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Enterprise Products Partners L.P. (NYSE:EPD)
Q4 2018 Earnings Conference Call
Jan. 31, 2019, 10:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good morning. My name is Tiffany and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key. Thank you.

Randy Burkhalter, you may begin your conference.

Randy Burkhalter -- Vice President of Investor Relations

Thank you, Tiffany. Good morning everyone and welcome to the Enterprise Products Partners Conference Call to discuss fourth-quarter 2018 earnings. Our speakers today will be Jim Teague, Chief Executive Officer, and Randy Fowler, President and Chief Financial Officer of Enterprise's General Partner. Other members of our senior management team are also in attendance and available for questions for the call today.

During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements.

And with that, I'll turn it over to Jim.

Jim Teague -- Chief Executive Officer

Thank you, Randy. Our business has continued to perform well during the fourth quarter and throughout 2018. The fourth quarter capped off a very strong year on a consistent theme achieving operational milestones and setting financial records. In total, we reported eight operational financial records in the fourth quarter. Our liquid pipeline volumes, our natural gas pipeline volumes and propylene production volumes all set records. This operational performance supported our fourth quarter record gross operating margin of $2.1 billion compared to 1.5 for the same quarter in 2017 and provided a 1.7 times coverage compared to 1.4 for the same quarter last year. That 1.7 normalized was 1.5. The same thing was true for the total year of 2018 where we set a total of 23 operational and financial records. Distributable cash flow increased 33% to $6 billion giving us a 1.6 coverage for the year. We retained $2.2 billion of DCF at 155% increase from the 867 million we retained in 2017.

As to returning value to our unitholders, we now have increased our distribution for 20 consecutive years. On the heels of this kind of performance and the confidence we have in our future, today we also announce that our board has authorized a $2 billion multi-year, common unit buyback program. In order to position Enterprise to return more capital to the investors, we believe the first step was to stop diluting our equity investors and to strengthen our credit metrics, which we have done.

We believe the authorization of a new buyback announced today is a significant tool in our toolbox. We've completed $6.4 billion of new assets since 2017, all of which are connected to several parts of our value chain. We have another $6.7 billion under way. Also, we continue building assets in the Permian. We have already committed more than $6 billion of capital to projects in the Permian. Our Permian asset base now includes natural gas processing and related gathering, NGL natural gas and crude oil take away and a good additional crude oil segregation and storage. We're also building two new NGL fractionators in Mont Belvieu and expanding our LPG Export capabilities in order to handle significantly more liquids from the Permian Basin and beyond. Our Permian natural gas processing now includes three plants at our Orla complex and our recently announced Mentone gas plant. Two of the three Orla plants were put into service in 2018 with the third scheduled to be in service in the second quarter of '19. The nearby Mentone plant is scheduled to come online the first quarter of 2020. Upon the completion of these facilities, we will have over 1.5 BC EBITDA of natural gas processing capacity and over 250,000 barrels a day of liquids production in the Permian.

These NGOs are pointed toward Enterprise Products' collection of west to east NGL pipelines which will soon include our Shin Oak pipeline scheduled for completion in the second quarter of this year. In addition to NGL's from our plant, Shin Oak is contracted for over 200,000 barrels a day of capacity to Apache, who has committed all of their NGL production from their Alpine High and the Delaware Basin to Enterprise. And natural gas in combination with the energy transfer, we have recently completed the expansion of our west to east Texas natural gas system including putting the Old Ocean pipeline back in service in order to move more Permian production toward the Gulf Coast. For Permian crude, our Midland to Eastern pipeline moved up to 550,000 barrels a day of crude oil in 2018 and served as the only new and big relief valve for Permian producers. We are in the process of commissioning our Seminole NGL conversion project, which is expected to be complete by April, but will be in limited service in February and March. That capacity will be made available to a third party who has contracted for over 200,000 barrels a day under a long-term agreement.

In addition, the government is back open and as we speak, we have a team in Washington submitting our application with the Maritime Administration to build an offshore port in water deep enough to fully load V LCC crude carriers. Once completed, we expect to be able to load a tanker at 85,000 barrels per hour giving us the capability to load 2 million-barrel VLCC in 24 hours. One component needed for a successful terminal is price transparency. In September, CME announced a new WTI Houston Crude Oil Futures contract with not one, but three delivery points on the Enterprise system.

Another component key to a terminal success is access to supplies. Enterprise's supply position coupled with our Houston area storage and distribution network offers unmatched connectivity and supply aggregation. Our terminal will have all the necessary components -- supply aggregation, open connectivity and price transparency. Our crude oil business model is not new. It looks like our NGL business model. Our attitude is, if it isn't broken, don't change it. We continue to write the book on midstream services to the petrochemical industry which is growing faster on the Gulf Coast than any place in the world. Because of what's happening with Shell and the feedstocks provided by it, Texas and Louisiana have moved into the global leadership position in ethylene production and we believe there's more on the way. This ethylene growth is the driver of a significant opportunity in petrochemical midstream services, which Enterprise is situated to fill.

Construction is under way on our ethylene distribution and export facilities, which includes construction of a new dock, storage facilities and a 24-mile ethylene pipeline from Mont Belvieu to Bayport, Texas. The new ethylene export terminal expected to be in limited service in the fourth quarter of '19 will support the growing US ethylene production by providing low-cost ethylene producers the flexibility to access international markets. In addition to the world scale PDH put into full commercial service last April, which converts propane into polymer-grade propylene, we're working with several parties on an additional PDH in Mont Belvieu. Given our footprint in propylene, we have also opened up our storage and distribution systems to third parties which has significantly increased volume and liquidity. Construction is on schedule on our IBDH facility which should be completed in the fourth quarter of this year. This plant will extend our butane value chain and allow full utilization of our octane enhancement and high purity isobutylene facilities. We expect to continue to develop and grow our petrochemical midstream services.

I'll close by saying that between our supply position, our market connectivity, the projects we have under way plus the prospects we have under development, we have never seen this much momentum, energy and opportunity. I close by saying thank you to our most valuable asset, our employees. I've been around a long time and I have never seen an organization that has the creativity, the work ethic and a culture of teamwork than they do. Our employees are what make Enterprise the high-performing organization that we are. And they are truly appreciated. I'll turn it over to Randy.

Randy Fowler -- President and Chief Financial Officer

Thank you, Jim, and good morning. Starting with the income statement for the quarter, a net income attributable to limited partners for the fourth quarter of 2018 was $1.3 billion or $0.59 per unit on a fully diluted basis. This included $239 million or $0.11 per unit in non-cash mark to market gains in $29 million or one penny per unit of non-cash impairment losses. This represents a 29% increase in adjusted earnings per unit versus the comparable EPU for the fourth quarter of 2017. Distributable cash flow excluding nonrecurring items for the fourth quarter of 2018 increased 19% to $1.5 billion compared to the fourth quarter last year. We retained $662 million in excess distributable cash flow in the quarter and had distribution coverage of 1.5 times. 2018 DCF excluding nonrecurring items was up 31% compared to 2017 and 29% on a per unit basis. As Jim mentioned, we retained approximately $2.2 billion of DCF for 2018.

Cash flow from operations for 2018 increased 31% to $6.1 billion compared to 2017. And in traditional terms, our payout ratio, so if you would, our cash distributions as a percent of cash flow from operations was approximately 52% with respect to the fourth quarter of 2018 and approximately 62% of cash flow from operations with respect to the full year of 2018. Free cash flow was $738 million for the quarter and a record $2 billion for 2018, which is a 50% increase compared to 2017.

Capital investments, we placed approximately $600 million of growth CapEx into service during the fourth quarter, including the second processing train at the Orla complex. We have another $6.7 billion of major capital projects under construction. Additional projects added since our last earnings call include an incremental deisobutanizer and isomerization capacity at Mont Belvieu, which will be placed into service in 2020 and 2022 respectively. Our capital investments in the fourth quarter of 2018 were $1.2 billion including 106 million in sustaining CapEx. On a full-year basis, our capital investments were $4.5 billion including 321 million of sustaining CapEx. In addition, we spent another $72 million on pipeline integrity and maintenance that was expensed.

We currently expect capital investments for 2019 to be in the range of 3.5 to $3.9 billion, which includes 3.1 to 3.5 billion of growth capital expenditures and $350 million of sustaining capital expenditures. For 2019, we also currently expect to receive approximately $645 million of cash contributions from partners in jointly owned projects including from the exercise of an option by Apache Spark Altus Midstream to acquire a 33% interest in the Shin Oak NGL pipeline. So, in terms of net growth CapEx, in 2019, after subtracting the expected cash contributions from our partners related to Shin Oak in the ethylene export marine terminal, our growth CapEx for 2019 could range between 2.5 and $2.9 billion. So, in 2019, if we were to only replicate 2018 cash flow from operations of $6.1 billion and assume these net capital investments, this would imply 2019 free cash flow potential in the range of 2.9 to $3.2 billion or about a 50% increase compared to the $2 billion of free cash flow we reported in 2019.

Moving to our balance sheet, at December 31, 2018, our total debt principal outstanding or our debt principal outstanding was $26 million. Assuming the first call date for our hybrids, the average life of our debt portfolio was 14.5 years. Assuming the maturity date of the hybrids, the average life of the debt portfolio was 19 years. Our effective average cost of debt was 4.7% and 99% of our debt portfolio was fixed at a fixed rate debt as of December 31. In a rising rate environment, we think this was a great position to be in. It also reflects that we finance long-term assets with long-term capital. Adjusted EBITDA for 2018 was $7.2 billion and our consolidated leverage ratio was 3.5 times after adjusting debt for the partial equity treatment of the hybrid debt securities by the rating agencies and further reduced by unrestricted cash. If we normalized the EBITDA for approximately $400 million of wider spread opportunities than normal in 2018, we estimate our debt to normalize EBITDA. Our ratio was 3.7 times. We are targeting normalized leverage in the 3.5 times area.

Our consolidated liquidity was approximately $6.3 billion at December 31, 2018, which included available borrowing capacity under our credit facilities and unrestricted cash. Moving on to equity issuances and redemptions, Enterprise received approximately $89 million of net proceeds from the distribution reinvestment program and employee unit purchase programs during the fourth quarter of 2018. As mentioned on last quarter's call, the distribution reinvestment plan will not have a discount offered in 2019. When the equity price fell in December, Enterprise bought back just over 1.2 million units at an average price of $24.92 which exhausted an existing buyback program that dated back to December of 1998. The indicative DCF per unit yield was approximately 11% on this buyback.

As Jim mentioned, this morning we announced a $2 billion multi-year buyback program to opportunistically return capital to investors. The utilization of this program will be dependent on a number of factors including our financial performance, our financial flexibility, the amount of organic growth projects and acquisitions that have higher potential returns on capital and complement our existing footprint of assets, also, in maintaining our leverage target in the 3.5 times area as far as debt to normalized EBITDA, with the hybrids receiving partial equity credit. Additionally, we got it this morning that we intend to recommend to the board an increase of a quarter of a cent per unit per quarter which is consistent with the rate of increase through 2018. This leads to a full-year of 2019 expected payment of $1.76 1/2 cents per unit which is a 2.3% increase over that declared with respect to 2018.

And with that, Randy, I think we can open it up to questions.

Randy Burkhalter -- Vice President of Investor Relations

Thank you, Randy. Tiffany, we're ready to take questions now from our listeners. And before we start, I would like to reiterate please limit your questions to one question and one follow-up, please. Thank you. Tiffany, we're ready.

Operator

At this time, if you would like to ask a question, please press * followed by the number 1 on your telephone keypad. Again, we ask that you please limit yourself to one question and one follow-up. Your first question comes from the line of Spiro Dounis with Credit Suisse. Your line is open.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning, everyone. I just wanted to start off on the CapEx guidance for 2019 if we could. It looks like a step down from prior comments around it being at least 3.5 billion. And so, obviously, there's a lot of moving parts there around JV contributions, but just compares to what you just said was bridge those comments with the current guidance range.

Randy Fowler -- President and Chief Financial Officer

Yeah, no. Honestly, it's consistent because the $3.5 billion number is a gross number before we apply what we expect will be $645 million of contributions from partners on the Shin Oak pipeline. Again, assuming that Altus Midstream elects to exercise their option plus the contributions that we'll get from Navigator around the ethylene export dock. So, if you would, all we're doing is just taking it from a gross number to a net number.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Okay. That's helpful. And then, just on the buyback program, great to see that reupped. I'm just curious. You talked about it a little bit, but how to think about the catalyst that makes you use it. Is it really just a function of the stock price assuming your other metrics are kind of where they should be? And more broadly, did you consider maybe a more systematic approach as opposed to opportunistic where maybe you're just buying a certain percentage back every year or every quarter or whatever the case may be?

Randy Fowler -- President and Chief Financial Officer

Systematic doesn't feel real good at this point. We might get to that. I think really what our drivers are right now is one, the financial performance of the company keeping up and then we're looking to come in and try to capture good returns on capital and what's the implied DCF per yield that's offered in the market in buying back units compared to organic growth capital projects where we can come in and get good returns on capital, not only incremental returns on capital but also what would that project bring to additional cash flow to our existing footprint. And then the final thing is also where our leverage is because we do not plan on leveraging up in order to come in and buy back units.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Appreciate that color. Thanks, Randy.

Operator

Your next question comes from the line of Jean Ann Salisbury with Bernstein. Your line is open.

Jean Ann Salisbury -- Bernstein -- Analyst

Hi. Good morning. It sounds like you are commissioning Seminole as crude now but not Shin Oak just yet. I'm just wondering if that's the case, where are the old Seminole NGLs going? I thought that you were in allocation so the Seminole couldn't happen until after Shin Oak.

Jim Teague -- Chief Executive Officer

We'll let Tug Hanley answer that, Jean Ann.

Tug Hanley -- Vice President of Distribution

This is Tug. We have a diverse system with our Maple assets and we're able to route our NGL barrels around and there are no impact to our shippers at this time on Seminole. We're able to accommodate everything.

Jim Teague -- Chief Executive Officer

Basically, Jean Ann, we've got a lot of levers to pull and we pulled the levers that made this happen.

Jean Ann Salisbury -- Bernstein -- Analyst

Okay. No, that makes sense. And then, as a follow-up, we're expecting significant Permian wellhead flaring for most of this year until Gulf Coast express comes online in October because we may max out gas takeaway. Are you expecting that impact your Permian volume growth in the short term?

Brad Motal -- Senior Vice President

Hi, this is Brad Motal. Not really for us. We've got an integrated value chain and we've got gas takeaway. We've got excellent producers that are good at building out the part of the value chain that they need to build out. So, it doesn't give me a lot of pause because our customers at this point in my conversation don't leave me to think there's a lot of flaring from them.

Jim Teague -- Chief Executive Officer

Jean Ann, we do have capacity from west to east that we're not going to be afraid to leverage that into the right gathering and processing deals.

Jean Ann Salisbury -- Bernstein -- Analyst

Got it. Okay, that's all for me. Thank you.

Operator

Your next question comes from the line of Shneur Gershuni. Your line is open with UBS.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, guys. Maybe I just wanted to start off with the non-FID projects. Specifically, you talked about the VLCC loader out of Houston. Is the plan longer-term to be able to repurpose some of your existing export capacity toward LPG Exports? And when I think about this project, is it a costly endeavor or is it something that's fairly manageable from a cost perspective?

Jim Teague -- Chief Executive Officer

At the size we are now, we would characterize it as manageable. Personally, it's not a small amount of money, but manageable. But, you nailed it. We said in our script that we are in the process of expanding our LPG Export capability. I think really, you've got to look at it as kind of a combination. Putting in an offshore port enhances our ability to add more LBG. So, it's kind of both.

Shneur Gershuni -- UBS -- Analyst

Okay. Fair enough. And then, just getting back to the buyback question, when you think about a targeted yield for buybacks, is it the same return hurl that you would apply toward a new project? Or is it lower because of the time value of immediate accretion of a buyback versus the time lag to build a project? And then secondly, is it also lower because the risk profile of buying all of Enterprise is lower than the risk profile of the discrete project?

Randy Fowler -- President and Chief Financial Officer

Yes, Shneur, I think you hit on a key point in when we come in and look at returns on new projects, if you would, you do have a negative cost to carry built in. You're in an 18 month, two-year construction cycle. So, I mean we do take that into consideration when we come in and compare a new project to the DCF yield that's offered by the units.

Shneur Gershuni -- UBS -- Analyst

Okay. And, just finally, in your compare remarks, you're basically letting out the Reimbursement. So, with maintenance and everything spent for FID projects, which should be around $3 billion, that would put you far in excess of 50% funding goal. If you end up in the position where you have a lot of access DCF over and above your 50% self-funding target, is that also to potentially just to be used toward share buybacks and same leverages in line with where you want it?

Randy Fowler -- President and Chief Financial Officer

Well, you put a lot of "if's" in there. Yeah, Shneur, again, 2019, we're very optimistic about 2019 and the level of free cash flow that we're going to have. And as Jim mentioned, there's a lot of opportunities as far as on growth capital projects. We haven't seen this type momentum in a number of years. And really, we'll come in and see what the market gives us whether it's our customers and new projects or if it's the units, where the unit's valued. And then also, we want to be mindful, we want to keep our leverage in check too because if you would, keeping the leverage in check gives us the flexibility for bigger things down the road.

Shneur Gershuni -- UBS -- Analyst

All right, perfect. That's all for me. Thank you very much, guys. Appreciate the color.

Operator

Your next question comes from the line of Jeremy Tonet with JP Morgan. Your line is open.

Jeremy Tonet -- JP Morgan -- Analyst

Hi. Good morning. Just wanted to turn to the nat gas pipeline side there. Quite a strong quarter there and it seems like some of the uplift is just going to favorable dynamics and also based as being good there. I'm just wondering is that largely kind of Permian, is that Waha basis there? Is this kind of a good run rate of what you expect the segment to deliver in the near term or any other thoughts on this segment going into 2019?

Jim Teague -- Chief Executive Officer

Tony or Brad?

Brad Motal -- Senior Vice President

Tony, do you want to start?

Tony Chovanec -- Senior Vice President, Fundamentals/Supply Appraisal

You start and I'll...

Brad Motal -- Senior Vice President

You know, from our perspective, in 2018, yes, a lot of the performance was for the west to east and west to south. I think near-term, that's going to continue a longer term. As Jim mentioned earlier, we're looking at taking a hard look at our capacity, leveraging that capacity into longer-term gathering and processing arrangements. So, saying all that, I think near-term, it's a pretty good run right now.

Tony Chovanec -- Senior Vice President, Fundamentals/Supply Appraisal

You know, I'll add a little bit to that. Those spreads come in as you get toward the end of '19 anticipating that pipeline, anticipating a second one. But, we're not alone. The amount of gas that we expect to come out of the Permian Basin, I think the back of that curb might not be exactly right at this point. Won't be the first time that we've seen that the market says we don't price it that way until you show us. So, a lot of natural gas, associated gas in the Permian, that has to move.

Jeremy Tonet -- JP Morgan -- Analyst

That's helpful. Thanks. And kind of a similar question on the crude oil side as far as results came in a bit better than we expected there. And is this kind of a good run rate at least for the near-term or is there kind of any one-time items there? And we talked about the 300 million I think from Midland-Sealy. Is that a gross or is that a net number there?

Randy Fowler -- President and Chief Financial Officer

Jeremy, could you repeat that question?

Unidentified Speaker --

Net number.

Randy Fowler -- President and Chief Financial Officer

Okay. Net number.

Jeremy Tonet -- JP Morgan -- Analyst

And as far as for the segment as a whole, is this kind of a similar performance you would expect in the near-term or are there any kind of one-time benefits that we should be thinking about?

Randy Fowler -- President and Chief Financial Officer

Jeremy, you know, we were benefiting in 2018 if you would during this ramp-up period before all the long-term contracts, on Midland-to-Sealy. So, we'll see that if you would probably you won't have that kind of run rate going forward. But at the same token, what will help us in 2019 is we'll get the benefit of the ramp-up with this Seminole conversion.

Jeremy Tonet -- JP Morgan -- Analyst

That's helpful. That's it for me. Thanks.

Operator

Your next question comes from the line of Justin Jenkins with Raymond James. Your line is open.

Justin Jenkins -- Raymond James -- Analyst

Hey, good morning. Thanks, everybody. I think we've covered most of what I had. But, I just wanted to start with a follow-up on the Seminole conversion. Jim, I know you mentioned it's mostly contractor, but is there any open capacity for Enterprise to ship on your own account?

Jim Teague -- Chief Executive Officer

There's a little bit. There's not a hell of a lot, but there's some.

Justin Jenkins -- Raymond James -- Analyst

Okay, fair enough. And then, thinking about Seaway expansion, what's the latest on that potential here?

Randy Burkhalter -- Vice President of Investor Relations

The open season ended on the 21st I believe and it was successful. So, that was an incremental a hundred thousand barrels a day that was contracted.

Justin Jenkins -- Raymond James -- Analyst

Perfect. I'll leave it there. Congrats, guys.

Operator

Your next question comes from the line of Colton Bean of Tudor Pickering Holt. Your line is open.

Colton Bean -- Tudor Pickering Holt -- Analyst

Morning. So, I just wanted to follow up on the discussion of the nat gas marketing. I think you mentioned Q4 was a decent look. But, did the in-service of the North Texas pipeline give you any additional capacity to move volumes across North Texas and then down on Old Ocean with that January in-service?

Unidentified Speaker --

The short answer is yes it does. And we've worked with our partner on the 36-inch end on Old Ocean to add capacity on both pieces of pipe. So, in short, yes it does allow us to move additional Permian to the Gulf Coast.

Colton Bean -- Tudor Pickering Holt -- Analyst

Okay. And from a contracting standpoint, do you guys have spread exposure there or is that mostly third-party?

Jim Teague -- Chief Executive Officer

Right now, were wearing some spread exposure but as we said earlier, we're not afraid to leverage that into more long-term deals.

Colton Bean -- Tudor Pickering Holt -- Analyst

Got it. And then, just on Q4, we saw fairly dramatic increase in Opal pricing there in Wyoming. I think historically, you guys may have had some exposure there on the keep hole side. Could you just frame what that exposure looks like today and maybe the impact it had to processing margins in Q4?

Randy Fowler -- President and Chief Financial Officer

I'm sorry. Can you repeat that?

Colton Bean -- Tudor Pickering Holt -- Analyst

Just asking you on the keep hole side of the business for processing, I think it's been a couple of years since we've had kind of an update on where that exposure stands. So, really just trying to get a sense of how the rally and Rockies gas price may have impacted processing margins in Q4.

Unidentified Speaker --

I think it impacted aboard Wyoming a bit more than it impacted it down a Colorado Randy. Don't you have those numbers?

Randy Fowler -- President and Chief Financial Officer

Yeah. You saw more impact up at Pioneer Plant than you did at Meeker. Primarily.

Unidentified Speaker -- Speaker

We were in rejection of Pioneer for quite an amount of time. But, we back built the pipe with other opportunities. So, we still made money.

Colton Bean -- Tudor Pickering Holt -- Analyst

Yeah. Okay. Appreciate that.

Operator

Your next question comes from the line of Danilo Juvane with BMO Capital Markets. Your line is open.

Danilo Juvane -- BMO Capital -- Analyst

Thanks, and good morning everyone. Most of my questions have been hit but I have a follow-up for Randy. You've obviously announced the buyback today. And in your comments, I noticed that there's a lot of focus on free cash flow. Is this a structural shift perhaps in how you sort of see messaging your financial flexibility going forward? Are you sort of shifting away from DCF and having an increase in focus on free cash flow? Is that something we should expect going forward?

Randy Fowler -- President and Chief Financial Officer

Well, I think the transition that we're making is from the MLP-centric model that if you would, we had our own specialized financial metrics, and as we come in, the incremental dollar of investment is for more traditional funds, institutional investors that are not accustomed to our MLP language. And I guess two things. One, with us going more to a self-funding model, you know, we can come in and utilize the traditional financial metrics. So, a little bit, we're just making that transition from an MLP-centric model consuming a lot of capital and really trying to appeal to a generalist investor. And we need to talk their language, which is gap measures, whether it's earnings per unit and price on earnings per unit, whether it's multiple of cash flow from operations or in terms of free cash flow.

Danilo Juvane -- BMO Capital -- Analyst

Thanks. And I guess as an extension of that, any developments with respect to your evaluation of the structure of MLP versus SECO? Where are you on that today?

Randy Fowler -- President and Chief Financial Officer

We continue to evaluate it. You know, it's a longer-term decision. There's no going back. So, we're looking at a number of things as far as relative valuation, relative access to capital. Frankly, one of the things, how many more MLPs are there going to be to convert? One of the things that we also look at when we look at when we look at Congressional budget office, what CBO forecasts are of the federal deficit, one of the questions we ask is how permanent is this 21% corporate rate? The CBO has federal deficit doubling to almost $1.3 trillion by 2022. And, you know, there's another election coming up in 2020. So, again, how permanent is the 21% rate? And just remember, Brett Kavanaugh got more Democrat votes than that 21% corporate rate did. So again, we'll continue to monitor.

Danilo Juvane -- BMO Capital -- Analyst

Thank you. Those are the questions.

Operator

Your next question comes from the line of Tristan Richardson with SunTrust. Your line is open.

Tristan Richardson -- SunTrust -- Analyst

Good morning, guys. Just one quick one for me. Randy, you talked a little bit about the concept of normalized EBITDA and the enhanced spread opportunities maybe generated about 400 million. Could you talk about how you got to the 400 million? Is that removing all spread opportunities or just amounts that you guys deem as kind of outsized or outside the range of normal?

Randy Fowler -- President and Chief Financial Officer

Yeah, and Tristan, I'll start and I'll let Jim make some comments too. You know, honestly, I think that's a little bit more art than it is science. We did come in and look at, if you would, it was this past year, 2018 it was more about regional price spreads being wider than normal on certain products, whether it was Conway to Belvieu liquids, whether it was Midland to Houston oil, Midland to Houston natural gas and we were looking at what was wider than normal. But, normally, there are a number of spreads in the system.

Jim Teague -- Chief Executive Officer

Yeah, this is Jim. Yeah, when you look at our footprint, invariably, there's opportunity somewhere across the footprint. And this year, Waha to the Gulf Coast or Midland to Houston or Conway to Mont Belvieu were good spreads. But, if you think about it, we're probably going to get a question on here do you think pipelines will be overbuilt in the Permian? Well, more crude that comes into our system on the Gulf Coast enhances our downstream opportunities. So, your spreads of the future might be to Asia. But, our attitude is because of the footprint, we've never seen some kind of an opportunity somewhere across the footprint.

Tristan Richardson -- SunTrust -- Analyst

Understood. Very helpful. Thank you, guys.

Operator

Your next question comes from the line of TJ Schultz with RBC Capital Market. Your line is open.

TJ Schultz -- RBC Capital Market -- Analyst

Great, thanks. First, just a question on ethane exports. What capacity do you have to expand out of Morgan's point? We've seen a few announcements on potential ethane exports and new terminals on the Gulf Coast that are aimed at China and awaiting permits from China to allow ethane imports. So, if you could just comment on your expectations there. Thanks.

Jim Teague -- Chief Executive Officer

I'll start and I'll turn it over to Brent. We went to China not too long ago and I guess I thought we went over there to hustle business. And what I found is we were being hustled because every petrochemical wanted an LOI for ethane exports. I think as I understand it, they're going to grant three or four new crackers and we're in discussions with them. As far as what we can do at Morgan's point, we've got some capacity left and we can add capacity. Brent?

Brent Secrest -- Senior Vice President, Commercial

Yeah, this is Brent Seacrest. To answer your question specifically, we probably have about 60,000 barrels a day of excess capacity. Obviously, there's opportunities for us to invest additional capital and expand that. But, regardless of the hydrocarbon, and Jim hit on this, access to supply is paramount. Whether it's ethane or LPG's or crude oil, we've seen a lot of announcements talking about docs. But, at the end of the day, if you don't have access to supply, all you have is a dock.

TJ Schultz -- RBC Capital Market -- Analyst

Yep, makes sense. Just one quick follow-up. You went through a turnaround at the Seminole fractionator in 4Q. Any frack turnarounds we need to expect in 2019? Thanks.

Unidentified Speaker --

Is Zack in here? You got that one Zach? Or Angie?

Angie Murray -- Vice President of Project Management

I'll leave it to Zach.

Zach Strait -- Vice President of Unregulated NGLs

I will say that fractionation space has some seasonality to it. So, we have a little bit more capacity in the winter. So, we're looking at pulling forward any turnarounds that we can. So, we believe 2019 fractionation space will remain tight.

TJ Schultz -- RBC Capital Market -- Analyst

Perfect. Thank you.

Operator

Your next question comes from the line of Michael Blum with Wells Fargo. Your line is open.

Michael Blum -- Wells Faro -- Analyst

Thanks. Good morning everybody. Maybe just to stay on that topic, so, obviously it seems like that extreme tightness we saw late or third, fourth quarter of '18 in the frack market has dissipated somewhat. But, now you're saying you think it's still going to be tight? I was wondering if you could just walk through kind of what changed that created some more slack in that market and for the balance of '19, how tight do you think it would get? Do you think we'd see additional periods of extreme tightness where you get these blowouts in frack rates? I just wanted to get your thoughts on that.

Jim Teague -- Chief Executive Officer

Who wants to take that?

Brent Secrest -- Senior Vice President, Commercial

This is Brent. It's hard for me to speak for others. But, I can look at our system and what we project in terms of volume. And a lot of this obviously is dependent on Permian volumes. But, we see '19 staying tight just as Zach has said. In terms of the blowout that happened in the fourth quarter, that was real. I will say that we've seen some seasonality on production in the Permian and I don't know if that has to do with the cold weather out in Midland or what. But, we have seen some volume go down. But, if you look at what's coming on, if you look at the producers were talking to, all of them are projecting significant growth in the volumes that are coming. So, in terms of our fractionation space, it will remain tight in '19.

Jim Teague -- Chief Executive Officer

We won't pass on any deals, Michael.

Michael Blum -- Wells Faro -- Analyst

Okay. Thanks for that. And then, second question, kind of a global question on the LPG Export market. I just wanted to know if you're seeing anything as it relates to the trade spat between the US and China. Is that having any impact on flows or any aspect of your LPG Export business including potentially negotiating with new customers or reupping existing contracts? Thank you.

Unidentified Speaker --

Brent, do you want me to take this or...?

Brent Secrest -- Senior Vice President, Commercial

Yeah. I mean, in terms of if you look at the ethane demand from China, there's a healthy, healthy appetite for ethane. In terms of all these hydrocarbons and how tariff's affected, it affects routes. It doesn't affect what we actually export. So, if you look at crude oil, you know, the fourth quarter Crudex scores for us were the highest we've ever had. If you look at January, that exceeds December. If you look at February, that exceeds January. If you look at March, you can see where this trend is going. At the end of the day, as Tony has alluded to in the past, these barrels were all priced to export. Just sometimes the route's get inefficient. That's probably a benefit to ship owners. But, at the end of the day, these barrels will move.

Michael Blum -- Wells Faro -- Analyst

Great. Thank you very much.

Operator

Your next question comes from the line of Keith Stanley with Wolf research. Your line is open.

Keith Stanley -- Wolfe Research -- Analyst

Hi. Good morning. With the crude conversion project, can you give some updated thoughts on how quickly Shin Oak ramps up? Could that pipeline be pretty full on the 550,000 a day within a year or two?

Brent Secrest -- Senior Vice President, Commercial

Yep. As Jim said earlier as well, there's over 200,000 barrels from Alpine High and then our own equity production on top of some additional volumes displaced by the crude oil projects. So, we do expect some healthy volumes moving on Shin Oak.

Keith Stanley -- Wolfe Research -- Analyst

Okay. So, you would have -- sorry. Go ahead.

Jim Teague -- Chief Executive Officer

Yeah, the most reliable supply is from your own processing plants. And Brad Motal dreads seeing me because I'm telling him I want three more processing plants in the Permian.

Keith Stanley -- Wolfe Research -- Analyst

Okay. So, I would think of it as you have your own supply, which is available to ship on Shin Oak, you have the Apache commitments, and then you have some displacement from Seminole. You get pretty full.

Jim Teague -- Chief Executive Officer

Right.

Keith Stanley -- Wolfe Research -- Analyst

Okay. Follow up question. Randy, you alluded to 6.7 billion of projects under construction and have identified a couple of incremental ones since the last earnings call. Can you give some more color on that, please?

Randy Fowler -- President and Chief Financial Officer

Yeah. The two projects that were announced are included in the stack. Since then, we're really two. We're adding some deisobutanizer capacity at Mont Belvieu and also another isomerization facility. But, those are long-dated. I think we're looking at 2020 and 2022 on those two.

Keith Stanley -- Wolfe Research -- Analyst

Got it. Thank you.

Operator

Your next question comes from the line of Barrett Blaschke with MUFG Securities. Your line is open.

Barrett Blaschke -- MUFG Securities -- Analyst

Hi guys. I want to swing back to the buybacks versus distribution growth just so I have a better understanding of the thought process. You guys obtain coverage sort of bleeding higher over time and I notice a lot of that is to support the self-funding program. But, how do you think of distribution increases now versus being opportunistic on the buybacks?

Randy Fowler -- President and Chief Financial Officer

Yeah, Barrett. You know, will come in and evaluate it. But, you know, the feedback that we've gotten from investors clearly has been a preference right now for buyback over distribution growth. And so, again, we'll continue to come in and take a look at it, but I'd say over the last three or four months, that has been the clear preference from investors. And look. We're going to keep our financial flexibility. So again, keeping the leverage in check is important to us. And then after that, we're going to get capital back to investors whether it's by buyback or by incremental distributions.

Barrett Blaschke -- MUFG Securities -- Analyst

Okay. And then just as kind of switching gears, the government's open but we're not sure for how long necessarily. Can you give us any indications, any projects that would be materially affected if we saw another month of shutdown if it came back to that?

Jim Teague -- Chief Executive Officer

Angie? Kevin? You got anything?

Kevin Ramsey -- Vice President

No. Actually, we think we're in pretty good shape. We recently got some of the permits we were waiting for. And this being open now lets us get our spot permit application submitted. So, even if the government shuts down shortly thereafter, that permit timeline continues to take.

Jim Teague -- Chief Executive Officer

Yeah, it was pretty important. We were ready to go with that application a couple of weeks ago and couldn't. So, the minute they opened, we got on the docket and submitted it this morning.

Barrett Blaschke -- MUFG Securities -- Analyst

Okay. So, the good news is that while it is open even if it closes again, you guys are able to get a lot done in a short space of time with these kinds of things.

Kevin Ramsey -- Vice President

Yes.

Barrett Blaschke -- MUFG Securities -- Analyst

Okay.

Jim Teague -- Chief Executive Officer

Yeah, that application's only 10,000 pages long, so... [Inaudible].

Barrett Blaschke -- MUFG Securities -- Analyst

All right. Thank you.

Operator

Your next question comes from the line of Dennis Coleman with Bank of America Merrill Lynch. Your line is open.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Yeah, hi. I guess just more one detailed one. I think you said this, the customer on Seminole is a single customer?

Jim Teague -- Chief Executive Officer

Yes.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

And it's a 10-year contract you said from [inaudible]?

Jim Teague -- Chief Executive Officer

It's 10.75 years.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

There you go. Like I said. Detailed. Thanks very much.

Operator

Your last question comes from the line of Michael Lapides with Goldman Sachs. Your line is open.

Michael Lapides -- Goldman Sachs -- Analyst

Hey, guys. Congrats on a great quarter. Question for you. With the buyback authorization but also the reupping of your distribution growth plans and the improvement in free cash flow coming in 2019 and potentially beyond, why not a little more aggressive on the distribution growth level? Is this a thought that if there's incremental capital allocation, it will predominantly come through buybacks versus incremental distribution growth just to give you the flexibility? Or is an uptake in the distribution growth plan kind of out there but it's not really a 2019 event?

Randy Fowler -- President and Chief Financial Officer

You know, again, Michael, I come back that the market has not been rewarding distribution growth. And it's important to us to continue to provide distribution growth for our limited partners. There are many that rely on that income. So, we want to go ahead and continue to provide it. And again, what we've heard more recently is buyback over distribution growth. And eventually, again, I come back. We have increases in free cash flow, once we get our leverage where we want our leverage to be, by definition, we're going to be returning capital back to investors. It could come back in the form of buybacks. It could come back in the form of additional distributions. But, we'll cross that bridge when we get there. One, I keep going back that where Jim talked about, we've got a lot of momentum on the commercial front as far as new projects. So, we just need to digest all that and we didn't want to get too far out in front of ourselves.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thank you, Randy. Much appreciated.

Randy Burkhalter -- Vice President of Investor Relations

Okay, Tiffany. This is Randy. That ends our call today. So, if you don't mind, would you give our listeners the replay information and then that's it from this end. Thank you guys for joining us today.

Operator

Thank you for participating in today's Fourth Quarter 2018 Earnings Conference Call. This call will be available for replay beginning at 3 p.m. Eastern time today through 11:59 p.m. Eastern time on March 6, 2019. The conference ID number for the replay is 2798148. Again, the conference ID number for the replay is 2798148. The number to dial for the replay is 1-800-585-8367. This concludes today's conference call. You may now disconnect.

Duration: 52 minutes

Call participants:

Randy Burkhalter -- Vice President of Investor Relations

Jim Teague -- Chief Executive Officer

Randy Fowler -- President and Chief Financial Officer

Spiro Dounis -- Credit Suisse -- Analyst

Jean Ann Salisbury -- Bernstein -- Analyst

Tug Hanley -- Vice President of Distribution

Brad Motal -- Senior Vice President

Shneur Gershuni -- UBS -- Analyst

Jeremy Tonet -- JP Morgan -- Analyst

Tony Chovanec -- Senior Vice President, Fundamentals/Supply Appraisal

Unidentified -- Speaker

Justin Jenkins -- Raymond James -- Analyst

Colton Bean -- Tudor Pickering Holt -- Analyst

Danilo Juvane -- BMO Capital -- Analyst

Tristan Richardson -- SunTrust -- Analyst

TJ Schultz -- RBC Capital Market -- Analyst

Brent Secrest -- Senior Vice President, Commercial

Angie Murray -- Vice President of Project Management

Zach Strait -- Vice President of Unregulated NGLs

Michael Blum -- Wells Faro -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Barrett Blaschke -- MUFG Securities -- Analyst

Kevin Ramsey -- Vice President

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

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