Apr 27, 2010
Executives
Randy Burkholter – VP, IR Mike Creel – President and CEO Jim Teague – EVP and Chief Commercial Officer Randall Fowler – EVP and CFO Mark Hurley - EVP Chris Skoog – SVP
Analysts
Brian Zarahn – Barclays Capital Steven Moresco – Morgan Stanley Darren Horowitz – Raymond James Ted Durbin – Goldman Sachs Ross Payne – Wells Fargo Yves Siegel – Credit Suisse Michael Blum – Wells Fargo John Edwards – Morgan Keegan Mark Easterbrook – RBC Capital
Operator
Welcome to the Enterprise Products Partners First Quarter Earnings Conference call. At this time all participants are in a listen-only mode.
After the speakers’ remarks, there will be a question and answer session. (Operator Instructions) As a reminder today’s call is being recorded and if you have any objection you may disconnect at this time.
I would now like to introduce, Mr. Randy Burkholter, Vice President of Investor Relations.
You may begin.
Randy Burkholter
Thank you (Tina). Good morning and welcome to the Enterprise Products Partners conference call to discuss first quarter earnings.
Our speakers today will be Mike Creel, President and CEO of Enterprise’s general partner; followed by Jim Teague, Executive Vice President and Chief Commercial Officer; then Randy Fowler, our Executive Vice President and Chief Financial Officer of the general partner will wrap it up. Also in attendance for the call today are other members of our senior management team to assist in Q&A.
Afterwards, we will open the call up for your questions. During this call, we will make forward-looking statements within the meaning of section 21-E 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.
Although management believes that the expectations reflected in such forward-looking statements are reasonable, they 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 Mike.
Michael Creel
Thanks Randy. We got off to a great start in the first quarter this year with record distributable cash flow supported by all time high volumes for natural gas transportation, equity NGL production and Propylene Fractionation.
We also had increased NGL, crude oil and petrochemical transportation volumes and higher NGL fractionation volumes. This strong performance resulted in 11% year-over-year increase in gross operating margin for the quarter.
The advantages of our large geographical foot print and diverse portfolio of integrated businesses continues to benefit our investors. Based on our continued strong performance, we recently announced the 23rd consecutive increase in our quarterly cash distribution rate, increasing at 5.6% to fifty six and three quarter cents per unit or $2.27 per unit on an annualized basis.
Enterprise generated $580 million of distributable cash flow, our third consecutive quarterly record. This provided 1.4 times coverage of the distribution declared with the respect to the quarter.
One of our important financial goals is to retail a portion of our distributable cash flow for investment and growth capital projects to reduce debt and to decrease the need issue additional equity. In this quarter we retained a $156 million or 27% of the distributable cash flow we generated.
Since our IPO in 1998, we’ve retained approximately 16% or $1.3 billion of distributable cash flow. As I mentioned earlier, gross operating margin increased 11% or $81 million to $795 million this quarter.
The largest increase was from our NGL pipelines and services segment with $437 million of gross operating margin up 25% from the first quarter of last year. This segment is benefited from record equity NLG production and higher gas processing margins primarily from our Rocky Mountain processing plants.
We also had increased NGL pipeline and fractionation volumes and profits from Ford NGL sales transaction has settled in the quarter. Fundamentals continued to be strong for this segment.
NGL inventories are low particularly ethane and demand continues to be high result against strong natural gas processing margins and Jim will talk about this more in a little bit. Gross operating margin from our onshore crude oil pipelines in services segment was $27 million for the quarter compared to $50 million for the first quarter of 2009, primarily due to lower sales margins from our crude oil marketing activities.
Gross operating margin for the onshore natural gas pipelines and services segment decreased $32 million from the first quarter of 2009 primarily due to our natural gas marketing business which reported a loss of $9 million for the quarter, compared to a record profit of $34 million for the first quarter of last year. This decrease was due to lower unit margins and higher transportation and storage expenses.
The delay into the completion of the Trinity River basin lateral pipeline is resulting in the loss of approximately $3 million per month of the gas marketing business due to charges being incurred for transportation capacity on a downstream pipeline in anticipation of natural gas volumes originating on the Trinity River basin lateral pipeline. Partially offsetting this decline was the San Juan Gathering System which reported a $7 million increase in gross operating margin attributable to higher fees from contract index to gas prices as well as increase sites sales.
We also had a higher gross operating margin from our Piceance Gathering System due to the (Colderin) Valley System that began service in the fourth quarter of 2009, the Exxon treating facility which began service in March of last year and our Acadian and Texas Intrastate pipeline systems. Our Texas Intrastate system benefited from the Sherman Extension being in service for a full quarter partially offset by lower pipelines volumes.
Gross operating margin for the Offshore Pipelines and Services segment increased by $20 million or 33%. This included $9 million of insurance recoveries and a $20 million increase in gross operating margin from our crude oil pipelines.
This improvement by our offshore crude oil pipelines was primarily attributable to the Shenzi pipeline which began operations in April of 2009 and the restoration service by other crude oil pipelines that were either out of service or in partial service during the first quarter of last year. Total offshore crude oil pipeline volumes were 354,000 barrels per day compared to a 126,000 barrels per day in the first quarter of 2009.
Partially offsetting these increases in gross operating margin was $9 million in decrease in gross operating margin from the independence Hub platform and pipeline. Natural gas volumes in the independent system decreased to 717 billion BCU’s per day this quarter from 922 billion BCU’s per day in the first quarter of last year primarily due to platform downtime for construction of a debt extension, and other maintenance work.
The re-completion of the Mondo well this month and depletion of reserves. Gas flow has increased from the Mondo well due to the re-completion and producers expect an additional well will be re-completed and another well added by the end of the year.
They also expect two additional wells to be connected in 2011. The petrochemical and refined product services segment recorded a $30 million or 33% increase in gross operating margin for the quarter.
Our propylene fractional, octane enhancement new refine products pipeline businesses were responsible for most of this improvement. Propylene fractionation volumes increased 16% to 80,000 barrels per day reflecting increased demand for polymer-grade propylene, our butane isomerization also had a strong quarter.
Now before I turn the call over to Jim, I’d like to add that we’re still on track to complete our previously announced acquisition of gathering assets from into midstream next week and I would also like to emphasize the continued efforts of our employees and management team in optimizing our existing assets while also finding new opportunities for growth and value creation for our investors. And with that I’d like to turn the call over to Jim.
Jim Teague
Thank you Mike. Because the petrochemical industry is such an important component of the demand for our natural gas liquids, I’d like to begin with an update on the petrochemical industry as we see it.
We continue to believe that to believe the change and the price relationships of natural gas and related NGLs to crude oil, and crude oil derivatives such as naphtha had led to a structural change in the petrochemical industry. As we said in the last quarter’s call, this is due to a number of factors which I won't repeat except to side, US ethylene producers are enjoying a competitive advantage over many other international peers given the more profitable natural gas feed stocks.
International ethylene crackers have also reacted to the LPG feedstock cost advantage by importing more LPG to feed their traditional naphtha crackers. Our export terminal consequently our export terminal on the eastern ship channel continues to be full and propane exports are expected to remain robust at least through the middle of the year.
Because of the significant margins for (inaudible), integrated polymers producers saw very healthy margins over the first quarter, while non-integrated producers margins were lower and were still positive. As was expected first quarter exports for polymers were down due to competition from new production assets overseas such as the Middle East, exports of polymers in the first quarter still represented across the 20% of demand.
We still believe that downstream derivatives will be able to compete on a global basis. We’re not the only ones that thing that the US has comparative.
This month Shintech a large PVC producer announced that they will go ahead with the project to expand its (vinyl) production capacity in Louisiana. That expansion is estimated to increase total vinyl’s capacity by about 900,000 metric tons by the end of 2011 representing an appetite for over 900 million pounds of ethylene.
If that ethylene will produced from ethane that is equivalent to close to a 30,000 barrels a day of incremental ethane. We are seeing US ethylene producers continue to modify their furnaces to crack more NGL feedstocks and take advantage of its cost benefits versus crude oil derivatives.
We work closely with a number of customers to provide them with incremental supplies of ethane and propane and related logistical services, we estimate that ethylene producers in the process of adding more capacity to crack ethane and propane in the US. We expect NGL consumption at US crackers to continue to increase in the future as NGLs primarily ethane remain the most competitive feedstock.
Ethylene supplies are tight due to the planned and unplanned outages over the last couple of months with ethylene prices increasing to over $0.70 per pound at the end of the first quarter. US ethylene operating rights were approximately 88% the capacity the first quarter producing an average of – an annualizing average of the 51 billion pound of ethylene which equals the average for the last five years.
Industry consultants estimate that in April crackers will operate at 86% of capacity producing some annualized 50 billion pounds of ethylene. We said in the past and history proves when operating at this high level they have to rely on inventory draws for light end feedstock which is good for us.
During the first quarter, demand for ethane, from ethylene crackers were approximately 877,000 barrels a day. That’s not higher than in the fourth quarter of 2009, it’s the highest in over 10 years.
During the first quarter over 80% of total feedstocks used by US crackers were line in versus the heavier crude feedstocks such as naphtha and gas oil. We estimate there is a shortfall between current NGL production capability and potential cracker demand.
We did see some anomalies in cracker economics in ethylene prices during the quarter. Plant outages tightened the ethylene market sending spot prices to over $0.70 per pound at the end of the quarter.
The higher prices impacted the ethylene business with the average cracker margins across the industry at $0.30 per pound. This is per CMAI.
That compares to margins that averaged in the low single digits in the fourth quarter. The strong margins provided incentive to cracker operators to run plants as hard as they could and even some delays of plant maintenance to take advantage of the margins.
Moving to our fractionation business. We’re increasing our fractionation capacity, expanding our NGL, our natural gas pipeline and processing infrastructure and growing our NGL distribution networks and anticipation of continued growth in both supply and demand for NGLs.
NGL Fractionation capacity remains tight. Our fractionators at Mont Belvieu and Hobbs continue to run at capacity and overflow volumes have gone to our Louisiana fractionators since mid 2008.
Construction of our new 75,000 barrel a day NGL fractionator at Mont Belvieu is progressing on schedule to go into service the first of 2011 and we expect it to be full on day one. Additional capacity maybe needed and we are evaluating that to accommodate incremental volumes from expected production growth out of the Eagle Ford Shale play in South Texas.
Total Eagle Ford production feeding our system today exceeds 150 million cubic foot a day. By comparison this was relatively non-existent at this time last year.
This is helping to offset declines we are experiencing from conventional production in South Texas. We’ve seen both the rig count and production increase by over 50% from the fourth quarter of 2009, which has also led to higher mixed NGLs feeding into our South Texas fractionators.
Fractionation fees at Mont Belvieu have increased significantly since pre 2005 when contracts were done between $0.01 and $0.015 per gallon. Today fees are in excess of $0.05 a gallon and unlike in the past they include throughput commitments in the form of minimum take clauses for new contracts and contracts renewals.
Moving to our NGL pipelines and processing, as Mike mentioned earlier, our NGL business performed well this quarter with higher NGL transportation volumes and record equity NGL production compared to the first quarter of 2009. Throughput volumes were higher on the majority of our pipelines driven by strong demand for NGLs.
As a matter of fact capacity is so tight that we’re putting shippers on allocation on some of our systems. The Mid-America pipeline, Rocky Mountain and Seminole Systems continue to run at capacity with Mid-America dedicated processing plants operating at full rates.
Our Rockies business performs surprisingly well this quarter. Despite the lack of a significant uptick in drilling, greater efficiencies were current drilling rigs and a backlog of completed wells that we have connected our pipeline system led to an increase in (endless) volumes into our Meeker complex which for the quarter were 1.3 Bcf a day, that’s up 20% of the fourth quarter of 2009.
Total volumes gathered on our Jonah and Pinedale System in Wyoming have remained steady and our Pioneer (cryo) remains full at 750 million a day. At full operating plants Meeker and Pioneer combine to generate almost 100,000 barrels a day of mixed NGLs that feed into our value chain.
We think there is still packages of gas in acreage to be captured in both Wyoming and in Colorado we will pursue these opportunities to maintain a solid base load for these plants and to establish a firm platform for growth. The Gulf Coast Gathering and Processing business exceeding our expectations this quarter, due to increase in South Texas production, this is driven by incremental volumes from Eagle Ford Shale.
On our Dixie pipeline we increased our loading fees at all of our terminals effective January 1. The increased loading fees and a cold winter versus last year drove revenue up by approximately $5 million.
We also completed the expansion of our storage at Apex, North Carolina which will allow us to supply an additional 800,000 barrels of propane annually to the Southeast market. Also, the LPG terminals on the TE products mainline were removed from the regulated tariff at the end of the quarter and those terminals are now part of our unregulated NGL pipeline and storage business.
We receive a lot of questions on our hedging program, and as I said in the last quarter’s call, we were patient when it came to hedging our NGL production waiting for the right opportunities. Currently, we are 53% hedged on our equity production for the remainder go-forward of 2010.
Approximately 57% of our Rockies keep-hole production in 2010 has been hedged at a gross margin of around $0.61 per gallon. We are approaching those levels that we enjoyed in mid 2008.
Approximately 42% of our percent of liquids production has been hedged at attractive prices. We continue to have patience, we are looking for opportunities to put on additional hedges, we are waiting for the market to come to us.
And natural gas as Mike mentioned earlier, we had record gas transportation volumes this quarter supported by higher throughput on our Acadian system, our Piceance gathering pipeline with White River Hub and our (inaudible) system in South Texas. Volumes decreased on our Texas intrastate system due to continued declines in traditional South Texas production and lower West-to-East spreads.
The good news is production is up over 75 million cubic foot a day since the beginning of the year due to new Eagle Ford production coming on line. We also began collecting demand fees from the Sherman extension in August of last year and we are looking forward to the Trinity River lateral coming on in late second quarter, early third quarter.
Spreads from West-to-East Texas have come in significantly from $0.29 cents in 2009 to $0.07 cents this year. As a result of the high spreads during 2009 and a warm winter, it led to low firm transportation volumes.
Consequently we have pushed a lot of secondary firm volumes across the pipe. The colder than normal winter this year led to higher utilization rates by firm shippers leaving less room for secondary firm or IT volumes to flow.
Gross operating margin from our gas marketing group was down this quarter as Mike told you compared to first quarter 2009 due primarily to two reasons, lower basis differentials and higher transportation expenses from capacity leased on Gulf Crossing Pipeline and the Northern Border Pipeline which started after the first quarter of last year. Our Haynesville, Acadian extension pipeline continues to gain support in the market and we are close to having signed up the first phase 1.8 Bcf a day of firm capacity.
A recently announced acquisition of assets from M2 Midstream in the Haynesville is expected to enhance our opportunities for future development and expansions in that shale play such that the Haynesville extension ultimately reaches its full 2.1 Bcf up a day of capacity. Turning to the Eagle Ford, rig count has expanded to over 50 rigs operating at the end of the first quarter from just 10 rigs in the first quarter of last year.
We expect the rig count will continue to increase driven by the richness of the gas in the Eagle Ford. We are continuing active negotiations with every producer in the Eagle Ford.
In 2009 and this year combined, we expect to spend more than $200 million to serve the gas gathering processing and NGL needs of Eagle Ford producers and in order to fill our existing plants. Currently we have over 400,000 acres dedicated to us.
This capital program in 2009 and 2010 will support a more comprehensive solution to growing Eagle Ford production. Before I turn the call over to Randy, I want to spend just a moment to discuss our propylene business which reported strong results this quarter, and we are almost doubled what we reported in the first quarter of 2009.
Propylene prices increased 27% in the first quarter of 2010 as a result of lower cracker sourced propylene and improved product demand. The increased supply of refiner grade propylene feedstock and strong propylene demand resulted in a growth in sales and processing volumes of close to 200 million pounds compared to the first quarter of 2009.
With that, I will turn it over to Randy Fowler.
Randy Fowler
Thanks Jim. I would like to briefly discuss some income items that are below the operating income of a section of the income statement liquidity and also some capitalization items.
In terms of G&A, G&A expense for the first quarter 2010 increased by $2.7 million, up to $37.6 million primarily due to higher noncash unit based compensation expenses. The provision for income tax has decreased to $8.7 million this quarter from $16 million recorded in the first quarter of 2009.
The majority of this decrease was due to lower corporate income taxes approximately $6.9 million of that from Dixie Pipeline which had a taxable gain associated with the sale of assets in the first quarter of 2009. We invested approximately $321 million in growth capital expenditures during the first quarter.
And for the year, we currently expect to spend an estimated $2.8 billion which includes approximately $1.6 billion for growth capital expenditures and $1.2 billion for the acquisition of gathering assets from M2 Midstream that we announced earlier in the month. Some of the larger approved capital projects include the Haynesville extension pipeline, the Mont Belvieu, the NGL fractionator, finishing up the Trinity River Basin Lateral natural gas pipeline, and other projects in the Eagle Ford.
In the first quarter, we spent $33 million in sustaining capital expenditures. We had come in and back at the time of the fourth quarter earnings announcement, we estimated maintenance CapEx for the entire year of 2010 to be approximately $250 million.
Typically we do get off to a slower start in the first quarter as far as spending those maintenance capital expenditures most of the time due to weather. January and February of this year was very wet, so again we got off to a slow start there.
I think we may have to hustle to spend $250 million this year. We should be able to come in and give you a better estimate on that at the end of the second quarter.
In terms of capitalization, adjusted EBITDA for the 12 months ended March 31, 2010 was approximately $2.8 billion. And when we come in, adjusted EBITDA as we note in the press release is EBITDA less equity earnings from unconsolidated affiliates plus the actual cash distribution received from those unconsolidated affiliates.
Our leverage ratio or debt to adjusted EBITDA for the last 12 months was 3.7 times at March 31st, 2010 with debt being adjusted for 50% equity content in the hybrid of debt securities that we have outstanding. Our floating interest rate exposure was approximately 10% at the end of the quarter.
The average life of our debt was nine years, which incorporates the first call date for the hybrids, and our effective cost to debt was 6.1%. In terms of liquidity at the end of March after adjusting for the net proceeds of $485 million from our equity offering in April, we had liquidity of approximately $2.4 billion which includes availability under our $1.75 billion revolver and unrestricted cash.
Affiliates of Enterprise Products Company, a private company controlled by the Daniel Duncan Family and our largest unit holder confirmed their willingness to consider to invest up to $150 million in additional partnership units during the remainder of 2010, including their commitment to reinvest $50 million through enterprise dividend reinvestment plan here in the May 2010 distribution. With that, Randy, I think we’re ready to open it up for questions.
Randy Burkholter
Tina, we are ready to take questions now.
Operator
(Operator Instructions). Our first question will come from the line of Brian Zarahn with Barclays Capital.
Brian Zarahn – Barclays Capital
Good morning.
Jim Teague
Good morning, Brian.
Brian Zarahn – Barclays Capital
On the Haynesville extension, I think you mentioned 1.8 Bcf of capacity has been contracted. About how many shippers does that represent?
Jim Teague
I think what we said is we are getting, we are moving toward 1.8 Brian. And I will let Chris answer as to how may shippers we are talking about.
Chris Skoog
We are still on the same seven shippers and we are just upsizing some of the volumes, with some of the same players.
Brian Zarahn – Barclays Capital
Okay. Jim I appreciate the color on the propylene fractionation.
Do you think this level of performance can continue to the rest of the year?
Jim Teague
On what?
Brian Zarahn – Barclays Capital
Propylene fractionation.
Jim Teague
And I think our demand is going to be strong Brian. I think what we are going to see over the next couple of months is, we have been trying to – I am looking at Lynn Bourdon.
We have been trying to sell forward. You know you did have some shift recently to heavier feed stocks driven by a strong propylene price.
I think we are expected to see that soften a little bit in the next month or so. But in the process of doing that, we expect the ethylene demand to kick up fairly hard.
And it’s just going to be – it’s going to be an up and down, and we are going to have good – good strong demand, we are going to have nice margins periodically, and is really driven by how more ethane has been used. I mean, one of the reasons we had such strong propylene prices in the first quarter is we are using so much ethane, you didn’t get the propylene produce from crackers.
The other thing we are finding is our term customers have figured out that they don’t particularly want the – that the unreliability of people that can switch feed stocks and watch their propylene production vary, so we had more folks who wanted to talk to us about term contracts, because ours is a lot more reliable.
Brian Zarahn – Barclays Capital
Okay. And then turning to NGL fractionation, I know you mentioned there was a gain first quarter last year, but you had higher volumes, but margins were down.
Could you talk a little bit about that and what do you expect to see the remainder of the year?
Jim Teague
Ask the question again, Brian. I must be – I am getting old.
Brian Zarahn – Barclays Capital
Okay. The – on your NGL fractionation business, your volumes are up year-over-year, but margin – your operating margin was down.
Can you give a little color as to – I know there was a gain in their from last year, but a little more color on that will be helpful.
Randy Fowler
Brian, this is Randy Fowler. One of it – in last year over at our Norco facility, we had some operating gains over – and I think it was probably in the ballpark about $4 million, $5 million were the operating gains last year in the first quarter.
Brian Zarahn – Barclays Capital
Okay. I guess finally on the – I know you are evaluating another fractionator to your system.
Can you give us a sense of how prolong the process is in reviewing them?
Michael Creel
No.
Brian Zarahn – Barclays Capital
Alright, I tried. Thanks guys.
Operator
Our next question will come from the line of Steven Moresco with Morgan Stanley.
Steven Moresco – Morgan Stanley
Good morning, everyone.
Michael Creel
Hi Steve.
Steven Moresco – Morgan Stanley
Hi. Question for Jim.
I always thought that some ethane and propane price dip over the past couple of months, was that an aberration or due to some maintenance downtime? And given what you think about demand and where inventories are, what sort of upside do you see in those prices for the remainder of the year?
Jim Teague
We don’t predict prices. We love margins.
That's what we focus on more than the absolute. The margins have stayed at our – for instance, in the Rockies, I guess we are up around $0.32 plus of gallon and you can look on anybody’s reports and see that.
I think, we did see a little dip in ethane usage. You had some plant outages, plant maintenance, and then you did have a little bit of shifting driven by pretty strong propylene, benzene, and butadiene prices during the course of the quarter.
We are seeing that moved back to ethane, as those prices weaken. And I am not going to tell you where we think it’s going to go, but we have got a – and Lynn’s got a graph as to what he thinks ethane inventories are going to be doing in the balance of the year.
We will tell you they are going in the Southeast.
Steven Moresco – Morgan Stanley
Okay. And then you guys have talked about a dip on the onshore natural gas pipeline and unit margins.
Is there any color behind that? Is that something a one-quarter event or can things turnaround with that?
Chris Skoog
This is Chris. Versus first quarter last year and Jim talked about in the call, we had the warmer weather at first quarter last year.
Steven Moresco – Morgan Stanley
Yes.
Chris Skoog
We were able to use our secondary firm in our IT business to go West, East across the pipe and capture the benefit of the $0.27 spreads across the pipe. This year is a colder weather in January and February, the utilization factor of our firm, customers were up and the commodity rates associated with those firm demand contracts are very low.
So they were single digits, so you do see the delta there. As you here, second quarter, third quarter, we have talked about it, we see the spreads West, East across the pipe coming back to the normal and historical pattern in that, let’s call it $0.08 to $0.12.
And remember, we are mostly sold out in our firm basis from West, East exposure to Central Texas, so we are not so much subject to spread risk from a firm point of view, but it does hurt our upside potential of using our secondary space. We have sort of just stated probably more succinctly, we like wider spreads, but we are not as sensitive to it as other people are.
Steven Moresco – Morgan Stanley
Okay. Thanks a lot for the color guys.
Operator
Our next question will come from the line of Darren Horowitz with Raymond James.
Darren Horowitz – Raymond James
Good morning, guys. Congratulations on the quarter.
Jim Teague
Thank you, Darren.
Darren Horowitz – Raymond James
Jim, couple of quick questions for you, trying to get a sense of incremental ethane demand from this point forward, so can you help us by quantifying the shortfall between the current NGL production capability in cracker demand? And then also as a follow-up, how much of that targeted 100,000 barrels of capacity that was transitioning the cracked light ends has actually materialized?
Jim Teague
I can point to probably Randy, a 100,000 barrels a day of a combination of ethane and propane that two years ago would not have been used, it would have be naphtha cracking. I can tell you that we continue to work for the couple of a crackers that are currently using naphtha and trying to work with them to convert to be able to use more NGLs.
I think in the shortfall, we had it in my script and I took it out, because I am not sure it’s right. But I think we were seeing something like 30,000, 40,000 barrels a day, Darren.
Darren Horowitz – Raymond James
Okay. And then just a follow-up question, as you mentioned Jim, given the tighter domestic supplies of ethylene driving the price higher and from a domestic perspective us moving a bit higher on the cash cost curve, do you think the domestic export ability for ethylene could be impacted at least in the short term?
Jim Teague
I think it was in the first quarter. I think – and Lynn, what was in the fourth quarter last year pushing 30%?
25% to 30%? It’s around 20%.
Lynn’s got a slide that’s kind of good. It says, you don’t have to outrun the bear, you just got to have to outrun Darren.
We don’t have to be as good as the Middle East as long as we are competing with naphtha crackers of Northwest here and the Far East.
Darren Horowitz – Raymond James
Right, yes.
Jim Teague
I think they are competitive. It’s still a good place to produce ethylene, produced poly ethylene and we are going to get our – I think they will get their share of exports.
They are not going to compete with ethane crackers in the Middle East, but we don’t think they have to. And the latest CMA cost curve shows that they are pretty competitive with propane and natural gasoline out of the Middle East.
Darren Horowitz – Raymond James
Okay. And just a final question for you Jim, and I apologize if I have missed it.
But when you were detailing the 42% of your percent of liquids that are hedged, did you mention what price?
Jim Teague
No.
Darren Horowitz – Raymond James
Okay. Would you mind mentioning the price?
Jim Teague
Yes, it is a nice price, Darren.
Darren Horowitz – Raymond James
Alright, well keep enjoying the nice prices. Thanks guys.
Jim Teague
Thank you.
Operator
Our next question will come from the line of Ted Durbin with Goldman Sachs.
Ted Durbin – Goldman Sachs
Hi guys. First question is just you talked about the Rockies volumes being up in NGL.
I guess how is that – how are you seeing that happening, you have got little gas prices now, kind of what’s the outlook for going forward, and what’s really driving the volume increase, given the rig count there?
Jim Teague
I think what we said earlier is we – there is a – we’ve just recently tied into some wells that have been completed, so that’s helped. Mike mentioned that we had completed our work to tie in the Collbran Valley, that was – that’s way down in the southern part of the Piceance where we did shutdown a plant down there that added probably close to a 100 million a day.
And frankly, we are doing some pretty created deals out there to keep our plants full by working with people who have dual point plans to make sure that those – that gas flows to our (inaudible) and we give them a piece of the action. So we are doing very thing we can to keep those – we are going to keep the plants full and we are going to – we might share a little bit of the margin, but it’s going to be full.
Ted Durbin – Goldman Sachs
Okay. So would you say – it’s your sort of taking share from others here in your given price discounts to do that or how are you actually making that happen?
Mike Creel
Ted, as Jim said, part of it is hooking up wells that were already drilled. So that’s not taking away from everybody else.
And part of it with the Collbran Valley system, we are thinking of gas that we previously didn’t have access to.
Ted Durbin – Goldman Sachs
Jim Teague
Well, we had volume recovery at the end of the first quarter and now into April. And so we expect the volumes to remain in the 725 to 750 range over the next couple of years, pretty much flat with where we are here.
Ted Durbin – Goldman Sachs
Okay, great. And then if I could just the last one, in terms of just the distribution increase, you have been pretty consistent in terms of the three quarters of a penny every quarter.
Have you thought at all about ramping up the rate of growth on the distribution or you had kind of comfortable with where you are right now?
Mike Creel
Well, we're comfortable with the increase we just announced. And clearly we've been pretty consistent over the last couple of years about increase in distributions.
We do have a relatively large CapEx budget this year. We started out the year at $1.5 billion, $1.6 billion.
We got into midstream acquisition on top of that, another $1.2 billion. So we're getting close to $3 billion.
It's helpful to have cash that we can reinvest in those assets that keep us from having to tap the equity market as much as we might have and reduce our leverage.
Operator
Our next question will come from Ross Payne with Wells Fargo.
Ross Payne – Wells Fargo
First question is what is the cost of Trinity River Basin Lateral and how big is that pipe and what is the capacity looking like for that?
Mike Creel
Yes, Ross, probably about 250. We actually had that spiked out in our analyst meeting.
Ross Payne – Wells Fargo
Could you could speak to the producers that are behind that?
Mike Creel
The total capacity in that system is going to be close to 1 bcf and we've got one producer committed to a long-term tenure agreement and we're continuing to develop in the area because this is an area that gets us down to the Dallas, Fort Worth area. There's a lot of middle municipalities along the way there that have been a difficulty getting our pipeline approved, that's what's caused this delay.
But now that we're all through all that we've released an abundance of drilling permits, (inaudible). So there is a likelihood of a lot of small independents starting to actively drill in the area to hold their acreage and get the gas produced out.
There's been a lot of drilling done but we've seen the permitting process more than double here in the last 60 days now that we've announced the last – that our projects are going to be completed by July 1st.
Ross Payne – Wells Fargo
And also one item that I haven't heard mentioned here yet today is any thoughts out on the Marcellus for NGLs, any update relative to the LSPD?
Mike Creel
Let me take a stab at that and I'll hand it off to Jim. Obviously, Marcellus is getting a lot of attention, a lot of press releases from various partnerships on solutions.
We're taking a little more holistic approach really looking at from the producer’s standpoint where did they get the best price for their NGLs because at the end of the day they're the ones that are going to bear that cost. So it's not just the matter of extracting the NGLs and shipping them to a point, you got to have a market that really needs it otherwise the net back price of the producers is pretty underwhelming.
So we're really looking for an industrywide solution that takes care of the producers.
Jim Teague
Ross, Mike just nailed it. I think every press release you'd see and we're not a big -- we're big on press releases for hoax.
We're looking at that you really – every one of those deals are pipeline projects. What we're looking at is, how do you take this ethane and distribute to crackers throughout the system and if you're going to have ethane going to crackers, you better have storage, you better have a way to keep it flowing.
So we are talking to people about a project, we are not going to press release it. That gives them the reliability of flow assurance and gives them access to a broader range of customers.
Randall Fowler
Hey Ross, circumspect on your Trinity River Lateral question. Total CapEx on Trinity River is $278 million and to finish up the project in 2010, we're looking to spend approximately $120 million.
Ross Payne
Just one final question, your leverage metrics are obviously quite impressive, you're just playing around 3.7 or so. Is that new range you kind of see your company operating in or is it going to vacillate a little bit with acquisitions and kind of be maybe 3.6 to 4.1 type of range?
– Wells Fargo
Just one final question, your leverage metrics are obviously quite impressive, you're just playing around 3.7 or so. Is that new range you kind of see your company operating in or is it going to vacillate a little bit with acquisitions and kind of be maybe 3.6 to 4.1 type of range?
Randall Fowler
Yes, Ross, I think historically we've said -- we're sort of comfortable in that 3.5 to 4 times range. We just sort of lived in the four times range and actually depending on where we were on a construction cycle, we saw that tick up to about 4.2, 4.3; obviously that's an area we don't want to live in.
I think if you would on a steady state basis we're more comfortable in the 3.5 to 4 times range.
Operator
Our next question will come from the line of Yves Siegel with Credit Suisse.
Yves Siegel – Credit Suisse
If you don't mind I'd like to ask the elephant in the room question, which is given the passing of Dan, is there any thought in -- what is the thinking as it relates to the Enterprise family of companies, i.e., when you think of Duncan, DEP and you think of the Acadian expansion? Can you sort of address the thought process going forward?
There's three entities, publicly traded entities out there and is there any change at all in the way you think of those three entities?
Mike Creel
The easy answer is that nothing has really changed. When we set up DEP and took it public, we said that it was there to facilitate the growth of Enterprise to invest in slower growth assets and then we expected it to appeal to investors that we're looking for a higher yield and not as concerned about the growth.
Certainly, the (Gainesville) extension is a big step for DEP. I'm sure that Randy will talk about that in the next earnings call for DEP.
But going forward our plan really has not changed. Our thought process is that if we have assets that we think have a slower growth rate that fits the profile that DEP is looking for that we would consider a dropdown and DEP might consider it as well, I mean both sides have to agree.
But absent that, there really hasn't been any change in fundamental philosophy.
Yves Siegel – Credit Suisse
Can I ask to beat the Marcellus horse a little bit here. Any sense in terms of timing as when ethane becomes a problem and when a solution has to be effected?
Mark Hurley
Yves, as we understand it, TEPPCO has a vapor that allows it to blend more ethane that of vapor. I think it expire in 2013.
So that's probably as good a benchmark as any as to where there needs to be a solution.
Mike Creel
Now if product ramps up enough where you can't blend it down to the Btu, so you could potentially have a problem before then but 2013 is certainly a problem.
Yves Siegel – Credit Suisse
Okay, and then my last two part question is, Jim, earlier in your remarks you said you were talking about supply and demand and as it relates to NGLs with supply increasing, can you put that into context with where you think it is as it relates to I guess you had the Eagle Ford at the Marcellus. And I'm also thinking that with gas prices being relatively low, I'm just not sure if there might be a sharper fall off in conventional drilling.
So I 'm still trying to figure out the dynamics moving forward in terms of natural gas. And then the second part of the last question is, what are you folks thinking about in terms of investing more dollars in the Gulf of Mexico?
Jim Teague
I can't help you as to what the supply is going to because I tend to agree with you as it relates to conventional. At these price levels I think we do expect because the richness for gas, we do expect more rigs to be deployed to the Eagle Ford, we think that's a growth area and if there is solution to ethane in the Marcellus, it goes with that southwest part of Pennsylvania and the richness of the liquid, assuming the value is there for the liquids that far away from its national home, you would expect someone to drill there.
I mean as far as the Gulf of Mexico I think we're continuing to look, I'll let Mike answer that one.
Mike Creel
Yes, when we look at capital expenditures, we look across all of our business segments. We look at the opportunities that are available, we look at the risk adjusted returns on those projects.
We look to see which of those opportunities are here today and gone tomorrow, which ones can actually wait a year or two and then we kind of decide which ones make the most sense for the partnership. And so we're trying to balance the need to the partnership.
As I said before, we're already at $2.8 billion for this year with the acquisition of those midstream assets. So it's a pretty fulsome year already particularly since we're only in the end of April right now, but we have not ruled out anything in the Gulf of Mexico; in fact we're looking at some projects.
It just depends on when we get close to making the decision on which ones to pull the trigger on and where those stack up.
Operator
Our next question will come from the line of Michael Blum with Wells Fargo.
Michael Blum – Wells Fargo
Just one question really and I apologize if you reviewed this but I didn't catch it. In your onshore crude oil pipeline segment, gross margin went down pretty significantly year-over-year, looks like it was around the marketing business.
Can you just talk about what's going on there, was that a blip or are you running that business differently or –
Mark Hurley
This is Mark Hurley. Couple of things happened there in the first quarter and it was very margin related.
One is sweet/sour differential, particularly West Texas and Oklahoma. That differential declined quite a bit just due to the competition for the sour barrels.
And so, while we continued to move quite a bit of volume there, the margin hurt us on the overall marketing side and secondly, the contango in the market was much weaker than it had been in 2009. And so, the marketing of barrels in the future months just didn't yield as much margin.
And so, although the contango has certainly bounced back in April and it’s quite strong now.
Mike Creel
Michael, as Chris said on gas side, the same thing holds true on the crude side. Our marketing is there to fill up our assets and to take advantages of price differentials when they occur but we are not dependent on them.
So those both business had a great year and in the first quarter of 2009 and we will continue to capitalize on those opportunities as they become available.
Michael Blum – Wells Fargo
Okay, so the other way to think about it, the first quarter number is a good run rate in a, let’s call it a less favorable environment and the year-over-year number from ’09 is kind of a more favorable environment?
Mike Creel
It’s fair.
Operator
Our next question will come from the line of John Edwards with Morgan Keegan.
John Edwards – Morgan Keegan
Just on the onshore crude oil pipes and services, just kind of following on, so you are saying that the kind of where we are right now, this $27 million that you expect that you are going to be round about that for the rest of the year you think, just following on Mike’s question.
Mike Creel
I don’t think we said that. I think we said that the first quarter wasn’t as opportunistic as you will.
I think contango market is coming back. Mark?
Mark Hurley
Yes, yes, exactly. I think it will – I think the first quarter was not particularly favorable in terms of either of the marketing margins that we watch.
Of course, we saw our differential in the contango. The contango has bounced back and so we expect that to be a little more favorable going forward.
The sweet/sour differential I think is going to continue to be under pressure just due to the advance of the sour crudes.
Jim Teague
This is Jim. One of the things we are doing as it relates to our marketing activity in our crude business is – when would be this operational, in October, November?
Mark Hurley
October.
Jim Teague
What we are trying to get our arms around and in fact, we are going to do is we are going to model everywhere we have got margin risk just like we do in our Enterprise assets. And when we see something we like, we are going to be pretty aggressive in locking it in to the extent we can in the future.
Mike Creel
And another thing that we – probably I am ready to talk about in too much detail is we are very interested in building out that system and improving connections and making it more candid than what we have on the NGL side.
Mark Hurley
That's absolutely right, that the process of doing that, you create more of those opportunities to get the upside, just like we do in the (inaudible). So connectivity, expanding is a key area of growth.
John Edwards – Morgan Keegan
Okay, I appreciate that detail on that. And then, obviously, your petrochemicals are quite strong.
You provided a lot of good commentary there, I guess clarifying going forward, you think it’s going to continue pretty strong kind of at these levels?
Mike Creel
I think what we are seeing is because of natural gas prices and the related cost of NGL relative to crude that petrochemicals have a very attractive price of feedstocks and they are very competitive across the world and even in a time when the U.S. has been in the recession and it’s only now starting to come out, the petrochemical had been doing very well.
So you would expect as the economic recovery continues, that they will continue to do well.
John Edwards – Morgan Keegan
And just on G&A, is this quarter a pretty good run rate for the year or do you expect to tick up a bit the next quarters?
Randall Fowler
John, I would say, I wouldn’t expect it to be any more than this level.
John Edwards – Morgan Keegan
And then I think you said maintenance CapEx was a little bit light this quarter but you expect that to tick up the rest?
Mike Creel
It’s not unusual for the first quarter to be kind of light. As Randy said, we had a wet first quarter, in a lot of areas you got snow on the ground, you can’t get down.
So typically the second and third quarters are the busiest quarters in terms of maintenance CapEx. I think Randy is right.
Seeing how much we have left to spend in 2010, to meet that $250 million, we may be pushing it to get there.
Randall Fowler
John, that's where I think when – next quarter when we have our second quarter earnings call, I think we will be able to come in and hone in on that estimate a little bit more if there is any change from the $250 million.
Mark Hurley
Definitely that won’t be over the $250 million.
Operator
Our next question will come from the line of Jeremy Tonet with UBS.
Jeremy Tonet – UBS
My question has been answered. Thank you.
Operator
Our final question will come from the line of Mark Easterbrook with RBC Capital.
Mark Easterbrook – RBC Capital
Just – my questions have been answered already but one question. Have you guys considered the use of hybrid debt again and exactly how much capacity do you have there that – potentially go out and use the hybrid debt again to finance something else that you have?
Mike Creel
I don't it’s a question of the capacity we have so much as the cost.
Randall Fowler
Yes, I think a couple of thing in there – Mike’s right. As far as from a cost standpoint, and again, you guys – we have sort of communicated how we look at our cash, cost of capital, both on debt and equity modeling that out over 10 years.
So if you would, a hybrid securities callable after 10 years, so we look at what the cash cost of a hybrid debt security is versus the cost of 50% equity, 50% debt and where is – is there a breakeven point. I think when we issued the hybrids back in 2006-2007, especially 2007, you had a break-over point where the hybrids were a little more expensive probably for the first couple of years.
And then after that, they were little more attractive than 50-50 mix of debt and equity. Likely where we have seen that, that break-over point is out to maybe year five, year six.
So not quite as attractive. I think the other thing we need to wait and see also is the way Moody’s is looking to come in and change the way or considering the change of how the view the hybrid securities.
Scratching our head a little bit on the application to industrial companies, certainly understand it for these applications to financial companies. But with that, I think the security that we have outstanding could be 20% equity credit as opposed to 50% equity credit.
So I think there are two or three things happening on the hybrid front. So I wouldn’t look to see us issuing hybrid securities anytime soon.
Mike Creel
Tina, is that our last –
Operator
That is our final question sir.
Mike Creel
Tina, if you would, give our listeners the replay information real quickly?
Operator
Ladies and gentlemen, today’s conference call will be available for replay beginning at 1 PM Eastern Standard Time. The number to dial for the replay is 800-642-1687 and the conference ID number for the conference is 70292007.
Again, the conference ID number is 70292007. This does conclude today’s teleconference.
You may all disconnect.
Mike Creel
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