Q1 2020 Earnings Call
Good morning, everyone and welcome to the Equitrans Midstream Corporation, M.E.Q. and mid stream partners first quarter 2020 conference call.
It's time, all participants are in a listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During the session you will reach Crestar one on your telephone if you require any further assistance. Please press start zero I would now like to hand, the conference over to your speaker today neat Tetlow, Vice President corporate development and Investor Relations. Please go ahead.
Thank you good morning, and welcome to the first quarter 2020 earnings call for Equitrans mid stream in each U.M. midstream partners.
A replay of this call will be available for 14 days beginning this evening.
The phone number for the replay is 800 585.
367 or for 166 to 1464 too.
Conference I'd is five 710 108.
Today's coal may contain forward looking statements related to future events and expectations.
Factors that could cause the actual results to defer materially from these forward looking statements are listed in today's news release.
And under risk factors in both E.T.R.N.'s and you QM Sporn 10 K.'s.
But the year ended December 31st 2000 in 19.
Both of which are fired with the S.P.C. and has updated by any subsequent foreign 10 cues.
Today's call me also contains certain nongaap financial measures.
Please refer to this morning's news release indoor investor presentation for important disclosures regarding such measures, including reconciliation to the most comparable gap financial measure.
On the call today, or Tom care chairmen and C.E.O.
Diana short Latta, President and Chief operating Officer.
<unk> Senior Vice President and Chief Financial Officer.
Justin Makin senior Vice President gas systems planning and engineering.
And Brian portray Andrea Vice President and Chief Accounting also Sir.
After the prepared remarks, we will open the colts questions, what's that alternate over to Tom.
That's neat.
Good morning, everyone.
First let.
Let me take a moment to acknowledge the dedication and professionalism of our workforce.
Let's be onset of coping 19 are feel teams have never missed a beat continuing to safely operate and maintain our assets and we continue to move overeat B.C. yeah per day.
Dispensable natural gas to the nation.
Or management team and functional departments transitioned to remote works in early March.
Since that time, the teams productivity and kind of activity.
Have remained high.
And our new technology platforms have been able to scale up with only a few minor temporary hiccups.
We were fortunate to have implemented a telecommuting policy last year, which gave us a head start to transition to remote working conditions.
Well, we were among the first to go remote we will be very thoughtful about how and when to change this policy.
Silver lining in all of this is what we're learning about how we can evolve our work environment.
And still be productive and remain connected.
That information will inform us as we plan for the future.
Beyond our own workforce as members of the community. We are forever grateful to the front line health care in the central workers for the Great service. They are doing for our country risking their own help keep us help.
All of US are companies neighbors friends and members of the communities have an obligation to support those who are suffering as a result of this pandemic and to alleviate the stress and anxiety that surrounds us as much as possible.
Donations from our you train foundation as well as directly from our corporate local giving programs.
We have acted and will continue to act in support of many of these efforts to help.
We encourage all of our employees and all of you listening to do all you can to help as well.
Now moving on to our business report.
This morning, we announced strong first quarter results, which exceeded our plan.
Confirming optimism for Twentytwenty.
Book will give you the numbers.
Late February we enough for transformational actions, which allow he trained to be a strong seacorp able to thrive in this or any environment.
First we executed a 15 year blend abroad, and then extend agreement with D.Q.T.
Strengthening both companies and allowing for the most capital efficient development plans.
The new agreement enhances our stable cash flow profile as over 70% of our revenue will be generated from take or pay contracts. Once MBP is placed in search.
A new agreement provides us with long term meaningful capital efficiencies.
Diana we'll discuss this in more detail in a few minutes.
Beckon you trained purchased 25.3 million of it shares for me Q.T. in exchange for future regularly.
These shares were retired.
Yeah.
Or we established and industrial style dividend and capital allocation policy.
Cost on achieving positive retain free cash flow quickly delevering and shoring up our liquid.
And fourth we announced the proposed roll up to EM by eating.
He trained shareholder vote any QM unitholder vote.
Scheduled for June 15th.
And we are targeting to close the acquisition.
Shortly after.
He's actions immediately strengthen our balance sheet provide flexibility for our largest customer to optimize its development.
While delivering significant value to us.
As long as well as creating a strong seacorp entity.
I'm not turn it over to Diana who will provide an operations update.
Kirkwall them provide a financial update and I'll come back for some closing remarks before we open the call to your questions <unk>.
Thanks.
Morning, everyone.
Also <unk> tons opening remarks regarding the extraordinary work of our employees as well.
On the front line, hoping to keep each of us safe.
Has never been more true we are indeed I when this together.
I'll be I'll be again by briefly emphasizing the significant future capital savings from our new gathering agreement with <unk>.
Creating a comprehensive gathering agreement with single M.D.C.
The T.P. can execute it's condo development drilling strategy without contractual constraints. This creates two significant benefits for us.
First we can reduce the amount of required gathering pipeline as a result.
Compact geographic development approach, we estimate the distaste, that's approximately $250 million over the next few years.
It to tease returned to pad drilling plan will result in substantial feature capital avoidance, when H.T.P. returns to Pat which we estimate will start in about four years.
Shifting midstream infrastructure installed for phase one development.
The last again for phase two development. This means that our future gathering capital would be greatly reduced enhancing trains ability to generate meaningful and sustainable free cash flow.
No moving on to N.P.P.
On the Appalachian Trail crossing we were encouraged by the tone of the oral arguments at the Supreme Court on the Atlantic has pipelines case and remain hopeful that the forced circuit courts original decision will be overturned.
Regarding M.D.P. is biological opinion, the U.S. fish and wildlife recently requested an extension to continue its review of N.V.P.'s information, we respect and endorse this extension as it is far more important that the agency is focused on an accurate thorough and comprehensive biological opinion, which M.V.P. excel.
Next to receive in early July.
Finally with regard to the recent Montana Federal Court decision impacting the nationwide 12 program, we were perplexed by the judge's decision. This week to narrow the rolling to apply only totally on gas pipeline projects.
Will continue to monitor this case, including any appeal to the ninth circuit.
Provided we received the biological opinion in July and Feckless to stop work order I construction plan incorporate sufficient tie in work an activity to get us into the file without the nation like 12.
Keeps us on track with the existing schedule and budget.
Putting all that together means that we still have a narrow path to achieve the targeted for in service state of late 2020, and an overall project cost of approximately $5.4 billion.
Lastly, we completed a review of our capital requirements for 2020, and we're able to reduce estimated capital expenditures in capital contributions by approximately $150 million. The reduction is driven by 75 million of capital pushed into 2021 largely related to South gate capital.
The M.V.P. reclamation capital and 75 million in reductions based on developments changes and efficiency gains related to the new H.T.T. gathering agreement.
We continue to be actively engaged with our customers.
Focused on the plane capital efficiently with that I'll turn the collar over to Kirk.
Thanks, Diana This morning, we reported net income attributable to E. train approximately $70 million in earnings per diluted share of 28 cents for the first quarter.
After adjusting for certain non recurring items and again on derivative, we reported adjusted and they didn't come material to eat train approximately $118 million.
Trusted earnings per diluted share a 46 cents.
You train also reported net cash from operating activities of $249 million.
Cash flow $31 million.
We reported net income attributable to eat QM of $252 million.
Adjusted he bit Dot was $381 million net cash provided by operating activities.
$285 million and distributed well cash flow was $283 million.
First quarter results were impacted by several non recurring items.
First he trained any QM had a 56 million dollar impairment of long lived assets associated with the Hornet gathering system, which he UQM acquired in April 2019.
Second you train had to 25 million dollar loss on early extinguishment of debt, which is primarily associated with the early retirement of the train term loan be during the quarter.
And lastly, EQM had about 4 million of transaction costs.
He train had about 7 billion of its own transaction cost.
First quarter EQM operating revenue increase by $63 million compared to the same quarter last year.
Increase was primarily related to the addition of Eureka in Hornet assets increased water revenue, which was partially offset by lower transmission revenue.
BQM operating expense increase by $80 million compared to the first quarter of 2019.
$56 million was related to the impairment charges.
Remainder was primarily from the addition of your Rico and Hornet assets.
The day, we also announcing the increase in our full your earnings and casual guidance for each train primarily based on the strong first quarter results.
That's a mid point of our guidance range. We now expect for your net income attributable to eat train of approximately $408 million.
<unk> you train adjusted EBITDA of $1.175 billion.
Bird revenue.
You'll be reflected in the contract liability on the balance sheet of approximately $225 million.
Three cash flow of negative $125 million and retained free cash flow of negative $535 million.
Terms of the water business.
Our first quarter water eat $1.20 $5 million was driven by our customers completion schedules.
For the year 2020, we're forecasting water, you, but $60 million to $65 million.
I will also note that we intend to discontinue reporting D.C.F.
Ongoing maintenance cat backs.
Blowing the close of the UQM acquisition.
These measures are common in the M.L.P. space, but we believe free cash flow and retain free cash flow will provide see corp investors with a more work with more useful information.
For the first quarter, you kill him will pay a quarterly distribution of 38 three quarters cents per common unit on may 14th common unit holders of record at the close of business on May 5th.
Train will pay a 15 cent quarterly dividend on May 21 to shareholders of record at the close of business I made 12.
As a reminder.
<unk>, we announced in February create some accounting items important to our financial reporting.
Burst.
Gas scattering agreement with you Q.T. has a gathering rate profile that gradually reduces overtime.
For plaque towing for the remaining term.
<unk>, we will recognize revenue using an average gathering rate for the M.B.C.'s or the 15 year contract.
This creates deferred revenue over the next several years as a cash received will be higher than the revenue recognized.
Dynamic did not impact first quarter results as the contract rate structure convinced on April one.
Oh, you'll start to see the deferred revenue impacts in the second quarter.
For the second quarter, we estimate deferred revenue of approximately $75 million.
Second.
The agreement with you Q.T. includes a provision entitling you train to receive cash payments from U.Q.T.
This is conditioned on specific Nymex Henry hub index prices exceeding certain thresholds.
This provision applies during the three years following M.V.P.'s and serve estate was not but does not extend beyond December 2024.
The agreement is accounted for as a derivative at fair value and mark to market at each quarter end.
Subsequent changes in the mark to market value will be recognized through the income statement.
A quarter end the derivative fair value of the asset was $56 million.
Terms of liquidity, we had about $1.3 billion available on our 3 billion dollar EQM revolver a quarter end.
Well, we have ample liquidity on the revolver will continue to monitor the debt capital markets.
Are also planning to secure M.V.P.J.V. level debt financing when the project is in service.
Made it to the Delevering plan and continue to target a sub 4.0 times leverage ratio on now turn the call back to Tom.
Thanks.
Despite this truly challenging time.
Things appear to have stabilized in the natural gas space.
Exactly for those operating in the A. basin.
We are increasingly bullish about natural gas prices as we see the oil and gas recount dropping each week.
And we also see the relative resilience of natural gas demand.
There's not much doubt tend to supply and demand dynamics are good for gas near term.
The real questions or how good and for how long.
You train has great assets long term contracts very limited exposure to Ngos and customers that are positioned to take advantage.
Oh be improvement in the northeast gas environment.
We've not seen any material pull back and producer activity around our assets and expect that the improving natural gas strip will allow our customers to maintain and eventually increase activity.
So did conclude in February we took action on everything within our control.
Incompetent that we will get M.B.P. over the goal.
Our operations continued to deliver solid results.
We're optimistic about the macro set up for natural gas and the Appalachian basis.
They say.
Wash your hands, he's continue supporting our healthcare workers and our other first responders and we're happy to take your questions.
Yeah.
[noise] as a reminder to ask a question you will need to press started one on your telephone to his trial. Your question press, the pound or husky P.C.M. by well, we capacity kunaev roster.
Your first question comes from Jeremy town. It G.P. market here line is open.
Hi, good morning.
Was just wondering if I could start with the guidance here and if you could provide a whatever more detail as part of this kind of the drivers Annapolis bridge through the guidance provided last quarter, even on cat back thing really what were the moving pieces to get you to this updated guidance for both would be helpful.
Hi, Jeremy This is Tom I can give you a high level and then maybe Kirk and fill in some of the details for you. Let me clearly we have more confidence given that we printed the first quarter and it was pretty strong and volumes are.
As far as as we had anticipated the the water.
The water rubbing it was a front loading a little bit in our usually guidance, but still puts us ahead of playing a little bit. So I think that the movement. We've made in in our Guy Who's just reflects the fact that we have one quarter behind us when we have more certainty about the trajectory.
Oh bar business Kirkland add anything for that.
I think that pretty much captures it down.
Okay thinks that.
And then I guess just on the N.B. piece I, just want to clarify what a bit more I guess with nationwide or 12 permit you know kind of being on certain at this point to just walk as to where I guess, how <unk>, you're able to kind of complete construction here <unk> with the Peyton forward even without.
Even if N.W.P. 12 is kinda delayed here.
Yeah, Jeremy So that's that's a good question and again I'll I'll speak to the high level and then maybe Diana can fill in any any gaps to what I say here, but there needs to my 12 per minute specifically speaks to.
Bodies of water and stream crossings the vast majority of the remaining work we have the project is upland work.
So if we received the biological opinion in July as we expect and for.
Releases or lifts the stop work order, we will be able to modify our workstreams and have sufficient work to complete substantially all of the upland work.
To take us right to fall.
And and that's why we still believe that while we describe it as a narrow path we're still on that path to complete by the end of the year at $5.4 billion and.
And that's why we still have confidence in that.
Diana did I Miss anything.
You know that that's correct, we have over 30 miles of I plan work to do so we'll get started on that as soon as we're allowed for anticipating that to be July plenty of work on that in some tying work that we still have left to do to get us through for the courts to work out the nation wide 12 issue.
That help on just one last one if I could I just wondered what.
Gas price level, you think we'd really insane more activity on the dry I guess I just trying to get a feel for outside of you Q.T. What you guys are seeing production activity wise from your other customers.
Yeah. So that's a great question I think that goes back to what I said in the script as too we mow the macro environment is he's getting better we don't know how good work for how long I think.
Most of our customers have 2020 pretty well hedged and how about I don't want to see there on a glide path, but there are certainly on a pet.
Bows volumes are.
Or more visible to us.
I think it might be later in the year before we start to see a movement on the forward strip.
Certainly the closer you get to $3 on that strip I think they're more confidence producers may have been modifying their plans and still be able to drill and generate free cash flow but.
You know to be any more specific than that Jeremy I think I'd be getting too far out over my skis. So.
I'll leave it as the closer you get to three Bucks.
The better the environment.
Got it I'll stop there thanks for taking my question.
Life's journey.
The next question comes from a snare <unk> from U.P.S., Yeah line is open.
Hi, Good morning, everyone. Just wanted to <unk> to Diana's response actually to to Jeremy just before on the on the nation like 12, So I just want to be sure I heard correctly that you can do all the up and work with out the nationwide 12, or do you need to nationwide 12 to do that just try to understand what the nationwide 12 actually would.
Impact from completion perspective.
Yeah, we can we can do the I planned work with we need the biological opinion and we need for two.
To start back and look fat stoppage, but without the <unk>. The nation wide 12 is really just the water bodies. So we can do all the upland work and whatever tie ins. We have reclamation all of that can be done without the nationwide 12.
Got it Okay, and then kind of two questions here you know one to take spin on the <unk> your views on how no higher natural gas environment that we have today sort of.
X. everything I'm kind of wondering if it's not you know a one dimensional or two dimensional answer you know I think it's three box and so forth, but I'm kind of wondering if when I started thinking about the balance sheets of of the northeast producers. You know <unk> is it really about a certain price level, where there's a certain amount of time.
To Oh courage at more of a a quantum look at how everything is because you have to repair the balance sheets of the northeast before they can actually get capital to drill.
And you know where do where does the decline rates become a risk against that that if you know they just sort of sit back collect cash you know repair there a balance sheets and decide not to increase drilling activity for let's say 18 months, you know where does that impact you versus how that old tied together and kind of wondering if we can.
Sort of have that discussion at a more multi dimensional level than than just specifically on price.
Good morning engineer, that's that's a pretty whole slate of questions.
Oh did you do have a point that that there.
There's a requirement that each of our producers and quite frankly every producer <unk>, it's operating in jail be very sensitive to their balance sheet.
When you talk about improving.
Natural gas prices.
Oh, you're able to drill more and generate more free cash flow at a certain inflection point of price.
So it's more than two dimensional is probably three dimensional because.
The current prices is the weakest that we see over the next couple of years and if they can generate sufficient free cash flow now.
Moving into an improving price environment I think that activity.
Will Vermont.
And the decline rate issue that you raise we don't see that as being impacting our business at all.
Because we we see everybody drilling at least that maintenance levels or slightly above.
But you're right. It's it's not it's not a switch on or switch off move it will be something that will take time.
And it will depend on the opportunity and success that producers have been hedging their production and then their their access to capital to drill.
I don't want to say, we viewed as a symmetric.
But we are less.
Sensitive to decline rates, where we are in the Appalachian basin than others might be in in the more oily basins.
Around the country.
But that that makes perfect sense and really appreciate the thoughtful answered there and maybe it's it's one last a follow up here in the restructuring that was announced early this year and you do have some Colorado insofar as it's it's like that could you put out today.
You know with the new gathering agreement you know I recall that there are some material cap x. benefits you sort of talk about you know some real efficiencies there and so forth just trying to understand you know the the full impact 222 Equitrans is it you know with a straight up we're more efficient last cat.
<unk> more free cash flow and it's really kind of an operating webpage benefit or is there something in the agreement that would claw some of it back because there's less band because of how a typical cost a service type of agreement works and just trying to understand you know it did <unk> are there any reset clauses that would cost them without benefit back or is it you know truly.
In optimization play.
Yeah, It's it's a 15 year optimization plan, where the the agreement was constructed based on.
The drilling philosophy of you Q.T. and thereby directly moving to the capital efficiency benefit to each frame I mean that that was really there the two barbells.
Of the deal so there's no clawback provision, it's that's the permanent state of <unk>.
Perfect. Thank you very much appreciate to collect today and to be safe and pay thing.
Thanks.
Yeah next question I was from Spiraled units from Credit Suisse. Your line is open.
Only relate to the four remaining water crossings or is there an alternative to just permit each water crossing individually. Thanks.
Good morning Spiro.
I'll take a crack at some some answering some of those and then move is going.
Give me an assist here.
You're correct mbps substantially complete over 90% and as Diana said, we have 30 plus miles of upland work that we can do.
Where we sit today, we're not in a position where we have enough information to even attempt to quantify.
What what delay costs may be if there are delays so I'm just going to leave that leave that there for now.
The timing issue.
As we said we are focused on this narrow path.
Given.
The biological opinion being issued in July and getting the.
Software quarter lifted by FERC around the same time.
We have ample work to get us through the fall which will.
Moved to complete substantial substantially the remaining construction work.
Which gives us that kind of confidence.
And ill take a crack at a legal assessment here, but the nationwide fault permit is is a permit that tissue in lieu of individual permits so that.
Every.
Midstream company every.
Construction project always has the opportunity to go in for individual permits. The nationwide 12 is designed in part as a more efficient way to facilitate construction.
Danny you want to add some intelligent color to that.
I think that was quite intelligence, but.
Yes that as far as delay caused the more and more we get done that less and less delay we have just like the last risk or delay costs. So you know as we continue building and we continue doing the upland work and getting things into reclamation, then as we delay that's less substantial to us because we don't have to key.
All of those environmental.
And controls in place so I would say that on the delay and as far as a nation. My top agree that was an all encompassing everything under one.
But to pivot and do it individually is certainly an option for us.
Okay. That's that's really helpful. So he's paraphrase some of that it sounds like if we were to look back at some of your prior delay cost per quarter that would skew us way too high and then Tom on your timing it sounds like to the extent you get the nationwide 12 permit in the fall as you're sort of running out of work you can mobilize quickly to still hit that that.
That on goal date, and then as far as permitting individually an option, but sounds like a little too cumbersome and not something that you realistically wanted to you right now is that kind of unfair.
Thank you nailed it.
Awesome Alright next next question sorry for me in long winded here just on Capex cuts good to see them kind of comment again.
Just curious Danny mentioned, a little bit your prepared remarks broader that San it's similar to what we heard last quarter. So just curious how you found these additional efficiencies maybe what changed and as we think about the go forward. You obviously provided that outlook multiyear outlook. When you did EGD transaction fair to say that gathering capex at it was provided for all.
So skews a little bit lower.
Yes, so I'll start and again, if Justin you are something that I Miss style ask him to chime in but.
Yes, the efficiencies so half of that Capex.
In efficiencies part of it was MVP and Southgate, which is just moving but the other is really.
Things that we can save and most of that is due to the fact that we got the complete Qt drilling plan. After we signed the deal and firmed everything up even the places that maybe weren't dedicated to us before that are now we got that complete plan and were able to one gain efficiencies by timing some stuff today.
Other building some shorter pipe.
Or just.
Leaving and being able to cut things that weren't need and anymore. So.
That is the mean part on that and then going forward again, we'll continue to be able to tie things together and utilize efficiencies and compression and now all the systems it doesn't matter, which when we tie to weaken tied to the closest one so that's helpful than being pot compact and drilling all in one place again.
Helpful. And then the return to pad will even help our future.
More than what we.
Have out there right now.
Got it.
Yes, sorry go ahead, Paul yes.
This is just in just a little bit more color.
Diana mentioned the efficiencies I think this is just realizing what we've been talking about.
Over the last couple of calls in terms of the new agreement and work with CGT and then what the other producers we work with them.
Everyday to make sure we understand their drilling activity in their development plans and as they adjust or move into maintenance mode. We've been able to adjust our plans. Accordingly, so I think what you're seeing here is just a reflection of all that effort.
Understood. Thanks for the call everyone well.
Our next question comes from the line of Chris too much from equity Research. Your line is open.
Water crossings, how many water crossings you guys.
Have wells that are affected by the nationwide 12 issue is just a matter of sort of whats left the builder or it.
Could this potentially potentially impact.
All the crossing through the entire pipeline.
Chris.
If you wouldn't mind restating that question you you blacked out in the beginning of it we only heard the end of it.
Sure sorry about that I guess my question was on the nationwide 12 permit and as it relates the water crossings Jed how many of the crossing does the permit effect.
Is it a matter of what you have less to build or is it would potentially impact all of the water crossings throughout the course of the pipeline.
Yes, it's.
We have.
Sorry.
It's just what we have left to build it.
It doesn't impact what we've already crossed.
Okay.
Okay, and you do you have a number on that or or.
Not at the moment.
Not at the moment.
Okay and.
And then I guess, maybe just from a logistical standpoint on that permit as well what.
I guess what are the sort of the next steps here with that proceeding what are we looking for what should we be Washington core.
Well I going to deal Jay is taking the lead.
Seeking to have.
An appeal of.
The judge's ruling on on the nationwide 12, and I believe that will go through the ninth circuit and our expectation and what we've seen in red So far is that they're attempting to fast track the process as best they can.
So.
Rather than this taking many many months.
The hope.
Is that it will be much more truncated crop process.
And that's why as Diane said.
Once we get the biological opinion and the release from the stop work order, we will fully mobilized.
And get.
Upwards of 4000 people on the right of way to start doing all of that upland work.
As as the nation wide 12 issue works its way through look backwards.
Okay.
That's helpful. Thanks, and then.
Last from me on the the.
2021, plus guidance that was issued with transaction that was announced in February.
I guess, maybe just curious to know sort of.
The thought behind withdrawing not at this point in time, particularly given.
A lot of it is backed by and be season, the macro act the macro outlook looks more constructive today than it did then so I'm just curious to hear your thoughts on that.
Yeah, Chris I don't believe we we withdrew we just didnt reassured here and immediate for exactly the same reason you said that that the macro environments improving and.
Probably later later this year, we'll we'll have the opportunity to take a look at the <unk>.
The forward guidance again.
More specificity, but.
We focus this quarter.
2020, and and modifying or 2020 guidance to the upside. So it was known penta or or a desire by us to to show less confidence in 21 forward.
Okay. Okay.
Yes, that's helpful and thanks for clarifying that that's it for me.
Thanks, Chris.
Our next question comes from the line of Derek Walker from Bank of America.
A line is open.
Numerous times and no.
To be in July.
Have you been in touch with the fish and wildlife is there anything particular, there that they're still working on or is it a it's kind of delays associated with perhaps over 19 and.
Just any sort of thought on on what's really driving bxd extensions and it tied to.
Perhaps a nationwide Robert thanks.
So we missed the beginning of that question I'm sorry.
Yes.
No.
Okay.
Yeah, just can you hear me now.
Yes, okay.
Okay, I just want a biological opinion, it's obviously been extended the multiple times and just want to.
Get a sense on this latest extension towards that did you did you have any conversations with the fish and wildlife is there anything particular that there.
Looking for or was the extension just related to occur over 19.
Issues and getting people out to two valuations just any any thought there.
So.
Tom I'll go for that one and we.
We know that they are very focused on being accurate and through and comprehensive and that is really important test. We want that happened. So it really is more or less than wanting to make sure. They have all of the data and they've gone through all the data and they've done a really comprehensive I don't think we're seeing an impact.
From coven they've been.
Engaged in the last couple of months and working very hard on it actually we're encouraged by the back and forth with them.
Okay. That's helpful. And then I guess I'm just on the nation wide 12, you know assuming a bigger for the do you feel processing directional finally in motion to stay potentially well I guess do you have any sense or view on sort of what the probabilities of.
That being granted.
Stay being granted no we can't handicap that we look we think that the judges decision was wrong.
It doesn't make sense certainly doesn't make sense that it could you should the opinion like that and only habit.
Apply to oil and gas pipeline so.
Again, it's going to work its way through the courts, we're hopeful that it will be a truncated and quick process illegal terms.
But.
Handicapping, a say or not.
Well, that's above above our pay grade here there.
Okay. Thanks, guys. That's it for me appreciate it.
Thank you.
Our next question comes from the line of Vikram pedigree from Jefferies.
And your line is also good.
Hello.
Good morning, everyone.
I will start with NBP, if I may Oh, well, it's easier to get individual oh, the midstream across all the water body since it is already being done by a fish and wildlife services.
Are these substantial number of processes are still left to be crossed I believe the NBP fighting PADD 540 crossings a if the buyback is 90% done is it will it be wrong to assume that 90% of those crossings, our oh really.
They have been cross by the pipeline and you just need to do a few crossings and you can take individual apartments for that.
So I'm just trying not to talk over time.
I would say that it wouldn't be an accurate calculation to just have the percentage of the pipeline. That's done I assume that that's how many crossings are done we've been back and forth and moved around a bit on that project. So I wouldn't say, it's that but it all of the work is done for the cross.
Things as far as regulatory data that's been gathered to so whether it was gathered to do one nation wide 12.
Permit or you needed to take that data and divided up to get individual ones. The work is all done. It's just the process in which we need to do it so I'm not super concerned about which way of course, we would love to go on the nation wide 12 way, but we can.
We can work through it the other if we need to the work's done.
Okay, and I wanted to ask Speedos question, a slightly differently can you identify the biggest confidence all cost increases in case. The pipeline is delayed how much does it how much does do you need to spend to cool that I definitely is on MVP on a monthly basis and how.
How much do you need to spend on just holding the construction contract I believe those aren't the largest components and b.
Do you need to spend to call. The construction com contracts, it's much smaller now than it was prior to your construction contract renegotiation is it is impossible to quantify those two components all potential cost increases.
So it's a difficult.
It's difficult because it changes monthly as as we go on and when the when the project is a sleep. It's one number and then as we start to ramp up then of course.
It's better because all the money that we're spending is going toward protective activity.
Okay.
Yeah, because well, let me just add to that I think.
Based on the work plan that we're discussing today where in July.
We got the issuance of the biological opinion and the release from the stop work order and we fully deployed to the right away in the upland construction areas. The more of the right away that we can permanently was score the more we reduce any delay caused that potentially may happen I think that that's the way.
But you should think about the right away the more we permanently.
Restore the lower that monthly maintenance costs will be.
Okay.
Okay understood and I have two quick housekeeping question as well gathering Opex decline a nice mean, one Q and I believe some of that is seasonal and where you have not explicitly talk about any potential in opex savings I wanted to understand if some of the decline in opex in gathering segment in one Q is sustainable and.
ER et cetera is always company any initiatives you might be undertaking.
So we continuously.
Have the initiative to drive down costs, we work on it every day, it's something that's on the forefront of all of our field peoples.
Mind. So they there are some seasonal costs. There are things that will go up as we start to ramp up activity, but as far as.
So far as personnel inefficiencies, we continue to drive is down.
Okay and.
And then and then just the last one for me if I may Oh capacity volumes and gathering segment stepped down in one Q relative to 40 of 19.
It's that are those are declining ease while you. So they are focusing drilling on 80 as most profitable media than not focused on 80 hours, where they were talking about mbcs already right to head off either combining all day, there will be sea area or is that due to its being driven by any other producer I just.
Because of the trees and become capacity there so they should margins and gathering segment.
Yeah, I see I think theres, just a little bit of decline in some of the areas that.
They werent drilling and they they don't plan to drill and then it's just choppy as far as what's coming on and what.
What's in the pipe because of the water volumes were so high this quarter you can see that the activities there and that those wells will then start turning in line. So we expect.
Overall mid eight Bcf a day average for the year, we don't expect it to expect it'd be a little bit higher than what this quarter was in the next couple of quarters.
Okay.
What did differently is if any other producer below NBP nbcs, a large produce at below mbcs. Besides you de.
Hmm I think there's probably one other producers that that is below NBC Justin.
Yeah, no nothing material way, but yet you're in.
Okay, great. Thanks for all the color. Thank you very much.
Our next question comes from the line of Michael Blum from Wells Fargo.
Your line is open.
Hey, good morning, everyone can you hear me.
Yes, yes, Michael Thank you, great just want to make sure.
Yeah, just two quick ones for me one I'm just curious if any of your current producer customers.
Our behind on on payment or is everyone sort of current and is there anything you're doing proactively to sort of protect your yourself on that front to the extent or any of your over your customers do run into some trouble here.
So I believe all of our customers are costs I think that.
Your your question was a good run in <unk>.
In the sense that the renegotiated contract with acute T is state of the art as it relates to language and surviving bankruptcy and we feel really good about that all the other contracts or at market.
And quite frankly, the producers even if they run into trouble only have one outlet to generate revenue for themselves. So we feel pretty good about all of our contracts.
In that regard.
Okay Perfect Oh My question was just.
Oh now that you know you've announced or I guess I call to the grant the Grand deal a grand transformation is there any further feedback you've gotten from the rating agencies.
Oh, yes, Thomas' Curt the rating agencies have all put out reports fairly recently.
Hey, Moody's and S&P was in early April and Fitch was in mid February mid to late February.
So you can I mean, all their comments are there I think in general they like the transaction.
And and have been pretty positive on it.
So there hasn't been anything over you know anything specific aside from that.
Great. Thank you very much room.
Thanks.
And our next question comes from the line of Becca Followill from U.S. capital Advisors.
I got your line is open can you hear me guys.
Yes, that's a whole lot. Thanks. Good. Thanks, it looks like deferred revenue went down from 450 to 227, so did that help drive the increasing EBITDA.
Yeah, I'll I'll take a shot.
So the deferred revenue number.
Yes, it can change as we go forward in time are the big driver there was the change in Ah.
Stock that we acquired a as a part of the transaction.
The repurchase of our stock and the estimate at the time, we did the transaction versus what the stock price was when we.
When we close on the purchase of the shares.
So that will change over time.
And really what it does is it changes the amount of revenue that we.
We can recognize so.
You know the.
It doesn't really impact the.
Economic EBITDA of the company. If you will so I think what a lot of investors do is at the deferred revenue to whatever the EBITDA is to come up with what they're sort of calling a cash EBITDA number and we'll continue to provide.
Everyone with the deferred revenue and EBITDA as we go forward.
So so just to clarify it on the prior numbers you guys had deferred revenue of 450 and eat train adjusted EBITDA of 920 to get to the one three age and so here you can find 1175 to 27 to <unk> went to one for and so that's kind of your delta okay. So.
First is really more like 30 million.
Yeah prominent okay, Okay wanted to make sure of that.
Okay, and then second be on this you're spending on mountain Valley, how much more do you have left in 2021.
On on NBP Becca, yes.
Yes, so weve spent 2.1 to date.
And.
Our spend is 2.7 total.
Help me I think there'll be about 50 million left and then last year.
50 million.
Great and then and then finally I know you're working through a lot of different scenarios, but what is the plan b in the event that you don't have the nationwide 12 by the fall.
I think the plan B as Dinos talked about as we always have the right to go get individual permits for those stream crossings. Okay perfect. Thank you.
And again that she'd like to ask a question that star one on your telephone keypad. Our next question comes from the line of T.J. Schultz from RBC.
Your line is open.
Great. Thanks, just one from me and as you move to free cash flow and retain free cash flows and focus point for investors.
What's your long term view once mbps online just an optimal payout ratio for you on or just how should we think about the priority to increase the dividend. Thanks.
Yeah, Tom I guess I can start on this.
The the objective is to be able to self fund the business going forward. So you should see positive retained cash flow.
To go we're going forward basis.
And that's that's how we will intend to run the company once once we get to the point, where we get our.
Leverage ratio down.
Below four times will be you know what would be obviously reevaluating dividend policy.
Yeah, I think thats.
That's right.
Yeah, I guess I give you know we're expecting retain free cash flow to be positive 21.
And we're looking at you know we've given this before we are updating guidance or anything but what we've said before is.
Causes briefing free cash flow in 2021.
And below four times in 2022.
Okay. Thank you.
[noise] and we have no further questions in queue I'll turn the call back to the presenters for closing remarks.
Well, thank you everybody for joining us today.
As we said at the outset, we are gaining confidence in the macro a we we believe that are there.
It could be some strengthening in the basin certainly.
We're seeing in.
Hopefully everybody will stay safe and we'll get through this thank you have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].