Q1 2020 Earnings Call
I was in twin de DCP Midstream earnings conference call will begin momentarily again. Please stand by your conference call will begin in one minute. Thank you.
[music].
Good morning, ladies and gentlemen, and welcome to the Q1 2020, DCP Midstream earnings Conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow with that.
Anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone.
A reminder, this conference is being recorded.
I would now like to turn the conference over to your host Ms., Sara Sandberg Senior director of Investor Relations. Please go ahead.
Thank you Karen good morning, and welcome to the DCP Midstream first quarter 2020 earnings call today's call is being webcast and I encourage those listening on the phone to view the supporting funds, which are available on our website at DCP midstream dotcom before we begin I'd like to point out that our discussion today includes forward looking statement.
Actual results may differ due to certain risk factors that affect our business. Please review the second line and the deck that describes our use of forward looking statements and for a complete lifting of the risk factors. Please refer to the partnership latest that's easy filing.
We will also use various non-GAAP measures, which are reconciled to the nearest GAAP measure and schedules in the appendix section of this line.
A lot of incumbents, CEO and Sean O'brien, CFO will be our speakers today and after their remarks, we'll take your questions with that I'll turn the call over to dollar. Thank you Sarah and good morning, everyone. We appreciate you joining us and I hope you're also going well.
So what everyone. The fact that go with 19 crisis.
Today's call, we will discuss how we're managing through it is extremely challenging environment for industry or first quarter results and I'll get for the remainder of this year.
On a first street. Thank you to team DCP, we're navigating through an extraordinary few months, we've remained healthy safe reliable and conducted spies incredible disruptions to daily life stress to cope with 19, you have delivered one of our best quarter have responded to this environment, but agility.
Zillions, none of it and innovation. So thank you for everything that you've achieved during his exceptional time.
We are long term investors also say thank you for your commitment to DCP.
This environment isn't Farley unprecedented a ball, we do not know outdoor play out exactly we're committed to transparency operational fundamentals safety efficiency and long term stability.
Looking for slide four are multiyear strategy to both the company has established a strong foundation for the challenges that we face today.
Our company has evolved into a fully integrated midstream service provider, but a disciplined capital allocation strategy and an industry leading digital transformation.
Today are core values have guided our response to covert 19.
First priority is to ensure to health and safety of all of our stakeholders to maintain safe and reliable operations.
Additionally, we have moved extremely fast to mitigate the effects of the current global demand destruction that is impacting our industry.
We have optimized over 900 million of gosh with the sole purpose strengthening the balance sheet and our efforts have already paid off in the first four months after year.
We have adopted our strategy had narrowed our focus to ensure we're well positioned to emerge from this downturn stronger than ever.
So just mentioned ensuring our stakeholders are protected and supported as we are central to our covert Nineteena response.
Slide five you'll see the approach we've taken what our employees are customers in communities over the past few months. We're currently executing our pedantic response plan to maintain increased communications and alignment ball, creating healthy and efficient work environments for all our employees.
To maintain safe uninterrupted and quality customer service, we are relying on or I see see an extremely close communications with our customers to ensure operational and volumetric transparency and alignment. Finally, we know our communities need has now more than ever we will uphold our approach to community.
Outreach in investment.
Slide six well highlight out of diversity of our company in our multiyear transformation of strength, some stability and outlook.
Operations opposition to the country's premier basins, and our distribution of volume's protects us from potential single basin or customer impacts.
Abroad, and interconnected footprint also gives our marketing team the ability to manage through constraints and market dislocations are cash flows of change substantially over the past decade, as we transition to a fully integrated company, but the majority fee based earnings platform, providing increased stability within our cash flows dish.
Finally, our booked 50 customers, who represent over 80% of revenue or well diversified.
74 of our top customers, 74% Worktop customers are investment grade and what did the producers segment, 73% or Super majors, what a ratings.
Our corporate structure can turns out to quit the showrooms provisions, we hold and that's payable position with producers minimizing our credit exposure.
Looking toward transformation nothing is more critical than safe operations and about two years ive represent that our best safety outcomes in the history if the company.
Next our DCP 2.0 transformation I've heard a lot was to not only take cost out of the system early through automation automation and Digitization and has allowed us to better optimize cash flows enhanced flexibility and speed within the organization a before operations completely remotely include.
They currently operating 20 gas processing plant from employees homes, which truly gives us an advantage during stay at home order.
We've also made massive stride center cost and capital allocation strategy, both before and during his pandemic focusing on mitigating overbuild through utilization on third party offloads and strategic growth in low risk basins.
Starting in 2015, we began to strategically eliminate cost which has recently been accelerated to make our cost structure as efficient as possible.
Finally, our true strength lies in our people and we've been focused on fostering a world class culture to motivate engage and retain our top talent.
Oh, it's these components to fortify our company and allow us to manage this downturn from strong foundation.
Now turning to slide seven you'll see the strategic actions that we've taken.
In early February as commodities began to decline we established a cross functional task force to systematically identify gossiping capital reduction throughout the company, which gave US a hub start when the Corona virus later emerged as a global threat.
For two months as WT, our prices dropped substantially and the math collapsed, we announced over 900 million optimized cash flow through a 50% production off the distribution, 70% reduction over sustaining a growth capital, including the deferral for option on the sweeny fractionator and over 90 million of cost.
Reductions these actions not only position us well to manage through this downturn by increasing our liquidity. They also demonstrate the flexibility of speed up the DCP model.
And though we have boxes on or some very draconian assumptions should market conditions deteriorate beyond our current scenarios, we maintain optionality several additional cash flow lovers.
These include our ability to utilize our integrated system to optimize producer Netbacks. This helps to ensure the foreign customers make shot in choices DCB can over competitive rates to keep low volume flowing.
Our system.
We also considering consolidating assets or facilities, which would have associated cost reductions.
Herder dumping environment, we would expect lower sustaining capital is well connects decline and lower cost as we further prioritize our maintenance Bob.
And Additionally, we might they maintain 325 million up drypowder, but in our remaining distribution.
No. Despite these unparallel dynamics, we remain very confident that the outcomes of the actions, we've taken and those at our disposal well ensure long term success now to talk through our Q1 results our outlook and financial position I'll turn it over to show.
Thanks, Doubter and good morning, I'm going to send my thanks to our frontline healthcare workers and our operations employees and take this opportunity to thank our corporate employees, who despite working from their home offices didn't Miss a beat and getting our books closed implementing in depth scenario planning and supporting our business on slide eight you'll find our first call.
Our financial results, which demonstrate the strong earnings power of our assets and an outlook into the second quarter.
In Q1, we generated adjusted EBITDA of 321 million and DCF of 220 million, resulting in leverage up just over four times results were driven by early proactive execution on cost and sustaining capital reductions, which resulted in the lowest quarterly cost outcome in the history of the company.
Results were also driven by strong margins and volumes from our logistic segment.
NGL pipeline throughput was up 13% from the fourth quarter, partially driven by a full quarter of the southern Hills extension.
Additionally, in our GNP segment, we had record volumes in the DJ basin and strong volumes in the Delaware.
Body prices want favorable primarily driven by March declines and were partially offset by favorable hedges.
Based on the unprecedented demand in price declines and other factors, we identified and recorded 807 billion of total impairments for the first quarter.
Looking to the second quarter volumes in April were generally in line with the strong volumes we saw in Q1.
Although the quarter is off to a good start and we will continue to benefit from the proactive cost and capital saving <unk> savings actions. We took early in the year, we know that the remainder of the second quarter in the second half of the year will rely heavily on our volume out.
Which brings me to our next slide.
First we have withdrawn our original 2020 comprehensive guidance given on February 12, due to significant in ongoing changes to the commodity in demand outlook for 2020.
Robotic substantial guidance relevant to our outlook on capital costs liquidity volumes by segment and region Insensitivities, we've adjusted our sensitivities to reflect the impact of lower volumes and in addition to the actions that are just discussed we've modified our year over year I worked as follows.
We're now anticipating that each region, one door volume declines of around 10% to 15% with peak declines likely to occur in late Q2 and into Q3.
North volumes will be flat as a result of a full year or be O'connor too and the late them to strategic offload.
And I want to remind you that we have minimum margin by your protections on our newest plants in the DJ.
Permian volumes are projected to decline approximately 5% and the south is expected to decline approximately 15%.
The mid continent will experience the most severe volume decline now estimated at 20%.
Looking to our logistics segment average NGL throughput will decline by about 10% to 15% on sand and southern Hills.
On the gas side, our Gulf Coast expressed in Cheyenne connector investments are both fully subscribed and 100% take or pay.
In anticipation of this reduced volume outlook over the past several weeks our operations commercial finance teams have considered a wide variety of outlooks and options and have established detailed proactive plans for each region within our portfolio in response to the weakening supply view.
Each plant dictates triggers fractions based on volumes Operability and financial impact and includes potential plant consolidations, recalling offloads I see see optimization and furloughs.
These plans will be quickly rolled out on as needed basis as volumes decline within our portfolio.
Slide 10 shows our current and expected yearend liquidity, Andy and details on ramp standing debt. Currently we ended the quarter with approximately 600 million of liquidity and our 1.4 billion revolving credit facility is backed by our long standing partnerships with 16, leading global financial institutions, the majority of which we all.
So share banking relationships with our owners.
In December we proactively extended the facility out five years.
As we generate free cash flow, our cash position will grow throughout 2020, and we anticipate that exiting the year with over 700 million of liquidity.
Our next maturity is 500 million of senior notes due in late 2021, and we expect to have sufficient free cash flow to retire this debt without needing to access to capital markets.
Now I'll turn it back over to better. Thank you, Sean so wrapping it up on slide 11, So we look to the rest of the year, we continue to prioritize to wellbeing of our people in our company.
Our margins our majority fee based some 37% of adult all equity line is hedged for 2020.
We've executed disciplined capital allocation strategy focused on being supply long and capacity shorts were partner well capitalized base of customers.
He stepped forward with a very strong Q1, and a solid start to Q2 as evidenced by April volume results and the outcome from our meaningful reductions in capital and goals.
Ultimately, you've always expected unseen reliable strategic execution from DCP, we will continue a proven track record well effectively managing the cycle.
So before we turn it over to the questions, we want to and our remarks the same way we started.
Taking our employees.
You put forth an absolute tremendous effort to ensure to health and safety of our workforce and the quality of our operations. During this crisis, we couldn't be more grateful. Thank you.
That I look forward to taking your questions and Carol police kick it off.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the number one.
Touchtone telephone if your question has been answered or you wish to remove yourself from the Q.
Please press the pound key.
Your first question comes from the line of gay.
Hey, good morning, everyone everyone's well all things considered appreciate that it's difficult to June EBITDA guidance in the current environment, but I just wanted to confirm something or do you see about around holding additional lepers only if the environment deteriorates from whats laid out in your guidance today did I hear that.
Correctly.
Yes, you heard that correctly I think what you heard from us and seen from US gape is that we bought a tremendous amount of levers and March already.
And I, even before March in January and February because obviously.
The cost results in a capital results that you've seen into first quarter, you've got do not just in the last 10 days of the corner. So all of those we're well underway already but yes, you're right on your point.
Great. Thanks router and then one of your peers. This morning with earnings announced that they had bought back a decent amount of debt in the markets at a discount to outpace value.
Just wondering about to consider it is under consideration on your end considering the focus on Bob on the lovely I'm free cash for years.
Yes gave we've actually we've absolutely that's shown we've looked at at that we've got the 2021 and there are some out years in the short run we've been focused on liquidity.
No and ensuring that the company has liquidity. The 2021 is as these markets show some inefficiencies and give you the ability to pull back at a discount we have looked at that that's something that we definitely keep on the plate, we haven't done it as of yet, but we are considering it but remember liquidity short term.
Current is our primary focus.
Thanks, Sean just to clarify there there is nothing technical and your credit revolvers or discussion with the agencies that would prevent you from buying back debt market no theres and I'm glad you brought that up gave theres nothing that would prevent it.
I will tell you.
Yes, we've looked at this over the years, obviously when you see disconnects in the markets some of the.
It always depends on the extent that you're pulling back the our race can tend to have some negative implications, if you're going out and trying to take the majority of a maturity and I think the duration to if you're taking a shorter term maturity it tends to be less.
Of an issue with the Iras, if you're going out and say, taking a 25 or 29 and you're doing the majority of it. They can have some implications with the rating agencies that they don't light but.
Yes, those are things that we're considering.
Thanks, Sean a in the last one for me is just in terms of be hedging strategy going forward and I guess, maybe curious about her in terms of some of your.
Macro thoughts in the whole maybe associated gas and impact on NGL to be just how you're approaching it considering fully approved for knockouts that moved up pretty considerably.
Over the last couple of weeks.
Just your thoughts there.
I can start with hedging outlet bout or talk about the macro gave but obviously we're we're.
Significantly hedged this year in 2020.
Our strategy is always been a multi year when I say multi you know we've gone out as far as three years on hedging.
And I'll remind you one of the reasons, we had such a strong Q1.
The business has moved can continues to move in a significant way to fee. So between the fee movement in the downstream in the hedging strategy, it's proven to be quite beneficial for the company I will say, we have seen some opportunities.
You talk about the disconnects and the associated gas about or give you. Some color there, but gas has actually strengthened a little bit we're seeing propane and ethane strengthen a little bit. So the reason I bring that up that gives us the ability to get some hedges on obviously for the remainder of this year.
And next year last point, we're fairly well hedged on get gas in 2021.
And again expect our fee percentage of this business to continue to grow so the company's in pretty good shape.
Hedging strategy has been very beneficial for us.
Maybe to add gave you know it's difficult to give macro thoughts one more in an environment, where you continue to see daily changes I'm pretty rapid rapid changes kind of gets to the entire complex multi line the demand side, but.
I think in general like like many are fairly constructive on pricing.
A little bit further down the curve, obviously not for 2020, but especially if you kind of second half of 21 22 were fairly constructive for Rob not foreseeing well my home prices. So I think John was pretty clear around footwear, but we're trying to do I'd like to volatility is still pretty unprecedented if you just look at like.
One component of the NGL slides you know you look at ethane you look at what happened in just a last seven to 10 days alone, there's probably 250% move in just ethane so with that.
I think if there's some opportunities for some small products for us to kind of add to the hedge portfolio, we'll do it.
Hello.
Our duration.
It's probably you know we're not not tremendously excited right now about locking in things like crude or other things or gas very far down the curve.
Thanks, Sean Thanks Cotter.
Thank you Dave.
And once again, ladies and gentlemen, if you have a question at this time. Please press Star then the number one on you touched on telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound key.
Next question comes from the line of our O'donnell Credit Suisse.
Hi, good morning, guys.
Let's start off with with some of the input run the volume outlook, if we could.
Just wondering you guys walkers, maybe how you're right some of those levels and how much you've wrist input from producers specifically looking at you're targeting 5% decline in the Permian year over year, which maybe doesn't appear conservative enough line space, but I think that actually does imply a 20% exit rate decline. So I guess my thinking about that right.
And will help us think about how you ride that somebody's inputs.
Okay, I think youre thinking about a right, let's talk about how we arrived at it you could assume.
Spiro in times like this we're always communicating pretty heavily with them with our with our producers through our commercial commercial groups in our executives at that level I can tell you I'll give you an interesting data point the CFO that these company and myself have started significant conversations.
Equally in many cases and I know batters been talking to allow the CEO. So in terms of the process. The communication has been stepped up as you can imagine massively.
We I alluded to in my remarks, we're running a significant amount scenarios and that's where we're at right now we're running all of these scenarios significant inputs from producers.
But as that are alluded to earlier those change on a daily basis, but we are taking that input applying it to what we see and that's where the tough Park comes I mean, we had a very good volume metric Q1, you listen to batter and my comments you April April hung in there very well so we're anticipating obviously with everything that.
Happening on the cobot demand side with what's happening on the supply side that we're going to see some declines and the numbers I gave are a representation of all those additional inputs looking yet.
Real time inputs that was with a period people said, hey, april's going to be tough you've heard about or say April actually was pretty good.
And he can give you some color from what hearing things continue to move out, but I think we wanted to one give you some color that we do anticipate declines obviously, we've pulled all these levers in anticipation of a very difficult environment and I think we wanted to give you the context of in the discussions and the economics that.
We hear from the producers E. DJ economics are very strong still Delaware economics are strong mid continent, not as much Eagle Ford Kinda in the middle that's why is that the all those inputs that are what built my commentary on the call and what were shorter guiding to you to right now.
Maybe sparrows vault or two to to add to a couple of things here is you know it's it's also a very individual producer by producer midstream or by mid stream or kind of case I give you I can give you examples and.
Mentioned that little bit in my prepared remarks.
We have producers come to us and say Hey, we think we need to start shutting in a significant amount of volume and we worked with that specific person producers.
And.
We're able to work with them based upon our integrated service offering where we say you know what we can probably provide you a better not back if you kind of keep things flowing on our systems and did not result of that was that some significant volumes stayed Omar system and were taken on someone else's system.
No it's things like that where are you trying to optimize the variety things you know the situation as it continues to be a pretty pretty pretty kind of dynamic environment. As we all know on the one and we don't know really what's going to happen from a demand point of view when things are starting to open and open up then we have storage situation for producers that are.
Trying to figure that up.
If you were asking me in March we probably would have expected some volumes to come off and the in April and they do not all great volumes.
Sitting here today volumes are very full still but you talk to producers and they're sitting and saying hey, yet we're absolutely seeing things happening in may, but probably now seeing things happening a little bit more in June. So you have this continuing the kind of eight week cycle that right where producers keep pushing this thing back a little bit and all that.
Easily that is a really really good thing for us the longer you keep things on the on the system the better the better it isn't a more likely that as a country and as a global economy. We're actually starting to go back to work start to drive again start to consume.
And that does that would be very helpful. But continues to be a dynamic situation.
Mostly but it's.
I think I think things are being managed quite quite nicely right now for us.
Yes, I can appreciate that and making predictions in this environment has been humbly experience for all of US. So you guys give us an outlook there.
Just switching to cost saving is a bit encouraging to see that coming in so soon certainly surprised us kieser minus again, how much of those cost savings are sustainable and not just deferrals and as we're thinking about volumes kind of ending the year decline into next year will there be more opportunities for you guys to eliminate fixed costs back in.
Validating lotteries operations.
Yes so.
It doesn't surprise me that bar, we are on the cost basis, and I see that Youre. Obviously, you guys don't have as much insight as we do but that's why we tried to give you that slide number seven that's got a spoke about what we were doing and how early this year, we're redoing it.
I've seen you've seen people that are announcing cost savings, but they.
There are still hoping they're going to come in in the next number of quarters, the amount of kind of cost savings and levers that we pulled you can obviously not do that in the second half of March shall I think it's what you're seeing here is very clear outcome something that started very early in the corner and therefore starts to materialize nicely it's exit.
Q that it's stuff that you don't have to hope that people are going to actually executed. This stuff you can take to back and so in a world with lot of uncertainties you have a great certainty Dr. Rob what we're doing with capital what we're doing.
But.
Cost so we're marking all of those and I think that continues to go nicely into the rest of the year I mentioned in my prepared remark that were absolutely looking but can you do well not planned to basis field basis, what kind of consolidations can you do depending on what is happening the volumes.
I can tell you that as a myself show and the rest of the management team we have.
More than regular weekly meetings.
A round. So there are plans that are sitting on the task ready to execute as soon as we see volume's starting to come off the system as far as we are today, we haven't really seen any of those but we have a lot of lot of plans. So it is absolutely. Another thing that we're looking at you seen.
As do that year over year over year.
Well continue to do that.
Spiro just I'm going to add one you asked about sustainability of the savings.
There is a significant portion that are obviously reduction in forces and things of that nature carry on.
I think one thing thats pretty interesting.
Yeah, we got on the cost savings early you heard batters comments and in terms of the level and resetting the company I think we've got the company, we're going to structurally reset and a lot of ways that when the volumes come back when commodity comes back.
We're going to even be stronger than anticipated.
And I'll give you one other interesting example, when its.
They are very few positives coming out of the cobot.
We experienced but obviously people werent everyone working sheltering in place all the things, we've been able to do around reducing travel reducing certain costs.
I believe in the long run some of that is going to be sustainable we're going to do things differently, even when we get back to normal.
We've learned how to do things more efficiently, we don't need everyone. In the office, it's pretty impressive what I would not have believed that we could have closed our books. The way. We did I made some of those comments earlier. So I think I think from a sustainability perspective, I'm incredibly excited that some of the things that that that management team here has been able to deliver is going to boat.
Very well and really sets up DCP, when we come back into recovery yen and maybe one more thing to kind of add to it.
Around sustainability don't underestimate all the work that we've done a digital transformation and that digital transformation. Most all focused not only at the corporate level, but at the blend level on the field level of completely changing the way people work.
And has enabled US gave us an opportunity to do some very very significant things here around cost and.
Things like mall, having safe reliable operation. So I think that digital transformation, where we spent significant time effort and dollars over the last number of years is something that has been very very leveraging in this current environment.
Appreciate the color thanks, guys be well.
Yes.
Your next question comes from the line of Jeremy Tonet with JP Morgan.
Hey, Good morning. This is James on for Jeremy.
Just wanted to follow but maybe dig deeper from Sears question as it pertains. The DJ you guys seem pretty constructive are strictly through April on volumes. There you mentioned the strong economics, but I.
I guess, we're halfway through almost the second quarter, how are you seeing volumes, there and particularly with the DJ.
Production it seems like southern hills was kind of getting momentum into into into Q here, but if youve any color there.
Yeah, you know I think so far things are are doing quite nicely in in the DJ basin for us so.
Yes, Sean mentioned and we both kind of we're talking through we absolutely do.
Do expect some things to get shut in.
But we are not seeing anyway shape or form things like you're seeing in a place like the Bakken Im looking at our inlet flow rate right now.
And.
It's very it's very strong so it continues to be very nicely sitting here right now, but at the same time very very dynamic situation I do kind of Mark ill remind you will also that we have quite a lot of minimum volume commitments.
Producers have on our systems, a minimum margins and that will give us some protection, we expect here in the coming months.
Got it thanks.
And then just wanted to touch side seems like you guys are in a good about liquidity wise, but do you guys foresee any equity issuances sweat this year.
No I think you know James we've been we haven't issued equity in over five years.
I think with.
Again, we restructure lease that the company up in a lot of ways. When you think about those the 900 plus million dollars of actions many of them.
Our our.
Per I'll use the word permanent but there is obviously sustainable it sets us up in a really good place.
At the end of the day really not that need to issue and utilize the equity markets and we weren't anticipating that anyway.
Got it. Thanks, that's all from your previous caller thank be thank you.
Your next question comes from the line of James Carreker with U.S. capital Advisors.
Hi, Thanks, Good morning, guys.
Just wanted to get some color maybe on the decision to withdraw EBITDA guidance.
You guys clearly spend some time thinking about the volume impact.
Commodity prices are volatile, but there is a market to look to and then I was hoping that you guys talked about some of the Nbcs Amendment margin I did you have so what are kind of the.
Known unknowns that kind of give you gave you reservation.
Not putting it updated number out there.
So.
Let me, let me take that one James first and foremost.
I think when people give guidance you want to be reliable you want to be accurate.
But we have given you we havent not giving you EBITDA, but we have giving you volume guidance by segment by region. We've given you cost detailed we've given you capital guidance. We've given you liquidity, we have giving you sensitivities what are the announce price and duration and I think it is pretty pretty dynamic right now.
It's like trying to solve a rubik's cube blindfold.
Rob what energy consumption is going to look like in the second half. This year I think if you look at energy production and you look at the various producers and we've spoken about this every question has been around this hey, but are we seeing and things are changing for our industry omit hourly daily weekly basis, and we've continued to.
See things change here very rapidly.
Still day by day. So you know you sit here and say you now than you think the commodity cycle over it I think I mentioned earlier, you've seen ethane kind of moved to one or 250% within a matter of last two or three weeks, you've seen crude going from minus 35 Bucks a barrel minus 37 to you and our mid Twentys. So the.
Amount of volatility that you have and then midstream are saying, hey, even though we don't know about energy production has and we don't know what energy consumption has but we have perfect clear guidance for you I think that is that is pretty hard. So again, we want to be a reliable we want to be accurate. That's why we've given you all those details I can make an arm.
He meant that in this call we have probably giving you more details than we normally give you during during our earnings calls that we definitely have with you. So for us settles important when the dust settles. Unlike we're absolutely returning to guidance I think what really matters is what we're doing real cost savings.
Those are showing up we're not talking about them, they're showing up you can take him to bank real capital reductions those are showing up we are not finishing.
That's that's a world doesn't have a need for for years and years to Tom what we have done is we stopped whenever we could do.
We retained $900 million a cash to go through the balance sheet to create liquidity and things like if there were covered their recoveries quake and we obviously hope for that and who knows if it's going to be al you. The Nike Smooshed back up.
We don't know, but if the recoveries quick we are set up really really well.
As a company and we'll absolutely go back to giving you clear EBITDA guidance, but under this situation with some of the massive unknowns that everybody is having only in our industry, but every other industry globally.
We saw the most prudent to not give you something that is going to be very difficult to be to be accurate.
No I understand the difficulties but.
It doesn't have to necessarily be one number can be a range.
In one reason I bring it up is because we've seen for some of your peers, what we found.
You know.
Fee based rate.
His fee, but then commodity prices go down in all the sudden that fee margin goes down as well and so.
Some some of the relationships between price and volume change and so.
Sometimes a range of outcomes can be helpful or at least the assumptions behind that so.
Appreciate the.
The uncertainty but.
Yeah.
Want to give you a sense for for why asking I, certainly don't and the difficulty.
Yes, and yes.
No James I think it's I think it's a fair question I think you can given everything that we've given you.
Thank you can do the math you can do the math really really well remember as liquidity number in there.
That should give you some pretty good indications of positive things about stuff, but the sensitivities and and other things like.
No you definitely and I was going to actually asking about that is there any.
In the yearend liquidity number does that assume any type of.
Of asset sales or any other.
Sort of onetime items that would be additive to liquid adults just okay. Yes, we know we never so I know, there's other people, who would asset sales and things like that in our guidance in there, but yet we never do that so we always look at those markets Estar finicky. They make a man quickly to May go away quickly.
So we never put any of that in there that is just operational if there are certain things around taken you can you potentially sell an asset that is non core like we did last year that would kind of be an over and above an extra money in the back yes. I mean, just goes up batters common James that's how you get to the high end.
The range right, but we've been focusing on 700 plus that doesn't require any sales, but if you were to get to a billion. There are other levers that would that would get you there.
Gotcha understood that's helpful and if I could sit in one more.
Just can you remind us.
I know you guys talked about high level of contracts on Gulf Coast Express shines connector.
Even sand and southern hills, but.
I think you guys alone own are responsible for shipping a good portion of some of that capacity is there a situation in this declining production environment, where you guys would see yourselves underwater to the commitments you have to some of even some of the girl and partially in wholly owned.
Lines.
No I think I I don't think Thats. The case, if you think about the company in our viewpoints, which have been very different than many others around we've seen the overcapacity James coming for a while we didnt bill over build capacity on our assets, we didnt put a bunch of assets in place that are going to now be BMT.
I want you to make sure you understand we have also use significant offload agreements.
In other words were we've been utilizing other capacity.
Over the last couple of years in a big way both on the NGL pipelines and on the GNP side. The reason I bring that up is obviously those are volumes that if we did that in high volume periods, we can push them off and pay a fee in low volume periods, we can bring them back and help them to satisfy any t. Andy's that we have so.
I think we are set up incredibly well.
To to not have any issues with minimum volume routine deals that are on that were required to meet yes, maybe just to put one in perspective for you take a Cheyenne connector.
Our minimum minimum volumes and that is 300, our commitment to that is 300 million today, we're flowing about a billion to 1.2 Bcf in in a place like like DJ Basin. So I think that gives you a little bit perspective.
That's helpful any quantification of how much you guys have.
Thats are currently offloading that could be pulled back either on the.
NGL pipe for the GM to side.
I'm not going to give you details on buyer, we are but I can tell you were offloading and a number of different places where all floating in the Delaware basin. We're off loading on some of the pipes I think were Offloading, we have been offloading in the DJ basin as well correct.
That's helpful. Thats, all I have to take you through time and game.
And once again, ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchstone telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound key.
Your next question comes from the line of should mirror shiny with the UBI.
Hey, good morning, guys.
Sorry, if I could ask questions that may have been asked previously there's just so many calls today.
Let's hear that you're all safe.
Maybe to start off to just follow up on a clarification on changes last question.
Are you being uploaded on two at all from an NGL perspective.
It could be pulled back to other systems.
Yes, we're off loading so we have more volumes. So we have been utilizing on the NGL side Shinier offloads.
On other pipelines because.
Here's the reality the capacity you got overbuilt situation on the NGL side in certain areas and we've been able to utilize those offloads at very attractive rates because people are just trying to pull volumes on so the point we were trying to make is if we had a TMD that we need to require we can pull those volumes back.
Onto onto pipelines, our pipelines and we're pipeline that we would need to meet at TNT on so thats, a phenomenal position to be and you heard batters alluded to earlier Shinier. It's the same thing on the GNP side instead of building.
Continuing the overbuild GNP assets, we have tried to keep our assets full and where we've had seen some growth we've been able to use other people's capacity late them is a great example, and offload those volumes. So that again, if we need to bring volumes back in a period of declined to meet many.
Homes, we have that ability.
Sean totally appreciate that and understood that it was clear before I was more asking the question is anybody like in enterprise or target or somebody else is anybody off loading on to your system that is at risk to be pulled back.
No.
If they are it's very very minimal yes minimum volumes.
Okay.
Thanks, a lot of it.
Sure there and we've been talking about this for for quite some time, we've been talking for quite some time about liking to be supplied lomond capacity short and I think thats strategy was a strategy that we were very countered to many who continue to say hey, let's build more plans, let built more pipelines and other stuff. So a lot of people have.
Being more on the hey, let's build more or less build more we have been very counter I think too many others in our strategy of saying Hey, this growth Supercycle growth after 10 plus years need to change at some moment in time, we obviously no way shape or form expected. A go opened 19 kind of situation.
To kind of forced us into that but in general I think that were not too. Many people, who are saying hey, let's build less lumpy bar building more in lot of people now are continuing to kind of fun new growth as we speak and no plans pipelines and other things that are probably not going to need for a long long time.
That does that makes perfect sense.
Your strategy I think is been a very sound one and also the fact that viewpoint after cost and optimization early on.
You know has set dcps well I mean, the one area that's been an overhang even while things were good it's always been the balance sheet into distribution coverage ratio and I realize it's yet to solve the IDR issue as well too but.
You had to double black Swan event, which which sort of gave you an opportunity to sort of attempt to right size that.
And you see is didn't cut the distribution by 50% I'm kind of curious why you wouldn't have gone further and ticket temporarily down to.
80% to 90% type of Clyde because like in this environment, obviously, nobody is placing much value on it and leverage seems to be.
Were the key focus isn't it's something that you can return as soon as volumes start to pick up. So it's kind of wondering if you talk about the discussion at the board level Edwin.
Your your large owners you shall we say about the distribution decisions.
Yeah, I'll start and then Valder can take you through maybe the the breadth of the board discussions Junnier, but you think about all the models. We ran I mean this is I've been through a lot of downturns in my career. This is.
Like I've never seen so the contacts I want to give you is when we did the action in March which feels like years ago and it really wasn't that long ago. We had already put in place a significant amount of self help we had already cut costs. We've cut some capital we touched some obviously sustaining capital was pulling back and with the 50.
<unk> percent, we ran a bunch of scenarios and it. It worked it was appropriate what has happened since then spin off the charts right. We had another press release that came out after that.
Around the reduction in force, another 50 million plus and production here every week batter and Iran meetings looking at you know how do we continue to get more efficient with the company and what are the levers. So I'll close out by saying at the time, we felt we had a very sound case, we knew we had more dry powder I hate to use that term.
But we had more dry powder, if things continue to get worse and we want we thought let's take a balanced measure approach I think it's what we did and things of continue get worse than we continue to pull more levers but.
I believe that was the rationale that I know from.
Executive Committee sitting here at DCP that we took.
No in battery can talk through the board strategy, but that's how we felt as a company we're managing through this.
I'm not going to talk through to board strategy I don't think that as I think just kind of discuss Airbus.
Yes, I think Sean this is very very correct. Michael we want to do is balanced the longstanding commitment that we have to investors being with us for a long long time, and then the long term sustainability of the company and.
We believe that what we did at that moment of the right thing to do under those circumstances.
$900 million of cash that doesn't go to building new growth projects, not or stop and went straight to the balance sheet.
To liquidity, while at the same time, maintaining significant dry powder, we have here.
Today.
Continuing to do other things around optimizing the business the systems and things like I'm like if you go back and you look at our numbers and again, we've given you a tremendous amount of.
Details except for EBITDA, but you can you can see clearly from our numbers that under the current scenarios, where free cash flow positive here in 2020.
Which I think is it is a great thing on our kind of a situation like like this that probably nobody could have ever foreseen coming.
That makes sense and one final question. If I may just operationally can you talk about what the underlying decline rates are for your existing footprint in the DJ.
Just I recognize that things are going to be weird with with shut ins and so forth when they when they materialize but.
Like just assuming that there is no drilling activity and no new wells completed what what's the decline rate that we should be thinking about around your footprint I think a decline rates are not dissimilar to other kind of place where it predominantly are just as all horizontal drilling.
Now a tremendous inventory of cold vertical wells are declining as much so whatever you've got to see and think through for our Delaware basin and the DJ Basin is relatively similar if nothing happens, but you know been offset to that is minimum volumes that we have also.
Our system when our producers the other offset this you know some pretty significant inventory of ducs that some of our key producers have here.
In the DJ Basin.
Okay. So you do have a significant inventory of ducs, but it sounds like youre tilted more towards newer horizontal wells rather than legacy vintage vertical wells is that right.
So a lot of vintage vertical wells on the system here in.
In Colorado in the DJ Basin that the same time from a volumetric point of view, it's obviously the newer miles to make up more of.
Often system.
Perfect. Thank you very much.
Alright. Thank you. Thank you. Thank you appreciate the color and stay safe you mentioned here.
Your next question is a follow up question from the line of Jeremy till May with JP Morgan.
Hey, Thanks for taking the follow up just wanted to circle back on the cost reductions I noticed in the PR you had.
6 million was this quarter.
Maybe just talk about components, there and maybe higher trending.
Through Twoq you so far.
Yes, so obviously the cost side of the equation significant amount of.
You know, it's spread out quite a bit through there through the corporate side of the equation Theres a significant amount of costs coming out of the businesses obviously in in anticipation of what we're heading towards.
Jeremy.
You have some we've talked a bunch about the benefits of all the investment we've made in technology over the last three years, we had pretty some high slated numbers to continue that program into 2020, but obviously with with what's happened we pulled back significantly on those.
One thing just as a clarifying items that reduction enforce you're going to see more of that occurring.
Throughout that happened in April so those costs are really not in the Q1 dollars in terms of the trend and then I guess the lastly, we alluded to earlier, you're just seeing a lot of reduction as the company sheltered in place people work from home people overtime was pulled back things like travel things like TNT.
You know those types of things continue to to decline in a big way and again areas that we think we're going to try and make sure. We can hold onto some of that in terms of the trend that we're seeing so far in Q2.
So far so good so.
Roundup that are we've alluded the volumes and even on the cost side and again as you start to see the full benefits of some of the actions we took.
I feel pretty good so far into the second quarter around the cost side of the equation as well so plan is working.
And I think it's something that this company has shown an ability to go at a quick and definitely execute well around ensuring our costs are in line.
Got it thanks.
Your next question is a follow up question from the line of James Carreker with Us capital Advisors.
Hi, Thanks again guys.
Just wondering if you guys have any thoughts broadly as we see production shut ins and what that does to ethane, particularly if it's.
A lot of these new crackers are still running relatively full do you see.
A situation, which in which less and less ethane gets rejected.
Does that provide any upside you guys you doing GMP side or on the pipeline side and if it does is some of that they tend to your.
Thought process for the rest and for the balance of 2020.
I kind of look at this us as upside.
Sorry, not baked and right now I think you're absolutely right I think I made some comments about you've seen.
As they move like 200% and just a matter of a couple of couple of days or so and as couple of things at work one of them is obviously the demand side of the equation. The other thing is.
It is not gas so none of that for us, having having exposure to ethane from a.
From a commodity point of view.
Would create some upside and then secondarily from creating barrels for our pipeline system would be helpful as well so.
Not that looked at as as a good guy.
And any potential quantification of what to do I know it's hard.
Yes, I think the way to think about James we give you that the on the price side you are going into from two to levels from the price side, obviously, we give a sensitivity. So if it if ethane and we do it in the whole NGL barrel or the oil NGL composite I'm sorry, but.
There is some there there is some upside we have hedges in place this year, but we still have some open position so it could be significant.
I would say things came back strong you're talking tens of millions 10 million plus and then I think would you alluded to we also talked about a decline of 10% to 15% obviously the correlated decline on the pipelines is tied to the what we think is going to happen on the gas side of the equation.
So if rejection starts to come off and by the way rejection for Q.
One was very similar to Q4.
Pretty close maybe maybe a little bit lower but in the 880 182.
Remember last year, we were only rejecting 40, so that would be some upside on the pipelines and that's that's not insignificant. So good that we haven't baked in per batters comments, but if things play out that way and that's the way. It always plays out in downturns. There are always some favorable correlated items they can come out ethane.
Maybe one of them that we may see and if that happens it is not insignificant to the company's earnings.
Appreciate that thank you that's all it.
Thanks, James James.
And at this time I would like to turn it back to the speakers for any further comments.
This is there. Thank you all for joining US today, if you have any questions. There any follow up please don't hesitate to reach out have a good day and be well.
Ladies and gentlemen, thank you for participating you may now disconnect.
[music].