Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners L.P. Quarter One 2018 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the number 1 on your telephone keypad. If you would like to withdraw the question, press the pound key. Thank you. At this time, I would like to turn the conference over to Mr. Randy Fowler. Please go ahead, sir.
Thank you, Thea. Good morning, everyone, and welcome to the Enterprise Products Partners conference call to discuss first quarter 2018 earnings. Our speakers today will be Jim Teague, Chief Executive Officer of Enterprise's General Partner, and he'll be followed by Bryan Bulawa, Chief Financial Officer. 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 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. With that, I'll turn it over to Jim.
Thank you, Randy. Our business performed exceptionally well in the first quarter, including records for net income, gross operating margin, and adjusted EBITDA. Excluding proceeds from asset sales, distributable cash flow was also a record. Record NGL and marine terminal volumes increased crude oil pipeline transportation and marine terminal volumes, and higher natural gas pipeline transportation volumes led to 3 of our 4 business segments reporting higher results compared to first quarter of last year. These results are allowing us to consistently grow our profits, grow our distributions, plus make substantial headway towards equity self-funding. With a comfortable 1.5 times distribution coverage, we retained over $450 million to put back into our future growth. At Enterprise, it's probably time to quit thinking downturn. Today's results continue to prove that our future has really never looked brighter.
In the first quarter, we were still in the ramp-up phase for two of our largest projects, our PDH plant and the Midland to ECHO crude oil pipeline. Both projects have now officially been put into service. On April 16th, we announced that our Midland to ECHO crude pipeline moved into full service with an expanded capacity of up to 575,000 barrels per day. Supporting the Midland to ECHO pipeline are several strategic supply aggregation projects, including a new 140-mile pipeline from Loving County, Texas to Midland that is expected in service this quarter. Recent extreme basis differentials for Midland have been a significant source of attention. Pipeline, rail, and trucking capacity out of the Permian appears to be very tight for at least the next year. With no significant additional takeaway expected until the second half of 2019, the timing of our new pipeline couldn't have been better.
In that regard, our press release notes a large non-cash mark-to-market charge for the first quarter. Throughout 2017, as the Midland basis widened to values that exceeded our committed fees, we felt it was appropriate to take some price risk off the table and began a capacity hedging program. As prices rose and production moved up, that basis began to blow out significantly, which resulted in a large non-cash mark-to-market impact. As these hedges roll off in future periods, these unrealized mark-to-market adjustments will be reversed against actual revenues for those hedge periods. Our PDH plant began commercial service in April. Thus far in April, PDH has operated at an 84% average utilization rate.
It's been a long time coming, now it's time to enjoy the benefits of this project's solid supply and demand fundamentals, substantial fee-based cash flow with upside, the end of some very expensive bridging agreements, and it's a great fit in our C3 value chain. Work on our iBDH is progressing with an expected second half next year startup. As a reminder, half of this plant will fill excess capacity we have in our high-purity isobutylene and MTBE plants, which will allow us to upgrade additional NGLs into higher valued products. The other half is committed to an investment-grade customer through a 15-year fee-based contract on a feedstock plus cost basis. We have several ethylene projects, including ethylene storage, a new pipeline, and our joint venture ethylene export dock, all scheduled for late in 2019.
In NGLs, we started commissioning our first gas processing plant at Orla in the Delaware Basin in April. We also have two other processing plants under construction at Orla, with completion of our second Orla plant expected in the fourth quarter of this year and our third plant in the first half of 2019. We're also in the process of commissioning our ninth fractionator at Mont Belvieu, which is scheduled to be fully operational this quarter. Obviously, fractionation capacity is in high demand and is a key component in our value chain. Last, our Chinook Pipeline is progressing. This pipeline is expected to begin operation in 2019. We feel strongly that capacity expansions are imminent in order to keep up with the needs of our Permian customers.
Summarizing our NGL projects between new processing plants, pipelines, and fractionation, we have a considerable amount of NGL assets under construction, most of them supported by the Permian Basin, with growing demand on the Gulf Coast and Mont Belvieu. Reality is, as much as we have going on out there, we're really not done finding opportunities in that basin. Besides Midland crude oil basis differentials, probably the second most written about topic these days is the collapse in ethylene margins. When we announced our expansion into petrochemical midstream last year, we said that we expected price volatility, and it's fair to say that's begun. Don't think of this as a signal to give up on U.S. ethylene producers. Crackers have been running at a 95% rate as most U.S. petrochemicals actually focus on ethane to polyethylene, where margins are currently about double that of historical norms.
U.S. petrochemicals have extremely positive long-term fundamentals because of rich shale gas, which has given them a significant global advantage. Industry expansions of this magnitude in the U.S. don't come without opportunities for Enterprise. Enterprise has the premier supply position in the industry to meet this growing feedstock demand, and we're moving further into providing midstream-type services for both domestic and global petrochemicals. For refined products in late 2018, we expect to complete new infrastructure consisting of pipelines, storage, and dock upgrades, which will significantly increase our refined products export capabilities at Beaumont as demand for U.S. refined products continue to grow, especially in Latin America. A few words on demand growth. While the new crackers were delayed a little bit by Hurricane Harvey, those projects are now coming online.
Petrochemical demand for ethane is currently over 1.5 million barrels a day, and Tony Chovanec believes it could exceed 1.8 million barrels a day by year-end. Also, on the topic of new demand, Enterprise liquid hydrocarbon exports continue to increase each month, led by increases in demand for U.S. crude. The name of the game for U.S. production is exports, exports of crude oil, natural gas, ethane, LPG, petrochemicals, and refined products. As shown again by the results and statistics we published today, we don't think anyone is better situated to serve growing global demand than Enterprise. Finally, I ended last quarter by saying that we feel really good about 2018 and our long-term opportunities. Obviously, that sentiment remains. Institutional investors and research analysts recently named Enterprise Products as one of the most admired companies in America in the Institutional Investor annual survey.
We want the investor community that follows us to know how much we appreciate the strong support that you continue to show for our company. We all understand that the investment community has broadly shown a strong preference for investments outside of energy, and the midstream sector has been out of favor, admittedly, somewhat self-inflicted. Regardless, Enterprise will continue with what we have always done: deliver results, consistent distribution growth, and generate long-term value. Obviously, long-term investors in the debt markets recognize the opportunities they have in Enterprise. We feel strongly that there will come a time when the equity markets, including the retail community, will quit focusing on the sector we're in and instead focus on the quality company we are. It's kind of like not one of us can pick the family we're in, but we are responsible for our own performance.
We will continue to be responsible for our performance. With that, I'll turn it over to Bryan.
Thank you, Jim. Good morning, everyone. I'd like to echo Jim's enthusiasm. We are pleased with our record operational and financial performance. While our first and fourth quarters are typically seasonally strong periods, our operational and financial performance of the last several quarters demonstrates Enterprise's uniquely positioned integrated midstream system. We continue to benefit from increasing supply of domestic hydrocarbons and strong demand from both domestic and global markets. The fundamentals surrounding our business are strong. We are excited about the prospects for continuing growth. I will now review a few income statement items for the first quarter, reiterate our expectations for our growth and sustaining capital expenditures for 2018, and wrap up with an overview of our balance sheet metrics and equity funding objectives.
Starting with the income statement items, net income attributable to limited partners for the first quarter of 2018 was $901 million, or $0.41 per unit on a fully diluted basis, compared to $761 million or $0.36 per unit on a fully diluted basis for the first quarter of 2017. We recognized a non-cash $37 million gain in the first quarter of 2018, or $0.02 per fully diluted unit, attributable to the March 29, 2018 step acquisition of the remaining 50% equity interest in our 150 million cubic feet per day Delaware Basin gas processing plant located in Reeves County, Texas. The purchase price for this ownership interest was $150 million. We also recognized a total of $140 million non-cash mark-to-market loss during the first quarter of 2018, primarily due to the Midland to Houston and Midland to Cushing basis hedges.
Depreciation, amortization, and accretion expenses were $18 million higher compared to the same quarter of 2017, due to the Midland to ECHO pipeline and a few smaller capital projects being placed into service since the first quarter of 2017. Total capital spending in the first quarter of 2018 was $1.1 billion, including $66 million for sustaining capital expenditures. For the full year of 2018, we currently anticipate investing approximately $3.2 billion-$3.4 billion in growth capital expenditures, with this range including the aforementioned acquisition of a 50% interest in the Delaware Basin gas processing facility. Further, we expect our sustaining capital expenditures for 2018 to be approximately $315 million. Moving to our balance sheet. At March 31st, 2018, our total debt principal outstanding was $25.6 billion.
The average life of our debt portfolio was 14.8 years, assuming the first call date for our hybrids, and our effective average cost of debt was 4.6%. It should also be noted that over 90% of our debt portfolio is fixed rate, thereby insulating our cost of debt capital in a rising interest rate environment. On February 1st, we issued an aggregate of $2.7 billion in the debt capital markets, comprised of $1.25 billion of 4.25% senior unsecured 30-year notes, $750 million of 2.8% senior unsecured three-year notes, and $700 million of 5.375% 60-year non-call 10 junior subordinate notes. Proceeds from the $700 million junior subordinated note issuance were used in March of 2018 to redeem all of the $682.7 million outstanding aggregate principal amount of our 7.034% junior subordinated notes due in 2068. This redemption results in annual interest expense savings of $11.3 million.
Adjusted EBITDA for the 12 months ended March 31st, 2018, was $5.9 billion, and our consolidated leverage ratio was 4.1 times after adjusting debt for the partial equity treatment of the hybrid debt securities by the rating agencies and further reduced for cash and cash equivalents. Working capital requirements remain elevated by approximately $475 million, which is largely comprised of margin requirements on the exchanges associated with the recent widening of the Midland to Houston basis spreads against our executed Midland to ECHO and Midland to Cushing hedging programs, which is more fully described in today's press release. When also taking into account the pro forma benefit for contracted growth projects under construction during the quarter, our adjusted leverage ratio was approximately 3.7 times. Our consolidated liquidity was approximately $5 billion at March 31st, 2018, which included available borrowing capacity under our credit facilities and unrestricted cash.
Finally, during the first quarter, we retained $458 million in excess distributable cash flow, which alone funded 45% of our first quarter 2018 growth capital expenditures. Just to reiterate Jim's comments in the press release, when factoring in our anticipated retained distributable cash flow for the full year of 2018 and expected proceeds from the distribution reinvestment program, or our DRIP, and the employee unit purchase program, or UPP, we do not anticipate any additional external equity needs for this year. For 2019, we continue to anticipate a fully self-funded equity model, excluding the DRIP and the UPP participation on an approximate $3 billion growth capital investment profile while preserving our targeted leverage objective of 3.75 to four times. With that, I'll turn the call back over to Randy for questions.
Thank you, Brian. Thea, we're ready to take questions from our listeners. Thea?
At this time, I would like to remind everyone that if you would like to ask a question, to press star one on your telephone keypad now. Again, ladies and gentlemen, that's star one for any questions. Please limit yourself to one question and one follow-up. We'll pause for just a moment. The first question will come from Jeremy Tonet with JPMorgan.
Good morning. Congrats on the strong quarter there. I was wondering for the Midland pipe, how were you able to expand it to 575? Was this Drag-Reducing Agents? Is this the final level of expansion, or could this be pushed further?
It was primarily due to Drag-Reducing Agents. Very little additional upside over what we've announced.
Great. Thanks for that. Just want to go a bit more as far as the growth projects in the future. You guys seem to be having a lot of conversations, but just want to see a bit more if what part of your business this could be. Is it more on the downstream petrochemical side? Is it more on the Permian side? Are there other areas that you see growth? Anything that you can share with us there?
I think the answer to your question is yes.
Okay. We'll wait for that then. Thank you.
The next question will come from Tristan Richardson with SunTrust Robinson Humphrey.
Hey, good morning, guys. Just curious in terms of the CapEx outlook for this year, seems to be up a little bit. Is it just pull forward from current projects that are on plan?
Hey, Tristan, it's Brian. Some of the movement is partially because of the acquisitions that we've already announced with the one I mentioned in the script with respect to the Delaware Basin gas facility, as well as if you recall, we also purchased some land on the ship channel. Those acquisitions, you've also had a little bit of scope changes with some existing projects which have expanded the spending on those projects. Let me be clear, that's not a cost overrun, but a complete expansion of those existing projects.
Thanks, Brian. That's helpful. Just in terms of Chinook, you guys have talked a little bit recently about anticipating early expansions on that. Just curious sort of what the factors are that are influencing decisions on the initial capacity design for Chinook.
We're seeing more volume. We're building more plants. Tony, you got anything? That's the essence of it. We've been pleased with how much people are wanting to move. People are getting nervous about takeaway in the Permian. Doug?
I would say, the Delaware Basin part of the Permian really continues to exceed, and that's a large reason for the want for capacity. Anything to add, Doug?
Yeah. That's exactly what the customer wants. We're seeing very strong interest in it. That's it.
Fair enough. Appreciate it. Thank you guys very much.
Thank you.
The next question will come from Chris Sighinolfi with Jefferies.
Good morning, Chris. You there?
Chris, your line is open.
Oh, I'm sorry. Hello, guys.
Hey, Chris.
Can you hear me now?
Yeah.
Okay. Sorry about that. Good morning. Much of the discussion around Enterprise's export activity has centered on the Ship Channel Beaumont and Corpus, but I did see an industry article last week suggesting you guys had a VLCC in Texas City. I thought the draft there was too shallow to permit that caliber vessel, so just curious what you're working on in Texas City. Any color would be helpful.
Sure. It's Jim. First of all the press talks about is Enterprise's Texas City dock, and it's really not Enterprise's Texas City dock. It's Seaway's Texas City dock, which is a joint venture between Enterprise and Enbridge, and we work closely on those Seaway docks at Texas City and Freeport. If I was Al Monaco, I'd get a little irritated seeing Enterprise's Texas City dock. Al, whoever I mentioned, Enbridge is a partner in that. The only thing we did is we want to see what's possible. We brought a VLCC in. We didn't load anything on it. All we're doing is taking measurements and seeing if the load arms work, and we're evaluating the information we got. Far, preliminarily, it looks good. You're right about the draft. The concept would be we'd load a lightering vessel and follow the VLCC out and transload.
It's a pretty simple concept, but we think it might grow legs.
Just to understand that, Jim, partially load the vessel at the dock, then ferry it out, and then fully load it offshore.
Yeah, we can probably get Brent? 1.1.2 million barrels on that.
Yep.
Then we would have a lightering vessel loaded, say, at the Houston Ship Channel. They'd follow each other out and transload. Frankly, right now, we're just seeing physically does it work, then we'll take a look at the economics, and we're talking to some people that are in that business to see if we can put legs to this. Kind of a neat concept.
Yeah, it's not part of what I had been considering before. We've heard some other peers talk about offshore activity, but not the sort of hybrid option you're talking about. That's interesting. Separately, Jim, I had a question on the Midland to ECHO pipe. I hadn't realized there was a 20% outstanding option on that line. Probably just an oversight on my part, but I'm curious if any of the other in-flight expansions included ownership options from third parties we should be paying attention to.
On that pipeline, Jeremy? Is it Jeremy who's
It's Chris.
Chris, you mean on Midland-Sealy?
Yeah, Midland-Sealy. I hadn't realized there was that option, so I was just curious. I guess two questions. One is $200 million roughly the proportional cost of construction? Two, are there other assets that you're building that I should pay or we should pay attention to that have buy-in options, either by shippers or third parties?
Yeah. What I'm going to do is I'll throw you back to how this company was built. Dan, we've got a number of joint ventures, everything from fractionators to gas plants to you name it. In every case, they brought more than money. They brought production, or they brought offtake. If you see us include a joint venture partner, you can bet he's bringing a lot more than money, and it supports our entire value chain. I'm not going to comment as to whether or not what we're doing that we haven't announced yet
Chris, this is Brian. As far as the proportional, yes, that is representative of the proportional cost.
Okay, great. Thanks a lot for taking my questions this morning, guys, and congrats on a great quarter.
The next question will come from Shneur Gershuni with UBS.
Hi. Good morning, guys. First off, before getting my questions, want to confirm something that you had said to Tristan earlier about NGLs versus crude lines. Are you saying that customers are actually shifted and more worried about NGL capacity now, and that's why you're not looking at converting the NGL line?
We didn't say we weren't looking at converting an NGL line. I think we clearly have said we're taking a hard look at that, and we expect that frankly, I think we'll do it, but I'm not sure what the timing will be.
Great. Got it. Okay. Sort of shifting a little bit here. I think Brian had walked through why the CapEx numbers were up a little bit this year. I was wondering where you're seeing incremental growth opportunities and how large that could be. I ask that against the context of last year, you had lowered your distribution growth rate to be self-funded, but you've just put up a one and a half times covered quarter, and you've got a lot of retained DCF. Do we get back onto a higher growth plane going forward?
Yeah. Shneur, this is Randy. I guess the first thing is the largest component to getting to self-funding from an equity standpoint was EBITDA expansion. If you would, the moderating the distribution growth was a very small part of it. Yeah. We're expecting the performance in the first quarter didn't necessarily surprise us. With that, as far as growth prospects, I think we were continuing to see good conversations around projects on the demand side, but now you're seeing more projects on the supply side as well. I'd really say some of these growth opportunities really hit all four segments.
Would it be fair to say that you weren't surprised by the performance in the first quarter, that you would expect those type of metrics to continue throughout the year?
Let's not get ahead of ourselves.
Yeah. Thanks.
I think I'd go back to what Bryan said is, our strongest quarters are our first quarters and fourth quarters, and just seasonally.
Okay, fair enough. One final question here. I recognize that you had said at the time when the FERC first put out their decision, not a material impact to Enterprise, I wonder if it sort of restarted a conversation about the corporate structure for Enterprise. Many have opined recently that ticking a box would not necessarily impact too many unit holders. At the same time, given your CapEx spend and ability to expense it, there wouldn't be much of a tax expectation going forward. Has that conversation restarted, or are you thinking about it or talking about it internally?
I don't think any more so than what we had been in the past. We look at it periodically. It's a big step. Right now, we don't see anything that's compelling that leads us to come in and check the box. When we come in and look at valuations and things of that nature, there's not anything differentiator between an MLP and a C corp from that perspective. Right now, we continue to monitor it. We'll update our evaluation from time to time, but no development on that front.
Great. Thank you very much, guys. Appreciate the call.
The next question will come from Colton Bean with Tudor, Pickering Holt.
Morning. I just want to kick it back over to Midland to Sealy. With the remaining 30,000 barrels or so of unhedged, uncontracted capacity, are you comfortable with that exposure, or would you also consider further hedging if the forward curve widens out again?
We always consider everything, Colton. Frankly, I'm not going to signal commercially what we're going to do.
Got it. Just in terms of Gulf Coast LPG, it looks like the industry moved nearly 1 million barrels a day out of docks in Q1. Pretty close to nameplate there. Can you just remind us of your optimization activity around the cold storage and what maybe a timeline would be to reach that 35% capacity increase?
You got a good memory. You must've been at the analyst conference, huh? We're working that right now. Bob's not here. I think we have a couple of three options that we're looking at. That's one of them. I think what we're going to find is we've got a pretty inexpensive expansion capability. It's just which one do we pick, and what you mentioned is one of them.
Okay. likely leaving the dock loading rates as is and just figuring out how to optimize to max those out.
We could increase the loading rates.
Understood. Okay. Just a final one. On the fee-based processing, looked like volumes were effectively flat quarter-over-quarter. Excuse me. You should have had a bit of a tailwind there from South Eddy. Can you just walk us through some of the moving pieces in the different regions?
Sorry, this is Brad. We see our Delaware Basin continuing to ramp up. There has been a little bit of a lag from our producers from what we've seen as far as our initial schedule, that volume is still showing up a little bit late.
In the Eagle Ford, volumes continue to grow, and same thing up in the Rockies and Pinedale regions. We're flat, and I think it just balances out. Some are a little bit later than normal, some are a little better than we anticipated.
Got it. All right. Thank you very much, guys.
The next question will come from Brian Zarri with Mizuho.
Good morning. On the subject of exports, it seems like crude exports exceeded NGL exports for the first time on your system. Is that trend continuing in April?
Yeah, this is Brent. April, the trend continues. We'll see what happens down the road. We had some cancellations in the first quarter, but it was more positive just around crude oil. Going forward, as the volumes on Midland to Sealy increase, obviously, our belief is that those will have to be exported. We just have to work on the next project to find more supply for crude oil.
Sticking in the Permian, any updates on a potential gas pipe project?
This is Brad again. We continue to evaluate it. I'll echo what Jim and Brian said. We're talking to producers, we're talking to potential partners. We're doing everything it takes to try to figure out if we're going to make this thing fly or not.
The last one from me, given the projects you're looking to add to your backlog. Is $3 billion still a reasonable estimate for CapEx next year?
Brian, as far as what we're looking at, yes.
Thanks, Brian.
The next question will come from Matthew Phillips with Guggenheim.
Morning, guys. Follow-up on the crude hedging program that you all initiated. The recovery there, would we expect to see that evenly spread kind of through the lifespan of that through 2019? How should we view that?
What are you referring to, Brent?
I don't know.
Daniel. What?
Daniel, you got that?
I do, Jim. This is Daniel Boss. If you look at the total recognized loss during the first quarter on that program, combine that with what was recognized through December of 2017, we expect about $118 million to reverse in the second through fourth quarter of 2018, an additional $40 million to reverse in 2019.
On the NGL conversion, once you have sufficient commercial interest, how long will that take from when you decide until when it's in service?
Less than a year.
Got it. Okay. That's all for me. Thank you.
The next question will come from Dennis Harwood with Raymond James.
Morning, guys. Jim, my first question, with a lot of the new crackers expected to start up, let's just say into May and even into June if they get pushed back a little bit, what's your in-house view on regional ethane netbacks? Is there the opportunity if we can soak up some of that rejected ethane, and ethane prices get up to about $0.30 a gallon by the middle of this year and maybe build from there hypothetically on pace to exit in that mid $0.30 range? Do you guys foresee some regional arbitrage opportunities happening, and what do you think that could mean from an opportunistic processing perspective for you?
Took you long enough to get on the phone, Dennis. Brent, you want to take a shot?
In terms of ethane prices, what you're seeing is some competition for the pipe. When you see some stranded barrels up in Conway, that leads to potentially some ethane that may not get in the pipe, which lessens supply. I think it's fairly well known that frack space is tight right now, and we haven't seen that for a while. I can create a bullish case for ethane. I don't think it's a long-term bullish case. I think it's probably more of a short-term bullish case. Once you see pipelines come online and frack space starting to lighten up as the fracks come online, then I think maybe things get back to normal. Certainly in the short term, there's going to be a fight for pipeline space.
Okay.
I think what he just said is, yes, we see arbitrage opportunities. Is that what you said, Brent? Yeah, I said it in more words, though.
Okay, I got it. Jim, just kind of a big picture, more hypothetical question. It seems like this trade war issue or tariff issue with the U.S. and China continues getting kicked around. Recently there's been more discussion talking about what that could do with regard to U.S. propane exports and any thoughts on possibly an issue with reneging on long-term binding contracts. If that happens, that could discount barrels to find other markets, and maybe the Chinese demand could be met by a bit up of Mid East barrels, possibly depressing U.S. product and leaving it stuck at the dock. How do you navigate all this mess? How do you think it plays out?
First of all, I get out of the fetal position in the corner of my office. I'm not worried about it, Dennis. First of all, there's been no tariffs imposed. We got one contract with a Chinese company, I think. If it happens, product flows adjust. There's a demand for LPG. It's not just China, it's Korea, it's India adjusting while all this stuff going. I don't worry that, okay
China won't import our propane. They're going to import somebody's propane, which is going to leave somebody else needing propane.
Yeah. Maybe the better way to think about it is the physical product will price to move.
Yes.
Okay. Finally for me, Bryan, just one quick housekeeping question. I guess we can do the math in reverse, but what's the aggregate value of the Midland to ECHO hedges? More importantly, what's the timing and magnitude as to when they get settled between now and the end of 2019?
I'm going to let Daniel answer that.
Dennis, the aggregate value is $156 million that we recognized through March. Like I mentioned before, if you look at that on the way it rolls off, about $118 million rolls off for the balance of this year, $38 million for 2019. That implies or that these valuations are as of March 31st. As spreads continued to widen in April, we continue to see additional losses that materialize. You might see additional losses in April and in the second quarter, but that would just lead to even larger reversals to the upside from that period and forward.
Okay, thanks.
The next question will come from Keith Stanley with Wolfe Research.
Hi, good morning. Just a quick one on PDH. Should we expect another material step up in Q2, or were you already getting most of the run rate contribution in Q1?
Yeah. You should see another step up in Q2 because really we were operating at around 60% of capacity for February and March, and now we're starting out the second quarter where we're approximately 84% in April.
Okay, great. Just a quick clarification as well. When we're discussing all these sort of mark-to-market impacts around the Midland-Sealy hedges, all of this is stripped out of EBITDA and DCF. It's not really impacting those headline numbers, right?
Keith, that is absolutely correct.
Great. Thank you.
The next question will come from Bart Blaskie with MUFG Securities.
Hey, guys. Just with the ramp up that we saw on petrochemical, I know a lot of this is PDH, but how much of it is just pure commodity sensitivity in that business line, and what else is going on that's pushing that?
You mean in our petrochemicals?
Yeah.
One of the things, every pound we produce off the PDH is a bridge pound we don't have to sell. Those bridge pounds were not great deals for us. Every time we produce a pound off of PDH, we sell a pound off the splitters at quite a bit more than we were selling it for. Is that it, Bryan?
Yes.
Yeah, that helps. Thank you.
The next question is from Vikram Bagri with Citigroup.
Hi. Good morning, guys. I have one more question on hedging. Can you talk about the extent of hedging on the basin pipeline and what the average hedge price is? Anything you can share on that front. We understand the hedging on midstream very well, but anything you can talk about on basin pipe hedges?
I won't talk in volumes, but we have hedged some basin pipeline space out.
Okay. Any hedge price or the average hedge price on that pipeline?
I can't understand him.
Did you ask if there was a fixed price on that?
Okay. Yeah.
It's done at various levels. I don't have the number right in front of me what the weighted average is, but it's obviously less than where the market is today.
Okay. The second question I had was on the Seaway Pipeline. Any update on adding DRAs on this end
He needs to pick his phone up and get off the speaker.
Seaway Pipeline hedges? DRA on Seaway.
DRAs on Seaway Pipeline system.
That's a monthly optimization exercise. We look at running DRA versus running horsepower. Sorry, Graham. It's just an optimization exercise.
I understand-
Can you pick your phone up? Being on speaker, we can't hear you.
We can't hear you very well. It's not clear.
I apologize. I'm in a conference room, I'm going to try to speak loudly. I understand that Seaway Pipeline system can be expanded by 100,000 barrels a day. That was my understanding from your Analyst Day. Is that still the case? Can you expand it by 100,000 barrels a day by adding DRAs?
We can do a little bit, but I don't know about where the 100,000 barrel a day number came from. This is Graham.
Yes. Maybe there was ships passing in the night because I don't remember us saying that we're expanding at 100,000 barrels a day.
Okay. I can follow up offline. Thank you very much.
The next question will come from Michael Blum with Wells Fargo.
Good morning, everyone. I just wanted to go back to your original comments on the ethylene margins and just make sure I understand. Your view is basically that it's a temporary issue and that globally there'll be enough demand to absorb all the derivative products as you have this big ramp up in supply in the Gulf Coast? Can you just go back over that?
I'm going to turn it over to Tony in a minute, Michael. Our fundamental, as we look forward, and I tell Tony all the time, "Hell, he's wrong, but his trend is right." What we see in ethylene derivatives and propylene derivatives over the next few years is a pretty strong growth in demand. Tony?
Yeah. I think to Jim's point earlier, for some reason, the industry has decided to focus on ethane to ethylene margins. That's not the end game and really not where the focus should be, because that's not where petrochemicals stop.
Now, if you're a merchant producer of ethylene, and I think there's two plants in this country that are totally merchant producers, you're probably sweating right now. If you're a Dow or an Exxon Chemical , you're looking at ethane to polyethylene margins of $0.50 a pound, Tony?
Yes.
Not bad.
Okay. That's helpful. Thank you. My second question is, I guess, just in light of some of the issues in the Northeast with NGL takeaway on the Mariner systems, have you seen any renewed interest in shippers looking to maybe rejuvenate that project and try to get an ATEX or another project to move NGLs straight down to the Gulf Coast?
I wish I could say yes, Michael, but I can't.
Okay. Thank you very much, guys.
The next question will come from Dennis Coleman with Bank of America Merrill Lynch.
Yeah, that's Dennis Coleman. Thanks, everyone. Just one quick question. Mine have mostly been hit. Bryan, could you tell us what was the DRIP in the employee purchases for the quarter?
For the first quarter, inclusive of the Duncan family's participation, it was $177 million.
Excluding, I guess, the Duncan participation.
Yep.
-is that a good run rate for the rest of the year?
It would appear so, yes.
Okay. I guess just sort of backing into how the strength of the retained earnings, not likely to need the public markets at all, even for an ATM this year?
Not at all. That's correct.
Got it.
Dennis, we haven't touched on the ATM since the first week of July in 2017.
Perfect. Okay. That's it for me. Thanks.
The next question is a follow-up from Christopher Sighinolfi with Jefferies.
Chris, you there?
Chris, your line is open.
I got it. Sorry. All my questions were answered. Sorry about that.
Okay. Thea, do you want to give our listeners the replay information for this call? I'd appreciate it.
Just a moment.
Yeah, that'd be
Ladies and gentlemen, today's conference call will be available for replay beginning today at approximately 12:00 P.M. Eastern Standard Time. If you would like to dial into the replay, that number is 855-859-2056 or 404-537-3406. Please enter conference ID number 6796419.
Thank you, Thea. Thank you, everyone, for joining us today for our conference call, and have a good day. Goodbye now.
Ladies and gentlemen, thank you for participating in today's conference call. You may now disconnect.