Q4 2019 Earnings Call

Our first call at this time all participants are in a listen only mode. A question answer session will follow the formal presentation. If anyone should require operator systems. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like turn the conference over to your host Mr., Tom Lump Chief Financial Officer for energy transfer. Thank you Sir you may.

We began.

Thank you operator, good afternoon, everyone and welcome to the energy transfer fourth quarter 2019 earnings call and thank you for joining US today I'm also joined today by Kelcy Warren Mackie Mccrea and other members of the senior management team.

Who are here to help answer your questions. After our prepared remarks, hopefully you had a chance to see the press release, we issued earlier this afternoon as well as the slides that we posted to our website. As a reminder, we will be making forward looking statements within the meaning of section 20 Onee of the security Exchange Act of 1934.

These are based on our beliefs as well as certain assumptions and information currently available to us.

Ill also we refer to adjusted EBITDA distributable cash flow or DCF and distribution coverage ratio all of which are non-GAAP financial measures.

You will find a reconciliation of our non-GAAP measures on our website.

And we expect our 10-K to be filed this Friday the 20 Onest.

I'm going to go head start today with a few of our full year and fourth quarter 2019 highlights.

For the year, we came in above the top of our guidance range generating record adjusted EBITDA of $11.2 billion, which is an increase of 18% over 2018 and was driven by record financial and operational results across the majority of our segments for the year.

We also reported record DCF attributable to the partners of energy transfer as adjusted of $6.3 billion and our coverage for the year was 1.96 times.

Which resulted in excess cash flow after distributions of $3.1 billion.

Looking at results for the fourth quarter of 2019, adjusted EBITDA was $2.8 billion and DCF attributable to the partners of energy transfer as adjusted of $1.55 billion, which resulted in distribution coverage for the quarter of 1.88 type.

James and excess cash flow after distributions of approximately $725 million.

The excess cash flow, we generated in 2019 funded approximately 75% of our growth capital expenditures.

In addition to our strong financial performance, we set several operational records in 2019.

As we transported nearly $23.8 million MBT used per day of natural gas.

1.3 million barrels per day of natural gas liquids, and 4.7 million barrels per day of crude oil and fractionated over 700000 barrels per day of natural gas liquids or Ngls.

Looking at our each ines metrics for 2019, our total recordable incident rate RTR IR was 0.94, and we worked over 18 million hours. This was significantly better than the industry average of 1.3 for 2000.

And in 19, we are extremely pleased with these accomplishments, which speak to the investment in and focus on safety and environmental compliance as well as the reliability of our assets.

During 2019, we also finalized the acquisition of Semgroup Corporation and place several strategic growth projects into service, including the JC Nolan diesel pipeline, the Permian Express for pipeline to processing plants in West, Texas, and our six fractionator at.

Mont Belvieu to name a few we also completed our first natural gasoline shipments from our needle in terminal on the Gulf Coast.

And I'm pleased to say that our seventh fractionator at Mont Bellevue is now in service.

Which brings our total fractionation capacity at Mont Belvieu to over 900000 barrels per day.

Now looking at our guidance for 2020, our adjusted EBITDA is expected to be $11 billion to $11.4 billion.

Compared to 2019, we obviously expected some headwinds related to crude and natural gas spreads. In addition, we will see impact from certain contract renewals.

The commercial teams primary activities right now center around locking in existing volumes for longer terms and getting out in front of future contract roll offs to ensure sustainable cash flows in the long term.

This is taken precedence over capital expansion and development of new assets.

For example, we have recently renegotiated multiple contracts extending several out as much as 15 years with greater long term volume commitments exchange for short term relate.

Helping to offset these impacts will be earnings increases related to the acquisition of Sim group.

As well as contributions from the ramp up of several growth projects throughout the year, including Mariner East Frac seven new processing in the Permian as well as full year contributions from other projects like Frac six JC Nolan PE for and Red Bluff Express.

For 2020, our organic growth capital expenditures are now expected to be $3.9 billion to $4.1 billion, which is revised.

From our previous guidance to include approximately 300 million dollarss related to the same group assets.

Most 2020, the backlog of approved growth capital projects is approximately $1.8 billion, including same group.

We expect additional projects to be added to this backlog, but as a reminder, we have raised the bar on return profiles and we'll continue to be disciplined as we evaluate any incremental spend.

Long term, we now expect our capex run rate to be approximately $2 billion to $2.5 billion per year, which we believe will result in positive free cash flow starting in 2021.

Let's look at the same group acquisition, which we closed on December Fiveth of 2019. The combination of these complimentary assets provides increased connectivity for energy transfers crude oil and NGL transportation businesses since closing our integration teams have been fully engaged in the combination of.

These two companies and we have already made significant progress toward recognizing our projected $170 million of annual run rate synergies.

Starting with the financial savings.

Utilizing energy transfers lower borrowing cost in October we entered into a $2 billion three year term loan a at the current rate of LIBOR plus 100.

The proceeds were effectively used.

To call all of same groups $1.375 billion outstanding high yield notes and the 600 million dollar term loan b at the energy transfer Houston terminal formally called Pasco.

This will immediately bring us to over $50 million of annual savings.

Looking at corporate costs, we are on track to recognize savings of more than $40 million annually from a reduction in headcount and increased efficiencies.

And we continue to work toward achieving approximately $80 million of commercial and operational synergies, which are expected to be driven by our ability to leverage energy transfers infrastructure to help drive operational efficiencies and increased utilization of assets.

Through this acquisition, we now have pipeline access to the DJ basin and expanded presence at Cushing and St. James as well as access to the Houston ship channel deepwater docs and refining complex.

Which expands our connectivity increases our reach and will generate opportunities for other aspects of our portfolio as well.

In addition.

Completion of the approximately 80 mile Ted Collins crude oil pipeline will provide access to over 1 million barrels per day of inbound crude oil for deliveries to the Houston and Nederland terminals as well as to Houston and Gulf Coast refineries.

It will also allow us to fully utilize our 1 million barrels per day plus of export capacity at our Houston and needle in terminals, which we have the ability to expand to over 2 million barrels per day.

The pipeline is expected to have initial capacity of more than 500000 barrels per day and commercial operations are expected to begin in the second half of 2021.

In addition, the more road pipeline, which will expand and improve existing access to and from Houston terminal as well as to allow us to export more barrels.

He is expected to be in service in the first quarter of this year.

As for the latest developments on other growth projects, we'll start with Bakken capacity optimization as we have mentioned the Bakken pipeline received sufficient market interest during December of 2018 open season for us to move forward with plans to further optimize the system capacity the initial phase.

Phase of the Bakken pipeline optimization of the above its current capacity of 570000 barrels per day will be based on commitments made by shippers that we have already received as well as commitments made during the current open season.

We still expect this capacity to serve the commitments received to be in service in early 2021, and as Bakken volumes and customer demand continue to grow in the future we will be in position to efficiently increases system capacity up to 1.1 million barrels per day.

Up permitted capacity overtime.

For PE for expansion, which added an additional 120000 barrels per day of capacity to our Permian Express pipeline system from Colorado City to needle in Texas when into full service on October Onest.

And ramped up nicely in the fourth quarter.

And on our VLCC project, which is planned from our needle in terminal and will be accessible to customers utilizing our significant network of pipelines. We continue to have discussions on this project.

As it gets closer to F. I'd, we will provide more specifics.

Now turning to our Mariner east system since placing the initial capacity of any to into service at the end of 2018 NGL flows on the system have continued to ramp up as expected.

As a reminder, in October we completed modifications to any one end Marcus hook to enhance the reliability of the system and allow for improved flows through the facility.

These modifications allowed us to bring additional ethane volumes onto the systems during the fourth quarter as expected.

At the beginning of this year, we were pleased to reach an agreement with the DDP that will allow us to complete the construction projects, we have underway in Pennsylvania.

Looking ahead, we are anxiously awaiting completion of the next phase of the project, which is now expected to be in service in late Twentytwenty with the final phase completed in the first quarter of 2021.

In the meantime, we are excited for the next tranche in volume ramp ups on the Mariner East system, which will occur this spring.

In addition expansion efforts at Marcus Hook are underway as it provides customers with the most efficient way to reach the best markets for the product.

This expansion will provide approximately 50000 barrels per day of incremental NGL throughput capacity at the terminal by the end of 2020.

Accommodating volume growth for Mariner East.

We're also working to secure a new third party commitments to bring additional volumes to Marcus hook.

As far the Lone star assets as I mentioned Frac seven is now in service and our entire Mont Belvieu fractionation complex is expected to be at full utilization in the next 30 days.

In addition, frac eight remains on schedule to be in service in the second quarter of 2021.

Both fracs will be 150000 barrels per day and upon completion of Frac eight our total fractionation capacity, a Mont belvieu will be over 1 million barrels per day.

And to keep up with our growing frac capacity, our 24 inch 352 mile Lone Star Express expansion will add over 400000 barrels per day of NGL pipeline capacity from the Permian Basin to the Lone Star Express 30 inch pipeline South of Fort Worth, Texas, We continued to it.

Expected to be in service in the fourth quarter of 2020.

We also continue to further develop our storage capabilities at Mont Belvieu.

On our 235000 barrel per day LPG expansion project at needle in construction is underway and progressing well. This expansion will further integrate our Mont belvieu assets with our needle in assets to expand our LPG export capabilities and is expected to be in service in the fourth quarter.

The twentytwenty.

The conversion of the white cliffs pipeline from crude to NGL service is complete and volumes on this pipe, which runs from Platteville, Colorado to Cushing, Oklahoma began flowing in December of 2019.

We expect volumes to continue to ramp up on this pipeline.

On our oil orbit joint venture with satellite petrochemical for which we are constructing a new ethane export terminal on the us Gulf coast to provide ethane to satellite.

Construction continues to progress as scheduled and we continue to expect the project to be ready for commercial service in the fourth quarter of this year.

Now turning to our processing plants in West, Texas, our 200 million cubic foot per day Arrowhead three processing plant, which went into service in early July operated at near capacity for the fourth quarter.

In addition, our 200 million cubic foot per day Panther two processing plant in the Permian Basin was placed into full commercial services in January of 2020, and we expected to be full by mid 2020.

With the completion of this plant, which is fully subscribed. We're now capable of processing more than 2.7 Bcf per day in the Permian Basin.

Let's take a little closer look at the fourth quarter results Ats consolidated adjusted EBITDA was up 5% to $2.8 billion compared to $2.7 billion for the fourth quarter of 2018.

This is primarily due to another quarter of record operating performance from our NGL and refine product segment as well as growth in the crude oil segment.

Eightys DCF attributable to the partners as adjusted was $1.5 billion for the fourth quarter up $30 million compared to the same period last year.

Primarily due to the increase in adjusted EBITDA.

Distribution coverage for the fourth quarter was 1.88 times.

In January energy transfer announced a distribution of 30.5 cents per common unit for the fourth quarter or $1.22 per common unit on an annualized basis. This distribution is flat compared to the third quarter of 2019.

And was paid today.

To unit holders of record as of the close of business on February the seventh.

Turning to our results by segment and starting with the NGL and refined product segment, which had another record quarter.

Adjusted EBITDA increased to 30% to $743 million compared to $569 million for the same period last year.

The increase was due to record frac volumes as well as increased NGL transportation volumes and terminal throughput.

NGL transportation volumes on our wholly owned and joint venture pipelines increased to 1.3 million barrels per day compared to 1.1 million barrels per day for the same period last year, mainly due to higher volumes on our northeast assets related to the startup of Emmy two pipeline in the fourth quarter of 2000.

As an 18.

As well as increased volumes on our pipelines out of the Permian Basin, and North Texas regions.

Fourth quarter average fractionated volumes increased to 734000 barrels per day compared to 594000 barrels per day last year.

For our crude oil segment, adjusted EBITDA increased to $715 million compared to $636 million for the same period last year.

The increase was driven by favorable inventory valuation adjustment.

Crude transportation volumes increased or a record 4.7 million barrels per day compared to approximately 4.3 million barrels per day for the same period last year, primarily due to volume growth in the Bakken as well as an increase in the barrels through our Bayou bridge pipeline and on our existing Texas pipelines.

During the fourth quarter, we were fully utilizing the 570000 barrels per day capacity on the Bakken pipeline.

For the midstream segment, adjusted EBITDA was $397 million compared to $402 million from fourth quarter of 2000 in 18.

Higher midstream throughput volumes were more than offset by lower NGL and gas prices, which impacted results by $29 million.

Gathered gas volumes reached a record 14 million MBT used per day compared to $12.8 million MPG use per day for the same period last year.

This increase was due to growth on Ohio River system in the northeast and higher volumes at the Ark, La Tex Permian, South, Texas, and North Texas regions.

Moving to the Interstate segment, adjusted EBITDA was $434 million compared to $479 million for the fourth quarter of 2018. This was primarily the result of higher AD valorem taxes from placing the final portions of Rover into service and lower adjusted EBIT.

From unconsolidated affiliates.

Transportation volumes were 11.6 million MBT used per day compared to 11.1 million mm Bts per day for the same period last year due to the addition of new contracts out of the Haynesville shale on the Tiger pipeline and higher volumes from the Rover pipeline.

In our intrastate segment, adjusted EBITDA decreased to $222 million compared to $306 million in the fourth quarter of last year.

This was primarily due to lower revenues from pipeline optimization activities, which were partially offset by increased transport fees from new contracts across our Texas intrastate pipes as well as the ramp up of Red Bluff Express.

Reported transported volumes increased primarily due to higher utilization of our Texas pipeline as well as the ramp up of volumes on Red Bluff Express phase two.

Now, let's look at the Capex update for the year ended December 30, Onest 2019 energy transfer spent $4.3 billion from organic growth projects.

Similarly in the NGL and refine products and midstream SEC segments.

Now this is excluding sun and USA see capex.

As I mentioned earlier for the full year 2020, we expect to expand $3.9 billion to $4.1 billion, primarily in our NGL refined products and midstream segment.

Including $300 million of expenditures related to Sim group.

Looking briefly at our liquidity position as of December 30, Onest 2019, total available liquidity under our revolving credit facilities were approximately $1.7 billion and our leverage ratio was 3.96 times per the credit facility.

In January 2020.

We completed a registered offering of $4.5 billion, a senior notes as well as a public offering of $500 million and $1.1 billion of series F and series G fixed rate reset cumulative redeemable perpetual preferred units.

Respectively.

We use the aggregate proceeds from both offerings to repay certain outstanding indebtedness, including prepayment of certain senior notes and for general partnership purposes.

And we continue to target a rating agency leverage ratio of four to four and a half times.

Before opening the call up to your questions today I want to reiterate that we're very pleased to have delivered another solid quarter and overall a record year here at energy transfer.

Looking ahead to 2020.

We expect our fully integrated assets and predominantly fee based cash flows to help insulate us from the weaker macro environment.

We also expect our business to continue to generate a significant amount of excess cash flow, which will help fund our backlog of growth projects and a credit friendly manner and allow us to further organically strengthen our balance sheet.

The addition of the Semgroup assets, which significantly strengthens our crude oil and liquids capabilities and enhances our connectivity and footprint as well as the ramp up of growth projects is expected to drive near and long term value.

And offset headwinds from narrowing spreads and contract renewals, we remain disciplined in our approach to new capital projects.

While safety and project execution continue to be among our primary focuses.

Operator, we're ready to open the lineup for questions.

Thank you at this time, we will be conducting a question and answer session. As a reminder, we ask that you limit yourself to one main question on one follow up if you would like to ask question. Please press star one on your telephone keypad a confirmation till indicate your line is in the question Q you mean presto to fuel will look to your question from the Q4 participants using speaker equipment.

It may be Netsuite and pick up your handset before persons are keys, one moment, please as we pull for questions.

Our first question comes the line of storm to screen with GBM. Please proceed with your question.

Hi, good afternoon, everyone.

Before jumping to my two questions. Tom can you just clarify that you said the long term Capex run rate is now two to two and a half billion down from three to 4 billion that you'd mentioned previously.

Yes.

Eric I mean, obviously.

As you know there's been a lot lot of discussion. This is probably one of the main talking points in a lot of investor Copses et cetera, but.

As we just continue to evaluate it.

Mackie's here also can chime in but as we looked at.

Basically what we're saying is.

You know that two to two and a half I think we've been also very very open about the fact that when really look out at a proof project starting from 2021 item.

That numbers at a 1.8 billion so.

Is that is that what you were looking for clarification on that yes, I was just looking for the clarification.

In terms of the two questions that I had.

Maybe to start off Kelcy Mackie, just wondering if you had made any progress on the re contracting into Texas crude pipeline assets I noticed there is a modest stepdown in rates, but higher contracted volume activity.

Is that sort of reflective as the AG the ongoing efforts to re contract that system.

Yes. This is Matt, yes, Thats a high priority right now for our partnership we've kind of reorganized our crew team.

Led by Jim a lot and there's a tremendous amount of time spent right now.

A little bit different than our competitors in that now we have Houston, we have need or Lynn as Tom talked about an opening statements. We have all refineries were developing appeal cc project. So we're not in a panic to fill it because what were offered of course, there's still a wellhead out in west, Texas, or Cushing or Bakken and delivering it all the way to wherever they want it to a market or.

To the.

Export markets, what are our to our VLCC projects. So yes, we are in the process negotiating we're optimistic that will rollover in extend to a substantial amount and over the next six to nine months and then long term, we expect a lot of those volumes to support our VLCC project.

Okay that makes a lot of sense, maybe a follow up question Tom.

With the recent financings that were completed in January I realize it was a refinancing of the stem group related debt.

However, one component.

What are two components I should say included a PRASK typically you get equity credit for that are different levels of equity credit for that from the agencies.

This now gets you a lot closer to the leverage targets at the rating agencies are actually looking for or that they've shared with you.

Was the equity credit part of the rationale in terms of using the process as well it's just Anthony.

Yes.

Yes that is the short answer is absolutely.

I think when you looked at it when you look at the retained cash flow, meaning they make the DCF above the distributions for the year, you'll see that thats it a little over $3 billion.

Right at 3.1, when you really add in the.

These perpetual preferred.

Obviously, we've been trying to do everything in a very couric credit friendly manner in order to be able to achieve those those that accelerated de leveraging you can see that.

Nearly 800 million added to that 3.1 gets you to 3.9 so.

Basically we were able to find the nailed the growth when you look at it the guidance. We've given fiduciary you can say that we're we're finding it with fab with with no debt. So no no equity and no debt no no common equity and no debt. So.

Okay perfect. Thank you very much appreciate the color today.

Okay.

Our next question comes the line appears him with Simmons Mg. Please ask your question.

Good afternoon, and thanks for taking my questions. My first is what are your latest thoughts on the C Corps conversion or an up see conversion.

Well you know weve.

This Tom long gas we have.

I think continue to talk about this once again I know it a lot of the conferences et cetera, we say that it's on the radar screen and we continue to evaluate it.

As we look out and we look at this market, where we are getting a lot of feedback we're hearing from a lot of our investors to.

I have the option of.

But to 99 currency in other words, a C Corp currency.

You know is something that we are hearing is appealing and so we're going to continue to to evaluate that.

It is something that we think we'll be very beneficial.

Do you have like a timeline that you're kind of roughly thinking on this evaluation.

You know we no no would answer your question given the short answer of it but I will tell you that it is something that we are once again a valuating.

As we look out.

For 2020 here. So okay. Thank you Tom and then the follow up is on the two to two and a half billion of growth Capex for 2021 and beyond how much is that has to do with them.

The higher return thresholds or or does it have a lot to do it just there's less projects to do in the industry is the production growth rate has slowed down for the U.S. CMP use more capital discipline et cetera. So the combination of those two or more on just higher return thresholds.

This is Matt you, it's a combination.

Tom talked about opening statements all the projects that we brought on last year in those projects will be ramping up throughout this year. We've got all these these NGL projects coming on and so we are wearing the kind of mode of growing as it is a topical.

Growing as fast as we can but we've kind of set a threshold of.

We said, 18% probably been north of that because our focus right now is filling up the assets that we have.

And more importantly, as contracts terminated with next 345 years on fractional processing plants that were built for five years ago, we're really focusing on filling up those projects ahead of NEWP nope projects, but it doesn't mean that of the project jumps out and synergistic with our other assets that in a mid term.

Good return threshold that we will spend more capital, but certainly not something were folks from right now.

Thank you Mackie.

Our next question comes the line of Colton Bean with Tudor Pickering Holt. Please state your question.

Afternoon, So just a follow up on the commercial announcements from this afternoon could you characterize what the current business contribution is from that counterparty, whether it be that Permian or the Eagle Ford.

Yes, I can let me elaborate a little bit because it kind of goes to the same theme. We're talking about we we couldn't be more excited about this type of structure that weve negotiated it had an anonymous but it is a large player and for example, they had contracts that roll off next three or four years, we now have extended those out tend to.

15 years and more importantly, what we've done is it increases the volume from around 300000, a day to tier enough to up over 800000, a day. In addition to that the liquids are around 20 to 25000 barrels today, though they will grow to in excess of 100000 barrels a day. So it's just the yes, we've taken.

In the short term.

A term pain on.

Some discount for the next couple of years from the existing deal that we had but we couldn't be more excited how this is going to feel will build on our assets as contracts roll off and what it gives us the liberty to do business contracts roll off we will have the ability to renegotiate at rates that work and we will expand if we do or will it both contracts roll off in contra.

Thanks, like this will will fill in the place and keep those assets pool. So we're we're very excited about that that announcement.

And it Mac you just on the up to 100000 barrels a day of liquidity that evolve incremental processing or is that coming from third party plants.

It's it's approximately.

2250, and 300000 today, it will grow to approximately or an excess of 800000 Mmcf a day and on the liquid side. It's approximately 25000 barrels a day TNF and will grow to over 100000 barrels a day over the next two or three years.

Okay and to realize that 100000 barrels a day is that processing that you guys would be building out kind of full value chain or is that notice. We just said yeah I'm sorry, I didn't answer your question I understand it. It's built out we're we're utilizing existing processing capacity existing liquid NGL transport capacity and.

Capacity, we're not adding any capital we are adding some capital outlay field to gather visco. This gas our facilities, but we're not there is a very low capital amendment and extension.

Got it that's very helpful. And then just to follow up on some of the earlier comments on NGL services. It looks like there was a decent step down quarter on quarter in terminal services can you all frame, what you're seeing from the manner system, maybe year to date and whether the compression and go global spreads has had any impact on the marketing business.

Yes, this mackie again.

Yes, if you focused on Marcus Hook, yes, the terminal volumes did decline over that quarter and the reason being is we had kind of almost historical prices PURA for propane and of course butane blending into gasoline there was a large demand the mid continent lot of barrels were leaving.

Western Pennsylvania, and heading west and even in Northern New York in the northeast the price just skyrocketed. So a lot of the barrels that typically show up at Marcus Hook Didnt show up for that quarter those barrels are coming back and a lot of the barrels that moved through our lines. The mark the Mariner system, our demand charge, so even though the volumes are down.

We still receiving revenue.

One other point is with PS It has impacted our AR.

Movements.

Out of Marcus Hook into Marcus Hook in other terminal asset to have northeast, but our teams already looking on lays and we already have fill in those gaps with new deals in a new long term arrangements.

Got it that's helpful. Appreciate Stan.

Our next question comes on line of Michael Lapidus with Goldman Sachs. Please use the question.

Hey, guys a couple of questions actually can you talk in the quarter I think your release reference that Mariner East II contributed 77 million how should we think about what kind of a normal quarterly run rate from Mariner East II is is that 77 million that normal run rate is that something that's a little bit higher that'll come in.

Come in the first quarter this year.

And then how should we think about what the adder for two X would be something similar to two or slightly different just due to the different size and capacity in the pipe.

Yes.

I think we may elaborate a little bit about thinking right now we won't get into those details to that degree.

As we spoke earlier, we have very optimistic the by the end of the year if not earlier. The next significant phase of Murdo will be completed once that is completed than we will have already have committed volumes to step in with demand charges, both through our pipe and through Marcus Hook sold the once we complete Mariner we will end at.

Additional volumes, we will see a substantial increase in the in revenue.

Got it and then just a question on satellite your counterparty in China as Medicaid extremely good progress in the construction efforts there may even be on time, if not a tad bit early.

Where are you all in the process of having conversations with them about incremental potential export capacity and whether whether or not they need and if so when.

Well, we would we fed every time, we couldn't be more excited about that project is a great partner with satellite just an outstanding Chinese company. They do what they say they're going to do there. They are moving forward. As we are we're we're on track to be complete loading ships by the fourth quarter, we Havent really had to my knowledge a lot of dialog about.

Expanding with them out of Needleman of course, we're in a mini conversation with expanding our ethane export Avenue with other customers, but we certainly will accommodate them very quickly in a.

Excess or any additional volumes that they would be interested in sign up for but right. Now think there. They are focused on getting a crackers built and the loan ships hopefully but into the year and.

So we're real excited about that project coming to completion.

Got it thanks, guys much appreciated.

Our next question comes on line of Michael Blum with Wells Fargo. Please state your question.

Thanks, everybody.

First question is just.

On on the Bakken pipeline.

Hi should be expansion will be subject initial phase will be on an early 2021.

Do you have a sense of how much capacity you have at that point.

Michael as you can imagine we're we don't know yet we are still in the middle of an open season.

Things are move along very well, we secured all the the midpoint to pump stations sites. We have a we've met with all the state and county agencies, and we followed all the they required falling with them. We're working with the several states to finalize the approvals that we need and also other interested third parties spec.

Having received today approval from the North Dakota.

Forward to amend the certificate to go to the 1.1 million barrels. So we're designing and it was seeking approval and what pay approval for up to 1.1 million barrels a day, we don't know if we're going to reach that in this open season, but what we do know is there's a tremendous amount of interest were by far the best off the an option with the most.

Optionality going to mid continent, overcoming only down the Gulf coast hit the St_james et cetera, et cetera folks nothing compares to what we can do we're confident that through time, we'll get to 1.1 million barrels over the next four or five years. It remains to be seeing where we kind of level out here at the end of this open season.

Okay, and then just wanted to ask on on Rover, and I guess in general the northeast.

Are you are you targeting any of your shipper customers approach you for short term will leave and those comments made earlier about.

Truly exchange for long term contracts advantage has anything happened me up in the northeast on that front.

Yes, we have a we have.

We do have some of those inquiries and some.

An extension similar weather described in our owner of the in the Permian Basin. We also executed extension and a better NPV project I mean returns for us.

With a customer and so thats part of this.

This impact we have over the next few years, it's embedded in our numbers.

Great. Thank you.

Thanks.

Our next question comes on line of Jim Smith with JP Morgan. Please state your question.

Good afternoon, and maybe part of the answer for my first question picks up on that last point, there, but I'm just looking at Fourq 19, EBITDA of 2.8 billion.

And if I annualize that seems like it puts you right in the middle of the guide next year and arguably I think in Fourq 19, some of the spreads that already kind of tie in so the wasn't necessarily as much of a benefit there.

And so I was just wondering what other I guess headlands headwinds are elements of conservatism built into the guide next year, because with new projects coming online in the full year benefit of some of the things from this year, including the Semgroup Apis acquisition. It seems like you have some nice tailwinds that built in there.

Yeah listen this is Tom long, Jeremy as weak as we looked at 2020 and like like I said in my prepared remarks. It was really to two components. So it's the contract kind of the contract renewal rates that we're looking at.

In addition to the spreads.

Where we're happy that maybe maybe talk talk to you.

In further detail if you'd like to kinda kind of drill down further but that would say those are the two headwinds and they're they're probably about equal in amount or so.

So.

That does those are that's in addition to those spreads.

I'm not trying to say that we don't still look at 2020.

You know and see what is still see spreads, but the same time, they're not going to be at the level that that we did get to enjoy through 2000, and and 19 now the other thing I think that it's worth noting is is that you did see some some of the hedge benefit in the fourth quarter.

We did break that out and even in the press release, a little bit that we had up where spreads were net of the hedges. So keep that in mine too that we did see some benefit in the fourth quarter of 19 for that.

That.

As we look at at 2020.

You don't necessarily get to enjoy as much of that either so.

Got it.

Just wanted to direct one question towards Kelsey, if I could and it seems like the market kind of now wants to pull 18, a lot of different directions be looking for for growth looking for improving competitive positioning.

Thanks for stock appreciation.

Yes, I was just wondering if you could provide some comments as far as how you think what are the the top priorities are top focus when when youre thinking about how to run as that.

Yes, well the.

You'll populations are really interesting if you if you're not if you're not spending money on those assets in the near deteriorating eroding and so you can't just stop and and so entered transfer will always have pursue as Mackie just said high rate of return projects with and we're blessed right now to have more of those.

That we really want to take on so we're going to continue to do that we will continue to and I know the market doesn't like this but it's just reality will continue to look at M&A, we always look at M&A. Unfortunately, the math does it work on virtually anything right now some group was unusual circumstance we.

Continued to do that we're going to out we're very committed to the rating agencies to get our credit metrics very comfortably in excess of spot that we've been guided to and we will we will get that done we're well on our way Tom long and team are doing a fantastic job.

And then finally I will tell you will be very defensive. This this is.

This is a market where right now we will have to be very defensive cuss nobody's doing anything.

But but we will continue to focus on that and protect protect our assets not not allow.

Competition to encroach on our fringes and therefore erode our margins so.

So we're going to keep doing what we do we're going to probably as Tom I'll be a little bit more definitive and Tom was we're probably going to offer of C Corp, alternative to our unitholders and and I think because if we do that it'll happen. This year. So I think thats part of the plan also.

That's helpful. Thank you for taking my question. Thank.

Thank you.

Our next question comes on line of gene and celebrate with the loan Mercy Tc with your question.

Hi, Yes mentioned before that in 2000 2016 contacts on LTSS start which would materially reduce your exposure to why basis can you give any updated information around your remaining exposure going forward.

Sure. This mackie again its exposure mcgalley, it's fantastic exposure.

We probably had a half a bcf today that exposed at market that.

Spreads that are kind of above 50, and I think prompt month is even maybe close to $2.

However, we also stuck to our strategy and we do have some large contracts 10 year contracts that are coming on later this year October November is one of them in the other was the first part of 2021.

Spreads still probably be wide, but is the right thing to do to to hedge those out and get a good healthy rate long term and not take the risk of of the collapse, but weve. The team that has done very well I believe on how we've kind of strategize and how we sell that space, we're going to benefit to a large agree on those spreads this year and then as Tom.

It goes on and more capacity is built with more risk of the spreads coming in we will have more that sold under long term agreements.

That's really helpful. Thank you.

And then thank you for that commentary around the focus on contract extensions whenever your parents recently disclosed a range of create contractor rates that they got for a 10 year extension.

Would you be willing to give a range of what you see it started to long term going rate for create pipeline capacity and I think it would give investors than confidence that it's not going to cash cost.

The mostly can possibly did.

And I really mean that sincerely, there's there's customers that will pay certain rate to go from from for example from Midland to Houston, and then there's customers that say, we won't be option to go to Houston Newland into think James to marrow, Paul and we also want a bunch of storage and export right. So it'd be probably wouldn't be wants us to kind of give a range.

On a call like this which so public in many of our competitors but.

We it's a pretty wide range.

And we will will continue to pursue those achieved the highest.

Price, we can't for our service.

Yes. Thank you.

Our final question comes the line of Keith Stanley with Wolfe Research. Please state your question.

Hi, Thanks.

Tom what was what was leverage at year end, the way you or I guess the way the rating agencies.

See it versus the four to four and a half times target.

Well listen that that varies so much between those between the agencies.

Well, we're still staying in that.

Probably slightly above that that four and a half.

Five or so but.

You know it once again when you've got.

With the Jack Joint Ventures, with the then the consolidated with.

Both Sun and USA see et cetera, as you can see that varies a bit. So the best I can do is kind of give you that range.

Where we are so.

Okay, and then when you're looking at 2020, so EBITDA is flat this year.

Obviously, that's not increasing because you have at funded now but it just feels like asset sales are the best way to de lever.

Kind of especially on a more near term timeframe and get your target. So how do you think about asset sales right now given the outlook for 2020 and desire for more financial flexibility and then I guess also taking into account that the f. sell markets, probably softened a bit here just how your entire weighing that overall.

Yeah listen we think we think we've done a very good job of of the asset sales that we don't think we got way out ahead of it.

If you looked at it correctly in all of that ran your questions here right now.

I think we've we've been pretty open and what we talked about as far as the compression.

From that standpoint can't really take you any further than that as far as.

As far as anything goes on that front clearly thats not anything you would talk about ahead of time, but at the same time, we very much like our assets with where we.

With where we currently stand.

And like say, we'll just continue to too.

As we go through the year to be diligent on that front, but to be very very smart. So.

Okay. Thank you.

Ladies and gentlemen, this does conclude today's question and answer session and I would like to turn the call back over to Mr. Thomas for any closing remarks.

Are once again, thank all of you for joining today, we really do appreciate your at your time today and your interest and we look forward to the to the follow up a follow up calls that name any of you may have thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation have a wonderful day.

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Greetings and welcome to energy transfers fourth quarter earnings conference call at the thumb all participants are in listen only mode of course, a retro session will follow the formal presentation funding what's required operator, so first on the Carpenter. Please press star zero on your telephone keypad. Please note. This conference is being recorded I would now like turn the conference all parts of your hosts.

Mr., Tom long Chief Financial Officer for energy transfer. Thank you Sir you may begin.

Thank you operator, good afternoon, everyone and welcome to the energy transfer fourth quarter 2019 earnings call.

Thank you for joining us today I'm also joined today by Kelcy Warren Mackie Mccrea and other members of the senior management team.

Who are here to help answer your questions after our prepared remarks.

You had a chance to see the press release, we issued earlier this afternoon as well as the slides that we posted to our website. As a reminder, we will be making forward looking statements within the meaning of section 20, Onee up the security Exchange Act like in 34.

These are based on our beliefs as well as certain assumptions and information currently available to us.

I'll also refer to adjusted EBITDA distributable cash flow or DCF and distribution coverage ratio all of which are non-GAAP financial measures.

You will find a reconciliation of our non-GAAP measures on our website.

And we expect our 10-K to be filed this Friday the 21st.

I'm going to go ahead and start today with a few of our full year and fourth quarter 2019 highlights.

For the year, we came in above the top of our guidance range generating record adjusted EBITDA of $11.2 billion, which is an increase of 18% over 2018.

And was driven by record financial and operational results across the majority of our segments for the year.

We also reported record DCF attributable to the partners of energy transfer as adjusted up $6.3 billion and our coverage for the year was 1.96 times.

Which resulted in excess cash flow after distributions of $3.1 billion.

Looking at results for the fourth quarter of 2019, adjusted EBITDA was $2.8 billion and DCF attributable to the partners of energy transfer as adjusted up $1.55 billion, which resulted in distribution coverage for the quarter of 1.88.

And and excess cash flow after distributions of approximately $725 million.

The excess cash flow, we generated in 2019 funded approximately 75% of our growth capital expenditures.

In addition to our strong financial performance, we set several operational records in 2019.

As we transported nearly 23.8 million MBT used per day of natural gas.

1.3 million barrels per day of natural gas liquids, and 4.7 million barrels per day of crude oil and fractionated over 700000 barrels per day of natural gas liquids or Ngls.

Looking at our E generics metrics for 2019, our total recordable incident rate RTR IR was 0.94, and we worked over 18 million hours. This was significantly better than the industry average of 1.3 for 2000.

And then my team we are extremely pleased with these accomplishments, which speaks to the investment in and focus on safety and environmental compliance as well as the reliability of our assets.

During 2019, we also finalized the acquisition of Semgroup Corporation and place several strategic growth projects into service, including the JC Nolan diesel pipeline.

Permian Express for pipeline to processing plants in West, Texas, and our six fractionator at Mont Belvieu to name a few we also completed our first natural gasoline shipment from our needle in terminal on the Gulf Coast.

And I'm pleased to say that our seventh fractionator at Mont Bellevue is now in service.

Which brings our total fractionation capacity at Mont Belvieu to over 900000 barrels per day.

Now looking at our guidance for 2020, our adjusted EBITDA is expected to be $11 billion to $11.4 billion.

Compared to 2019, we obviously expected some headwinds related to crude and natural gas spreads. In addition, we will see impact from certain contract renewals.

The commercial teams primary activities right now center around locking in existing volumes for longer terms and getting out in front of future contract roll offs to ensure sustainable cash flows in the long term.

This is taken precedence over capital expansion and development of new assets.

Example, we have recently renegotiated multiple contracts extending several out as much as 15 years with greater long term volume commitments exchanged for short term relate.

Helping to offset these impacts will be earnings increases related to the acquisition of Sem group.

As well as contributions from the ramp up of several growth projects throughout the year, including Mariner East Frac seven new processing in the Permian as well as full year contributions from other projects like Frac six JC Nolan PE for and Red Bluff Express.

For 2020 organic growth capital expenditures are now expected to be $3.9 billion to $4.1 billion, which is revised.

From our previous guidance to include approximately 300 million dollarss related to the same group assets.

Most 2020, the backlog of approved growth capital projects is approximately $1.8 billion, including Sam group.

We expect additional projects to be added to this backlog, but as a reminder, we have raised the bar on return profiles and we'll continue to be disciplined as we evaluate any incremental spend.

Long term, we now expect our capex run rate to be approximately $2 billion to $2.5 billion per year, which we believe will result in positive free cash flow starting in 2021.

Let's look at the same group acquisition, which we closed on December Fiveth of 2019. The combination of these complimentary assets provides increased connectivity for energy transfers crude oil and NGL transportation businesses since closing our integration teams have been fully engaged in the common.

Nation of these two companies and we have already made significant progress toward recognizing our projected $170 million of annual run rate synergies.

Starting with the financial savings.

Utilizing energy transfers lower borrowing cost in October we entered into a $2 billion three year term loan a at the current rate of LIBOR plus 100.

The proceeds were effectively used.

To call all of Semgroups $1.375 billion outstanding high yield notes and the 600 million dollar term loan b at the energy transfer Houston terminal, formerly called Opco.

This will immediately bring us to over $50 million of annual savings.

Looking at corporate cost we are on track to recognize savings of more than $40 million annually from a reduction in headcount increased efficiencies.

We continue to work toward achieving approximately $80 million of commercial and operational synergies, which are expected to be driven by our ability to leverage energy transfers infrastructure to help drive operational efficiencies and increased utilization of assets.

Through this acquisition, we now have pipeline access to the DJ basin and expanded presence at Cushing and saying James as well as access to the Houston ship channel deepwater dogs and refining complex.

Which expands our connectivity increases our reach and will generate opportunities for other aspects of our portfolio as well.

In addition.

Completion of the approximately 80 mile Ted Collins crude oil pipeline will provide access to over 1 million barrels per day of inbound crude oil for deliveries to the Houston and Nederland terminals as well as to Houston and Gulf Coast refineries.

It will also allow us to fully utilize our 1 million barrels per day plus of export capacity at our Houston, and NATO and terminals, which we have the ability to expand to over 2 million barrels per day.

The pipeline is expected to have an initial capacity of more than 500000 barrels per day and commercial operations are expected to begin in the second half of 2021.

In addition, the more wrote pipeline, which will expand and improve existing access to and from Houston terminal as well as to allow us to export more barrels.

He is expected to be in service in the first quarter of this year.

As for the latest developments on other growth projects, we'll start with Bakken capacity optimization as we have mentioned the Bakken pipeline receive sufficient market interest during December of 2018 open season for us to move forward with plans to further optimize the system capacity the initial phase.

As of the Bakken pipeline optimization.

Its current capacity of 570000 barrels per day will be based on commitments made by shippers that we have already received as well as commitments made during the current open season.

We still expect this capacity to serve the commitments received to be in service in early 2021, and as Bakken volumes and customer demand continue to grow in the future we will be in position to efficiently increase the system capacity up to 1.1 million barrels per day.

Permitted capacity overtime.

For PE for expansion, which added an additional 120000 barrels per day of capacity to our Permian Express pipeline system from Colorado City to needle in Texas.

When into full service on October the first and ramped up nicely in the fourth quarter.

And on our VLCC project, which is planned from our needle in terminal and will be accessible to customers utilizing our significant network of pipelines.

We continue to have discussions on this project.

As it gets closer to F. I'd, we will provide more specifics.

Now turning to our Mariner east system since placing the initial capacity of in me to into service at the end of 2018.

NGL flows on the system have continued to ramp up as expected.

As a reminder, in October we completed modifications to any one end Marcus hook to enhance the reliability of the system and allow for improved flows through the facility.

These modifications allowed us to bring additional ethane volumes onto the system during the fourth quarter as expected.

At the beginning of this year, we were pleased to reach an agreement with the DDP that will allow us to complete the construction projects, we have underway in Pennsylvania.

Looking ahead, we are anxiously awaiting completion of the next phase of the project, which is now expected to be in service in late Twentytwenty with the final phase completed in the first quarter 2021.

In the meantime, we are excited for the next tranche of volume ramp ups on the Mariner East system, which will occur this spring.

In addition expansion efforts at Marcus Hook are underway as it provides customers with the most efficient way to reach the best markets for the product.

This expansion will provide approximately 50000 barrels per day of incremental NGL throughput capacity at the terminal by the end of 2020.

Accommodating volume growth for Mariner East.

We're also working to secure new third party commitments to bring additional volumes to Marcus hook.

As far the Lone star assets as I mentioned Frac seven is now in service and our entire Mont Belvieu fractionation complex is expected to be at full utilization in the next 30 days.

In addition, frac eight remains on schedule to be in service in the second quarter of 2021.

Both fracs will be 150000 barrels per day and upon completion of Frac eight our total fractionation capacity, a Mont belvieu will be over 1 million barrels per day.

And to keep up with our growing frac capacity, our 24 inch 352 mile Lonestar Express expansion will add over 400000 barrels per day of NGL pipeline capacity from the Permian Basin to the Lone Star Express 30 inch pipeline South of Fort Worth, Texas, We continue to it.

Expected to be in service in the fourth quarter of 2020.

We also continue to further develop our storage capabilities at Mont Belvieu.

On our 235000 barrel per day LPG expansion project Natal in construction is underway and progressing well. This expansion will further integrate our Mont belvieu assets with our needle in assets to expand our LPG export capabilities and is expected to be in service in the fourth quarter.

Twentytwenty.

The conversion of the white cliffs pipeline from crude to NGL service is complete and volumes on this pipe, which runs from Platteville, Colorado to Cushing, Oklahoma began flowing in December of 2019.

We expect volumes to continue to ramp up on this pipeline.

On our orbit joint venture with satellite petrochemical for which we are constructing a new ethane export terminal on the us Gulf coast to provide ethane to satellite.

Construction continues to progress as scheduled and we continue to expect the project to be ready for commercial service in the fourth quarter of this year.

Now turning to our processing plants in West, Texas, our 200 million cubic foot per day Arrowhead three processing plant, which went into service in early July operated at near capacity for the fourth quarter.

In addition, our 200 million cubic foot per day Panther two processing plant in the Permian Basin was placed into full commercial services in January of 2020, and we expected to be fall by mid 2020.

With the completion of this plant, which is fully subscribed. We're now capable of processing more than 2.7 Bcf per day in the Permian Basin.

Let's take a little closer look at the fourth quarter results.

Consolidated adjusted EBITDA was up 5% to $2.8 billion compared to $2.7 billion for the fourth quarter of 2018.

This is primarily due to another quarter of record operating performance from our NGL and refine product segment as well as growth in the crude oil segment.

Eightys DCF attributable to the partners as adjusted was $1.5 billion for the fourth quarter up $30 million compared to the same period last year.

Primarily due to the increase in adjusted EBITDA.

Distribution coverage for the fourth quarter was 1.88 times.

In January energy transfer announced a distribution of 30.5 cents per common unit for the fourth quarter or $1.22 per common unit on an annualized basis. This distribution is flat compared to the third quarter of 2019.

And was paid today.

To unit holders of record as of the close of business on February the seventh.

Turning to our results by segment and starting with the NGL and refine product segment, which had another record quarter.

Adjusted EBITDA increased to 30% to $743 million compared to $569 million for the same period last year.

The increase was due to record frac volumes as well as increased NGL transportation volumes and terminal throughput.

NGL transportation volumes on our wholly owned and joint venture pipelines increased to 1.3 million barrels per day compared to 1.1 million barrels per day for the same period last year, mainly due to higher volumes on our northeast assets related to the startup of MB two pipeline in the fourth quarter of 2000.

As an 18.

As well as increased volumes on our pipelines out of the Permian Basin, and North Texas regions.

Fourth quarter average fractionated volumes increased to 734000 barrels per day compared to 594000 barrels per day last year.

For our crude oil segment, adjusted EBITDA increased to $715 million compared to $636 million for the same period last year.

The increase was driven by favorable inventory valuation adjustment.

Crude transportation volumes increased to a record 4.7 million barrels per day compared to approximately 4.3 million barrels per day for the same period last year, primarily due to volume growth in the Bakken as well as an increase in the barrels through our Bayou bridge pipeline and on our existing Texas pipelines.

During the fourth quarter, we were fully utilizing the 570000 barrels per day capacity on the Bakken pipeline.

For the midstream segment, adjusted EBITDA was $397 million compared to $402 million for the fourth quarter of 2018.

Higher midstream throughput volumes were more than offset by lower NGL and gas prices, which impacted results by $29 million.

Gathered gas volumes reached a record 14 million MBT used per day compared to $12.8 million MPG use per day for the same period last year.

This increase was due to growth on Ohio River system in the northeast and higher volumes at the Ark, La Tex Permian, South, Texas, and North Texas regions.

Moving to the Interstate segment, adjusted EBITDA was $434 million compared to $479 million for the fourth quarter of 2018. This was primarily the result of higher AD valorem taxes from placing the final portions of Rover into service and lower adjusted EBIT.

From unconsolidated affiliates.

Transportation volumes were 11.6 million in BT used per day compared to 11.1 million MBT used per day for the same period last year. Due. The addition of new contracts out of the Haynesville shale on the Tiger pipeline and higher volumes from the Rover pipeline.

And our intrastate segment, adjusted EBITDA decreased to $222 million compared to $306 million in the fourth quarter of last year.

This was primarily due to lower revenues from pipeline optimization activities, which were partially offset by increased transport fees from new contracts across our Texas intrastate pipes as well as the ramp up of Red Bluff Express.

Reported transported volumes increased primarily due to higher utilization of our Texas pipeline as well as the ramp up of volumes on Red Bluff Express phase two.

Now, let's look at the Capex update for the year ended December 30, Onest 2019 energy transfer spent $4.3 billion from organic growth projects.

Similarly in the NGL and refined products and midstream SEC segments.

Now this is excluding sun and USA see capex.

As I mentioned earlier for the full year 2020, we expect to expand $3.9 billion to $4.1 billion, primarily in our NGL refined products and midstream segment.

Including $300 million of expenditures related to Sim group.

Looking briefly at our liquidity position as of December 30, Onest 2019, total available liquidity under our revolving credit facilities were approximately $1.7 billion and our leverage ratio was 3.96 times per the credit facility.

In January 2020.

We completed a registered offering of $4.5 billion at senior notes as well as a public offering of $500 million and $1.1 billion of series F and series G fixed rate reset cumulative redeemable perpetual preferred units.

Respectively.

We use the aggregate proceeds from both offerings to repay certain outstanding indebtedness, including prepayment of certain senior notes and for general partnership purposes.

And we continue to target a rating agency leverage ratio of four to four and a half times.

Before opening the call up to your questions today I want to reiterate that we're very pleased to have delivered another solid quarter and overall a record year here at energy transfer.

Looking ahead to 2020.

We expect our fully integrated assets and predominantly fee based cash flows to help insulate us from the weaker macro environment.

We also expect our business to continue to generate a significant amount of excess cash flow, which will help fund our backlog of growth projects and a credit friendly manner and allow us to further organically strengthened our balance sheet.

The addition of the Semgroup assets, which significantly strengthens our crude oil and liquids capabilities and enhances our connectivity and footprint as well as the ramp up of growth projects is expected to drive near and long term value and offset headwinds from narrowing spreads and contract renewals.

We remain disciplined in our approach to new capital projects.

While safety and project execution continue to be among our primary focuses.

Operator, we're ready to open the lineup for questions.

Thank you at this time, we will be conducting a question and answer session. As a reminder, we ask that you limit yourself to one main question. One follow up if you would like to ask question. Please press star one on your telephone keypad a confirmation till indicate your line is in the question Q. You May proceed to fuel will answer your question from the Q4 participants using speaker equipment.

It may be conservative pick up your Hansa before pressing the star keys, one moment, please as we pull for questions.

Our first question comes the line of storm.

Would you be pleased with your question.

Hi, good afternoon, everyone.

Before jumping to my two questions. Tom can you just clarify that you said the long term Capex run rate is now two to two and a half billion down from three to 4 billion that you'd mentioned previously.

Yes generic I mean, obviously.

As you know theres been a lot a lot of discussion. This is probably one of the main talking points in a lot of investor Copses et cetera, but.

As we just continue to evaluate it.

Mackie's here also can chime in but as we looked at.

Basically what we're saying is.

You know that two to two and a half I think we've been also very very open about the fact that when early look out it approved projects starting from 2021 item.

That numbers that at 1.8 billion so.

Is that is that what you were looking for clarification on that yeah. I was just looking for the clarification.

In terms of the two questions that I had.

Maybe to start off Kelcy Mackie, just wondering if you had made any progress on the re contracting into Texas crude pipeline assets I noticed there is a modest stepdown in rates, but higher contracted volume activity.

Is that sort of reflective of the ongoing efforts to re contract that system.

Yes. This is Matt, yes, Thats a high priority right now for our partnership we've kind of reorganized our crude team.

Led by Jim a lot and there's a tremendous amount of time spent right now.

A little bit different than our competitors in that now we have Houston, we have need or Lynn as Tom talked about in the opening statements. We have all refineries were developing the LCC project. So we're not in a panic to fill it because what were offered of course, there's still a wellhead out in west, Texas, our Cushing or Bakken and delivering it all the way to wherever they want it to market or.

To the.

Export markets are our to our VLCC projects. So yes, we are in the process negotiating we're optimistic that will rollover and extend a substantial amount over the next six to nine months and then long term, we expect a lot of those volumes to support our VLCC project.

Okay that makes a lot of sense, maybe a follow up question Tom.

With the recent financings that were completed in January I realize that was a refinancing of the stem group related debt.

However, one component.

It or two components I should say included craft typically you get equity credit for that are different levels of equity credit for that from the agencies.

This don't get you a lot closer to the leverage targets at the rating agencies are actually looking for or that they've shared with you.

Was the equity credit part of the rationale in terms of using depressed as well it's just that.

Yes, yes that is the short answer is absolutely.

I think when you looked at it when you look at the retained cash flow, meaning they like the DCF above the distributions for the year, you'll see that thats, a little over $3 billion.

Right at 3.1, when you really add in the.

These perpetual preferred.

Obviously, we've been trying to do everything in a very correct credit friendly manner in order to be able to achieve those those that accelerated de leveraging you can see that.

Nearly 800 million added to that 3.1 gets you to 3.9 so.

Basically we were able to find the Neil the growth when you look at it the guidance we've given for this year you can say that we're we're finding it with that with with no debt. So no no equity and no debt no no common equity and no debt. So.

Okay perfect. Thank you very much appreciate the color today.

Okay.

Our next question comes the line of Pearce Hammond with Simmons Mg. Please state your question.

Good afternoon, and thanks for taking my questions. My first just wondering your latest thoughts on a C corps conversion or an up see conversion.

Well you know weve.

This stonewall again, we have.

I think continue to talk about this once again I know what a lot of the conferences et cetera, we say that it's on the radar screen and we continue to evaluate it.

As we look out and we look at this market, where we are getting a lot of feedback we're hearing from a lot of our investors to.

We have the option of.

But to 99 currency another words, a C corp currency.

You know is something that we are hearing is appealing and so we're going to continue to to evaluate that.

It is something that we think we'll be very beneficial.

Do you have like a timeline that you're kind of roughly thinking on this evaluation.

You know, we know and answer your question given the short answer of it but I will tell you that it is something that we are once again evaluating.

Yes, as we look out.

For 2020 here so.

Okay. Thank you Tom and then a follow up is on the two to two and a half billion of growth Capex for 2021 and beyond how much is that has to do with.

The higher return thresholds or or does it have a lot to do it just there's less projects to do in the industry is the production growth rate has slowed down for the U.S. CMP.

More capital discipline et cetera is the combination of those two or more on just higher return thresholds.

This is Matt you, it's a combination.

Witnessed Tom talked about opening statements all the projects that we brought on last year in those projects will be ramping up throughout this year. We've got all these these NGL projects coming on and so we are wearing the kind of mode of growing is up.

Hello.

Growing as fast as we can but we've kind of set a threshold of Vito, we've said, 18% probably been north of that because our focus right now is filling up the asset that we have.

And more importantly, as contracts terminate over the next 345 years on Brexit on processing plants that were built for five years ago, we're really focusing on filling up those projects ahead of nope Nuke project, but it doesn't mean that of the project jumps out at synergistic with other assets that up and admitted.

Right of return threshold that we will spend more capital, but certainly not something where folks are right now.

Thank you Mackie.

Our next question comes the line of Colton Bean with Tudor Pickering Holt. Please proceed with your question.

Afternoon, So just a follow up on the commercial announcement from this afternoon could you characterize what the current business contribution is from that counterparty, whether it be the Permian or the Eagle Ford.

Yes, I can let me elaborate a little bit to the kind of goes to the same theme. We're talking about we we couldn't be more excited about this type of structure that weve negotiated it an anonymous but it is a large player and for example, they had contracts that roll off next three or four years, we now have extended those out tend to fit.

18 years and more importantly, what we've done is it increases the volume from around 300000, a day to tear enough to up over 800000, a day. In addition to that the liquids are around 20 or 25000 barrels a day, though they will grow to in excess of 100000 barrels a day. So it's just a yes, we've taken some.

Short term.

A term pain on.

Some discount for the next couple of years from the existing deal that we had but we couldn't be more excited how this is going to feel will build on our assets as contracts roll off and what it gives us the liberty to do is contracts roll off we'll have the ability to renegotiate at rates that work and we will expand if we do or will it both contracts roll off and contra.

Our next like this will will fill in the place and keep both assets pool. So we're we're very excited about that that announcement.

Mackie just on the up to 100000 barrels a day of liquidity that involve incremental processing or is that coming from third party plants.

It's it's approximately.

2250, a 300000 today it will grow to approximately or an excess of 800000 Mmcf a day and on the liquid side. It's approximately 25000 barrels a day TNF in will grow to over 100000 barrels a day over the next two or three years.

Okay and to realize that 100000 barrels a day is that processing that you guys would be building out kind of full value chain or is that mostly just side. Yeah I'm sorry, I didn't answer your question I understand it's built out were already utilizing existing processing capacity existing liquid NGL transport capacity and.

Capacity, we're not adding any capital we are adding some capital out with field to gather this gas our facilities, but we're not there is a very low capital amendment and extension.

Got it that's very helpful. And then just to follow up on some of the earlier comments on NGL services. It looks like there was a decent step down quarter on quarter in terminal services can you all frame, what you're seeing from the manner system, maybe year to date and whether the compression in gold global spreads has had any impact on the marketing business.

Yes, it is mackie again.

Yes, if you focused on Marcus Hook, yes, the terminal volumes did decline over that quarter and the reason being is we had kind of almost historical prices for up for propane and of course butane blending into gasoline there was a large demand the mid continent law the barrels were leaving.

Western Pennsylvania, and heading west and even in Northern New York in the northeast the price just got rocketed. So a lot of the barrels that typically show up at Marcus Hook didn't show up for that quarter those barrels are coming back and a lot of the barrels that move through our lines. The mark the Mariner system, our demand charge, so even though the volumes are down.

We still receiving revenue.

One other point is with PS It has impacted our AR.

Movements.

Out of Marc silk into Marcus Hook in other terminal asset to have northeast, but our team has already looking always and we're already filled in those gaps with new deals in a new long term arrangements.

Got it Thats helpful. Appreciate is done.

Our next question comes on line of Michael Lapidus with Goldman Sachs. Please use the question.

Hey, guys a couple of questions actually can you talk in the quarter I think your release reference that Mariner East II contributed 77 million how should we think about what are kind of a normal quarterly run rate for Mariner East II is Steve is that 77 million that normal run rate is that something that's a little bit higher that'll come in.

Come in the first quarter this year.

And then how should we think about what the at or for two X would be something similar to two or slightly different just due to the different size and capacity the pipe.

Yes.

I think you we may elaborate a little bit about thinking right now we won't get into those details to that degree.

As we spoke earlier, we have very optimistic the by the end of the year if not earlier. The next significant phase of Merit will be completed once that is completed than we will have already have committed volumes to step in with demand charges, both through our pipe and through Marcus hook. So the once we complete Mariner we will end up.

Add additional volumes, we will see a substantial increase in a in revenue.

Got it and then just a question on satellite your counterparty in China as Medicaid extremely good progress in the construction efforts there may even be on time, if not a tad bit early.

Where are you all in the process of having conversations with them about incremental potential export capacity and whether whether or not they need in India. So when.

Well, we would we fed every time, we couldn't be more excited about that project is a great partner with satellite just an outstanding Chinese company. They do what they say they're going to do there. They are moving forward as we are aware, we're on track to be complete and loading shipped by the fourth quarter. We havent really had to my knowledge a lot of dialog about.

Expanding with Vale.

Even with of course, we're in a mini conversation with expanding our ethane export Avenue with other customers, but we certainly would accommodate a very quickly in a.

Excess or any additional volumes that they would be interested in sign up for the right. Now I think there there are focused on getting a crackers built and the loan ships hopefully by the end of the year and.

We're real excited about that project coming to completion.

Got it thanks, guys much appreciated.

Our next question comes on line of Michael Blum with Wells Fargo. Please state your question.

Thanks, everybody.

First question is just.

On on the Bakken pipeline.

As to be expansion, we said the initial phase will be on an early 2021.

Give a sense of how much capacity you have at that point.

Yes, Michael as you mentioned were we don't know yet we are still in the middle of an open season.

Things are move along very well, we secured all the the midpoint to pump stations sites, we have a we've.

Met with all the state and county agencies, and we filed all the they require falling with them. We're working with the several states to finalize the approvals that we need and also other interested third parties that we received today approval from the North Dakota.

For two amend the certificate to go to the 1.1 million barrels. So we're designing and it was seeking approval and what pay approval for up to 1.1 million barrels a day, we don't know if we're going to reach that in this open season, but what we do know is there's a tremendous amount of interest were by far the best off the option with the most.

Optionality going to mid continent will come and all the down the Gulf Coast hit the St_james et cetera et cetera. So nothing compares to what we can do we're confident that through time, we'll get to 1.1 million barrels over the next four or five years. It remains to be seeing what are we kind of level out here at the end of this open season.

Okay and then.

Just wanted to ask on on Rover, and I guess in general the northeast.

Are you are you targeting any of your shipper customers approach you for short term relief and those comments made earlier about.

Generally exchange for long term contracts as anyway is there anything happening up in the northeast on that front.

Yes, we have we have we do have some those inquiries and some.

An extension silhouetted described in our on our.

In the Permian Basin, we also executed extension and a better NPV project returns for us.

With a customer and so thats part of this.

This impact we have over the next few years, it's embedded in our numbers.

Great. Thank you.

Okay.

Our next question comes on line of Jim Smith with JP Morgan. Please ask your question.

Good afternoon, and maybe part of the answer for my first question picks up on that last point, there, but I'm just looking at for Q 19, EBITDA of 2.8 billion.

And if I annualize that seems like it puts you right in the middle of the guide next year and arguably I think in Fourq, you 19, or some of the spreads at already kind of tie in so the wasn't necessarily as much of a benefit there.

So I was just wondering what other I guess headwinds headwinds are elements of conservatism built into the guide next year, because with new projects coming online in the full year benefit some of the things from this year, including the Semgroup acquisition it seems like.

You have some nice tailwinds been built in there.

Yeah and listen this is Tom long Jeremy as we.

As we looked at 2020 and like like I said in my prepared remarks. It was really to two components. So it's the contract kind of the contract renewal.

Rates that we're looking at.

In addition to the spreads.

Where we're happy to maybe maybe talk talk to you.

In further detail, if you'd like to kind of kind of drop down further, but if that would say those are the two headwinds and they're they're probably about equal and amount or so.

So.

That those are that's in addition to those spreads.

I'm not trying to say that we don't still look at it 2020.

You know and see it is still see spreads, but the same time, they're not going to be at the level that that we did get to enjoy through 2000, and and 19 now the other thing I think that it's worth noting is is that you did say some.

Some of the hedge benefit in the fourth quarter.

And we did break that out and even in the press release, a little bit that we had up where spreads were net of the hedges. So keep that in mine too that we did see some benefit in the fourth quarter of 19 for that.

That.

As we look at at 2020.

You don't necessarily get to enjoy as much of that either so.

Got it and just wanted to direct one question towards Kelsey, if I could and it seems like the market kind of now wants to put a lot of different directions be looking for for growth looking for improving competitive positioning looking for.

Stock appreciation I guess I was just wondering if you could provide some comments as far as how you think what are the the top priorities are top focus when when youre thinking about how to run EBIT.

Yes, well the.

You'll pipelines are really interesting if you if you're not if you're not spending money on those assets than your deteriorating eroding and so you can't just stop and and so energy transfer will always have pursued as Mackie just said how rate of return projects with and we're blessed right now to have more of those.

And then we really want to take on so we're going to continue to do that we will continue to and I know the market doesn't like this but it's just reality will continue to look at M&A.

We always look at M&A. Unfortunately, the math does it work on virtually anything right now some group was unusual circumstance. We'll continue to do that we're going to out we're very committed to the rating agencies to get our credit metrics very comfortably and at us and the spot that we've been got it too.

And we will we will get that done we're well have our way Tom longer team, they're doing a fantastic job.

And then then finally I will tell you what will be very defensive. This this is up this is a market where right now we will have to be very defensive cuss nobody's doing anything.

But but we will continue to focus on that and protect protect our assets not not allow.

Competition to encroach on our fringes and therefore erode our margins so.

So we're going to keep doing what we do.

We're going to probably as Tom I'll be a little bit more definitive been Tom was we're probably going to offer of C Corp, alternative to our unitholders and and I think of it if we do that it'll happen. This year. So I think that's part of the plan also.

That's helpful. Thank you for taking my question.

Thank you.

Our next question comes the line of gene and celebrate with the line Bernstein. Please proceed with your question.

Hi, Yes mentioned before the end 2000, 2016 contacts I know ancestor, which would materially reduce your exposure to why basis can you give any updated information around your remaining exposure going forward.

Sure. This mackie again, its exposure, but gallium fantastic exposure and we probably had a half a bcf today that exposed at market that.

At spreads that are kind of about 50.

Thank prompt month is even maybe close to $2.

However, we also stuck to our strategy and we do have some large contract 10 year contracts that are coming on later this year October November is one of them and the other was the first part of 2021.

Spreads still probably be wide, but is the right thing to do to to hedge those out and get a good healthy rate long term and not take the risk of of the collapse, but weve. The team has done very well I believe on how we've kind of strategize and how we felt that space, we're going to benefit to a large agree on those spreads this year and then as Tom.

Rosone and more capacity is built with more risk of the spreads coming in we will have more that sold under long term agreements.

That's really helpful. Thank you.

And then thank you for that commentary and around the focus on contract extensions whenever your parents recently disclosed arranger create contractor rates that they got for a 10 year extension.

Would you be willing to give a range of what you see is sort of to long term going rate for crude pipeline capacity and I think it would give investors than confidence that it's not going to cash cost.

The mostly can possibly get.

And I really mean that sincerely, there's there's customers that will pay certain rate to go from from for example from Midland to Houston and then there's customers that say, we want the option to go to Houston Nealon into same James to marrow, Paul and we also want a bunch of storage and export right. So it it'd be probably wouldnt be want us to kind of give a range.

On a call like this which so public and many of our competitors but.

We it's a pretty wide range.

And we will we will continue to pursue those achieved the highest.

Price, we can for our service.

Yes. Thank you.

Our final question comes the line of keep Stanley with Wolfe Research. Please proceed with your question.

Hi, Thanks.

What was what was the leverage at year end, the way you or I guess the way the rating agencies.

We see it versus the Florida, Florida Halftimes target.

Well listen that that varies so much between those reporting the agencies.

You know, we're still staying in that.

Probably slightly above that four and a half.

The five or so but.

Once again when you've got.

With the Jack Joint Ventures, with the then the consolidated with.

Both son in USA see et cetera, as you can see that varies a bit. So the best I can do is kind of give you that range.

Where we are so.

Okay, and then when you're looking at 2020, so EBITDA is flat this year.

Obviously debts not increasing because you have unfunded now, but it just feels like asset sales are the best way to de lever.

Kind of especially on a more near term timeframe and get your target. So how do you think about asset sales right now given the outlook for 2020 and desire for more financial flexibility and then I guess also taking into account that the epicel markets, probably softened a bit here just how your entire weighing that overall.

Yeah listen we think we think we've done a very good job of of the asset sales that we.

I think we got way out ahead of it.

If you look at it correctly.

And your questions here right now.

I think we've we've been pretty open and what we talked about as far as the compression.

From that standpoint, I can't really take you any further than that as far as.

As far as anything goes on that front clearly thats not anything you would talk about ahead of time, but at the same time, we very much like our assets with where we.

With where we currently stand.

And like say, we'll just continue to too.

As we go through the year to be diligent on that front, but to be very very smart. So.

Okay. Thank you.

Ladies and gentlemen, this does conclude today's question and answer session and I would like to turn the call back over to Mr. Thomas for any closing remarks.

Are once again, thank all of you for joining today, we really do appreciate your ask your time today and your interest and we look forward to the to the follow up.

Follow up calls that name any of you may have thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation number wonderful day.