Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to and like <unk> first quarter of.
2020 earnings call.
Oh participants will be an author no my bad.
Did you need assistance, please signal accomplished specialist by pressing the starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
Please that that this call it being recorded today Friday night, 820, 29, A.M. eastern time.
Oh, it now like to turn the meeting overtake wash Vice President I've been Buster relations impacts. Please go ahead.
Thank you and good morning, everyone.
Welcome to Enlinks first quarter of 2020 earnings call.
Participating on the call today are very data chairman and Chief Executive Officer.
<unk> Executive Vice President and Chief operating Officer, an air Batchelder Executive Vice President and Chief Financial Officer.
Well, you should our earnings or at least in presentation. After the markets close yesterday and those materials are on her website at www Dot dot com.
A replay of today's call will also be made available on our website.
Today's discussion more include forward looking statements, including expectations and predictions within the meeting other federal security Clark.
Afford looking statements speak only onto the date of this call and we undertake no obligation to update or <unk>.
Actual results may differ materially from our projections and a discussion of factors that could cause actual result to differ can be found in our press release presentation and actually see filings.
This call also includes discussion pertaining to a certain nongaap financial measures.
Definitions of these measures as well as reconciliation for comparable got measures are available in our press release and the appendix if her presentation.
We encourage you to review the cautionary statement and other disclosures made and I'm <unk>, including those under the heading risk factors.
We'll start to call today with instead of brief prepared remarks by Barry Ben and Eric and then we the remainder of the call open for questions and answers.
With that I would not like during the call over to their data.
Thank you Kate good morning, everyone like you for joining us today to discuss our first quarter 2020 results.
On behalf of in Lake, We hope you your families and your colleagues are healthy as we all navigate the uncertainty surrounding life with Kobe 19.
I Wanna personally think those on the front lines, including medical personnel and first responders for all of the great work they're doing.
I would also like to thank all of in links employees for their hard work and dedication and ensuring we deliver central energy services safely and reliably.
The date and link has had no known cases are the virus among our employees and no business interruption.
We continue to take seriously our corporate responsibility to ensure compliance with government recommendations and our adhering to strict health and safety practices across our organization.
In the midst of a challenging environment and make reported followed results for the first quarter. We achieved adjusted EBITDA of $260 million, which includes a 6 million dollar expanse related to severance as part of our workforce reduction.
We generated $44 million of excess free cash flow.
As we look forward to the rest of 2020, everyone knows that the pandemic has caused tremendous demand destruction for energy products.
Recent oil price collapse has spurred a very sharp pull back and crude oil production across the United States and that will have been material impact on the volume's across our systems and in turn the revenue that generates this year and likely next year.
The range of possible outcomes that could unfold for Enlink during 2020 years wide as we progress forward through these uncharted waters towards a new normal state. It is impractical for us to provide clarity with regards to volume and segment profit expectation.
Later, then we'll discuss a few of the cases that we've evaluated along with high level impacts those cases could have on our segments.
What I can share is that we're currently seeing adjusted even being in the range of 950 million to $1.025 billion for the four year given the assumptions in scenarios, we've evaluated and knowing what we know today this level of <unk>, coupled with capital expenditure and distribution reductions we have made today widget.
<unk> significant excess free cash flow in the range of 260 million to $280 million.
With our asses platform generating strong excess free cash flow, we had the ability to effectively manage our leverage and expect to be below our key financial covenant metric, which is 5.0 times debt to adjusted EBITDA as calculated by our credit facility.
As we navigate through the days ahead are execution plan has four priorities number one is to maintain financial strength.
We took a number of decisive steps during the first quarter to execute on this priority.
We reduced our common unit distribution by 67%. We believe the distribution is that a sustainable level given what we know about our current operating environment.
We reduced our capital expenditures program by 40% as compared to our original budget and we'll be spending 66% less this year as compared to 2019 will continue to evaluate every dollar we're spending and could potentially reduce cap x. by an incremental $50 million depending on producer activity.
We took significant steps to drive out expenses in our business and expect to save $100 million, an operating in G.N.A. expenses versus 2019 levels.
The combination of these actions results in in late retaining roughly $600 million of Cashiering 2020, which we will use to ensure we have adequate liquidity to run our business and effectively manage leverage.
Our second priority is to drive organizational efficiency.
Our teams are doing a phenomenal job I'm, incorporating technology in new ways and streamlining our internal processes to adapt to the new business climate.
The third priority for us is to optimize the profitability of our existing business.
Challenging how we run our business in every possible way enter turning over every stone to find incremental operational efficiency savings.
And the fourth priority for us is to position in late for the future.
We have our eyes squarely on what lies ahead for Enlink as global economies recover and the new energy landscape comes into view.
We will leverage our leading positions in key producing basins and in Louisiana Gulf Coast market.
We are seeing an increase level of engagement on a number of low cost high return projects, primarily targeting efficiencies around or asset footprint and we continue to see compelling long term opportunities in Louisiana.
This is a defining moment for energy companies and N. link has successfully endured challenging economic cycles before.
The ongoing dedication of our employees and the diversity of our asset platform. We believe in link will effectively managed through this period, taking advantage of unique opportunities. This operating environment offers and we will emerge stronger than ever.
Would that I'll turn it over to Ben to discuss the details of our operations.
Thanks, very good morning, everyone.
It's very mentioned in link had a solid first quarter all for segments performed well without permission natural gas volume increasing over 20% from this time last year.
Are NGL volumes in Louisiana, increasing by approximately 15% from this time last year.
Asbury also it touched on it is difficult to accurately predict how our operations will be impacted by the of all the market dynamics. We're in constant contact with our customers have taken into consideration arrange a volume assumptions related to the activity in order to develop a revised view of 2020.
As I discuss our first quarter 2022nd results I'll also be of color on how we are looking at each segment for the rest of the year.
In the Caribbean, we experienced strong natural gas volume growth year over year due to fairly consistent grilling a completed activity over the last 12 months on both the Delaware and they've been sizes basin.
Conversely, we experienced it declined and create a little volumes gathered year over year as we are exiting the first purchase business in in the <unk> and expect no longer to be in that business by the end of the second quarter.
We are choosing step away from crude first purchase operations due to this year competitive so that line of business and the inability to earn the returns weekend elsewhere.
Despite strong natural gas volumes during the first quarter of 2020 or permeate segment profit decrease 16% year over year.
What profit was negatively impacted by lower natural gas at N.G.L. prices, but was partially offset by approximately $2.5 million of realized hedging games that are recorded in our corporate segment.
Are tiger point, it becomes operational as planned during the second half of 2020.
Are tiger operations are undertaken by Exxons Corral Canyon development in our customer has reaffirmed that there <unk> said not changed as a result of the market environment.
That said, we expect to see significantly lower well connect activity in both the Delaware and let them basis.
<unk> all upstream companies in the base and have reduced or differed activity in response to the market.
Like many operators in the field, we expect the second quarter of 2020 to be the drop the cycle. It's I know of what the pace of recovery will be.
Anticipate producer drilling and completion schedules to be relatively fluid for a number of months to come.
Turning out of Louisiana, we had a strong quarter for NGL volume through our system, averaging slightly over 190000 barrels a day, which is a record for us and is 15% higher than this time last year.
Average natural gas gathering and transportation volumes held up well through the quarter. They were roughly flat compared to the first quarter to 2019.
Average natural gas processing going for the corridor were significantly lower year over year has a significant part of our processing operation in Louisiana, It's opportunistic in nature and to tend to non commodity prices to incentivize processing.
Attractive economics for processing, the fairly lean gas, we see in Louisiana, we're not present during the first quarter compared to this time last year.
Our operations any Ohio really River Valley had a good quarter with volumes, increasing 16% year over year.
Although the volume true, but most part were strong in a set first quarter of 2020 segment profit for the Louisiana declined by approximately 5% year over year.
The actual results were pressured in particular by G.O. mark to market impacts, but what partially offset by approximately $3 million realized hedging games recorded in our corporate segment.
We anticipated reduction in M.G.L. equity barrels flowing from our permeate in Oklahoma operations for the rest of 2020, Oh your focus on optimizing the value created by our fractionation assets in a variety of volume scenarios.
We expect their activities in Ohio River valley to be significantly impacted by the reduction in the file reruns happening in that area.
As a result of those market dynamics, we booked $168 million nine cash out that impairment related to R.O.R.P. assets during the first quarter of 2020.
In the gas business car venture Global project is on track and we expect to be ready to provide service to venture global Kalka. She passed allergy facility by the end of this year.
All in all we expect Louisiana activity to be lower and we'll have further clarity in the coming months after the related financial impact.
Turning out to Oklahoma, we experience slightly lower natural gas gathering volumes year over year and profit from volumes year over year with Dallas by about 6%.
Crude volumes experienced a strong 25 per cent increase your every year that we've seen rig activity drop off our crude but but we're forecasting declining volumes throughout the rest of 2020.
Segment profit for Oklahoma decrease 6% year over year, which was primarily driven by a reduction in natural gas volumes.
Totally step back and look at 2020, we expect producer activity to be very limited for the remainder of the year, we have cash flow support to insulate some of the vault decline with minimum volume deficiency payments expected in the range of $60 million to $65 million.
Also Devon mentioned on their earnings call that they expect their joint venture without will differ drilling activity, which differs any activity for us as well.
We're not expecting any cash flow to result during 2020 from this davey in our original guidance.
Wrapping up with North, Texas, we experienced year over year natural gas volume declines in the 4% to 6% range as expected.
In comparison segment profit. Your every year was down by approximately 2% as a team continues to do an outstanding focusing on operational efficiency and cost control.
As we think about the rest of 2020 for North, Texas, We don't expect any drilling activity. When they also see mild volume impacts us producers differ investments like workovers in the current price environment.
We also know that Devon fail to be K.V. has been delayed to the end of the year Devon continues to expect that deal will close in the fourth quarter of 2020.
With that I'll pass it on to Eric to discuss our financial update.
Thank you Ben and good morning, everyone.
Burying Ben have both mentioned and link delivered a solid first quarter, a 2020, achieving $260 million is adjusted EBITDA, which includes approximately $6 million severance cost associated with a reduction in our workforce.
Enlink also achieved $44 million of excess free cash flow, which we defined as distributable cash flow less growth capital expenditures net to Enlink and distribution is to our common unit holders.
Adjusted EBITDA after the first quarter, a 2020 declined slightly by three per cent from the same period last year, primarily due to three key factors burst lower natural gas and N.G.O. price is impacted segment profit in the palm in Louisiana segments.
Second we experience lower volumes in Oklahoma due to reduce the producer activity and for all of well completions.
And third the segments costs previously mentioned.
Debt to adjust that he bit top for the first quarter of 2020 was 4.6 times as calculated by our credit facility.
However, it is important to note that we accepted the quarter with $195 million of cash net and link on our balance sheet. When it counting for this cash on hand get to adjusted to keep it dies 4.4 times for the first quarter of 2020.
It is a top priority for N. link to manage leverage and preserve liquidity, especially in this environment.
As Barry mentioned, we have taken significant steps over the course of the last four months to preserve roughly $600 million. During 2020 to ensure we maintain his strong balance sheet that will allow us to sustainably run our business.
First we have reduced our common unit distribution by 67%.
Second we have reduced our total capital expenditures by 66% as compared to 2019 and have the ability to further reduce capital by up to $50 million, depending on producer activity levels.
And third we have reduced operating expenses as well as general and administrative expenses by approximately $100 million or 10 per cent of adjusted EBITDA as compared to 2019 through significantly cutting costs at every level of the company.
He's $100 million costs are comprised of approximately $50 million in cost savings announced in November which were a component of the $75 million of initiatives to increase adjusted EBITDA.
Plus an additional $50 million of cost savings that we've identified in the first quarter of 2020.
We have made these difficult decisions to ensure that we manage our leverage below our bank Covenant 5.0 times, even if the operating environment worsens and the pace of economic recovery is slower than anticipated.
Picking a closer look at our total capital expenditures, our current outlook for 2020 inclusive of both growth and maintenance capital.
The range of $190 million to $250 million.
Bend noted, we expect to spend roughly $60 million this year to complete our Tiger natural gas processing plant in the Delaware Basin, which is expected to be operational in the second half of the year.
In Louisiana, we expect to spend roughly $20 million on a bench or global project.
Hour Bridgeline system into their topics you pass Ellen G. facility, which is currently under construction.
We expect to spend approximately $30 million on maintenance activities this year across our platform.
Most of the remaining capital is projected to be spent on well connections and gathering infrastructure.
For the first quarter of 2020, we invested approximately $90 million in the project I, just mentioned and expect our capital spending to step down each quarter for the rest of the year.
Oh now spend a minute addressing the strong credit quality of our customers and the feebates nature of our business.
90 per cent of our first quarter of 2020 revenues were generated by Counterparties with investment grade ratings or parties, who have provided security to us.
Oh, the top 10, counterparties represent 66% of our first quarter 2020 revenues.
90% of those customers have investment grade credit ratings with the remaining 10 per cent, having provided security to us.
Finally, we have limited direct commodity price exposure as approximately 90% of our business is under P. based contracts.
Next I would discuss our view on liability management.
<unk> horizon is favorable in that we do not have any year or medium term senior note maturities and approximately 35% of our senior notes mature in 20 years or beyond.
Our next debt maturity is our 850 million dollar term loan which is due in December of 2021.
We will continue to evaluate several options to refinance this loan.
As a backstop, we expect to have sufficient financial flexibility under our revolving credit agreement.
To repay the term loan in its entirety, which would have no impact to i. leverage position.
We remain diligently focused on our financial strength, which includes maintaining our strong balance sheet with adequate liquidity, just sustainably operate our business and being disciplined with respect to our allocation of capital to the highest return opportunities.
With that I'll turn to call back to Bury for closing remarks.
Thanks, Eric.
Yesterday, we also published or 2019 sustainability report, which we expanded to provide more data transparency and accountability.
In Lake has been a sustainable company from day, one as our core values have always insured our commitment to providing safe responsible unethical operations that respect the environment support employees and communities and deliver value per unit holders.
I am pleased to share a 2019 report with you which sets the stage for future sustainability momentum that we believe is supportive of our overall business success.
Before we open up the call for Q. in a I want to again, thank our entire in link team for the hard work innovation and insurance they have shown through this extraordinary time.
We've continued to safely provide great services to our customers, while making tough decisions and working long hours to accomplish what feels like a year's worth of work in only a few short months.
You every stay cold Rubin link from employees to customers from unitholders to bond holders. Thank you.
That you May now open to call for questions.
Well you will now become the question and answer session.
Ask a question you May press dine in one on your touched on time.
If you're using a speaker phone please pick up your handset before crossing the keys.
So what's your all your question. Please press Star then too.
At this time, we all pause momentarily to assemble are there.
Our first question comes from.
<unk> <unk>.
Sunni with U.B.S. Please go ahead.
[noise] hi, good morning, everyone.
Maybe.
<unk> maybe to to start off a little bit you you talked about the $50 million a flexibility in your topics budget.
<unk> currently right now I guess, what my question here is that you know.
As it stands today, you would think in current environment you'd want to be free cash flow is it's hardly free cash flow positive is possible <unk> what are the odd that this actually gets bad and you know as you speak to the current producers and then <unk>.
<unk> thinking about that assuming it just knocked it spans and everybody runs no maintenance capital as far as you know the I can see from a producer perspective.
What is it due to your decline rate you know for for your asset footprint. You know what is the decline wait and 21, if you not indicated any incremental capital at this point right now or you're producers happen rather.
<unk>, then I'll start and others may want to expand.
The $50 million of additional cap x. flexibility that is substantially all wealth in that in compression capital.
And so the question as to whether we'll spend it or not will be entirely driven by producer activity levels. So that's that's what we'll be looking to there in terms of of how does that read 322 volumes you know I I'm I'm going to stay away from getting into what 2021 is going to look like that.
You know obviously, the the less producer activity, we see the less capital we spend equally to less volume that we'll see you know we've talked I know they've been interested in our Oklahoma volumes, we talk at the end of last year about some volumetrics scenarios, including an extreme case, where we saw no activity at Oklahoma in 2020, and we said that.
That would result at a a high teams volume metric decline or do you all that hasn't hasn't changed so that that gives you a sets in a in Oklahoma.
Yeah sure. This is very let me just add that a part of that 50 million will be the management of our ongoing capital projects and the things that we can continue to do.
To actually deliver those projects at less cost or under cost. It. We're currently projecting <unk>, there's a real opportunity for that in this environment, where c. costs come down. We're we're working extremely hard with our vendors.
In our teams are doing a great job with that so we'll continue to do that going forward and and hopefully it's not only speaks to the activity level, but also the way we can deliver things that lower Austin, we could've yesterday.
Yeah I appreciate the color guys and I I guess, the M-, but my point. If the question was that we already got extreme scenario right now Unfortunately, and I assume that that a lot of the flexibility was related to to welcome <unk>, which is which was kind of the question. You know maybe maybe you can share with us the decline rates for the <unk>.
You under what seemed like an extreme scenario a year ago, but is becoming reality today.
Yeah sure I'd I don't really have something I can share with you on that I can point you back to what we talked about in Oklahoma that given all the uncertainty we're facing today I can't go further on Permian volumes.
Okay Fair enough maybe on the one last thing sure I'm Gonna I want to go back to your comment on the maintenance capital.
Let me assure you in in all of our stakeholders that we're doing what needs to be done from a maintenance capital standpoint to preserve the systems.
They need integrity of all of our facilities that being said in an environment like this or a certain things that we can differ because we're we're just not seeing is is you know running the equipment as hard et cetera. So again, we have taken some of the costs out on what you would characterize as maintenance capital and will continue to work extremely.
Hard on that as we look to every possible way to preserve cash and to manage our balance sheet and liquidity going forward.
Great and maybe on the flip side here I'd be natural gas has been rallying and so forth are you seeing any activity in your dry gas exposure at all or at least some conversations.
Yeah sure let me, let me start that and I'll I'll say that that we're maybe for the first time in sometime we feel really good about the concentration we have in the more gassy areas.
And certainly as we look out at the script pricing going forward. There is something to be optimistic about with gas prices above $3. When you get into the winter, becoming winter 2021, we also or when we look at the supply demand scenario for natural gas versus crude oil what we see is less dramatic in.
Back on the gas side and in fact, a quick recovery, we think we'll get back to something that looks like a normalize 2019 kind of the man.
And we are going to expect to see some some supply declines on the gas side with associated production with associated gas production with crude oil. So we're optimistic about the gas supply demand scenarios and what that could name for our or Texas, a and Oklahoma as well as our market.
In Louisiana.
Okay, and and maybe one final question, our keep brought up the 21 term loan and the options you looking at you also bought back a little bit <unk> during the quarter, but not really that much. It just trying to understand kind of what the strategy is right now do you have to deal with the 21.
And that keeps you out of the the market for buying dad, because your debt trading fairly discounted at this point right now I'm just trying to understand the options that you're thinking about and and how you're waiting you know kind of dealing with liquidity versus the fact that you can pretty much pick off a lot of your debt in <unk> in the low team.
In terms of Yoko worst right now.
Yeah sure thinks it's a you know great question, and obviously I'm kind of all the members that we're we're thinking about things that we're managing but if you look at the yeah. The piece of our cutbacks and the free cash for a generation of the business. Yeah. We're wrapping up the Tiger program spending so the cash smoke to the first part of the year. The first quarter was about 44 million.
Dollars and we were able to take advantage of some of the market conditions at the time and repurchase small amount of debt as we generate more cash flow throughout the year will be evaluating all the opportunities to to use that and allocate that I have to return while managing liquidity.
When we think about that two pieces of the balance sheet that are most important right now, it's certainly leverage and what it is.
That we've taken to create a significant amount of cash in the next recorders will help us manage all of that and some of that may include opportunistic that repurchases and also just managing through the cycle in a way that we can continue to run the business.
Have you done any debt repurchases since the quarter rented.
We have done a little bit yep.
Perfect. Thank you very much guys. Appreciate the car today stay safe and have a great weekend.
You do the same center. Thank you.
My next question comes from Colton been with tutor. Please go ahead.
Boarding so on the 100 million of expected pull your cost savings <unk> update us on where you are in the process today, maybe to what degree to one saw benefits from reductions thus far.
Yeah codes and this is very let me start that and and.
Basically knowledge again, the great work that we've done when you look at our cost structure across the company. We've taken about 20% of the total cost from operating expense in G.N.A. on an overhead basis, it's even greater than that when you look at that as a percentage of even are we taking approximately 10% of our even and and added that.
<unk> cost reduction so terrific were painful work, but we've done that we need to do we think that we've seen the benefit of that much of that in the first quarter and so as you think about the run rate going forward. It will increase slightly as far as the the net effect of that through.
The second quarter and forward, but certainly we got a lot of it out in the first order you can see that into financials in in the objects and the G.N.A.
Yeah that and then understand the difficulty here, but with the Dow Devon, J.B. being deferred and the M.D.C. set to expire at the end of the year given a preliminary thoughts on the Oklahoma, earning trajectory <unk> next year.
Yeah, Cold and it's bad we're going to stay away from from getting into 2020.
Other than to acknowledge that that we <unk> the M.D.C. between 60 and $65 million and we you know just remind everyone. We never expected a contribution in 2020 from the Devon now J.B. So no no change in this year. This is the only thing I take it up a little bit and just say that I think a dab in in Dallas.
It would be would be optimistic about potential for that joint venture seeing the additional sprint even since the time that they sign that when you look at longer term gas prices I I don't see any lack of conviction on their part to do this in time.
Understood and just the final one it sounds like the updated guidance assumes a pretty sharp drop into our be activity. Historically I think that business was tied into hero and they've said that they have not had to shut in to date as soon as the assumed drop is that associated more would base declines or are you guys, assuming a degree of curtailment there as well.
Yeah, colds and it's been so antero is is certainly a piece of it but by no means the majority.
So in that business, we have gas compression customers Antero and one other we have condensate stabilization again antero in one other we have the pipeline we have the first purchase business, we have a terminal business on the river.
And the simple simple fact is we make money as product moves in that basin.
And given that it's a fairly small refining market that has been hit harder by run cuts faster than most others, we expect to see less product moving in that in that area, having said that it's only about $10 million a segment profit. So it's a it's a small business for us, but I would say of all of our businesses. It was the one that felt the impact of.
Of the market conditions the fastest.
It'll leave it there thanks.
Mm.
Hi next question comes from P.J. show with RBC capital markets. Please go ahead.
Hey, good morning, just first what level curtailment and shut ins Ah infer what duration or you assume in in in the low end and high end up your news feed the dog guidance range.
Yeah, I hate T.J. I'm, not I'm not going to talk necessarily about the boat as that what I would say is.
Within within the range that we've provided.
We've allowed for something greater than what we are seeing today.
So if I were to go around the horn and say what are we saying today in Oklahoma, We're seeing a curtailment approaches 10 per cent on a volume basis.
In West, Texas on the gas systems, we've been fairly fortunate we have not seen a 10% or talman infield gas, it's it's more like 5%.
I've seen some additional for telling it though in west, Texas from our mid stream on load customers as opposed to as opposed to well had gas, which is you know just to secondary and back because they see less volume they want to send us less and we've seen a bit more pronounced impact on the chicken He system Korea gathering system, it's more like in the 20% to 30% range.
We can see curtailment of that scale continue for a number of months and still be still be within the range. So we feel like the range incorporates at appropriate level of conservatism given everything that we know today.
Okay, and then lower equity in G.O. barrels flowing into the facts you mentioned ways to optimize your capacity just what are some of the options available or or or that you are considering thanks.
Yeah T.J. So as we've said for awhile now remind folks that we are not entirely dependent upon equity barrels for for N.G.L. supply.
So we have a portfolio of supply both our plants at Oklahoma that permeated and even to some extent in north, Texas and third party supply, which is a variety of customers.
At the same time downstream, we have a range of crack options. So we have the cracks that we own holyoke in Louisiana, We have our 50000 barrels of space in Gulf Coast Fractionators. That's a joint venture. We also have a couple of term fractionation deals with other midstream companies.
So what we do on a month to month and really now a day to day basis, as we assess where do we make the most money by sending those barrels in general sending the barrels to Louisiana and keeping the Louisiana for X. relatively full that's usually the answer not always but what we will do every not every day is make sure that we have the.
Right recipe for maximizing margin on the day and that May mean, taking our third party Frank deals to contractual minimum it may mean, preferring louisiana over over G.C.. It will be dictated to some extent by the straight to the purity markets and the relatives in in a different geography.
Okay got it. Thanks, I just last a follow up on on some of the discussion around.
The optimism on on the gas side, just generally has that materialize through to any more kind of recent discussions with customers in the stack and and do you have any expectation that the dal J.B. would spread this year. Thanks.
Yeah, T.J., it's bad I don't think that <unk>. This year, because I think that that Devon like every other upstream company in the space is really focused on managing capital of liquidity. Three 320, 20. So I don't don't expect to see that more broadly, though I agree with Barry that I think commodity price environment as you look out in time a bit.
Is more support it today of that out of activity than it was frankly that was pretty crisis.
And I think that there are other companies in the staff as they consider their opportunity set in the stack versus the Robert Kennedy said, perhaps while you're basins I do believe that people are considering what the <unk> arrange your scenarios for what country commodity prices could hold and what that might mean for activity in some cases like that needs some activity coming back.
<unk>.
Alright, thank you.
<unk>.
Again, if you'd like to ask a question. Please press start then one.
Next question comes in game Morin with <unk> Lizzie. Please go ahead.
Hi, Good morning, everyone. Two full question on the Permian one in terms of the crew gathering eggs. So can you just remind us in terms of.
What the expected impact is on profitability without start showing up maybe in the back half the year term something additional margin and is there also needs.
Working capital benefit there, but then I'm just curious in terms of the Tiger plan just what the expected utilization there are there wells behind that plant waiting to be completed kind of waiting on that point up at this point. So I'm just curious <unk>.
Hey gave his bed so on the Permian, we've already seen the impact and profitability from from our pending exit of the first purchase business. It's gotten so so competitive in this environment that it got to the point, we really were making money and so when you look at the segment profit for.
You've already had that impact I also go and take the opportunity to point out that when you look at the sequential segment profit in permeated crude.
In addition to that impact there's also a a one to 2 million dollar risk management.
Transaction.
The negative side of it in the first quarter, but we'll realize the positive side of it in a cute too so it's a bit artificially depressed in Birmingham crude.
Over on the Tiger flat, we don't have wells waiting on the planet. What we have is a customer with an actor drilling program running for rigs today are dedicated acreage.
And we've received a assurances from that customer that they don't have any intention to change their plans. This year next year on that dedicated acreage and so that's why we have the competence to continue going forward with the plan.
Thanks, Pat and then if I could ask a follow up question on some of the elective processing in Louisiana on those travel plans have fans, obviously when bouncing around a lot here.
It seems like there's a viewpoint that additional that same barrels and you can be extracted going forward. Here can you just talk about that and you're Louisiana plants, and whether any things and better than your guns for that.
Yeah margin upside potential there too sorry.
Yeah, I gave I would say, there's there's not much embedded there on Louisiana processing.
<unk> today, you're right you know live on the eighth May you know as saying is 20 or 21 sets where we're at the end the last month it was.
11, or 12 sets and so the economics of processing it improved and so as the year goes on we may see some benefit for that but we we certainly in developing our outlet we're not counting on that to happen.
Oh, Thanks Bye.
Thanksgiving.
Hi next question comes from Jeremy to meet with J.P. Morgan. Please go ahead.
Morning.
<unk>.
Thanks, just wanted to start off with the corporate segment.
The 19 million there was a bit higher than what we were expecting and what we've seen recent quarters and so it was just wondering if there's going to hedge games go into their or or what was happening in in that second exactly.
Yeah, Let me, let me start Jeremy and then Eric May want to expand on it you're right we recognize realized patches in the corporate segment.
And so if you look at age 11 of the quarterly report and you look at the segments.
I think I can help help under help you understand that decorate your some of that and the way it rolls through corporate so one place I'm going to plug into his Permian gas, where you see a quarter over a quarter one q. 20 ever for Q. 19, a slight decline it segment profit.
That is driven by our exposure to P.L.P. contracts and the fact that we had weak weak in G.O. prices of the border.
There's a 2.5 million dollar realized hedge sitting in that corporate segment that you're talking about that offset a portion of that so if you were to add that two and a half million dollars back to the one to 20 Permian gas segment profit is in line with four Q. 19, and that's just telling you that the volume metric increase we saw.
Always offset by the N. has portion of the of the commodity exposure.
One thing I thought you too is in Louisiana, N.G.L., we had an 8 million dollar noncash mark to market negative mark to market on N.G.L. inventory that.
That is embedded in that 49.1 million dollar segment profit.
And that was given by the very rapid decline. It N.G.L. prices. So just you know as an example, natural gasoline at the end of at the end of 2019 was at $1.24 when we mark to market for the quarter. It was at 36 that.
Now there is some inventory hedging that we do against that and there's a three to 4 million dollar realized derivative again sitting over incorporate that offsets a piece of that but you don't see it here in the segment analysis.
Oh.
Yeah, nothing bad I mean, Ben.
Realized activity that for accounting purposes goes through corporate.
Got it that's.
That's helpful. Thanks, and I think they you know the curtailment question to ask a couple of different ways, but I'm not sure. If you guys kind of talked about.
What level of duration of curtailments is kind of yeah big into the guy the low rent or the upper end or what you could say there.
Yeah, I would I would describe it as we can see a level of curtailment similar to what we're seeing today, which we believe will be to draw.
Recognizing there's plenty of uncertainty in the world. We believe this will be to draw.
You can see this level of her telling that continue for a few months.
And still still be within the range. So we feel like the range is appropriately conservative.
Got it that makes sense and just a theoretical question here. It gets I was looking at.
Dot com <unk> expense and the 9 million there and just thinking it you know at these share price levels versus where it's been before kind of the ocean picks up a bit more just wondering if there's any thought.
Of changing that the cash or or anything else on that just you know given <unk>.
With the current Uniprise. Thanks.
Yeah. Jeremy this is very and I I think you're hitting on something it's an important for maybe to take the opportunity to point out in that is the exposure that we as.
As a team in I think it's a across the entire team of in like is a very much compensated with stockbased calm.
And you know for our executive team roughly 80 per cent of our compensation is tied to performance of the business and the majority of that be in the form of stock based compensation. So.
We think it's been appropriate for the past and will continue to look at it but that really speaks to the issue that you're pointing out.
Okay, just maybe <unk>, what whether keep metrics is tied to cause those tickets remain relatively unchanged over the past <unk>, it's several quarters here.
Yeah. The the the the metrics that we use our first of all relative stock performance relative P.S.R. for our long term incentive and also distributed distributable cash flow per unit and we as effectively up targets for distributed cash flow per unit that are tied into the L.T.
On the short term incentive it is also a distributed will cash flow per unit and a and even job performance and so and then there are also various metrics throughout our operations that we that we have tied into the short term and said so.
Should see fluctuations Unfortunately, the way we approve that in the stock based comp is a little bit more consistent than what we're actually seeing in terms of the value that is accruing to to the employees because they have cruel is based on the original grant bag.
Got it that's it for me thank you.
Thank you <unk> <unk> <unk>.
<unk>, it's a question and answer session.
To turn the conference back over to very day, that's for any closing remark.
Thank you Sarah for facilitating the call. This morning, and think everyone for being on the call today and for your participation as all ways. We appreciate your continued interest and investment in link and we look forward to updating you with our second quarter results in August we we a wish you all well and stay healthy have a great day.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.