CenterPoint Energy 2014 Annual Report Download - page 32

to support growth, the steeper production decline curves associated with unconventional resource plays may require Enable to incur higher
maintenance capital expenditures relative to throughput over time, which will reduce its distributable cash flow.
Because of these and other factors, even if new reserves are known to exist in areas served by Enable’
s assets, producers may choose not to
develop those reserves. Reductions in drilling activity would result in Enable’
s inability to maintain the current levels of throughput on its
systems and could have a material adverse effect on its results of operations and distributable cash flow.
Enable’
s industry is highly competitive, and increased competitive pressure could adversely affect its results of operations and distributable
cash flow.
Enable competes with similar enterprises in its respective areas of operation. The principal elements of competition are rates, terms of
service and flexibility and reliability of service. Enable’
s competitors include large crude oil, natural gas and petrochemical companies that have
greater financial resources and access to supplies of natural gas, NGLs and crude oil than Enable. Some of these competitors may expand or
construct gathering, processing, transportation and storage systems that would create additional competition for the services Enable provides to
its customers. Excess pipeline capacity in the regions served by Enable’
s interstate pipelines could also increase competition and adversely
impact Enable’
s ability to renew or enter into new contracts with respect to its available capacity when existing contracts expire. In addition,
Enable’
s customers that are significant producers of natural gas may develop their own gathering, processing, transportation and storage systems
in lieu of using Enable’s systems. Enable’
s ability to renew or replace existing contracts with its customers at rates sufficient to maintain current
revenues and cash flows could be adversely affected by the activities of its competitors and customers. Further, natural gas utilized as a fuel
competes with other forms of energy available to end-
users, including electricity, coal and liquid fuels. Increased demand for such forms of
energy at the expense of natural gas could lead to a reduction in demand for natural gas gathering, processing, transportation and transportation
services. All of these competitive pressures could adversely affect Enable’s results of operations and distributable cash flow.
Enable may not be able to recover the costs of its substantial planned investment in capital improvements and additions, and the actual
cost of such improvements and additions may be significantly higher than it anticipates.
Enable’s business plan calls for extensive investment in capital improvements and additions. In Enable’s Form 10-
K for the year ended
December 31, 2014, Enable stated that it expects that its expansion capital expenditures could range from approximately $600 million to $800
million for the year ending December 31, 2015, not including opportunities currently under evaluation which could add up to an additional $300
million of expansion capital expenditures. For example, Enable is currently constructing two cryogenic processing facilities that it plans to
connect to its super-
header system in Grady County, Oklahoma, which Enable expects will add 400 MMcf/d of natural gas processing capacity.
Enable expects that the first of the two new plants (the Bradley Plant) will be completed in the first quarter of 2015. Enable expects that the
second plant (the Grady County Plant), a 200 MMcf/d plant, will be completed in the first quarter of 2016. Enable also plans to construct
significant natural gas gathering and compression infrastructure to support producer activity in its growth areas, and Enable anticipates that in
2015 it will complete the construction of two crude gathering systems in North Dakota’
s Bakken Shale formation with a combined capacity of
49,500 Bbl/d.
The construction of additions or modifications to Enable’
s existing systems, and the construction of new midstream assets, involves
numerous regulatory, environmental, political and legal uncertainties, many of which are beyond Enable’
s control and may require the
expenditure of significant amounts of capital, which may exceed its estimates. These projects may not be completed at the planned cost, on
schedule or at all. The construction of new pipeline, gathering, treating, processing, compression or other facilities is subject to construction cost
overruns due to labor costs, costs of equipment and materials such as steel, labor shortages or weather or other delays, inflation or other factors,
which could be material. In addition, the construction of these facilities is typically subject to the receipt of approvals and permits from various
regulatory agencies. Those agencies may not approve the projects in a timely manner, if at all, or may impose restrictions or conditions on the
projects that could potentially prevent a project from proceeding, lengthen its expected completion schedule and/or increase its anticipated cost.
Moreover, Enable’
s revenues and cash flows may not increase immediately upon the expenditure of funds on a particular project. For instance, if
Enable expands an existing pipeline or constructs a new pipeline, the construction may occur over an extended period of time, and Enable may
not receive any material increases in revenues or cash flows until the project is completed. In addition, Enable may construct facilities to capture
anticipated future growth in production in a region in which such growth does not materialize. As a result, the new facilities may not be able to
achieve Enable’s expected investment return, which could adversely affect its results of operations and its ability to make cash distributions.
In connection with Enable’
s capital investments, Enable may engage a third party to estimate potential reserves in areas to be developed
prior to constructing facilities in those areas. To the extent Enable relies on estimates of future production in deciding to construct additions to its
systems, those estimates may prove to be inaccurate due to numerous uncertainties inherent in estimating future production. As a result, new
facilities may not be able to attract sufficient throughput to achieve expected investment return,
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