day for the third quarter and finally TEP's substantial cash flows are very conservative flexible balance sheet with lower leverage, very healthy distribution coverage and very promising growth prospects.

The second question I'll address in these prepared remarks are that we receive on a frequent basis is when are you going to simplify or eliminate the IDR's? We continue to believe that the GP, when behaving appropriately and I'll tell you that I get it, there are definitely many examples out there of inappropriate GP behavior, is that a benefit to the LP's and the MLP altogether. Unless someone asks me later, I won't tell you why there are MLP's in the first place. I've been doing this a long time and am familiar with the reason for MLP's, some of which people seem to want to ignore these days.

Rest assured, there are good reasons and I would remind everybody that we have a partnership agreement that folks probably ought to read more often, maybe even our investors. That agreement requires our partnership to pay out all of our available cash flow from operations which frankly is what most investors want and deserve. Again, glad to discuss this more. That said, we do believe that traditional IDR's, can at some point strain the MLP's ability to grow and therefore have a finite useful life.

Is Tallgrass multiple or many years away from reaching the end of that useful life so to speak? Probably not, but we also don't think the time is upon us as we set this quarter to address this matter. I commit to all of our LP and GP partners that we will address the matter before it becomes a problem and you can expect that we will do it in a way that is creative, fair and hopefully exceeds your expectations much like we have worked to do over the last five years.

Finally, let me say this about energy and MLP markets. We are going to work on what we can control which is running our company the best we can for our partners and produce the best possible financial results for our partners, the markets which we can't control, I believe will eventually get it right.

They'll get our value right, they're get the value that we deserve right which I happen to believe currently is a valuation that is under valuing us, but that is something simply that we cannot control and cannot worry about every day so we're going to spend our time on much more fruitful things like I think most of the investors in our company would want us to which is trying to grow the company, grow our distributions, etc.

So, with that operator, I'm going to turn it over to you to open up the question-and-answer session and appreciate everybody's time today.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we'll now take our first question from Tom Abrams with Morgan Stanley.

Tom Abrams

Thank you. Looking at Pony, maybe you could just step through, you've added a number of things both in the collecting side and also the service side to refiners to step through when those things will be impacting your cash flows particularly the new connector.

David Dehaemers

Yeah, I'll let Bill take that and good day to you Tom, how are you?

Tom Abrams

[indiscernible], thank you.

David Dehaemers

We're good too.

Bill Moler

I'll do my best Tom. As far as the refinery connections, they come online first quarter of 2018. The El Dorado Refinery connection is January 1, McPherson is January 1. The Kansas uplift barrels the new supply point being put on the line near Natoma, Kansas, the on ramp comes on in the first quarter of 2018. The Platteville Extension is expected to be at the beginning of the second quarter in 2018 and then our Grasslands Terminal, which is a terminal that's supporting the Platteville mine, not necessary for it to go into service, but it will be in service the fourth quarter of 2018. As for the conversion and the line to connect Outrigger to Guernsey, the FERC order gives us a year to abandon that line. I don't see us taking that amount of time. To be honest with you Tom I never in my wildest dreams would have thought we'd get an order in ten weeks and so we're still trying to set the schedule with taking approximately six months off of the schedule because we've got our order so quickly. So, we'll have to get back to you on that one but it's safe to say it's going to be a lot sooner now than it was anticipated.

Tom Abrams

Okay, and the one year to abandon, any time to convert or is that part of the abandonment?

David Dehaemers

Give him a rough idea.

Bill Moler

Yeah, if we were to start the abandonment today, the abandonment is not going to take long. Getting the conversion of PDO filed, rates in place, converted and built out, it's probably 12 months from now, 12 to 15 months from now.

Tom Abrams

Excellent and then just what's going on in the PRB from a producer development standpoint, new rigs, volumes, availability of additional properties for you?

Bill Moler

What I can tell you is we are constantly reaching out to all of the producers in the basin. We talk to them on a weekly, if not daily, basis. We have, I would tell you, probably half a dozen to three quarter of a dozen RFP's out for producers who have drilling plans in 2018 that range from three well packages all of the way up to 18 well packages. We are exercising our total basin solution and giving them opportunities to - for us to take care of their disposed water, to take care of their freshwater needs, to take care of their natural gas gathering and processing needs and also to take care of their crude oil gathering and ultimate delivery down Pony to markets beyond. There is a lot of activity. People are just now finishing their budgets and it seems like '18 is going to be a banner year for the Powder River Basin. Does that answer your question Tom?

Tom Abrams

It did, thank you very much. I appreciate it.

Operator

And there are no further questions in the queue at this time. [Operator Instructions] And we'll now take our next question from Selman Akyol with Stifel.

Selman Akyol

Thank you, good afternoon.

David Dehaemers

Hey, Selman. Good afternoon.

Selman Akyol

Can you give a little color in terms of some of the acquisitions that you said you wouldn't be surprised to see coming to fruition between now and the end of the year either natural gas, oil, can we presume geography to continue to be in the Rockies, et cetera, anything like that?

David Dehaemers

Yeah, what I can tell you is the ones that I'm thinking about in my mind when I said that are both oil and as you can imagine they are just like what we've done so far, we're not really stepping out into other stuff other than - in geographic areas. So, all of these are, again, just making our entire system stronger. So, they're around our existing assets and current footprint.

Selman Akyol

Okay, great. Thank you.

David Dehaemers

Operator, we ask for more questions?

Operator

Yes, we do actually have another question in the queue. And we'll now take our next question from Colton Bean with Tudor, Pickering & Holt.

Colton Bean

Good afternoon. So, I guess maybe a question for Bill here, I think it's becoming increasingly topical, it looks like there's going to be quite a bit of gas ending up in the Midwest over the course of 2018, just as you guys are going through early conversations for the remaining portion of Rockies Express and thinking about re-contracting there, does that come up at all and just how are you guys thinking about asset positioning there?

Bill Moler

Hey, Colton, a great question. I think we've been pretty clear about what our opinions are as to Rockies Express but I'm going to toss it to Matt who will give you some real world data to support our theories behind the Midwest and REX.

Matt Sheehy

Yeah, thanks Bill. The Midwest has obviously been a focus area for REX since the beginning. If you've been following our efforts that have gone hand-in-hand with the capacity enhancement project and the turnaround of Zone 3 as we've been expanding the delivery interconnects with existing LDC's and LDC's in Illinois, Indiana. As you know, the Spire Lateral in St. Louise is going in off of REX. People are seeing the benefits of supply diversity off of REX meaning they can access Utica, Marcellus volumes and Rockies volumes for their system. In addition, REX is a new pipeline, it's high pressure which has meaningful financial benefits to our downstream customers and their system optimization. So, there's obviously a lot of gas ending up in the Midwest. The Midwest is a broadly defined area.

I think it's important for folks to keep in mind that the Chicago market is not necessarily just the Midwest anymore, there are Minnesota, Iowa, Missouri, Southern Illinois, there's just a lot of little pockets there. I think it's important when people look at REX and how it's positioned, vis-a-vis the markets that we're in, we're feeling very good about our connectivity and I think it's evidenced by the flows we've had. The last week I believe we flowed 4.9 Bcf on REX, 1.8 from the East and 3.1 - excuse me 3.1 from the East and 1.8 from the West. So, REX is seeing a lot of activity and we think the Cheyenne Connector is going to further enhance our access to volumes and access to positioning on the system.

David Dehaemers

Yes, Selman, it's Dave. As a follow-up to that I'm going to just provide a little bit of color on REX and I don't think people quite get what's happening there. We're able to tell how much flow is on the pipeline, I'm just going to take a week during the third quarter on REX and just tell you the gross amount every day for a week that flowed on REX in general. So, for one day, I'm not saying what day it was, but it was 5.1 Bcf a day. Now, if you think about that, REX was a bullet line West to East, 1.8 Bcf a day and just one day within the last quarter we moved 5.1 Bcf that day. I think that's amazing. So that same week we moved, 5.1, 4.8, 4.8, 4.5, 4.7, 4.8, 5.0 and 4.8 Bcf every one of those days. And so, I guess my point is to, A, share a little more granular about what's really going on in REX and, B, it's just kind of like when the Packers a couple of years ago, I think, went zero and three. Their quarterback, what's his name? Aaron Rodgers just told the people in Green Bay to relax a little bit. That's kind of how we feel about REX.

And you're not asking but I'm going to go ahead while I've got the information in front of me on Pony, we do get people calling in here and say, hey, this place says REX is only moving 125,000 or 50,000 barrels. Well, let me - I'll give you another week for Pony during the quarter. Okay, these are the days and what Pony moved just these - I'm going to give you eight days here of this week; 305,000 barrels, 288,000 barrels, 302,000 barrels, 285,000 barrels, 294,000 barrels, 298,000 barrels, 291,000 barrels, 304,000 barrels. Now, obviously, somebody is going to say, yeah, but it was only 270 on average, so that means there were days that were lower than all of the numbers I just read you, which I get, but kind of the same message with Pony, everybody just - we would like pundits and investors alike to just relax and chill a little bit.

Colton Bean

Understood, volumes have to flow somehow.

David Dehaemers

Yeah, when you work - I mean, I kind of preempted your timeframe there, so if you've got more questions, we'd be glad to take them.

Colton Bean

Yeah, I think I -

David Dehaemers

Yeah, Colton, I'm sorry, I think - Colton, I think I said Selman, I apologize for that.

Colton Bean

I figured that, I'd take credit for his questions too but, no I mean I think on the gas side we just wanted to get your thoughts there and then I guess looking a little bit further out actually, still thinking about Rockies basis, to the extent on Southern California, you got [indiscernible] Permian gas moving West in the Pac Northwest you've got BC Montney coming down. I mean, does that also change the equation a bit if Rockies producers can't necessarily access the Western markets in the same way that they used to?

David Dehaemers

Yeah let me - I'm going to turn it over to Matt but just let me tell you that, people talk a lot and there's a lot of people that are very smart that do right about all of this stuff and make prognostications. The one certainty that I can tell you is that they will all be wrong. No one knows where this molecule or that molecule are going to end up and with that I'll just kind of let Matt probably give you a more wholesome detailed answer.

Matt Sheehy

Yeah Colton, that dynamic I think is - the dynamic that you're honing in on there I think is something we've been noticing as well which we see as a tremendous benefit to Rockies Express obviously. Again, we believe in the strength and the depth of a lot of the Midwest markets and the connectivity that our pipeline has with downstream connected pipelines through which they can access many different markets like, South Texas and then get up to the upper Midwest and they can get to the Southeast, et cetera. What's happening in Southern California, I think it's important to note that while there is some ability to move gas from Northern California to Southern California, as we look at it, those two markets are slightly different.

So, I think I would agree with you on what's happening in Southern California there, we are seeing a renewed interest from E.ON's volumes that perhaps wanted to go on another pipe towards that direction and come into REX and then with obviously the Pacific Northwest, what's happened with Montney, again more volumes out of [indiscernible] are looking for a home. We continue to see really unique opportunities in Northern California and we do believe that as we make REX Zone 1 and 2 bidirectional that particularly with the Cheyenne Connector there will be times of the year and there will be customers that want to go to California over us and over thrust and then we continue to believe that the lion's share of our volumes are going to continue to move towards the Midwest market. So, yeah, the dynamic you hit on is right dynamic and it's something we're definitely keeping an eye on and we think we're going to be the beneficiary of it.

Colton Bean

That's helpful. Appreciate the time.

Operator

We'll now take our next question from Ethan Bellamy with R.W. Baird.

Ethan Bellamy

Hey guys. Dave, I know I'm going to be kicking the horn if not here with this question, but can you talk about the rate environment on Pony and the oversupply of pipes and how you guys stood in competitively? I mean, I know that is that and either rates or volumes are still the big core of the short thesis and I just want to make sure that we're not missing anything in terms of market data points or anything like that that have come out lately that are concrete that you could speak to?

David Dehaemers

Yeah, and Bill will add on to what I say. I mean, let me just first say that, again, we've - we're contracted for another two years, two years, three months and I'm repeating myself from it seems like every 90 days now, but people don't re-contract two years out at whatever rates. I mean, I guess they would re-contract if you agreed to let them ship it for free. And so, it's really hard to talk about rates. I mean, our rates are what they are. Our walk-up rate is four and a quarter, our best rate, I think is somewhere in the low three's, 330. We're contracted at over 300 a day, we have a new open season that we put out at Platteville where we're going to have another 30 coming on the line once it's in when Bill told you etc. In terms of your characterization of overbuilt, I mean, I guess I could understand why you say that because a lot of people are saying that particularly in the DJ relative to White Cliffs and Saddlehorn, Grand Mesa. I don't think all of those pipelines are fundable; they certainly aren't in the same areas. They don't originate in the same areas. We don't have the same customers, etc., so I would take a little bit of umbrage and dispute with kind of an overbuilt situation there.

If you're talking about the Bakken, I don't think it's overbuilt, I think it's probably right sized right now and clearly the markets are changing on us and I think changing in a positive way, they're firming up, the oil is firming up a little bit. I think the world economic demand and the situation with the draws that have been purring over the last nine months to a year, all pretend for a very good situation for us when we do have meaningful things but we're doing all of the blocking and tackling that we can. I think what we're doing strategically in the Powder, particularly with abandoning the 16-inch pipe and building up there into the Powder which I think is - we've got people there amassing acreage and the people that are drilling are having good results. We're going to be one of the few people that can get them out of the Powder and get them to a very liquid market, that's being pushing or any of our refinery connects. So, for me to tell you what - whether we're going to be a 300,000 barrels contracted or 500,000 barrels contracted two years from now and whether our rate is going to be $3.50 or $2.50 I can't tell you that. You want to add on to that?

Bill Moler

Yeah, good afternoon, Ethan. Here's how I would answer it. We've said it before, it's cheesy as all get out and I understand, but this is not a one trick pony period. We connect to the Bakken, we connect to the Powder. We have Kansas uplift coming on. We connect to the Denver Julesburg Basin where we get Niobrara oil and we get DJ condensate. We are investigating heavy barrels off of lines that are around our assets. We have three refineries connected as end use market. Are we a bullet line from the DJ to Cushing and should we be compared to other bullet lines from the DJ to the Cushing, I think you can answer that question yourself, but I would tell you that I don't - I think there is little if any comparison. And what we're doing, Ethan, is we are setting ourselves up for success in re-contracting.

How are we doing that? We're accessing different and more supplies. We're accessing different and more markets. We may never move another barrel to Cushing once these refineries come on. I don't know. But the fact of the matter is we are not a one trick pony and if one area gets over competitive and we lose barrels in that area, we'll pick them up in one of the five or six other areas that we have. So, I personally feel that we are doing everything we can and have set ourselves up for success. If the only thing you can do to attract volume to your system is cut rate, then I think you have a problem and we are not cutting rate today; we are adding volume, we're adding delivery points. So, if somebody's solution to perceived overbuilt competition is to cut the rate, I would worry about them ad not us.

Colton Bean

10-4 Bill and Dave, thank you for the comprehensive answers. Keep up the good - appreciate it.

Operator

There are no further questions in the queue at this time. [Operator Instructions] And it appears there are no further questions in the queue at this time. And at this time, I'd like to turn the conference back over to our presenters for any additional or closing remarks.

David Dehaemers

Thank you, operator. Everybody appreciate your time today, we got done in 40 minutes, we would have been glad to stay here and answer any questions that you all had but thank you for your interest in our company, we're really proud of it, proud of being able to do this for five years and frankly proud of the returns that we have been able to supply to our investors particularly those people that believed in us back in May of 2013. So, with that, everybody have a good evening, thank you.

Operator

And ladies and gentlemen, that concludes today's conference call. We thank you for your participation.