American Midstream Partners (AMID) Q4 2017 Earnings Conference Call Transcript

American Midstream Partners (AMID)
Q4 2017 Earnings Conference Call
March 12, 2018 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the American Midstream Partners Fourth Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions]. After today's presentation, there'll be an opportunity to ask questions.

[Operator instructions]. Please note, today's event is being recorded.I would now like to turn the conference over to Mark Schuck, director of investor relations. Please go ahead, sir.

Mark Schuck -- Director of Investor Relations

Thank you, Rocco. Good morning, everyone, and welcome to the Fourth-Quarter and Full-Year 2017 Earnings Call for American Midstream Partners. This morning, we issued our press release outlining our fourth-quarter and full-year results, which can found in the Investor Relations section of the partnership's website at americanmidstream.com. In addition, a replay of this call will be archived on the partnership's website for a limited time.

Please note the cautionary language regarding forward-looking statements contained in this press release. The same language applies to the statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements which are only accurate as of today, March 12, 2018. American Midstream Partners expressly disclaims any obligation to update or amend the information contained in this conference call to reflect events or circumstances that may arise after today's date except as required by applicable law.

For a complete list of the risks and uncertainties that may affect future performance, please refer to the partnership's periodic filings with the SEC. We will discuss non-GAAP measures on today's call. Please refer to the tables in our earnings release and presentation, both posted in the Investor Relations section of our website, to find a reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures.Leading off the call today will be Lynn Bourdon, president and chief executive officer, followed by Eric Kalamaras, senior vice president and chief financial officer. Lynn and Eric will discuss operational and financial results for the fourth-quarter and full-year 2017.

Afterward, we will open the call for questions. With that, I'll turn the call over to our chief executive officer, Lynn Bourdon.

Lynn Bourdon -- President and Chief Executive Officer

Thank you, Mark. We appreciate everybody joining us on the conference call this morning. Today, we will discuss our fourth-quarter and full-year 2017 results. We will also provide an update on the ongoing transformation of AMID into a fully integrated midstream company with the ability to fully participate in the midstream value chain, from well-head supply to downstream markets.

Before we discuss our operational and financial performance, I would like to look back at the cumulative steps we've taken to advance AMID's financial and strategic posture. During 2017, we acquired or announced approximately $1.8 billion in strategic growth transactions, including the acquisition of Southcross and Southcross Holdings, our second corporate merger in the past 12 months. As part of our capital-reallocation program, we have also announced or closed on $310 million worth of asset divestitures and announced our intention of exiting the remainder of our terminal business. These moves enable us to continue aggressively pursuing strategic opportunities that advance our ability to grow, compete, and thrive in the midstream space.

We have outlined and continue to execute upon a strategy that was designed to simplify our business while creating a partnership with meaningful scale and asset density in strategic operating areas. In February, we announced the sale of our refined-products terminals located in Caddo Mills, Texas, and North Little Rock, Arkansas, for approximately $138 million. This transaction shows our commitment and ability to harvest and then redeploy capital from non-core assets into strategic high-growth assets. This focused approach should more fully enable us to participate in the entire midstream value chain, allowing us to concentrate our investments and activities in a more productive manner, materially increasing growth and creating value for our unitholders.The Southcross transaction is a highly strategic move that allows AMID to enter the prolific Eagle Ford Basin in a meaningful way.

Their assets contain exactly the kind of connectivity and full value chain linkage that we find attractive. We will be connected to both strong indigenous supply and premium downstream markets that can provide the demand pull that's paramount for any long-term success for any gathering-and-processing system. In the Southeast, we are acquiring a system with strong demand pull from both industrial and residential customers. We also expect to link our existing AMID pipelines with the Southcross pipeline systems that will create a major gas-distribution network that can expand the reach of Marcellus gas into the Southeastern demand centers as well as the existing local market.

When we announced the Southcross acquisition, we said this was an absolute game changer for AMID, and it is. With these assets, we are no longer constraint by activity in a single basin reliant upon only the supply side of the equation. Rather, we now have the opportunity to vie for participation in the cross-basin activity and the ability to make significant organic capital investments. This transaction also advances our drive to move away from our pure-play gathering company with disseminated assets and transforms AMID into a more fully integrated midstream company.

I cannot stress enough the strategic value we see in this transaction, adding to the existing AMID asset footprint and equally as important the value it'll create for both the Southcross unitholders and the existing AMID unitholders. The collective teams are already hard at work on the integration of our two companies. While there are strategic and commercial opportunities tied to Southcross, they will inherently take longer to fully materialize. There are also numerous immediate synergies we have identified and will begin to realize upon closing.

Our teams have been working with the existing and new potential producers as well as end-users to strengthen the commercial opportunity set so that, once combined, we will already have a running start toward improving the performance of the business. The transaction is expected to be closed later in the second quarter of 2018 and we'll remain on that course. The Southcross unitholder vote has been scheduled for the end of March and we are excited to move toward the completion of this transaction and the ultimate integration of the two businesses.Prior to speaking to AMID's outlook for 2018, I would first like to comment on our continued commitment to safety. It would not be possible to efficiently and effectively operate our assets without the dedicated commitments to safety from all of our employees.

Safety is our No. 1 priority, and I am proud to say that during 2017 we had a best-in-class safety record, which is a direct reflection of the professionalism and commitment of our hard-working employees. As we enter the next phase of the partnership's transformation, I want to highlight the progress we have already made in generating meaningful value through capital investments and organic growth projects. While we will continue to pursue strategic transactions at accretive valuations, we are also acutely focused on pursuing new organic investment projects.Overall in 2017, we deployed over $68 million of new organic growth capital across our system, which we believe will generate significant returns over the next couple of years.

In 2018, we have already identified more than $80 million in new organic capital projects, and this is exclusive and new opportunities we expect to pursue with the Southcross assets, so these will not only be value-enhancing but will also position the partnership for accelerated growth. A perfect example of this is our Cayenne Pipeline project, which commenced full operations in late December of 2017. We were able to take capital from a non-core asset sale and redeploy it toward repurposing an underutilized dry-gas pipeline and altering its services into a natural gas liquid Y-grade pipeline. And just to give you a sense of the economic return of this project, we have been increased our EBITDA by over five times what the asset had previously been generating.The increased activity in the Eagle Ford and the Permian Basin, as well as the Bakken in North Dakota, continued to benefit our gathering-and-processing segment.

We have seen rig counts increase in these basins by roughly 50% in 2017. In addition, the efficiency gains these producers have realized are remarkable, allowing them to produce significantly more hydrocarbons per rig and per well. These efficiency gains, along with a roughly 40% increase in crude oil prices since mid-2017, have supported increased activity and we anticipate continued producer development in our core operating areas.During the fourth quarter, our natural gas-gathering producers brought on nine wells in the Eagle Ford and four wells in the Permian, bringing the total number of wells brought online in 2017 to 34 across these two systems. We anticipate further increases in activity with our anchor producers, guiding toward more than 70 well completions on these two systems during 2018.

We invested more than $5 million in 2017 and plan to invest an additional $13 million in 2018 to accommodate the increased drilling activity and associated new well connections in these two areas. Also during 2017, we converted over 8,400 horsepower of high-cost rental compression into our own units in the Eagle Ford Lavaca system. Owning this compression is a strategic investment that will not only provide enhanced reliability and flexibility for our customers but will also generate significant long-term returns.Our Permian Basin Silver Dollar crude oil pipeline continues to prove its strategic nature in the Permian Basin. We continue to see organic growth opportunities for the asset and late last year committed approximately $15 million toward strategic expansion projects for the system.

These projects, once complete, will be contributing more than 10,000 barrels a day of new throughput to the system. We're also hard at work on several new organic projects that will further expand our capacity to take on new production in 2018. And our growth is not relegated strictly to the gathering and processing of the liquid segments. We've seen several new projects develop throughout our Southeast transportation assets, including the AlaTenn and Midla-Natchez system.

Combined, we have or expect to deploy over $35 million in 2017 and 2018 to add new downstream customer volume to these systems. We continue to be encouraged by the strong industrial demand pull and higher fees across these assets, which continues to justify organic growth investment in these areas.Overall, our offshore segment continues to perform very well, especially the newly acquired Viosca Knoll and Panther pipelines that we acquired late in the third quarter of 2017. The Viosca Knoll pipeline allowed us to create an interconnected super system in the eastern Gulf of Mexico, providing seamless connectivity between offshore production, multiple residue market outlets, and processing options for rich gas coming onshore. Our assets are tied to some of the most prolific Gulf of Mexico offshore fields that are being developed by high-class operators.

As a result, our pipeline systems currently transport approximately 60% of all the natural gas produced in the Mississippi Canyon block and over 90% of the NGLs. In late 2017, our Delta House floating production system, or what we call the Delta House, volumes were curtailed due to a reduction in volume for a producer who delivers crude oil and natural gas to the system. The producer reduced volumes to address maintenance issues with some of their subsea surface equipment. This maintenance program has been scheduled to run through the mid-second quarter of 2018, at which time they're expected to resume full production.

For the fourth quarter, the average crude and natural gas volumes through Delta House were reduced by approximately 70,000 barrels a day of equivalent in the fourth quarter, or about 50% from the third-quarter averages. It is important to note that this volume reduction is only a temporary deferral and does not impact the total amount of production we expect to see from the field supporting Delta House. And as a further example of the tremendous support we have from our sponsor, ArcLight has agreed to offset the temporary drop in cash flows so that the partnership is not financially impacted this year by this event. We are taking advantage of the maintenance program and reduced flow to increase the gas-handling capacity to the system to allow Delta House to handle additional gas that is expected to come online later this year.

When full production resumes, we anticipate a quick ramp-up in volumes back to or actually above the original levels over the next couple of months. In addition, there are four new tie-backs already developed and waiting to flow into Delta House. These wells are expected to be flowing into Delta House in the second half of 2018 and are currently on schedule. When full production resumes, along with these four additional tie-backs, the total volume flow to Delta House will be in excess of 135,000 barrels a day equivalent crude oil.

So, as you can see, we continue to be excited about our investment and involvement in this facility and look forward to years of continued production from this area.We are pleased with our fourth-quarter results, which Eric will cover here in a minute, as we continue to work through our fast-paced capital-redeployment campaign. Despite this transitional nature that comes from such an active strategy, we are proud of what we've been able to accomplish with many moving parts, all while maintaining a strong coverage ratio and declaring our 26th consecutive quarterly distribution. As we continue to integrate the core assets while divesting those that are non-core, our cash-flow results may face some time lag. However, this activity will prove accretive to the results of the partnership throughout the entire year 2018 and beyond.

Lastly, we continue to remain focused on operational- and cost-efficiencies, allowing us to reduce costs and further increase unitholder value. We continue to invest in new internal systems that will greatly upgrade the efficiency of how we operate and will have meaningful value.Now, I'll turn the call over to Eric to discuss our financial performance.

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Thank you, Lynn, and good morning, everyone. During the fourth quarter and the entirety of 2017, our accomplishments are simply unprecedented. We continue to execute on our capital-optimization strategy by utilizing capital from non-core assets and reinvesting this cash in higher growth areas, all while creating a simplified business structure in a self-funding growth plan. As we have stated before, this strategy will enable us to create meaningful scale and asset density, allowing us to capitalize on strategic business opportunities and drive significant growth for our unitholders.It is important to remember the magnitude and breadth of transactions we undertook in 2017.

We closed the corporate merger with JP Energy, announced another one with the $815 million acquisition of Southcross, reallocated over $530 million of capital in eight highly accretive transactions, all while taking meaningful steps to increase the scale of the partnership's balance sheet. Furthermore, we successfully executed on several organic growth projects, allowing us to continue to make excellent progress in realizing value from our core businesses.For the fourth quarter and year-end 2017, net loss attributable to the partnership was $131 million, primarily driven by a non-cash impairment charge of $99 million related to certain non-core ancillary gathering-and-processing assets. The quarter and year-end 2017 adjusted EBITDA was $43 million and $176 million respectively. Distributable cash flow was $24 million and $91 million respectively over the same period.

On January 26, 2018, we announced a distribution of $0.4125 per common unit, or $1.65 annually. This distribution was paid on February 14, 2018. This represents the 26th consecutive quarterly distribution since our initial public offering in 2011. With this distribution, AMID growth returned approximately $86 million of capital back to unitholders just in 2017 alone.As we outlined in our announcement of the Southcross acquisition, we identified various non-core assets that will potentially be divested.

Earlier this month, we announced that a definitive agreement had been signed for the sale of our refined-products terminals business for approximately $138 million, the highly attractive multiple. We intend to execute on additional non-core asset sales over the coming months and expect to conclude that process commensurate with the closing of Southcross later in the second quarter. We have a suite of high-quality assets that have garnered significant interest in competitive processes and these processes are thorough and we will take our time to ensure we receive proper value. This will allow us to high-grade our assets at accretive multiples and enhance the balance-sheet profile of the partnership.

We remain steadfast in our strategy that our capital-optimization transactions must prove accretive with cash flow and the balance sheet, simplify our business, and ultimately drive growth for all stakeholders. The partnership has undergone tremendous positive change through 2017, all within the self-funding growth strategy that will continue to bear fruit as we progress through 2018. It is important to note that due to the tremendous amount of activity associated with an aggressive capital-redeployment program, our results have been transitory in nature. However, capital-reallocation should be substantially complete by the third quarter of 2018, allowing the partnership to become a more simplified investment.Moving on to the fourth-quarter performance.

The offshore segment gross margin was $22.9 million for the fourth quarter, a decrease of 6% compared to the same period in 2016. Cash distributions in the fourth quarter were $29.6 million, a 41% increase compared to the same period last year. Cash distributions increased due to additional equity ownership in two of our strategic investments in Delta House, where we increased ownership to 35.7%, and in Destin, where we increased our ownership to 66.7%. The partnership also realized a 19% increase in throughput volumes on the Okeanos pipeline.

We continue to remain very bullish on our offshore segment assets and the resource potential in the prolific deepwater of Gulf of Mexico. To put this into perspective, a typical deepwater Gulf of Mexico well is conservatively 20 times larger than the horizontal onshore well, with a fraction of the decline and initial productions exceeding 20,000 barrels of oil equivalent per day. Those numbers put in perspective, the abundant resource potential and shallow decline curves that support predictable and sustainable cash flow. As it relates to the maintenance work in Delta House, AMID has entered into an agreement with ArcLight that will offset potential near-term financial impacts to the extent it occurs, and this agreement simply underscores our strategic relationship we have with ArcLight, and as a result, ensures there will be minimal if any impact to AMID investors.Our gas gathering and processing gross margin was $11.2 million for the fourth quarter, an increase of 5% compared to the same period in 2016.

The increase reflects higher NGL volumes of approximately 75,000 gallons per day, a 46% increase from last year, [Inaudible] in our East Texas Assets attributable to the higher producer development activity. We anticipate increased volumes across our entire our gathering-and-processing segment through 2018. For instance, our anchor producer in Eagle Ford is planning over 55 new wells, which should translate into approximately 125% production growth, and has recently closed an acquisition adding significant acreage to their development area, which is 100% dedicated to American Midstream.Our liquid pipeline segment gross margin was $7.9 million for the fourth quarter, an increase of 3% as compared to the same period last year. Cash distributions were $2.3 million for the fourth quarter, a 77% increase compared to the same period in 2016.

Growth was driven by higher throughput volumes in Tri-States from new wells coming online as a result of platform work-overs. Additionally, there are significant 2018 growth opportunities around our Permian Basin and Bakken assets. In the Permian, we are evaluating multiple organic growth opportunities which will grow our asset footprint toward acreage being actively developed with undedicated volumes. There are also significant commercial opportunities to participate in the Permian-to-South Texas volume flow.

As production continues to increase, there are significant needs for additional crude, liquids, and associated gas takeaway capacity to premium demand hubs along the Texas Gulf Coast, namely Corpus Christi, and we are positioning ourselves to take advantage of this cross-basin activity. We are also encouraged by increased drilling activity on our Bakken assets, with the Williston Basin rig count increasing over 50% in 2017, and are currently evaluating organic growth projects which would produce double-digit returns. Natural gas transportation [Inaudible] gross margin of $6.3 million in the fourth quarter, approximately a 50% increase over 2016, primarily attributable to the acquisition of TransUnion in November of 2017. The partnership realized new firm transportation contracts and higher rates across our Southeast U.S.

infrastructure assets.As we move into 2018, we are encouraged by continued strong industrial demand, where the partnership is realizing higher tariffs. We've witnessed strong growth around our asset base and are evaluating organic growth opportunities which would generate more than 25% growth over full-year 2017 as we seek to increase cash flow from new contracts at higher rates. Our terminals segment gross margin was $7.6 million for the fourth quarter, down 32% compared to the same period last year. The decrease in gross margin was primarily attributable to reductions in storage and utilization at our Cushing terminal and higher operating costs.

This decline was partially offset by an increase in commodity sales at our refined-products terminals.Direct operating expenses for the quarter were $25 million, up 44% compared to the same period last year. Since 2016, we have significantly grown our asset base with a series of accretive transactions which enabled us to gain meaningful scale and build the foundation for significant organic growth. Through this scale and increased levels of efficiency, we have seen reductions in cost relative to our growth in cash flow. Similarly, the current corporate expenses for the fourth quarter were $14 million, although down 41% compared to last year.

We continue to move toward more simplified business with significant growth opportunities. As we grow, we're able to scale at a greater pace with less relative costs. And as we move forward, you should continue to see relationship between expense and EBITDA trend downwards as we scale as an organization. Interest expense for the fourth quarter excluding gains and losses or rate derivatives totaled $18 million, compared to $9 million last year.

The higher interest expense is the result of the 8.5% senior unsecured notes issued in December 2016, which was a critical step in allowing us to continue to execute on a strategic high-growth plan. We have effectively hedged rising-rate exposure and have experienced minimal, if any, impact from rising interest rates.Last year, we successfully executed a $125 million add-on to our existing senior unsecured note and this transaction priced a yield of 7.57% and net proceeds were used to reduce borrowings under our existing revolving credit facility. At year-end, we had a total debt of approximately $1.2 billion, inclusive of $690 million drawn under our senior secured facility, $418 million outstanding under our 8.5% coupon senior unsecured notes, and $88 million in non-recourse senior secured notes. The partnership also ended the year with approximately $178 million of notional available borrowings under our credit facility and total leverage of 5.3 times.

We have reduced our borrowings under our revolver by more than 20% since 2016 and have taken significant steps in positioning ourselves with capital flexibility to continue to execute on our strategy.For the quarter, non-acquisition capital expenditures totaled approximately $20 million, including approximately $2 million for maintenance capital. In conjunction with AMID's numerous organic growth projects, the partnership is well-positioned for materially higher 2018 and 2019 EBITDA and distributable cash flow. With the acquisition of Southcross, we expect annualized 2018 adjusted EBITDA to be more than $300 million. In addition, we see our distribution coverage growing through the back half of 2018 and significantly reduced leverage in 2019.

Now consistent with past practice, we will provide full-year pro forma guidance nearing the completion of the Southcross acquisition.In summary, the groundwork for a larger yet simpler American Midstream began in 2016 and as we continue through 2018, we have a partnership with more focus and scale in our core operating areas and an asset footprint that allows us to capture meaningful growth opportunities. And with that, I will turn the call back over to Lynn.

Lynn Bourdon -- President and Chief Executive Officer

Thanks, Eric. And I would like to reiterate our commitment to a defined strategy of creating a simplified and integrated midstream company with the ability to participate in entire midstream value chain. I think it is important to note that while we have made significant strides in executing on this strategy in 2017, we're not finished. We will continue to execute on our capital-optimization strategy and focus on growing our asset density in high-growth core areas.

We're very enthusiastic about the multiple investment opportunity sets that the Southcross transaction opens for AMID. It is a big step toward the next phase of our growth and it is a foundation from which we will position to grow organically and participate in a variety of acquisitive growth opportunities across the midstream value chain. Our asset base is growing, our scale and density are increasing, and we are positioning ourselves to participate in cross-basin activity and value-chain extension. There are meaningful and impactful opportunities that we are constantly evaluating across our core operating areas.

We will continue to make a considered effort toward creating value, driving growth, and generating meaningful returns for all of our stakeholders2017 has been a year where we set the stage to open a door to a tremendous set of organic investment opportunities as we move into 2018. And as such, we are excited about what the future holds in American Midstream story. Before we open up the call for questions, I would like to take a moment to thank all of our hard-working employees for their effort over this past year. As we have highlighted our tremendous accomplishment and growth, that does not come without the sacrifice and hard work of our valued employees.

I want to especially thank the individuals that have had to live and work through devastating weather-induced events in past year and continue to deal with the ongoing impact on their families and their homes. I also want to thank everyone for their continued focus on safety, as it is our No. 1 priority. We continue to believe that a safe company is a reliable company and ultimately the type of company our customers want to do business with.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator instructions]. Today's first question comes from Eric Genco of Citi.

Please go ahead.

Eric Genco -- Citi -- Vice President

Hey, good morning. Just wanted to better understand the support from ArcLight is coming to offset the Delta House drop. What is that specifically and how will that flow through? Is there an amount you can give?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Hey Eric, good morning. We wouldn't give a specific amount relative to that. I'd tell you, to the extent we needed it, it would come in just as cash, similar to what we've had in a prior instance with JP Energy.

Eric Genco -- Citi -- Vice President

Just so I am totally clear, the terminals sale that's being proposed, that is basically all the terminals that are in that segment, right now? And how much of the EBITDA that you had in the S4 for 2018 the $218.9 million, how much of that with terminals?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

That's a great question and a complex one. I don't want to get into specific assets as to how we would characterize those. It would suffice to say that with the sale that we have announced already, you can assume that that would be, say it's a decent portion. So I would say close to half, if you want to consider it that way.

And bear in mind, we will look at our sales on almost an asset-by-asset basis within that segment. And so, what that means is, as we look at the value of each of those assets, we may or may not sell any or all of them. And so, we've clearly announced indication to sell a meaningful portion and it's our expectation to do so but to the extent that we see value point that we think is best for the partnership to wait, then we may choose to take that approach as well.

Eric Genco -- Citi -- Vice President

I'm confused. The press release of February 20 said you're selling terminals for $130.5 million. What is assumed in that? I'm confused. Are you not selling the terminals? Are you selling part of it? Sorry, I maybe just misunderstood.

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

OK. So, the terminal that sale we announced for $130.5 million in February was for refined products. In addition to that, we also have Cushing terminal, we have the marine-born terminals, Harvey, Westwego, and Brunswick. Those are also available for sale but are not part of that package.

There is a separate process for those other assets and that separate process is undergoing as we speak.

Eric Genco -- Citi -- Vice President

OK. So, when you say half, essentially what you meant was basically half of what's in the segment in terms of margin, right?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Yes, sir.

Eric Genco -- Citi -- Vice President

OK. All right, I'll stop there and let others jump in. Thank you.

Operator

Our next question comes from Akil Marsh of Janney. Please go ahead.

Akil Marsh -- Janney -- Vice President

Hi. Thanks for taking my question. In regards to the preferred units as we think about 2018, will those be picked or there is a portion that can be paid out in cash?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Hi, Akil, good morning. This is Eric. The answer is that we expect, going through 2018, to be a combination of both. We will make the determination really on a case-by-case basis what's best for the partnership.

Our view has been all along to pay those as much in cash as possible. I think as Lynn mentioned, you go through a transitory nature like this and you do need to ebb and flow a bit with the timing of asset sales and when transactions come in to replace that cash flow. So it is a bit episodic but surely our plan, as we head to the back half of 2018, is for those to be substantially, if not entirely, cash-based.

Akil Marsh -- Janney -- Vice President

Great, thanks. And then on your -- you made some comments about deleveraging in the latter half of 2018 and into '19, and I know in the past you guys have talked about getting closer to 3.5 times within 18 months of the close of the Southcross transaction. Is that still the time frame we should think about things or is there a potential that could go 3.5 times earlier than that?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

I would say, it doesn't appear to be effective earlier than that. The thing you have to think about as we think of the leverage point is the total blended cost to capital and how we evaluate that relative to growth opportunities going forward. The 3.5 times leverage point we think is a really good leverage point [Inaudible] exit into 2019 time frame. Again, that is subject to a host of other transactional activities, but I'd tell you, given where we are today, I think the plan that we've set out speaks for itself in that we look to deleverage the growth, we delever some select asset sales and, I think, we're going to start trending to a spot here where we're going to be at a balance sheet level that we're just going to be much more comfortable with.

Akil Marsh -- Janney -- Vice President

Great, thanks. And then one last one for me. In regards to Silver Dollar, could you at all, if you're willing to say what the volume levels are currently in Silver Dollar? And what's the assumption in the pro forma number in terms of where the volumes for Silver Dollar will get to?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Sure. I mean, substantially, what you're seeing, when we report our other liquid pipelines, by and large, the substantial part of that in the press release is Silver Dollar. So we've got 36,000 barrels a day here. The bulk of that is going to be related to Silver Dollar.

Akil Marsh -- Janney -- Vice President

Fair enough. Thanks for your answers.

Operator

And our next question comes from Sunil Sibal of Seaport Global Securities. Please go ahead.

Sunil Sibal -- Seaport Global Securities -- Managing Director

Hi. Good morning, guys. I just wanted to understand the leverage metrics that you laid out, 5.3X. Could you clarify what is the kind of basis for that number? And then when you look at 3.5x of your target leverage, is that kind of a fair assumption exiting '19 or you could get to those levels before that? Thanks.

Lynn Bourdon -- President and Chief Executive Officer

Sure. I'll take the last part of your question first, please. So, as indicated, the long-run target of 3 1/2 is something we want to get to overtime. I think the next 18 months to 24 months is a reasonable time frame to get to that point.

Again, I wouldn't suggest that we'd get there necessarily sooner than that. The lion's share of the way you get there is really from growth in the assets as well. That takes time. And we certainly have a host of growth opportunities that we're looking to exploit.

There are ways we could potentially get there sooner but if you have a fairly robust organic growth profile, and we are moving to a more aggressive organic growth profile, it does take some time for that cash flow to show up as well. So I want to be flexible in how we think through that and not get too focused on the long-run target number because in between that point in time, we need to execute on growth that benefits everyone. And so, just want to be mindful of that. As it relates to your first question related to the pro forma leverage point, essentially the way that that works, and you may want to have an offline conversation with Mark on this following the call, but essentially the way it works is, it's going to be function of our LTM cash flow from the transactions, both ins and outs.

So when you look at the adjusted EBITDA that's reported on an actual basis, it won't be reflective of those trailing amounts. So, we can help you out with that offline but that's generally how it works.

Sunil Sibal -- Seaport Global Securities -- Managing Director

OK, got it. And then just one clarification on the terminal asset sale. So, gross margins in the terminal segment running close to $38 million. So from what you have sold in the first transaction which you announced in February, you said half of that and the cash proceeds are about $138 million.

Is that the right way to think about that?

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Yes, sir.

Sunil Sibal -- Seaport Global Securities -- Managing Director

OK, got it. Thanks.

Operator

And ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to management for any final remarks.

Lynn Bourdon -- President and Chief Executive Officer

Thank you, operator. We want to thank everybody for joining us today on the call. We continue to look forward to future discussions with you and we certainly look forward to the close with Southcross and Southcross Holdings here in the next couple of months and continuing to grow the business for AMID. Thanks so much.

Duration: 38 minutes

Call Participants:

Mark Schuck -- Director of Investor Relations

Lynn Bourdon -- President and Chief Executive Officer

Eric Kalamaras -- Senior Vice President and Chief Financial Officer

Eric Genco -- Citi -- Vice President

Akil Marsh -- Janney -- Vice President

Sunil Sibal -- Seaport Global Securities -- Managing Director

More AMID analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.