Kate Walsh - VP, Investor Relations Barry Davis - President & CEO Michael Garberding - CFO Benjamin Lamb - SVP, Finance & Corporate Development McMillan Hummel - EVP, President of Natural Gas Liquids and Crude Oil Business Steve Hoppe - EVP & President of Gas Gathering, Processing and Transportation Business.

TJ Schultz - RBC Capital Brian Gamble - Simmons & Company Darren Horowitz - Raymond James Jeremy Tonet - JPMorgan Chase & Co Barrett Blaschke - MUFG David Amoss - Heikkinen Energy.

Ladies and gentlemen, thank you for standing by. Welcome to the EnLink Midstream Second Quarter 2016 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. Please note that this call is being recorded today, Wednesday August 03, 2016 at 10:00 AM Eastern Time.

I would now like to turn the meeting over to Kate Walsh, Vice President of Investor Relations for EnLink Midstream. Please go ahead..

Thank you, Chad; and good morning, everyone. Thank you for joining us today to discuss EnLink Midstream’s second quarter 2016 results.

Participating on the call today are Barry Davis, Chief Executive Officer, Mike Garberding, Chief Financial Officer, Steve Hoppe President of the Gas Gathering, Processing and Transportation Business, Mac Hummel, President of Natural Gas Liquids, Crude and Condensate Business and Benjamin Lamb, Senior Vice President, Finance and Corporate Development.

As you saw, we issued our second quarter 2016 earnings release yesterday and planned to file our form 10-Q with the SEC later today. To accompany today’s call, we have posted the earnings release and the operations report on the investor relations portion of our website.

Shortly after today’s call, we will also make available a webcast reply of this call on our website. I will remind you that any statements made about our future, including our expectations or predictions, should be considered forward-looking statements within the meaning of the Federal Securities laws.

Forward-looking statements are subject to a number of assumptions and uncertainties that may cause our actual results to differ materially from those expressed in these statements. And we undertake no obligation to update or revise any forward-looking statements.

We will discuss certain non-GAAP financial measures and you will find definitions of these measures as well as reconciliations of these non-GAAP measures to comparable GAAP measures in our earnings release.

We encourage you to review the cautionary statements and other disclosures we make in our SEC filings, specifically those under the heading Risk Factors. The structure of today’s call will be just start with brief prepared remarks and then leave the majority of the call open for question and answer period.

With that, I would now like to turn the call over to Barry Davis..

Thank you, Kate and good morning everyone, thank you all for joining us today. I am pleased to report that EnLink delivered another quarter of strong operating and financial results. We continue to execute on the plan we laid out at the beginning of the year.

We have remained focused and active as we take advantage of market opportunities and leverage our increasingly diversified asset footprint.

This approach can be seen in the recently announced greater Chickadee Crude Oil Gathering system in the core of the Midland basin and our new strategic joint venture formed with Natural Gas Partners to pursue active growth opportunities and expand EnLink’s footprint in the liquid rich Delaware basin.

We will touch further on these two items later in our prepared remarks this morning. We’ve also announced plans to accelerate the expansion of Chisholm II, a cryogenic processing plant servicing production out of the STACK and SCOOP place in central Oklahoma. The activity in growth the industry has experienced in these areas is truly exciting.

The STACK and SCOOP rank among the most economic basins for producers in the lower 40a today and our decision to accelerate the expansion in this area is a result of some outstanding well results and producer plants for the remainder of 2016 and into the 2017.

We are now in a position to tighten our consolidated adjusted EBITDA guidance range for the full year 2016 to a range of 750 million to 800 million from a previous range of 720 million to 800 million. The revised range provides a mid-point of 775 million. The drivers behind our ability to provide this guidance vision are simple yet impactful.

Volumes have remained strong across key parts of our business throughout the first half of year and our major customers have signaled increases in rig counts and production activity in our core growth areas for the back half of the year.

As we continue to partner closely with our customers to develop asset to support and service their increased production plans, I would like to take some time to highlight three key areas of focus that will remain important growth engines for EnLink. First is our advantage in premier position in Central Oklahoma’s STACK and SCOOP regions.

We believe good place get bigger and better and the activity and trajectory we are seeing in the STACK and SCOOP region undeniably support that belief.

Activity in Central Oklahoma remains very high and the results continue to improve as our customers and other operators focus on further delineating the play extending the balance of activity and continuing to fine tune drilling and completion techniques.

Devon specifically has experienced impressive development results as they execute their STACK strategy. In fact, over the course of the second half of 2016, Devon plans to triple their rigs in the basin exiting the year with six rigs operating on our acreage.

The decision behind Chisholm's accelerated expansion is largely due to the exceptional well results reduced drilling cost and increased future activity that our major producers like Devon have announced.

Once completed Chisholm II will add 200 million cubic feet a day of processing capacity at our facility and we now expect operations to commence during the first half of 2017, ahead of our previously communicated plans of a fourth quarter 2017 completion. EnLink continues to benefit from a diverse and growing customer base of top tier producers.

This customer base continues to further develop their acreage positions effectively expanding EnLink’s reach to the north, south and west of our current position in the basin. This is a perfect example of our simple strategy of partnering with the right companies in the right places.

Our second focus area includes our vision for the prolific Permian basin and increasingly important driver of growth in capital deployment for EnLink and the industry.

In the Midland basin, we are focused on executing on the opportunities available from our strong asset base including the ability to leverage our LPC business to develop new crude oil opportunities like the Greater Chickadee gathering system we announced in June.

The Greater Chickadee project is a prime example of the high value opportunities we're able to identify and pursue given our strong position. The project is progressing well with phase I expected to be operational during the second half of 2016 and full operations forecasted for the first quarter of 2017.

As the industry adjusts to the ever evolving commodity price environment, our producer customers like Diamondback RSP Permian and Matador Resources to name a few have committed to increased activity including new drills and the completion of drilled but uncompleted wells.

[Dug] represent a very important strategy for the industry that is rig count neutral and represents the most attractive source of new capital deployment and returns for our producers.

Today, we're proud to say we work with the majority of the top 15 most active producers in the Permian and we've seen the increased activity and action as rigs increased on our acreage from 10 in the first quarter to 14 today.

Looking to the Delaware Basin, we believe this play continues to rapidly advance due to superior economics and is evolving into a significant source of production and growth for oil and gas in the United States.

We proactively enhanced our position in the basin through the acquisition of our global gathering and processing assets in the fourth quarter of last year. With the purchase we established EnLink as a full service midstream provider in the Delaware Basin.

Given our expectations of growth and opportunity in the Delaware, we believe the global acquisition will prove to be a pivotal action taken in support of our long term growth program. As you saw earlier this week, we announced the formation of a strategic joint venture with natural gas partners in the Delaware.

NGP is a highly experienced energy investor with a proven track record of financing and developing high quality assets across the United States.

It is this extensive experience along with deep producer relationship that NGP brings to our alliance and our management teams share the same excitement about the long term value potential in the Delaware Basin.

The JV structure fits squarely into our financial strategy and unwavering commitment to the balance sheet string and capital flexibility, the arrangement provides for significant liquidity over the near term and the optionality to further benefit the partnership and our general partner over the long term.

Finally, our footprint in the demand driven markets of Louisiana continues to add important diversity to the customers we serve and valuable access to a wealth of incremental growth opportunities. On the whole, our results today are in line with expectations.

We saw tremendous strength in volumes this past quarter primarily driven by our systems access to power markets and growing industrial demand. In fact, we experienced a number of record volume days during June and July and are optimistic about the volumes that will flow in our pipeline system for the remainder of the year.

We are already seeing the positive impacts of increased demand from LNG exports, gas fired power generation, petrochemical expansions, and industrial requirements and we’ll continue to build out our strategically positioned assets to capture value and take advantage of the upside to come.

We also reactivated 12 BCF of storage this quarter on our gas system as part of our plan to expand the capabilities of our leading asset platform to better serve our customers who are increasingly looking for alternatives to ensure liquidity and supply security as Louisiana southern gas demand markets continue to rise.

In summary, our Louisiana franchise is well position for long term growth. And with that I'll turn the call over to Mike to review the financials..

Thanks, Barry and good morning everyone. EnLink delivered another solid quarter of results against an otherwise challenge industry backdrop. We performed well within EnLink achieving adjusted EBITDA of around 187 million and ENLC achieving cash available for distribution of around 50 million.

With respect to the quarter, we have continued to see growth in our Permian, Oklahoma and Louisiana businesses with declines in our crude in north Texas businesses. The partnerships distributable cash flow which was around 151 million generally in line with the first quarter 2016 results.

The stable cash flows from our business support a healthy first half of the year distribution coverage of around 1.06 times of both ENLK and MLP. We have also continued to maintain a strong investment grade balance sheet with ample liquidity. For the second quarter we successfully executed on over 50 million in at the market equity sales.

In July, we successfully issued 500,000 million of 4.85% senior notes due in 2026. In August, we successfully entered into a Delaware joint venture with NGP which provided around 150 million in capital reimbursement back to the partnership.

Finally, Howard Energy Partners expect to close the third party equity investment in the third quarter of 2016 which will reduce the capital contributions from the partnership to Howard. All of this positions the partnership of liquidity about a 1.3 billion and debt to adjusted EBITDA of approximately 3.9 times for the second quarter.

Our strong balance sheet and financing activity has positioned us well for the increased activity and growth capital in the Permian Central Oklahoma.

Even with increased growth capital of 140 million to 160 million, our expected net cash outlay accounting for the NGP reimbursement is in the same range of our original growth capital guidance or 430 million to 550 million for the year. Our actions continue to support a strong balance sheet.

I will now turn the call back over to Barry for concluding remarks, Barry?.

Thank you, Mike. As we look back on the first half of 2016, we are very pleased with our ability to deliver solid results in challenging industry conditions. As we turn to the second half of 2016 and beyond, we are in a strong position to support the growth of our customers as they execute on their plans.

We have engaged workforce inspired that clear vision to be a leading midstream company and we are excited to move forward with the growth and development path we discussed. With that Chad, you may open the lines for questions and all of our participants here on the call are available to answer your questions. Thank you..

Thank you, sir. We will now begin the question and answer session. [Operator instructions]. The first question comes from TJ Schultz with RBC Capital. Please go ahead..

Great, thanks. Good morning guys. In the Delaware, how is the pace of investment change now with a partner versus what you are likely able to do before? Just trying to understand if you thought you could spend $400 million to $500 million on growth projects in the Permian before including 120 million a day plant.

Is there opportunity set bigger now, do you spend it faster given more financial flexibility, just if you could expand on the dynamics of what maybe NGP brings as far as customer relationships and so forth..

Thank you, TJ and this is Barry. I’ll start and then I’ll asked Ben add to some any comments that he might have.

Now first of all TJ, what I would like to do is be sure that everybody understands the context of kind of where we are as we look at that joint venture and I think for context you have to look at that nobody has a better position in the leading growth basins in the country than we do and so an abundance of opportunities for growth.

The second thing is that we're in a sustained down-cycle with a less certainty in the capital markets than we would like so what we wanted to do here is go ahead and open up the other avenue for capital in the joint venture with NGP and so as we step into that we also then kind of add for context that we see an abundance of opportunities in the Delaware specifically for growth well beyond what we have communicated and what we have defined and executed on to date.

We think that the play just gets better by the day. So tremendous opportunity for growth just from an organic standpoint. We also think that eventually there is going to be a consolidation and there's going to be opportunities for us to acquire other assets.

So strategically aligning with NGP, we think brings a number of things to it, access to capital, relationships with producers and just a general industry expertise that we think will be very helpful if you will as we develop the Delaware.

Ben, can you pick?.

Yes, just to add on to that TJ, I would just say that if we didn't see the Delaware having the same potential for us that we have realized in the Midland basin between 2010 and last year, we never would have started with the logo project.

And so what this does is it gives us the fire power to go and aggressively pursue expansion in the Delaware because the battle for the basin is being fought right now and we see these opportunities in front of us right now. This gives us the ability to go and continue to compete..

Okay, thanks.

So just on the relationships with producer customers that NGP brings, I guess specifically does it come with any committed volumes from any NGP portfolio companies?.

TJ, one of the most attractive things to us at NGP is their level of knowledge in the Delaware and they have the same level of excitement for it that we do and you see that in the investments that they've made in the Delaware Basin.

So I think that our relationship with NGP will perhaps open some doors that maybe otherwise wouldn't be open for us but at the same time we're going to have to compete for all of our customers business just like we do every day.

In the STACK, I hope you've taken a look at Devon’s operation report so that you've seen some of those well results and the combination of those improving well results not just by Devon but from another producers as well and Devon's now increasing their rig count from two rigs per day to six rigs by the end of the year, all of that combines to accelerate our need for a process and expansion and so at this time we're going ahead with our Chisholm II plant 200 million a day and that will be online first half of the next year..

What we are talking about is our Oklahoma express project which is a potential next step beyond Chisholm II with the next trench of processing expansion in Oklahoma.

We think that it is a wonderful option because it provides not only processing but also helps the bottleneck, the takeaway market in Oklahoma and so we continue to work with Devon and our other producers or whether that's the right next step beyond Chisholm II.

Great thanks.

I guess just lastly, may be Mike on plenty of requirements if you could just discuss priorities or current thoughts to find the CapEx over the next 12 months obviously understand the benefits of the JV but maybe just specifically the ability to execute on the asset sales, how much you may want to [indiscernible] or kind of other levers that you may or want to call..

Thanks TJ.

It's a good question but it's a nice problem to have where we have nice growth really within our core basins and to be able to be in a situation where we can have an additional 140 million to 160 million in growth and still be on a net capital outlay that less than our original guidance for growth capital is good and that goes back to how we're thinking about this again holistically, we want the optionality to look at a lot of different avenues to fund the growth capital and we're executing on that today.

Right you've seen it through the ATM which we did 50 million in the quarter you saw through the bond offering to sure we have ample liquidity, you saw through the NGP joint venture with the capital return to us and you saw through us working with Howard on bringing third party capital in the Howard and so on go-forward basis, you will continue to see all that.

But I think is we're still in the same situation we were last time we talked to or last quarter with regard to what kind of equity needs we need and that was again utilizing ATM really in the same way we utilized that this quarter.

So for us it gives us a lot of optionality finance the business and continue to grow the business so feel very good about that..

Okay, thanks guys..

Thanks, TJ..

The next question is from Brian Gamble with Simmons & Company. Please go ahead..

Good morning everybody..

Good morning, Brian..

it gets very clearly we're in a quickly evolving crude tape activity in the Permian definitely headed the right direction as it is in the mid con [ph] but that almost seems like a week on week decision from some producers, Devon included in that.

How much confidence do you have in their current plans to get the six rigs by the end of the year? I know that that may be a fluid process as they mentioned they may change between morning and night.

I guess confidence you have there and then actually what need is there to get all the way to six by the end of year to make the expansion capital pull forward still a viable option? It seems like you're planning for ’17 at this point, you guys are locked and loaded, I guess how much of the pull through from the NP side you really need to see to make that a worthwhile venture..

Brian, this is Barry.

First of all, let me say we given up on trying to predict where pricing is going to go and keep it right down the middle and I think what you see is really terrific performance from our asset base over a very long down cycle here that's now approaching 24 months and so we take that as a real positive but I do think we're also really have positioned ourselves extremely well to be in the basins that are going to work at $30, it is going to work at $40.

And so it really is a question of the capital available and from that standpoint I also believe that we are working with the right producers. We've highlighted in the STACK for example that the producers that we're dependent on are guys that are well capitalized investment grade producers, same thing in the Delaware than in the Midland Basin.

So we're extremely well positioned on an asset platform. That has performed well to date.

So Ben, I think you could add something there?.

Yes. Brian, on the point that whether we need Devon to get to six rigs and through our options level, my conference level is high and that's what Devon is going to do. I would also tell you that it's not just the Devon story. We've had a pretty hard developments in our dedicated acreage position over the last quarter.

One I would highlight is the acquisition of pay rock by Marathon another we had an acreage package dedicated to us that has been acquired by a New Field and if you look in the report that New Field yesterday there's a page in there where they talk about five SXL there 10,000 foot wells.

All of the well they call out there were results are dedicated to us and so we feel conviction that the right time for the plant is now because a combination of increased Devon activity and the potential for increases from guys at Marathon and New Field is going to be there and there are multiple ways that you can get there.

So if there's a little bit of change one producer will likely see a change, the other way for another producer. So remember it's not just a Devon story..

And Brian let me add just a couple things to that. Keep in mind too that you're seeing better well performance by all of our customers. So if you look at the Tall Oak acquisition because we got with that in the first half of the year that volume is up 50% from January.

So we've seen growth in that volume directly even in a lower commodity price environment. So we continue to expect to see growth in these areas. As Barry said we think we're well positioned in the Permian and in Oklahoma basins that can survive fluctuating commodity prices..

Great color across the board there guys, I appreciate that. Mike, maybe one for you.

It's been a lot more money but didn't someone else to pay for what you have to teach me how to do that but as far as the recent deal, did you ask for more than 500 was that something, was that your target level or was that just what you could get down at the rate you found acceptable just kind of want to follow what the goal there was and how I guess the result is from a liquidity standpoint moving forward for you guys.

Are you where you want to be or do you need to see some additional augmentation by the end of the year?.

No, the question Brian. So we believe high in liquidity during times like we've seen over the past 24 months. We always keep our eye on liquidity and we're sitting today liquidity after the bond deal on NGP deal of about $1.4 billion and $1.5 billion evolver.

So we feel very good from that standpoint about positioning ourselves to succeed or have access to capital with regard to the development plan.

Second on the bond deal again I think the story there is investors on the debt side really understand and like the story we spent a lot of time marking the bond deal to the investors and a lot of the things you see here are I think what resonated with them, our bond deal was launched at 400 million and we had over $4 billion of initial orders and we just raised 500 million to ensure that we managed liquidity.

So very good support in the bond market for doing. And again this all goes back to what I mentioned to TJ which was just again the continued optionality and really using every source of capital in times like this to ensure we maintain and manage our debt to EBITDA on three or four times and you see our coverage ratio increasing over time too.

So we think as a business, we are positioned ourselves really well from balance sheet strength and distribution security..

Right and then one more for me on the Howard energy deal.

Were you involved in finding the third party there instead of like maybe there was some involvement and then it gets a continued evaluation of exactly what to do with that ownership percentages moving forward clearly the CapEx reduction that is a benefit in the near term but maybe a little bit more of a longer term strategy that would be awful..

And it's best to even start with, our view of two to three quarters ago spend some time to talking about how and what they're doing and again that goes to our belief in their business model and what they've created down there specifically just expansion in the Mexican market.

It's a very interesting business and we've been in since the beginning and really like. With regards to the financing, we're on the board and we're part of the process. We did run a process, hopefully that process is still in place and with regard to bringing third party capital in we do expect that to be done hopefully this third quarter.

With regard to the second piece of that I'm looking at the potential sales launch in Howard. It is something we're focused on but as we said we'll be patient on that because of our belief in the value of Howard.

So our number one goal was getting the capital into Howard to ensure that we could reduce our actual capital commitments to Howard and then the second step will be continue to look at the sale. As we gain more information that will continue to upgrade. Back to you guys..

Appreciate it guys..

The next question is from Darren Horowitz with Raymond James. Please go ahead..

Hi guys.

Ben, I want to go back to something that you had mentioned earlier, around the ability to further define the scope of the STACK opportunity, certainly within the context of what Devon spending this year through the drill bit and the expectations for next year, beyond that Chisholm II plant and the additional processing expansion that you just talked about, how do you guys see the need, not just maybe on the front end for incremental compression but also maybe more downstream opportunities either for residue gas takeaway or additional grade takeaway capacity to further tie in the system because before you've talked about that evolving to a super system and I'm just wondering with regard to the incremental CapEx, how you would define ultimately the scale of what that system looks like?.

Hi, Darren. A great question and I think a question that really does highlight, you said the scale of our opportunity in the STACK and I would be quick to agree with what you said in your note early this morning that we do feel like we are the best position midstreamer in the STACK take advantage of that opportunity.

For what's beyond Chisholm II, you said it, you start with significant gathering expansions to make sure that you can handle the gas that works into a need for a future processing capacity that could be Chisholm II or Cana III, they're in basin.

It could also be Oklahoma Express, which could provide not only the processing solution, but also effectively a residue gas takeaway solution, because the residue gas would then be in North Texas where we have ample gas takeaway. Opportunities beyond that included crude gathering.

We talked at the time of the acquisition about the potential to build a crude gathering system to serve the same acreage that the gas system serves. And I would tell you that as our producer activity levels have begun to ramp up, interest in that project has also increased, so that's something we're spending time on today.

And on the NGL side, we would expect for our NGLs from Chisholm II and from future processing expansions to be available to our liquids business unit for fractionation in the Cajun-Sibon system or elsewhere. So that gives you some sense of all the ways in which we have the potential to add value from our STACK position..

Thank you..

The next question is from Jeremy Tonet with JPMorgan Chase & Co..

Good morning..

Good morning, Jeremy..

Just wanted to touch base with accelerating the Chisholm plant, and just wondering if this kind of puts you back to the timeline that you originally envisioned with the deal? And just kind of as you see things going forward now, things kind of in line with what you expected when Tall Oak's was announced or things plusses or minuses versus what you saw at that point?.

Yes, Jeremy, it's been -- the short answer is yes. When you look back at what we told you at the time of the acquisition, we told you that we thought the play would get better and it has, you've seen the well results. We told you that it would be Devon's focus and you're seeing at the day with two rigs going to six.

And we told you there would be potential for significant follow-on investment and that's what Chisholm II represented the first step of. Now at the time of the acquisition, we told you that Chisholm II would be happening right about now, third quarter of 2016.

We had the benefit of being able to use our existing Cana infrastructure to move that investment out in time, and so at the time we had this call back we were talking about the end of 2017 for Chisholm II. So the pull forward kind of meets in the middle for the first half of next year.

And we do see long-term, the need for additional expansion certainly beyond Chisholm II..

Jeremy, there is something else that you need to keep in mind. You've seen in Davon's operating report the favorable result that they continue to see in the Cana-Woodford. And they're continuing to develop that acreage as well.

So that impacts all of our processing capacity as well and we take that into account, and that's going to be a very positive development for us in that area too..

Jeremy, really the big question you're asking is, are we on track; are we on track with this major acquisition. And seeing the activity levels that we expect in the second half and into 2017, the answer to that is, yes, we are very much on track with our expectation and the acquisition..

Let me add, Jeremy, this is Barry.

The way I have answered that question a lot recently is it if you look back at the assumptions that we made in the Tall Oak transaction, every assumption has or the reality has been better than the original assumptions in every case with the exception of the development activity, and now what we're seeing is development activity catching up with what our original assumptions were.

Well results have been so good that that we [actually] volumes to date are in excess of what we originally expected, because it has made -- and that has made up or, if you will, the lack of development activity. So I think there is tremendous upside for Tall Oak to actually perform better than our original expectations over time..

That's helpful. Thank you very much. And just want to go back to the Delaware JV. And you've touched on a bit here, but just wondering if you could expand a bit more on the thought process as far as selling half that asset versus monetizing Howard, as kind of have been discussed that points in the past.

How you think about the gives and takes there and also versus preferred equity, because obviously, the Delaware asset is tremendously positioned and has great growth.

So just wondering if you could walk us through the thought process there?.

Yes, good question. This is Mike. So the way to think about the Delaware is as much the strategy as it is the financing, the financing is a benefit of the strategy, and it goes back to what Ben said earlier in the call, which is giving us the firepower to execute on the opportunities we see.

And we looked at a lot of alternatives including preferred and thought that the best opportunity for us was to align ourselves with the long-term relationship with a party that has extensive knowledge of the Delaware and a party that has extensive producer relationships in the Delaware to help us achieve that strategy.

So to me that the financing option or to sell 50% was the net result of achieving that strategy. So for the Howard sales something we said that likely in time will do. And as I said earlier we are looking at right now.

And that's just another area we’ll look at with regard to financing the business and its going to be a piece of what we think is a solution to putting capital to work in link and we think a good thing, so I do want to think of the NGP deal I think of it more as an advantage to develop quicker and bigger than we could probably do in our own..

That's helpful. Thank you very much..

Thank you, Jeremy..

[Operator Instructions] The next question comes from Barrett Blaschke with MUFG. Please go ahead..

Hey guys, just a couple of quick housekeeping questions today. More around the Tall Oak, instalment payment, that's been flowing through the last two quarters.

Is that expected to kind of keep running at roughly the same rate or are we looking something fairly consistent there or how should we be kind of thinking about that for modeling purposes?.

Are you talking -- Hey, Barrett, this is Mike, are you talking about what went into interest expense?.

Yes..

Yes, so that is what you get for accounting. Accounting because of looking at that payment and it being in the future, forces you to have a discount rate. And the discount rate was determined at the point of acquisition, and that was in January when we had a pretty high discount rate.

That's a whole non-cash accounting entry and has nothing to do with anything with regard to the actual payment itself. So we've always like to highlight again it’s just accounting makes us do that, it's non-cash, it has nothing to do with real cash interest expense..

Right.

And I see where its being adjusted back out for the DCF count, but just I'm wondering, does that go away effectively with the likes of installment payment?.

It does. It just decreases over time, based on that original discount rate and so time is one thing it changes..

And I guess the other thing I'm trying to factor in is does that go away assuming that you guys pay all the installment off in one go or is that assuming you differ some of it?.

Yes, so its assuming right now from how it’s being booked that we paid $250 million in January of '17 and $250 million of January '18, but again, it’s really accounting, nothing to do with the actual payment or structure we have on the actual purchase price..

Right. Okay. Thanks for telling it..

Thanks Berry..

[Operator Instructions] All right, David Amoss has the next question, and he's with Heikkinen Energy. Please go ahead..

Hey, guys, can you guys just give a little bit more clarification on that wide range of the potential reduction in CapEx from getting the preferred into Howard, $40 million to $100 million.

What moves the needle there? Is it just a matter of kind of getting that deal done at Howard or is there something else that's driving that range?.

No, no, Dave. This is Mike. So again, I think the best way to see that is on Page 12 the Ops report and you can see the different bars. So when you think about the Howard bar, specifically, the biggest factor there is really their CapEx timing.

And that's why we have that original range within our guidance for 2016 was how quick this Howard spent the capital mainly for the Nueva Era project going into Mexico. So that's where we see the range on that.

And ultimately the thing we're trying to point out is that we think that the third party equity coming in really solves for that capital need over the longer term and really puts us in a position to where we will be able to see the continued growth in Howard really with the third-party equity funding there..

Okay, that's helpful. Thank you. That's all I had..

Thank you, David..

Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Barry Davis for any closing remarks..

Thank you, Chad. In closing, our top priority of maintaining a strong capital structure remains unchanged. We are focused on executing our key growth strategies, while preserving our financial strength.

We are confident we can create long term value for our unit holders and investors with disciplined growth, stable fee-based contracts, strong customer relationships, diversity of basins and services, and strong partnership across our asset platform.

We'd like to thank our employees for doing an exceptional job in rising to the challenges put in front of us in the first half of the year. And we have conviction that our team will continue to conquer the new and exciting challenges to come. Thank you for joining us today and have a great day..

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