Q3 2019 Earnings Call
Good day <unk> third quarter, two does my team [laughter] <unk> earnings call. Today's conference is being recorded let's talk about sort of conference over to Andrew. Please go ahead Sir.
Thank you Travis and welcome everyone to one Oaks third quarter earnings Conference call. This call is being webcast lives and a replay will be made available after our prepared remarks will be available to take your questions.
A reminder, that statements made during this call. The might include one oaks expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision the securities acts of 1933 nights in 34.
Actual results could differ materially from those projected in forward looking statements for discussion of factors that could cause actual results to differ please refer to our FCC filings.
Our first speaker this morning, as Terry Spencer, President and Chief Executive Officer Jerry.
Thanks, Andrew Good morning, and thank you all for joining US today as always we appreciate your continued interest in investment in one of them.
Joining me on today's call is Walt Hulse, Chief Financial Officer, Executive Vice President strategic planning and corporate Affairs, and Kevin Burdick, Chief Executive Vice President and Chief operating Officer.
Also available to answer your questions are Sheridan swords, senior Vice President natural gas liquids, and Chuck Kelly Senior Vice President natural gas.
Yesterday, we announced third quarter earnings results and updated our 2019 financial guidance expectations. The first nine months have set us up well for another year of companywide earnings growth in 2019 and have laid the foundation for continued growth next year.
We also reiterated our outlook for greater than 20% earnings growth in 2020.
[noise], we've provided updated timing on several of our capital growth projects, including our Demicks Lake one natural gas processing plant in North Dakota.
Which was completed earlier this month and our Demicks Lake to plant, which we expect to complete in January 2020 [noise].
The northern section of our El Creek NGL pipeline is expected to begin line fill activities in November and will provide meaningful volume and earnings growth as we exit the year.
Between now and the ended the first quarter of 2020, we expect to fully complete five growth projects that will add more than 700000 barrels per day.
NGL transportation capacity.
Hundred 55000 barrels per day of fractionation capacity and an additional 400 million cubic feet of natural gas processing capacity, including Demicks Lake plants.
This critical natural gas and NGL infrastructure, including assets to help significantly reduce natural gas flaring in the Williston basin will provide immediate earnings and volume uplift in 2020 and stable fee based growth for years to come.
With that I will turn the call over to Waltz for comments on our third quarter results. Thank you Terry.
Third quarter 2019, net income totaled $309 million.74 per share.
And third quarter, adjusted EBITDA totaled $650 million year to date net income and adjusted EBITDA increased 11, and 5% respectively compared with the same period last year.
Distributable cash flow through the first nine months of the year was $1.5 billion up 13% compared with 2018 with a healthy year to date dividend coverage of 1.42 times.
We have also generated nearly $450 million of distributable cash flow in excess of dividends paid through the first nine months and this year.
During the third quarter, we paid a dividend of 89 cents per share and last week, we announced the dividend increase to 91 of the half sense or $3.66 per share on an annualized basis. The dividend is payable on November 14th to shareholders of record.
Number four.
This latest increase results in a 9% increase in 2019 dividends paid compared with 2018 inline with our previously stated guidance.
In August we completed a $2 billion senior note offering providing increased liquidity and balance sheet flexibility.
In addition to funding capital expenditures proceeds from the offering also were used to proactively manage upcoming debt maturities, including repaying $250 million of our 1.5 billion dollar term loan due 2021.
And redeeming $300 million of senior notes that were due March 2020.
On September 30, net debt to EBITDA on an annualized run rate basis was 4.5 times, we continue to expect to be at four times debt to EBITDA run rate in the fourth quarter of 2020 for the first quarter of 2021.
With de leveraging continuing in the quarters to follow that.
We ended the third quarter with the full $2.5 billion available on our credit facility and more than $670 million with cash.
Lets yesterday's earnings announcement, we narrowed our 2019 financial guidance ranges.
The midpoint of our net income guidance increase to $1.28 billion and our adjusted EBITDA at midpoint remain unchanged at $2.6 billion.
The natural gas gathering and processing and natural gas pipeline segments are trending towards the high end of the previously announced financial guidance ranges each with the ability to exceed the high end.
They're range outperformance in these segments reflects stronger than expected volume growth in the Williston basin and stack and scoop areas in gathering in the gathering and processing segment and higher firm transportation capacity contracted on expansion projects in the natural gas pipeline segment.
Our natural gas liquids segment is trending store towards the low end of its previously announced financial rate guidance range, primarily due to lower optimization and marketing earnings from narrows narrower than expected pricing spreads between Conway and Mont Belvieu.
And due to the impact of increased ethane rejection on our system.
Despite a vastly different commodity price environment and spreads that were one third as large as a year ago, our base business grew compared with a strong quarter last year.
As we mentioned in prior quarters, we expect earnings from this for this segment to be heavily weighted towards the back half of the year.
The Williston basin continues to be a primary contributor to one elks growth underscored by the fact that volume growth in the region as at higher margins relative to our other regions.
We've also updated our 2019 gross capital guidance range to $3.5 billion to $3.7 billion consistent with my remarks last quarter, reflecting the accelerated timing.
Several of our capital growth projects.
The early in service on these projects also accelerates their associated EBITDA contributions and further underscores our confidence in our earnings growth and de leveraging next year.
As Terry I already mentioned, we continue to expect adjusted EBITDA growth of greater than 20% in 2020, compared with our 2019 guidance midpoint and the emphasis remains on greater than 20% [noise].
I'll now turn the call over to Kevin for a closer look at our each of our business segments. Thank you. All we continue to see strong producer activity across our operations with NGL and natural gas volumes through the first nine months of the year already surpassing full year 2018 volumes.
Overall, our projects remain on time and on budget positioning us well for continued growth as volumes on these projects ramp up over the next several months.
Let's take a closer look at our operating regions starting with the Rockies.
Producer activity remained strong in both the Williston and powder River basins, North Dakota saw record natural gas production again in August of more than 3 billion cubic feet per day, and the basin wide rig count remains at approximately 60.
As Terry mentioned, our 200 million cubic feet per day Demicks Lake one natural gas processing plant is now in service and we expect it to ramp quickly to full capacity once the entire creek pipeline is in service.
With natural gas flaring of more than 550 million cubic feet per day in the basin and more than 300 million of that on one looks dedicated acreage the volume growth is immediately available to capture.
We also expect to complete our 200 million cubic feet per day Demicks Lake to plant in January of 2020.
Which will help further alleviate flaring in the basin.
Third quarter natural gas volumes processed in the Rocky Mountain region were nearly 1.1 billion cubic feet per day, an increase of 7% year over year and 2% compared with the second quarter 2019. This puts us on track to in 2019 board the higher end of our volume guidance range.
We now expect to connect between 525 and 550 wells in the Rocky Mountain region. This year compared with our prior will connect guidance of 620 wells.
Better than expected well performance and higher gas oil ratios have contributed to the growth even with producers temporarily delaying completions to avoid additional flaring due to lack of processing capacity and NGL take away.
This has translated into a rising drilled but uncompleted well count which is reached approximately 1000 basin wide with more than 400 on our acreage.
We expect producers to begin working this inventory off once Elk Creek and additional processing capacity come online providing further support for our expected growth in 2020.
NGL Rossi throughput volumes and the Rocky Mountain region increased approximately 7% compared with the second quarter 2019, due primarily to the southern section of our real Creek pipeline coming online in July .
In addition to our Demicks Lake one plant more than 300 million cubic feet per day of third party processing capacity was recently completed with an additional 750 million cubic feet per day of capacity expected to be completed in the Rockies region by the first quarter of 2020.
[noise] at full capacity. These plants are capable of producing a total of approximately 160000 barrels per day of propane plus when full.
We're already seeing additional NGL volumes from the region in October with throughput averaging more than 190000 barrels per day, which includes the already full 140000 barrels per day Bakken NGL pipeline.
Line fill activities on the Northern section developed Creek are expected to begin in November and volumes will continue to ramp up through the remainder of the year, including approximately 25000 barrels per day currently being right yield that will transition to the pipeline and reduce our rail costs.
We expect exit 2019 with more than 215000 barrels a day of raw feed throughput for the region and reach more than 240000 barrels per day in the first quarter 2020.
As a reminder, each 25000 barrels per day of incremental volume results in nearly 100 million of adjusted EBITDA.
We also continued to see increased producer activity in the powder River basin as production results remain strong and some rigs have relocated there from other basins benefiting both our natural gas gathering and processing and natural gas liquids segments.
Moving onto the mid continent.
Natural gas volumes processed increased 8% year over year and are tracking above the midpoint of our guidance expectations.
Total NGL Rossi throughput in the mid continent region decreased compared with last quarter due to higher mid continent ethane rejection, specifically during July and August .
We had approximately 50000 fewer barrels per day of ethane on our system in the third quarter 2019, then the second quarter 2019, but saw an increase of approximately 30000 barrels per day of propane plus volumes in the region, which demonstrates strong.
For supply growth.
We've sent seen ethane on our system increased in the fourth quarter, but continue to expect fluctuation through the remainder of the year as we near the start up of new petrochemical facilities on the Gulf Coast.
Through the first nine months of the year, we've connected 98 wells to our natural gas gathering and processing system and connected five new third party processing plants to or natural gas liquids system in the mid continent.
Two previously connected third party plants on our system have also been expanded in the region.
NGL volumes from these new connections and expansions in addition to growing Rockies volumes will drive the volume growth on our Arbuckle two pipeline, which remains on schedule for completion in the first quarter of 2020.
We continue to stay in contact with our customers in the region about their plans and forecast and this information has been incorporated into our growth outlook for 2020.
Now taking a closer look at our Permian Basin and Gulf Coast operations.
NGL Rafi throughput volumes in this region increased 26% year over year and the average fee rate increased by approximately one half cents compared with the second quarter 2019.
This was driven primarily by a ramp in volumes on completed West, Texas LPG expansion projects.
And the replacement of lower rate legacy volumes on the system with market based transportation and fractionation rights.
We expect average rates to continue to increase as our 80000 barrels per day expansion and 40000 barrels per day expansion are completed in the first quarter 2020, and the first quarter of 2021, respectively.
[laughter] systemwide NGL fractionation capacity remains highly utilized phase one of our end before fractionator, which will provide approximately 75000 barrels per day of capacity is expected to be completed by the ended the year phase two of the project, which will add the remaining 50000 barrels per day of.
Capacity remains on schedule for completion in the first quarter of 2020 M.B. five remains on track for completion in the first quarter of 2021, Terry that concludes my remarks. Thank you Kevin our operating performance system wide volume strength and execution of our capital growth program with a very strong balance sheet.
It has clearly exceeded many expectations.
Well the operational and earnings growth earnings growth is important the way in which we operate.
Conduct ourselves in business and construct our projects is equally important and it is the importance that we place on safe sustainable and responsible operations that is the foundation for all of the successes we've discussed today.
You can find more detailed information related to our environmental social and governance focus priorities and programs in our most recent corporate sustainability report, which can be found on our website.
The report is our 11th annual DSG report and with each version of this report, we've prioritized increasing disclosures content and relevance for one Oaks. Many stakeholders I encourage you to review the report on our website. We continue to focus on improvements in these areas and welcome your feedback to help.
Plus do so because our goal is to build and grow business that is profitable safe and environmentally responsible for the long term.
Thank you to all our dedicated employees for your hard work and contributions this quarter. We're only a couple of months away from closing out another year of companywide growth and we're about to enter an exciting year of new asset operations and additional project completions with that operator, we're now ready for questions.
Thank you if your question Please press star one.
You bet, if you're using a speakerphone. Please make sure your mute function has turned off to a larger signal to reach our equipment.
Star one to ask a question.
Well, it's just for a moment hello, everyone opportunity to signal for questions.
First question comes from Jeremy Tonet JP Morgan.
Good morning.
Good morning, just wanted to.
Thanks, just want to start off with the.
Project ramps you have a lot of moving pieces here a lot of projects coming online over the next couple of quarters and you talked on it in your remarks, but just.
Demicks Lake one into how should we think about those plants ramping up, especially because you need Bell Creek online to kind of off you know form the way you want to form they are just.
How should we expect EBITDA you know to ramp up over the next few quarters with all these different project coming online.
Jeremy This is Kevin and then I'll, let others jump in but clearly creek is kind of the the key.
The key project that we need to get done.
The basin is short NGL takeaway capacity right now.
But as Elk Creek comes in service then all the processing plants up they're not just Demicks Lake one, but you've got some third party processing plants that are that are up now and you've got another one that is going to come online in the fourth quarter. All those plants will be able to ramp and clearly there's some.
Financial flaring behind not just star system, but other companies systems as well. So you would expect it's going to ramp very quickly to from the flared gas inventory then as you move through 2020 early 2020.
And the flares get put out you still see the strength in rigs were seeing up there.
And you've also got growth coming out of the powder as well so you'll see an immediate step up as we put out the flares and then you'll continue to see a ramp given the rig counts in the activity levels were saying.
That's very helpful. Thanks and.
Just trying to capex.
You guys have very deep.
Portfolio projects and it seems like it's kind of peaking right about now I'm just wondering what how you guys think about the balance of capital you know with great opportunities Ares capital disappointed that the market seems to be focused on how do you see capital trending next year any color or thought you could provide there.
[noise] German is as Walt.
You know we've got a several projects that we've already announced to the to include Demicks Lake two M.B. five Oak Creek to in West, Texas a expansion.
So those will be completed throughout the course of 2020.
Yeah. So you can kind of do the math on what we've already got a ticked off so we'll see a meaningful step down in our Capex next year from what we have in 2019 going forward.
We think the vast majority of.
Everything that we see on the horizon has been announced there'll be other growth opportunities that will come but remember we built the backbone of the system. There with these two pipe. So we have significant operating leverage going forward. So are you know if we had another processing plant or something along those lines the order of magnitude of significantly less.
As we go forward and then also I would.
Pointed out that anything that we would announced in the coming quarters would really get a spend over a couple of years. So are 2020 Capex. At this point is something that you can get a pretty good look at just based on what we've announced today.
That's helpful. Then certainly thanks.
Sorry.
[noise] [noise], Okay. Our next question comes from nor Sunny.
Yes.
Good morning.
Hi, good morning.
Wondering if we can sort of.
Talk about a couple things you're just.
You mentioned your prepared remarks about the reduction in expectation for Bakken well connects for for this year.
But it was interesting your common seem to indicate that it's a function of the infrastructure delays, which in theory would imply a higher inventory for next year.
But at the same time you also noted that the liquid component is higher so your volume expectations are unchanged. So what I think about next year or does it mean that you have a potential for even higher inventory of connection and with the higher costs that you are saying is coming from the liquid side that you would.
I think that 2020, even better than what you were originally vision for 2020 or might not thinking about that correctly.
This is Kevin I mean, yeah, I think that conceptually you you're on the right past the.
There we were able to through fewer producers were I mean, clearly they were button up against some flaring constraints right with because the the basin with short processing capacity and take away NGL takeaway was full.
So rather than going ahead, and completing those wells no when they're going to flare they backed off and that's been going on for for several months. So yes that DUC increase.
It was the result of that and yes that gives us.
Some tailwinds as we move into 2020.
And then on the other side of that there. They just producers continue to deliver strong results, which even though we connected fewer wells than we'd anticipated we were still able to get more towards the higher end of our volume guidance.
[noise] he had enough would you.
Okay.
Yeah sure Yeah kit, Kevin it's fair to say that producers have consistently.
Exceeded our expectations, particularly in the Williston and I think there we've we benefited from their own capital discipline.
Certainly finding ways to enhance the productivity of their wells the gas oil ratios have been a big deal.
For us up there, which in turn has increased the amount of liquids it'd be available to our plant. So I think I think just all in all the backdrop is producers have as.
Really have done a super job.
Not only delivering on what we expected them to deliver but exceeding exceeding those expectations.
Alright, Great and then just two quick follow ups. One just a clarification you talked about for ethane recovery, where Q1 9 is that a function of the fact that there's a a challenge to take away gas out of the facing right now and you just need to make more room on the gas line. So it makes more sense to recover the ethane and is that guy the reason or.
Or something different.
Yeah. This is Sheridan swords, I think you're riding you really need to look at the gas issue, especially in the Permian into mid continent, and when the Permian gas goes really low you see a lot more ethane wanted to come out of outside the Permian basin versus the bid cotton and we saw that in the third quarter, but now the gas prices during.
This first part of the fourth quarter have moved up in the Permian and little bit and gas prices in mid continent moved down which allows more ethane to come out of the mid continent. So you really need to look at the gas price because the TNF out of the mid continent TNF out of the Permian are fairly close together, so it's not on that side.
Okay, Great and one final question.
And your conversation with tariff Val Capex, and you talked about sharing or in 2020% 2019. So you know there should be some sort of free cash flow and version.
You know and I would expect there'd be an improvement in leverage like what's the right time for us to start discussing return of capital options for the free cash flow you know where you look at options like buybacks do you change dividend policy Im just kind of curious you know kind of whats your thoughts are one for free cash flow starts to materialize next year.
Well sure you know what we've said that we would get to four times debt to EBITDA.
You for 2020 or or Q1 of 2021, Yeah, we expect to continue to de lever after after that.
And we'll proceed down through Oh, you know into that three five range, which is kinda aspirationally.
Where we'd like to be so yeah, we still have some time, we're gonna you know that's gonna take through 2021 Ah.
[noise] maybe into 2022, so we're going to we're going to.
Continue that de levering those are as our primary focus and then are going forward. We always are on the Oh, the hunt for good growth opportunities and to the extent to see a commercial to find those growth opportunities, we're going to pursue those but keeping that leverage in that a on a going forward basis.
Moving around that three and a half times I don't have the only thing I would add to waltz comments or that the priority continues to be fund. Those these attractive growth projects and we continue to have a runway of growth in front of this albeit we don't have any of those great big infrastructure projects or backbone projects like wealth, Mitch mentioned earlier, but the priority or what.
Continue to be around these these great return organic projects and certainly we think about as we head if if and as we have cash available certainly retire debt and then share backs could come into the equation, but.
I really don't see it but it's certainly something that we think about if we get to a point, where we're running out of growth projects and and ER and were and were forced to look at other ways to invest our capital certainly share buybacks or or something else we would consider.
Alright, perfect. Thank you very much guys really appreciate the color.
Yeah. Thank you.
Your next question comes from Christine Cho Barclays.
Hi, everyone.
Hey.
Well, if I back out the rocky volumes better eating intent <unk> contracted capacity [noise].
I still estimate that over 100000, Palestinian supposed to come from make Hot Tonight, and I know the outlook for tiny tiny and he asked me why then 20% well over 29 teenage driven primarily by backend, but how should we read the need for mid Con volumes Shallot, Hey, Barry do you need it could be flat at a minimum or I can it.
In a declining and we can still had not bears.
I mean, Christine this is Kevin I'm, just looking kind of holistically at the mid Con clearly there's been some pullback recently by producers we factored all that in.
We're probably thinking of the mid continent in a flat to slightly declining type of environment as Weve <unk> factor in that two or 2020 growth outlook.
So so we don't we don't need.
Significant or really any growth coming out of the stack and scoop to a to meet the growth outlook. We've provided for 2020.
Okay. That's helpful and then.
Moving over to Capex, you guys are very transparent and you know providing a capex trends for the individual projects, but how should we think about the range of annual offending you Guy in line ancillary Capex that isn't included in that project Capex.
Well I mean, I'm capex to like walk in X., I don't know, maybe adding it come crashing a compound semi here.
You know.
The just looking at kind of what we would consider kind of that routine growth routine capex that we're going to see on a year in year out basis, it's probably in the four or 500 million dollar range.
You throw some processing plants like Walt alluded to earlier on top of that it did raise it up a little bit, but but that's kind of the range just for that normal blocking and tackling type growth that we'd see a kid in the only thing.
Christine hang on to say the only thing I would add to that well connect makes up a bulk of that advertising growth right, absolutely just connecting work and probably plant connections and then [noise].
Other miscellaneous gathering infrastructure by both on the gathering <unk> processing side as well as side.
Good.
Thank you.
Thank you.
Our next question comes from Tristan Richardson Suntrust.
Hey, good morning, guys. Appreciate the money commentary on direction of 2020 capital deployment, but just thinking about the flexibility you have for somebody or longer dated projects that 2021 timeframe that MB five arbuckle expansion et cetera.
Talking about just your ability to flex the timing of those either based on.
Volume trajectory or producer plans et cetera.
As we I guess is we think about the big one there would be M.B. five do you know with the volumes we have coming.
And have line of sight to for him before you're going to fill it up extremely quickly so.
So any growth at all in be five is going to continue on so I I.
I mean could you do something if something went south in a hurry potentially so but again, we don't see that again just with the line of sight. We've got to volumes that are going to hit us in the next in the next few months here.
Yeah, obviously, good from the well conduct and that's sort of a routine if we saw a significant downturn producer activity, we have some flexibility on or but Oh, we don't see it as it relates that'd be five and or buckled two will be done in the first quarter of 2020.
Great. Thank you guys and then just one.
Smaller follow up just talking about.
The performance of the joint ventures, and why you saw the cash distributions from joint ventures.
Expected to be much higher this year than than you previously thought is that a onetime event or is there just general outperformance on northern border O PPL just.
Oh yeah.
Yeah, we had a pretty a robust discussion about this on our Q2 call. We had a hit a onetime or kind of catch up a $50 million distribution not a northern border and expect it to go back to its a.
Normal course.
In the quarters going forward, the inline with where it's been so that that was the only one other than that the joint ventures are all performing.
Very well.
Great. Thank you guys very much.
Thank you.
Our next question comes from Michael Blum Wells Fargo.
Greg Good morning, everyone.
Good morning can little can you can you just give us an update on.
Where they where things stand in terms of potential expansion the of northern border and then kind of related to that you know what's the timing for when you would need to see a new gas pipeline capacity out of the Bakken before you would need to start you know effectively.
I would call it forest recovering ethane because it would be to you.
[noise] Michael this is Chuck as far as a northern border expansion or any other residue take away out of the basin.
You know we're actively working with parties on these residue projects frankly, wander nondisclosure agreements, but suffice it to say that there will be expansion opportunities out there and we realize it does take away is needed to take care of our customers. So we will definitely be part of that solution.
As far as your second question on on V to use a beat you changes or could you. Please repeat your second question for me.
Yeah, just smart question about timing.
When do you have to gas pipeline capacity to avoid.
I see wrenching eliminate having to extract that thing.
So those are really kind of two questions. One is on the beat to you all limits on northern border.
Northern border is currently in discussions with customers and when operators about a potential be too you change in their Tara and.
That would be forthcoming we believe in 2020 in anything beyond that will defer to do our transcanada operator, I'm on the asset however, as far as.
More ethane recovery being necessary you don't really comes down to how quickly. The Bakken continues to grow and we have one side and 2020 is gonna grow quickly with these gas plants coming on so as we continue to displace Canadian volumes that beat to you a will rise and obviously the way to mitigate that is too.
Recover more ethane so I think 2020, we'll see more ethane recovered I can't give you know a number on that longer term, we will need some.
Residue takeaway relief and I think that's more in the in the 22 timeframe.
Great. Thank you very much.
Well.
Our next question comes from Spiro Dounis Credit Suisse.
Hi, Good morning, everyone first question on the mid Con just why did you talk a little bit more about your ability to connect more third party plants looks like you guys connected a few more this quarter and maybe seems to be a bit of a step up. So just curious does enhance push to do more of that maybe as a way to kind of.
Did you through next year and alleviate some of that pressure, we're expecting to come from some of the rig count reduction.
Yeah. This is shared and we don't really have that many more plants in the mid continent to connect we've kinda connect all the ones that are out there we saw big push in and 2019 lot of those plants, we've seen some increasing production from those plants and we expect to kind of stay at that level through next year there.
Level, we're at today on a C plus basis.
And I think right now there's plenty capacity out there, what's what's to it to process the gas that's there.
Got it and second question just with respect to the narrow bands for 2019 guidance I imagine you have considerable visibility at this point. So just curious what could maybe flex full year EBITDA results from here towards the higher LOE under that ranch.
It's primarily going to be really just a specific timing of these projects I mean, we look at the biggest levers we have that would that would be number one.
We've talked about spreads it can fluctuate up and down that that could be a little bit of a driver, but we've got pretty good line of sight at this point to where we're going to end the year.
Understood. Thanks for the other somethings are with.
No just that well jumped in weather is always a it could be a factor if you get earlier or know whether that that could be an impact as well [noise].
Okay. That's a that's helpful. Appreciate the color thanks, guys.
Our next question comes from Gene in South America Bernstein.
Hi, Good morning, and you referenced a lot in Bakken processing capacity, starting up in theory and ask to eliminate flaring I can you share like your estimates fair flaring levels, when theres enough processing and help create or like like down to the tougher centseight target something much lower or possibly something a little higher.
Gina and the way I'd answer that is if you go back to few years are actually just probably 12 18 months ago, you know the basin was down into.
And once everybody gets kind of the everything de bottlenecked I think you're going to see flaring get back down below the state average the state targets or above the state targets for capture I think that's gonna that will happen.
Got it thanks, guys much appreciated.
Thanks, Mike.
[laughter] question comes from Oh, Vera it's kind of.
RBC capital markets.
Hey, good morning, everyone. Thanks for all the commentary around the 2020, EBITDA ground and it sounds like the confidence level in hitting back greater than 20% growth is pretty high, especially given the comments that you made about your view on the mid con.
But if I can ask the question another way what has to happen for you to walk back that outlook.
Oh, Yeah. This is Kevin I'll start again, we the thing we have stress for the last several months we continue to focus on this is.
With the flared gas in the Buck and we've got incredible line of sight to these volumes.
A similar situation occurred back in the 16, 15, or 16 time frame or we saw the flared gas we had projects and we immediately captured it and turned it into EBITDA.
So with the flaring that's occurring in the basin the DUC count that's out there with the productivity and the returns. The producers are seeing you know we've just got a lot of confidence that that's going to be the substantial driver to that to that growth in 2020, and that's not even.
Getting into the growth, we're seeing out of the Permian you know the powder and other places. So we just have a confidence because because we have that line of sight.
We can reach out and touch these volumes.
We haven't probably the only thing else I'd add to that as we don't have a whole lot in your baked in for ethane.
Right, so you're or spread so we're at you know seasonably low spreads would typically low this time of the year.
Saying economics, you know our marginal for recovery or if those things turn there's actually more upside probably did this number than downside.
Great and just very quickly, though but how do you know commodity or crude oil price factor and <unk> to this yeah. I mean again looking at anything is as long as were about 50 or you know do you think you know even you know you get to somewhere below 50, you're still fine with the outlook.
Well, we go back to when when rigs really came back to the Bakken you know they they really started coming back in earnest it it around $45 apparel.
From the conversations we have with our customers Mostar planning for a 50 dollar environment more from a cash flow perspective.
But the improvements they've seen in the productivity of the wells again the returns on the will to aren't the challenge it's solely I'm just living within their cash flow, which has been the consistent theme, we've gotten from our customers. So.
So I think easily if you stay north of 50, probably even if you go so it go down to the 45 range you're still this things good to go.
Great. That's perfect. Thanks on that and then just one quick follow up on the capital allocation of discussion.
[noise], where does M&A fit in all of this I mean are you guys you know.
Turning to looking at a you know various assets or are you kind of set on you know just your organic growth and M&A just has to be super compelling.
You just answered it a worst we're focused on the organic growth and you know.
M&A has to be luber, a compelling [laughter] and most likely most likely it would be smaller bolt on type says acquisitions.
Great. Thank you very much.
[laughter].
Our next question comes from their Walker Bank of America Securities.
[laughter].
Good morning, guys.
Today.
A quick clarification I think you said in your formal remarks, but just want to make sure I heard it right.
Leaving the and the Rockies the NGL volumes for.
To be to 40, and one Q2 0.
Assuming 140 for for Bakken NGL and at 100 on L. Creek systems No rail.
[noise] 25.
But rather you're saying today that should just the transfer over to the pipe.
I'm hearing it.
This is shared and yet your <unk> you are correct and work, we're starting to transition to away from specifically talking about what's on L. Creek to whats coming out of both the the Rockies region, which is will extend the powder River basin because of the flexibility we had between moving between pipes. So that to 40 is it.
Basically at over 100000 barrels a day increase from where we work and we just had the Bakken pipeline coming in so that's the new plant that we talked about coming online rail coming off and then ramp up on those volumes and actually said, we think will be above 40 <unk>.
First quarter.
Got it that's helpful. And then maybe I'll just get one it on the U.S.G. you got to know the September that Oh.
You got attitude of digesting fill the index and just talk a little bit about somewhere you see initiatives and have you had any conversation specifically with investors.
Around that and they focused on any particular metrics.
Oh, well, they're always there always focused on getting more information and certainly that's probably what we've done where we've made incredible progress is certainly in the disclosure of our emissions and and various environmental impact data that has that has had a lot of discussion obviously from a from a governor.
Perspective, I think we've been lauded for the ER for our efficiency from a governance standpoint, when you really think about R.R.R.R. broad.
Thoughts around reducing our impact to the environment, that's certainly an area where.
I think its resonated with investors I think the fact that you've done. This now for 11 years in a row and that this and this work product continues to improve.
Each and every year I think certainly that has resonated.
With investors as well so.
I <unk> disclosure disclosure disclosure and as we continue to move forward, we'll continue to disclose more information and certainly around emissions targets and that that type of outlook will serve certainly something that's top of mind and a that will.
Hopefully be in a position where we can do.
And provide those those types of disclosures are in the not too distant future.
Excellent. Thanks for me.
<unk>. Thank you.
Next question comes from Craig Shere Tuohy brothers.
Good morning.