Global Partners LP (GLP) Q3 2014 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Global Partners Third Quarter 2014 Financial Results Conference Call. Today's call is being recorded. [Operator Instructions] With us from Global Partners are President and Chief Executive Officer, Mr. Eric Slifka; Chief Financial Officer, Ms. Daphne Foster; Chief Operating Officer, Mr. Mark Romaine; Executive Vice President, Chief Accounting Officer and Co-Director of Mergers and Acquisitions, Mr. Charles Rudinsky; and Deputy General Counsel, Ms. Amy Gould. At this time, I will turn the call over to Ms. Gould for opening remarks. Please go ahead.

Good morning everyone. Thank you for joining us. Before we begin, let me remind everyone that this morning, we will make forward-looking statements within the meaning of Federal Securities Laws. These statements may include but are not limited to projections, beliefs, goals and estimates concerning the future financial and operational performance of Global Partners. Estimates for Global Partners' future EBITDA are based on a number of assumptions regarding market conditions, including demand for petroleum products and renewable fuels, changes in commodity prices, weather, credit markets, the regulatory and permitting environment and the forward product pricing curve. Therefore Global Partners can give no assurance that our future EBITDA will be as estimated. The actual performance for Global Partners may differ materially from the performance expressed or implied by any such forward-looking statements. In addition, such performance is subject to risk factors including but not limited to those described in Global Partners' filings with the Securities and Exchange Commission. Among other risks and uncertainties there can be no guarantee that the proposed acquisition of Warren Equities will be completed or if it is completed whether Global can achieve the expected synergies or improvement in Warren’s historical results. The proposed transaction is subject to the satisfaction of certain conditions contained in the stock purchase agreement. Global Partners undertakes no obligation to revise or publically release the results of any revisions to the forward-looking statement that maybe made during today’s conference call. With Regulation FD in effect, it is our policy that any material comments concerning future results of operations will be communicated through press releases, publicly announced conference calls or other means that will constitute public disclosure for purposes of Regulation FD. Now please let me turn the call over to our President and Chief Executive Officer, Eric Slifka.

Thank you Amy and good morning everyone. Global Partners reported strong financial results in the third quarter reflecting margin increases in all three segments. Wholesale segment product margin was up 32% year-over-year driven by higher throughput volume at our crude oil transload facility and an increase in gasoline and gasoline blends stock product margins. In the GDSO segment, product margin grew 24% from the third quarter of last year. The segment benefited from our ongoing organic project initiatives as well as the effect of declining wholesale prices. Our commercial segment was up 10% in the third quarter lead by margin gains in distillates, gasoline and bunker fuel. One of the strategic changes for goal is the optimization created by the integration of the wholesale terminaling and retail component of our business. Through organic projects and M&A activity, we have established a portfolio of high quality, vertically integrated assets that position us to achieve success in ever-changing market conditions. It’s worth noting that we have approximately 10.1 million barrels of storage capacity at 25 petroleum product port terminals mainly throughout the Northeast. These assets are supplied by a combination of barge, rail, truck and pipeline creating a level of efficiency and optionality that enables us to effectively source barrels for both our customers’ needs as well as the need of our growing retail gas station assets. While we talk at great deal about our east, west, virtual pipeline and brining expansion into the Gulf Coast at Port Arthur, our entire network of bulk terminals is integral to the strength and flexibility of our system. In October, we entered into a definitive agreement to acquire 100% of the equity interest from the Warren Alpert Foundation and Warren Equities, Inc., one of the largest independent marketers of petroleum products in the Northeast. Warren Equities operates 147 Xtra Mart convenience stores and fuel operations, market fuel through 53 commission agent locations and supply fuels to approximately 320 dealers. We believe this is a great acquisition for the partnership, increasing our retail presence throughout the Northeast and expanding our footprint into the adjacent mid-Atlantic region. These Warren assets add approximately 500 million gallons of fuel annually through our network and increase the number of our total retail sites from approximately 900 to more than 1500. In addition, the transaction will be more than double the number of global operating convenience stores from approximately 120 to 257. Last week we announced that the transaction had received early termination of the Hart-Scott-Rodino waiting period which gives us the green light to move forward from a Federal Regulatory perspective. We anticipate that the transaction will close in the first quarter of 2015 and will be accretive in the first full year of operations. Over the past 15 months, we have rebuilt and/or renovated and reopened 23 stores including nine on the Connecticut Turnpike and two launched new to industry location in Banbury and Stratford Connecticut, Billerica and one to Mass. We also have strengthened our capitals from 11 newly acquired fee store commission agent locations on the Mass Turnpike and several ground lease sites. We are combining these efforts with merchandising strategies, programs and other initiative to enhance the overall consumer experience at our sites driving additional traffic and increasing gasoline and sundry sales. Global is unique, in addition to being a logistics provider, we are a wholesaler and expanding national commercial and industrial supplier, a liquid products terminal operator and a gasoline retailer. Ultimately, it is this integration that we believe provide the highest return to Global and the greatest benefit to our customers and unit-holders. Turning to our recent expansion in the Bakken, in June we announced that Meadowlark Midstream Company, a subsidiary of Summit Midstream Partners will build, own and operate a new crude oil pipeline that will serve our base in Transload rail terminal in Columbus, North Dakota a facility we refer to as Stampede. The project features a 47 mile pipeline connecting to Meadowlark's Divide Gathering System and serving our (inaudible) terminals. At the point of connection, the system will have a truck unloading station with 55,000 barrels of tankage. The pipeline is expected to be operational in the second quarter of 2015; the pipeline has the capacity to throughput 50,000 barrels a day. In connection with this agreement, we have begun construction on an additional 176,000 barrels of tankage at Stampede which will bring total capacity there to 446,000 barrels. The new tankage should be ready by the end of March. At our Basin Transload terminal in Beulah, North Dakota construction is moving ahead on a new 4.1 mile crude oil pipeline to be built by Tesoro Logistics. The pipeline which will be owned and operated by Tesoro will connect our Beulah terminal at the Tesoro High Plains Pipeline System. With this additional connection, our Mid-Continent assets will provide shippers with direct access for our East and West crude rail terminals through various Bakken origin points. The later is expected to be operational in Q1. Our previously announced plans to develop, build and operate a crude oil terminal in Port Arthur, Texas under a long-term lease with Kansas City Southern remain on track. That site will give us entree to the Gulf region’s significant refining capacity as well as potential export opportunities. In August, our Columbia Pacific Bio-Refinery facility in Clatskanie Oregon received the permit to simultaneously manufacture ethanol and transload crude. This marks a new chapter in the development of that site. We will be giving investors a tour of our Clatskanie terminal as a part of next week’s 2014 Investor Day in Oregon and we look forward to seeing many of you there. Earlier this year, we voluntarily committed to only allow CPC-1232 compliance crude oil rail cars into our East and West coast terminals, I am pleased to report that we have achieved this initiative as all rail cars leaving crude oil to both facilities need the CPC-1232 standard. The Federal Government is has considered requiring all rail cars in the country that transport crude oil to comply with the CPC-1232 standard, we support the government’s effort to acquire this on a broader scale. Turning to our distribution, strong fundamentals have enabled us to consistently deliver value to unit-holders. In November, the Board of Directors of our general partners increased the partnerships distributions for the 10th consecutive quarter, the distribution of 65:25 per unit or 261 per unit on an annualized basis, this is 2.35% greater than previous quarter distribution and 8.75% higher than the distribution paid in third quarter of last year. The board will continue to review the distribution on a quarter by quarter basis and we remain optimistic about the strength and direction of our business. Based on our performance through the first three quarters, we are increasing our full year 2014 EBITDA guidance to a range of $215 million to $230 million. And with that now, let me turn the call over to Daphne for the financial review. Daphne?

Thank you, Eric and good morning everyone. The third quarter was strong across all business segments. EBITDA was $74.7 million, an increase of $16.2 million from $58.5 for the same period last year. Net income for the third quarter was $42.5 million, an increase of $16.7 from the prior year period. DCF was negative $51. 5 million, $7.1 million greater than the same period in 2013. The smaller increase in DCF compared to those in EBITDA and net income was due primarily to higher maintenance CapEx largely at our gasoline stations. Looking at our segments in more detail. Combined product margin increased $36.8 million year-over-year to $170.3 million from a $133.5 million in the third quarter of 2013. The wholesale and GDSO segment increased [$28.8] million and $15.5 million respectively. Commercial segment product margin increased to $5.2 million in the third quarter and $4.7 million for the same period last year. Within the wholesale segment, crude oil product margin increased $20.1 million in the third quarter to $44.7 million from the same period last year. You may recall that crude oil volume and margins in the third quarter of 2013 were negatively impacted by temporary supply dislocation. By contrast, crude throughput volume in the third quarter of 2014 were among the highest we have experienced and crude oil product margin was the highest of any quarter. Due to improved market conditions, when compared with the third quarter of 2013, when gasoline blendstocks were substantially backward. Gasoline and gasoline blendstock product margin in the third quarter of this year increased $3.5 million to $25.4 million. Volume in the wholesale segment was down about 7% year-over-year due in part to a shift from crude oil supply to delivery logistics as well as the lower gasoline blendstock volume. Other oils and related products, distillates, residual oil and propane, make up the balance of Wholesale product margin and were slightly lower than last year, decreasing $2.8 million, to $14.8 million in the third quarter from $17.6 million in the third quarter of 2013. Our GDSO segment generated strong third quarter product margin of $80.2 million, $15.5 higher than the third quarter of 2013, due to strong fuel margins as well as increased contribution from station operations, which includes convenience store sales and rental income from leased stations. Fuel product margin increased more than 10 million due in part to declining prices. During the quarter, the NYMEX price for 87 (inaudible) regular gasoline down nearly $0.52 per gallon, from $3.04 to a low of $2.52 in mid-September. In addition, the fuel cost margin increased due to contribution from the price development activity that Eric mentioned. Station operations and product margin increased $4.6 million quarter-over-quarter due to continued expansion of our key store operations and merchandizing efforts. Turning to expenses, excluding amortization, total SG&A and operating expenses were $94.7 million for the third quarter. With SG&A and operating expenses increasing $13.5 million and $6.6 million respectively year-over-year. Higher SG&A reflects investments in planned staff additions to support our growing businesses as well as growth initiatives in crude oil, gasoline station and other expansion activities, specifically the increase includes $1.8 million in additional overhead, $4.8 million in (inaudible) to the crude in line with performance, $3.5 million in additional professional fees and $1.6 million in additional depreciation expense. Expenses related to growth initiatives include the Warren equity transaction and the Port Arthur terminal project. The increase in operating expenses include $3.8 million related to new retail locations and recently renovated sites, $1.3 million in cost associated with our crude oil terminal operations and an additional $1.5 million across our terminal network. Interest expenses were $12.3 million for the third quarter of 2014 compared with $10.8 million for the same period last year. This increase is primarily due to two items, the first is the $80 million issuance of 7.75% senior notes in December of 2013, the proceeds therefore used to pay down bank debts, the second is the $375 million 6.25%, eight year unsecured bonds issued in June of this year. The proceeds from this offering were used to obtain the outstanding 8% and 7.75% senior notes and to repay a portion of our bonds under our credit facility. Total CapEx for the third quarter was approximately $29 million, $11.2 million of which was maintenance CapEx. The majority of our $18 million in expansion expenditures, considerable investment in our gasoline station related business and crude transloading terminals. For instance we continue to renovate sites on a highly travelled Connecticut Turnpike and now have completed 17 of the 23 locations. We also continue to invest in our 100 sites in Metro New York which are leased from Getty Realty. Our crude-related investments include expanding tankage and rail infrastructure at our North Dakota terminal. The $11 million of maintenance CapEx was primarily investment in our retail gasoline stations as well as office and IT upgrades. Our balance sheet remains strong. At September 30, we had excess foreign capacity of nearly $947 million, under our $1.625 billion committed bank facility, and we have partners' equity of $497 million. Total funded debt of $640 million was 2.6 times our trailing 12-months EBITDA. Total funded debt consists of bank revolver debt and the 8-year unsecured bonds. In preparation of our acquisition of Warren equities, we have commitment from our bank to increase the revolving credit facility by as much as $150 million. With $273 million outstanding under our revolver as at September 30 and the ability under our credit agreement to stand the facility by $150 million, we have more than $500 million in excess availability to finance 100% of the Warren transactions. Long term we planned to finance this acquisition with the 60:40 planned of debt and equity. Based on our analysis of the Warren site and the significant synergies and improvements, we anticipate as a result of this transaction, we believe we will substantially enhance the performance relative to Warren historical results. We expect the acquisitions to be accreted in the first full year of operations and to generate $50 to $60 million in EBITDA in the second full year. After adjusting for $26 million in interest bearing amortizing notes from Warren customers, the acquisition price is effectively $357 million, on a forward basis the purchase price equates to a 6.8 x multiple pay [similar] EBITDA. Turning to guidance as Eric mentioned, based on our performance through the first three quarters of 2014, with nine months EBITDA of $180 million, we are increasing our full year 2014 EBITDA guidance to arrange $215 million to $230 million, previously it was $175 million to $195 million. As a reminder, our results during the first half of 2014 benefited from significantly colder than normal temperatures and severe weather that cause reopen junction and resulted in unusually favorable market opportunities in gasoline blendstocks. Our 2014 EBITDA guidance is based on assumptions regarding current market conditions, including demand for petroleum products and renewable fuel, weather, credit markets, the regulatory and permitting environment and the forward product pricing curve which could influence quarterly financial results. On Tuesday November 11, Global will be hosting an Investor Day in Portland. The event will feature a two of our class (inaudible) crude transloading facility and the ethanol plant and we look forward to meeting with many of you there. Now, let me turn it back to Eric for concluding comments.

Thank you, Daphne. Global, strong financial and operational performance is directly related to our success in integrating the Wholesale, Logistics and Retail components of our business. We are focused on continuing the leverage the flexibility of our assets to drive efficiencies across the business. With that we are ready to take your question. Operator?

Thank you. At this time we will conduct the question and answer session. [Operator Instructions] Our first question comes from Theresa Chen with Barclays. Please state your question.

Good morning.

Good morning, Theresa.

Great quarter. My first question is in relation to the higher guidance. So we have three quarters behind us and we are about almost halfway through fourth-quarter, in relation to the 15 million delta between the high and low end, at this point what can happen, what are the puts and takes to get us either to that high or low end?

Hi Theresa, it’s Daphne. I think probably provide a lots of different things that can happen. An example if we think back of our comments about the third quarter and the decline in wholesale prices, certainly that were the contributors to the $10 million increase in the fuel price margin for the gasoline station related business. Certainly we can’t sit here and project this is going to happen to fuel purpose so that's an example.

Okay, then following up on that, for your wholesale and GDSO segment, you are seeing for the third quarter volumes little lower year-over-year, profitability up a lot more and I know you talk about third quarter last year being affected by some idiosyncratic factors and wholesale prices, this quarter always third quarter benefiting the GDSO segment, is it on a go forward basis, when I think about that margin per barrel or per gallon, is this slightly higher than what should be normalized given the lift from the lower wholesale prices or is it just kind of like a normalized level?

One of the comment that I can certainly make with regard to the decline in volume and you are pointing out (inaudible) rather improving margins, the crude oil business we have had certainly anticipated and have had any shift from supply to logistics and that primarily with one customer and that was really from the very beginning as we anticipated supply and once they get organized in terms of railcars and in terms of securing crude oil and then shifted over the time to more logistics, so that’s kind of have an impact on sales volume and therefore margins per volume is going to change, so that's an example.

Okay great. And then last question, can you give us update on your opportunity in Canada and you are looking to bring on any food by rail origination capacity there or what has been going on?

Good morning Theresa, it’s Mark. With respect to Canada, we continue to try to develop our business up there, we look at three different initiatives up there. Number one: we are continuing to increase our sourcing capabilities up there and that's an initiative that's going on right now. So we continue to try to develop that. In addition to that, we are trying to determine or evaluate potential development or acquisition opportunities in Canada around origination assets. So yes we were very active in that space and definitely part of our strategy.

Okay. Thank you very much.

Our next question comes from Gabe Moreen with Bank of America Merrill Lynch. Please state your question.

Good morning and thanks for providing the detailed answer to the line by line items and carrier changes, a couple of questions one is kind of on the crude oil wholesale volumes, can you just talk about I guess, kind of which are the components are really contributing to the growth whether it's kind of the loading on the Bekken side, is there really any -- has there been any, whether any significant contribution in 3Q from the West Coast assets or they still to come, so just any color there that will be helpful.

I think the contribution from the assets and that comprise our system has been pretty consistent over the course of the last year and so there's really been no shift I mean they are all, they are all contributing in some passion. Most of our crude obviously goes to Albany, so that’s a key part of that system and we are growing volumes in North Dakota. We continue to work on the West Coast Eric mentioned I think in his comments that we have received a permit to expand the West Coast CPBR facility to handle both crude and ethanol simultaneously. So we look to grow our volumes as our capabilities expand there but there has been no real shift in how those individual pieces of the system are contributing to the overall business.

Hi Geb, I just want to add one of the things there, we are working very hard and closely with [rail now] to try and optimize and be as efficient as possible to move as much volume through the system. Now the investments that we are making in rail and in tankage are obviously going to increase, for stability and connection to pipelines will also increase sort of the dry area that are through putters can buy from us, so those are all important pieces that I think will help to sort of push volumes through those assets but it’s also on receiving end to make sure that really the symphony of how those cars come in and move out of those assets work (inaudible) with the rail company and it is one of those things where I think people thinks it’s a easy thing to do and it’s a turn for switch and once you do it stays the same, I can guarantee it doesn’t. So it’s something that you got to be on with something you have to be looking at everyday and really trying to make sure that you are working closely with those rail companies to try and achieve our volumes. So we are spending a tremendous amount of time, effort and money on that to make sure that we are doing it in the best way and best manner possible.

Great. Thanks Eric. And I guess another broad follow up question when you just look obviously mid-Atlantic and New England have a crazy cold winter last year, I am wondering what you're seeing along the distal leads are heating, oil fuels side going into this winter weather behavior is changed, is that contributing more to second-half ’14 results any color there?

Yes, I think the way I would look at that is as you got to wait for the weather to come. I can just tell you on a competitive basis, firm gas and winter up is really expensive comparatively to other products, so with this cold, cold for us is like literally one weather to electric utility, so if it’s cold we will sell more barrels and that will be cost of barrel (inaudible) so that's all got it.

And just a follow up to that Eric, given the fact that oil has come down so much over the last month, I would assume it just been rendered much more competitive in lot of those (inaudible) market is that fair?

Yes. I would agree with that. And really gas up, gas in the lower of these and I don’t mean all of it, in every state but generally as a general statement gas in the North East is really pipeline constraint, and it’s not that the commodity, the gas itself is high priced is actually, they are just not enough capacity to get it from market.

Yes, see you to my utility bill every month, so look forward to seeing everyone next week, thanks guys.

Thank you, Gabe.

[Operator Instructions] our next question comes from Rob Longnecker with Jovetree. Please state your question. Rob Longnecker – Jovetree Capital: Good morning. I wonder if you guys can provide me little detail on how much of your rail business is under a sort of a long-term contract?

Well, I think about it. I mean Rob, I mean we announced the 66 contracts, so you got the volumes that are there. We don’t specifically break it out but there is multiple other transactions with other East Coast refiners that have term two, there is also methane spot in there as well. I would say the majority of the business, really is termed so. Rob Longnecker – Jovetree Capital: And can you guys provide like an average term on that?

We have only really announced. We have only broke up that one contract for site and there is three more years remaining on that, yes. Rob Longnecker – Jovetree Capital: And then I guess, just from a more broad perspective, may be you can talk about differentials that have been compressed throughout 2014, so I am just wondering may be how your spot operations have done and kind of how you think about, how your customers think it about those differentials going forward?

When you look at the differential sure, if you are just referring to the (inaudible) may be we have talked about this many times. First of all, they have expanded, they have contracted. There has been a little bit of volatility in those spreads but really what drives the movement is not just that (inaudible) you got to kind of look back into the field and look at cash prices for say and using an example Bakken in North Dakota, when you look at those values, they are still wide enough to facilitate that move and it remains our bias that those are barrels that don’t belong in the Gulf Coast. You got to ask yourself, is that wide enough to move by rail and then you've also got asked yourself what’s the alternative and the alternative is the Gulf Coast, it’s a very weak market for light sweet crude with all the production that they have there. So it really makes – on a long-term basis, it seems to make sense to us that those barrels will continue to price themselves to move both East and West. Rob Longnecker – Jovetree Capital: Okay, thank you. And then I believe just looking back like over last four quarters, in each courier your kind of total wholesale gallon has been down, not a lot but kind of down on the record I want you be kind of speak to that a little bit.

Rob, it’s Daphne. Part of that is related to the actually the lines which will related to the shift in crude oil from sales which I think would be in our volume and towards logistics we are moving someone else’s product.

So let me be little more specific there that long term contract we have and we sign, the company ask they didn’t have sourcing capability even though there are (inaudible) company, they didn’t have outsourcing capability, they didn’t have the railcars either we had sourcing, we had rail, we had barging, we had sort of the whole system of logistics (inaudible) and the goal from the beginning of the transaction was to put them into a position or allow them to do all of that themselves. So we still handle pieces of it for them but the fact is it is certainly our hope that they do all of that themselves. Rob Longnecker – Jovetree Capital: Got you. And just last question, can you guys provide what is your TTM coverage ratio is?

It’s 2.3 times. Rob Longnecker – Jovetree Capital: 2.3 times. So that's kind of substantially higher than anyone else in the universe, I am just wondering if you kind of provide, what’s your thinking is around that?

I think what we have said in the past is we are comfortable with sort of 1.2, 1.3 times coverage. We certainly have – in recent quarters certainly have much higher coverage and in part that we have significant pipeline of attending projects that we are investing in. So a (inaudible) is higher. Rob Longnecker – Jovetree Capital: So when you talk about the debt equity, is financing for the, the new transaction, does that equity new equity, does that mean sort of you are talking about year-over-year kind of retaining some of your earnings?

Exactly. Rob Longnecker – Jovetree Capital: So the later, it doesn’t mean new equity.

Right, we are taking some of the cash as we are earning and we are putting it back into the business, right and we are making investments. Rob Longnecker – Jovetree Capital: Got you, okay so I just want to make sure, (inaudible) that, so you don’t anticipate selling any new equity?

We had, I mean I think certainly over the time, it’s appropriate to raise equity. I think what -- we were very clear about it in terms of near-term we have a capacity in your bank facility to finance the entire Warren transaction for instance but we have also said over the time it make sense to fund that transaction longer term with 60:40 debt equity and that's longer term would be raising new equity in the longer term.

We are working at across the capital. We are working to give way the best way to balance our financials, but what we are trying to be as be efficient as possible, right. So we are always measuring difference sources of capital and what is the cheapest way to do it but yet be conservative as well. And if that balance you are always trying to bring to the table. Rob Longnecker – Jovetree Capital: Okay. Thank you very much.

Thank you. Our next question comes from (inaudible) with HITE. Please state your question.

Good morning. Congratulations for a good quarter. Question for the outlook for the crude by rail business, Global is a pioneer to move crude out of Bakken by rail and it was a very successful story but now we see a lot of refinery, your client is expanding their own facility to move crude by rail, so Eric you just mentioned that in the long term you think more and more new clients we are going to do with the business by themselves, so I am just wondering what is your outlook or strategy to position your crude by rail business.

I just want to correct you one thing what I commented on that, it wasn’t that they were doing it themselves because they may in fact be building out a rail facility but in this particular transactions, specifically to the transaction the company did with us, the contact from the (inaudible) provide really the throughput for them and the means for them to take the product into their refinery. So in that particular instance the go, from the very beginning was, we were very better positioned to handle the sourcing and logistics surround it but ultimately the throughput through our terminals and through our rail system was something that we wanted them to eventually have to do with all of themselves but that still to watch system. So I want to you be very clear, that’s throughput through our system and in it’s all opinion and I (inaudible) some more specifically that the market itself is big enough to handle all of the rail capacity for some that exist on East coast, so with that Mark why don’t you pick up.

Yes I don’t want to beat this up but I also want to make it clear that because we mentioned few times with respect to decline volumes, the shift from sales to logistics on some of the crude business and that as Eric said, that is still volume that goes through our terminals. So if you look at throughput, throughout would probably be up rather than sale, so I think and I know we don’t disclose that but the number, the volume through our terminals is just how we categorize it. So I just want to make that clear and to expand on Eric’s comment with the size of the market and in Lind to answer your question on refiners developing their own capabilities, they certainly are and they are well-publicized and it’s something that I think the entire market is expected but there is a limit as to how much offload capacity can be built out at refineries, some refineries are bulkier than others, and they have space build out scale but, I don't expect that we are going to see hack of a lot more build out, taking just looking at the East coast and I think we are going to see a lot more build out on the refiner all on the destination site. So when you look at the size of the market, if all of the crude were to be supplied from domestic production by rail, you would need third-party facilities and that's where we think we will stay relevant especially given our competitive advantages in the marketplace.

Yes and let me add one other piece to that, in many location, the rails are already being strained by capacity and we've actually heard and seen where the rails have come and say hey we can’t do that business at that location because we don’t have the available capacity. So one of the things that we think is where you need power, particularly our East coast system that we have is that a service by CP and it has two routes, one route is through Chicago, which is tremendously congested and it is also sort of problems and then we also have a northern route and that northern route is a little bit more open. It’s a little bit of farter in terms of my miles but in terms of efficiency to supply and backlogs, we think that's a better route for rail to go. So we think that's one of our competitive advantages and it’s frankly it’s a single line halt as well.

Great, so in the future, should we expect you guys to switch more of your contract from the current like the sales of the crude to the more fee-based particular pay contract?

Yes I think we are going to continue to do business, we always have, where we think we can money that's all we going to do because it’s all about trying and create (inaudible).

Okay, thank you.

Our next question comes from Rob Longnecker. Please state your question. Rob Longnecker – Jovetree Capital: Just another follow-on on kind of the term contract, those agreement was kind of early 2013 and I am just wondering if you could talk about, I know you haven’t disclosed the contract but has it been sort of a steady flow of contract since then or was there kind of a more in 2013, it’s slowdown in 2014, can you talk a little more about that?

I would say that the volume of our term business, in varying degrees has increased since then. We were fortunate to be able to get deal done with B66 and that's going to be a great benefit for us. Hopefully for them as well but we have continued to build business into other destinations and that's probably, that business has actually increased in recent times. Rob Longnecker – Jovetree Capital: Got you okay and then could you just talk a little bit more about the kind of what the contractual support of the new Texas facility is?

I am sorry, I didn’t hear, what’s that again? Rob Longnecker – Jovetree Capital: The new Texas facility....

You are asking about Port Arthur? Rob Longnecker – Jovetree Capital: Yes. Correct.

So your question is, just talk about what were... Rob Longnecker – Jovetree Capital: Yes, is there contractual support for that or how do you kind of structure that?

We are probably in the early stages of commercial negotiations around that facility from the design and construction standpoint we are in the stages of initial design. We are underway with permitting activities, so we have got ways to go on that. We have been engaged in commercial discussions with both marketers and refiners and crude producers around the use of that facility. So we'll continue to try to advance those as we get closer to our open day. Rob Longnecker – Jovetree Capital: So you fully built it with the CapEx to without commitments?

Our belief is that that facility is going to have a lot of value and there's probably a lot of different things we can do to that facility. We filed about phase one, contemplating the move of some sort of less diluted heavy crude by rail into that market but we are also seeing some good opportunities on the ethanol side which is a business where we are very active in and we also think there is some opportunity to develop some refine product to blendstock initiatives around that well. We are very were excited about the opportunity down there. Rob Longnecker – Jovetree Capital: And how much capital you guys are putting into that?

We have talked about it somewhere in the neighborhood, early stages of design, we have talked somewhere in the neighborhood of 75 million to 100 million and we dial in the final design of that it will be in that neighborhood, it may be plus or minus that range, but it will be probably plus range or minus.

Our part general bias and can be right, so that the gulf coast not only short tankage but it is also short (inaudible) and so the stock capability there as well and positioning ourselves to take advantage of that shortages is really one of our goals. Not only we are in a marketplace that has couple of millions of barrels of refining demand for crude but that facility also has some good (inaudible) and that is going to be important for us as well. Rob Longnecker – Jovetree Capital: Got you and then kind of pick in time or picture on a longer term, it looks like sort of the ban on the exporting crude is slowly getting eroded and I would assume that’s probably going to continue over the next couple of years, how did that impact your business, kind of like you just look forward two or three years.

That's not crystal clear but it is our bias that even though, even if they allow exports, I mean you could argue that local demand, domestic demand should be satisfied before we export anything. There is going to be some consideration for getting the right grade in the right spot but I think we are reasonably well-positioned for that given the fact that we've got destinations that are currently served by pipeline that need, that product and then we have got origins in a region where the barrel should naturally flow to the Gulf. So I think I am not saying how does market plays out, there will ups and flows and there will be some volatility around but I think we are reasonably well-positioned even in the face of should they left the export ban.

Yes and those barrels should go to the closest market because theoretically they will have freight involved with them but even given that we are talking about docks of various sizes that have multiple facility that theoretically give you that optionally to export should you mean to. I don't expect that that's the way it should go but it certainly could and I think in those instances we could be competitive in moving those barrels out to our (inaudible) export basis as well. Rob Longnecker – Jovetree Capital: Thank you very much.

There are no further questions at this time, I would like to turn the floor back over to Mr. Slifka for closing comments. Thank you.

Thank you all for joining us today. We look forward to seeing you next Tuesday in Portland. Thanks everyone, have a great day.