Q2 2020 ONEOK Inc Earnings Call
Good day and welcome to the second quarter 2021, Okay earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. Andrew.
Go ahead Sir.
Thank you start Sarah and good morning, everyone and welcome to one <unk> second quarter 2020 earnings call.
We issued our earnings release and presentation after the market's close yesterday and they'll materials on our website.
After our prepared remarks will be available to take your questions.
During the Q nice session. We would appreciate it if you limit yourself to one question and one clarifying clarifying follow up so we could fit in as many of you. This weekend.
A reminder, that statements made during this call that might include what else expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision.
Securities Act, some nights Cdthirty, three and I think 34.
Actual results could differ materially from those projected in forward looking statements.
For discussion of factors that could cause actual results to differ please refer to our FCC filings.
Our first speaker this morning, as Terry Spencer, President and Chief Executive Officer Terry.
Thanks, Andrew Good morning. Thank you all for joining us today as always we appreciate your continued trust and investment Warner.
Joining me on today's call is wall told Chief Financial Officer, and Executive Vice President strategic planning and corporate Affairs.
Thank you haven't Burdick executive Vice President and Chief operating Officer.
Also available to answer your questions are Sheridan swords senior Vice President.
Liquid and Chuck Kelly Senior Vice President natural gas.
I'd like to start by commending all employees for continuing to operate safely and responsibly and remain focused on providing excellent customer service in a challenging environment.
Recently, we see cases covert 19 increase across the country and in response, we asked employees, who are able to continue working virtually.
For those critical imports we are reporting in person to operating sites. We continue to ensure that enhanced safety protocols are in place for safety and for the safety of their families and communities.
Second quarter results were interrupted by the Pandemics effect on a worldwide crude oil demand extensive production curtailments across our operations and low commodity prices.
After bottoming out in May and June volume trends across our operating areas have sharply increased in recent weeks. It's customers have started to bring production back online.
Recent stability in commodity prices, providing positive momentum as we entered the second half of 20 Twond.
As a matter of fact, many of our facilities during July have returned to pre cobot level.
Sample or July average total NGL Rossi volumes are exceeding first quarter average NGL volumes.
Benefiting from higher propane plus bonds in the Permian basin and increased ethane recovery in the mid con.
Well, it's been basin volumes have also strengthened significantly off the lows experienced in Maine.
The earnings impact we saw in the second quarter reflects significant production curtailments in the Williston basin.
Where our earnings on a per unit of throughput or some of the highest due to the broad level of services, we provide our customers.
Yes, curtailed volumes recover to more normalized level, so too will our earnings.
Volume trends are greatly improving there remains continued global demand uncertainty due to cope with my team.
We expect 2020 earnings to be at the lowering of our previously provided outlook ranges, which won't will discuss shortly.
Despite these challenges we continue to deliver value to our investors through the prudent management of our large strategic and integrated assets located in the most prolific NGL rich basins and yes.
These assets are supported by strong stable customer base and growing demand for the products we deliver.
There has been many reports written on the possible implications are they dapple shut down for one of them, so I'll get like to it.
Many producers in the region are developing contingency plans.
Dress their oil transportation names.
The Apple does currently provide meaningful crude take away capacity from the region.
There are alternatives other pipelines and substantial rail capacity.
Not long ago that nearly 800000 barrels per day of crude we're leaving the basin on rail.
Specific to one okay, we have to make 30% to 40%.
Apple crude oil volumes, that's from the producers, whose gas volumes are dedicated to our gathering and processing business in the Williston basin and about half of those volumes have alternative methods that crude transportation currently available.
This means that approximately 200 million cubic feet per day of the nearly 1.5 billion cubic feet per day currently connected to our system is associated with crude oil production that may not have an immediate alternatives takeaway options.
From the constant conversations you've had with our producer customers in the basin.
There remain committed to finding solutions to take away constraints.
In our view any impact from a dapple shutdown would mostly impact 2021, providing sometimes for more solutions to develop.
Even in an extended shutdown scenario, we estimate our 2021 Wilson base or natural gas processing volumes could approach. Our first quarter 2020 average of more than 1.1 billion cubic feet per day due to curtailed volumes return.
Capture a flare gas and the completion of drilled but uncompleted wells.
Kevin will provide some additional data points during his remarks.
At the beginning of 20 Twond.
At all the assets in place to produce annual EBITDA more than $3 billion or extensive infrastructure that now has substantial available capacity is still there.
Providing significant operating leverage to the upside.
No additional capital spending is needed to realize that earnings potential.
As it relates to our dividend with our business improving and volumes strengthen.
Let's see the need to take action on the dividend.
Do recognize that it is a lever we could fall.
Our de leveraging expectations are not being.
Financially we've taken the proactive steps to provide ample liquidity and protect our investment grade credit ratings during the pandemic, while continuing to return long term value to our shareholders or employs a management team are doing an excellent job unusual conditions and I have tremendous confidence in them to see us through to the yet.
We started this downturn.
They found ways to successfully navigate industry challenges before and they will yeah.
With that I will turn call over tool.
Thank you Gerry instead of a typical run through as our quarterly financial performance, which was well details in Yesterdays news release I'll walk through a few of the strategic financial decisions. We made during the second quarter Algos has positioned us for the remainder of the year.
We completed two proactive capital market transactions raising.
Capital more than $2.4 billion during the second quarter, providing us additional liquidity and balance sheet flexibility in the still uncertain market environment.
In May we completed a $1.5 billion senior notes offering and use the proceeds.
Portion of the proceeds to repay the remaining 1.25 billion of our term loan agreement, which was maturing than 2021.
And in June we completed the public offering of common stock, resulting in net proceeds of $937 million. Both of these transactions one that you've undertaken to strengthen our balance sheet and divide a clear and accelerated path towards or de leveraging goals.
We still intend to manage our leverage below four times as busy as strengthens the pre filled with levels and to maintain 3.5 times because our long term inspirational goal.
Both transactions were successful in that respect because we sit today, we have ample liquidity and balance sheet strength and flexibility you ended the second quarter with no borrowings outstanding under our $2.5 billion credit facility and more than $945 million of cash.
Interest expense increased in the second quarter, primarily due to the settlement of interest rate hedges related to the early repayment of our term loan resulting in a onetime impact earnings per share of nine cents in the second quarter.
With yesterday's earnings announcement, we certainly expect 2020 net income and adjusted EBITDA results to be at the low end of our previously provided outlook ranges.
As we return to volumes achieved during the early March 2020, we expect our earnings run rate to be in line with her previous expectations and to provide the continued path to GBP two de leveraging.
We also expect total capital expenditures, including maintenance capital to range from approximately 300 to 400 million dollar in the second half of 20 Twond.
Total annual capital expenditures, including movements and growth.
$300 million to $400 million will be maintained Intel producer activity levels provide visibility the volume growth warranty expanded capacity.
But we remain flexible with the ability to scale capital back up quickly [laughter] as our customers needs as well.
Last week, the board of directors declared a dividend of 93, and a half sense at $3.74 per share on an annualized basis.
We continue to look for cost efficiencies across our operations. So far this year, we have implemented measures across our systems, including optimizing outsets power savings and discretionary spending reductions totaling approximately $50 million.
We expect additional cost saving measures in the second half of the year to result in total 2020 savings of approximately $120 million compared with 2020 plan.
Okay, well over to Kevin for a closer look at our operations.
Thank you all the backdrop, we're seeing related to activity in volumes across our system has greatly improved second quarter lows in may and June.
Our recent conversations with producers have been focused on bringing wells back online, resulting in increasing volumes on our system and in some cases producers are beginning to add completion crews and door rigs.
Comparing our lowest average total monthly volume levels in the second quarter with our highest volume reached so far in July we've seen increases of more than 25% NGL raw feed throughput volumes and 20% natural gas processed volumes.
Our natural gas pipeline segment continues to provide stable fee based earnings with firm contracted capacity totaling nearly 95%.
The importance of this segment stable and predictable earnings is highlighted during times of market uncertainty and underscores the strong demand for natural gas, we continue to see from our customers, including electric generation facilities utility and industrial markets.
Now, let's take a closer look the current activity across our operations.
In the Rockies region, we've seen a sharp increase in volume in July as Terry mentioned.
Total NGL Lucky throughput volume from the region has reached more than 200000 barrels per day in July and nearly 50% increase from May lows.
Natural gas volumes processed in the region have reached 945 million cubic feet per day in July and nearly 35% increase from June was.
There are approximately 10 rigs currently operating in the basin, what about half on our dedicated acreage drilled but uncompleted wells in the basin total more than 950 would approximately 400 on our dedicated acreage.
Our customers in the basin or some of the most well capitalized producers in the industry and if communicated their position to resume activity as commodity prices and the demand outlook improves.
We are frequently asked what products you would take for producers to bring rigs back to the base.
But the important point right now the price it takes to bring could failed wells back online.
We believe that if current market conditions sustaining the remaining curtailed production will come back online during the third quarter 2020.
In the Williston Basin, we had approximately 1.5 billion cubic feet per day natural gas connected to our system in March which includes volume it'd be captured on our system and volumes being flared.
The latest data shows 220 million cubic feet per day was still flowing in the basin with 125 million is that on one looks dedicated acreage, which provide the continued volume uplift opportunity for us in 20 Twond.
Our completed infrastructure is in place to capture this volume and no new drilling activity is needed to reach our crude coded volume levels.
We are on track to complete the extension of our Bakken NGL pipeline in September of this year earlier than our previous target date of the fourth quarter. This new lateral will connect with an expanding third party plant and we will provide NGL takeaway in an area of Williams County, which is historic.
We've had limited NGL transportation options.
We expect the lateral will provide additional NGL volume to our system as we exit 20 point and it includes a minimum volume commitment.
During the second quarter curtailments vary greatly across our producers.
Could failed nearly 100% of their production.
Some curtailed virtually none.
Percents of proceeds in feed component also vary across our customer contracts.
Curtailments on large producer contracts with higher fees and lower PLP components were the primary contributor to our lower average fee rate.
Another factor was that we experienced greater curtailments in our higher the Rockies region compared with our lower fee mid continent region.
Given what we see today, we've curtailed volumes continuing to return.
We expect the average fee rate for the gathering and processing segment to reach breed cobot levels of approximately 90 cents per MBT you in the fourth quarter 2020.
In the mid continent region.
Second quarter average NGL Rossi throughput volumes of 521000 barrels per day increased compared with the first quarter 2020.
In volumes from this region have reached over 600000 barrels per day in July a 15% increase compared with the second quarter 2020 average.
Ethane volumes in the mid continent averaged 260000 barrels per day in June 2020, compared with the second quarter 2020 average of 210000 barrels per day.
More than 20% increase driven by nearly all our mid continent plant connection entering recovery during the quarter.
We expect ethane recovery on our system to continue through the remainder of the year due to strong pet chem demand and favorable ethane extraction economics.
In the Permian basin, the connection to new third party processing plant in the first half of 2020 and the full completion of our 80000 barrels per day West, Texas LPG pipeline expansion in June position us well for future growth from the base.
With the expansion complete we will continue to transition volumes away from third party offloads on to West, Texas LPG.
We are currently Offloading 25000 barrels per day, which will provide full transportation and fractionation revenue when they move onto our system in the future.
Terry that concludes my remarks, thank you, Kevin what the challenging quarter behind US there are opportunities ahead.
What we've seen proven time and time again is that producers and the midstream industry, our resilient innovators and able to find solutions when market conditions are tough we saw in 2015 in 2016, when producers were able to drive significant efficiencies in their drilling programs and again in 2008.
When the midstream industry work together to add Gulf Coast fractionation capacity.
From the one or perspective, our management team will continue to be proactive and innovative and how we can become even more efficient.
We'll remain focused on creating value for our stakeholders and continue to prioritize the long term sustainability of our business businesses.
The events of 220 have certainly been disruptive, but have not distract us from focusing on the right thing.
Im proud of the resilience and focus with which our employees have approached the last several months in keeping our is always an asset safe and I am inspired by the way our employees and the company are navigating important social issues within our communities with compassion understanding entity and generosity.
We will provide more detail on these important issues and many others in our upcoming environmental social and governance report.
Which will be available on our website in the coming weeks. This report is particularly important in times like these.
Staying focused on the right thing is more important than ever.
The report includes expanded disclosures each of the S.U.S.G. categories, and we will mark and adoption of the says the sustainability reporting standards.
Yes, she reporting isn't new to US. This report will be our 12 annual publication or sustainability journey continues and we remain committed to continuous improvement of our S.G. performance and disclosures to our stakeholders.
With that operator, we're now ready for questions.
If you would like to ask a question segment by pressing star one on your telephone keypad. If you are using that speakerphone. Please make sure. Your function is turned off to allow your signals from each our equipment.
Try to limit yourself to one follow up question again lot of Star one ask a question.
And we'll go ahead didn't pick on first question from Janney Jeremy today from JP Morgan.
Hey, good morning, Charlie on appreciate all the color on the opening remarks. She said you noted with your updated guidance, reflecting a potential Apple had ones. There Cures Act also takes into account the high plains type that can be shot.
He also secondly, I was curious.
She got dapple shutdowns and then can you address the possibility that temporarily purpose NGL pipeline to crude service that would make sense and kind of what the puts and takes that would be.
Yeah, Jeremy its Kevin the first question as far as a you know dapple shutdown, we really don't see much impact at all to 2020.
You know as we said, we see that more as a 2021 issue is curtailed production comes back we believe there will be.
Right no other pipeline capacity in rail transportation to handle the volumes that are currently being curtailed.
And as it relates to the second question.
Yes, we physically could convert the b the smaller Bakken NGL pipeline.
In the crude service, we're evaluating mad and looking at all of our options in watching that closely.
But but yes that is something to physically possible.
Thank you.
Looking at.
I didn't hear and trying to parse one after that.
Second half how should we kind of think about Rockies and mid con well connects in relative to the first half given you know sort of rig count pricing environment. We're in and then maybe secondly age GMP.
What sort of pricing assumptions go into.
Okay, well he tours.
What you gave US guidance, you mean, maybe said differently that pretty nicely decline you solved.
Topic. So your contracts would you expect that to reverse.
In the back after this year.
Yeah. There there was a couple of questions in there I'll answer your last in first I mean, yeah. We like we said we do believe that if we see this environment sustain you'll see.
We'll see that that fee rate improved and obviously, that's going to help on the top side. If you get price you know some pricing strength as well.
And what was the first.
First question that second grouping.
I didn't about wealth.
Okay.
In the second half relative to what we sell in the first half just given what we're seeing on on the rig count sides and.
Pricing environment.
Yeah, we are seeing I mean, we again.
The 2020 numbers really aren't dependent on well connects as far as new.
No rigs and things like that that's more again have a 2021 in fact.
We again recent conversations with producers we are there are having conversations in this environment about completing ducs potentially bringing completion crews back.
So.
We don't have it's not like we've got rig counts going to 40, you know when the next two months or something Chuck you have anything to add to that.
Yeah, I mean, what I did.
Some producers discussion as Kevin mentioned that we see on the drill schedule that are provided by our producers to it.
Ducks are currently being completed here in Q3 as Kevin mentioned the Gulf. We go through line of sight. The Q4 with additional completions and what produces a pull this is they want to complete these wells before winter.
In anticipation of more demand and a in addition to that some of our larger producers have indicated to us, but there are run one to two rig programs.
Through the remainder of the year on our acreage. So we've got some wind a flight to increase ducs completions as well as a increased oh well connects forthcoming so well take a little more color.
Great. Thank you very much.
Once again that its star one to ask a question. If you find that your question have been answered you may remember yourself from the Q by pressing star tail well take our next question from Tristan Richardson with Suntrust.
Good morning, guys just.
I appreciate all your commentary on because the new range for EBITDA, but I guess just thinking about.
Higher LPG prices in the volume improvement you talked about in July as well as teaching recovery.
And enhance well completions.
These dynamics so.
Up to really supportive of run rate EBITDA as we look towards the end of this year. Some are much closer to the high into that range. An outcome you provided last quarter or anything like that.
$3 billion.
[music].
Yeah. This is Kevin again, and yes, I do think it supports that well if you think about where we were not necessarily first quarter average, but you think about where our volumes were right as we entered into the cobot and the the oak.
That situation.
You know those types of volume levels with what's reported that you know kind of the upper end to that range that we talked about so as we get the curtailed production to come back online and I think at key point in that is those March numbers included so.
Stanchfield gas that was flaring as since that time, we put additional infrastructure in place and as the volumes come back we would expect the flaring numbers.
Go down so that that's why we had the confidence in those numbers on that that's what gets you to that run rate that we're looking at towards the upper and middle range.
Great and then well.
You've spoken in the past.
On the 2021 next opportunity being.
Generally no lower than 2020.
Now, they're kind of halfway through the year should we think it to spend opportunity next year is something south a billion dollars or is there kind of book and wait it out.
Out your spend.
No I just said in my prepared remarks that we would be in that.
Three to 400 million dollar range for 2021, including maintenance and growth and we will sustain that level for Jeff Ducks as long as.
Producer activity.
Dealt with just your activity is generating growth that we need to expand capacity as a as Terry mentioned.
We have all the assets in place to get us.
Back to that EBITDA level north of 3.3 billion.
And.
So we're in a great position here, where you don't have to jump on the Capex.
Level until producer activity once the for growth.
I appreciate it sorry, I missed that figures. Thank you guys very much.
Thank you.
Well take our next question from Shneur Gershuni with CBS.
Yes.
Hi, good morning, everyone.
Thank you everyone is well just maybe you wanted to start off with the what's your dividend comments that you made in the prepared remarks you'd mentioned that.
It could potentially be a lever down the road and so forth.
Well, we sort of think about things you've got a lot of headwinds I'll be would obviously be coated potentially with capital, which can impact capex for the basically your producer customers.
I was wondering if you can give us the case studies or scenarios as to how you think about dividend either being maintained or potentially being reduced.
<unk> is the import yields the 62.6 billion dollar you know.
Guidance range for this year enough to maintain the dividend what levels are you thinking about you know would become an area where you would become concerned is it to $2.4 billion run rate.
How much does S&P leave reviewing your rating down to just wondering if you can sort of give us no different paths and different outcomes as to how you're thinking and would be recommending the dividend to the board.
So snares and this is Terry so I'll just make a comment.
Okay, and a follow up but we think about 2021 I think this gets to the core of your question is that how do we how do we think about this business going forward I just looked at a number of scenarios.
Yes.
The key the T. variable achy variable courses dapple, what happens to keep questions. What is dapple gonna be shut down is it going to continue to operate we as weak as we think about that scenario and we think about 2021 that even with the dapple shutdown we could see.
You know mid to high single digit growth in EBITDA over over what we've experienced some 20 or expecting 2020. So 2021, we could see that mid to high single digit.
If we're fortunate dapple doesn't become.
A an issue for 2021 week, we could see 12% to 15% EBITDA growth.
Over.
What we experienced or expecting 2020, so in both of those scenarios, we don't see they need to have to take it a dividend action.
And as Walt indicated capital spending would be very very modest three to 400 million range.
So so given given that outlook.
Certainly we don't think it's appropriate to take any action at this point on Walt anything.
Add to that no just to.
But we know we obviously will stay in touch with rating agencies.
[noise] saw that the action that we get with yesterday with a proactive steps to.
Accelerate de leveraging the from what it would have done if we had left on that.
In the.
We're focused on the credit rating in the but we're pleased to see the strength with machine and the from the producer activity, bringing together volumes back on in the trend that that's showing up at this point in time.
I like that so the only thing I would share the only thing I would emphasize that you said it a couple of times in her opening remarks, but is this bcf and a half a day, particularly in the Williston basin that deliverability is connected to our system and doesn't really depend on a whole bunch of rigs coming back into the basin.
As we think about 2021.
The our growth that is our throughput growth on our GP business is a function of capturing.
An accelerating that capture of that Bcf and a half a day. So you think about this first quarter first quarter 2020 volume of about 1.1 Bcf a day and in the Bakken as you think about 2021 that that number we expect.
To grow as we move throughout the year and it's a function of capturing that Bcf and a half a day of deliverability. That's already there that's it that's the point we can't.
Emphasize enough today.
Well, we appreciate that.
Better answer than I expected.
Maybe you could give way to transition.
Answered this a little bit in in the prior questions to some of the questions. You've received in your prepared remarks like what we think about the drivers for a strong second half recovery and as we sort of think about you know 21 as you just talked about.
If I remember I'm dating myself, a little bit here back to the 13 14 15 cycle.
The Bakken is it's something we'll be able to what you want it.
In the most recent cycle debacle Liebig 50, waking up and you could see gross.
Do you see that trend on efficiency continuing in that may be one zeroing in on the wall type of we camped or for the talking to be able to generally than last stocks they needed to be able to move chain.
Actually grow production.
Could we see several were thirtys really been one normal run rate that that can sort of run well wanting a local for local 5 million barrel type market just kind of wondering what your feet seen in terms of thoughts on efficiencies and how things are moving.
Oh sure. This Kevin I'll start you were a little money and so I'll make sure I don't answer your question make sure you a jump in here Yeah, I mean, we continue to <unk>.
The reserves have been fantastic in the Bakken producers have been year over year delivered better and better wells the rigs have gotten more and more efficient.
So they continue to continually had shown they can deliver more volume with less capital is what that ultimately.
Goes too so I think that's that's part of the story that over time won't need as many wells or completion.
To to keep your volumes that at certain levels.
I think we've you know we've talked about that you know in that one four to one five type range of vol of Bcf a day volume.
You know you're probably in the 30 to 40 completions per month on our acreage.
And we think that's absolutely do and but we do believe the the quality of the wells, we'll we'll continue to improve.
Kevin I would have.
Okay.
Right.
Okay. Another data point I thought I'd add a shneur.
We work closely with all of our producers and had a couple of end up in the past six months or so I wouldn't say experimenting but working with longer laterals as long as three miles and based on the radio the results of the we're being told the left well will be needed for the for the increase deliverability that they're seeing.
Due to those longer laterals, so for that part of your question.
Guarding continued either technological enhancements or efficiencies.
I would say producers in violent thing back and we're really seeing some good results from some of these folks with a much longer laterals now.
And I'm sure. It wasn't one last thing on this topic and I apologize I should have brought this up sooner because we haven't mentioned it in our remarks either.
Just to remind everybody the gas to oil ratios continued to strengthen so so as as you look at crude oil forecast then you've got to apply.
You know the strengthening gas to oil ratios and you can see some of the materials we.
Provided on the presentation that shows that that what that's done over time and it's continued to strengthen the we're now it's more to do you know 2.2 so.
So that's another factor when you look at the basin.
Of what's going on the gas side don't just focus on what's going on on the crude oil.
Yeah that makes perfect sense I really appreciate the color today guys I was very helpful. Thank you.
Well take our next question from Colton Bean with Tudor Pickering them.
Appreciate the comments there around from the green shoots of activity and how you might return to those marks levels.
I think what you're getting back to the 1.5 Bcf a day understandably a personal shut ins as large component of that but I think the other.
He piece in the market struggling wins, what these declines with license of can you update us on how well that you've had still connected to your system producing over the last couple of months out or is it fair.
Chuck you want to take Ari.
Yes. This is Chuck could you repeat the last part of your question I didn't quite your decline from the decline on.
Yes, I think in terms of understanding what level of completions, we might need to see that to get back to something it looks like a more stable.
Throughput needs and then ultimately growth I think that base decline has been debated to just under a interested to see if you guys have a view on what it PDP profile might walk across your system.
Yes, so similar to the other shale plays but we see typically are what we run our models and you're 150, 55% decline rate.
Your two and a 20% to 25% your Threeq 15 for side.
And then just maintain maintains dumbed down from there. So your first Jersey, obviously, you know as your larger trying to decline in a shale plays we run that 50, 55%.
Okay, you all feel comfortable that 30 to 40 completions in bonds would be sufficient to fully offset that pace.
We do.
Got it.
And then on the on the flaring side of things I think we've heard from producers that the wells that were flaring, where preferentially shut in so doing about 125 million.
As being player on one of the acreage today would you expect that to increase as you bring wells back on line or Alternatively, how do you still been connecting two wells that are actually shut in today to accelerate that gas capture.
Yeah, we what we've done here in the in the second quarter to help wearing as well you won't really see that until third we expect to see that resulted in third quarter relative to our percentage of we've completed some pretty good size trunk line into an area airport, it's been very very limited and been able to.
Good gas era. So a couple of 20 inch trunk lines completed and and tighten wells that had been flurry as well as some new wells that we're getting ready to come on.
All of our infrastructure, obviously is going to help on that 125 million today.
Yeah.
Understood appreciate it.
Well take our next question from Michael Blemish.
Great. Thanks, everyone appreciate it.
One question wanted for just about ethane recoveries can you talk about I'm, assuming you're not seeing much increase in the Bakken, but really want to talk about that and also Sam you are seeing increased recoveries in the mid con how that's trending and.
Anyway to quantify that.
Michael this share and Youre correct out of pocket Maher.
Yes.
Hi, improving.
At this time don't want that but we have as we mentioned seen good ethane recovery increases in the mid continent, and what I'd tell you today is that.
In June and July the average percentage of ethane in our you know Y grade it's 45, 45%.
We are up over 60000 barrels a day more ethane in the mid continent than we were in the first quarter.
Over 50000, what we experienced in the second quarter. That's for June and July is continuing on that so I think read as was mentioned there are remarks, all the ethane or substantially all the ethane has ended that content that can come out is coming out at this time and we can't predict that continue this year.
Great and then.
Somewhat related question.
You know they've got a lot of discussion about gosh, the gosh dynamics in the Bakken given.
Issues.
Obviously, that's you know that's obviously changed a bit.
Just curious your views if you think any me proposed extensions, including obviously northern border.
Or any of those still in play or do you think that that whole expansion discussions kind of shelter here for a while till provocative levels I don't recover.
Michael This is Chuck.
You know me answer similar question in Q1.
And at the time again with with planes in flux and try to forecast.
As far as we were experiencing we're working on expansion kinda push that out a a little bit I think it's fair to say that and expansion.
Should be forthcoming just can't tell you when I would say it is pushed out you know probably 12 months anyway, we're just which they better line of sight on some longer term forecast, but I think with expansion will definitely be needed in time.
Great. Thank you so much.
Well take our next question convenient policy Bernstein's.
Good morning.
Follow up on the Bakken NGL to crude conversion potential recognizing that it's still in early development.
Okay.
Okay great.
Yeah.
Uh huh.
Physically possible, we is probably move it into the guarantee area.
Okay. So it just the before.
Yes.
Yeah.
Then just that quickly.
Estimate.
Federal cash tax payer.
Well, we're nothing's really changed from the.
The technical and other than the fact that obviously with the weight of our EBITDA, who is going to be lower than we as expected in the.
The 2020 so.
If anything it's moved out a little bit because the the assets that we ultimately will.
Complete.
And bill could do and beside down the road when Ah Ah growth is back in those are needed will lead to those that do that depreciation will come at a later date will be able to.
Just in optimize the timing of that so we don't expect to be a meaningful taxpayer a yet still through several years and ER.
Eventually you will get into a situation, where there's some limitations that are currently out there and.
[noise] utilizations anywhere else, but that's still a few years.
Great. That's okay. Thank you very much.
[music].
Well take our next question from Sunoco Buffeted Seaport Global Securities.
Hi, Good morning, guys can you give me.
Yes, yes, yes.
Yeah. So thanks on the clarity.
I just had one follow up question on the leverage metrics and the press release yesterday, you had indicated.
Covenant based de leverage backing it slowed in the house effects. It seems like to me that does it feel there, though a project that.
Baked into that based on projects, which did not onto because they've got yet.
Is that correct and secondly, you know when you did that the bid up into the into the covenant metrics that based on actual reach a contracted or is it more driven by your expectation and then you know how sequences that expectation.
Right. Thanks.
You did the first starting the question mall.
So even the press release, you had indicated that a covenant based leverage was tracking at four point fivex.
So when I looked at your debt balances did it lessens ATM as they come up with a higher number.
I just trying to deepen time that disconnect.
Sure Okay. Yeah in the Covenant calculation is not a does not track exactly to get the under the bank Covenant.
On there is a a provision that allows for you that assumption associated with Capex, it's come into or other come into service or will come into service down the road and up.
Skills down over a period of time, so there's a there's a.
Mismatched, there always has been a slight mismatch.
All between the gap and covering that calculation at this point.
The covenant calculation is it for now pushes the government at five times.
Okay got it thanks.
Well take our next question from Michael if you could carbon.
Hi, guys. Thank you for taking my question.
On a little bit about what you're seeing them flat volume the bell.
And I'm kind of going back a little bit just kind of what the trend that I called out data out a little bit about what you've seen clockwise and.
So did not have been export capacity, especially given LPG exports have held up relatively strong.
Lastly, our form a period does not having a adopt capacity export capacity actually in patchy at the flat wobble.
Well volumes relative to maybe what you think of what you're seeing a competitive pitch on practicing at belvieu as well.
Yes.
Right now because where system to set up.
All our Fracs can't be it building frac. So when you look across our system, we have plenty of frac capacity could any of the volume that we frac in the mid continent.
Sterling system, we can make endpoint show up.
So right now as we look forward we at poignant.
2020 oriented we see it much better improvement into it a producer.
Activity that we would need to bring in be buying.
Pretty good shape on the Frac capacity side in terms of do we need exports off or is that impacted on the frac side. They're just not this time right now there's more export capacity then.
In Frac capacity really and so we are able to contract and have contracted a lot of volumes in the short period of time to exporters because they need that lives at fulfilled their commitments across the dock. So at this time, we don't see that it can hinder us not to have a dog.
Of course, if we look into the future that's still something on our list that we would like to look at had a period of time, when we see more supply come online that would warrant additional dock capacity at this time, we do not see it as a hindrance.
Or the kidney disadvantaged.
Yeah, that's super helpful to talk a little bit about what you're thinking utilization rate quarter wells for what Fox and how July booking.
It's really did again.
Yes, he just Michael would have difficulty hearing.
[noise] guys could you talk a little bit about whats been your frac utilization rate was in the quarter, what you're seeing in July how people step up in trying to give a lot of detail about whats alive looks like across no throughput across multiple basins.
And then any gas I'd love to just kind of the same level of detail on the hot side.
[noise] right now we are we are over 80% on our Frac utilization.
Have we seen a big step up on that because we bought more ethane on and that doesn't that capacity has always been there, but we're sitting about a little over 80% rationalization will be.
ROE in June.
And third quarter.
I have already seen that volume increases you talked about in July we still.
Maybe closer to the 90% eight five nights and still leaves us plenty of capacity.
Got it and then one final one.
Hi, Gary when you when the board.
Kind of evaluate capital allocation I know you talk today about not needing to do anything with the dividend.
How do you think about the balance between evaluating the dividend versus evaluating this incremental equity issuances if needed.
Yes, you kind of half the shelf outstanding with a forward sales for the him I'm just trying to think about how you when the board think about what's the like kind of source of equity capital if that's what he capitals needed.
Yeah, Mike a couple of different aspect to that I mean, as it related to de leveraging.
You know any dividend action that couldn't wouldve been considered from the de leveraging standpoint would have taken quite a bit of time to actually have an impact.
Where with the equity offering there was an immediate.
Oh.
Feedback from Oh, the credit standpoint.
The other side of that also as well that.
Yes, as we see the business going forward.
And that the cold it.
It is a is oh.
Has a defined period of time that it will take deployed through well does any of us know exactly what that decline through the time is that.
To the extent to measured in quarters.
We didnt believe that pool.
That meant that we should be adjusting their dividend for the quarter, two or more of distributors just disruption so.
We needed to.
Hey, good positive step on the a de leveraging standpoint in the quickest way to do that was.
To do the equity offering.
And then as we see the strength of the business coming back in the that would be there to support their dividend in the long term, we continue to get on that path.
And Michael the only thing I'd add too.
Worldcom from a priority standpoint maintain that investment grade credit rating.
It's extremely important to the company an important to this board.
Hi, priority and certainly that was.
That was in the mix in terms of.
In terms of the capital allocation decisions.
We're making.
Got it thank you guys much appreciated.
Thank you well take our next question from Craig Shere.
Okay.
[noise]. Thanks for taking my question is out in the sounds like a wonderful outlook heading into second half year, that's great clarity.
On a potentially re purposing the Bakken NGL pipeline.
How long would uptake and.
Then a concurrent upsizing needed I know free or be done in the same time frame.
Great Thats shared and we're still evaluating all the aspects of that.
Into a crude or that warrants or what needs to be done. So we continue to look through that so as we continue to evaluate that that more we'll have a better understanding what it takes that was.
Our we're looking at something that could be a couple of years, because the comfortably quicker than that.
As we go that route to market neither.
Oh, I don't think it.
But it will thing.
Alright.
Thanks and.
Well I apologize I, I guess I'm I'm, a little confused about the topics guidance I I thought or.
The second Hal.
We'll be an absolute 300 of 400 million.
But then do I understand that ongoing.
Until there's a lot of you know more clarity on coal the and Oh upstream volume that the annual rate than the 21 will be 300 to 400.
That's correct.
Yeah, as we finish up the 2020, we've got two dozen or water wells that.
At the minimum volume commitment, we're finishing up a and wrapping up some of those types of projects, but as you get into.
2021.
The other we continue to keep that is that three to 400 million dollar range, including maintenance Capex.
Until we see a pickup in volumes that would get us above the level that we had been originally for adjusting for 2020.
So we've got the guts and a significant headroom there anything or you know obviously prioritize those cash flows as we.
Go into it towards or de leveraging goals.
There are good and the last question.
Stores and nothing recovery was spoken of a lot on first quarter call I think we're already addressed a thing.
I know storage is only maybe tens of millions of uplift with Oh, I don't know shirt and maybe you want to talk about when exactly that might be hitting I know, it's a hedged position what should we be looking for a into the second half.
Yeah, I think are the contango that presented itself a presented itself in the.
But.
Water because of how we.
All that product out for it we will see that benefit show up in the second half a year.
And she should that not all land or if you'll see that in the isom unit as well.
It should we see most most up in the fourth quarter.
Yes, you could see somebody in the fourth quarter I mean, it we sold throughout the third and fourth quarter. So you see it through the remainder if you're a lot going to happen.
Ah swinging prices.
Right.
Year to think of story.
Great. Thank you.
Well take a final question from Derek Walker with America.
Ah, yes, if he doesn't mean you're maybe.
Oh clarification question.
Right and your.
Okay portion.
Being kind of a dapple impact.
I believe the right references made extended.
That's right.
So they kind of mid to single.
EBITDA growth year over year, and what the test data.
So the 15% and.
Right.
The 2.6.
Billion number for the 2021 maturity.
Yes, that's correct.
What these days.
Those percentages that I provided earlier based upon the low end of the range.
We provided for 2020.
Oh for that.
Okay, perfect and then I think at below market that doesn't cost efficiencies.
Couple of Roddy Mann.
The power saving you Patrick 50 million.
You're talking about wanting.
Oh it relative to your 2020 plan I think he said that do you think will cover the second do you feel most of that pop in baseball season.
Like a mobile.
Yeah. This cabin yeah, we absolutely believe you know believe those cost savings are attainable and as we move through the year and you know we've taken our team has done a fantastic job with finding opportunities in some of those opportunities you identify and that it takes a little bit of time to to actually go implemented.
And we've been doing that so.
So we do believe even with the you know the volume.
Volume strengthening that we'll we'll realize those savings in the back half of the year.
Got it thank you very much because [noise].
That concludes today's question and answer session, but just like all I'd like to turn the conference back to you.
Well. Thank you Sarah are quite period for the third quarter starts when we closed our books in early October and extends until we release earnings then late October will provide details for that conference call at a later day. Thank you for joining us and have a good day.
This concludes today's call. Thank you for your participation you may now disconnect.
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