Good morning, and welcome to the Enterprise Products Earnings Call. All lines have been placed on mute for any background noise. It's now my pleasure to hand the conference over to Mr. Randy Burkhalter.
Thank you, Nicole. Good morning, everyone, and welcome to the Enterprise Partners' 3rd quarter earnings call. Our speakers today will be Jim Teague, Chief Executive Officer and Randy Fowler, President and Chief Financial Officer of Enterprise's general partner. Other members of our senior management team are also in attendance today. During this call, we will make forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by an 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 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
the call over to Jim. Thank you, Randy. Before we jump into the Q3, Randy Fowler now wanted to take a step back in time. A lot of you may not realize, but the Q3 of 2018 marked our 20th anniversary as a public company. This year, we're on track for our 20th consecutive year of increasing our cash distributions to partners.
And to our knowledge, no other U. S. Midstream company has accomplished that. A $1,000 investment in enterprise at the IPO with reinvested distributions would be worth approximately $17,000 today. We've accomplished this through 2 commodity price cycles, a petrochemical cycle and one of the worst financial crises in U.
S. History. We are proud of these accomplishments and our team of 7,000 employees that drive this performance and we are thankful to our long term debt and equity investors and to our customers who make this performance possible. It's been a quick 20 years, don't you think, Randy? It has.
Now on to our results. Supported by a robust supply growth and strong demand, both domestic and global, our businesses continued to perform exceptionally well in the 3rd quarter. Gross operating margin, excluding non cash mark to market was $1,900,000,000 a $576,000,000 increase versus Q3 of last year. These increases are largely attributed to a combination of new assets put in service, volume growth and operational leverage associated with our legacy assets and increases in gas processing margins. Long term fundamentals are strong across our entire value chain, and we're working hard to make this kind of performance the norm.
Our results provided distributable cash flow of $1,600,000,000 which provided 1.7 times coverage. Our DCF for the 1st 9 months of 2018 was $4,400,000,000 providing 1 point 6 times coverage and $1,600,000,000 of retained distributable cash flow. This kind of performance for the quarter year to date puts us far ahead of our self funding goals we communicated in the Q4 of last year. Moving to our operating results, increased volumes and margins across all our businesses led to 16 operational operational and financial records for the Q3, building on the 14 from last quarter. Our NGL and Natural Gas Business segments reported 7 operational records relative to volumes for our pipelines, marine terminals, fractionation and and our crude oil and propylene businesses reported near record volumes.
We also set 9 new financial records in the 3rd quarter, which was covered in our press release. Total capital spending for the 1st 9 months of this year was approximately $3,300,000,000 We expect to spend $4,200,000,000 in 20.18 and about $350,000,000 in sustaining capital. The current environment of strong demand for our services, coupled with productive discussions with customers to develop new infrastructure projects across all of our business segments is the strongest climate we have seen in recent memory. We announced 2 additional projects this morning, 150,000 barrel a day expansion of our NGL fractionation capacity at Mont Belvieu and our Mentone natural gas processing plant serving the Permian. Including these projects, we currently have over $6,600,000,000 of growth capital projects under construction scheduled to be completed and generating new sources of cash between now 2020.
In addition to what we have announced and have under construction, we have other exciting and strategic projects under development. I'll give you couple of examples. Our deepwater port project is advancing on both the engineering and commercial fronts. We're in discussions with domestic producers and global consumers. As
I look
at a lot of announcements and hear a lot of talk, one must realize that anyone can build a terminal. But it's what's behind that terminal that determines its success. The reason we are the largest ethane and propane exporter in the world is because of the 130,000,000 barrels of NGL storage and over 1,000,000 barrels of fractionation that we have in Mont Belvieu and our pipeline connectivity bringing Y grade from the Eagle Ford, from the Permian, from the Rockies and the Mid Continent. We call that supply aggregation. The same is true with crude oil.
A terminal success depends on what's behind that terminal. Enterprise is can aggregate 5,000,000 barrels a day of crude oil today, and that will grow to 8,000,000 barrels a day over the next 5 years. That's accomplished because we have pipelines of our own, bringing crude from Cushing, which can access the DJ as well as Permian and from the Eagle Ford, and our header system is tied to other third party pipelines. Our terminal has connectivity to 300,000,000 barrels of storage and access to almost 40 different grades of crude oil. An efficient market hub requires supply, demand and connectivity.
Enterprise's unparalleled crude oil supply aggregation. I don't think there's another location that has that. And finally, the launch next Monday of the CME Gulf Coast crude contract at Enterprise Houston locations will give our terminal price transparency, which will be a huge benefit to our terminal customers. Another example, we are finalizing engineering and license arrangements for a second PDH. Frankly, it's not out of the question that we could build to as negotiations are underway with several petrochemical companies.
Again, couple our feedstock position, read that to be supply aggregation of NGLs, couple that position with our growing petrochemical infrastructure, and we are well on our way to significantly extending the enterprise value chain into primary petrochemicals, which adds significant long term global GDP upside to enterprise. Last but not least, one not assume that Enterprise is done building pipe out of the Permian. We continue to believe that the Permian has substantial upside and we have an excellent footprint for expansion and extension. As we said in the press release, our goal is to position Enterprise to capitalize on these type of opportunities, while self funding our equity needs to drive continued growth in DCF per unit and ultimately the value of our units. These results are impressive and we're obviously proud of them, but they're not luck.
Our highly integrated systems across the entire value chain from producing regions to end users and now with emphasis on growing international demand gives us tremendous operating leverage across our businesses plus long term growth opportunities in virtually all environments. I believe the last few years has proven that when the industry goes through a slump, our investors can take comfort our integrated asset model and our dedicated employees are going to provide superior coverage and always allow us to grow. Then when fundamentals strengthen like today, those businesses are going to provide even greater coverage. Our goal is to perform in any environment and not to dilute your investment. I'll finish today reminding you that what you own when you own Enterprise.
First, you own what I think is the best supply system in the U. S. For oil, gas, NGLs and petrochemicals. Next, you own the most integrated demand system in the U. S.
And finally, when you own enterprise, it's our goal that you will own the best liquids hydrocarbon export system in the U. S. With that, I'll turn it over to Randy.
Thank you, Jim. Good morning, everyone. I'd like to start with a few items on the income statement and cash flow statement. Net income attributable to limited partners for the Q3 of 20 18 was $1,300,000,000 or $0.60 per unit on a fully diluted basis. This compares to 6 $11,000,000 or $0.28 per unit on a fully diluted basis for the same quarter in 2017.
We recognized a total of $204,000,000 or $0.09 per unit in non cash mark to market gains during the Q3 of 2018, primarily to Midland to Houston basis hedges on crude oil. Adjusted earnings per unit of 0.51 dollars per unit for the Q3 of this year is a 76% increase compared to the same adjusted number for the Q3 last year. Distributable cash flow per unit, excluding non recurring items for the Q3 of 20 18 increased 45 percent to $0.71 compared to the Q3 of last year. And as Jim mentioned, we retained $632,000,000 in excess distributable cash flow in the quarter and had distribution coverage of 1 point 7 times. To put in context our strength to generate distributable cash flow per unit in the current business environment, for the 1st 9 months of 2018, our distributable cash flow per unit, excluding nonrecurring items, was $2 per unit.
This compares to our record DCF per unit of $2.06 for all of 2014. Through the 1st 9 months of 2018, we were about 30% ahead of 20 fourteen's record pace. Moving to capitalization and our balance sheet. At September 30, our total debt principal was $26,000,000,000 Assuming the first call date for our hybrids, the average life of our debt portfolio was 13.4 years. Our effective average cost of debt was 4.5 percent and 89% of our debt to our portfolio was fixed as of September 30.
On October 3rd, we priced an aggregate $3,000,000,000 of senior unsecured notes comprised of $1,250,000,000 of 30 year notes at a 4.8% coupon, dollars 1,000,000,000 of 10 year notes at 4.15 percent and $750,000,000 of 3 year notes at 3.5%. Based on our debt maturities in 2019 and our current estimate of at least $3,500,000,000 in growth CapEx in 2019, coupled with strong support from our fixed income investors, we elected to upsize the offering to $3,000,000,000 Absent an acquisition, we do not currently expect to have the need to be back in the debt capital markets until 2020. Adjusted EBITDA for the 12 months ended September 30, 2018 was $6,900,000,000 and our consolidated leverage ratio was 3.6 times after adjusting debt for the partial equity credit of the hybrid debt securities by the rating agencies and further reduced by unrestricted cash. Our consolidated liquidity was approximately $3,300,000,000 at September 30, which included available borrowing capacity under our credit facilities and unrestricted cash. The proceeds from the October debt offering obviously increases that liquidity.
As of yesterday, total liquidity was approximately $6,500,000,000 Moving on to equity issuances. During the Q3, our only proceeds were from the distribution reinvestment program and employee unit purchase program for approximately $188,000,000 which included $106,000,000 from privately held affiliates of EPCO. Aside from the DRIP and employee purchase plans, we have not raised any equity in the past 15 months. Given our current business and cash flow outlook, we elected to reduce the discount under the dividend reinvestment plan to 0 effective with the distribution expected to be paid in February 2019. And with that, Randy, I think we can open it up for questions.
Okay, Nicole. We're ready to take questions from our participants.
Your first question comes from the line of Jeremy Tonet with JPMorgan.
Good morning. Congratulations on the quarter.
Thank you, Jeremy.
Just want to touch on the fractionation market and it seems like industry reports to that being extremely tight right now and a lot of logistical challenges as far as more NGLs hitting Bellevue than there's frac space and that causing issues with storage and then also the petchem pull being so strong. It seems like that tightness is likely to persist until 2020 if as long as Brent and Henry Hub kind of stay at these spreads. And so I'm just wondering what's your thoughts on, I guess, how tight the market is, what the duration of that tightness and how does that impact enterprise?
Jeremy, I think you just nailed it. I think 2019 is going to at the rate things are going right now, it's going to be very tight. Pipeline capacity is tight right now. That gets relieved whenever frankly Shin Oak comes on. But fractionation, we think will be tight through 2019.
We our position is we have not we're not in a situation where we have over contracted our capabilities. We are having people come to us and ask for fractionation capacity, and we're looking at the levers that we can pull to accommodate them. And frankly, we'd like to tie those opportunities to longer term deals.
That makes sense. That kind of goes into my next question with Shin Oak there. And just wanted to touch on progress and thoughts, I guess, is when Shin Oak comes online as far as converting some of the other NGL pipes that you might have excess capacity into crude oil service given kind of a good need for that pipe incremental crude oil takeaway out of Permian today?
Well, you heard in my earnings in my script that I said we're not through building takeaway out of the Permian. And we are putting ourselves in a position to be able to convert pipeline. But the earliest that would be, would be when Shin Oak comes on and that's not till the Q2 of
next year. So conversion middle of next year for the NGL into crude pipes, is
that possible? Or how much of
a lag time would there be?
We're putting ourselves in a position to convert an NGL pipeline to crude oil service. And the earliest that would be, would be with when Shin Oak comes on. Now Jeremy, you can ask the question again, you're going to get the same answer, buddy boy.
Got you. Fair enough. I didn't know if you comment on the lag time. Last one for me. I mean, you guys have been on the DRIP.
You're decreasing the discount to 0. But based on the numbers we see, it seems like it might make sense to go the other way and repurchase units. Under what conditions would it make sense for Enterprise to start buying back units? Granted you guys have a very deep organic growth portfolio, but it seems like fundamentals are really coming your way and you're going to be gushing a lot of cash flow.
Yes, Jeremy, for 1, when we sort of went with the equity self funding goal, at the time, we were talking about $2,500,000,000 to $3,000,000,000 in growth CapEx. Now we're running, call it, between $3,500,000,000 $4,000,000,000 a year of growth CapEx. So I think we've got good places to put the capital back to work with some good returns on capital. I think the other overlay that you come in and you look at it from a buyback standpoint, when you do a buyback, by definition, you're reducing your financial flexibility. And given the equity markets that we're in, where we're not seeing any funds flow at all come in into the midstream space, doesn't matter if you're a C Corp or of MLP, I think this is a we're at a time or in a season where you need to make sure you've got financial strength and financial flexibility.
So I don't see a buyback in the near
term.
Your next question comes from Shneur Gershuni with UBS.
Hi, good morning guys. Just a couple of philosophical questions. First touching on the NGL market, as you responded just a few minutes ago about how tight it is and so forth. I was wondering if you can sort of talk about contract negotiations in general. Are we in an environment where as you build the next suite of assets, does it lend itself to longer duration contracts and better pricing terms than you had previously?
Or I guess that differently, are we in an environment that the next dollar of CapEx deployed results in even higher returns versus the last dollar that you spent?
I hope so. I think we're in an environment where you can you probably are better off leveraging the opportunity into longer term deals rather than trying to manage for the last penny. Does that make sense, Shahriar?
No, absolutely. I was just wondering if when you convert it into longer deals, is it better than longer term deals that you've signed previously?
Yes.
Okay.
Following up on that, in terms of your growth rate, I mean, obviously, you've exhibited a very strong growth rate this year. When you moderate the distribution growth in 2017, you talked about reevaluating it in 2019. You have any sense on where you think enterprise's sustainable growth rate is now given kind of the performance that you've had this year and the visibility of growth outlook that you have going forward?
Shneur, it seems like it goes higher every week. Right now, we're in the middle of our 2019 planning process. And to your question, I mean, growth CapEx is very fluid right now. And Jim mentioned, we're trying to come in and underwrite 2 or 3 other projects in development. So what we the projects, if you would, that have been sanctioned right now, think puts us at about $3,500,000,000 of growth CapEx next year.
That could grow and grow by a sizable amount. So, I think we need to continue to monitor that. And what we had said is we'd come in and provide guidance on 2019 distribution when we report 4th quarter earnings. And I think as dynamic as things are right now, we'll adhere to that.
One of the things that as you look forward, where we can grow has changed. We can grow in more areas. I mean that PDH plant we built was a huge step down into the primary petrochemicals as it was IBD8. So we're not just building pipelines anymore or processing plants or fractionators, we're building primary petrochemical plants, which gives us even more opportunity.
Completely recognize
it. I'm just when I do the back of the envelope math in terms of your retained distributable cash flow, it seems like you can easily self fund a 6 $1,000,000,000 a year program. And I guess that's where the question is coming from.
Yes. I think Graham Bacon that runs engineering operations just turned white when you said 6 $1,000,000,000 but
Fair enough. One last question. Randy, last quarter, you talked about Mr. Market. You've had a very strong quarter this quarter as well too, but stock price outside of today has been kind of lackluster.
When I sort of think about all your financial metrics, you've got coverage, self funding and so forth, you've done everything right. But have we hit a point with almost $60,000,000,000 in market cap that enterprise has gotten too big for the MLP market? Does it make sense to review ticking the box or somehow entering the C Corp market to make sure that valuation is properly reflected?
Yes, Stuart. I mean, that's something that we continue to evaluate. As we come in and look at valuations, I don't necessarily think it's MLP valuation specific. I think it's broader than that. I think, if you would, energy is still macro.
If you would, the energy sector is broadly out of favor. And we need to see some sector rotation back into energy broadly. And then I think midstreams will get our share of that capital. But if we come out and look at those guys that have converted to C Corps and we look at the valuation of the large the So, I don't know if checking the box necessarily results in higher valuation.
Your next question comes from the line of Jean Salisbury with Bernstein.
Good morning. Have you had a material uptick in requests from external parties to store Y Grade? And if so, is that a fixed fee to external parties where you can kind of charge up to what the market is willing to pay or is it a fixed fee where you can't really move that around?
Hey, Jeanine, this is Brett Seacrest. There's definitely more interest in storing Y grade. I think there's some interest in obviously fractionating that Y grade. So ultimately, it depends on the structure of the contract. In some cases, we're storing Y grade.
In some cases, it's a much larger fee to fractionate. But overall, there's definitely demand for storing Y Grade.
Okay. And the storage for Y Grade, that fee can kind of move around based on how much demand there is for it?
That's right.
Thanks. And I was just wondering, how many fracs do you have space to build in Mont Belvieu? How should we think about that limitation if there is 1?
We've got more space than I hope we build fracs. I joke sometime with Randall Duncan that right we're going and we're going to have them built all the way to Dayton, Texas. But we've got what have we got left, Ram? 1500 acres out there?
Yes, we've got about 1300 acres.
And we've got about how many acres does a frac take up?
5.
Okay. Call it 15 acres, Jean Ann, and do the math.
That's all right. And then just one last one, kind of building on a question that was asked before. Is it fair to think that the new processing and frac announcement from today might really reduce the chances that you will convert the NGL line? It seems like you might need it as NGL pretty soon.
Well, Shin Oak is 550,000 barrels a day. And Doug, can we expand that beyond where is Doug?
Is that about it, 550? Yes, about 550 is max.
Yes. So I think we have ample wide grade space.
Your next question comes from the line of Tom Abrams with Morgan Stanley.
I'll follow-up on that NGL to crude line conversion as well. You're setting yourself up to do that possibly next year. Would it be a fairly rapid conversion or would it take 9 months, say, to do?
You'll say the same. It won't come up, Tom, before Shin Oak comes up.
Well, once it does once Shin Oak comes up, is it at almost an instant conversion? Or is there some work that needs to be done?
It's going to come up when it would come up at its earliest when Shin Oak comes up.
Okay. And then on NGL side, there's just been a lot of volatility in ethane prices in the basins on some importexport differentials, Conway Bellevue differentials against the business, I guess, if you will, from Q3 to Q4. Is that a potential headwind of any magnitude quarter to quarter?
It's hard to say. I'm not convinced it is because our pipelines has been on tug allocation throughout the Q3, so which probably created some of those spreads. So my point you got it? Okay.
Yes. Well, I think too because you it looks like your NGL equity volumes, you kind of gave up some of those, which I assume had an economic impact in favor of your customers. You're managing that to some degree.
Exactly. Some of our equity volumes are when our customers do not elect we have discretionary opportunities to process ourselves, but the margins have been such that they've been electing full recoveries.
So conceivably, the market would give you less, but your contracts, your equity volumes would give you more. That's one way to think about it, tax payer question or I'm sorry, C Corp question, when you do that math and look over it again and again and again, when do you think if you did go C Corp, you would be a
a little bit. It depends on how you wind up becoming a taxpayer in checking the box, C Corp conversion step up, I don't foresee us coming in and doing any type of step up. That would not be in our plans because of the tax liability that would cause to limited partners out of the gate. Okay. I mean, We're very I mean, we're profitable where we are, Tom.
Some of it gets down. I mean, do you do bonus depreciation? Do you come in and take tax depreciation over time? There are a number of things that you can do to come in and manage that tax liability. So, hard to commit right now what we might do if we're taxable as a C Corp when we're still in MLT.
Understand.
I'm just trying to get to the idea that it's not a layup that C Corp is home free, that there's some future tax liability, whether it's 5 years, 10 years down the road that has to
be centered in this map. Yes, very much. Again, that's where you come back in with what Congress did in enacting bonus depreciation with where your growth CapEx is and acquisitions for that matter. That can I mean, you can again, depending on what your growth profile is, you can keep your income taxes negligible for quite a while just depending on what your growth rate is?
Last question is on this offshore loading facility and you're working on engineering and customer relationships. Can you start the permitting without a fully defined project? Or does that have to wait till you get that in hand and can define it to the regulators and that kind of starts the clock on that, call it, 18 month permitting process? This is Graham Bacon.
I think we have the project defined at this point well enough that we're proceeding with the permitting process and we have all the blocks in place to proceed. We're just finalizing the package at this time.
Great. Thanks a lot.
Nicole, before we go to the next one, let's remind our participants, if we could keep our questions to one question and one follow-up, please, I would really that way we can get to more questions, that would really be great. Thank you.
Go ahead.
Your next question comes from the line of Christine Cho with Barclays.
Good morning, everyone. I just wanted to start with a line you had in your release. You guys said that your equity NGL volumes for the quarter were reduced to alleviate takeaway pipeline capacity constraints. Can you go into what this means exactly? I wasn't sure if you were putting your equity NGLs into storage.
I think what we were talking about is that space for opportunities we're getting from space for opportunities we're getting from producers.
Okay. But if you're reducing your equity NGLs, isn't the customer still, I guess increasing their NGL production to offset your reduced equity NGLs?
Yes, that's the point.
I see. Okay.
I think it's some of each.
Okay. And then I hate to beat a dead horse, but around another question for the C Corp. How do you think about the Up C structure versus going full C Corp? There would be differences in corporate governance, board makeup, but you can't go into the big indices as an Up C. So curious as to your thinking there.
Yes. Christine, we had our day in the sun when we had 4 different equity securities trading at one time. And I think we like simple is better. So coming in and having 2 equity securities outstanding does not have a lot of appeal to it.
Okay. But you could still have an UP C and do one security, no?
But I mean, again, if one of the goals of the Upsea is to get access to the capital markets through the Upsea, then you're looking at 2 publicly traded securities.
Okay. All right. Thank you.
Your next question comes from the line of TJ Schultz with RBC Capital Markets.
Hey, good morning. Just first a quick follow-up on the offshore port, the advantages of supply aggregation makes sense. But as we see more announcements to develop these ports and now an onshore export option to handle VLCCs. Does an onshore solution have any advantages as far as the permitting process may go? And then is there a need for more than one solution here?
The onshore process has its own challenges with dredge depths and maintenance and permits associated with that. So there's not a clear advantage there.
Okay. I guess for the second question, if we can just touch on the Eagle Ford, we've seen some ownership changes there. You had pointed, I think, at the Analyst Day to 50,000 to 100,000 barrels a day of incremental volumes this year. Are you seeing that? And what is the open capacity you have on that crude system?
And then on Chesapeake's call yesterday, they talked about access to Echo and to Corpus and excess capacity across 2 pipes. So in that case, what would drive more volumes to Echo as opposed to Corpus across your systems?
What would drive more volumes to Echo rather than Corpus is, Corpus is a destination. Houston is a market, has 500,000 barrels a day of refining, 300,000,000 barrels of storage and access to water. Corpus will work until it doesn't work. Brent?
That's it. I mean, that's been our position from the beginning.
It's no different than NGLs. Producers typically want to go to the biggest sponge.
Okay. And if we see more activity in the Eagle Ford, what's kind of your open capacity you have on that system?
We got plenty. The Eagle Ford, thank God for demand fees.
Okay, understood. Thank you.
Your next question comes from the line of Colton Bean with Tudor, Pickering, Holt and Company.
Good morning. Jim, you mentioned ongoing conversations with off takers there for the crude export terminal. Any additional color you could offer on that? And then just as you've been working through the FEED study, have you guys been able to refine kind of a general construction timeline? I think the permitting process was highlighted to 18 months to 24 months, but just thinking kind of post permitting what the actual construction timeline might look like?
Yes. The color I can give you on the discussions is that Bob Sanders, Brent Secrest and I spent 11 days in Asia recently. And the fact that I would spend 11 days with Brent Secrest in Asia says something about how serious we are to the permitting. I thought it was 1 year, Graham. Correct.
And the timeline after that. I mean, this isn't rocket science, is it? No. We're still
Got it. And just on the Frac 11 announcement, so it's slated to come on just behind Frac 10 and arguably a little bit sooner than market expectations there.
So can you just give us a bit
of commentary on the supply chain background that allowed you to hit that timeline?
One thing is Shin Oak. Another is our the deal we recently did that we announced at Alpine High, that really starts ramping up in that timeline. So I think those are 2 of the biggies. Yes. Another plant we announced this morning.
Sorry. Maybe more specifically on the engineering and construction side in terms of anything that you guys had already secured, maybe long lead time items that factored into that? Ram,
The timeline on the construction of Frac 11, obviously, we've already done some long lead time equipment purchases.
Yes, we've got the long lead items are defined. All the engineering is complete on the long lead items and it's in the purchasing queue and moving forward.
If you
think about it, it wasn't that long ago, we had 3 trains out there. So we've built a number of trains over the last few years. So really, we've gotten pretty good at it.
Yes, we have. I think it's pretty that timeline is pretty well defined. And the shop space is tight, but we've got our place in line.
Got it. Thank you.
Your next question comes from the line of Tristan Richardson with SunTrust.
Hey, good morning guys. You talked about strategic projects out there and positioning yourself for expansion and extension out of the Permian. Curious the potential ramp here on Shin Oak with an additional 40 a day potential on Mentone and Orla 3 and Alpine Highs. Is the 5.50 a day adequate enough initially to handle the supply growth you guys are seeing and potential for expansion
there? I think it's sufficient for the ramp we see. I hope it's not.
Your next question comes from the line of Matthew Phillips with Guggenheimer.
Good morning, guys. Another export related question. The recent NGL announcement on the Ship Channel, I mean, do you see that as sufficient for the runway all are building out in terms of inbound NGLs, Shin Oak, etcetera, and frac capacity at Bellevue? Or is this a precursor to needing more capacity 3, 4 years
it's the latter.
I think this was this expansion was relatively cheap and pretty good bang for the dollar. If we look forward at some of Tony Chavonic's work with our fundamentals group, We have ways to further expand and we probably will.
Got it. Contingent upon that, I mean, are you expecting to move some of the crude export volumes flow through that hub offshore and that frees up space? And if for whatever reason the SPM project gets pushed out, I mean, does that change how you view the Channel site?
1st and foremost, yes. If we as we build the offshore port, we will backfill that capacity with more LPG export capability, which we think will be needed. If it takes longer than we think it will to build an offshore port, then we have a lot of capability in Texas City and in Beaumont.
For NGLs?
No, for crude. I'm sorry. NGLs is going to be on the ship channel.
Got you. Okay.
But my point to you was we can move crude to other ports to accommodate NGLs.
Okay. Thank you.
Your next question comes from the line of Tipper Doniz with Credit Suisse.
Hey, good morning everyone. Thanks for taking the question. Jim, just wanted to go back on a comment you made earlier just around this being one of the strongest markets you've seen in a while. And so I guess the question is from an M and A perspective, what does this mean? Does the math start to really work, just given the increasingly positive outlook coming out of you guys against the Prince equity values across the space?
Are you asking if we're looking at M and A?
Yes.
Yes. I guess we constantly look at it, but we find that building organic growth gives us better returns than an M and A would. So it's much more accretive to build.
Okay. That's fair.
And then you also mentioned heading over to Asia just in the context of crude exports. Curious just on the backdrop of the trade tensions and the Chinese kind of already curtailing crude exports out of the U. S. Do you see any risk there on that front? Or is it the view that effectively the crude gets displaced in one spot and effectively goes to another?
Trade patterns change. It becomes less efficient, but volumes move.
Fair enough. Thanks for the time.
Your next question comes from the line of Keith Stanley with Wolfe Research.
Hi, good morning. Can you give an update on the status of the 100,000 barrel a day Seaway expansion and just the level of customer demand to maybe do a larger expansion at Seaway, if that's something you're actively working on still?
Yes. Thanks, Keith. This is Jay Behney. The DRA expansion was mechanically complete earlier this month in October. We continue to work with our connected carrier to basically test out that, increase rates on the discharge of the terminals and basically see what capacity is available through the DRA expansion.
Then I
think your second question was on is there something larger for Seaway with additional expansion. We do have a horsepower expansion that's in development right now as
well. Okay. But not adding another pipe, it would all be DRA and horsepower?
Yes, the DRA, when we talked about in the horsepower, would just be on the existing pipe.
Okay. Second question, just on NGL marketing at a high level, how repeatable do you think the Q3 results, they're quite strong? How repeatable are they for the next few quarters if market conditions stay tight on NGL pipelines and fractionation?
I think we're going to have a good I think the future looks bright for us. The fundamentals are in our favor.
Your next question comes from the line of Danilo Juvane with BMO Capital.
Good morning and thank you. Randy, clearly, you outlined that you're not in favor of doing buybacks right now, but how do you think about dividend growth in 20 19?
Yes, Danilo. I think where we are, again, I come in we're in a great place business environment, wise to come in and see good places to deploy capital from a growth CapEx standpoint.
We're
Jim earlier talked about that we're on track to have 20 consecutive years of distribution growth. But as far as I think we want to really stick with our time line as far as coming in and what level of distribution growth that see in 2019, really like to come in and get through our planning process and see where we shake out on some of these larger projects that Jim talked about. The one thing that we're we are we do have a goal of coming in and equity self funding, but at the end of the day, we're not going to let that goal put a limit on what we're going to do on organic growth CapEx when we have good projects. So right now, still more to come and we need to complete our planning process. But I mean, organizationally, business wise, we're in a great place.
Thanks for that. And as a follow-up on the equity NGL volumes, should we expect you to continue to sort of have lower volumes like you did this quarter until Shin Oak comes online? How should we think about that?
I think about it in terms of fractionation more than once Shin Oak comes online. And lower equity volumes does not mean lower margins. We're pulling triggers that give us higher margins than those equity volumes. Understood. But whatever we're replacing those equity volumes with, you can bet we're making more money than we're taking out of our pocket on those equity volumes.
Okay. So the volume should improve then once your one of your fracs comes online at all?
It's hard to hear you. I'm sorry.
I asked that the volume should improve once one of your frac facilities new frac facilities come online at Bellevue.
You're right.
Okay.
This is Tony. I just want to add something because this equity volume thing
keeps coming up. At the end of the
day, liquids production in United States continues to grow
to beat everyone's
expectation. So that's the reality. And there's not a reason for it to slow down at this point. So those barrels go somewhere and
they keep coming.
Yes. Danilo, if we choose to lower those equity volumes, it's either replaced with the customers' volumes and you know our system, there's also an opportunity to bring purities out of Conway. So that's just the optimization game that we do every day. Your
next question comes from the line of Michael Lapides with Goldman Sachs.
Hey, guys. Congrats on a great quarter. A quick question for you. When you're signing fractionation deals, how different is the tenure of the contracts you're signing these days relative to what you may have started signing when you first started the significant build out of Mont Belvieu?
It comes and goes, really. And sometimes it's dedications and sometimes it's demand fees. And both have their positives. So it's kind of we take the hard jump approach. If they want vanilla, we're going to sell them vanilla.
If they want strawberry, we'll sell them strawberry. I am we are seeing a little more demand fee requests.
Got it. And can you talk about length of contracts? You just gave great detail on kind of type of contracts, but I mean average contract in the 5 to 7 year range or much significantly longer than that?
We like 10 year deals. If it's a 5 year deal, it's a different fee than if it's a 10 year deal. But we like 10 year deals.
Got it. Thank you, guys. Much appreciated.
Your next question comes from the line of Becca Followill with U. S. Capital Advisors. Good morning, guys. It seems like the pipes and fracs are chock full.
Can you talk about where you have remaining operating leverage on volumes besides the Eagle Ford?
That's pretty much it.
Okay. Super. That's my only question. Thank you.
Hey, Nicole. We have time for one more question.
Certainly. And your final question comes from the line of Suneel Sabal with Seaport Global.
Yes. Hi. Good morning, guys. And thanks for all the color. My question was related to the accrued segment.
The $200,000,000 mark to market loss that you had in the press release, I was wondering if you could talk about the duration of the remaining basis hedges on crude? I mean how much time those basis hedges run through?
Okay. If you look at the kind of life to date earnings from mark to market on these hedges, including the $204,000,000 gain this quarter, it's about $309,000,000 that's left outstanding. And we expect to get about $167,000,000 of that back in the 4th quarter. And in 2019, we should get $137,000,000 and then in $20,000,000 And so that assumes there's no price differential changes, which is probably not a good assumption to the extent spreads widen further, we could see additional mark to market losses or if they narrow, we could see
gains. Okay, got it. And then on the crude segment volume, seems like there was a bit of a decline sequentially both on the marine terminal volumes as well as the pipeline volumes. I was wondering was there any kind of a big trend which determined that?
I think on the crude terminalling volumes, there was a period where the Chinese stepped out of the market in August. And I think there were some barrels that stayed here before vessels got repositioned. Then you saw kind of a big uptick in September as they started coming back.
Okay. And that reflected in the pipelines also, I guess?
Yes. I would say there was the arb wasn't as wide open on Seaway as it is right now. And I'd say Eagle Ford quarter over quarter stayed flat.
Okay. The bulk of
it was Seaway. Yes. Seaway, there was a period a couple of months in there where the tariff wasn't justified versus the arb.
Okay, got it. Thanks guys. That's all I had.
Okay. Nicole, if you would, would you give our listeners the replay information and then that would be it from the company. Everyone have a great day. Thank you.
Thank you for participating in today's enterprise conference call. This call will be available for replay beginning approximately an hour after the end of today's call and ending on November 7 at midnight Central Time. The conference ID number for this replay is 9,000,000 replay is 9,969,565. The dial in numbers for the replay are 855-859 2056 or 404-537-3406. Thank you for participating in today's call.
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