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Enterprise Products Partners LP
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Good morning and welcome to Enterprise Products Earnings Call. All lines have been placed on mute to prevent any background noise. [Operator Instructions]
It is now my pleasure to hand the conference over to Mr. Randy Burkhalter.
Thank you, Nicole. Good morning everyone, and welcome to the Enterprise Products Partners third 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 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 the call over to Jim.
Thank you, Randy. Before we jump into the third quarter, Randy Fowler and I wanted to take a step back in time. A lot of you may not realize but the third quarter 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 two 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 drives this performance and we're 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 robust supply growth and strong demand, both domestic and global, our businesses continued to perform exceptionally well in the third quarter. Gross operating margin, excluding non-cash mark-to-market, was $1.9 billion a $576 million increase versus third quarter 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 are working hard to make this kind of performance the norm.
Our results provided distributable cash flow of 1.6 billion, which provided 1.7 times coverage. Our DCF for the first nine months of 2018 was $4.4 billion providing 1.6 times coverage and $1.6 billion of repaying distributable cash flow. This kind of performance for the quarter and year-to-date puts us far ahead of our self funding goals we communicated in the fourth quarter of last year.
Moving to our operating results, increased volumes and margins across all our businesses led to 16 operational and financial records for the third quarter building on the 14th from last quarter. Our NGL and natural gas business segment reported seven operational records relative to volumes for our pipelines, marine terminals, fractionation and fee-based processing. And our crude oil and propylene businesses reported new record volumes. We also set nine new financial records in the third quarter, which was covered in our press release.
Total capital spending first the first nine months of this year was approximately $3.3 billion. We expect to spend 4.2 billion in 2018 and about 350 million 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 the recent memory.
We announced two additional projects this morning, a 150,000 barrel a day expansion of our NGL fractionation capacity of Mont Belvieu and our Mentone natural gas processing plant serving the Permian. Including these projects, we currently have over $6.6 billion of growth capital projects under construction and that are scheduled to be completed and generating new sources of cash between now and 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 a 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 million barrels of NGL storage and over 1 million barrels of fractionation that we have at Mont Belvieu and our pipeline connectivity bringing y-grade from the Eagle Ford, from the Permian, from the Rockies and the Midcontinent. We call that supply aggregation. The same is true with crude oil. A terminal success depends on what's behind that terminal.
Enterprise can aggregate 5 million barrels a day of crude oil today and that will grow to 8 million 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 Canada from the Permian and from the Eagle Ford, and our header system is tied to other third-party pipelines. Our terminal has connectivity to 300 million barrels of storage and access to almost 40 different grades of crude oil. An efficient market hub requires supply demand, and connectivity.
Enterprise's connectivity to its own and third party pipelines and storage gives it 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 arrangement for a second PDH, and frankly it's not out of the question that we could build two as negotiations are underway with several petrochemical companies. Again couple our feedstock position lead 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 add significant long-term global GDP upside to Enterprise.
Last but not least, one should 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 are not luck. Our highly integrated systems across the entire value chain from producing regions to end users now with emphasis on growing international demand give us tremendous operating leverage across our businesses plus the long-term growth opportunities in virtually all environment.
I believe the last few years have proven that when the industry goes through a slump, our investors can take comfort that our integrated asset model and our dedicated employees are going to provide superior coverage that 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. of oil gas, NGLs and petrochemicals. Next you own the most integrated demand system in the U.S. And finally, when you own Enterprise, it is our goal that you will own the best liquids hydrocarbon export system in the U.S.
And 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 third quarter of 2018 was $1.3 billion or $0.60 per unit on a fully diluted basis. This compares to $611 million or $0.28 per unit on a fully diluted basis for the same quarter in 2017.
We recognized a total of 204 million or $0.09 per unit in non-cash mark-to-market gains during the third quarter of 2018, primarily to Midland to Houston basis hedges on crude oil. Adjusted earnings per unit of $0.51 per unit for the third quarter of this year is 76% increase compared to the same adjusted number for the third quarter last year.
Distributable cash flow per unit, excluding nonrecurring items for the third quarter of 2018 increased 45% to $0.71, compared to the third quarter of last year. And as Jim mentioned, we retained $632 million in excess distributable cash flow in the quarter and had distribution coverage of 1.7 times.
To put in context, our strength to generate distributable cash flow per unit in the current business environment for the first nine months of 2018, our distributable cash flow per unit, excluding non-recurring items was $2 per unit. This compares to our record DCF per unit of $2.06 for all of 2014. Through the first nine months of 2018, we are about 30% ahead of 2014 record pace.
Moving to capitalization in our balance sheet, at September 30, our total debt principal was $26 billion, 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% and 89% of our debt portfolio was fixed as of September 30th.
On October 3rd, we priced an aggregate $3 billion of senior unsecured notes comprised of 1.25 billion of 30 year notes at a 4.8% coupon, $1 billion of 10 year notes at 4.15% and 750 million of three year notes at 3.5%. Based on our debt maturities in 2019 and our current estimate of at least $3.5 billion in growth CapEx in 2019, coupled with strong support from our fixed income investors, we elected to upsize the offering to $3 billion.
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 6.9 billion, 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 3.3 billion 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 $6.5 billion.
Moving on to equity issuances, during the third quarter are only proceeds were from the distribution reinvestment program and employee unit purchase program for approximately $188 million, which included 106 million 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 zero effectively the distribution expected to be paid in February 2019.
And will that, Randy, I think we can open it up for questions.
Okay, Nicole, we are ready to take questions from participants.
[Operator Instructions] Your first question comes from the line of Jeremy Tonet with JP Morgan.
Congratulations on the quarter. Just want to touch on the fractionation market and it seems like industry reports a point to that being extremely tight right now, and a lot of logistical challenges as far as more NGL hitting Belvieu then there's frac space and that causing issues with storage and then also the [indiscernible] 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’s the duration of that tightness? And how does that impact Enterprise?
Jeremy, I think you've just nailed it. I think 2019 is at the rate things are going right now is going to be very tight. Our pipeline capacity is tight right now. That gets relieved whenever frankly Chinook comes on. But fractionation, we think will be tight through 2019. Our position is we have not -- we are 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 like to tie those opportunities to longer term deals.
That makes sense. That kind of goes into my next question with Chinook there and I just want to touch on progress and thoughts I guess is when Chinook comes online, as far as converting some of the other NGL pipes that you might have excess capacity into crude oil service given good need for that type incremental crude oil takeaway out of Permian today.
Well, you've 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 a pipeline, but the earliest that would be would be when Chinook comes on and that’s not till the second quarter next year.
So a conversion middle of next year for the NGL into crude pipes. Is that possible or how much of a lag time might 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 when Chinook comes on. Jeremy, you can ask the question again, you are going to get the same answer.
Last one from me, I mean, you guys have been on DRIP. You're decreasing -- the discount is zero, but based on numbers we see, it seems like it might make sense to go the other way and repurchase unit. Under what conditions would it make sense for Enterprise to start buying back units, granted you guys have 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?
Jeremy, for one, when we sort of [went] [ph] was the equity self-funding goal at the time we were talking about $2.5 billion to $3 billion in growth CapEx. Now, we’re running call it between $3.5 billion and $4 billion a year 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 the midstream space, doesn’t matter if you are C-Corp or an MLP I think this is -- we’re at a time or we’re in a season where you need to make sure you got financial strength and financial flexibilities. I don’t see a buyback in the near term.
Your next question comes from Shneur Gershuni with UBS.
Just a couple of philosophical questions. First, touching on the NGL market, as you responded just a few minutes ago that 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 said 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 probably are better off leveraging the opportunity into longer-term deals rather than trying to manage for the last pennies. Does that make sense, Shneur?
Absolutely, I was just wondering if when you converted into longer-term deals is it better than longer-term deals that you’ve signed previously.
Yes.
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 moderated distribution growth in 2017, you talked about reevaluating it in 2019. Do you have any sense on where you think Enterprise's sustainable growth rate is now giving kind of the performance that you have this year and the visibility of the growth outlook that you have going forward?
Yes, Shneur, seems like it goes higher every week. Right now, we're in the middle of our 2019 planning process and 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 I think puts us at about 3.5 billion of growth CapEx next year, that could grow and grow by a sizeable amount. So I think we need to continue to monitor that. And what we have said is, we would come in and provide guidance on 2019 distribution when we report fourth quarter earnings. And I think as dynamic as things are right now, we'll adhere to that.
One of the things, as you look forward where we can grow as a change, we can grow in more areas and that PDH plan we built was a huge step down into the primary petrochemicals as it was iBDH. So, we're not just building pipelines anymore or processing plants or fractionators, we're building primary petrochemical plants, which give us even more opportunity.
Completely recognizing that, I'm just -- when I do to the back of the envelope math in terms of your retained distributable cash flow, it seems like you can easily self-fund the 6 billion of your 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 billion, but…
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 of that is 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 are we at a point with almost 60 billion 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, Shneur, I mean that's something that we continue to evaluate. As we come in and look at valuation, I don't necessarily think its MLP valuation specific. I think it's broader than that and 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 midstream will get our share of that capital, but if we come out and look at those guys that have converted to C-Corp, and we look at the valuation of the large diversified MLPs although there are not very many of us. The valuations are on top of one another when you come in and you look at the peer group. So, I don't know if checking the box necessarily results in our valuation.
The next question comes from the line of Jean Ann Salisbury with Bernstein.
Have you kind of material uptick and request from external parties to sort of wide grade? And if so, does that affect the external parties or where you can kind of charge up so what the market is willing to pay? Or is it a fixed where you can certainly move that around?
Jean, this is Brent Secrest. There’s definitely more interest in storing wide grade. I think there’s some interest and obviously fractionating that wide grade so ultimately, it depends on the structure of the contract. In some cases we’re store wide grade. In some cases, it’s a much larger field of fractionate. But overall, there’s definitely demand for storing wide grade.
And the storage for wide grade that feed can kind of move around based on how much demand there is for it?
That’s right.
And I was just wondering on, how many fracs do you have based to build in Mont Belvieu? How should we think about that limitation, if there is one?
We’ve got more space that I hope we build fracs. I joke sometime with Randy ducking and at the rate we’re going, we’re going to have them built all the way to Dayton, Texas. But we got -- what we've got left Randy? 1,500 acres, 1,300 acres out there?
Yes, we’ve got about 1,300 acres.
Yes, we got about -- and how many acres does the frac take up?
Probably on [indiscernible]
Okay, call it 15 acres, Jean Ann, and do the math.
And then just one last one kind of building on the 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’ll convert the NGL line and it seems like you might need as a NGL crudes in?
With Chinook's 5,050 barrels a day, and Tony, can we expand that beyond or still -- is that a 500 or 550?
Yes, 550 is max.
So, I think we’ve ample wide grade space.
Your next question comes from the line of Tom Abrams with Morgan Stanley.
Yes, I’ll follow up on that NGL the crude line conversion as well. You’re setting yourself up to do that simply next year. Would it be a fairly rapid conversion? Or would it take nine months it to do?
You’ll say the same. It won’t come up Tom before Chinook comes up.
Well, once it does, once Chinook comes up. Is it an almost an instant conversion or is there some work that needs to be done?
It’s going to come up -- it would come up at as early as when Chinook comes up.
And then on the NGL side, there’s just a lot of volatility in ethane prices in the basins on some import export differentials currently Belvieu differentials against the business I guess if you welcome to third quarter to fourth. Is that a potential headwind of any magnitude quarter-to-quarter?
It's hard to say. I am not convinced it is because our pipelines have been on target allocation for -- throughout the third quarter, so which probably created some of those spreads.
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 that I guess ourselves and the margins have been split they've been electing full recoveries.
So continuously, the market would give you less but your contracts your equity live who'll give you more. That's one way to think about it perhaps.
Yes.
And on the taxpayer question or I'm sorry C-Corp question. When you do that math and look over again and again and again, when do you think if you do go C-Corp you would be a tax payer?
A little bit it depends on how you wind up becoming a taxpayer and checking, the box C-Corp conversion, step up I don’t foresee us come in the end and doing any type of step up, that's would not be in our plans because of the tax liability that would call us to limited partners out of the gate. I mean were profitable where we are as Tom somehow we gets that I mean they do bonus depreciation, do you come in and take tax depreciation overtime. There are a number of things that you can do to come in manage that tax liabilities. So hard to commit right now, what we might do, if our taxable is a C-Corp when were still in MLP.
I understand I am 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 its 5 years or 10 years down the road that has to be whether doing this math?
Very much, again that's what you come back in with what Congress did in enacting bonus depreciation with where you're growth CapEx is and acquisitions for that matter. That can -- I mean you can, again depending on what's your growth profile is, you can keep your income taxes negligible for quite a while just to begin on what your growth rate it 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 start the clock on that call it 18 month permitting process?
This is Graham Bacon. I think we have a project to find at this point well enough that we're proceeding with the permitting process, and we have all the -- we have all the blocks in place to proceed. We're just finalizing the package at this time.
Nicole, before we go to the next one. Just remind our participants, if we could keep our questions to one question and one follow-up, please I would really -- the way we can get some more questions that really would be great. Thank you.
Your next question comes from the line of Christine Cho with Barclays.
I just wanted to start with a line you had in your release. You guys said that your equity NGL production 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're putting you're equity NGLs into storage?
I think what we were talking about as if there was the trigger since what have you. Well, we are pulling levers to accommodate some of our customers, and some of the levers that we’re pulling is reduces our equity NGLs in order to create pipeline and frac 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 NGL?
Yes, that’s the point. I think it’s some of each.
And then, I hate to beat the dead horse but around another question for the C-Corp. How do you think about the up fee structure versus going full C-Corp? There'd be differences in corporate governance, board make up, but you can’t go into big and to see this as an up fees. So curious is to your thinking there?
Yes, Christine, we had our day in the sun when we had four different equity securities trading at one time, and I think we like simple is better. So coming in and having two equity securities outstanding does not have a lot of appeal to it.
But you could still have an up fee and do one security you know?
But I mean again if one of the goals of the up fees is to get access to capital markets through the up seize and you're looking at two probably traded securities.
Your next question comes from the line of T.J. Schultz with RBC Capital Markets.
Just a 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.
I guess for the second question. If you can just touch on the Eagle Ford, we’ve seen some ownership changes there. You had pointed I think at the Analyst Day, the 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 two pipes. So, in that case, what would drive more volumes to ECHO as opposed to Corpus across your systems?
We would drive more volumes to ECHO rather than Corpus. Corpus is a destination. Houston is a market, has 4.5 million barrels a day of refining, 300 million barrels of storage and access to water. Corpus will work until it doesn't work. Brent?
Yes, absolutely, that's been our position from the beginning.
It is not different than NGLs. Producers typically want to go to the biggest sponge.
And if we see more activity in the Eagle Ford, what’s kind of your opening capacity you have on that system?
A lot.
Yes, we got plenty. The Eagle Ford, thank god for demand at least.
Your next question comes from the line of Colton Bean with Tudor, Pickering, Holt & Co.
Jim, you mentioned the ongoing conversations with all figures there for the crude exports terminal. Any additional color you could offer on that? And then just as you have been working through the feed study, you guys have been able to refine kind of a general construction timeline. I think permitting process was highlighted 18 to 24 months, but just thinking post permitting. What the actual construction timeline might look like?
The color I can give you on the discussion is that. Bob Sanders, Brent Secrest and I've spent 11 days in Asia recently. And the fact I would spend 11 days with Brent Secrest in Asia that's something about how serious we are. To the permitting, I thought it was one year, Graham.
Correct.
And then the timeline after that I mean there shouldn’t rocket science.
Some of we're still defining out, we're still defining that timeline.
Yes, I think, Graham said, we're still defining that timeline, DJ.
And just on the frac 11 announcement, so it's ready to come on just behind fraced in 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 Chinook, another is our, the deal we recently did that we announced that at Alpine High that really starts ramping up in that timeline. So, I think those are two are biggies.
Yes, the plant we announced this morning.
Yes, Mentone.
Yes, hitting on more specifically on the engineering and construction side in terms of to anything that you guys have already secured maybe long lead time items that factored into that.
The timeline on the construction of frac 11, obviously, we've already done some long lead time equipment kind of purchase.
Yes, we've got, the lead items are defined all the engineering is on complete on the long lead items and it’s in the purchasing queue and we look forward.
If you think about it as and wouldn’t that long ago, we have three trains out there so we built the 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, pretty well defined, and the shop spaces -- the shop space is high, but we've got a placement -- we've got our placement line.
Your next question comes from the line of Tristan Richardson with SunTrust.
You talked about strategic projects out there and positioning yourself for expansion and extension out of the Permian. Curious to the potential ramp here on Chinook with an additional 40 a day potential on Mentone and all those three and Alpine High is the 550 a day adequate enough initially to handle this supply growth you're guys are seeing and potential for expansion there.
I think it's for the ramp we see. I hope it's not.
Your next question comes from the line of Matthew Phillips with Guggenheim.
Another export related question. The recent NGL announcements on the Ship Channel, I mean do you see that as sufficient for the runway all our building out in terms of inbound NGLs, Chinook etcetera and frac capacity of Belvieu? Or is this a precursor to needing more capacity 3 or 4 year sense?
I think it's the latter I think this expansion was relatively cheap and pretty good bank for the dollar. If we look forward at some of Tony Chovanec’s work with our Fundamental’s group, we have ways to further expand and we probably will.
Contingent upon that I mean, are you expecting can move some of the crude export volumes flowing through that hub offshore and that frees up space? And if for whatever reason the SPM project is pushed out I mean, does that change how you view the Ship Channel site?
First and foremost yes, if we -- as we build the offshore port we will backfill that capacity with more LPG exports 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 the crude, I am sorry. NGL is going to bell in the Ship Channel. But my point to you was, we can move crude to other ports to accommodate NGLs.
Your next question comes from the line of Spiro Dounis with Credit Suisse.
Jim, just wanted to go back on the comment you made earlier just around as being one of the strongest markets, you’ve seen in a while. So, I guess the question is from an M&A perspective. What does this mean, does the math starts to really work as you can increasingly positive outlook come out of you guys just against the price equity values across space?
Are you asking if we’re looking at M&A?
Yes.
Yes, I guess we constantly look at it, but we found that building organic growth gives us better returns than an M&A would. So it’s much more accretive to build.
And then you also mentioned heading over to Asia just in the context of crude exports. Curious if on the back of the trade tensions and Chinese kind of already curtailing crude exports out of U.S., do you see risk on their 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.
Your next question comes from the line of Keith Stanley with Wolfe Research.
Can you give an update on the status of the 100,000 barrel a day Seaway expansion and just a level customer demand to maybe give a larger expansion at Seaway if that's something you're actively working on still?
This is [Jade Amy]. The DRA expansion was mechanically complete earlier this month in October. We continue to work with our connected carrier to basically test out that, increased rates on the discharge of the terminals and basically see what capacity is available through the DRA expansion. Now 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 talk about in the horsepower would just be on the existing pipe.
Second question just on NGL marketing at a high level, how repeatable do you think the Q3 results they were quite strong? How repeatable are they for the next few quarters, if market conditions they tied on NGL pipelines and fractionation?
I think we are 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.
Randy, clearly you've outlined that you're not in favor of doing buybacks right now, but how you think about the dividend growth in the 2019?
Danilo, I think where we are again to come in we're in a great place business environment while as to come in and see good places to deploy capital from a growth CapEx standpoint. We are -- Jim earlier talked about it, we're on track to have 20 consecutive years of distribution growth. Probably, this time next year, we will be talking about 21 consecutive years of distribution growth.
But as far as I think we want to really stick with our timeline as far as coming in and what level of distribution growth that we see and 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 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 of what were going to do on organic growth CapEx when we have good project. So right now, it's still more to come and we need to complete our planning process, but I mean organizationally business wise were in a great place.
As a follow-up on the equity NGLs volumes, should we expect to continue to have lowered volume like you did this quarter until Chinook comes online? How should we think about that?
I think about it in terms of fractionation more than once Chinook comes online. And lower equity volume does not mean lower margins. We're pulling triggers that give us higher margins than those equity volumes.
Understood.
Whatever we are replacing those equity volumes where you can bet -- we're making more money than we are taking out of our pocket on those equity volumes.
Okay, so the volume should improve and once you -- one of your fracs come online at Belvieu?
Just wanted to hear you, I'm sorry.
So, I asked that the volume should improve most one of your frac facilities, new frac facilities come online at Belvieu?
You are right.
This is Tony. I just want to add some because this is equity volume thing just coming up. At the end of the day, liquids production in United States continues to grow to beat everyone's expectations. So that's the reality and it's not a region for us to slowdown at this point. So, those barrels go somewhere and they keep coming.
And Danilo, if we choose to lower those equity volumes, you'd see to replace with the customers volumes. If you know, our system has 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 from Goldman Sachs.
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 at Mont Belvieu?
It comes and goes, really, and sometimes it's dedication and sometimes it’s demand phase, and both have their positives, so it’s kind of we take the forest gump approach, they want vanilla, we're going to sell them vanilla. They want strawberry. We will sell them the strawberry. We're seeing a little more demand fee request.
Can you talk about length of contracts that you just gave great detail or kind of type of contracts, but I mean average contract in 5 to 7 year range are much significantly longer than that?
We like 10 year deals. If it’s a 5 year deal, it’s a different fee then if it’s a 10 year deal, but we like 10 year deals.
Your next question comes from the line of Becca Followill with U.S. Capital Advisors.
It seems like the pipes and fracs are chockfull. Can you talk about where you’ve remaining operating leverage on volume besides the Eagle Ford?
That’s pretty much it, Becca.
Finally, and your final question comes from the line of Sunil Sibal with Seaport Global.
My question was related to your crude segment, the 200 million mark-to-market loss that you had in the press release. I was wondering, if you could talk about duration of your remaining basis hedges on crude? I mean, how much time those basis hedges run through?
If you look at kind of like to-date earnings from mark-to-market on these hedges including the 204 million gain this quarter, it’s about 309 million that’s what’s outstanding, and we expect to get about a 167 million of that back in the fourth quarter. And in 2019, we should get 137; and then in 2020, 5 million. 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.
And then on the crude segment volume seems like, there was a bit of decline sequentially both on the medium terminal volumes as well as the pipeline volumes. I was wondering, was there any kind of trend which determined that?
I think on the crude tumbling volumes, there’s a period where the Chinese stepped out of the market in August. And I think there were some barrels at stayed here before vessels got repositioned then you saw kind of a big uptick in September that start to come back.
And that reflected in the pipelines also I guess?
Yes, I would say there is -- the [ORB] wasn’t as wide open on Seaway as it is right now, and I’d say Eagle Ford quarter-over-quarter stayed flat.
Bulk of it was Seaway.
Yes, Seaway, it was a period, couple of months and they were -- the tariff wasn't justified versus the Europe.
Nicole, if you were to 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 9969565. Again the conference id number for this replay is 9969565. The dial-in numbers for the replay are 885-859-2056 or 404-537-3406. Thanks for participating in today's call. You may now disconnect.