Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by the conference.
Thank you for your patience.
Just standby.
[music].
Please standby work.
Thank you for standing by welcome to the first quarter 2021, no earnings call.
Yes.
At this time I would like to turn the conference.
Andrew.
Go ahead Sir.
Thank you Paul and good morning, everyone and welcome to one Oaks first quarter 2020 earnings call. We issued our earnings release some presentation. After the market's close yesterday and those materials on our website.
After our prepared remarks will be available to take your questions.
During the QNX session. We would appreciate it if you limit yourself to one question.
A reminder, that statements made during this call that might include what else expectations or predictions.
Should be considered forward looking statements and are covered by the safe Harbor provision.
Securities acts of 1933, and making 34.
Actual results could differ materially from those projected in forward looking statements for discussion of factors that could cause actual results to differ please refer to our FCC filings.
Our first speaker this morning, as Terry Spencer, President and Chief Executive Officer Terry.
Thanks, Andrew Good morning, Thank you all for joining us today.
Always we appreciate your continued trust and investment in one of them.
Joining me on today's call is Walt Hulse, Chief Financial Officer, and Executive Vice President strategic planning and corporate Affairs.
Jim Burke Executive Vice President and Chief operating Officer.
Also available to answer your questions or Sheridan swords, senior Vice President natural gas liquids Ancho Chili senior Vice President natural gas.
On behalf of one Oak, we hope you your families and your colleagues are healthy.
All navigate and cope with the uncertainties surrounding the Kogas 19 pandemic.
As an essential critical infrastructure business or imports continue daily work.
We remain focused on operating safely and responsibly and on providing essential services that our communities customers rely almost four.
We basketball employees to work from home were able and we've increased safety protocols for those critical employs continuing to work on site.
We offered additional support to employees through temporary benefit adjustments and human resources programs and all prioritizing open communication with employees, our board of directors and the financial community relating to our covert 19 response efforts.
The current environment and worldwide impacts of this pandemic are clearly unprecedented but as you know.
Good 19 is not the only challenge facing the energy industry right now.
The commodity price collapse, and resulting recent pullback in crude oil production across the country is greatly impacting our industry.
I've described in the earnings release, we did not provide what one would call a traditional garden something but we did provide a range of possible outcomes for 20 Twond.
Providing specific volume and commodity price guidance would not be appropriate for us due to the number of potential variations of outcomes that are possible for price forecasts curtailment quantities and the duration and pace of economic recovery on a worldwide basis among other factors.
That said, we have performed rate scenario analysis and based on currently available information. We believe the range of possible 2020, adjusted EBITDA results will likely need between 2.6 billion and 3.0 billion.
Well this wide range indicates potential challenges. It also has opportunity. It was we are well positioned to realize earnings growth in 2020 2021.
NGL markets remain resilient and storage capacity is at a premium despite the challenges our industry faces.
Now I'd like to comment on the recent dividend announcement, which we prudently held flat at 93, and a half centsper share for the quarter.
Got it looked to the future, we expect our business to generate sufficient cash flow to pay the dividend.
Our decision to significantly reduce capital spending in children's opportunities return puts us in a good position to continue returning value to our shareholders.
As we always do each quarter, we'll work with our board to assess our four views of future cash flows and the dividend as appropriate.
We've been through cycles before and we have a long track record of delivering on expected results and most importantly, the fundamentals of our business have not changed.
Our strong balance sheet and liquidity provide important financial flexibility.
Our extensive integrated assets, including available storage in key markets centers are competitively well positioned.
Our fee for service business model mitigates, our direct commodity exposure, including the stability of our natural gas pipelines business, which has nearly 100% take or pay contract structures was primarily financially strong electric utility customers.
Our customers are some of the most resilient and well capitalized in the industry.
Gauge the proven reserves and the demand for Ngls in U.S. and abroad remains and there are signs that international demand is beginning to recover.
All these factors provide the foundation for a resilient business that we believe is built to weather.
These kinds of uncertain market conditions and provide a platform to resume growth when it makes sense.
The natural gas and NGL reserves in the basin served by our systems haven't moved.
There are still there and we believe our ability to serve them is stronger than ever.
Many of our capital growth projects has recently come online or are nearing completion.
These projects have driven volume growth across our businesses, including reducing the amount of flaring in the Williston basin as we expected up until the pandemic.
And as we have done in previous commodity cycles, we're able to adjust to scale and timing of our girls projects.
That's just the needs of our customers, we make proactive adjustments early on in this cycle to better align or capital investments with our customers needs and we will continue to be flexible and responsive to those names because our view of the market evolves.
Kevin will provide more detail on these projects in a moment.
It seems pretty shows how you react in markets like this will have lasting impacts the quarters in years to call.
Swift financial and operational decisions made at one OIC in 2015 in 2016, well difficult at the time set us up well for a transformational period of growth over the past few years.
We're now in a great position, what's available integrated capacity across our system once market conditions improve.
With that I will turn call over to Walt.
Thank you Gary.
I'll start with some brief comments on our first quarter financial performance liquidity and then our capital allocation strategy as we move forward.
Why don't reported a net loss of $142 million in the first quarter 2020, which includes the noncash impairment charge of $642 million or $1.17 per share. Excluding these non cash impairment charges. One LTPS was 83 cents per share for the first quarter.
First quarter, adjusted EBITDA totaled $701 million.
10%.
Increase compared with the first quarter 2019.
Natural gas liquids and natural gas volume growth.
Our average fee rates and higher contracted natural gas transportation.
All contributed to year over year earnings growth.
Distributable cash flow for the quarter.
First quarter 22, why was $522 million up 7% compared with the fourth quarter of 2019.
Good morning.
Just one.
Times.
We also generated $136 million of distributable cash flow in excess of dividends paid during the quarter.
Earlier this month the board of directors declared a dividend of 93, and a half sense or $3.74 per share on an annualized basis.
We recorded impairment charges in the first quarter 2020 related primarily to long lived assets and goodwill in the natural gas gathering and processing segment.
Our asset impairments.
Charges related to gather processing assets in western Oklahoma, Kansas, and the Powder River basin.
Any of these charges was triggered by significant adverse changes in the market environment during the first quarter.
For the liquidity standpoint.
In early March we completed a 1.75 billion dollar soon euro notes offering and use the portion of the proceeds to repay amounts outstanding under our commercial paper program, providing us increased liquidity and balance sheet flexibility during this uncertain market environment.
At March 31, net debt to EBITDA on an annualized run rate basis was 4.86 times.
We ended the first quarter with no borrowings outstanding on our $2.5 billion credit facility and more than $530 million of cash.
We're still targeting.
Leverage at four times are less but due to the current environment the timeline for reaching target leverage from operating cash flows president Bush, though.
As Jerry mentioned.
With yesterday's earnings announcement, we provided a 2020 outlook.
The 2020, they didn't done there's no likely to be the range of $500 million to $900 million, which reflects the impairment charges and adjusted EBITDA is likely to be in the range of $2.6 billion to $3 billion as Jerry said the range of possible results from our multi variable scenario analysis.
Let us do this 2020 <unk> <unk> <unk>.
To give our industry was a sense of what we you are likely outcomes in the current environment.
As the industry recovers, we will update if appropriate.
From a capital allocation perspective in early March we suspended.
Additional expansion on the West, Texas, LPG pipeline, Demicks <unk> drugs like suite slabs and reduce the scope of the expansion no pre pipeline.
Yesterday, we announced that we paused several projects and reduced our 2020 gross capital expenditures further.
So far in 2020, we have reduced sports that forecast of capital expenditures by $900 million compared with our original 2020 guidance provided in late February.
I will discuss these adjustments to girls capital in a moment.
We now expect growth capital to range between 1.4 $1.8 billion this year.
Which includes more than $900 million that we've already spent in the first quarter.
We completed our local to Demicks Lake to before and 45000 barrels per day of the West, Texas LPG expansion.
Only approximately 40% were 2020 capital expenditures left to spend over the remaining three quarters.
Okay.
We can continue to significantly scale back capital as commodity prices remain depressed the producer activities remain low we could potentially to operate in a 300 to 400 million dollar and no capital spend that your range.
Which wouldn't include limited routine growth suddenly alignment with our producers' needs and maintenance capital.
Lets ability to scale back capital and to adjust to our customers needs as a significant financial tool.
Can use in this environment helps your balance sheet strike and liquidity.
The other side of equation, we stand ready to resume resumed these projects that's producer activity returns.
I'll now turn the call over to Kevin for a closer look at our completed real projects in operations.
Thank you Walt.
So volume growth across our system in the first quarter 2020, compared with the first quarter 2019.
NGL raw feed throughput volumes increased 6% and natural gas processed volumes increased 5% year over year.
The natural gas pipeline segment continues to deliver strong fee based earnings is our total capacity reached 100% contracted in the first quarter.
This segment, which represents more than 15% of one of the EBITDA provide solid fee based earnings instability, even through volatile commodity price environments.
It's Terry and won't discussed the volatile commodity price in demand environment makes predicting or future volumes or segment level performance very challenging, but we can provide certain data points based on the information we have at this time to help frame up the correct.
The levels that were seeing across all the rules.
Let's start with an update on our growth projects.
During the first quarter, we completed and placed into service the Arbuckle two pipeline and the remaining capacity of RMB four fractionator in Mont Belvieu, which is 100% contracted.
We also completed 45000 barrels per day of our fully contracted 80000 barrel per day, West, Texas LPG pipeline system expansion.
The remaining capacity of the expansion, which was delayed due to weather during the first quarter is expected to be completed in may.
We completed our Demicks Lake to processing plant in January bringing our total processing capacity in the basin to more than 1.5 billion cubic feet per day.
Projects that were completed in the fourth quarter 2019 were ramping as expected until commodity collapse in March.
That makes like one which was completed in October of last year reached near full capacity of 200 million cubic feet per day in the first quarter.
Total NGL well see throughput volume from the Rocky Mountain region, which includes volume on both the Oak Creek and Bakken NGL pipelines reached 240000 barrels per day in March prior to the collapse.
Compared with the fourth quarter 2019, we saw a more than 7% increase in Rocky Mountain region raw feed through <unk> throughput volumes as new processing plants in plant expansions were connected to our NGL system.
The volumes, we reached in the first quarter combined with the quality of the basin and our customer base give us confidence the growth well, who once demand recovers.
These assets put us in a great position to capture natural gas and NGL volumes for our customers when that occurs.
We announced yesterday that we are pausing the majority of construction activities on several of our remaining capital growth projects, including the expansion of our Bear Creek processing plant in the Williston basin construction of the wouldn't be fives fractionator at Mont Belvieu.
Additional mid continent fractionation expansion into third expansion of the West, Texas LPG pipeline system.
The decision to pause these projects reflects the changing needs of our customers and our ability to be flexible through this uncertain commodity price environment.
The projects, we pause can all be restarted quickly when our customers activity reasons.
Now, let's take a closer look at our current at the current activity across our operations as we sit today the production plans of our customers continue to evolve as market dynamics shift.
Many of our customers have announced a reduction in rig activity and in some cases are curtailing existing production.
In the Williston Basin. There are currently approximately 30 rigs operating with around half of those on our dedicated acreage.
Many of the wells that have been curtailed on our acreage to date have been older vintage wells that produce lower volumes at a higher cost of producers.
Other wells taken offline by producers were previously flaring, so they have not reduced our volume.
We've also seen wells curtailed that have opened up capacity for wells previously flaring to flow onto our system.
These three factors have resulted in less volume coming off our system then you would expect.
And given the significant backlog of flared gas total production won't have to recover fully for our processing capacity to be highly utilized.
Based on the latest reported natural gas flaring data out of North Dakota, approximately 400 million cubic feet per day was flaring in the basin with more than 200 million of that on one of its dedicated acreage.
As Terry mentioned, our customers in the Williston basin or some of the most stable and well capitalized in the industry.
I had one customer this year filed for bankruptcy protection. However, they continue to flow volume.
We do not foresee additional significant bankruptcy risk among our largest customers in the region and smaller scale private producers make up approximately 15% in aggregate of our total production from the region.
In the Permian basin, approximately 70% of our NGL volume is from the Midland Basin, where most resilient basins in the U.S.
As our West, Texas LPG pipeline expansion is fully completed in may.
We'll continue to transition volumes away from Offloads. We currently have with third party NGL pipelines on to our pipeline.
We are currently Offloading approximately 50000 barrels per day, and we expect to move 20000 barrels per day over to our system in the third quarter of this year with the remainder in the first quarter of 2021.
As these volumes move onto our system will be able to collect full transportation and fractionation fee rates on that volume.
Additionally, our system wide propane plus fractionation capacity remains highly utilized at approximately 85% to 90% and over half of our 27 7 million barrels of underground NGL storage is available to capture opportunities in the market.
We're adding 1.5 million barrels of storage in the third quarter. This year and expect to complete an additional 1.5 million barrels of storage in 2021.
We've also added 3.5 million barrels of brine storage in Mont Belvieu substantially increasing our capacity.
In the NGL markets, we are seeing seasonally strong demand for propane in Conway at our rail racks and on our north system from wholesalers as well as in Mont Belvieu from exporters. This demand is contributing to the strong relative price of propane to crude.
<unk> chemical facilities in both Conway and Mont Belvieu continued to have strong demand for ethane driving the price to near recovery economics in the mid continent.
That concludes my remarks, thank you Kevin.
Our recent project completions in the volumes, we sing materialize prior to this downturn provide confidence in the growth behind our system that is available to capture once demand recovers one offs strong record of delivering on our expected results combined with our competitive integrated asset positions and high quality cuts.
<unk> base and the best resources plays our fundamentals of our business that provide us with a foundation for stability.
Even through difficult commodity cycles.
We have been through downturns before and we know how to position ourselves for success as conditions improve.
Do our employees, both those continuing to work remotely and those who are still reporting to facility or field location.
Thank you for your continued work.
Flexibility and dedication to our company.
Focused on maintaining essential services for customers and are committed to continuing to operate responsibly our exceptional.
During a very difficult time, you have risen to the challenge by remain committed to the health and wellbeing of our company.
Families and communities.
Well the near term view of the World is changing every day.
The long term fundamentals of our strategic business remains strong and well positioned for continued growth when global energy demand recovers.
With that operator, we're now ready for questions.
Thank you and as a reminder, please limit yourself to one question to ask a question. Please press star one on your telephone keypad also if you are using a speaker phone. Please make sure that your mute.
Dr. Langer signal to reach our equipment.
Once again, please press star one at this time for questions.
Let's spend just a moment to give everyone the opportunity just signal.
And our first question will come from Shneur Gershuni.
Yes.
Hi, good morning, guys.
Thank you very long for for a lot of the color today I'm just I guess one of its start off with C. I guess, we'll call. It an outlook about guidance I do appreciate a lot of the color that you get it in terms of some of the inputs when you're talking about why your system will be impacted lives.
And the offload opportunities I was wondering if you could share with us your views as to how you get to the upper end and Conversely to the lower end of that outlook what conditions in the will stay more elsewhere.
Needs to play out to two basically end up at your higher rent or end up at your lower end.
No. This is Kevin Yeah, I mean, there's a variety of thing that's as we kind of laid out the permutations you look at when you consider the variability of all the inputs were looking at that's the reason for the outlet.
So obviously, if you get to the upper end you know demand for example demand you know comes back more quickly you know prices recover more quickly.
Producers respond more quickly so at the end of the day, you're getting you know the volume on your system quicker on the low end of the range, it's just prolonged and by prolonged it could be anything from just how producers respond to two does have the demand recovers.
Do you have anything specific with respect to like one shot is come back and so forth.
Is there any sort of cheat instead, we should be thinking about.
No I mean, we're not we're not going up again that we're not going to provide specifics on that because there's a variety of ways. You can get to teach you know to the high end and there's a variety of ways you could get to the low end as well. So I'm. So we're not going to see them get into you know how long.
Because that will just need kinda factoring in one variable.
Moving on we'll go to Christine Cho with Barclays.
Thank you good morning.
Maybe we can start with.
Backing right.
Patrick down I'm guessing that's.
Oh, great coming online banking has a lower rate but.
Thank God.
One more volumes you know Bakken NGL pipeline in overland pass on to this line or was there anything we should factor and.
28 cents, a good run rate going forward or should we expect that it could triangle Gotta love It doesn't make I've been here.
Christine this share today, there's two factors in there one is while we were railing volley now the Bakken we work charging customers a higher fee for that service, especially the ones that were came on for El Creek and as L. Creek has come on they've come back to a right that we contracted within which was lower than.
And that 30 set rate so I think the as we go forward. The 28 <unk> rate. We see today is a good going forward run rate.
Our rates are not determined by which pipeline we use if we put barrels on Bakken or L. Creek are what we put on no peafiel because rates you are seeing a we charge our customer from a bundled service from that transportation and fractionation. So it's not impacted by which hyperlinks we use.
Okay. So even though the rate came down so much higher that's how we should think about it.
But as the rate came down obviously, we aren't railing as much volume so our costs have come down as well, but I think going for 28 cents is what you will see going forward. Obviously that has had some impact on hand that just coming out of the powder River basin on that line, which is at a lower fee and how much is coming out of the Bakken.
Okay, great. Thank you.
Moving on we'll go to Jeremy.
<unk> Morgan.
Hi, good morning.
I was hoping that you could there.
Share a little bit more as far as a northern border kind of some content there.
I thought you guys could provide with regards to then they'll or lack of need to extract ethylene going forward.
If you're just given kind of the mix shift between blocking gas going down the pipe and Canadian gas going on besides just trying to get a better sense of what's going on what could be going on there.
Jeremy This is Chuck.
So as you know transcanada's, the operator of northern border, So I'm going to answer your question.
Based on our 50% of ownership of northern border quite quite as a partner. So we've been we've been watching over the past.
And in particular as volumes, just kind of changed a little bit between Bakken in receipts coming into from Canada as volume to have changed a little bit.
In the block in into the into a pipeline. So obviously the pipeline is concerned about anything above 1100 and this this is a fluid situation you know as though that ratio changes and the mix between Canada and the Bakken, you'll see that a bit.
You too you blend mix in the northern border and consequently downstream so.
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Well the pipeline is today, we understand there going to go ahead and filed or the tariff.
And set an upper limit believe it's 1100 to start June 1st.
And northern border is held numerous formal meetings with shippers markets downstream pipes, all interested parties regarding that limit and.
Frankly to eliminate the need to use but just needs to be put in place to meet the downstream deliverability requirements.
In Chicago.
What makes sense. Thanks, a lot and then.
Maybe you don't get the GP segment, just with the average how are you kind of moving lower their quarter over quarter and seemed like there was.
A pop influence there that kinda talk about I was wondering if you could provide a little bit more color on kind of what were.
Some of the drivers and how you might expect that to change in this environment.
Sure. So you know as we've discussed in our 10-K in or 10 juice.
Under a certain percentage of proceeds contracts with with fees are contractual rates or percentages are they increase or decrease and and these are based on several thresholds.
In the contracts production volume commodity prices system pressures that we we're obligated to provide or the producers obligated to me. So our average rate can be impacted by those factors and also impacted volumes increase or decrease.
On contracts that have different pop percentages or fee rate. So for example, with several large producers who may have a contracts that are more fee based than pop and if there are currently curtailing you'd see the impact of that on or on our fee Red. Consequently, it would come down again, we can't speculate what kind of contract mix.
We're going to see over time, it's producers are making decisions frankly weekly as to.
Wells are going to be producing certainly what production level volumes. So you know we can't necessarily forecasts that average rate, but that gives you. The the understanding what's behind how that average fee rate is is developed and thought about.
Moving on we'll go to Tristan Richardson with Suntrust.
Good morning, guys. Appreciate all the the commentary on operations as well as you sort of liquidity and capital and how to balance sheet is is preparing for this.
Can you talk about the investment grade profile seems like the rating agencies are willing to take a long term view looking out past.
Our term disruptions of 2020, but to the extent leverage remains.
Elevated.
About just the priority the investment grade profile.
Well, we speak regularly to the to the rating agencies.
And well, we've got a market imbalance in the school laid the pace of leverage reduction.
It hasn't.
Reduced or expectation or desire to reduce leverage we believe our assets are in a position to support the growth from the basin. We serve a once at the end balances rectified and that the rating agencies recognized that our credit ratings are very important to us [noise], we've demonstrated by our actions in the past.
[noise] that if the current demand reduction.
Ends up being longer in duration, we have several tools at our disposal to reduce leverage.
We've already taken the first action in this regard that pause in our capital projects to preserve cash flow, we continuously evaluate other options to manage the balance sheet and what prudently to maintain our credit rating going forward.
Appreciate it thank you guys very much.
Thank you.
Moving on we'll go to Spiro Dounis with credit Suisse.
And when we have on first question is spot on growth and durability of earnings here.
Forgive me for asking about 2021, just getting the tough visibility right now, but we talked investors. That's so well lagerfeld. He said at this point, though.
Wanting to talk to some high level drivers of growth or anymore Black scenario would look like in 2021 20, and he couldn't maybe tie that to your ability to cut capex to the baseline level of you mentioned so in other words isn't really a heavy lift in maintaining a levels next year.
This is Kevin.
When we think I mean, we start talking 21 granted that is you know that's out there given the uncertainty today, but the key I'd come back to where our assets are located we've got tremendous confidence in the basins, where we operate those resources are still there.
As we look forward.
When you consider you know the flared gas Ah that's still available to capture you know as production comes back up on wine in the Bakken.
That's going to drive additional volumes for natural gas processing plants, and NGL segment, and I think you hit on the other key point is with this available capacity, we can do that with extremely minimal capital as we think about 2021 as the.
These volumes come back in in the environment improves.
Thanks, Kevin I think Oh, no one thing I'd add to that as we've been in this situation before we had built up some headroom.
In our businesses and were able to harvest cash flow and so with 20 twond with prospect to 2021, Capex spending being very low we're right. The right back to that particular that particular situation. So when you start looking at bad the free cash flow generation the business is pretty sick.
Okay.
Okay.
Yes.
Yes, I guess the only other comment that would make you think about these ranges that we put out there and the durability that business you know weve in this range of out potential outcomes. You know there are built into some of these numbers pretty significant curtailments, okay and so.
You have to you have to think about the lower end of the range and I'm not going to give you specifics because then I'd be giving you financial guidance, okay, but as we look at the at the potential outcomes, there's a pretty significant.
Percentage of production that we've assumed to be curtailed in one of these scenarios and that's reflected in these numbers.
So I think that just in of itself and explains the durability the business and Unfortunately, we can't give you specific.
Specifics, we'd like to but we can't problem.
As I said and call it wouldn't be appropriate for us to do that.
But but we feel really good about how how well positioned in spite of all the things that the headwinds that the industry faces pretty darn good position.
Yeah I can appreciate a tough question answer that's I appreciate helping us when that.
I don't want it's just a follow up on Capex I can you talk a little bit about why any arbuckle extension expansion are still in backlog is definitely Nick and they'll come out at some point is that really needed as part of the broader network right now.
Oh I'm sorry, you were just Kevin could you repeat that question drill jumbled is it came through.
Yeah, sorry, thinking and you saw bond. So just wondering if you guys could walk through the decision to leave the Arbuckle extension and expansion into backlog, that's something that can still come out at a future point or is that really needed at this point for the broader network.
Okay. Yeah. The the extension you know remain Dan is we think about that that that pipeline was important to this allows us to move Bakken barrels.
You know all the way to Mont Belvieu Ah. So we wanted you know we wanted that connectivity and also keep in mind. These projects kind of proceed at different paces and many of them are further along or not forces along so.
That goes into consideration as well and why that would still in the schedule.
Got it thanks, everybody all.
Now I'll go to Michael for with Wells Fargo.
Hey, good morning, everyone.
Hmm.
Just want to talk a little bit about then dynamics in the Bakken, particularly as it relates to the flare gas so.
I guess my question is like how do you get shut ins and reduced drilling activity.
I see a reduction in flared gas as well just naturally and all that.
I want to quantify or any rule of thumb. So think about how that would impact the number of well connects you would need to do.
Based on that change and flared gas.
Michael It's Kevin I'll start and Chuck or others may have some comments, but yeah like we said in in our prepared remarks, there's multiple dynamics that could go on impacting flared gas. We just we have seen some wells shut in that had previously been flaring.
That doesn't impact or.
Our volumes are obviously, we've also seen some situations where some gas was taken off line.
But other gas that was flaring due to some pipeline or compression constraints started flowing on the system. So effectively it was replaced which would bring flaring down.
So yes, I do think these you know the curtailments will bring flaring down in a couple of different ways, but the key point. There is I think with our capacity and and we continued to build out some gathering lines as we move through the first quarter as the that those.
Volumes come back we believe we're going to have the capacity to capture the gas I'm much more fully then then we did a you know stay in the January or February timeframe.
Okay, great. Thank you very much faster.
Yeah.
Next we'll go to Japan, South Korea firms.
Hi, Tom it's talking price, but you're right 30, or 48 cents range next year, what that even if they need to recover the gaps in the docking even if it didn't cover your cone midstream cats.
You have the contractual capability to do that.
Did you say 30 40 cents ethane values.
Yeah Yeah.
Yes.
He didn't we always had the ability to flex our rates, if we need to to be able to bring ethane on on an economic basis. So that is always out there that we had the ability not only in.
The block in a real estate, we also had that below the in the mid continent. So if we see the opportunity to be able to fluctuates a little bit to bring volume on we will do that we all set to be cognizant of is if the market is balanced at certain prices that we bring more volume on from another basin it could push out volume.
From a basin that is flowing today. So we take all those things into consideration but to answer. Your question. We do have that ability to flex our rates are NGL lays out the Williston basin.
Sure sure.
Yeah. Good Sheraton, we could add to that your comments about ethane is what you're seeing mid continent with the strength in ethane prices today and natural gas prices being weak.
What could affect us in 2020 fairly significantly if this continues as we could see producers.
And processors begin to extract it thing.
Got it and other places as well right.
The numbers right now.
In the mid continent, if you take everything into consideration the increased propane recoveries when you're in ethane recovery you could make an argument that and they we could see some more ethane come out of the midcon at that we had predicted.
That's helpful.
Yeah.
[laughter] next well go to call.
Thank you.
So just a quick one I think last quarter. Jack you made mention but he has really been a precedent agreement poor residue gas seek way out of the Bakken can you just update us on where you stand with that and if that project has been impacted all the other production that will.
Sure Michael Yeah, I mean.
With you everything evolving or producer forecast evolving and what have you in the basin.
I'd like to anything we've kind of taken a step back and we're trying to determine when when we see the the full need for that project. The way. It sits today. It was looking at where we're looking at potentially a fourth quarter of 22 I'm not quite sure honestly, if that's been moved out yet or not we're still look we're still evaluating though.
Got it appreciate that.
Next well go to Michael Lumpiness.
Hi, guys. Thank you for taking my question Im glad to hear everybody on their front as all while I'm just talk I've mentioned this in the first question just that's even within your guidance for 2020, and the only reason I ask that its first quarter you'd get around 700 billion of EBITDA the midpoint.
One of your guidance would imply keep doing around 700 billion of EBITDA each quarter, but the first quarter impact was before all the shot him before all the production cuts just kind of what's offsetting what keeps it kinda at that 700 million quarterly run rate, we just high level kind of the puts and takes a little bit.
This is Kevin Michael the way I guess I would think about that is you got to remember in the first quarter. We always have a winter intact and we were bringing you know we're bringing a lot of these assets online and so we knew you know as we think about January and February it wasn't.
Really till we came out in early March that we saw some of the some of the volumes picked up like we expected.
Clearly if you see curtailments in you know as we move through April May and June obviously, you're going to see a step down you know as you move through the second quarter Ah, but then recovery back you know as we move our way through the back half of the year. So so.
Yes, you would expect to see a step down in the second quarter.
With that recovery in the back half.
And if that recovery predicated on Bakken producers ramping up production in starting in the fourth quarter and when that occurs.
The current strip price does that does that give them the economics incentive to do so so quickly.
You know clearly buck in volumes would be would be a component of that but but again with our west Texas expansion with the other assets. We brought online with what we're seeing in the NGL markets and for a marketing inventory storage type opportunities.
There's a lot of things that I think could you know as we move through the second quarter that could play out for the back half of the year.
Got it and then one last one I'm just curious if you're thinking about the potential for any re purpose, saying that they can you give your existing assets I mean lots of moving parts across oil gas and Ngls just curious if there are opportunities whether in storage whether in existing older pipe.
To re purpose things given whats just go out in the marketplace.
Michael we can just a shared and we continue to always look at that and as we expressed earlier, we thought there was always an opportunity to maybe re purpose west Texas pipeline for crude oil that was that if that opportunity would manifest itself. So we continue to look at those opportunities. If we continue to go forward, obviously storage right.
Now is at big commodity that everybody's looking at with the shape of the.
Prices right now that we continue to evaluate right now we do think our storage is better use as NGL to play that part of the structure of the market than it is another product, but we do continue to evaluate the ability to re purpose assets a data service.
Got it thank you guys much appreciated.
Yeah.
Okay Sighinolfi with Jefferies.
Hey, good morning, everybody. Thanks, David.
<unk> I have to your questions a parent occurred in the first colleagues I think from comparisons are there a lot of inquiry, just about credit rating or not because ones for you for Walt maybe it involves more of a board read through but can you just walk us through how you guys think about.
Leverage and everything you know you've talked about capital declines that are possible.
Certainly I think I was reading into that like how low could be spending being next year, but I guess, what I'm getting after is at what point there 'cause it doesn't come into conversation and walk you had mentioned sort of multiple runners and you talk about Capex first and I'm just curious how everybody thinks about you know those components put together.
Well because I I think it's fair to say that we Oh, we continually evaluate oh, all options available, but I think it's really important to understand that with the capex that leaves the dues, we will be cash flow positive are definitely in the third and fourth quarter and then the 22.
21, so de leveraging will happen. It's just a question of the pace.
You know there are things that we might do to accelerate the pace.
If.
That makes sense will will go down that that up.
That doesn't carry a or just the you know our view on the dividend, while we look out of there on a quarterly basis, we will be and cash flow that they are going forward, but that's our expectation.
Okay.
I'm, sorry, if I Miss out in the prepared statement and then I wanted to follow up I appreciate the NGL conversation, we've been thinking about it.
Similarly to to share an uncertain of at year end, Kevin I've talked about I'm curious in a lot of focus on crude storage, we obviously that surety product NGL storage reported there's Y grade capacity, obviously that significant behind that and fungible and I'm. Just wondering if there's any thing that you're saying that would be to concern.
Turns around and NGL storage situation and as it pertains to that and you have to he is trying to get on rocky shut ins, what they'll do Conway might look like there. Thanks.
Chris This shared and I would say in terms of NGL storage capacity.
We feel we're in a great position on our NGL storage capacity. One is we're at a seasonal time when storage capacity is low where you'd see more building in a normal year. Obviously this is an abnormal your but also at this time right. Now we are seeing great demand for the NGL products propane is really being demanded from that.
Borders even at times in Mont Belvieu, we can't supply with our current production all the needs from people.
Buying product down there that typically sell too so propane that's what we're seeing propane trade so well versus crude and we also are seeing that phenomenon in on the ethane market that the that can still has a very good demand that we've actually had to turn some people away for that but typically supply ethane to it because we don't see that we'll have that product.
In the next month now more ethane comes on through recovery, we will be able to satisfy those needs, but we are seeing very good demand for our two biggest products, which leads to that we think we had plenty of storage capacity not only for regular operations, but also to be able capture some of the opportunities at the market has given us in a contango market that we're seeing.
So Chris I'm, just going to add reiterate one thing that shared and said early earlier in his answer was with respect to.
Propane storage inventory is at a seasonal a capacity is actually we've got plenty of capacity. So this is the time your one.
Propane Ruto Taylor start putting product in the whole.
And so I just wanted to make sure that was that was clear.
Next we'll go to Dan let go with Bank of America.
Hey, guys. Thanks for taking my question I'm, sorry to push depend a little bit, but like what comes to while maintaining investment grade bonds based on your kind of projections. If you hit the lower end EBITDA range, you're gonna be.
Above that all important five times marker, which is a trigger for downgrade high yield if it's a sustained for a longer period of time sort it out in a serious recovery in EBITDA or <unk>.
In 20 for one it just seems like you're going to need hauling additional waters to maintain that investment grade rating things end up being worse than expected.
So I'm just wondering how way of maintaining the dividend versus seven investment grade rating.
You know data I would tell you that we speak to the rating agencies regularly yeah, I don't know that I'd necessarily agree and told it is all your expectations of will leverage will be.
I'm doing business here and we've spoken to the dividends, we dogs and cats or was it like they did that.
Uh huh.
And next well go to.
Oh, well with U.S. capital advisors.
Good morning, guys.
I'm still confused about.
Five test.
[laughter].
Change and the drop from 92 cents [laughter] tight you NGL prices crude prices [noise].
The decline in NGL prices from Q1 into Q2 and the increased.
Shut ins are we going to see that.
Great dropped further.
Right yes.
Back in this is Kevin Chuck spoke to that earlier to the earlier question about what drives the fee rate change and that disclaimer.
So clear yes, there are threshold that he mentioned that or ended on a variety.
We're not going to provide an update at this point of what we think that that range would be but we can tell you that as we've factored in all those.
Scenarios does that various outcomes have gone into the 2.6 to 3 billion dollar EBITDA range that we provided.
<unk>.
Moving on we'll go to Elvira Scotto with RBC capital markets.
Oh hi, everyone.
Thanks for taking my questions. So.
On a lot of everything works here on the scenario analysis and with respect to a 2.6 billion lower aggregate EBITDA kind of outcome.
It sounds like you're kind of have confidence if that's the low end.
What would have to happen in order for that like that.
Well back and.
[noise] you know, we're not a viral we're not gonna go there as far as providing that information like we said we ran a variety of scenarios.
That that considered a variety of different price volume producer activity outcomes, and we believe that the EBITDA is likely to fall within that 2.6 to three a range and and that's what we're providing at this point Novara as as I.
As I indicated as I indicated earlier.
As I indicated earlier the.
Numbers consider substantial curtailments and a significant duration that this downturn.
So.
I think that's about as much as we can give you.
No that's really helpful and that's just my last follow up questions here.
Hi, Jason that you've had what someone looking at Boston producer customers.
Point would you expect.
The pick up and when I say that I know you know what what commodity pricing, maybe kind of we can think back to about 26 <unk> cool.
I'm curious.
Well. This this is Kevin and I think there's a couple of dynamics there one is.
If there are curtailing guess, what price does it take to have them bring curtail gas Bakken and without giving a specific number obviously, they're looking at what their variable cost to produce is that will vary by producer and it'll vary by location. So that's what we'll go into that so clearly.
That's a lower prices, we think about.
The next tranche would be completions are still 400, plus ducks in the basin. So that we Ah that's gonna have a price that that would that activity would would come back and you know.
So as we move as prices improve those are the things that will watches the curtailed gas will come back first and then you'll start seeing completion crews added and producers work off their ducks.
So far I think things Terry I think it's just it's fair to say that it's easy.
This continued downturns faster producers.
Tail and correct.
The supply and demand imbalance the faster they'll be a recovery.
It's kind of how we look at it.
And moving I won't go to crank share brothers.
Good morning.
First let me just congratulate you on holding off on the less economic initial forays into long desired crude gathering and export terminal opportunities. So sometimes what we don't do is more important than what we do.
That weather as well the studies in flight growth.
With respect to then slight growth projects that are now on hold.
Do you see a pecking order among them in terms of what might come on line first or your resumed first.
No I don't know that we would look at it that way I think it'll be rule as we talked to our customers in each of our basins.
You know rule, that's what we'll look at so if we continue to see you know we've seen some really strong growth out of the Permian up until.
The collapse and if we see that continue then obviously, though the west Texas expansion would.
Be back on the table and similarly in the Bakken if we saw certain areas and remember would bear Creek. It is a very gets a geographically isolated area. So it would be specific producers I'm showing a desire to to get activity back in a certain area of.
The Bakken so that's that's the type of thing that would.
Caused their accrete to to come back on long, but it'll be producer by producer processor about processor type discussions that will drive those budgets, Greg I think the other thing that you could see and I've been through this through these cycles. So many times I can't count, but I think the thing we've seen on in the GMP space over the years that when you get into the.
These down cycles people start talking that as midstream companies start talking about asset consolidation and setting.
Underutilized facilities down and underutilized gathering systems, and and doing off loads and you can see those kinds of things that no matter what side of the coin you're on a could probably about either revenue benefit or cost savings benefit so.
We could see or some of those discussions happening as we go forward.
[noise] and Terry I, I'm, sorry, you could see yourself as a potential consolidator on some distressed officers.
Sure well, we could potentially there might be facility that we believe make more sense like we could idle for a period of time and deliver volumes to somebody who has available capacity.
So.
Those are like that.
Great.
Okay.
To to consolidate.
And find a good economic outcomes between multiple different don't exactly that and then you do that through you do that through offload processing deals or on load if you're the receiver you do that through an on load processing deal.
It doesn't involve ownership.
Thanks, I got show.
And I don't know fault wants to chime that again.
I'm, sorry for beating a dead horse, we've had some questions about dire worst case leverage conditions sense touched potential additional lovers.
What a focus more on patients.
Ah so if credit isn't deteriorating two untenable levels, but lower for longer last much longer than perhaps ambition today.
Is there a limit to how many years you're willing to wait for organic.
ER improvement and your targeted net debt to EBITDA ratio.
[laughter] yeah, great. That's a is a close up the hypothetical question. Yeah I would tell you that I would point you to talk to the rating agencies about their view on timing.
I think we let me go to accompanies the you know.
It tends to be a little bit longer longer view.
During the quarter to quarter in the so.
Yeah, as we see those plays out.
Yeah, we see ourselves a naturally de levering and we're going to look at other opportunities that might help that alone.
But yeah.
I would say if you get out years into this certain other things over total visit your Ah Ah that's pretty hypothetical.
And this concludes the conference call and I'll pass it back to Mr.
Alright, Thank you everyone. Our quiet period for the second quarter starts when we closed our books in early July.
And extends until we release earnings in late July will provide details for that conference call. At a later date again. Thank you all for joining us and the IR team will be available throughout the day in the week in case, you had more follow up questions. Thank you very much and have a good day.
And once again that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.
[noise].