Q3 2019 Earnings Call
Good day, everyone and welcome to the well Young company third quarter 2019 earnings Conference call. Today's conference is being recorded at this time for opening remarks, an introduction I would like to turn the call over to Mr. Brett Greg.
That's a relations. Please go ahead sir.
Thanks, Brett.
Good morning, and thank you for your interest in the works company yesterday afternoon, We released our earnings press release, and the presentation that our president and CEO , Alan Armstrong will speak your lawn care.
Joining us today is our chief operating officer My son.
Our CFO , Don Chandler, our general Counsel language.
And our senior Vice President corporate strategic development jobs.
In our presentation materials, you will find an important disclaimer related to forward looking statements. This disclaimer is important and integral to all of our remarks and you should review it.
Also included in our presentation materials, our non-GAAP measures that we reconciled to generally accepted accounting principles and these reconciliation schedules appear at the back of today's presentation materials, So that I'll turn it over around Armstrong.
Great. Thanks, Brad and good morning, everyone. Thank you for joining us and as we discuss our third quarter financial performance and we also hit on the key investor focus areas. So today as we usually do so let's move right in the presentation and take a look at our third quarter results.
On slide two we provided a clear view of our year over year financial performance.
And as you can see we continue to enjoy steady growth in our key badgered. Despite the asset sales that we've continued to execute on.
And in fact, I'm very pleased to say that our third quarter saw a records for our fee based revenues.
Our adjusted EBITDA and of course, these were driven by record operating gathering volumes, which exceeded 13 Bcf per day.
In the period and as well record contracted capacity on a regulated gas pipeline and these combined to overwhelm the small amount remaining NGL margin exposure that was certainly low in fact about as low as I can remember.
That we've seen in terms of margin contribution from the quarter. So really nice to see our strategy of focusing on fee based revenues are growing that are coming through at a time, where we had a low cycle on commodities, but again, we powered through that with the growth in fee based revenues so taking it from the top let's see.
Here are cash flow from operations, which increased 15% for the quarter and 16% year to date in.
And this continues to outpace our capex and as you can see on a year to date basis. Our CFO has exceeded our capex by over 630 million on the next line would show, 7% and 8% year to date growth for adjusted EBITDA and I'll have more to say about adjusted EBITDA performance within the next couple of side.
And then as you can see we posted continued growth in adjusted earnings per share of 8% for third quarter, and 23% year to date, even stronger than our adjusted EBITDA increases.
And on DCF, we were up about 8% and 16% year to date with growth in this current share calculation and continued strong dividend coverage ratio of 1.79, which continues to exceed both our 2018 coverage ratio as well as ever our guidance for 2000.
The 19th.
And you can see our ending leverage metric for the quarter was 4.47, demonstrating that we are on target with the four or five guidance that we.
We have for the year end.
So overall nice improvement in our various earnings and cash flow metrics. Despite the impact of almost $2 billion, an asset sales affecting the comparison and much lower commodity price environment that we had in 2018. So now let's move on to slide three to discuss the main business drivers of our year over year adjusted EBITDA growth.
Here on slide three where we compare threeq to 19 to Threeq you 18, the adjusted EBITDA increased about 7%, we're almost 10% if you adjust to the bigger transactions that affect the year over year comparison on the left side of the slide you can see eating gray that we.
Yeah.
[laughter] on favorable 47 million dollar comparability adjustment, which includes removing the adjusted EBITDA from the various asset sale transactions completed during the last 12 months and then netting out the 13 million dollar favorable item, reflecting the addition of the incremental 38%.
Uhhuh.
Ownership interest in so that the.
Additional interest that were not consolidating in the you to east, Ohio Midstream business.
And so normalizing for those items you see adjusted EBITDA growing 112 million, we're almost 10%.
On this comparison, so now moving over to look at the financial performance of our continuing business.
Similar to the first two quarters of this year, the Atlantic Gulf wed with a 28% increase and adjusted EBITDA driven by topline Transco revenue growth from new expansion projects of course, the Atlantic Sunrise and Gulf connector work to that were a powerful in this comparison and additionally, our third quarter.
For 2019, Transco results reflect about 44 million of adjustments related to the settlement reached in our Transco rate case and of course. This group reported through both revenue and other income and expenses I know, there's a lot of questions on that we look forward to being able to shed more light on that at.
Our upcoming analyst day.
And but it will have a little more to say here on this we hits like thought.
Lastly, we did it we did see a temporary drop in our deepwater volumes associated with tropical storms and producers maintenance activities, but deepwater production is back to normal for most producers now in the fourth quarter and in fact growing in the Gulf East due to new production from who DAT and the.
Norphlet ramp up that continues but we continue to be very impressed with the activity in the deal flow around or assets in the deepwater and that's another item that of course will spend quite a bit better upcoming analyst day on it.
Next up looking at the northeast GMP area, we see a 17% increase in year over year adjusted EBITDA driven by an increase of about 1.3 Bcf, a day or 17% higher gathering volumes and higher gathering fees associated with expansion projects.
Volume increases were led by the Susquehanna supply hub and the Bradford areas, which grew.
850 million cubic feet per day, and we also saw double digit growth rates in all of our other operated northeast franchises. So overall our operated assets in the northeast continue to see very strong broke and volumes across the board.
And finally in the West we saw about a 16% decline driven by about a $29 million decrease in revenues for our Barnett gathering business. This decrease was associated with the end of some minimum volume commitments in that area and a related step down in deferred revenue amortization.
So that it was a one time step down that is associated with some cash that we did received earlier and that cash was being.
Amortized according to the those volumes that are the revenues that we were receiving and so once that MVC step down it kind of compounded.
That step down.
The Barnett Nbcs expired at the end of June 19, and so once that did happen the revenue recognition rate as a fixed payments. We previously recorded began to be based on actual volumes rather than the MDC levels. So this was an expected step down in the Barnett revenue recognition for this area and we haven't been forecasting it.
But we also saw $32 million.
Lower NGL margins in the West as unit margins in the Rockies were down by almost 50%.
Partially offsetting these impacts was a strong growth in the Haynesville, the Eagle Ford and Rocky Mountain mid screen franchise in the DJ Basin and in fact adjusted for the four corners area sell in 2018, our west gathering volumes actually increased by about 2% on this comparison and finally I want to mention our.
Conway Bracken storage business, which continues to see strong year over year fee revenue growth on the back of NGL production in the surrounding areas like the DJ and the Bakken.
So next let's take a quick look at the adjusted EBITDA growth year to date.
And so now on slide four we show the year to date comparison, adjusted EBITDA increased about 8% or about 12%. If you adjust for the bigger transactions that affect the year over year comparison.
Pretty similar story year to date as you heard for the door third quarter. So I won't drag you back through that on year to date drivers, we see Atlantic Gulf up 24% and the northeast about 19% driven by the same factors as we discussed.
The west is down about 8%, reflecting much lower NGL l. margins and again the step down in the Barnett revenue that we just discussed and the effects of severe winter weather. This year on our Wyoming volumes during the first quarter of 19.
As with the third quarter comparison, our full year West results actually reflects strong growth in the Haynesville Eagle Ford and the Rocky Mountain Midstream franchise in the DJ as well as our Conway storage right. So very happy with the growth. We've continued to show in the Atlantic Gulf in northeast this year and the stability of our ball.
Audience in the west in strong.
Revenue growth, all leading to an 8% growth in adjusted EBITDA, even considering the significant asset sales and low NGL margins and the one type stepped down in bar and the Barnett revenue recognition. So overall operationally really strong performance overcoming a lot of.
Those other structural issues.
As you look over the sequential comparisons to the second quarter 2019 here on slide five I'd point out that overall gathering volumes increased sequentially just over a half a bcf a day.
So now were 13 Bcf per day for the first time and this was led by 5% second quarter, two third quarter increase in the northeast and was somewhat negatively impacted by the deepwater production outages that we previously discussed.
But the biggest driver Twoq to Threeq you in the Atlantic Gulf was the favorable impact.
Got you settlement terms with shippers on Transco.
With respect to the lower west results, the onetime stepped down in Barney Barnett revenue recognition amortization and MDC exploration drove the decrease from the second quarter. The onetime Barnett step down overshadows, what was actually about 4% improvement in gathering volumes sequentially in the.
Yes.
In fact, our west gathering volume trend continues to hold up well in a very tough commodity price environment and now that we're past revenue recognition transitions and the MVC explorations the steady nature of our west operations will become increasingly more visible.
The operational cash flows are holding up in the west and the Capex requirements are coming down generating significant free cash flow from our west assets.
So overall, we're pleased with our operational performance in the third quarter and is very encouraging to see the kind of volume growth. We continue to generate in the northeast and the west GMP businesses and in fact is the first on the I can recall their fee based business growth being able to overwhelm such as such a substantial decline in commodity price.
Yes.
Showing that our move towards a more sustainable and predictable cash flow is now really paying off for our long term investors.
I'm going to move on to slide six and take a look real quickly here at the key investor focus areas first on financial guidance.
We are reaffirming our current financial guidance for 2019.
Definitely been a challenging commodity price environment for natural gas and Ngls versus the market's original expectations and our own for 2019, but I am pleased to say that it looks like we'll be able to deliver on our financial guidance. Once again. This year in spite of this negative impact.
Hi, This is reflected in our year to date results through September 2019 has been a year of strong free cash flow generation and I'm pleased that the way our teams have kept us on track with our original business plan from a year ago, how they continue to exceed expectations on project delivery on generating new business all.
While spending less capital than we planned in fact, despite losing about 100 million of our plan direct commodity margins. We're still on track proving up the diversity of our cash flows and the power of crisp execution by our teams.
Also growth Capex could easily come in under the low end of our 2.3 to 2.5 billion guidance range, which as you know hit up has already been reduced once this year and our dividend coverage ratio continues to be better than our 1.7 guidance. Our 2019 results illustrate the steady.
And strong cash flow growth profile of our large scale diversified natural gas focus business and the excellent security of our dividend even in a very tough commodity price environment.
Moving on now to 2020 guidance. We're currently working through to 2020 operating and capital plan and intend to provide the 2020 financial guidance are up humming analyst day on December five.
At this point at this event will also provide our latest views on the sustainability of our natural gas focused strategy.
And our unique positioning to grow alongside the continued expansion of natural gas as the preferred and vital fuel around the world.
Although we have great confidence in the long term sustainability of our business strategy. The current low natural gas and NGL prices, which are exceeding the long term growth of natural gas demand and had a pretty significant impact on the forecasted near term growth.
Our GMP business, particularly in the northeast.
Clearly our producer forecasted cash flow.
That they have available to drill with has been heavily impacted by much lower strip prices for gas and NGL and as a result, our 2020 northeast gathering volume growth forecast had steadily drift downward as we said earlier in the year, we're committed to keeping our guidance up to date.
With our changes in our producer plans and so Weve continued as as those forecasts have come in we've continued to make those changes.
However, as we've said before competence in low cost U.S. natural gas reserves will continue and is continuing to drive strong natural gas demand growth over the long term and there will have to be a call on natural gas focus supply areas, given the continuous growth in demand and the stronger than ever cath.
The support from the.
Producer community and of course, we will be extremely well positioned and are well positioned for the upside associated with that.
As a result, we believe that as long as we continue to see natural gas demand growth that we should see the volume capacity demand growth necessary to generate.
5% to 7% adjusted EBITDA CAGR that we continue to talk about over the long term to be clear does not mean every year, we will be exactly in that range, some could be slightly lower and others like this year will be above.
The 2020 financial guidance, we provide an early December will be built off of low strip prices for natural gas and NGL and because of this we view the guidance is having significant upside as the gas market rebalances.
However, we're pleased to say that we've been taking measures to mitigate this risk.
And our 2020 plan will show the discipline and resulting improvement that we've been putting on our cost structure. So we've been seeing and and risk. Realizing we were going to have some risk associated with this we've taken a big swipe at our cost team has been extremely effective.
On doing that and so the benefit of that as well as some other continued growth. We believe we'll continue to offset the the reduction that we're continuing to see in the northeast.
So.
We will see reduced capital expenditures in in the northeast, but we also are very focused on a very strong dividend coverage that that's providing us. So speaking of growth capital. Our 2020 capital budget will be dominated by a regulated pipeline expansions as much as.
The major build out of our GMP systems will be completed by the end of this year driving even higher levels of free cash flow growth then we'd earlier expected.
One of the areas that is beginning to be a big driver of free cash flow growth is northeast operating area and we've been working hard to stay on top of the producer forecast changes in the northeast our previous guidance for the northeast GMP for 2019 remains intact.
Where we are currently forecasting gathering volume growth of about 13%.
And this should result in adjusted EBITDA growth.
19% for a total of about 1.3 billion.
So not a bad year, given all the much more negative forecast provided.
By research and others, so year to date through the third quarter, we've generated about 17% gathering volume growth, but we do expect that overall annual growth moderate here in the fourth quarter since our fourth quarter comparison will be up against the volumes that grew rapidly right. After Atlantic Sunrise came online last.
Stop tober.
Looking toward 2020, our latest forecast in foreign buyer plant producer activity shows about 3.5% gathering volume growth versus our previous expectation of 5.5%. The decline in expected GMP volume growth was driven primarily by lower forecasted sorry.
Lower customer forecasted volume growth in the Bradford Utica ends up Susquehanna areas as producers continue to react to lower forecasted 2020, natural gas and NGL prices and based on this forecast we would still expect adjusted EBITDA growth of about 8% to get to about.
1.4 billion, so $50 million lower than what we had for our second quarter expectation for 20, but still $100 million of growth here in 2000.
19 to 20.
So the decrease in expected adjusted.
But also includes a pretty significant reduction from the blue racer investment so part of that a $50 million reduction comes from the non operated investment we haven't blue racer and then beyond 2020.
We continue to see an opportunity for a stronger growth rate tourism and the 2021 in the northeast.
And that of course will be dependent on better balance in the natural gas market, but we remain excited about how well we are position.
For that call on natural gas.
So overall, we remain encouraged to see the level of EBITDA growth, our northeast GMP business can continue to generate in a very weak natural gas and NGL price environment, and we remain very focused on cost reduction in capital discipline as we await long term fundamentals to bounce we believe it won't take a lot.
Our price recovery to quickly restore growth rates above 8% for our northeast GMP footprint.
So now let's move on to discuss our Transco growth projects.
Yeah.
First I'll provide an update on the rate case very pleased that Weve reached an agreement on the terms of a settlement and as result, we've reduced the reserve we establish against the cash and the receiving.
From the filed rates. It went effective in March this year, which along with other related accounting entries results in about 44 million in favorable adjustment.
The agreement will resolve all issues in the rate case with no need for any hearing of course final resolution of the rate cases subject to a filing.
For us the file a formal stipulation and agreement with FERC and final approval by the spot buys for.
So a lot of process still in front of us to get final resolution on that rate case, but we're very.
Pleased with the way that came out the terms of the settlement our non public until the stipulation and agreement has been filed for we will provide an overview. The key terms of the settlement following the FERC filing for now I'd. Just say, we're pleased that we were able to reach agreement on the key terms with our customers and related regulators and weve.
The final FERC approval of the settlement.
But I want to make it really clear on one point here I would caution you from thinking that this reserve adjustment provides you with a clear picture of the annual run rate impact for 2020, and we certainly look forward to being able to show you. The full impact once those filings are completed.
So lets touch on the status of Transcos major growth projects, starting with the northeast supply enhancement project lots of headlines out there related to this very important project for the residents and businesses of New York City, we're still waiting.
The state water quality certification permits required for the project from both the New York DC and the New Jersey D E.
At this point the risk to our targeted in service date is increasing although although we are going to do everything we can to meet our targeted in service date for the fourth quarter of 2020.
It is quite challenging to bring the onshore compression facility.
Portion of the project, which is their new Jersey.
Really challenging to get that done within a year timeframe and that is the current critical path that will be up against but currently we still feel that we can help support the peak load for the 20 and 21 winter. So a lot of great work by our team that's been going on on that I can tell you there's been a.
An impressive amount of work in working with the various agencies and the various stakeholders on that and I remain confident in our ability to bring that went across the line.
So next I'm very pleased that we're able to place our river Bell South to market project into full service ahead of schedule. The project is the Transco expansion of 190 million cubic feet per day to service additional customers in New Jersey in New York City. We also received FERC approval for our important in southeastern Trail expands.
And the southeastern Trail project adds about 295 million cubic feet per day to the Transco pipeline system and this is designed to bring gas from growing to serve growing markets in both the mid Atlantic in South Eastern States by November 2020.
In fact, all of our Transco projects that had been permitted for construction are progressing well and finally, our most recently announced Transco project. The regional energy access a project is now headed for approval at our upcoming November Board meeting so great work by the teams and pulling that project together as well.
And I'll remind you that one of the cheap benefits of that project is being able to utilize our existing right of ways for that project.
Moving on to slide seven here.
Just to conclude take.
Taking a quick look at our third quarter performance in our high level review of our key investor topics. We look forward to our upcoming analyst day on December 15th and that this is going to give us an opportunity to dive deeper into a lot of the really key issues that are out in front of us right now.
And a lot of the drivers for growth that we're really excited to share about with you vote for 2020 and beyond 2020.
So I would just in closing I'll remind you we do live in a world that we'll continue to need more energy, there's a growing need for that energy to be as clean burning as possible renewables are certainly going to play an increasingly important role, but their growth requires a partnership with natural gas to meet the energy needs of the world All.
So reducing emissions overtime natural gas does have the lowest cotwo emissions to heat content ratio when compared to other fuels and provide superior economics versus other fueled types.
As an example, but 22005 and 2018 CEO to missions from electricity fell 27% due to replacing coal and oil and natural gas power generation. So while low cost natural gas also facilitate a costly investments.
In renewables it is paving the way around the world I got to be the fuel of choice.
Benefits from having ideally situated existing pipes in the ground and we continue to see expanse demand for expansion for the long promote the near term and the long term and despite a pretty tough current commodity price and regulatory permitting environment. The future remain very bright for Williams as we've done.
And straight here in the third quarter and for strategically placed natural gas focus assets like we are so fortunate to operate and we look forward to discussing that future with you in December so with that let's go ahead and transition to our Q and a session and thank you again for your time today.
Yes, Sir thank him.
Good question. Please.
Star one on your telephone keypad.
Yes.
Make sure option is turned off to allow yourself.
Again press Star one ask a question.
Pause for just a moment to allow everyone an opportunity to effect.
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Our first question comes from Colton bean toward.
At the holding company.
So it sounds like Haynesville volume growth was fairly robust through Q3 can use off your thoughts on how that's progressing here in Q4, and maybe what the outlook looks like for 2020.
Well go I think you know, there's obviously been a lot of focus on Chesapeake in the Haynesville and certainly they've had a strong year of growth but.
Our teams have been out contracting with.
Other customers and have been very successful with other customers in the area and so as we are we likely will start to see some reduction and the growth. We've enjoyed from Chesapeake volumes were now starting to see that picked up by a third parties and we're really excited to be working with some of those we've got some.
Very collaborative ideas about way to grow the haynesville volumes out there so were actually pretty encouraged about what we've been able to work with with other producers excuse me, that's around and integrate with the Chesapeake acreage.
Got it in terms of those agreements are those consistent with maybe some of the legacy terms or are those should we think about those is newly cotton agreements that are more.
Current market.
Well I would say there is a combination there obviously depends on what the market.
It is in the area and so.
I'm not going to comment on specifically.
What those rates are but obviously it just depends on what kind of market hasn't here.
Got it and then just maybe transitioning over the Wes can you characterize some your discussions with producers around the p. on and southwest Wyoming footprints and maybe more specifically.
Have been reductions to bank commodity Dexter, that's having an impact at all for the private producers there.
That's a great question I would say.
That in the P. on food Ben you know, we've seen just got very steady volumes there in the beyond and so that's been a real.
It is and it and it is mostly private money driving that.
A lot of those folks as you know put hedges out in front and so they're just drilling up against those hedges.
And then in Wyoming in places like the one side are we.
We have seen some some slowing of what was some very robust growth that we are still seeing some nice growth. There in the warm side are probably the area that I would expect to see more decline on in volumes would be the gathering upstream of our old Powell processing plant.
Would be the area. So lot of that gas, we don't gather that's gathered by third parties, but we do the processing on it. So that's probably the biggest decline were seen in the Rockies right now is pullback in that area.
Okay. Appreciate the time this morning.
Thank you.
Our next question comes from Gabe Moreen, what do you have.
Good morning, everyone I'm just a quick question on the northeast capital spend Guy and I know, you'll probably get into the Seattle is quite a day quite a bit but relative to what looks like to be the northeast GMP run rate spend of about 550 million this plus or minus this year can you maybe talk about just how low that could potentially.
Go next year order of magnitude and to what degree there might be some mandatory capital spend you still have to finish up next year.
Hi, Gabe this is Michael done we will have a capital program up there we have expansions that are ongoing in the Bradford.
We'll continue to spend money on that are coming online in the second quarter.
So we do still have a.
Program. The there and also is a well conduct activity as well.
So I don't think you would see it as robust as what we're spending this year by any means but we will still have some capital investment going on in the northeast.
Thank you and then I'll, maybe I could ask just bigger picture in terms of.
The EBITDA growth trajectory I appreciate that some years will be up some used to be little lower EBITDA growth, but to what extent you think dividend growth may need to move in lockstep or not in lock step with projected EBITDAR growth just your latest thoughts around.
Yeah. That's a that's an excellent question gave and I would just tell you that the free cash flow growth as you can see by the increasing coverage that we got this year against it we.
We don't see any change in getting outside of that range that steady or 5% to 7% range that we've talked about four.
Dividend growth because the the cash flow.
Growth in the year.
Where capital spending might be lower is just that much stronger and so.
And obviously, we can see the growth coming because most of our capital. Despite we will have some capital in Gi most of our capital next year is going as I mentioned in my notes most of our capital is going into regulated projects and therefore that cash flow growth is highly predictable to us.
In terms of when that's coming on and so we're not having to gas about what that growth in the prior years will be around.
Thanks, Alan and I appreciate it will get more on the trustco rate case settlement with FERC approval, but can you at all.
So whether or not the emissions truck or reduction in charter was approved or as part of the settlement.
Yeah, we cannot speak to that at this point. So I would you say, there's number of trade offs around that.
Yeah.
Okay. Thanks all.
Yeah.
Our next question.
With credit Suisse.
Hey, good morning, everyone.
Maybe just starting off or keeping out with the 2020 capex on sounds like you've indicated a little bit it on directionality year over year, but you also mentioned 2019 coming in potentially below the low end. So just curious would that bar started getting even lower how should we think about the magnitude of direction of Capex coming down next year, Obviously, you mentioned GMP skewing toward.
It's towards the low end of course, but you also talked about regulated asset spending and I guess, that's where maybe I'm on shore do we assume flat higher year over year does that offset a lot of JMP decline.
Yeah, I would you say you know certain projects like for instance, the.
A regional energy access project, which will be taken to the board. So.
We'll see a increase perhaps from what we see what we had forecasted earlier on the regulated side, but decrease in particularly in the GMP area, although and as we've talked about a lot of the growth that we have in the deepwater Gulf of Mexico doesn't require.
Much capital relative to its growth and so we're going to enjoy some pretty attractive. There are there is one project in particular, there that is going to require a some capital and that started to get very clear for us in terms of what that's going to required in the deepwater, but a lot of the projects Award.
Non there the producers providing capital Corp.
So I would you say for 20.
As I mentioned, the 20 Capex is definitely going to be dominated between the regulated gas pipeline and the NGL long haul NGL pipeline that we're doing the bluestone pipeline those that's going to dominate the 2020 capex.
There is some as Michael mentioned there are some cost of service capital still going into place in places like Bradford, but but the majority in 2020 is going to be on the transmission side.
And it looks like based on the continued demand for the regulated pipe that we're going to continue to see some growth there and then as we get into 21 and 42.
We will start to see the and some of the impact of but one of the deepwater projects that I talked about start impact our capital for 21 at 22, So they've got about all that you're right now sort of what we're going to show you at analyst day.
Yeah I can appreciate that.
And then just started messy.
And the headlines and certainly I want to put too much emphasis on those but I guess, what we're struggling with is just given what some of the government officials have said just seems like some of those statements or maybe hard to walk back to get into a point, where they get approved the pipeline. So maybe just extra color on what we're not appreciating and that dynamic.
And to the extent that he does get delayed or maybe mothball from here is there. Another regulated project out there that you can sort of fast track tickets to the Frac stack and as a replacement and then ultimately what does that do Capex and 20 got to think that NFC is a big part of that right now.
Yeah I'll take that this is Michael we're still confident that nobody is going to have some approvals. This fall that allow us to start construction in order for us to meet that winter up 2021 time frame and why we're confident is because of the significant emissions reduction opportunities that the project allow our customer and.
The customers of our customer in their service territory in Brooklyn in long Island, but also the economic development impact is very significant at this project just I get built.
And so that's why gives us a lot of confidence that this will happen.
Obviously, a you know you see the headlines and and we have been very responsive to the regulators in regard to what their concerns were with our permitting application that we remedy those we believe and we do have full expectation, but we will have permits in place. So that we can start construction a this fall.
And our teams do a great job getting projects done on time, and we certainly have developed contingency plans to accelerate construction, if we get crunched on our schedule, but we certainly believe we can make the December of 20.
Timeframe, so that our customer can meet their peak load requirements that are occurring in the in the next winter season. After this one or.
And just got it the other.
Other projects in the queue you know I would just tell you Oh, we have about $3 billion of capital that we're actively working that's just on the transco system, including desk, the and regional energy access and the other projects that we've talked about certainly provide libre information on the.
At Analyst day, but Oh, we have great confidence in the $3 billion of Capex, it's about two and a half.
Bcf of capacity increase alone on the Transco system and these are the ones that we have very high confidence and then I can tell you. We're working another couple billion dollars capital investment just for the Transco system now that are certainly out into the future. You know, we're talking maybe a 2024 timeframe as to when those projects would be on service but.
There's a long runway of projects just on the Transco system. There were actively working now we have high confidence.
Very helpful color I suppose that guys.
Yes.
Our next question comes from Cheetah AD Southbury Bernstein.
So what if anything with Williams to renegotiate contracts with shippers and are there were playing out.
You can see the X. I check extension dedication.
Yeah, it's hard to Dan are you talking about gathering contracts I assume.
[laughter].
Yeah.
I'd say, there's not really.
Andy.
I wouldn't think of anything that would.
Barring any thing on that on the on the pipeline side very standard tariff and obviously you have to treat everybody. The same on on the regulated pipelines.
On the on the gathering stuff I would just say.
We always have our eyes open to two ways, we can add value on that but there's really no not anything we're aware of out there that would.
I would debate as to lower any rates that are out there other than on a short term basis, you know to incremental volumes in an area that Pittsburgh drilling, but I can't I really don't know of anything that would.
Motivate us to lower rates from our existing Reits out there other than for for 49.
Times that we do to Incent drilling in an area.
That makes sense.
Then just one right now and if it did not go forward what the ultimate outcome of that from New York's perspective be more oil burning can meet demand or is there anything else out there that they've kind of purpose that that translation.
I think I think the only thing else. We've heard is trucking LNG or are you in propane. So I think that's the options other than more more oil burning. So me no. It it is interesting because there's so much growth going on it surprises us I think when we realize how much.
Real.
Demand growth there is going and how fast the growth is going on in the Brooklyn, Bronx area, there and and that is what's really putting pressure on this issue is not just the conversion, but as well the growth that's going on there so.
It's a it's pretty pretty overwhelming as we've studied it what's really driving the growth there and so as Michael said I think.
That really gives us a lot of confidence both.
The ability to help reduce emissions in the area, but to also there's got to be support for economic development, there sustainable way, there where that gives us confidence.
Thanks, that's all for me.
Thanks.
Okay.
Our next question comes from Gary Thomas with JP Morgan.
Good morning, just wanted to start off with a 2020 EBIT guidance and recognize that this is something for the analyst day and don't want to parse your words too much here.
But when you talk about you know 2020, the headwinds you noted growth could be a bit less that year. Then you know the normal five to seven range.
And when you say, what a bit less you know just trying to.
Get a feeling for that does that mean growth could be zero could it be negative or is it just a little five or is there any other color that you could provide on on what you mean by a little bit less there.
Yeah, Jeremy Thank you.
I'm really glad you brought that question for because I think there might be some confusion, bringing on this issue. We really were just trying to remind people because we do have so much growth going on across the business and particularly with this transco rate case, which you know again, we can't lay out the details on that.
But we really are trying to remind people as they start to see all these positives that they don't pile that onto the level that gets in appropriately high growth right, but we certainly expect.
Significant growth next year, we just want to make sure people don't get too far ahead of us and that they're taking those issues into account because people are really starting to form their model for 2020, and we just want to make sure that they're taking all these other variables into account because I think you start piling all these positive thing.
On top of each other you'd actually get to a pretty high growth rate, if you're not taking into account things like the barnett into Gulfstar step down. So that's really what we what we're trying to do there is just remind equal to build that into our model and so perhaps are conservatism on that over did that little bit.
But but that that was what we were trying to Uh huh.
That's helpful. Thanks for that and just want to go back a topic a that's been talked about in prior calls and you guys have taken strong actions and the capital discipline side, you know as far as portfolio.
Optimization is concerned.
Do you still see opportunities to take.
Take actions there or any latest thoughts you could provide.
Well I'd say the thing that we've really done well and I called credit Michael and his very engaged oversight. On this is we have just been making sure that we're not putting capital out in front.
The growth and so we have really rain that in and so we've really made sure that any growth capital that we're.
Investing in most of these areas comes with.
Some either in MVC or rate increase that supports it so that we're not we're not out on plan.
Building out in front of a bunch of growth and so.
That that the discipline is result of added people are not willing to make those commitments were pulled the capital back.
And so that that is really what's provided a lot opportunity as well in the U. video the synergies. There you go Ams a great example, there were.
We had capital expansions, we were gonna have to make for a fractionation there and by doing that deal. We were able to eliminate that we also had been able to work with some of the other processors in the area and take overflow volumes, rather than seeing capital being invested in the areas. So.
We really and Adam you know, it's nice to see the whole industry really.
Trying to bring that capital discipline across the space, because I think that makes us all healthier and so we're seeing a lot of a discipline that it's showing up as higher returns and better free cash flow for us here in 2020 and beyond.
It is good to see guys kind of swim in their lanes. There I think that's good for the industry. But was also just curious I guess on the joint venture side or asset or sell side is there any other thoughts on potential future actions there that that you guys could share.
Yeah, I would just say we are we still see very significant opportunity along those fronts and we're really excited I think one of the things that we have going forces that.
We were our assets are are we tend to have very well positioned assets with very strong strong contract behind them and very long lived contracts behind them and as results with that that gives a lot of surety of the cash flows that we have and that's exactly what the private so.
Slide investor not necessarily typical private equity, but the private funds pension funds and so forth is that's exactly what they're looking for until we make a great joint venture partner with those folks because we're a safe reliable.
And conservative minded operator, and so we make a great partner for those folks and so yes to answer your question, we see some pretty significant opportunity there and we're working that angle pretty hard.
Great. That's all for me Thanks for taking my question.
Thank you.
Our next question comes from Alex.
Research.
Thanks, just.
A question on your thoughts around the meat pipeline sale that was not terribly. This fall I believe you guys had a right of first refusal on the transaction. So I'm just wondering what your thoughts were with respect to I'm not going forward exercise that was a price where there any other benefits or something like that with respect to lease that that that may have kind of meat.
Sort of okay, but not exercising that option just curious.
Yeah, I mean part part of it certainly was price if you look at the cash flow relative to the price paid.
And kind of ignore the structuring around that.
You know, it's a pretty low return.
And so that was certainly a piece of it and then there was some.
Considerations that we received in exchange for that and we're not going to discuss details with that so we certainly took a look at it but.
It just didn't make sense really for our given our other investment opportunities that we have a it really just didn't stack up against or other investment.
This is Josh and I, just think about that that in many ways would be something like that on it but you know we're paying lease payments against that meet interest. We we looked at that long and hard to actually buy that interest and would it we would have incurred an additional $400 million that basically to do that and that's thinking or leverage the wrong way study of our leveraged focus.
Came into play and that is in that decision as well.
Great that makes sense and then just again respecting that you can't really say much of the settlement I'm, just I'm thinking about how the accounting on that necessarily at work.
When you're able to give more details on that what would it don't end up you recognizing you know kind of revenue for this year and you know would that already be included in Europe in that in the guidance that youve that you've reaffirmed or would that be kind of another another variable that that might that might affect that I'm going to end up here.
Yes, Great question I would you say that the are our guidance Oh affirmative our guidance certainly takes and that into account and it's just one of those things that you know just like we've see the negative impact to blow cycle NGL.
Margins is one of those things that offsets atanas.
The beauty of having a big diversified business today able to see some positives and negatives during the year. So so but it definitely is.
Considered as we think about.
The guidance affirmation for the year.
Great. Thanks very much.
Our next question comes from.
That's with Wells Fargo.
Hi, Thank you I just have one question I guess one of your large utility customers has proposed a large offshore wind farm near Virginia. So I'm just I'm just curious how do you think about renewables in general and then whether you've thought about investing jointly in these type of projects.
Yes. Good question I'd, just say, we you know we have so much investment opportunity already.
That that are at higher returns than what we've seen have been realized and those projects that given our continued focus on a balance sheet as well as the higher return investment opportunities that we have they just they wouldn't make sense right now in abhi.
Theres always learnings when you venture into something new and.
We think there's risk obviously associated with that <unk> bottom line as you know sticking to our knitting right. Now we think is going to add a lot of value and is the right approach for having said that there are things like our right of ways and things like that it can be very valuable when it comes renewables, but we're very convinced that.
After studying this issue a lot that the natural gas.
Generation that has to go along with the renewables effort is going to continue to be a big driver of growth for us and it is showing up in very real ways in terms of RF fees and negotiate.
With customers even beyond the visibility that we provided a date on that and so until that word and or we could start to see that.
Starting and I just don't think we've got.
Capital or risk appetite to venture in something new given the opportunities in front of us today.
Understood. Thank you.
Our next question comes from Craig Shere with two brothers.
Okay.
Yes.
That's true.
50 Cabot.
Oh.
<unk> investment.
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The state level.
I really think so I'm, just because there's some nbcs and so forth that are getting built into some of the cap, but whats going in right. Now so I really don't think that would be a real good assumption is a good question, but I don't think certainly might be for certain areas as we get towards the end of the year here I mean.
We were already seeing volumes, obviously here in the fourth quarter that show US continued growth so on an actual basis here. So.
So I don't I don't know that that'd be a very fair assessment, given what we're seeing here in October and vendors other areas that.
In the Brad for where we have real capital, but it's going in place and that cost of service will step up as a result that so.
Good question, but I would tell you.
Right now I kind of doubt that would be the case.
Fair enough.
Oh apologies if I if I missed.
Just a clarification about.
Pardon.
Was there any specific figures.
Sorry.
Okay.
2020.
Yeah, John family as you think about 2020 actually there's if there is a small additional barnett that data I think about it. This year, we've had two quarters at higher levels of revenue that stepped down a third quarter. So we have call it $20 million to $30 million of additional step down the Barnett amortization next year just because.
At four quarters of that stepped down 22 way and in addition.
Somewhere around that.
$70 million to $80 million, Oh around $7 million.
Gulfstar amortization, that's come out of the exclusivity period that that debt.
[laughter] 70, plus.
Star.
Does that.
Some of that.
Oh yeah.
No that full year number because that that exclusivity period in November last payments around that but this year.
Thank you.
Our next question comes from Sean.
Hi, good morning, guys.
One of my questions have been asked answer, but I was wondering just circle back a little bit on <unk>.
First just to confirm what are the common to me.
Our.
We can't really rely on any reserve adjustment should we just think if it is it's an accounting was from a reserve to the income statement. Then it's just a journaling and tree and it really has no tell about what is going on with the rate case that they set an accurate reflection.
Yeah, I mean, obviously, if you think about the way that works, we have to record our best available information.
That come through in that but the the rate case has a lot of complex issues.
To be dealt with in it and I would just say that not all of those are reflected in the and the.
Change that you saw and so that's why I know everybody wants to jump ahead, we would rather have not had to show anything on that honestly, but from an accounting rules standpoint, we have to but but it is not a whole picture and we look forward to down.
Sure that whole picture.
That's very good and appreciate that.
And I realize you can't sort of talk about the keys self but I was wondering if you can talk about the Bakken worth between you and Counterparties negotiations.
Do you feel that both sides concluded that the caught some of what they wanted.
Yeah. This is Michael [noise].
I would say a it was the it was actually a very good negotiation with our shippers as we always have with the Transco organization.
We have a great relationship there with the shippers and the regulators over those customers as well and other is always a contentious issue that somebody wants to a to make sure that they have success on and I would say both side walked away from that I'm pleased with the outcome and we.
We Oh, we are happy to get it behind us and not to go through the litigation of the a of the rate case, and so you know there's always a some issue that it can be contentious, but I think both sides dealt with it very professionally.
Alright, perfect and then one final question I know, there's been a lot of back and forth about NFC and you know who knows when it comes to to the regulators and so forth but.
In this scenario where.
Nephews is delayed longer you have to meet the in service date by at least a year, let's say do you see an opportunity to potentially it's really kind of the budgeted capex towards buybacks.
Do you feel that Youve got that's an option or an arrow in the quit for at this point that you can potentially use just given where your stock is trading at.
Yeah, I would just say that you know first of all we.
We remain confident on that and so really don't see that as.
Something that we'd be looking at the trade up I think as we get.
Further out.
And we get down below down to the credit metrics that we want to I definitely think that that'll that'll be on the table.
The debate, but I'm right now the you know I don't know that we see a big a hole in our capital coming up just because why there might be little changes here and there.
In grander scheme of things only see big change coming there and any anything that would present itself here in the very near term as a surprise.
Excess cash available would just go down the to taking that credit metric down very quickly.
Perfect. Thank you very much and are looking forward.
Thank you.
Our next question comes from Derek Walker with Bank of America Security.
Hi, guys.
Just a quick just a quick one on the on the leverage.
And I believe you said your Uh huh.
Four or five but in a year and there's a long term target for two number.
And just talk about I think you said, you're evaluating some opportunistic transactions to approve leverage metrics further.
Is that what's needed to hit the for two or is that mostly just coming from an EBITDA ramp and or you're still looking to make transaction to go below that 14 number.
Yeah, Great Great question, well certainly the path we're on gets us to the four too. It's a question is if there's additional value added transactions that we could do in other words that would add value to the equity side as well, rather and rather than just taking down the debt and so.
Some of the transactions that we've done to date, we think are very valuable to shareholders, where we've been able to.
Sell assets at 14 to 15 times, and redeploy that capital and to a higher.
Return investment opportunities and so we think as long as that continues to be is able to us. So that you know really good value for shareholders and we'll continue to pursue that.
But the the first thing we would do it just a matter of of how fast we get there really the purchasing we would do with excess cash would be to take it down to four two and I'll just remind you in terms of the 19, we are already below the four or five here for for 19, and so we're making great progress towards that.
But it really just to have the question, though right.
Or acceleration of that goal, but we certainly are on that trajectory. It's just that you know, it's a big number and we can move but a lot quicker if we wanted to do some transactions.
Got it thanks town and maybe just one on the operational side that I believe you just condition to the kingsborough, one facil processing facility as capacity to 25 can just talking about the utilization that a plant and oh, so sort of targeting.
Second Kingsborough planned in 21, and you mentioned sort of stepped down a capex for next year, just talk about how you're thinking about that that's like a plan as well.
Yeah. This is Michael will take that question on that Ginsburg <unk>, Yeah, we commissioned that on time and on budget or team did a great job following up on Fort Lupton.
I have to 200 million a day plant that we commissioned a back in April .
And were able to balance volumes between those two plants and right now we're doing so and catching a lot of additional volume from spillover customers that have other arrangements that aren't being met with our competitor peer group in the DJ basin and so we're actually attracting a lot.
Some additional business there are for Fort Lupton plant was at full capacity already and Arkin's bird plant a [noise].
Well that about 50% capacity pretty darn quick.
There and right now we're balancing between those two plants based on deliverability of Ngls off the plants as well as residue gas.
So pretty a pretty good load factor on both those plants right now considering that just came online this year.
Thanks, Mike that's it for me.
Thanks.
Thank you everyone.
Today's question and answer session.
Alan Armstrong for closing remarks.
Okay, great. Thank you off at a really good questions and we really look forward to sharing the growth that we've got ahead of us with in the analyst day. So we look forward to see you there. Thanks again.
Thank you everyone. This concludes today's teleconference.
Yeah.
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