Jan 29, 2015
Executives
Randy Burkhalter - VP of IR Mike Creel - CEO of Enterprise’s General Partner Jim Teague - COO Randy Fowler - EVP and CFO Bill Ordemann - Group SVP Leonard Mallett - Group SVP, Engineering Tony Chovanec - SVP, Fundamentals and Strategic Assessment Al Martinez - SVP, NGL Marketing and Supply
Analysts
JR Weston - Raymond James & Associates, Inc. Mark Reichman - Simmons & Company International Matthew Phillips - Clarkson Capital Markets Ted Durbin - Goldman Sachs Ross Payne - Wells Fargo Securities Jeremy Tonet - JPMorgan TJ Schultz - RBC Capital Markets Noah Lerner - Hartz Capital Michael Blum - Wells Fargo Securities, LLC John Edwards - Credit Suisse Danilo Juvane - BMO Capital Markets Charles Marshall - Capital One Security James Jampel - HITE Hedge Asset Management LLC
Operator
Good morning my name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Enterprise Products Partners 4Q 2014 Earnings Conference Call.
All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session.
(Operator Instructions). Thank you.
Randy Burkhalter Vice President of Investor Relations, you may begin your conference.
Randy Burkhalter
Thank you, Stephanie. Good morning everyone and welcome to the Enterprise Product Partners fourth quarter 2014 earnings conference call.
Our speakers today on the call will be Mike Creel, CEO of Enterprise’s general partner, followed by Jim Teague, Chief Operating Officer and Randy Fowler, our Executive Vice President and Chief Financial Officer. Other members of our senior management team are also in attendance for the call today.
During this call, we will make forward-looking statements within the meaning of Section 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 team. 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 the call. And with that, I’ll turn the call over to Mike.
Mike Creel
Thanks, Randy. 2014 was another record year for Enterprise with the Partnership reporting a 10% increase in gross operating margin to a record $5.3 billion and with all five of our business segment reporting higher gross operating margin compared to 2013.
We have record liquid pipeline volumes of 5.3 million barrels per day record NGL fractionation volumes of 824,000 barrels per day and record fee based natural processing volumes of 4.8 billion cubic feet a day. As distributions declared with respect to 2014 increased 5.8% to a dollar $0.45 per unit and as after adjusting for two for one unit split that occurred in August.
We generated $4.1 billion of distributable cash flow in 2014 providing 1.5 times coverage as a cash distribution declared with respect to 2014. At the same time retaining $1.4 billion of cash to reinvest in the gross to the partnership and reduce our reliance on a capital markets.
Win gains a year on a strong note with fourth quarter results that included a 5% increase in gross operating margin to $1.4 billion supported by increased gross operating margin from each of our on shore crude oil pipeline in services off shore pipeline in services and petrochemical and refine product services segment. We benefited from $4.1 billion of new fee based assets that gain service in 2014 filling the ATEX and Front Range pipelines the expansion of the Mid-America pipeline that seek all our pipeline the Seaway loop pipeline an additional storage at our ECHO crude oil terminal.
Earlier this month, we announced an increase in our cash distribution to $0.37 per unit with respect to the fourth quarter of 2014 as a 5.7% increase over the distribution declared with respect to same quarter of last year. This is our 42nd consecutive quarterly increase and our 51st increase since our IPO in mid-1998.
Enterprise generated $1.1 billion of distributable cash flow in the quarter again providing 1.5 time cover to the cash distribution we will pay next week. Gross operating margin from our NGL pipeline and services was $705 million for the quarter 4% lower than the fourth quarter of 2013.
Our natural gas processing and related NGL marketing business reporting gross operating margin to $257 million for the quarter compared to 339 million for the fourth quarter of last year. Gross operating margin from our natural gas processing plant decreased $43 million primarily due to lower processing margin and lower equity NGL production from certain plans.
And gross operating margin from our NGL marketing business was down $39 million on lower margins. Gross operating margin from our NGL pipelines and storage business increased $68 million or 27% to $317 million for the quarter.
The largest component of this increase was $35 million from ATEX ethane pipeline which went into service in January of 2014. Oiltanking Partners contributed $19 million of gross operating margin in this segment for the quarter and Mid-America and Seminole Pipeline Systems reported an $11 million increase in gross operating margin.
The Texas Express Pipeline and gathering system and Front Range pipeline also contributed to the increase in gross operating margin. Gross operating margin from the NGL fractionation business was $18 million lower than in the fourth quarter of last year primarily due to decreased revenues from product blending partially offset by increased gross operating margin from higher fractionation volumes.
Total fractionation volumes for the fourth quarter of 2014 increased 7% over the same quarter of last year 837,000 barrels per day. Gross operating margin from the onshore crude oil pipelines in the service segment was up 40%, the $228 million this quarter from a $163 million in the fourth quarter of last year with crude oil pipeline volumes unchanged at 1.3 million barrels per day for both quarters.
Gross operating margin for this segment include $35 million from the consolidated results of Oiltanking Partners crude oil terminals. Gross operating margin from our ownership interest Seaway crude oil pipeline increase $12 million primarily due to an increase in revenues associated with the $512 million 30 inch seaway loop pipeline that began its commercial service at the beginning of December.
Our West Texas, South Texas and Eagle Ford JV crude oil pipelines and the ECHO terminal reported an aggregate $19 million increase in gross operating margin. Our petrochemical and refined products Services segment had a 13% or $24 million increase in gross operating margin to $199 million for the quarter.
Our propylene fractionation business reported a $25 million increase in gross operating margin, primarily due to higher sales margin and volumes. The indicative spread between refinery grade and polymer grade propylene was up 44% this quarter compared to the fourth quarter of last year.
Our refinery products pipeline and related services business reported a $17 million increase in gross operating margin. Our Beaumont marine terminal which was reactivated in May of 2014 contributed $6 million of gross operating margin.
And gross operating margin for this segment also included $7 million from the consolidated results of Oiltanking Partners. Gross operating margin from the Offshore Pipelines and Services segment increased $14 million or $42 million in the fourth quarter of 2014, primarily due to the Seeco oil pipeline, which began operation in July 2014 and contributed $8 million of gross operating margin for the quarter.
We're pleased with our results for 2014 and especially for the fourth quarter given the headwinds from the decline in commodity prices. Average NGL prices were down 32% and WTI crude prices were down 25% in the fourth quarter of 2014 compared with the same quarter 2013.
2014 Enterprise common units provided our partners a total return of 13.3% assuming the reinvestment of distributions. This compares to a total return for the Alerian MLP index of 4.8%.
We are very focused on controlling cost while at the same time working to develop new projects to add value for our investors. We believe our fee based, integrated and diversified business model positions us to succeed in a challenging commodity price environment such as we have now and our financial flexibility and healthy distribution coverage provides the ability for us to continue distribution growth while pursuing our growth plans.
We have $6.1 billion of high quality organic growth projects currently under construction that should be completed in 2015 and 2016 that will add additional cash flows. Looking ahead the Oiltanking Partners unit holder meeting to approve the merger is scheduled for February '13 two weeks from tomorrow, and we expect to close the merger soon thereafter.
After operating the Oiltanking assets for the last three months, we believe we will exceed our initial expectations of approximately $30 million of annual synergies and cost savings. Jim will talk a little bit more about this in a moment.
We're excited about the future and confident in the ability of our management team and dedicated employees to find and execute on new opportunities to add value to our partnership. We want to thank our customers, our debt and equity investors and our bank group for their continued support as we look forward to 2015.
And with that I will turn the call over to Jim.
Jim Teague
Thank you, Mike. I am not sure how one can start this without a few comments about the recent short downturn in the hydrocarbon prices.
Global energy market is somewhere between turmoil and chaos. We have no clue how low prices may go or how long they will stay depressed but then nor does anyone else.
We do know that Enterprise typically thrives on change that we perform and grow in both the up and down cycles. These kind of market cycles is just the way it's always been.
If you don't believe that, all you have to do is read Daniel Yergin's The Prize. And playing off that, we picked up a few prizes in past downturns, as people found themselves unprepared or in denial about downcycles.
We purchased Mapel when its owner couldn't withstand the one-two punch from extended low processing margins followed by the merchant industry downturn that resulted from the Enron collapse. We acquired GulfTerra from the owner of its GP found themselves with weak finances because of that same Enron collapsed.
Neither do we know how low rig counts will go, especially by play or how long they stay depressed but U.S oil and gas industry is not going to dry up and go away. U.S.
very remains the focus of global markets. Global markets understand that we have more hydrocarbon resources that we want to need and much of world’s production from some very unstable places in the Middle East, Venezuela and North Africa.
We also understand the oil prices is not going to help many of these countries geopolitical dynamics. As demand grows, weak economies won’t be here forever and the U.S.
continues to move forward from a position of shortage to one of surplus, rebalancing of global market is going to continue to take place and the U.S. oil and gas industry will be not denied.
We believe and are confident that the Eagle Ford and Permian are going to continue to be bright spots for this industry. Both of these plays enjoys substantially higher net batch because of their proximity to the Gulf Coast.
Enterprise has been a key midstream provider in the Eagle Ford. We have a large and expanding asset base in Permian where we’re currently adding processing and NGL pipeline capacity.
Like our assets in the Eagle Ford, these Permian assets will feed other Enterprise systems and provide our customers full insurance and market choices. If you have to go through a downturn, the Eagle Ford and the Permian are not a bad place to have in your backyard.
There is no doubt that 2015 will present significant challenges across the entire upstream and therefore related midstream value. Margins will be thinner and landing new projects will be competitive; however, all of the assets we have recently constructed or have under construction or back by long term commitments in addition many of these new assets are back by volume commitments that ramp over the next several years providing us with not only stable but also increasing revenues.
The Enterprise business model thrives on dislocation and adding value by capturing opportunities when there is chaos. One reason as we have a robust marketing function in each of our business units that are very good at capturing the opportunities that are always created in this kind of market.
Our assets are integrated and make up systems and inside integration in that system that create more opportunities than other might see. As we head into 2015, we have two new fields for NGLs ATEX, Aegis, additional processing in the Permian significant expansions by LPG exports capacity and we’re building a large scale ethane export facility at Morgan’s Point.
For crude, our new Rancho II pipeline is nearly complete. We’ve recently put the Seaway loop in service.
We’re nearing the completion of our crude oil distribution systems on the Houston Ship Channel, and we have growing processed condensate export business that compliments both our crude oil systems and our LPG export business. In addition, many of our crude assets are connected to cushion which is rapidly coming back into play because of the dislocation of waterborne barrels caused by the crank depressed price environment.
For Petrochemical & Refined Products, we continue to construct our PDH facility which is going well that’s backed by 100% by strong customers. In addition a repurposed and expanded refine products exports facility is beating our expectations in fact it sold out.
Natural gas in addition to heavy integration with our processing business, our Texas and Louisiana gas assets lie wide through heart of the Gulf Coast where approximately 75% of natural gas demand growth is expected to take place. And finally there is Oiltanking in its integration.
This was a strategic acquisition. We had no position on the Houston Ship Channel that was a key driver we wanted to position there.
Further our ECHO terminal is sold out for the next five plus years and will evolve into more operational storage than merchant storage. If you look at the capacity and just our Eagle Ford and Seaway pipelines the ECHO represents less than 6 days of storage and we intent to build more pipe.
And finally, our entire LPG export business which ran the process of nearly doubling is housed at Oiltanking. This business has grown into a significant part of our value chain and is a key to our strategy and frankly one where we felt it important to have control over our own destiny.
We’re in the process of introducing our culture and our business model to Oiltanking. We are also in the process of plumbing our systems so that Oiltanking assets and serve a broader range of both producers and consumers and offer a larger menu of services.
The integration is going a lot better than we planned. In summary, it would be nice if prices were higher and the environment was such that the money was falling from the sky.
Those days are over for now. Today we’re in an environment where you have to be relentless about managing your cost and where you have to look for and earn penny.
Looking forward and picking up pennies is a lot harder than catching money falling from the sky, some have never done it. Market has changed.
Markets are never static. Our systems are tightly integrated which gives us flexibility.
Our people work as a team. We know how to manage our cost and our finances with respect to none.
We quickly made the transition and our actions through an environment of low prices. It’s really about your people’s attitude and their drive.
We’re relentlessly driven to capture every opportunity that environments like this can invariably create. We know how to do it we’ve been here before.
Will that I'll turn it to Randy.
Randy Fowler
Thank you Jim I'd like to take a few more minutes to discuss additional income statement item for the quarter as well as capitalization. Before I discuss net income and earnings per unit I would like to make a few comments about changes in revenues and operating cost and expense on the income statement.
Since these measures are influenced in large for by changes in commodity prices they are not necessarily good indicators of the performance of the mid-stream company. In general our commodity prices will increase revenue attributable to the sale of NGLs, natural gas, crude oil and refine products.
Well at the same time also increasing the associated cost of sales and operating cost and expenses. This is why we believe gross operating margin is a better performance by its measure.
We had a significant decrease in revenues and associated cost of sales this quarter compared to the fourth quarter 2013. Gross operating margin was up 5%, so to those of you who follow us in the industry closely, I apologize for preaching to the choir again, but there are members of the general business media who were customarily over emphasized change in revenue exclusively.
Now to EPU. Net income was $681 million for the fourth quarter of 2014 compared to 706 million for the fourth quarter 2013.
On a fully diluted basis net income attributable to limited partners was $34 per unit for the fourth quarter of 2014 compared to $0.37 for the same quarter in '13. Net income in EPU were reduced by non-cash impairment charges in the fourth quarter of 2014 of $16 million or $0.01 per unit.
Net income for the fourth quarter of '14 was also reduced by $21 million or another $0.01 per unit for severance cost and cost related to the acquisition of ownership interest in Oiltanking. G&A cost were $64 million for the fourth quarter of 2014 compared to $49 million in the same quarter of 2013.
We have approximately $11 million of expense related to the Oiltanking partner's acquisition this quarter and increase compensation expense. Interest expense increased $43 million to $241 million this quarter primarily due to higher debt balance which were primarily attributable to the funding of the cash consideration paid for Oiltanking and our growth capital expenditures.
We also had a $13 million decrease in capitalized interest due to assets being placed in the service. Excluding the consideration of Oiltanking are growth capital investments were $1.1 billion for the fourth quarter of 2014 and $3.2 billion for the full year.
Sustaining capital expenditures were $107 million for the fourth quarter of 2014 and $369 million for the full year. We currently expect growth capital expenditures for 2015 to be approximately $3.5 billion and sustaining capital expenditures to be approximately $380 million.
Adjusted EBITDA for the year ended December 31, 2014 including EBITA associated with Oiltanking for the full year was $5.4 billion. Our consolidated leverage ratio were debt to adjusted EBITDA was 3.85 times for the year ended December 31, 2014 after adjusting 450% equity treatment of the hybrid debt securities by the credit rating agencies.
At December 31, 2014, we had consolidated liquidity of $4.3 billion which included $4.1 billion available of borrowing capacity under our credit facility. In addition to the $1.4 billion of retained distributable cash flow, we raised approximately $390 million through our distribution reinvestment plan are at market equity issuance program and our employee unit purchase plan during 2014.
At December 31, 2014 the average life of our debt is 14.1 year using the first call date for the hybrid in our effective average interest cost of debt was 4.8%. As Mike mentioned we have an Oiltanking partner's Unit Holder Meeting schedule on February 13.
A simple majority of the both are required to approve the merger which we expect to close soon after the meeting. The contribution from the consolidated results of Oiltanking for the fourth quarter was approximately $63 million to gross operating margin, $27 million to operating income, $25 million to net income and $11 million to net income attributable to limited partners.
Before taking questions I would like to mention that Enterprise's K-1 are expected to available online by noon central time on February 27 and Oiltanking's K-1s are expected to be available online on February 16. With that Randy I think we're ready for question.
Randy Fowler
Stephanie we are ready to take questions from our listener.
Operator
[Operator Instructions] First question comes from the line of JR Weston with Raymond James. Your line is open.
JR Weston
My first question is just kind of thinking about the ethane export terminals' scale and scope. And with the forward curve for crude where it is and spot ethylene prices depressed, in a lot of cases, that put propane and butane ahead of ethane with regard to ethylene margins.
So I was just kind of curious if that had changed the way global petchems are thinking about US ethane? And then if in turn, that it kind of changed any of your thoughts around evaluating expansion options at the ethane terminal?
Jim Teague
What we have Al? About 80%?
Yes, we are sold out about 80% of that capacity, if we don't sell another barrel it's still a heck of project, those are 10-year contracts. And but we're also in negotiations with three or four people Al.
So I fully expect ethane to be sold out. And if I look at -- I am trying to find this.
I am looking at the margins on ethylene at about -- on the ethane about $0.35 down and it's not depressed to me.
JR Weston
Sure, great. I appreciate the color.
And just kind of maybe a follow-up on that. Again, based on a forward outlook for commodity prices, how much US ethane export capacity do you think the US will need by, say, the end of the decade?
Jim Teague
How much export capacity do we need?
JR Weston
Yes.
Jim Teague
I don’t have a clue JR. I don’t know.
I know there's going to be -- we've got plenty of ethane in this country. The question is do you export the people build more I had one major petrochemical as me -- he thought we were under investing asset the fact we're building an export terminal says we're under investing who knows.
JR Weston
Okay, great, appreciate the color. I guess maybe then just shifting gears, thinking about the Oiltanking acquisition now and the integration of those assets.
Is there any change based on the current crude oil price environment and the spread volatility? Has there been any change in thinking about the organic build out of those assets, both at the ship channel and in the Beaumont/Port Arthur locations?
Jim Teague
Absolutely no change. We're moving forward and in fact I think we may in fact - where is Bob?
We're probably going to get some acreage that we get by virtue of this acquisition that will build more tankage out there. Looking around at who knows that.
Yes, that 50 acre piece. There is a lot of demand that we're seeing for storage but there is also a lot of demand water access.
Operator
Your next question comes from the line of Mark Reichman with Simmons. Your line is open.
Mark Reichman
Good morning. Just a few items.
Could you speak to the LPG export environment? I guess we'll get maybe a little more view if we are able to seek Oiltanking's results, but just can you just provide your outlook for what you're seeing in the last quarter and what your expectations are going forward, particularly with respect to contract versus spot volumes?
Jim Teague
I think we are putting wealth fully contracted out, people look at our -- if I put in the spot charter rates -- when they look at that all and it looks pretty tight. Most of customers are thinking have their own ships or have time chartered ships have what do we call those whatever that other way is they get ships but we haven't had a single cargo cancelled and frankly we don't really have any spot opportunities because we're sold out.
Mark Reichman
And then.
Jim Teague
And when we do have a cargo cancelled we still make this kind of amount of money.
Mark Reichman
Right, right. And with respect to Seaway, what were the volumes for the month of December and how do you expect those to ramp up over the next quarter or two?
Bill Ordemann
We've seen the volumes kind of ramping up over the month of December and towards the end of the year when we brought the loop pipeline on. I think these are primarily Canadian barrels we're seeing and our expectation is they are going to continue to ramp up over the course of the year.
Jim Teague
And we're pretty well sold out.
Bill Ordemann
Yeah we're pretty well sold out on Seaway.
Mark Reichman
So what were average volumes, say in December?
Bill Ordemann
I don't have that number on top of my hand; can we get back to you?
Jim Teague
Yeah Mark I will call you with that.
Mark Reichman
And then also is there any update on ATEX? I saw the notice on the rupture this week.
Any new information with regard to when you might expect that back in service?
Jim Teague
We are currently working.
Mark Reichman
I guess you're already making partial deliveries, right? It's just two fractionators that are unable to inject into the system?
Bill Ordemann
That's correct on the two, we're currently working with the regulatory officials and we're thinking approximately two weeks before we resume operations.
Mark Reichman
Okay. And the coverage was actually very strong this quarter and it just seems like you have the wherewithal to withstand the downturn in commodity prices.
But what impact has this really sudden change in the commodity price environment have on your outlook for distribution growth and also how you evaluate your capital investments?
Mike Creel
On distribution well it’s, Mark, it really had a change and that’s why we’re pretty concerned about how we manage our balance sheet and cash flows to be able to make it through pipes of cycles and we have done it before, you can look back to 2008 and 2009 see what we’ve done there. With respect to capital, it really doesn’t affect our ability to spend money.
Our customers desire for have assets may change. They may push out the need for certain assets and I think you can see that where we may have thought our CapEx would have been closer to $4 billion for 2015.
We are looking at some closer to 3.5 billion but it’s not a function of our ability to fund those investments, it’s the function of our customers and their needs and their timing.
Operator
Your next question comes from the line of Matthew Phillips with Clarkson. Your line is open.
Matthew Phillips
You had a pretty significant uptick on onshore crude margins sequentially from the third quarter. What all was driving that?
Was that a function of the Seaway Loop or..?
Bill Ordemann
I think it’s primarily the Seaway Loop and our continued build out in ECHO.
Randy Fowler
And, Matthew there was also including Oiltanking results around their crude oil business that was also a nice adder for the quarter also.
Matthew Phillips
Okay, great, thanks. And then you just touched on this on your CapEx program, but have you seen any sort of project cost come down yet, like you're seeing -- some guys are seeing on the services side?
Or is it too soon to tell whether or not maybe that helps accretion on some of the larger projects you all have going on?
Leonard Mallett
I do expect some prices to be come down. This is Leonard but I haven’t seen that just yet.
We fully expect some prices to come down. We are seeing it little downturn in some still prices already though but that near on labor.
Matthew Phillips
Okay, great. And then last one for me, could you all talk a bit about the condensate export market?
It's similar to ethane exports in that the prices have come off considerably and much more competitive for petchem consumption. Is this still the growth area that you thought it was?
Obviously, several more companies have tried to enter this market, but the actual cargoes hitting the water hasn't been all that high yet.
Jim Teague
We’re exporting couple of cargos a month and that’s what we have the capability to do. Right now we’re debottlenecking some of constraints and as I said earlier plumbing our facilities with all these facilities -- this is a supply driven business and the supplies are here and ultimately that will move.
And it has a lot to do with the WTI spread, so I would expect that you’re going to continue to see volumes flow and we’re pretty excited about the role we’re going to play in that.
Operator
Your next question comes from the line of Ted Durbin with Goldman Sachs. Your line is open.
Ted Durbin
Just coming back to your customers, I'm wondering if there's been any change in your ability to capture some of the returns that you've historically targeted for some of your spending or because they are feeling more constrained on cash flows. Are they pushing you on the returns that you will get for your projects?
Mike Creel
Ted, as you know when we sanctioned these projects, we generally have contracts in place so we’re not seeing people coming asking us and we negotiate contract before you even got a facility up.
Ted Durbin
Yes, it's more on the forward that you're sort of out there negotiating and I'm even just thinking about the Bakken pipeline that you canceled and kind of what you are seeing there in terms of producer willingness to pay the rates you are marketing.
Mike Creel
Yes, I think the Bakken pipeline probably got a lot more press and it deserved. It was exploratory open seasoned to see if there was any interest, there are not, wasn’t for us at least.
With respect to other projects, I think that certainly it’s going to be a competitive market. Jim alluded to that in his comment, but it has been in the past as well.
I think that it’s going to be balanced by the fact that there may be a lot of players that would have been actors and building some of these assets that maybe don’t have the financial world with all to do it now. So we’re not going to do projects, don’t make sense for the partnership and I don’t see us significantly reducing the rates of returns that we see on a project.
Ted Durbin
Fair enough. Maybe just switching over to the -- your customers on the petrochemical side.
We saw the [sasel] delay or deferral of the GTL play yesterday. I'm wondering if you're hearing other projects that might be more risk in the new commodity world.
Jim Teague
No, I haven’t seen any. I mean they continue to build -- I have not seen a single cracker deferred.
And we are dealing in with a couple of companies that we’re not talking too much about that are looking to building crackers that would be fed by Aegis. So quite the contrary.
Ted Durbin
Okay, great. And then last one for me, just the BIS clarification on condensate that we got at the end of the year.
Any implications for you, for volumes, or for the industry in terms of how much might actually move?
Bill Ordemann
I don’t really think so. I don’t think there was anything in the because I think he was came out to surprise us and really matters in there that surprised the industry.
Certainly not the people we're dealing with. It’s a status quo for us.
Operator
Your next question comes from the line of Ross Payne with Wells Fargo. Your line is open.
Ross Payne
Your fee-based processing volumes are down just a little bit, but I thought -- I was wondering if you guys could talk about what kind of geographical areas might be impacted more than others? And second of all, equity NGLs were down a decent amount and if you can kind of delve into that just a little bit more.
Thanks.
Bill Ordemann
While Randy is looking at numbers I think to place where maybe some of those fee based volumes coming off more than anywhere probably it's in the Rocky's. And then the second part of your question would be NGL equity NGL volumes going out a lot of our equity NGL are called actually split to cover that thing or not on our producers go into conditioning mode.
And for a good part of the first quarter I believe we elected to reject that assign we have been recovering it. We look that on variable cost and saying at rest enough we reduce our assigned productions during that period of time.
So it any swing at all those equity volumes and see the vast majority of that I think that we election of process that we desired but didn’t have to.
Ross Payne
Okay, that makes a lot of sense. Obviously, you guys are starting to export a lot of condensate in here.
Any thoughts on whether or not the Republican Congress may open up the doors to other crude [indiscernible].
Bill Ordemann
[Indiscernible].
Ross Payne
Okay that’s it from me than.
Operator
Your next question comes from the line of Jeremy Tonet with JPMorgan. Your line is open.
Jeremy Tonet
Just wanted to follow up a little bit when you talk about the growth CapEx spend for 2015. Originally thought it might be $4 billion and now might be $3.5 billion.
I'm just wondering are those projects things that are moved off the table or just deferred at this point. And would you be able to share on any color on what types of projects those would be?
Mike Creel
Jeremy I think for the most part is just delaying projects for a bit. As I said we're talking about change in CapEx and I said the most is just delay in the timing these projects.
Jeremy Tonet
And is that more on gathering and processing? Are you able to share with us anything as far as what parts of midstream might be changing more?
Mike Creel
I mean just late after one then things we're looking at as we're probably just timing on frac man as we've seen we think the appetite for it right this moment is not what we expected to be and we're not cancelling we're just pushing it out.
Jeremy Tonet
That makes sense. And on your existing frac capacity, how contracted is it?
Maybe not just the new builds, but some of the other, older frac assets. The market has been pretty tight.
Have you guys contracted that out? Could you provide me any color there?
Jim Teague
We are pretty much fully contracted we're going to get paid. But even if we're not run into rates because those are demand free contracts.
Frankly whenever people are in full mode we're over contracted and swing in product to Louisiana. So we're on pretty good shape on fractionators.
Operator
Your next question comes from the line of T.J. Schultz with RBC Capital.
Your line is open.
T.J. Schultz
Randy, in the past, you've provided details on the amount of CapEx that is needed to support your current pace of distribution growth. And certainly given the benefits of your structure, that's a lot lower required capital spend than what you budget even in 2015.
But the two biggest variables there certainly are funding mix and the assumed returns, so just looking for any color on leverage you may be targeting at the end of this year to try to understand how you're thinking about funding mix? And then as you evaluate your balance sheet for new projects, what kind of unlevered returns are you assuming or how has that base case changed on growth capital, just given some of the market competition out there right now?
Randy Fowler
TJ I think that chart that we worked up and has been that’s been in several investor presentations. Really I think that chart is still applicable if you would I mean we provide a range in their own unlevered returns on capital from the project anywhere from 10% all the way at the 17.5%.
So I think that’s a still a good operating range and frankly I think the CapEx that we show their whether you come in and fund it with distributable cash flow exclusively or with a 50-50 mix of debt equity and again what we're assuming their does that dead equity split would be the incremental EBITA with the debt that you would use be like four times that incremental EBITA. I think that’s still pointed you to the bandwidth from a billion to about billion 5 may be up to a billion 7 in growth CapEx if we booked 6% distribution growth.
Mike Creel
And T.J bear in mind that that ignores the distribution coverage that we have currently is 1.5 times.
Randy Fowler
So, DJ one of things we're looking to do and is we will come in and refresh that slot for the Analyst Meeting that will be coming up here probably in about 30 days.
Operator
Your next question comes from the line of Noah Lerner with Hartz. Your line is open.
Noah Lerner
Quick question for Jim. I appreciate the candor and the honesty about not knowing where prices are going, but obviously, you guys must have some kind of internal opinion.
So I'm just trying to get a sense of -- in the current environment, how does that factor into your deliberations on long-term planning? And specifically, do you still see additional opportunities for exports in the current environment?
We don't know if it's going to be six months or six years, so I'm just curious -- obviously, you have to deal with that on a day-to-day basis. How is that taken into account as you try to grow the Company long term?
Jim Teague
Well first of all you don't look at falling price you look forward on the curve and you look at what the curve says the market is going to be. And if you look forward Tony, $60, $65 in that environment we feel pretty good.
So we don't look at the days -- what is it $4 to $5 or whatever we don't look at as okay that's what it's going to be we look forward and see what the market thinks it's going to be in the future. Is that fair Tony.
Tony Chovanec
I mean clearly the markets are out of balance currently, they will not be out of balance forever.
Noah Lerner
Okay. So then you think the long-term price will be back up to that $65, $70 and the Strip is correct?
Tony Chovanec
More importantly I think that's what the market thinks.
Noah Lerner
Okay. So the market will contract with that belief with the long-term looking at several years?
Tony Chovanec
I think so.
Operator
.
Michael Blum
I guess just back to the LPG exports for a second. I understand that you are contracted out, but I guess I'm just looking for a little insight if you have it on what are the activity levels look like and how has that changed with the spreads in the ground?
Al Martinez
Actually the level hasn't changed there has been a lot of discussion and it will change but we're seeing it consistent we have had no cancellations. As Jim stated earlier we're -- based on our numbers we're contracted out, so our sport opportunities are very limited.
As an example as we hear people talking about the possibility of cancellations, we're still receiving inquires if we can provide spot opportunities. Through '17 we're under contract and so our spot opportunity is very limited, so we're focused on our current contracts.
Jim Teague
Michael I think a part of it I think is we've been doing this for long time and we've built up pretty strong relationships and we talk to our customers on a daily basis. So these guys -- I think if they are going to cancel somebody I don't think it's us first.
Michael Blum
Okay, no, that's very helpful. I appreciate it.
Just one or two other quick ones. So notwithstanding Oiltanking, which I guess I would view as sort of a special situation, I would say for the last few years, you've been more apt to focus internally because you've had such a big organic growth opportunity and less on M&A.
I guess my question is given the changing landscape and some more wounded, companies, and obviously, you guys are holding out much better, do you think that -- does that change your thinking at all in terms of how you think about corporate M&A?
Mike Creel
Michael I don't it changes the way we think about M&A, we've been active in the M&A market in the past and times where there were opportunities that made sense back in 2002, 2004 when companies were hurting. And you are right there is probably companies that are hurting today but they may be hurting a little more six months from today.
And if opportunities present themselves, assets that fit our system we will take a look at them but we're not going to chase them. And M&A has to compete with our organic projects as well.
So I don’t think our philosophy has changed overtime, I think the market has changed overtime and we act when it makes sense.
Michael Blum
Okay. And then last question, sort of a macro question.
Just effectively, just trying to get a -- what's your view of what's going to happen here to US NGL supply growth? Or do you think that will actually start to come down?
As crude production will come down here to some extent and some gas production, you've got a lot of associated gas and so there's obviously a big NGL component to that. Just kind of curious for your broad thoughts on where supply heads from here.
Tony Chovanec
Hi, this is Tony. We will start with oil we forecast what we think production is going to be in the U.S and Canada.
We show like most people do that oil volumes still grow in 2015, so you can expect the same for NGLs about 40% of our NGLs come from crude condensates. After that in a $60 to $65 environment the growth or both of those is going to change.
But I will tell you for both of those we do not see that growth going to zero or that trajectory turning around. And that’s not what we’re seeing from our customers, that’s not what you hear when you see them cutting our budgets.
There are high grading just like you would expect them to and keep in that curve somewhat upload on that. Well, we’re going to update those curves and publish them at our analyst meeting in a month.
Operator
Your next question comes from the line of John Edwards with Credit Suisse. Your line is open.
John Edwards
So I guess I just want to ask the question a little differently on the outlook. How are you seeing the opportunity set rotate in the current environment?
Either both positive and negative. You did say I think you are seeing natural gas processing in fractionation, if I heard you right.
That is being delayed, but any other comments you can make with respect to opportunity rotation that you're seeing?
Mike Creel
I think what you heard we way was that we were looking delaying the timing of the fractionator not the processing and we have a pretty robust capital program for 2015 and 2016. Going further out, it really depends on what our customers want and what the market needs, so again it’s hard to predict two years out where commodity prices are going to be and what producers want, but we think that if there is a prolonged slump in energy prices there is going to be fewer companies that can provide those midstream services and so we think we’re pretty well positioned.
John Edwards
Okay. So as far as specific change in the opportunity set, you are not really seeing it hit yet -- is that fair to say?
Mike Creel
We certainly see upstream customers we’re assessing their capital program which kind of grabs the need for some midstream asset, but again with the companies that are going to be stressed and when you go through a borrowing basic redetermination that's going to be coming up in the spring and again in the fall, it may be focused those companies on the need to sell assets. And again, if there are high quality assets at the right price that’s something that will consider, so it’s not difference in any other cycle that we’ve gone through, priority is changed if opportunity is changed.
Operator
Your next question comes from the line of Danilo Juvane with BMO Capital. Your line is open.
Danilo Juvane
All of my questions have been hit. But just as a quick follow-up, are there any bases and preference that you guys would like to acquire assets?
Jim, you mentioned the Eagle Ford and Permian has been pretty stable in this environment. Is that where you're focusing on being opportunistic?
Jim Teague
In terms of expanding?
Danilo Juvane
Yes.
Jim Teague
I think we are pretty well positioned in the Eagle Ford and we certainly are looking projects. We talked about what we were doing in the Permian and would love to do more.
Danilo Juvane
Any thoughts about entering a new basin -- the Bakken, for instance -- or is that too much of a risk at this point?
Jim Teague
Mike said it earlier that project that more coverage they’re probably deserved, go step further, we did that because a producer that we do a lot of business with ask us to do and were supporting us we can get the fraction on it. I think we felt it was a long shot from the beginning and maybe somebody else can do it, but we won’t able to pull it out and frankly I kind of glad we didn’t.
Operator
Your next question comes from the line of Charles Marshall of Capital One Securities. Your line is open.
Charles Marshall
I believe in your opening comments, you alluded to Oiltanking synergies coming on better than $30 million a year, can you quantify that’s the new synergy number?
Mike Creel
And here looking at me, we’ve got any -- we’ve got any coming out but once we get a better handle on that after the merger, we may add some additional color.
Charles Marshall
Okay, I appreciate that. And then just a follow-up on Oiltanking.
Can you quantify the CapEx spend related to those assets for 2015? Can you break that out for us or is that still lawyers in the room?
Mike Creel
I think that’s more appropriate for Oiltanking to answer.
Operator
Our last question comes from line of Andy Gupta with HITE Hedge. Your line is open.
James Jampel
Hi, it's actually James Jampel from HITE. Could you update your outlook for crude in the Gulf of Mexico, both short term and especially long term, if that $60 to $75 crude price bears out to be what really happens?
Tony Chovanec
Yes, this is Tony. Those Gulf of Mexico projects have a really long-life cycle.
And so thanks are going to come on three years from now started as much as five years or more ago, but the success of finding hydrocarbons in the Gulf of Mexico is substantial. What we've generally done on our production curves is delayed down from where we would have been two years ago.
But that doesn’t change what we're seeing in the resource at all. And that really is an function of price it's just a function of resources available and just regulation slowly takes down.
James Jampel
All right. Did you say a two-year delay?
Tony Chovanec
So it's a general rule where we might had I'm just going to give you a number where we might have had by 2018 say a number of 1.2 or 1.3 incremental barrels. That number might be at 700 today it doesn’t mean that rock changed it just mean those projects have slowdown.
James Jampel
So that's a substantial decline in the expected growth in the Gulf in the out years in your models?
Tony Chovanec
When we look at our model, our growth is actually above. We're just continued to push it out as this projects getting delayed not by decades just by years.
Mike Creel
That’s good from a macro standpoint, but recognize that the offshore is a pretty small component of our gross operating margin.
James Jampel
How do you see a impacting the need for further infrastructure in the Gulf?
Tony Chovanec
Our assets are very well positioned. As to what's going on with all the new oil in the Gulf of Mexico.
And we think there is going to be more assets needed in the Gulf of Mexico to move oil.
Mike Creel
And importantly we also have available capacity to move more volume in existing assets.
Tony Chovanec
Correct.
Bill Ordemann
Did you some flavor we're negotiating a deal right now this start up is supposedly 2019. So there is a lot of lean time on these projects.
Operator
And there are no further questions at this time. I'll turn the call back over to Randy Burkhalter for closing remarks.
Randy Burkhalter
Thank you, Stephanie. If you wouldn’t mind would you give our listeners the replay information before our call today?
And then when you finished go and give the call back to me as a few additional comments.
Operator
This call will be available for replay beginning at 1:00 PM Eastern time today to 11:59 Eastern time on February 05. The conference ID number for the replay is 6970-4569.
Again the conference ID number for the replay 6970-4569. The number to dial for the replay is 1800-58583-67 or 1855-85920-56.
Randy Burkhalter
Okay, thank you Stephanie. Before we conclude the call today I'll note that management has made reference during this call to the proposed merger of Oiltanking partners with a wholly owned subsidiary enterprise.
This conference call and any replay or transcript of the call do not constitute an offer to buy or a solicitation of an offer to sell any securities. In presence of the proposed merger Enterprise has filed a registrations statement with the SEC that includes a proxy statement of Oiltanking and a perspective of Enterprise.
The registration statement was declared effected by the SEC on January 9, 2015. On January 15, 2015 Oiltanking and Enterprise began nailing the definitive proxy statement prospectus to Oiltanking unit holders of record as of the close of business on January 02, 2015 record day.
Investors and security holders of Enterprise and Oiltanking are urged to read the documents filed with the SEC carefully in their entirety because they contain important information about proposed merger. Investors and security holders can obtain free copies of these documents and any other documents filed with the SEC our Enterprise or Oiltanking through the website maintained by the SEC at www.sec.gov.
Copies many also be obtained for free by directing a request to Investor Relations as 713-381-6812. Enterprise, Oiltanking and the respected general partners and the directors and certain other management of the respective general partners may be deemed to be participants in solicitation of proxies from the unit holders of Oiltanking in connection with the proposed merger.
Information about these people is set forth in each company's annual report on Form 10-K for the year ended December 31, 2013 and in subsequent statements of changes in beneficial ownership on file with the SEC. These documents can be obtained free of charge from the sources previously mentioned, other information regarding these people is contained in the proxy statement prospectus and other materials filed with the SEC.
Thank you for participating today's conference call today. That concludes the call, have a good day.
You may now disconnect.
Operator
Thank you for participating in today's Enterprise Products Partners fourth quarter 2014 earnings call. This concludes today's conference call.
You may now disconnect.