Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners Fourth Quarter 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] I would now like to turn the conference over to Randy Burkhalter. Sir, you may begin..

Thank you, Regina. Good morning, everyone, and welcome to the Enterprise Products Partners fourth quarter 2016 earnings conference call. Our speakers today will be Jim Teague, Chief Executive Officer of Enterprise's General Partner; and Bryan Bulawa, Chief Financial Officer, followed by a few comments from Randy Fowler, our President.

Other members of our senior management team are also in attendance for the call today.

During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team.

Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.

Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And with that, I'll turn it over to Jim. Thank you, Randy. Our business continued to perform well in 2016, despite a still challenging environment.

We reported gross operating margin of $5.2 billion in 2016 compared to $5.3 billion for '15. Distributable cash flow, not including proceeds from asset sales increased to $4.1 billion compared to $4 billion in 2015. We increased to $1.61 per unit, a 5.2% increase compared to 2015.

Distributable cash flow, not including proceeds from asset sales provided 1.2 times coverage giving the enterprise over $700 million of distributable cash to put into growth.

Like the three previous quarters, we also ended the year on another strong note as we reported DCF of $1 billion for the fourth quarter 2016, again, 1.2 times coverage and we retained $159 million in the fourth quarter of 2016.

In the area of growth projects during 2016 we successfully completed $2.2 billion of projects, including two new cryo plants in the Delaware basin and our ethane export terminal on the Ship Channel. In addition, we were successful in developing organic growth projects throughout this part of the cycle.

Including our isobutane dehydrogenation iBDH project that we announced this morning, we now have approximately $6.7 billion of growth capital projects under construction that would be completed between now and 2019.

Our largest project PDH at our Mont Belvieu complex is expected to begin commercial operations mid-year, and due to the increase in activity and expected crude oil volume growth from the Permian, we have decided to commission our Midland to ECHO pipeline at its full capacity of 450,000 barrels per day.

We remain focused on organic projects, but more importantly, we remain focused on both the supply and demand side of the equation in order to enhance our entire value chain.

Once again we entered 2017 on solid financial footing which includes the top credit rating in the space, low cost of capital, no IDRs and support from a very strong general partner and a history of healthy distribution coverage.

As we said in the press release, we like to thank our team of over 6700 employees for their contributions toward our success during the very difficult 2016. These employees are represented here today by our management teams, so I am going to take just a couple of seconds to highlight examples of some of the accomplishments of our folks.

In 2015, we said that to make our numbers in 2016 it was going to take cost management and commercial creativity. Graham Bacon, is our Executive Vice President over Operations & Engineering and he sits with us today. Their contributions were significant.

Our O&M costs as were reduced significantly during the year, between 2016 versus 2015 repair and maintenance costs were reduce by $45 million, but this was in spite of the fact that we added significant assets such as ethane export in our Delaware Basin and South Eddy plants.

Our Operations & Engineering folks continue to follow a team approach in finding large and small cost savings across our organization that they do it in a way without compromising safety. Laurie Argo manages our crude oil, refined products and non-regulated NGL assets where we continue to grow.

An example in 2016 is we added the ability to load polymer grade propylene at our Ship Channel facility. This required us to upgrade some of our assets in Mont Belvieu, make modifications at the Ship Channel. With these new capabilities our propylene group led by R.B.

Herrscher went to work, and we expect to load over 5 million barrels in 2017, which is double what we did in '16. This is an area that we continue to focus on to grow.

An important milestone was in late December, we not only sold the first polymer grade propylene export cargo to Asia in many years and in fact in my memory and at a 160,000 barrels that cargo was more than double the typical propylene cargo size and is the largest cargo propylene that we've ever loaded.

With that we continue to be focused on being able to export virtually everything we touch. Business in our NGL and - NGL fractionation and storage assets continue to grow and break records. About two years ago, we laid out what we expected to be significant increases in demand for NGL storage.

Since that time, our team has been continually adding storage enhancements, including more brine capacity and additional receipt and takeaway connections, which allowed us to achieve a record NGL storage and throughput volumes in 2016.

Our fractionation team is been focused on improving the efficiency and reliability of our fractionators, which resulted in our highest annual volume ever process through our Mont Belvieu fractionators in 2016 and that was achieved in spite of significant ethane rejection.

Our Rockies team in Denver led by Bill Bradley, also had a number of accomplishments.

That’s an area in the country where rig counts have been anemic and from a midstream perspective it's an area that is overbuilt for the current activity levels, nonetheless, Bill and his team have gotten very creative in putting deals together to keep producer drilling and also pull substantial amounts of gas from other plants.

During this '16, this team termed up over 300 million a day long-term for Meeker and Pioneer plants. Bill and his team are close to their customers, they are creative and they understand their value chain, more importantly, they understand how to use.

Another example of operations and commercial teamwork relates to how we approach our API 653 inspections that are required for above ground tankage.

Rather than put these inspections on auto pilot, RDI's work together to develop a rigorous review process at every tank before we take it out of service and spend the money for those inspections, that approval process now requires full economic review of a historical and forecast of profitability of each tank.

Meanwhile operations and engineering revamp the inspection and repair procedures not only comply with new PHMSA regs, but also to include repairs that would prolong the time between inspection cycles. As a result of these coordinated reviews, we continue to realize substantial savings.

Finally, Brad Motal, leads our natural gas businesses in Louisiana and Texas. In 2016, this team brought on two Delaware basin gas plant and commercialize the first train at the new Orla plant in June, all underwritten by high quality producers and all of the volume from these plants will feed the enterprise value chain.

Finally, marketing and enterprise is not a separate business, rather marketing is an integral part of each business, and Brent Secrest leads liquid hydrocarbon marketing, but he comes to marketing from the asset side of both our oil and NGL businesses.

Brent and his team understand our assets and most of 2016 milestones and frankly any first mover advantage in our businesses are possible because of marketing functions.

At this year that group had the first very large ethane cargo loading, it was a ship that loaded 750,000 barrels, had the first unit train delivered at Hutchinson, where I think we're having 3 to 4 Brent unit trains a month for the next nine months, 5 unit trains a month.

This is the group that determine that, that I could take a well out of NGL service put it in ULSD service and realize strong contango opportunities.

This is a group that’s probably going to export record numbers of LPG this year, put on scores of barrels of contango and take advantage of opportunities that invariably present themselves when chaos occurs.

Brent is also responsible for our Marine and Trucking business, relative to those functions, our Marine group is maintaining close to a 90% utilization right in an extremely tough environment and our trucking fleet continues to run at high utilization rates.

They seem like an odd pairing of responsibilities marketing Trucking and Marine, but our boats and trucks are usually the start of the finish of the value chain. Wrapping this call up invariably, we always speak to our results, but invariably people want to ask questions beyond what our results are. So we're going to pre-empt some of those questions.

Relative to changes in Washington, which we expect to get - get ask our opinion on that, we'll slay as we expect where we look forward to more pro-business environment and less regulation. As to prices, it's amazing the difference one year max. Last year at this time oil prices were $30 and headed south and virtually no winter, natural gas was $2.

In this environment most producers were hesitant to even publish a budget and would only say that there were going to try to live within their cash flow. Today industry sentiment is 180 degrees where it was this time last year. Crude oil, natural gas and NGL prices recovered substantially, costs have fallen.

Rig counts and rig efficiencies continue to improve, producers were increasing rather than decreasing their budgets and production is headed in the right direction. We believe the news is especially good for US oil and gas. Everyone was watching the US because they understand that we are the growth barrel.

As painful as it is been, this downturn has proved the special qualities for US oil and gas industry and proved its staying power. Now the news is either cautioning that US shale might grow too quickly, are questioning whether the US can grow enough to meet growing global demand.

Our resources are plentiful and they are competitively priced, they are extremely short cycle. Last but not least, they risk free in so many ways. While we expect that 2017 will have its challenges, especially in the first half, we believe the worst part of the cycle is behind us.

During the course of this downturn, having to perform in the harden times, sharpens your focus to reap even more benefits in the good times. And with that, I'll turn it over to Bryan..

Thank you, Jim. I will discuss a few notable income items for the fourth quarter, provide an update on our growth and maintenance capital spending for the fourth quarter, along with our expectations for 2017 and close with an overview of our balance sheet metrics and capital raising activities for the quarter.

Net income attributable to limited partners for the fourth quarter of 2016 was $659 million or $0.31 per unit on a fully diluted basis, compared to $685 million or $0.34 per unit on a fully diluted basis for the fourth quarter of 2015. Non-cash impairment charges were $24 million or a $0.01 per unit for both the fourth quarters of 2016 and 2015.

G&A expenses decreased $10 million this quarter, primarily due to lower compensation and legal expenses. Provision for income taxes increased $70 million, primarily due to higher Texas margin tax accruals for this quarter. Total capital spending in the fourth quarter of 2016 was $553 million, including $73 million for sustaining capital expenditures.

Full year 2016 growth capital expenditures were approximate $2.8 billion, excluding the $1 billion final installment payment made in July 2016 for the EFS Midstream assets. So any capital ventures were $252 million. We also spent an additional $56 million for pipeline integrity work that was expensed in 2016.

For 2017, we expect growth capital expenditures to be approximately $2 billion $2.5 billion and any capital expenditures to come in around $250 million. At December 31, 2016, our total debt principal outstanding was $23.9 billion. The average life of our debt portfolio was 16.1 years and our effective average cost of debt was 4.5%.

Adjusted EBITDA for the 12 months ended December 31, 2016 was $5.3 billion and our consolidated leverage ratio was 4.4 times, after adjusting debt for the 50% equity treatment ascribed by the rating agencies for the hybrid debt securities and to reduce it per cash and cash equivalents.

An item to note, and was referenced in our last two earnings conference calls, is that we had more than $900 million of incremental debt, or an incremental 0.2 times of leverage, associated with working capital tied to self liquidating marketing opportunities across commodities.

We currently expect a majority of the associated incremental debt to roll off in the first quarter of 2017. Further, we anticipate gradual improvement in our leverage metrics over the next several quarters as late stage projects come into service.

The aforementioned short-term marketing inventory positions liquidate, and the increasing contribution completed projects with a contractual ramp in cash flows, such as our ethane export facility, our Aegis pipeline, our EFS Midstream assets and our Aegis pipeline.

As I mentioned over the last several quarters, our disciplined approach towards a propylene managing leverage over the long-term has not changed, where we continue to target leverage metrics at 3.5 to 4 times.

Our leverage metrics remain in this range when adjusting for debt associated with growth projects under construction and applying their proportional contracted cash flow.

In addition to the $159 million of retained distributable cash flow that Jim mentioned earlier during the fourth quarter, we raised $372 million in net equity proceeds through our distribution reinvestment program, our employee unit purchase program and the aftermarket or ATM program.

Finally, our consolidated liquidity was approximately $3.8 billion at December 31, 2016, which included available borrowing capacity under our credit facilities and unrestricted cash. With that, I'll turn the call over to Randy Fowler for some final comments..

Thanks, Bryan. The final regulations on qualifying income business activities were finalized last week. We think as you recall, in May 2015 Treasury published proposed regulations requesting comment.

There were material issues with the initial draft of the proposed rigs, principally processes that were qualifying with respect to crude oil and refining were not for NGLs, and secondly, there was a reliance on an exclusive list of qualifying activities.

Over approximately six months Treasury held a public hearing, individually met with interested companies and the MLP Association and received written comments. We applaud Treasury for the modifications they made to get the final rigs.

It did away with the exclusive list concept and its treatment of refining and processing activities for NGLs and crude oil are now consistent. We believe all or substantially all of the EPD's business activities are qualifying for the final rigs.

The question on whether the new rigs are effective or not, pertains to the timing of President regulatory freeze and the dates the final regulations were filed and published in the Federal Register. There are varying views amongst law firms whether the rigs are effective or not. We expect for this to be sorted out in the coming weeks.

On that Randy, I think we can now open it up for questions..

Okay, Regina. We're ready to take questions from our participants..

[Operator Instructions] Our first question will come from the line of Jeremy Tonet with JPMorgan. Please go ahead..

Good morning..

Good morning, Jim..

Just wanted to follow up on your Permian outlook; it seems like things must be improving there given that the Midland-Sealy pipe was expanded here.

Just wondering if you could talk about what you're seeing there, where the contract, you know, percentage contract it got to, and any other growth opportunities you guys see on either the crude oil or gathering and processing side in the Permian..

Thank you, Tonet..

So obviously the Permian is the hotbed of activity, not just in the United States, but really across the globe. Stacked pays great returns for producers, a fair amount of cache just attracting, capital is going to the Permian.

We have two plants and new plants in service, another one under construction, and I am going to put down to Brad, you don't think we're done there, do you?.

I think we've done it all, I think we've got some great opportunities to continue to grow in the Permian..

As far as our Permian pipeline, I'd say that we're knocking on the door 300,000 barrels a day of subscriptions, none of which is by affiliates and we feel like there's more opportunities as we are closer to commission. That's why we decided let's go ahead, we've taken up to 450..

Great, thanks for that. Then maybe just pivoting to the Eagle Ford here. I think you might have talked about some green shoot emerging there in the past and just wondering, given the acreage that has changed hands, if you see any changing in activity there in how that would impact your systems..

Yes, you know, this is Jim, when I don't want to answer, I kick to Tony..

Jeremy, we think the Eagle Ford is a sleeper that people aren’t paying attention to and I'll tell you what we like about what we see in the Eagle Ford one is rig counts were up substantially and people don't realize that they've moved significantly off of their low and continue to add two to five a week.

The other things that’s going on in the Eagle Ford, that is missed on many people, is its beginning to participate in its own stacks and what I mean by that, is people aren’t just drilling in the Eagle Ford there anymore. You know, they are also drilling - mostly drill in the Austin Chalk.

So we like what we see in the Eagle Ford, our breakevens in the primaries - the Eagle Ford are competitive with the Permian, as we run our half cycle economics. The other thing was - last thing we see in the Eagle Ford is we're seeing smaller players come in.

So we think the Eagle Ford is going to be an area where you are going to from a couple handfuls of very large players to smaller players, which is really opposite of what's happened in the Permian..

Great, thanks for that. I will hold it to two and hop back in the queue..

Our next question will come from the line of Shneur Gershuni with UBS. Please go ahead..

Hi. Good morning, guys..

Good morning..

Just as a bit of a follow-up to Jeremy's questions there, is the way that we should look at things right now you're okaying the expansion to Midland-Sealy. You've got the new ISO plant on board as well too.

And then given your comments on the Eagle Ford as well too, is it fair to say that you're optimistic about 2017 being a much better year than 2016? And as part of your Eagle Ford comments, I was wondering if you can sort of sensitize for us what you think the upside could be..

I think you said – it’s hard to understand and to hear you. But in terms of - are we optimistic about 2017, I don't know, let's – just being optimistic and hopeful. We see the first half of 2017 is continuing to have challenges, even though rig counts going to – we're going to lag that from a throughput perspective.

Overall though, I think we did feel more optimistic on 2017, definitely than 2016. And I could not hear the rest of your question..

The other part was whether you could potentially sensitize what the upside to the Eagle Ford could be for your numbers compared to '16..

Yes. I'll answer that, this is Tony again. Rig counts bottomed in the Eagle Ford at 21, I think we ended over 50 this last week, so already significant improvement. But you're going to see, and I don't know exactly how much, you're going to see a lag from the time you start drilling and completing to the time the new production comes on.

And that lag is this month's, so call it you know, people projected to be anywhere from 90 to let's say 150 days from the time you deploy rigs, to the time you put that production on. So we're going to see in the Eagle Ford something that’s no sooner than back half of '17 loaded, no sooner than, as far as increases in production..

And one final question, if I may. We saw a large amount of equity issued in 2016 and it seems your goal is for minimal equity funding in 2018.

Comparatively speaking, when we think about 2017, where should we see issuances down relative to 2016? Are we talking about 50% less equity, 75% less equity? I was wondering if you can give us a little bit of color as to how you think about equity issuances for 2017..

Hey, Shneur, this is Bryan. Relative to '16 it's substantially less, given that we raised over $2.5 billion of equity in 2016, 80% of which was in the first half of 2016.

So as far as looking forward to '17 with a $2 billion to $2.5 billion type of growth capital spending range and then looking at our – its really the function of excess distributable cash flow, if you look back over the last couple quarters where we've ranged between $200 million and $300 million of issuance through the ATM, that's a pretty modest level and I would anticipate that we wouldn't really be exceeding those levels..

Great, so down materially from 2016. Great, thank you very much, guys. Really appreciate the color..

Your next question comes from the line of Darren Horowitz with Raymond James. Please go ahead..

Hey. Good morning, guys. Jim, if I could, I wanted to go back to some of the comments you made in the prepared commentary around the $900 million of working cap that you've got outlined for the marketing segment. I know this is tricky.

But if you could, can you just give us a little bit more detail into the opportunity set there and maybe provide us a sense between the oil contango and grade-quality arbitrage and maybe logistical opportunities that you guys are seeing that might benefit the onshore crude segment versus some of the seasonal butane blending or any normal versus isobutane arb or even C5 opportunities that you are seeing?.

Darren, you usually start up saying nice quarter guys, what's next..

Jim, I thought that was given..

You know, where we have our – yes, we've had quite a bit of contango opportunities in particular, it’s not unlike we had what, 2008, 2009. It's funny when you have a hard fall in prices, invariably you get some real contango opportunities.

I think where we've had the biggest bang for the buck, surprise, surprises with our NGL business, where we'd got the storage and the connectivity to make that happen. We've done - we've done a good bid in refined products.

Brent, especially in ULSD and I have to guess, you're using 3 million, 4 million barrels of crude, 5 million?.

Yes, from month to month it’s 24 million and 5 million..

So you know, contango is the big when you ask for regional spreads, again, our NGL business lends itself to that our system does, been able to do things from the north to the south or the west of the east, so there's been quite a lot of that tug.

So yes, you know, what we say is chaos creates opportunities that aren't otherwise there and we've been pretty good at trying to at picking those off..

I appreciate that.

My follow-up on IBDH, and I know that there was some detail in the release, but when you think about 425,000 tons a year, is it fair to assume that maybe that might reflect a CapEx in the range of between $800 million to $1 billion? And maybe just looking at the overall blended return across your project set and unlevered return in the 12% to 14% range?.

No, we're not going to answer that Darren, but if you want a job as an analyst though, here we've got three or four openings..

Well then, my follow-up will be a good one. Here is what I would really like to know from your perspective, and I think you are the guy to answer it.

When you guys think about the arbitrage between normal butane and isobutylene, and I know you provided a lot of detail on the propane versus polymer-grade propylene that backstop PDH, can you just give me a sense for how you see that butane market developing?.

I want you to ask that again.

You want to know what we think about normal butane in the future?.

Well, I want to know what you think about the relationship between normal butane as a feed and, on a global basis, how fungible or how much demand we could see between the isobutylene side of the picture, because clearly you're filling that gap.

And it seems like there could be a widening gap there, so I'd just love to know about what you think that project could mean to helping the supply side of the isobutylene equation..

This is R. B. So we have over half of the plant termed up on over 15 year contracts and its feedstock basis. So that's pretty that's pretty well set, secures the business, the rest of it is filling out existing derivatives for rehab capacity, but didn't have enough isobutylene to fill it.

So for us this is - this is pretty much a sold-out plant from a start. We are believer in the long-term normal butane to isobutylene spread and we'll dissipate in some of that and will - and some of – we're just feedstock based..

Okay, thank you very much. By the way, Jim, good quarter..

Your next question will come from the line of Brian Zarahn with Mizuho. Please go ahead..

Good morning..

Good morning, Brian..

Turning to the Texas interstate business, can you elaborate a bit on the lump sum payment in the quarter and update us on roughly what percentage of the system is under perm demand contracts?.

You know, what percentage is under perm demand contracts?.

Yes, following the lump sum payment. Unidentified Company Representative We're about 74% on a demand basis on the Texas intrastate system..

Well, that’s 74% on a demand basis, on the intrastate system..

And on Louisiana you are higher percent than that?.

5% in that. And in terms of what you asked about on, what we call it, lump sum payment or whatever, yes, we're constantly working with our producers to address their needs and this was just one of those opportunities that frankly when we do that, we get a net positive overall..

Okay, and then I guess staying in the gas business, any updated view on activity in the Haynesville in your Louisiana system?.

Yes, we're seeing that turn over quite a bit and frankly we're seeing rigs come back.

We're seeing now folks – I mean, much like what Tony was speaking to in Eagle Ford, its going into hands that at are willing to put drilling rigs out there and Tony I don’t know what you – do you see rig count going up?.

We do. So what you're seeing, excuse me, consistently in the Haynesville is call it 2 to 3 rigs a week on the plus side and we don't expect that that's going to change. The producers, especially the new ones are applying new science, it's never been applied in the Haynesville to a great success.

And its proximity to the LNG markets also with the appetite of these producers and people to support them financially..

And our connectivity to the industrial market along the Mississippi River is a real positive for our system..

Appreciate the color. I guess turning to future M&A opportunities, perhaps imitation is the sincerest form of flattery as more MLPs are converting to a no IDR structure.

But how do you view that impact for competition for assets going forward?.

This is Bryan.

Brian, I don't think it's really had a material impact, they are all as you know, the restructuring to get closer to us from perspective of a cost of capital perspectives, that we remain very competitive, probably you haven't seen this incredibly active in these last transaction is as one of the key elements that you know to our long-term success is been remaining disciplined and we continue to do so..

Appreciate that. Last one from me. You commented briefly on developments in Washington DC.

If corporate tax reform does come to fruition, does that potentially change your future corporate structure?.

Brian, you know, one, I think we need to see what happens in tax reform up. I don't think it doesn't - I think tax reforms only happened twice and it may come about slower than we think.

But we're pretty open from a standpoint of the whether it's to continue in the MLP world as a pass-through or if there's something we need to adapt to going forward, we're pretty open. I think our main focus is to be able to come in and continue to raise capital at a n attractive cost..

Thank you, Randy..

Your next question will comes the line of Jean Ann Salisbury with Bernstein. Please go ahead..

Hi, good morning. Just a couple quick ones. First, I noticed in the release that you said that ethane exports are going to 150 by the end of the year, but I had thought actually that 180 were sold.

Is that true and are those still coming behind that?.

Yes, there is a ramp on that..

Okay.

So those will come in '18?.

Right..

Okay.

Then how did the deferred loadings work? Do customers have to make up all the ones that they missed in fourth quarter of 2016 in 2017?.

What do you mean deferred loadings, I mean, because of fog?.

I guess there was some because of the fog and then some because of the commissioning of the ships.?.

You know, we can ask Joseph.

I mean, no am I not really sure what the question is..

Are you talking LPG or ethane?.

I'm talking about ethane. It sounded like several loadings were deferred in the fourth quarter and I was just wondering if those will show up in the first quarter. We have our loadings and our contracts are backed by take-or-pay commitments.

To the extent that weather has delayed the loadings, you'll see the show up when they completed in the first quarter, but all of our ramp up in schedule is by the customers and their timing..

We have our loadings and our contracts are backed by take-or-pay commitments. To the extent that weather has delayed the loadings, you'll see the show up when they completed in the first quarter, but all of our ramp up in schedule is by the customers and their timing..

Okay.

And then secondly in the Permian a lot of people, including myself are trying to understand the gap takeaway situation out of the Permian, do you have a sense of how much is flowing from the Permian to your intrastate system and is that expandable?.

On a day to day basis, we run pretty full from Waha South into South Texas and leaving, going east towards the Dallas area, on the total basis, I have to get back to the number, but we do run pretty full everyday..

Okay.

And is that something that could be expanded as the Permian continues to grow?.

We continue to look at that among other options as NIM [ph].

Okay. Great. That’s all from me. Thank you..

Your next question will come from the line of Tom Abrams with Morgan Stanley. Please go ahead..

Thanks. Last up from me here is the ethane in the past week I guess was pretty weak.

Just your color around that and if it sets up anything for the first quarter for you; how does it impact you?.

We've had record inventory levels on ethane. I think it's just a matter of the market finally woke up and said there's record inventory levels. It will ride itself because you can make it go away by rejecting it, what its done for us given us some opportunities to do some contago [deals..

Okay, as long as you weren't on the other side of that..

Say again..

As long as you weren't on the other side of that with positions, long positions into that..

We have a flat price policy that we adhere to religiously..

Thank you..

Your next question will come from the line of Faisel Khan with Citigroup. Please go ahead..

Hi, thanks. Good morning, gentlemen. I have one question on the Aegis and ATEX system and then another question on the product pipelines. First on Aegis and ATEX.

The $30 million increase that you guys reported in the quarter from ATEX and Aegis was that just the final service date of the third segment of the Aegis pipeline system or was there something going on here?.

I think it's the ramp that we have inherent in both of those systems probably so..

So what are you guys running utilization at right now on both ATEX and Aegis?.

I think we're hitting our subscribe numbers on ATEX, and I think we're on Aegis – we're still ramping on Aegis. Yes, you've still got some plants coming on like Shintech, like Sasoil, so as those plants come on that will go higher. I guess, I mean, are you running at capacity? No.

Are you running now, all you can given the customers you got yes, will it be at capacity as these new plants come out, chalk [ph] about full..

Right, I'm just trying to understand the operating leverage to the growth. On the refined product system, you guys talked about 24% increase in unloading and loading at your terminals in the fourth quarter over last year, but then if we look at gross margin it's basically down over last year.

So just trying to understand what's going on there with that dynamic. Big increase in volumes and flat to lower margin..

R.B. do you know, yes, basically we're getting more competitive and more aggressive to get the box [ph] flow. That's probably the answer..

Okay, that's almost -- you take away that 25% cut to margin though, if -- that's really what flowing to the numbers. Just trying to understand what's going with the volumes and margin here..

Faisel, this Bryan. I believe there is also an $8 million mark-to-market loss in that segment, so its non-cash that effect gross operating margin..

And that should turnaround when it goes to physical..

And then Faisel, your other question, as far as on Aegis pipeline in the fourth quarter, it was running 118,000 barrels a day and ATEX was running around 115,000 barrels a day..

Okay, great. Thanks, guys, for the information. I will try to get back in the queue or connect with Randy and Jackie offline. Thanks..

Your next question will come from the line of Brandon Blossman with Tudor, Pickering, Holt & Company. Please go ahead..

Good morning, everyone..

Good morning..

LPG exports have had a really great run to the back half of '16 into early '17. What should we look forward to in terms of just the dynamics there for 2017? Guessing Europe has had a pretty strong pull here.

Are those cargoes just going to Europe or are those incremental cargoes going somewhere else? And what does the durability of that demand look like?.

Yes. This is Joe Fasullo. We've seen an increase in the fourth quarter of our cargoes going to Asia and overall the market – the LPG market is fairly transparent, and as far as what's going out there.

We did see some slowdown internationally last year in the summer months and we may see that again just on an arbitrage basis this year, but it would be the international markets to dictate that.

Some of the changes that we've seen this year are the decreased numbers coming out of Saudi Arabia in the Middle East, and that’s been supportive to exports this year, that we didn’t see last year..

I think, the other thing Joseph, that you had crude price last year. They probably created more demand for naphtha..

Absolutely..

With higher crude prices, I would expect - you would expect to see more crackers globally using LPG versus naphtha..

Yes, absolutely. And we've seen a lot of crackers internationally hedging their pricing this year and locking their LPG values as well..

Okay, nice color. Thank you, guys. I guess to follow up on Jean Anna's question, just to put a finer point on it; Delaware residue gas takeaway.

You guys, Tony and Brad, see any -- are there any concerns out there in terms of constraints over the next couple, three years?.

I'd say near term, we think that it’s going to start getting tighter and tighter as we've seen a lot of the producer curves, what they've shown us as far as the ramp up productions [indiscernible] to be some very large numbers, but yes, there is some concern going forward about take way out of the basin..

And Brandon, one of wild cards what is Mexico going to take and the new pipes being built there and I don't know how to gauge that, that's a power generation market.

It's going to ramp up over time, when I say over time it's our understanding that you may be looking at 6 to 8 years as the IPP plants are built in Mexico that those pipes were built to support. So you can - you can look at basis and you can see that the markets anticipating that the Permian is going to get tight on capacity..

Fair enough. Tony, as you look at the pipeline map, I assume that -- not to put words in your mouth, but it looks like there's some brownfield opportunities there; not just with you, but with peers. I assume that those are opportunities that are being looked at currently and we might see some announcements over the next 12 months..

Assume that everyone that’s is in this space and participating on the Gulf Coast side of the supply end markets is trying to figure out how we can move this growing volume of Permian down to where the demand is..

Fair enough….

And we are in the camp. I promise you..

Okay. Good news. Bryan, just really quick; leverage goals 3.5 to 4 times.

As model out over the next two or three years and incremental projects and EBITDA come online, where within that range would you expect to move to? I know it's a fine point, but just kind of curious is there a bias to one side or the other as we move through the next three years?.

Well, the PDH facility coming up and getting a full-year of PDH and full year of Midland-to-Sealy. So really you're looking at the end of 2018 when you're - when you're figures without any adjustment would be, probably and starting that range..

Okay. Thank you..

Your next question comes from the line of John Edwards with Credit Suisse. Please go ahead..

Yes. Good morning, everybody and Jim, nice quarter. But I won't give you a complicated question.

I just was wondering on the changes in the backlog, given the roughly $0.9 billion uptick sequentially, just how much of that from the ISO plant you announced today or maybe any color you can give us on the mix there or what contributed to that increase in the backlog..

John, this is Randy, really combination of couple things, you had a few - couple projects roll-off smaller projects roll-off and we added iBDH and there was also some crude oil pipeline expansion projects over in the Permian..

Okay, that's helpful. Just I know you've answered a couple questions here regarding the NGL market.

I just thought with all steam crackers coming on any other color you can give us regarding your expectations going forward?.

This is Tony. I think you - if you just look at what the forward pricing is you know, today in ethane and you look at the contango in that curve, I think its order says it all. The plants are going to come on.

We put a schedule together as to when they are announced to come on, it will take them a little while to ramp up, but that that demand is coming. So we feel really good - any substantial you know, between now and call it 2019 you're looking at over 700,000 barrels of a day of ethane demand coming on. So that's meaningful from a price standpoint..

Okay..

I don’t know, what else to say about it, John. We're very encouraged of what's happening in the space from a demand standpoint..

Okay, great. That's it for me. Thank you..

Your next question comes from the line of Barrett Blaschke with MUFG Securities. Please go ahead..

Hey, guys. Just one quick one and that is, if we're talking about Mid-America and Seminole Pipelines, it looks like the volumes improved dramatically.

Could you just walk us through a little bit on what could improve transportation fees and then what's happening with OpEx that's driving it up?.

I think the [indiscernible].

We did see our OpEx go down quite a bit, I think about $32 million is what our margin was across the space and which is very significant. We also saw quite a few improvements in our volumes throughout the fourth quarter..

This is one of those places where our commercial guys are looking at - backfilling where you have production slowdown.

Those guys are trying to work with our asset people recognizing and I don’t know a hell of a lot of what goes on a regulated pipeline, but they are not stupid, so they know that they – if there is capacity and we've got allocation we're going to fill it up..

And if you look at, this is Bryan, if you look at the ethane margins that we saw in the fourth quarter versus what we had seen year-over-year in the last nine months, so there were more probably more ethane in our plants and then also if you look at some of the spreads that we realized from Conway to Mont Belvieu that - on propane and some of those products will probably add it to that Daneka [ph] saw in her assets..

Okay. Then one follow-up and that's just kind of as we are seeing ethane rejection slow down and you guys think about further deploying capital and adding to backlog.

Where do you go next?.

Try to digest we've got going right now, but I kind of like the way we have extended the value chain from C3's with our PDH, with C4's, with our weather iBDH, we like those projects. We think there is some more -there's more that we're going to be doing in the Permian. I think Brad alluded to that.

And we haven't week we still think that the Eagle Ford is going to be a bright shining star before its all said and done and create opportunities. I think what we've – you don't have to be too amazed bright to figure out over the last seven years. We believe in market connectivity and its not just domestic market connectivity.

So I think a lot of what we're going to be doing is doing our job right on the Gulf Coast to attract barrels through our system, rather than necessarily going and fighting the gathering battle..

Okay. Thank you..

Your next question will come from the line of Michael Blum with Wells Fargo. Please go ahead..

Hey, guys, my questions were addressed. Thank you..

Your next question will come from the line of Christopher Sighinolfi with Jefferies. Please go ahead..

Hey. Good morning, guys..

Morning..

Jim, just want to circle up on something you were discussing earlier with regard to Midland-to-Sealy. I think you had mentioned contracts there now stand at about 300,000 barrels a day. I just wanted to confirm that was -- I heard that accurately..

I said that we were confident that we could get close to knocking on the door of 300,000 barrels a day, given the negotiations we've got going out already and given that we decided we'll just go ahead and commission to 450..

Okay….

That’s not to say we've executed up to that level, but we're pretty damn confident we'll get there..

Okay, understood. Thanks for clarifying. Then I guess to circle up on a question that we sort of hit on a little bit earlier, just the cadence of some of the ramps. Obviously you guys have contractual ramps that continue in 2017 on the two ethane pipelines and also on Morgan's Point.

I was just curious if there was something I guess more detailed you could offer about the cadence of that throughout the year. Or if that -- I think ATEX steps up in January, but if -- Morgan's Point, for example, if there are periods within the year we should be mindful of paying attention to..

Joseph, I think that ramps up in – well into 2018?.

Yes, it does. Ramps all the way into 2018, but the majority of it does ramp throughout 2017 as customers continue to bring on ships and assets of their own..

So just sort of a gradual incline is how we should think about that?.

Yes..

Yes. And this Randy. I'd also refer, I don’t have the numbers at my fingertips, but I would also refer you to our latest slide deck, there was a bar chart that both show the ramp up for ATEX, Aegis, and ethylene export facility, and if you can't find that, either call Randy Burkhalter or Jackie..

Yes, that's what I was looking at, Randy. I was just curious if there was something throughout the year that we could pay attention to, like intra-2017 is I guess my point, as opposed to just looking at the averages for the year. But it sounds like we should just model sort of a gradual ramp that gets us to those average numbers..

Yes. And help me Tony and Daneka, I think on Aegis you're going to see that thing ramp as these crackers come on along the Gulf Coast and I think that pipelines capacities is 400,000 barrels a day and once you're through with the ramp, you pretty well sold out.

ATEX if I'm not mistaken that ramps up to 130 plus that is when - during the course of '17 or its….

Yes, by the end of '17 we're actually planning to complete our expansion as well to get us up to 144..

Okay. So we're taking ATEX to 144, we are - once we are through the ramp you are all but sold out….

Yes..

And Aegis is when those crackers come on, so pick a time, Tony 18 and 19 and frankly we are sold out on that one..

And then ethane export, I think it ramps from around 90,000 barrels a day at the beginning to about 150,000 barrels a day at the end of the year..

That’s about correct, yes..

Okay, and are you -- I know in your slide deck, Randy, you had featured sort of a window of option volumes. I was just wondering from your formal forecasts, like your internal budgeting, if you assume that those options are exercised or not..

No, we don't assume the options are exercised. On the ethane terminal frankly we got upside, that terminal load 240,000 barrels a day. We have set our operational right will be 200,000 barrels a day, we been conservative. Once we get some experience under our belt and a couple more contracts, I firmly believe we can take that up higher.

Joseph?.

Absolutely..

Okay. Thanks so much, guys. Really appreciate the time..

Your next question will come from the line of Selman Akyol with Stifel. Please go ahead..

Thank you. Good morning. Just a quick question on the Acadian Gas System. You had fees down there -- fees were down and then volumes were up by about 10% and I was wondering if you could just talk about the dynamics there..

Again, I think we were, excuse me, this is Brad. Fees were down just slightly based off of some re-contracting as older vintage contracts rolled off, we re-contracted newer rates..

Okay. Thanks..

Regina, this is Randy. We have time for one more question:.

Our final question will come from the line of Ted Durbin with Goldman Sachs. Please go ahead..

Thanks.

Any update on the Centennial conversion, enough contracts to make that a go?.

This is Jim.

Bill, you want to answer this?.

I mean, we're still working on that. We've got several parties very engaged at the moment. We're not ready to take a victory lap quite yet, but it seems to be moving along reasonably well..

Okay, that sounds good. Then just talked about crude and gas, but NGLs out of the Permian.

How much more room for you guys to move more out there or maybe the need to sanction a new project to get more NGLs out?.

Depends on who you talk to, Ted. Right now we've got plenty of room to move NGLs out, notwithstanding what some our folks think and on natural gas in think it gets tight, doesn’t it Brad? I'm not sure how much expansion we've got in our systems, existing systems..

On the gas side, we're looking at some significant expansion projects, but none of them are short lead time, there would be some long lead time projects to expand the intrastate system.

Does that answer it Ted?.

That's helpful, helpful. Then just coming back to IBDH, I guess it sounds like you've contracted half the capacity to third parties and the rest is going to be on your own systems. Just help us understand the returns on the contracted volumes.

I guess is that hit your cost of capital, or how do we think about the moving pieces there?.

Really what it gives us the opportunity to do, is fill out B [ph] plant, we've been short feedstocks….

Bryan, the half contracted is at over 15 years. The other half is not necessarily on contracted, but it's a little shorter term in our existing derivatives, the MTBE plant and the high-purity isobutylene plant..

We have not had any trouble selling those products at any point in time and we're seeing a lot more demand right now for MTBE in particular..

Absolutely….

And on high purity isobutylene, you can pretty well sell it out..

Yes..

So we're not - we feel like this is going to be heckuva good project..

Okay. Thank you..

Okay. Thank you. Regina, if don’t mind, would you give our participants the dial-in information or the replay information. We're going to go and disconnect on this end. And thank you for joining us today..

Today's call will be available for replay starting at 1:00 o'clock PM Eastern time and will run through mid nigh Eastern time me on February 6. The number to dial for the replay is 855-859-2456 for US callers and for international callers the number to dial is 404-53373406. The conference ID number to access the replay is 49326901.

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