Q1 2020 Earnings Call
The energy transfer first quarter earnings call at this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recall.
I'd now like to turn the conference over to your host Mr., Tom Long Chief Financial Officer. Please go ahead Sir.
Thank you operator, and good afternoon, everyone and welcome to the energy transfer first quarter 2020 earnings call and we really want to thank all of 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 all of you have seen our press release, we issued earlier this afternoon as well as the slides posted to our website.
As a reminder, we will be looking forward looking statements within the meaning of section 21 any of the security Exchange Act of 934.
These statements are based upon our current beliefs as well as certain assumptions and information currently available to US and are discussed in more detail in our quarterly report on form 10-Q for the first quarter of 2020.
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'll find a reconciliation of our non-GAAP measures on our website.
And we expect our 10-Q to be filed later today.
The current coded 19 pandemic has impacted our nation in more ways and one.
As we navigate through this uncertainty we want to start today by thanking our team of more than 12000 men and women across the country further remarkable contributions and incredible commitment during this challenging time.
We understand and appreciate the tremendous amount of hard work and coordination it requires to keep our assets running safely and efficiently while keeping the energy products moving both for the benefit of our partnership and our country.
Now before addressing the current marketing conditions brought owned by Cobot 19, and the OPUC oversupply I'm going to start with a few of our first quarter 2020 highlights.
For the first quarter, we generated adjusted EBITDA of $2.64 billion and DCF attributable to the partners of VT as adjusted of $1.42 billion.
And our coverage ratio for the quarter was 1.72 times, which resulted in excess cash flow after distributions of $594 million.
Adjusted EBITDA was adversely affected by inventory valuation adjustments of $213 million in the first quarter of 2020, which I will discuss further in the segment reviews.
Without these adjustments first quarter adjusted EBITDA would've been approximately $2.85 billion and both adjusted EBITDA and DCF results would have been above our expectations.
During the first quarter. We also brought our seventh fractionator at Mont Belvieu online, which brings our total fractionation capacity and Mont Belvieu to over 900000 barrels per day.
Additionally, our 200 million cubic foot per day Panther two processing plant in the Permian Basin was placed into full commercial service in January of Twentytwenty.
Finally in January we completed dual offerings of debt and perpetual preferred in the aggregate amount of $6.1 billion a portion of the proceeds from these offerings. We're used to redeem all of our 2020 maturities with the remainder used to pay down short term borrowings on our credit facility we had.
Strong liquidity position of approximately $4 billion at the end of the first quarter. Additionally, we have a very manageable $1.4 billion of maturities and 2021.
Now looking at our 2020 outlook, although the current year has become increasingly challenging in the energy industry and has resulted in lower financial projections across midstream space. We believe that are fully integrated diversified asset base offers unique benefits and foundations that has been built to help mitigate.
Cyclical markets.
In light of the significant weakness in crude oil prices due to the coded 19 demand destruction and additional opex supply. We are revising our 2020, adjusted EBITDA guidance range to $10.6 billion to $10.8 billion.
In addition, as producers curtailed drilling and in some situations shut in his existing wells. We do expect some short term volume reductions in crude associated with gas and Ngls.
Helping to offset the impact from lower volumes and lower commodity prices. We expect increases related to the addition of the semgroup assets as well as contributions from the ramp up of Mariner East Frac seven new processing in the Permian as well as full year contributions from projects that went into.
Service in 2019.
We're also taking additional steps to keep our assets running efficiently and our cash flows steady as we navigate a tough market conditions and challenges ahead. These include cost reduction measures and reduced twentytwenty.
Growth Capex expenditures.
Commercially our team is focused on locking in existing volumes for longer terms and this continues to take precedence over development of new assets.
Operationally, we are leveraging our extensive infrastructure to help drive operational efficiencies and optimize our assets.
As a result through the combination of our diverse asset base and a lot of hard work from our talented employees. We have found some new opportunities during this disruption.
The white and profitable contango spreads on virtually all of our hydrocarbon products is allowing us to capture significant margins utilizing our extensive network of storage assets.
Through the end of 2020, we have contracted 6.2 million barrels of crude oil storage capacity in the department of energy strategic Petroleum Reserve.
We have a connection to the reserve through our needle in terminal. So this is an efficient extension for our franchise.
In addition, due to this pressure on our business, we have identified and are executing on significant cost cutting initiatives, both in our corporate offices as well as our field operations.
As a result, we expect to say $200 million to $250 million relative to our 2020 budget.
We have also further reviewed our growth capital expenditures for 2020, including project spend today completion dates economic impact on delaying particular projects and near term cash flows.
Approximately 70% of the growth capital spent in 2020 will be spent on projects that are 60% or more complete.
And are expected to be in service in 2020 or early 2021. This includes Mariner east the Lone Star Express expansion and the orbit and other LPG export projects that needleman.
However, we have decided to delay some projects, including Frac, eight and select Canadian projects as well as change the scope of the Ted Collins pipeline.
Based on our outlook for the current market, we are reducing our 2020 growth capital expenditures by at least $400 million to 3.6 billion and we are evaluating another three to 400 million for potential reduction this year.
Although we anticipate growing the business over the next several years and we are continually evaluating new opportunities given our asset footprint. We view. It is unlikely we will add any major organic growth projects to our backlog for 2021.
As we think about future capital's expand over the next three to four years, we anticipate an annual run rate of less than $2 billion.
We remain committed to generating free cash flow and still expect to be free cash flow positive in 2021 after growth capital and equity distributions.
Looking more closely at our growth projects I'll now walk through our recent developments, we are transitioning the Ted Collins crude oil pipeline into the Ted Collins link, which will reduce capital spend and increase the utilization of existing assets, while providing the same market connectivity between our needle in Houston.
Terminals, the Ted Collins link will be a much less expensive and quicker alternative that will allow us to transport up to 275000 barrels per day from West, Texas and made Ireland to our Houston terminal and is expected to be in service in the fourth quarter of 2021.
The more road pipeline has now and service this pipeline expands and improves our existing access to and from our Houston terminal and export facilities as well as access to Houston ship channel refineries.
Regarding the Bakken pipeline capacity optimization as we have previously mentioned the Bakken pipeline receive sufficient market interest to move forward with plans to further optimize system capacity. The initial phase of the optimization above the pipes current capacity of 570000 barrels per day will accommodate the.
Liam commitments made by shippers during the recent open season.
Subject to completion of the permitting process. We now expect this additional capacity to be in service in the second quarter of 2021.
Now moving on to Mariner East system total NGL volumes through the Marcus Hook industrial complex averaged 226000 barrels per day during the first quarter with 17000 barrels per day coming in by other modes, including rail and third party pipelines.
At the beginning of this year, we reached an agreement with the Pennsylvania Department of Environmental protection that will allow us to complete the construction of projects, we have underway in Pennsylvania.
And in April we started to ramp up some additional volumes on the Mariner East system.
Customers that are Marcus hook complex or taking advantage of the flexibility that our Mariner east system has to offer by placing barrels.
For the upcoming winter season into local markets.
We are pleased to be connected to the new CPV Fairview power plant in came via county for the local ethane supply from Mariner East for Pennsylvania power generation.
Disconnection enables further market flexibility for shippers on the Mariner east system, while advancing local energy initiatives with efficient transportation options at the same time international demands for propane and butane has remained strong even while motor fuel demand has waned because of coded 19.
This is helping our Appalachian producers spondon market for their products.
Looking ahead.
We are anxiously awaiting the next phase of the project, which we now expect to be in service in the first quarter of 2021, while the final phase completed in the second quarter of 2021.
In addition, we continue our expansion at the Marcus Hook terminal as it provides customers with the most efficient way to reach the best markets for their product.
This expansion will provide approximately 50000 barrels per day of incremental NGL throughput capacity at the terminal in the first quarter of 2021 accommodating volume growth from Mariner East.
Moving on to our Lonestar assets Frac seven is now in service and has ramped up as expected as mentioned we are delaying the construction of Frac eight based on our current supply in volume expectations, along with our customers volume expectations. We now expect to be in service and.
Peter of Twentytwenty too.
And we are in the final stages of construction on our 24 inch 352 mile Lonestar Express expansion, which 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 expect the expansion to be in service.
In the fourth quarter of 2020.
In light of the current conditions, we have converted some of our storage facilities at Mont Belvieu to allow us to store a significant amount of natural gasoline and diesel barrels into 2021, which provides us with significant contango revenue. This demonstrates another valuable benefit of our dynamic franchise.
Looking at our LPG expansion project Natal than we have recently found a very cost effective way to modify this expansion, which will increase the capacity from 235000 barrels per day to 300000 barrels per day.
LPG demand has remained strong as has demand for this project, which will further integrate our Mont belvieu assets with our needle in assets to expand our LPG export capabilities.
Construction is progressing well and it remains on schedule to be in service in the fourth quarter of 2020.
The conversion of the white cliffs pipeline from crude oil to NGL service is complete and volumes on this pie.
Which runs from Platteville, Colorado to Cushing, Oklahoma began flowing in December of 2019.
Construction on our orbit ethane export joint venture with satellite petrochemical is nearing completion and we expect the project to be ready for commercial service in the fourth quarter of this year.
Turning to gas processing in West, Texas, our 200 million cubic foot per day Panther two processing plant in the Permian Basin was placed into full commercial service in January of 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 first quarter results consolidated adjusted EBITDA was $2.64 billion compared to 2.74 billion for the first quarter of 2019.
The change from the prior period was primarily due to crude oil and NGL and refine products inventory valuation adjustments of $213 million that adversely affected adjusted EBITDA in the first quarter of 2020.
Crude oil and NGL refined products had a positive impact of $27 million in the first quarter of 2019.
For a total impact of $240 million from the first quarter of 2019 to the first quarter of 2020.
DCF attributable to the partners as adjusted was $1.42 billion for the first quarter down $177 million compared to the same period last year.
This is primarily due to the decrease in adjusted EBITDA.
Distribution coverage ratio for the first quarter was 1.72 times.
In March energy transfer announced a distribution of 30 and a half cents per common unit for the first quarter or $1.22 per common unit on an annualized basis.
This distribution is consistent with the fourth quarter of 2019 and will be paid to unit holders of record as of the close of business on may the seven.
Let's look at results by segment, starting with NGL and refine products adjusted EBITDA was $663 million compared to $612 million for the same period last year.
This increase was due to record Frac and NGL transportation volumes, which were partially offset by 59 million dollar impact from changes in inventory valuation adjustments in the first quarter of 2020 versus a $9 million valuation adjustment in the first quarter of 2019.
NGL transportation volumes on our wholly owned in joint venture pipelines increased to 1.4 million barrels per day compared to 1.2 million barrels per day for the same period last year.
The majority of the increase in volumes was on our pipelines out of the Permian Basin, and North, Texas regions as well as on our Mariner East pipeline system.
First quarter average fractionated volumes increased to 804000 barrels per day compared to 678000 barrels per day for the first quarter of 2019.
For the crude oil segment, adjusted EBITDA was $591 million compared to $744 million.
For the same period last year. This was primarily driven by a change in inventory valuation adjustments of $190 million in the first quarter of 2019, we had a positive 36 million dollar adjustment and in the first quarter of 2020, we had a negative 154 million dollar adjust.
Okay.
In the first quarter a portion of the barrels previously recognized as operational inventory have been reclassified as a long term asset which is expected to help reduce the volatility of earnings in the crude segment.
Going forward based on our current business operations, we expect their inventory that is subject to these adjustments to be between three to 4 million barrels.
Crude transportation volumes increased to 4.5 million barrels per day compared to approximately 4 million barrels per day for the same period last year, primarily due to increased barrels out of our existing Texas pipelines volume growth in the Bakken and the initiation of served as a phase two of the Bayou Bridge.
[noise] pipeline in the second quarter 2019, as well as the acquisition of Sim group assets in the fourth quarter of 2019.
Our midstream adjusted EBITDA was $383 million compared to $382 million for the first quarter of 2019.
Hi, Rob midstream throughput volumes were partially offset by lower NGL and gas prices, which impacted results by $22 million.
Gathered gas volumes were 13.3 million MBT used per day compared to $12.7 million MBT use per day for the same period last year. This increase was due to volume growth across the majority of our operating regions and demonstrates the strength of both our customer base and our asset footprint.
Yes.
In our inter state segment, adjusted EBITDA was $404 million compared to $456 million for the first quarter of 2019.
This was primarily result of the contractual rate change at the Lake Charles facility as well as lower demand for services on several of our pipes.
And in our intrastate segment, adjusted EBITDA was $240 million compared to $252 million in the first quarter of last year.
This was primarily due to higher transport fees from the ramp up of the Red Bluff Express increased storage margin from a higher storage optimization and new contracts.
These were offset by lower revenues from pipeline optimization.
Activities.
As far look at the cap Capex for the quarter ended March 30, Onest 2020 energy transfer spent approximately $1 billion on organic growth projects, primarily in the NGL and refined products in midstream segment, excluding Sun and us.
See capex.
And as a reminder, nearly 70% of the capital spend in 2020 is on projects, which are more than 60% complete and are expected to be in service in 2020 in early 2021.
And as I mentioned earlier for the full year 2020, we now expect this spend approximately $3.6 billion, primarily in our NGL and refined products and midstream said segments.
And we are evaluating another $3 million to $400 million for potential reduction this year.
Looking briefly at our liquidity position late in 2019 and early this year, we successfully completed financing transactions, which provided an efficient funding source and bolstered our liquidity position.
This included debt and perpetual preferred dual offerings completed in January 2020 in the aggregate amount of $6.1 billion for which we used a portion of the proceeds to redeem all of our 2020 maturities.
The remainder of the proceeds were used to pay down short term borrowings under our credit facility.
As of March 30, Onest 2020, total available liquidity under our revolving credit facility was approximately $4 billion and our leverage ratio was 4.1 to put the credit facility.
And as a reminder, looking forward, we have a very manageable $1.4 billion of maturities in 2021, we continue to target a rating agency leverage ratio of four to four and a half times.
In conclusion, I just want to reiterate that we're very pleased to have delivered another solid quarter.
Throughout the remainder of 2020, we continue to expect are fully integrated multi product assets as well as our predominantly fee based cash flows to offset headwinds this year.
And the ramp up of growth projects, which are expected to drive near and long term value will continue to generate excess cash flow and fund our growth projects. In addition, our extensive storage capabilities combined with our recently leased space at the SPR, Oh, providing valuable opportunities to capture upside.
Related to the contango spreads we remain committed to our investment grade rating and our strong liquidity position provides us with the financial flexibility as we navigate through this uncertain time.
However, we know that it is imperative to remain mindful of our spending and we'll continue our disciplined approach to capital expenditures, while also pursuing additional cost savings.
Safety and project execution remain among our top priorities and we want to once again, thank our employees for their hard work and continued support during this challenging time.
Operator lets open the call up to Q anyway.
Thank you at this time will be conducting a question and answer session in the interest of time. Please limit to one question and one follow up question then rejoin the queue for any additional questions. If you would like to ask the question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the case.
Question Q, you May press star to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star Keith one moment, please while we pull for questions.
Your first question comes from the line of Jamere, Jeremy target with JP Morgan. Please proceed with your question.
Good afternoon.
Just wanted to start off with discussing I guess your assumptions on the recovery post coal bed as far as both on demand side in the supply top just trying to think through.
How you guys do the world how that factored into your guidance and if you kind of bounce off the agencies and if they were kind of comfortable with your outlook at this point.
It is mackie.
Let me start and then Tom can follow up.
As everybody knows where in kind of unprecedented times that nobody could ever predicted the that into our world country be shut down.
So so things really got difficult count last part of April and then in May have or how it's impacting our assets.
A couple ways is we.
For example, our GMP assets, we have had some volumes shut in.
However, just to give an example in the Midland Basin, we've had about 8% of the volume shut in that was beginning of may and as of today, we've seen about 25% of that turned back on so as we look.
That as an example, as we look through all of our assets and all of our segments.
We see that.
Things have bottomed out in our opinion and that things are improving and theyre going to grow a lot of of course depends on WT outwards Deb geography go.
We are pleased by how it's kind of strengthening hanging in the mid to $25 range in the curve kind of short growing throughout the rest of year and we're pretty optimistic thats going to be to the path that were on so from an energy transfer transfer perspective, we think things have bottomed out how quickly they'll grow remains to be seen.
But we do expect to if not.
Faster growth at least gradual growth for the next quarter and Weve injected that in our projections and in our discussions with the rating agencies.
And I'll comment yet Jeremy off of our chime in here real quick on the rating agency part of it we do continue to work with them very very close as they.
Continue to evaluate projections and et cetera, as always we feel like where we have great credibility with them, we're going to continue to work with them. We're also highlighting all the other levers various levers that we have to pull the capex like we've talked about.
That aspect of it the cost several things that we've looked at so all in all our dialogue with the agencies continued and we will up like hoist just give them the.
Best information the best forecast we have.
That's helpful. Thanks, and just wanted to touch on the Capex side what would.
Got you together side as far as point that point down the incremental three to 400. The capex. It's under evaluation, how do you see capex trending in 21 at this point.
This mackie again.
When you look at.
Our projects, we look at the realization and timing of filling those projects and in some of the hurdles that we have in addition of that we consistently look at those projects that as we've talked about are down the road wave, but or it might make sense to push some of those dollars further out of into.
21, or even further in some cases, so it's a.
Day to day, certainly a weekly analysis that we make in those are real dollars that we believe there.
Possible that we could push out of 2020.
Getting us closer to that $3 billion range, but there's a lot lot of unknowns right now.
Certain things could happen in middle East, we heard Saudi Arabia cut another million barrels today I mean, there's things that could really turned this around in a in a big way.
I would cause us to to continue on a path for on bring those projects on timely, but we're certainly looking at it closely and we'll do everything we can from the standpoint of delaying costs, where it's prudent and where it makes sense.
And we're not we're not trying to give guidance for 2021, right now, but but I will say 2 billion or less we do feel good about right now for 2021 and beyond.
Great that's helpful Thats It for me thanks.
Yes.
Your next question comes from line of Schnorr.
Or Sunni with yes. Please proceed with your question.
Hi, good afternoon, everyone.
Maybe to start off.
Mackie and Kalsi just wanted to touch on the Capex side I realize it's difficult to make adjustments was 2020 capex numbers when you've got some of these big projects that are in flight right now.
Tom just mentioned Capex on your $2 billion for the next three to four years is there a scenario were 21 could be materially lower than $2 billion. If we kind of have an environment that we're in right now are a little bit better than what we're going right now I'm just trying to understand how low key capex. So if you know.
We're in an oversupply situation for crude.
Heading into next year.
Yes sure this has mackie.
Here's how to answer that is that the projects even some of the projects that we've deferred we have commitments and in many cases demand charges that are kicking in so it really doesn't make sense at some point to delay those projects passed a certain point a certain kind of deadline for those so that when the commitment.
In the demand charges kick in so to answer that question do we think it could materially and say knock it down to 1 billion or last that's unlikely I think Tom said, it well, we expect to be between Abeona happened $2 billion.
Prices, both prices and spreads.
Perfect. Thank you very much guys appreciate the color and please stay safe.
Thank you. Thank you.
Your next question comes from line of Gene and so as Barry with Bernstein. Please proceed with your question.
Hi.
Like your expectation around scratch, earning have fallen by a few hundred million dollars beginning at the or guidance, which is from a surprising given the contango is located in your mind credit.
Can you just stay with permitting pieces are in that bucket, maybe at the inventory valuations in there.
As far as the inventory valuations, we do not have that that baked in to the guidance other than what we've reported air in the that first quarter.
And I'll follow up to that on the certainly the spreads across Texas.
Crude business have tightened however, offsetting that is we're seeing in our storage business significant contango spreads that we haven't seen in a long long time that kind of counteract the the negative impact to the narrowing spreads on the crude business.
Okay. It looks like overall it went down I guess first thought though is that I guess that create pipeline spread lots is bigger than.
I can take us right.
Okay and again it.
I need to make sure I'm. Following your question on this when you're saying went went down.
But as far as far as the guidance goes.
Sure.
Yes, yes.
You are correct.
Thank you.
And then on is there is time related to Jeremys question earlier, but is that decline and overall you asked the Permian production that you're using that year to kind of get with its forecast kind of anchor better or worse than that.
We will be better worse than that.
This mackie I'll start as mentioned earlier, we have seen some shut ins.
And certainly it's significant slowing down a however, based on where kind of deputize now in our optimism that we think that we'll see it kind of hanging in there start to strengthen.
We don't we think volumes will recover medifast due to some others over the next 30 to 60 days. So we don't we don't anticipate notwithstanding some significant circumstances, we don't anticipate volume stand down where they are for a significant period of time.
Okay, that's very helpful.
Yes.
Your next question comes from line of Michael Blum with Wells Fargo. Please proceed with your question.
Good afternoon everybody.
Maybe just to just make sure just clarify one other question James just asked so in the slide deck to tune after 5% of the pie that is labeled spread.
That capture for your 2020 guidance does that that captures your contango.
Side. This year, just one quick clarifying.
Yes, yes, it does.
Okay great.
My other question was just on Frac seven that just went into service and then rock.
It is frac seven fully contracted and awareness frac kind of stand at that point.
Are you still have capacity left to turn out there.
Yes, yes, I'm not listen Mackie Frac seven is completely full 90 running at 97%. If you look at all of our Fracs were running.
Significantly above the name plate of those.
And so those volumes were of course designated to go to Frac eight we're able to too.
Extend frac eight out to 22 because of additional capacity that we have above nameplate, but right now we have a lot of Ngls and storage that we brought it on and so some of its kind of storage, but we've been running our fretful and will for a number of days in month.
As current status.
Great. Thank you.
Yep.
Your next question comes from a mine of Michael Lapidus with Goldman Sachs. Please proceed with your question.
Hi, guys. Thank you for taking my questions just looking at slides four and five.
The.
A pie chart on slide four so yeah, adjusted EBITDA breakout in 90% to 95% ebay.
Can you break that large piece of the pie into what percent of that is take or pay in what percent of that is you've got the fee or the tariff set but you've got volumetrically exposure.
Well, Michael I'll start with start with that one probably if you turn to slide five and the debt.
Yes, that's the way we captured it for 2009 Jane.
Don't know that Thats necessarily moving a lot. We obviously can follow up with you afterwards, but I think you can kind of see how much of that from at least from midstream standpoint.
As fee based versus keep whole PLP.
Et cetera, and then if you look at the other Pie chart beside it you'll see the Mdcs is that the question your.
Yeah, I kind of Albert.
Except I'm not just referring to the midstream segment I'm, referring to the entire business. So if I look on slide five the table on the right inside like very easy question, how much of the EBITDA of crude oil is take or pay versus volume metric in albeit fixed fee, but volumetrics same thing on Interstate transport like how much.
So that is take or pay.
And Mike we don't have that broke out here right now we'll have to follow back up with with you at later.
Not really.
Happy to follow up happy to follow up with Bill and team offline hate just one other question can you help clarify a little bit about the in service dates on Mariner East two X and just kind of what you're seeing and when you expect the in service I know you mentioned I don't recall in the prepared remarks. The can you just clarify that timeline for that.
You bet this mackie.
Well first of all we are bringing on additional capacity about 25000 barrels June 1st So thats very positive and that is already committed with demand charges.
And then we now have moved slightly from fourth quarter of this year to first quarter of next year on next significant expansion completion of Mariner and in the final two X. We expect to be completed in the second quarter of 21.
Got it thank you guys much appreciated.
Thank you.
Okay.
Your next question comes from line of Spyros Newness with Credit Suisse. Please proceed with your question.
Hey, I think everyone turning back to the cost cuts you all mentioned in slide with by 200 250 million for this year versus budget, how much of that showed up in the first quarter and I guess, how should we think about you realizing that the rest of the year and the more broadly how much would you characterize is sustainable. So we did see it happened again 21.
Versus maybe just deferring alstom costs.
Yeah listen this is Tom do you mind, starting over with the question when it when you started off it came through a low fuzzy.
Yes, no worries hopefully this time looks better just on the cost cuts. The 200 to 250 million just curious how much of that showed up in the first quarter.
Then how should we think about you realizing that those savings for the rest of the year in other words, how much of that is really sustainable versus just deferred.
No I would I would put all of it really as sustainable and stores, how its spread through the air it's going to be spread very even through the year. If you really take the first quarter and evaluate that and then.
Go kind of go through remember this is DNA and opex, so fuel kind of spread those throughout the year, you'll see those and we may actually as we continue to evaluate we may be able to identify additional amounts there.
Okay Perfect second one just on M&A was below the your mindset as far as that goes now would seem like this is an opportune time to consolidate the industry here.
Are you guys have obviously not been shy about doing that in the past where you could see would appreciate your view right now the M&A landscape both on individual assets, but also just on corporate M&A too.
Yes. This is kelcy and you're correct itself is just part of our business plan and always will be.
We are it's all hands on Dec right now to to to make sure our business is healthy and performing but but it is something that that is that we look at everyday we talked about it everyday I will tell you. The one thing if theres any any guidance I give you on this is that we would not do anything that was not deleveraging.
So you can then begin to look at have possibilities that may or may not be there and that would certainly help need to apply to whatever possibility. So were.
Very helpful. Thanks, everyone well.
Right.
Question comes from line of Christine Cho with Barclays. Please proceed with your question.
Oh, thank you.
If I could start with the cafe.
I see that 7% years cap back or projects that are more than half complete or with the answer to your next year.
The three to 400 million that you're evaluating further reoccupied would you see that in bookings.
On the project that are supposed to come online. This year, our next year and you're maybe thinking about confirming it or are those reduction broadly title projects that are contemplated to be in post 2021.
This Mac Calstar, Thomas followed up but it's a little bit it's a little bit of both we have on.
Some of the projects, we are optimistic and hopeful that we do come in under what our expectations on what our budget is.
And then some of these are we.
What do we get them completed about NV this year or push them into next year, and then kind of the third basket is are there some.
As we evaluate it as I said earlier over the coming weeks and months does it make sense to defer those and pushed from those projects in next year and out of 2020.
Okay that makes sense and then if I could go over to the dapple expansion.
I can you tell us how much you're expanding and what sort of flexibility to the customers have to potentially push back in service date, if we are fine.
Prolong downturn.
Just trying to reconcile.
For additional capacity versus the current outlook for production in the basin and would be curious if this is one of those projects in that three to 400 million being evaluated.
Certainly it's in that that one of those baskets, but right now that has been such an incredible project has been such a shot in the arm for for North Dakota, and really for our country. So it's got exceptionally well our open season went exceptionally well we do expect to have expanded in 2020.
One we're hopeful to get the final regulatory approval. Soon however that doesn't mean that depending on circumstances and depending on.
Shippers and shippers interest in different approaches that there might not be some options or should things. We can do but the bottom line is though we have commitments. These are demand charge based commitments for long periods of time inept. Other arrangements are not made and were in service to second quarter of 2021, those commitments will kick.
Yes.
And are you.
Are you able to tell us how much you're going to be sending bank.
The open seasons completed as you know end up right now we anticipate expanding somewhere in the 740 750000 barrel range Thats certainly can changes discussions go on but thats kind of a ballpark.
Great. Thank you so much.
But.
Your next question comes from line of Pearce Hammond with Simmons Energy. Please proceed with your question.
Good afternoon, and thanks for taking my questions two questions here first other midstream companies have highlighted some strength in the LPG export business.
It sounded like in your prepared remarks that you're seeing the same so I wanted to get some color from you on that and then the second question, which dovetails with the first which what is your outlook for ethane propane butane demand. This year. Thank you.
Just mackie again, what an exciting part of our business, we up we needed to build fracs. After all the the transportation. We signed up then we need to find a home actually kind of saturated the industry kind of saturated domestic market, but we kicked off mentor south number of years ago, and and that's gone exceptionally well for us.
And we're close to add another as you heard.
300000 barrels of LPG capability in its much needed with all the downturn and all the terminal and everything that's been going on the last 30 45 days that's been a shining light we have tremendous amount of demand we're in constant conversations where in the process of settling out whatever capacity that we're adding for some periods of time and we see that.
A significant growth vehicle for our partnership for many years to come.
And then my quick follow up pertains to storage upside.
As wells on the SPR, but.
Tell us a little bit more about the upside that you've got from your storage capabilities of what does it mean being the successful bidder on that lease crude oil storage capacity in the SBR.
Well as you can imagine right now having storage of a number of of products of course, including crude is very valuable.
Our existing neither one another stores that we have around the state in the country is been benefited in a big way and will for the remainder of this year in the contango spreads and likewise the SPR wanting that bid was important from the standpoint of revenue for us and and locking in contango, but it also is as important for our producers.
When when it looked like the weren't wasnt going to be any markets and that all these barrels that we buy on a consistent bases and transport consistent basis to try to kind of make sure. There was a market for all that we thought was necessary for our customers to find more space more capacity for further barrels and so I think certainly.
Slowed down on the market side, but we needed that to have that that call at market for all the barrels that we buy for our customers to make sure our customers barrels move.
Thank you Mackie.
Yep.
Your next question comes from line of whose while we're done with Bank of America. Please proceed with your question.
Good afternoon, everyone. Thanks for taking my question.
First one on.
The Haynesville basin and salt your asset value that ago operating there we have heard from few if your peers on.
Growing interest in the into assets and activity in the.
In the basin can you speak to what you're seeing.
Or what your expectations are across your gathering assets as well as the Tiger pipeline.
Yes, the Haynesville, Ben it's an interesting.
Area in that had tremendous potential on growth number of years, and then slowed down for a number of years and now it's got it second leg and Weve on any given day, we're moving two bcf in the interesting thing in the very beneficial thing about.
The Haynesville and are tighter system is it's a bi directional system. So not only can we move east which is predominately where gas is always want to go but we're now it's the interest is financed by the way back into Texas into our intrastate network ultimately find its way down of the ship channel into LNG markets. So.
That's been a very positive growth area for our assets, we expect those to stay to keep Tiger full for many years to come up likewise the gets all the gathering assets, we have kind of in north, Louisiana, especially the gas that needs treating.
Even in these times when theres been kind of some areas where gas is I mean, our product through it being shut in we're seeing growth in that leaner gas plays which is of course.
The Haynesville play so that's a really.
As I mentioned earlier at a tough time when a lot of.
Gas Nols being shut in we see that as a growth area, even as we speak.
Got it thanks for that.
And maybe on your expectation for positive free cash flows starting in 2021.
Could you. Please just speak to the commodity price and speedup spread opportunity assumptions baked in it.
And how big of a priority. This is for you today.
Well, we've not put out guidance for 2021 as you know, but I think it is worth talking about when you look at 2019, we had over $3 billion of what we call retained cash flow thats above the the distributions.
When you really look at this year and you see where our guidance.
Where we currently have guidance, you'll see that we have free cash flow.
We're right at that at that customer when you get to the twos and less than 2 billion for 2021, you can really look and see what type of now free cash flow, we have and that's what we're going to continue to use as our EBITDA grows as these projects we've talked about today.
That's what we're going to be using to start lowering the debt levels from that standpoint, but we will.
We'll probably talk more about later in the year on 2021 right now it's about looking at where you think the curves are where the price deck.
When you look out at some of the longer term price decks.
That's helpful. Thank you.
Your next question comes from line of key Stanley with Wolfe Research. Please proceed with your question.
Hi, Thank you want it to starts this was to clarification. So.
On the Bakken pipeline do you have firm commitments for most of that capacity step up from 570 to to 750000 barrels a day or is the expansion size larger than the commitments and then.
Second one was just I want to confirm that the 200 million inventory write down headwind in EBITDA for the first quarter, you're assuming that headwinds in the 10.6 to 10.8 billion guidance for the year. So absent that the guidance would have been start even 200 million higher.
I'll start this mackie I'll start with first let Tom on the second yes, and our open seasons, we've got commitment for significant volumes and so the vast majority of the capacity, we're expanding is demand charge.
Capacity of course, we got a whole room for walk up and and and that type of capacity, but yes. The majority of it is demand.
And as far as the second second part of your question I would say that the 213 million you saw in the first quarter. Yes. It is it is baked into the 10 six to 10 a guidance we have.
Okay, Great and then Tom Tom on the balance sheet can you just remind us the leverage target for the company and you talked about using free cash flow starting next year to potentially vehicle to pay down debt.
As has the strategy changed at all on how you're approaching the balance sheet and leverage just given what's happened in the oil market.
Obviously, a very very very good question, Keith and no. It is not we're going to continue to target that four to four and a half. We when you really look out at 2021, I know, we keep using the free cash flow term, but where we're excited to get into that that phase of being able to now start.
Paying down the debt as you see projects come on as we continue to pull the other levers of lowering some of the capex. So a lot of our growth is going to come from nothing more than a lot of the projects you've heard us talk about here today, but nothing changed as far as strategy goes.
Thank you.
Your next question comes from line of Colton Bean with Tudor Pickering, Holt and company. Please proceed with your question.
Afternoon. So just a quick clarification around the contango discussion thus far I think Tom you may have noted that the 2.5% to 5% capture the marketing contribution there, but footnote looks like there should be some degree of earnings and fee base as well so.
The bulk of the benefit showing up in spread or is the the market base rate that you're charging yourself is that.
Actually accounting for the majority showing up in fee.
I would not let me think through that for a moment, we do have some some showing up in the fee the portion or any of the portion that's held by the marketing arm, but I would not say the majority of it no.
Okay. So fair to say that the in the market base rate has not moved up materially I just given what we've seen in the last month and after so.
That's correct.
Got it.
And then just on the on midstream as you evaluate your north East gathering footprint can you frame for us the relative dry versus rich exposure and particularly any condensate handling.
This mackie again.
Yes, clearly condensate handling as become an issue really not just the northeast but elsewhere.
We are working closely with producers.
It really don't have a lot of options to utilize some of our assets to help them move their condensate.
How long this just last who knows we like we said earlier, we don't think there's going to last I hope a long time and things recover demands going to increase in we'll find a home for that.
Both.
Around the condensate, we really Donna.
It has a long term problem and we're doing everything we can to help producers in the short term.
And and then.
I don't want to answer your entire question or not.
Yeah, that's helpful and I guess, one I guess, what have you seen any curtailments date on condensate and to just kind of your broader rich gas exposure relative to dry.
Yes, I'm not aware of any condensate that has impacted Irish.
Mainly talking about a condensate this with other midstream companies, where they're looking for help further home for the condensate.
Yeah.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Tom long for closing remarks.
Thank all of you once again for joining US today, we really do appreciate you sport, we really enjoyed talking with you and we look forward to follow up calls after this one.
Thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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