Good day and welcome to the Sanchez Production Partners First Quarter 2017 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Chuck Ward, Chief Financial Officer of Sanchez Production Partners. Mr. Ward, you may begin. Please go ahead.

Good morning and thanks for joining us. With me this morning is Gerry Willinger, our Chief Executive Officer; and Pat Sanchez, our President and Chief Operating Officer. Few quick notes before we get started, we released our first quarter 2017 earnings report this morning and we expect to file our 10-Q later today. That material, along with our latest investor presentation is available our on our website, www.sanchezpp.com. The discussion this morning will include forward-looking statements which are subject to certain risks and uncertainties. These are described more fully in our documents on file with the SEC which are also available on our website. And finally, we will use non-GAAP financial measures in this morning's discussion to help our unit holders and the investment community to better understand our operating performance. The earnings presentation released this morning is available on our website and includes an appendix that reconciles these non-GAAP financial measures to GAAP measures. And with that, I would now like to turn the call over to Gerry Willinger.

Thanks, Chuck. Our activity and results during the first quarter 2017 reflect the transitional nature of our business during the first half of this year. During the quarter, we continued the successful transformation of the Partnership to a midstream-focused master limited partnership. Our Carnero Gathering Pipeline, a 50% joint venture with Targa Resources Corporation is now connected to the Raptor Gas Processing Facility while continuing to deliver natural gas from Catarina to another processing facility in Bee County, Texas. The expansion project for the Carnero Gathering Pipeline that interconnects with the Sanchez Energy’s Comanche asset is advancing toward completion. Our Raptor Gas Processing Facility, also a 50% joint venture with Targa, is currently in the initial phases of start-up and currently has processing capacity of 200 million cubic feet per day. We expect the facility to be fully operational by the end of the second quarter with the plant expansion to 260 million cubic feet per day expected to be complete by mid-summer 2017. Additionally, our Raptor SECO Pipeline Phase 1 construction is progressing with the project expected to come on-line within budget in the second quarter of 2017 as well. This dry gas pipeline, which is currently 100% owned by the Partnership, will provide takeaway from the Raptor Gas Processing Facility to premium natural gas markets in South Texas. Together, when completed, these midstream assets are expected to provide a stable stream of fee-based cash flow and, along with the Western Catarina Midstream system, form the basis of our midstream growth strategy in South Texas. In keeping with our strategy of focusing on our midstream activities, we recently signed an agreement to divest our remaining Oklahoma production assets for $5.5 million, subject to customary and normal closing adjustments. In addition to increasing our exposure to our growing midstream activity, we anticipate this transaction will lower overhead costs that has been allocated to these assets. As we have previously announced plans to sell these assets, they have been excluded from the reserves used to determine the borrowing base under our credit facility. Accordingly, we anticipate the sale will have no impact on our borrowing capacity. Additionally, these assets were excluded from our prior guidance for this year. With the transformation of the Partnership’s business focus is now complete, SPP intends to change its name to Sanchez Midstream Partners LP in early June 2017. We believe this name is more in keeping with our strategy and focus on midstream activities, as these midstream investments are expected to provide over 80% of our fourth quarter adjusted EBITDA. Given the transitional nature of our business during the first half of this year and having yet to realize the full financial benefits of the midstream capital projects in various phases of completion, we expected this to be the lowest earnings quarter of the year. Additionally, throughput volumes on the Western Catarina Midstream system for the first quarter of 2017 were lower than expected as the addition of 14 new horizontal wells at Catarina was completed late in the first quarter by Sanchez Energy. However, with most of our South Texas projects expected to come on-line in the second quarter 2017, we continue to forecast improved results in the second half of this year and based upon the visibility of our midstream projects in South Texas, we reiterate our full year guidance for 2017. Moreover, we believe our prospects for sustainable midstream growth have improved considerably with Sanchez Energy’s acquisition of the Comanche asset in South Texas. We continue to evaluate opportunities to secure additional midstream capacity for the new production coming from the Comanche asset, and look forward to growing along with Sanchez Energy as they continue to execute their strategy in the Western Eagle Ford. And now, I would like to turn the call over to Chuck Ward.

Thanks, Gerry. Our revenue totaled $25.8 million during the first quarter of 2017. Included in total revenue for the first quarter 2017 was $11.2 million from the Western Catarina Midstream system, and $8.5 million from production activities. The balance of our first quarter revenue came from $1.6 million I hedge settlements and a $4.5 million gain on mark-to-market activities, a non-cash item. Our operating expenses during the quarter totaled $32.1 million, which includes $3.3 million in operating expenses related to the Western Catarina Midstream system and $5.5 million in production operating expenses and taxes. General and administrative expenses during the quarter were $5.6 million and included $600,000 in unit-based compensation and a little over $2 million in asset management fees, both of which are non-cash items. Our adjusted EBITDA for the first quarter of 2017 was approximately $10.5 million and after backing up nearly $1.5 million in cash interest, and $600,000 in maintenance CapEx we generated $8.4 million in cash available for distribution. At the quarter end we had $160.5 million in debt outstanding under our credit facility, which currently has a borrowing base of $215.6 million and an elected commitment amount of $200 million. The sale of operated Oklahoma production assets were $5.5 million, which is expected to close in the second quarter should have no impact on the borrowing capacity, as the reserves from these assets were previously excluded from consideration by lenders when they determined our borrowing bases. For the remainder of 2017, we have hedged 800,000 MMBTU of natural gas at an effective NYMEX fixed price of $5.45 per MMBTU and about 263 thousand barrels of crude oil at an effective NYMEX fixed price of approximately $61.40 per barrel. And with that overview of our results, I would like to now open up the moderator to allow for questions.

[Operator Instructions] The first question comes from Brandon Blossman from Tudor, Pickering, Holt & Company. Please go ahead.

Good morning guys.

Good morning, Brandon.

Good morning, Brandon.

Let’s see, actually, quite a few questions, describe a handful. Quarter-over-quarter, it looks like growth in production. How does that compared to the forecast that you gave for full year production on the Analyst Day?

Because, I think, because the EWI’s reset, we are a little bit under on production, primarily from the EWI, a little overall in the production from the non-EWI. The guidance of course was annual that we gave there, but the EWIs do re-kick from quarter from the last quarter – the fourth quarter to the first quarter. So that offsets that variance a little bit.

Okay, that the big uptick was just EWI, you said it looks like.

Primarily.

How about throughput volumes in the quarter? Your prepared comments, that mentioned of late in the quarter completions, how do you expect that to read through into the second quarter?

We expect the volumes to start picking up again as the completions of the 14 wells ascend. We may replan post the Comanche acquisition they did bigger and larger frac jobs with some new completion techniques and so we expect those for us obviously being late in the quarter to start picking up into the second quarter.

And then, I guess, final one for me. Any more color on the Comanche interconnect expansion? What that actually looks like? And what maybe that read through into the results here in the next – I don’t know, 12, 24 months?

Well, so with the connection, it allows us to run the facility to get to the Raptor facility. That connection allows us to not just be Catarina focused at Raptor, but to be both Comanche and Catarina focused. So we are expecting the – as the Raptor facility comes online to start reaching capacity as we move through the year and allowing the Comanche Gas to flow through to the Raptor facility.

Okay. Makes sense and so, I guess, just a follow-up on that, regarding another $60 million a day to Raptor, it sounds like you think that you will be pretty close to maxed out by the time that incremental capacity comes online. Am I reading that right?

That’s correct.

Great. That’s all for me. Thanks guys.

Thanks.

The next question comes from Sunil Sibal from Seaport Global Securities. Please go ahead.

Hi, good morning guys.

Good morning, Sunil.

Couple of questions for me. Could you give us a sense of where the volumes are on the midstream system right now?

Yes, I think we are right below the midpoint of our guidance as they closed that asset, I think Friday. So, that would be about 180, right, I think, we are shy at 180 just a tad.

Okay, so that’s the total gasing volumes, correct?

Pardon me?

That’s the total gas…

Yes, the Western Catarina.

Okay, got it. And then in terms of the Oklahoma asset sales, could you give us a sense of, from a runrate basis, what kind of impact we can estimate for those assets, in terms what they contemplated over the last year or maybe over the last quarter?

Sure, I actually – if we could chat after the 10-Q, we have actually some incremental language in the 10-Q that’s not in here. But after we file the Q, rather than filing the transcript, let’s catch up. We will discuss the impact there.

Got it. And then, in terms of your Costa Azul Terminal, I was wondering if there is any update there and really there has been lot of discussion among the midstream companies of porting crude volumes out through Corpus Christi and I was wondering if you could talk about that facility in terms of opportunities in that regard?

I am sorry, could you repeat the first part again, please?

On your Costa Azul Terminal, I think, it’s supposed to be completed by July this year. I was wondering if there is any update on the timing or is that’s still the case?

It’s still the case that the Costa Azul project will be completed by July of this year or in July of this year.

And…

Nothing updates on Costa Azul.

Okay, got it. And then, any update on the volumes there, I think, you are targeting some essence assets in terms of volumes in that system. Are there any significant third-party volumes on that facility also?

No, we don’t have any updates on Costa Azul at this time. And so, before the project comes to completion, it’s really for startups.

Okay, got it. That’s it guys. Thank you.

The next question comes from [Indiscernible] with Bank of America Merrill Lynch. Please go ahead.

Hi this is Kate on for Gab. Just following-up on Brandon’s question, in terms of the 14 Catarina wells that were placed online, could you remind us how exactly those volumes will flow through SPP’s assets? Because, it sounds like they were outside of SPP’s dedicated Western Catarina acreage?

Yes, even though they are outside the Western Catarina acreage, all the Catarina acreage fundamentally flow through the four CPS on the Western Catarina acreage. All those Catarina acreage is dedicated to the Carnero pipeline and to the Raptor facility. So the essential parts of that is all the gas of Catarina is flowing through the Western Catarina midstream system up to the Carnero line and then to the Raptor processing facility.

Okay, perfect. That’s really helpful, thanks.

The next question comes from Georg Venturatos with Johnson and Rice. Please go ahead.

Hey, good morning, guys.

Hi, Georg.

Good morning, Georg.

Had a question as related to Comanche. We’ve talked about the interruptible volumes that are out there and I think last quarter we got an update in terms of putting together a package of the working interest partners just of wanted to getting an update on where we stand there and the timing-wise with the Raptor capacity expansion, how that could work them together?

Yes, so, obviously, the first step is, the connection into the CPS at Comanche. We have already processed – given in a process of completing that, we expected initially 100 interruptible supplies over to Raptor. During that time period, we obviously be going out to the partners Exxon and all the working interest partnered with Comanche with proposals, once it’s complete to bring all those volumes into Raptor and that’s the step-up in the volumes from 200 to 260. So, all that is in process. The first step is getting it completed and connected, second process is getting interruptible through the system and then the third process then is to get everybody under agreements to process the gas at raptor and midpoint of the system.

Okay, okay. Appreciate that. And then as it relates to your throughput guidance that you put at Western Catarina, what we’ve seen on the expense side in terms of the increasing profit and flow at usage and some of those newer completion wells outperforming kind of the standard completion that we can historically. Is that baked into your guidance there? Or I guess, I am just trying to get a sense of how much of that might be potential upside as we work through this year looking at results on recent wells?

I think based upon what we’ve put in the guidance, although this changes the nature of the well and the potential gas output from those wells. I don’t think it causes any change that would make us to change full year guidance for volume throughput for Western Catarina.

Okay, and last one for me. As it relates to Raptor, obviously, I think, things are executing on plan with which you guys talked about 200 MMCF a day start-up now and then 200 to 260 by mid-summer. I just wanted to kind of get your bigger thoughts on a good problem, you’ve got the excess production out of Comanche and Catarina should be ramping up, how do you think about facilitating that on the gas processing side longer-term? Maybe when I look at options, either it’s the expansion of 260 to maybe 360 at Raptor or, looking an opportunistic opportunity in the region with partnering up with guys with existing assets that may have their capacity. Just kind of want to get your thoughts on that and how you think about that from a cost perspective as well?

Yes, as volumes grow, obviously, we are trying to make sure that we capture the process to gas for the lowest price possible to the working interest partners as well. And so, it is really for us a build versus buy in how quickly as we can get that incremental gas into the system to provide some cost benefits throughout the chain all the way down to the well head. And so, the valuation that we always do is, timeframe the build – cost to build, versus stepping into an existing facility and whether that facility is efficient and meets the need and supplies all the benefit that we expect to have in the field. So, it’s a little bit of a way off between the two. Obviously, to go from 260 and above 260, it’s going to take time to do that. We view that as a second phase order meaning that it will be a gap to do that if we are able to lock down all those volumes and so there will be naturally some – so a loss processing volumes and what we step into something immediately above 260. So, it is really a build versus buy and looking at the long-term, while also trying to capture and make sure that we have solutions offered to our working interest partners in the field on an interim basis between above 260.

Okay, that makes, Gerry. I appreciate the answers.

[Operator Instructions] The next question comes from TJ Schultz with RBC Capital. Please go ahead.

Hey guys. So some of the – sale, maybe you said, you would be filing some of this, but can you just quantify, can you talk about lower overhead cost as well as this sales, anything on the cost side maybe helpful?

I think when we went from the guidance that we had provided back when we did the S1 we showed about a $13.2 million, $13.3 million G&A number. When we went through our guidance which excluded the operator dosage properties, we went to $12 million on G&A guidance number. And that largely reflects kind of a year-on-year forecast of what that impact would be outside of operating cash flows.

Okay, I got that. Okay, perfect. And then, let me know if I am reading too much into this. In the press release, you mentioned that you currently own 100% of SECO. Is there any plan to not own 100%?

No, no, there is not, not any anticipate plans under discussion currently.

Okay, thank you.

This concludes our question and answer session. I would like to turn the conference back over to CFO, Mr. Chuck Ward for any closing remarks.

Well, thanks guys for joining us for this morning. We look forward to speaking with you again to update our next quarter’s results.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.