Midcoast Energy Partners, L.P. Investment Community Presentation. March 2014

Transcription

1 Midcoast Energy Partners, L.P. Investment Community Presentation March 2014

2 Forward Looking Statement This presentation includes forward-looking statements, which are statements that frequently use words such as anticipate, believe, continue, could, estimate, expect, forecast, intend, may, plan, position, projection, should, strategy, target, will and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results are beyond the ability of Midcoast Energy Partners, L.P. ( MEP ) to control or predict. Specific factors that could cause actual results to differ from those in the forwardlooking statements include: (1) changes in the demand for or the supply of, forecast data for, and price trends related to crude oil, liquid petroleum, natural gas and natural gas liquids, including the rate of development of the Alberta Oil Sands; (2) MEP s ability to successfully complete and finance expansion projects; (3) the effects of competition, in particular, by other pipeline and gathering systems, as well as other processing and treating plants; (4) shut-downs or cutbacks at MEP s facilities or refineries, petrochemical plants, utilities or other businesses for which MEP transports products or to whom MEP sells products; (5) hazards and operating risks that may not be covered fully by insurance; (6) changes in or challenges to MEP s rates; and (7) changes in laws or regulations to which MEP is subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance. Forward-looking statements regarding drop-down growth opportunities are further qualified by the fact that Enbridge Energy Partners, L.P. is under no obligation to offer to sell us additional interests in Midcoast Operating, and we are under no obligation to buy any such additional interests. As a result, we do not know when or if any such additional interests will be offered to us to purchase. In addition to the risks listed above, other risks include those detailed from time to time in MEP s Securities and Exchange Commission, or SEC, reports, including, without limitation, in MEP s prospectus related to its initial public offering, dated November 6, 2013 and filed with the United States Securities and Exchange Commission on November 8, 2013, and any subsequently filed annual, quarterly or current reports, which filings are available to the public at the SEC s website ( 1

3 MEP Organizational Structure Enbridge Inc. (NYSE: ENB) ~21% interest (indirect) (including GP interest) Enbridge Energy Partners, L.P. (NYSE: EEP) 100% ownership interest Other Subsidiaries 100% ownership interest Midcoast Holdings, L.L.C. 52% LP interest Public Unitholders 21,275,000 Class A Common Units 2% GP interest 46% LP interest 61% LP interest Midcoast Energy Partners, L.P. (NYSE: MEP) 100% ownership interest 100% GP interest Midcoast OLP GP, L.L.C % LP interest 0.001% general partner interest Midcoast Operating, L.P. Midcoast Operating Ownership as of February 14, % ownership interest Operating Subsidiaries 35% ownership interest Texas Express NGL System Joint Venture 2

4 Near-Term Current State Past State MEP: Focused Gas Operations Gas & Liquids Operations Gas-Focused Operations Liquids-Focused Operations Enhances Strategic Focus of Each Partnership Increases Ability to Respond to Market Opportunities Creates Drop-Down Opportunity for MEP Near-Term Actions 1 st Drop-down post-ipo mid-2014 (~$300 - $500 million) Execute on organic growth program 3

5 MEP Investment Proposition Predictable Distribution Growth Enhanced Access to Capital Strong Sponsor and Management Large Scale, Diversified Business Large Scale, Diversified Business Strategically Strong Positioned Sponsor and Management Asset Base 4

6 Atlas Pipeline Crestwood Regency Energy Midcoast DCP Midstream Targa Resources Markwest Summit Midstream Crosstex QEP Midstream Western Gas Access Midstream EQT Midstream FTSE NA REIT S&P 500 Utilities 10-Yr Treasury Notes S&P 500 Investment Highlights Attractive Yield MEP Business Overview 39% interest in Midcoast Operating 10% 9% 8% 7% 6% MEP: 6.1% Large scale natural gas/ngl midstream business positioned in key producing basins Offer integrated solutions across the midstream value chain Gathering, Processing, Treating, Compression and Transportation 5% Peer Average: 5.1% NGL Takeaway 4% 3% Natural Gas Logistics and Marketing Key Assets Deliveries of ~ 2.5 bcf/d 2% 1% Gathering & Transportation Pipelines Processing Capacity (26 plants) 11,400 miles of pipe 2.3 Bcf/d 0% * As of February 26, 2014 Midstream MLP s * Other Asset Classes* Treating Capacity (11 plants) 1.3 Bcf/d NGL Production 88,246 bpd (2013) Texas Express NGL system (35% interest) 280 Mbpd 5

7 Natural Gas business ownership Predictable Distribution Growth EBITDA Growth Supported by Drop-downs and Organic Growth Target: Mid-Teens Annual Distribution Growth Through % 61% 39% IPO IPO NTM /30/ e 2017E (2) MEP EBITDA Growth Through. MEP to Acquire 100% of Midcoast Operating within 5 years 1st Drop-down post-ipo targeted mid-2014 ~ $300 $500 million Secure and execute on ~ $1 billion capital program through 2017 Positioned for commodity price recovery (1) Compounded annual distribution growth rate. Target annualized minimum quarterly distribution is $1.25/unit. (2) Based on estimated distribution growth. 6

8 Strong Sponsor and Management Leveraging Enbridge Inc. & Enbridge Energy Partners, L.P. Strong Sponsors Enbridge Inc. (ENB) A-/Baa1 $36 billion equity market capitalization Enbridge Energy Partners, L.P. (EEP) BBB/Baa2 $11 billion equity market capitalization Sponsor will continue to provide: Financial Support and Risk Management Operational Oversight and Management Major Project Execution and Risk Mitigation Energy Partners, L.P. Commercial and Investment Review Oversight Note: Standard & Poor s/moody s credit ratings respectively. Market capitalization as of December 31, MEP s Growth and Development Aligned with and Supported by Sponsors 7

9 Strategically Positioned Asset Base Anadarko System Ajax Processing Plant in service 3Q 2013 Midcoast Business Segments Gathering, Processing & Transportation: strong asset foundation ~ 90% EBITDA Logistics & Marketing ~ 10% EBITDA Texas Express NGL System In service 4Q 2013 North Texas System Petal East Texas System Beckville Processing Plant expected in service 1Q 2015 Logistics and Marketing 250 transport trucks, 300 trailers, 205 rail cars, TexPan Liquids Rail Facility 8

10 Business Opportunities Gathering, Processing & Transportation Logistics & Marketing Enhance end-market access Expand condensate treating, stabilization, and liquids takeaway Pursue vertical integration opportunities Specialty services for off-spec products CLINE SHALE Optimize Asset and Commodity Value EAGLEBINE COTTON VALLEY NGL Logistics & Marketing Accretive growth Capture rich gas processing opportunities New pipeline laterals, NGL laterals, and compression projects Increase processing capabilities System optimization Pursue accretive acquisitions Extend geographic reach Complement and diversify existing asset footprint Risk Management Natural Gas Marketing Gathering, Processing & Transportation Bundled Service Offering Market Origination & Downstream Pathing Condensate Marketing 9

11 Texas Express Overview of Assets Participation in natural gas and NGL value chain NGL Mainline System JV with Enterprise Products Partners (35%, operator), Midcoast Operating (35%), Anadarko Petroleum Corporation (20%) and DCP Midstream (10%) 580-mile, 20-inch NGL pipeline originates from Skellytown, TX to Mont Belvieu NGL hub Initial capacity of ~280,000 Bpd; expandable to ~400,000 Bpd Anchored by 10-year ship-or-pay contracts + 5-year dedication NGL Gathering Systems Description of Assets JV with Enterprise (45%), Midcoast Operating (35%, operator) and Anadarko (20%) Phase 1 of gathering system complete Entered service 10/31/2013; Total capital cost $1.1B 1 Strategic Benefits Addresses Mid-Continent, Rockies and West Texas NGL constraints Enhances our competitive position by providing greater access to Mont Belvieu fractionation Texas Express Footprint Skellytown New NGL Gathering Gathering Pipelines Under Construction Texas Express Mainline Proposed Gathering Pipelines Gathering Pipelines Under Construction Texas Express Mainline Proposed Gathering Pipelines (1) Estimated proportionate cost to Midcoast Operating for construction of both the mainline and gathering systems is $400 million; excludes linefill capex and capitalized interest. 10

12 Large Scale, Diversified Business Building on Existing Strengths MEP Business Strategy Maintain safe and reliable operations Pursue accretive acquisitions Pursue attractive organic growth opportunities Enhance the profitability of our existing assets Conservative and flexible capital structure Midstream Peer Comparables (1) Company 2012 Gas Processed (MMcf/d) 2012 NGLs Produced (Bpd) DCP Midstream 6, ,914 Enterprise Product Partners 6, ,600 Targa Resources 2, ,700 Midcoast Operating 1,975 97,428 MarkWest Energy Partners 1,674 42,400 Williams 1, ,000 Crosstex Energy Services (2) 1,350 27,813 Devon Energy (2) 1,047 73,200 Energy Transfer 1,045 94,600 Contract Mix by System Diverse Customer Base Anadarko System: ~30% fee-based, ~70% commodity-sensitive East Texas System: ~60% fee-based, ~40% commodity-sensitive North Texas System: ~30% fee-based, ~70% commodity-sensitive Texas Express NGL System: ~100% fee based (Aaa / AAA) (Ba2 / BB-) (A3 / A-) (NR / B) (Baa2 / BBB) (B1 / B+) (NR / NR) (NR / NR) (Ba2 / BB) (A3 / A-) (Baa1 / BBB+) (B2 / B+) (1) Source: Hart Energy Midstream Monitor September 3, Midcoast Operating not included in the survey. (2) Devon Energy and Crosstex Energy announced the signing of definitive agreements to combine midstream operations on October 21,

13 Large Scale, Diversified Business Enhancing Competitive Position Offering Integrated Solutions Across Midstream Value Chain 12

14 Financial Outlook 2014 Midcoast Operating, LP 2014e Adjusted EBITDA* $235 - $265 Depreciation $140 $150 Operating Assumptions Midcoast Energy Partners (MEP) Adjusted EBITDA (1) $105 $125 Distributable Cash $75 $95 Risk Profile (before hedging) (2) Natural Gas Volumes (MMbtu/d) Anadarko East Texas 1,100 1,200 Commodity 55% Fee-Based 45% North Texas Risk Profile (after hedging) (2) 2,250 2,420 NGL Production (Bpd) 88,000 92,000 Hedged 35% Fee-Based 45% MEP Coverage Target > 1.20x Commodity 20% (1) Adjusted EBITDA includes equity earnings from joint venture investment in Texas Express NGL system. (2) Based on forecasted gross margin for 12 month period ended 9/30/2014. Excludes $19.6 million of distributions attributable to our 35% interest in the Texas Express NGL System. 13

15 Capital Forecast & Available Liquidity 2014 Capital Expenditures (1) Available Liquidity Beckville Gas Processing Plant $110 $ millions $850 MM Credit Facility Well Connect Expansion Capital 50 Texas Express NGL System 20 Expansion Capital 140 Maintenance Capital 65 Total Capital $385 Debt / EBITDA ~ 1.2x at IPO (2) 1 st Drop-down targeted in mid , Available Liquidity /31/2013 At IPO 11/13/2013 Utilized Available Credit 100% Debt funded Target < 3.0x Debt / EBITDA MEP Credit Facility Midcoast Operating Working Capital Facility $850 MM $250 MM (1) Represents Capital Expenditure forecast at Midcoast Operating L.P. level. Capex to be proportionally shared between EEP and MEP based on ownership interest in Midcoast Operating (MOLP). (2) Midcoast Operating and MEP are co-borrowers under the credit facility. Leverage metric calculation per the Credit Agreement: Debt at MEP / Midcoast Operating EBITDA. 14

16 Key Takeaways Predictable distribution growth ~ mid-teens CAGR through 2017 Visible drop-down opportunities 1 st drop-down post-ipo expected mid-2014; anticipated 100% debt-funded Accretive organic growth projects Large-scale, strategically located assets Offering integrated solutions across midstream value chain Positioned to respond to market opportunities Attractive Yield + Visible Growth = Solid Value Proposition 15

17 Appendix

18 Financial Support from Sponsors Purpose Borrower Financial Support Agreement Derivative contracts, natural gas purchasing agreement and NGL purchase agreement support Midcoast Operating, L.P. Working Capital Agreement Working capital financing Lender(s) Enbridge Energy Partners, L.P. ( EEP ), EEP subsidiary or EEP affiliate Amount Not to exceed $700 million of the aggregate net realizable financial obligations under letters of credit and parental guarantees $250 million revolving Pricing 250 bps annual fee 1-month Libor bps; 42.5 bps commitment fee Closing Closing of the initial public offering Maturity Security Termination Provision The earlier of: (1) four years following closing; and (2) the date EEP owns less than 20% of Midcoast Operating Unsecured, provided that if the senior credit facility of MEP becomes secured, these facilities will be secured on a second-lien basis; subordinated to senior credit facility of MEP The agreements can be terminated by Midcoast Operating at any time provided that EEP is given one month s advance written notice. In addition, the Agreement will be subject to standard termination provisions. 17

19 Logistics and Marketing Segment Origination Downstream Pathing Gas Marketing Market natural gas primarily at local market centers and major market hubs Utilize third-party transportation and storage contracts to facilitate marketing efforts Condensate Handling Condensate Takeaway Solutions Condensate Marketing Market condensate and crude oil primarily through direct sales to oil companies and refineries Utilize our TexPan railcar facility and an approximately 40-mile crude oil pipeline, crude oil barge loading facility and associated crude oil storage facility in Mississippi Bundled Service Offering Trucking & Logistics ( First-mover ) NGL Marketing Market natural gas liquids primarily at local market centers and major market hubs Utilize third-party transportation, fractionation and storage contracts, as well as our owned or leased trucks, trailers and railcars to facilitate marketing efforts Use over 250 transport trucks, over 300 trailers and approximately 305 owned or leased railcars 18

20 Composite NGL Gallon Price History Attractive Entry Point in NGL Cycle Distribution growth enhanced by cyclical NGL price improvement ($/gallon) $1.40 $1.30 $1.30 $1.20 $1.00 $0.85 $0.93 $1.10 $1.03 Average: $1.01 $0.93 $0.84 $0.86 $1.14 $1.02 $0.80 $0.77 $0.60 $ LTM 6/30/13 NTM 9/30/14 Source: Bloomberg. Note: Historical prices represent average Mont Belvieu spot price. (1) As of October 11, Based on OPIS forward prices, as adjusted to take into account third-party market analysis and management s judgment. (2) Based on PIRA and IHS projections dated October 14, 2013 and September 20, 2013, respectively. (1) 2017E PIRA 2017E IHS (2) (2) 19

21 Disciplined Hedging Policy Hedging Policy No speculative positions Requires Midcoast Operating to hedge on a rolling quarterly basis Hedging targets: 70% hedged in year 1; 50% hedged in year 2 Direct product hedging 2014 Estimated Commodity Positions & Hedged Cash Flows Physical Hedge Hedged Weighted Avg Value % Volume Hedge Price** $ MM Natural Gas 11,781 MMbtu/d 81% 9,500 MMbtu/d $3.95 /MMbtu 13.7 C2 5,114 bpd - - bpd $0.00 /gallon - C3 6,480 bpd 60% 3,900 bpd $0.93 /gallon 55.7 ic4 1,422 bpd 25% 350 bpd $1.64 /gallon 8.8 C4 2,163 bpd 57% 1,225 bpd $1.53 /gallon 28.7 C5 1,295 bpd 78% 1,008 bpd $1.90 /gallon 29.4 Total NGLs 16,474 bpd 39% 6,483 bpd Condensate 3,316 bpd 73% 2,430 bpd $89.88/barrel 79.7 Hedged Commodity Gross Margin * Represents Estimated Commodity Positions for the Gathering, Processing and Transportation Segment of Midcoast Operating, L.P. Unaudited, $ in millions. ** Options valued at their strike prices to determine hedged cash flows. 20