Q2 2020 EnLink Midstream LLC Earnings Call
[music].
<unk> mid stream second quarter 2020, Onee conference call all participants will be the says Oh, no should you need assistance, placing know what conference specialist by pressing the star Kate.
By zero.
After todays presentation, there will be an opportunity to ask questions.
Please note this event is being recorded.
I would now like tend to come from so what took place well Vice President Investor Relations and Pat. Please go ahead.
Thank you and good morning, everyone welcome to Enlink second quarter 2020 earnings call.
Participating on the call today are very Davis, chairman and Chief Executive Officer.
Ben Lam Executive Vice President and Chief operating Officer.
Although Makoto executive Vice President and Chief Financial Officer.
We issued our earnings release the presentation after markets closed yesterday and those materials are on our website.
A replay of today's call will also be made available on our website at www Dot Enlink Dot com.
Today's discussion will include forward looking statements, including expectations in prediction within the meeting other federal Securities laws.
The forward looking statements speak only as of the data this call and we undertake no obligation to update or revise.
Actual results may differ materially from our production at a discussion of factors that could cause actual results to differ can be found in our press release presentation. It FTC filing.
This call also includes discussion pertaining to certain non-GAAP financial measures.
Definitions of these measures as well as reconciliations to comparable GAAP measures are available in our press release in the appendix of her presentation.
We encourage you to review the cautionary statements and other disclosures made in our press release, it or FTC filings, including those under the heading risk factors.
We'll start the call today with a set a brief prepared remarks by buried bad and Pablo and leave the remainder of the call open for questions and answers.
With that I would now like to turn the call over to Barry Davis.
Thank you Kate good morning, everyone. Thank you for joining us today to discuss our second quarter results.
I will also give you an update on our full year 2020 garden and longer term outlook.
On behalf of in late we hope you your families and colleagues or staying safe and healthy as we all continued to navigate the challenges, resulting from the ongoing cobot pandemic.
I want to personally think those who remain fighting on the front line, including all of our Enlink employees, who continue to work tirelessly to ensure we deliver a central energy services safely and reliably.
Despite the challenging macro backdrop Enlink reported outstanding second quarter result.
We achieved adjusted EBITDA of $255 million, which exceeded expectations.
And was relatively unchanged from our first quarter results.
This is a tremendous outcome during one of the most challenging periods in our industry's history.
We generated $72 million of excess free cash flow in the quarter, marking a substantial increase as compared to the first quarter of this year.
Our team has done a great work very hard work to positively impact the results across our footprint and we will continue to do so as we navigate the dynamics of the road ahead.
And like is now a lean scalable organization.
We have a large diverse asset platform and our team wakes up every day with a sense of urgency and a mindset to create meaningful value for our stakeholders.
It is well documented how volatile I talk to second quarter of 2020 was for many industries, including our own.
As economies around the world emerged from stay at home recommendations the path and speed of recovery economic recovery remains uncertain.
What we know today, we're forecasting that we're on track to achieve in the high end of our guidance range before your 2020, adjusted EBITDA and expect excess free cash flow for full year 2020 will meet or exceed the high end of our guidance right.
When you take a look at our asset segments, we have read very strong cash flow generating segments in Louisiana, Oklahoma in North Texas.
These segments require very little capital and generate an impressive amount of annual cash flow. We have a growth segment in the Permian, where we are investing around 60% of our capital this year and that is exactly where we want to be investing.
Permian segment has remained tremendously resilient throughout the downturn with natural gas volumes, increasing on our system quarter over quarter.
We achieved 35% growth in Permian segment profit for the second quarter as compared to the first quarter.
The strong growth into per our Permian segment, coupled with a strong cash flow generation from our other three segments has enabled us to manage our leverage ratio to 4.3 times for the second quarter of 2020, and we expected to remain largely unchanged for the rest of the here.
We entered 2020 with an execution plans centered around four priorities. We knew we had a lot of work to do this year and our plan has proven appropriate for the additional challenges we've seen in the first six months.
Our first execution plan priority is to optimize the profitability of our existing business.
We're challenging how we run our business in every possible way and are turning over every stone as we pursue it continuous process to reduce costs.
As we advance operational excellence initiatives to optimize NGL recoveries fuel consumption system reliability and other key operational metrics.
And as we captured capital efficient commercial opportunities.
Lower activity environment.
We have a continuous improvement mindset, and we will be relentless about maximizing the cash flow we generate from our business.
The second priority of our execution plan is to maintain financial strength.
As we talked about last quarter, our team swiftly took a number of decisive steps to preserve over $600 million your cash in 2020 relative to 29.
This included first Rightsizing, our cost structure I.
Hi, I'm, particularly proud of our team's success with this difficult task.
We are tracking 20% ahead of cost savings expectations and now forecast that we will sustainably reduce annual cost $520 million.
20% reduction compared to 29 team on essentially the same business operations.
Second we reduced our capital expenditures program by 66% as compared to last year.
And we'll continue to significantly reduce and focus capital spending in 2021.
And third we reduced our common unit distribution to a sustainable level in this environment.
Pablo will expand on this but I want to emphasize that our liquidity position is strong and we're not only self funding capex in distributions, but also continuing to generate strong excess free cash flow.
Our third execution priority is to drive organizational efficiency.
I'm grateful for our employees focus dedication and perseverance during these challenging times.
Employee safety is our top priority.
And we continue our efforts to take the appropriate measures to provide a safe working environment for everyone.
Oh, Good night team has and continues to alter our everyday lives and business operations and it is important that we don't let our guard down.
Despite the distraction to our safety performance is the best it has ever been.
We continue to achieve new company safety record and notably we've gone 138 days without a recordable employee injury, which is a top tier safety achievement in the energy industry.
Fourth and final priority is to ensure we positioned enlink 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're positioning ourselves for a market of lower growth, but with higher cash flow and returns.
We see a number of smaller scale capitalized tuck in type of opportunities around our assets that are very capital efficient and have the types of compelling return profiles were searching for.
Over the long term, we will leverage our leading positions in key producing basins to improve operational efficiencies increase profitability and capture higher returns.
On the demand facing side of our business. The Gulf Coast continues to provide compelling long term opportunities as export markets begin to strengthen again.
We will increase our presence downstream, but have a very high bar when it comes to the returns on investment we're seeking.
We will continue to evaluate every opportunity through that critical land and will not execute on anything that isn't highly accretive to the strong platform we operate today.
Before passing things over to Ben I wanted to take a moment to highlight an important change to our leadership team.
In July Pablo Mercado joined Us as executive Vice President and Chief Financial Officer Rubin.
Pablo has tremendous expertise as an energy executive and a unique background in driving strategic change and generating value.
I'm excited to welcome Pablo as a new partner and look forward to working closely with him and the rest of our leadership team in executing our plan.
With that I'll turn it over to Ben to discuss our operational update thanks, Barry and good morning, everyone.
As Barry mentioned, our operations performed very well throughout the second quarter. All four segments showed tremendous resilience in the face of severe demand destruction commodity volatility in producer pull backs.
I'll start with the Permian.
We achieved strong segment profit in the Permian for the quarter reporting $43.5 million, which is approximately 35% higher as compared to the first quarter 2020, and approximately 30% higher as compared to the second quarter or 29 team.
Strong results for the second quarter were driven by a combination of natural gas gathering and processing volume growth commodity price improvements and opportunistic margin opportunities captured by Enlinks crude storage assets.
Average natural gas gathering and transportation volumes for the second quarter were approximately 5% higher as compared to the first quarter 2020, and approximately 29% higher as compared to the second quarter 20 like team.
Average natural gas processing volumes for the second quarter increased approximately 4% and 24% as compared to the first quarter 2020, and the second quarter 20 <unk> respectively.
Drilling activity remained relatively strong in our footprint throughout the second quarter, despite the challenging environment.
Completions activity slowed during the quarter, but we're seeing green shoots on that front with a significant number of new wells scheduled to be brought online in the second half of the year 40 dollar crude is enough price support to incentivize well completions for all producers.
Hi, good free cash flow for the Permian was close to zero for the second quarter as we near the completion of our Tiger plant construction in the Delaware Basin.
With the Tiger plant, becoming operational during the third quarter. The Permian segment is expected to pivot to generating positive segment free cash flow for the remainder of 2020.
Turning now to Louisiana segment profit held up well coming in at close to $70 million for the second quarter.
Segment profit for the quarter was approximately 3% lower as compared to the first quarter 2020 at approximately 7% higher as compared to second quarter 2019.
The decline segment profit as compared to the first quarter 2020 was primarily driven by normal seasonality in the NGL business, though we did also see a dip in volumes on the system.
NGL fractionation volumes for the second quarter were approximately 10% more as compared to the first quarter 2020, and 2% more as compared to the second quarter 2018.
Volume declines relative to prior periods were primarily due to extreme curtailments can shut ins.
Average natural gas gathering and transportation volumes for the second quarter were approximately 8% lower as compared to the first quarter 2020, and 3% lower as compared to the second quarter 2019.
The man from our industrial customers remains strong despite the weak economic backdrop passport.
Average crude volumes handled in Enlinks, Ohio River Valley operations for the quarter were approximately 10, and 22% lower as compared to the first quarter 2020, and the second quarter. The 20 like team respectively.
Crude volumes were negatively impact during the second quarter, a 2020 as a result from the macro demand decline for crude oil, which impacted the finally activity in Ohio.
Second the free cash flow for the second quarter was $54 million, we spent about $16 million during the quarter on a few highly accretive projects, including the build out of our connection to the venture global account because she passed LNG facility.
With most of these small projects racking up Louisiana is expected to increasing we generate significant segment free cash flow for the remainder of 2020.
Moving on to Oklahoma next we delivered $99.3 million a segment profit for the second quarter, 2020, which was approximately 4% lower as compared to the first quarter 2020.
Cash flow and volumes held up well during the quarter that's production curtailments in temporary shutdowns reversed more quickly than we anticipated.
Natural gas gathering probably volumes were down by approximately 11% sequentially.
Processing volumes down 6% sequentially.
All in all we experienced shut ins and curtailments for about two months and everything for the most part was back online by the end of <unk>.
Oklahoma continues to be very strong source of segment free cash flow for us delivering around $96 million for the second quarter, and we expect Oklahoma to continue generating significant free cash flow, but as I made it every year.
Wrapping up with North, Texas, we experienced sequential natural gas volume declines in the 4% to 6% rage as expected and less mature basin.
Net profit for the quarter to $69 million, which decreased by approximately 6% as compared to both the first quarter of 2020 and the second quarter.
[music].
The decline in segment profit was driven primarily by volume declines.
Segment free cash flow for the quarter was $66 billion as North Texas continues to be a predictable stable and significant source of free cash flow for us.
As we think about the rest of 2020 for North, Texas, We don't expect any drilling activity on our footprint.
We continue to expect the Devon acreage sale to be Kb to close this year and see that is a positive as BK becomes then as a new focus donor with fresh eyes as to what the opportunities maybe.
With that I'll pass it over the Pablo to discuss our financial update.
Thank you Ben good morning, everyone.
It's great to be here and I'm excited to be part of the N. like <unk>.
I'll start with the second quarter highlights.
That's very and Ben mentioned Enlink delivered a very successful second quarter of 20 plenty.
Achieving $255 million of adjusted EBITDA.
This is relatively unchanged from both the adjusted EBITDA that Enlink delivered in the first quarter of 2020.
And then the second quarter 29.
This underscores the earnings power and stability of our platform, that's well that's a decisive and swift actions our team talk in response to the unprecedented challenges in the energy industry.
And Mike also achieved $72 million of excess free cash flow for the second core 2020.
With three of our four segments contributing strong free cash flow and the Permian segment being basically self funding in the core.
We define excess free cash flow as distributable cash flow less growth capital expenditures and that the enlink and less distributions to our common unit holders.
Excess free cash flow increased by 64% compared to the first quarter 20 to 20.
And we expect our excess free cash flow to be higher in the back half of 20 20-F, our capital expenditures continue to decrease capital expenditure is not the enlink for the quarter were $58 million.
Down close to 60% from the first quarter of point plenty.
With our Tiger project wrapping up we expect to continue to reduce capital investment not just this year, but also meaningfully in 2021.
One of our top priorities is to maintain our strong liquidity and financial position.
We have a 1.75 billion dollar revolving credit facility.
This does not mature until 2024.
At the end of the second quarter, we had 400 million dollarss drawn on that facility.
There are several options available to us for the refinancing of our only near term maturity. Our 850 million dollar term loan due in December of 2021.
Including using the undrawn capacity under our revolver without impacting our leverage metrics as we look forward, we have a favorable senior notes maturity horizon with approximately 37% of our bonds not maturing for 20 years or more.
Our next senior notes maturity isn't until 2024.
We ended the second quarter with debt to adjusted EBITDA of 4.3 times as calculated under our credit facility progressing towards our target leverage level of under four times.
We will continue to maintain our strong liquidity position manage our term loan maturity and reduced that.
Now, let's turn to our 20 to 20 guidance.
You will have seen in the materials, we released yesterday, an update to the 2020 guidance.
We provided in May.
From an adjusted EBITDA standpoint, we're now on track to achieve into high end of our previously guided range of 950 million to $1.25 billion.
We're pleased with the resiliency that our business showed in the first half a year positioning us to end the year on a high note.
With respect to excess free cash flow, we now expect to meet or exceed the high end of our previous we guided range of $260 million to $280 million.
The Enlink theme has not only adjusted our business model to self on Capex and distributions, but also to generate strong free cash flow.
Our free cash flow yield, it's an excess of 20% setting us apart in our industry.
Well, we woke up to 2021, we expect to continue to see very strong excess free cash flow generation from our plot.
The strong financial position, we find ourselves and it's in large part due to the Swift companywide cost reductions enlink executed and it seems very disciplined approach to deploying capital.
When the team set out to drive cost from the business earlier. This year, the expectation was that $100 million, we'd be sustainably removed from operating expenses and general and administrative expenses.
The steps taken were tough, but we are seeing the benefits of those measures in our financial results and we now expect.
It makes the previous cost reduction targets by 20%.
Bringing the total savings to $120 million or 20 timing compared to 29 team.
Most of these reductions work to fixed costs and are therefore, largely sustainable in a recovery.
The capital deployment standpoint, we are seeing capex come down quarter over quarter as expected.
Our one major capital project for this year is a tiger plant in the Delaware Basin, which been discussed.
And the vast majority of that roughly 60 million dollar investment is now behind us.
We expect the remainder of capital this year to be spent on welcome acts and gathering infrastructure with total capital for the year coming in around the midpoint of our guidance range of 190 $250 million.
We expect our capital expenditures to be significantly less in 2021, then the amount we are investing in 2020.
Before I turn the call back to Barry I'll touch on the key point of the Enlink story.
That is a strong roster of customers Enlink has connected to assist them from the first mile of pipe the last mile pipe and all the milestone between.
First approximately 94% a gross margin earn abate in 2020 comes from fixed fee contracts, which provide much needed visibility and stability of cash flows, especially in this environment.
Second 85% of our second quarter revenues were generated by Counterparties with investment grade ratings or parties, who have provided us security.
Our top end Counterparties represents 63% of our second quarter revenues.
90% of those customers have investment grade credit ratings with the remaining <unk> percent, having provided a security.
We've seen our customers and counterparties, whether the recent storm very well.
We're looking forward to moving into the recovery together and growing from here as we emerged stronger from the challenges we have all phase.
Again, I'm excited to be part of the Enlink team and I'm looking forward to all that we're going to achieve.
With that I'll turn that back over to Barry.
Thank you Pablo we shared your excitement as you join our team.
Before we open up the call for Q and I will leave you with this our execution plan is delivering results.
Our cost management efforts or exceeding expectations.
We have a number of compelling investment opportunities ahead of us and the right highly engaged team in place to deliver value.
And most importantly, we remain focused on maintaining safe and reliable operations for our employees.
And the communities we work in.
With that you may now open the call for questions.
We will begin the question and answer session. So ask a question you make press Star then one on your Touchtone phone, if you're using no speakerphone. Please pick up your handset before pressing the key.
Withdraw your question Press Star then to at this time, we will pause momentarily to assemble our roster.
Our first question it's from no just so neat some you'll be yes go ahead.
Hi, good morning, everyone. Good to hear of the one it's well maybe to start off no problem here in new CFO in place.
Lot of going on both the industry and company wise and so forth.
Can you walk us through your initial thoughts on how you plan to be dynamic around the balance sheet and what options are available do you see yourself buying your junior sub notes preferred.
And bonds in the open market.
It was kind of the way to accelerate leverage reduction. That's just wondering if you can sort of walk us through your your initial thoughts and planned since you come to the company.
Yeah. Thanks for that question, it's great to be here.
So first let me talk a little bit about my priorities I think from the financial perspective, those are very clear we've outlined them.
In the presentation that we posted to our website <unk> first and foremost at maintaining the strong liquidity I think you saw the company take very Swift action or early in the year to ensure that and really prioritize that.
Second is addressing the very manageable debt maturity that we have in the term loan that's not due until the end of next year.
And then third is reducing leverage to our target of under four times.
You know within within your question you asked about a potential to buyback bahnsen continue that.
So first I'd I'd say it is a tool that we have you saw do some of that in the second quarter.
Got it at a pretty attractive price. So it's certainly a lever that can help us decrease our leverage but we're balancing our priorities and one of those of course is maintaining a strong liquidity.
So you you'll see us have that's part of the mix, but we'll continue to weigh that against other opportunities and really focus on generating the strongest return.
Do you envision yourself being a little bit more dynamic I mean, if you are generating free cash flow that you could be a little more aggressive in a way the liquidity.
Objective of a little or put it a little lower on a profile list.
I just wonder given these types of opportunities pricing in your wife's it sort of seems like that you would want to pivot to be a little bit more aggressive in terms of buybacks is is that the way you're thinking or worse liquidity still the number one priority.
Liquidity still top priority and a as I said the bond repurchase is one of the tools in the tool kit and we'll continue to weigh that against other.
Hi return opportunities, but what I will tell you is we're going to be very nimble.
And so the goal is to be ready to execute.
Well, we know is that this market is constantly changing and so it's not going to stay status quo, either things are going to be better or worse, and we'll be ready to take advantage of of the different levers that we have available to.
I sure. This is Barry let me, let me say, we've had conversations with you a recently, where we've really emphasize the our focus on the entire capital structure and if we think theres opportunity on our balance sheet to to do some work and so I.
I think where do you use the word dynamic aggressive whatever it is we're going to be active and a we're going to be ready to take advantage of opportunities. We see you were going to create opportunities and so I think Pablo is the guy who to make that happen, but it certainly is a is a broader effort than that.
Perfect and maybe just to follow up questions with respect to the results first on on the on the cost saving side.
Well.
Said, another $20 billion of expected it and so forth. So we're looking at a total of $120 million worth of savings right now how much of that is variable and that's just going to change with ebbs and flows to the business versus how much is a permanent cost structure with production.
If you have a percentage between the two that'd be helpful. Great question sooner and thanks for a little bit of a softball, because oh, we have done tremendous work across our cap our cost structure and I'm talking about the fundamental cross structure to remove fixed costs.
And so it is sustainable Oh, if we were to see a much more active environment.
We certainly have the ability to scale up but we are at a foundational level of a cost structure that will be a as it is today going forward across the business that we have so a great work sustainable cost reductions and a continuous process of driving down costs a across the.
Business, that's something you're going to see us the relentless about a will wake up every day, because I mean look it's been reinforced.
By seeing the impact in the results and so.
Our team is motivated by seeing how much we've been able to impact the businesses I listen to the 120 million dollar number a number of times.
You know throughout our prepared remarks.
I mean, that's extraordinary when you look at.
The same store business.
Approximately 20% cost reduction that's a great work.
Okay and one final question. If I may can can you provide us a little bit more color on the gas volumes in the Permian could the second quarter. I mean, you know just looking at the news reports and you see how much production down and so forth.
What was the new ones that resulted in your strong gas volumes in the Permian into Q.
Patient or it's been.
I'll, probably give you even a little bit more answer than you're looking forward. There. So you saw our gathered volumes were up about 5% quarter over prior quarter, 4% on the process.
But that doesn't really tell the whole story because if you go back to what we talked about in first quarter call, we talked about seeing a significantly lower.
Volumes from our on load customers. So these are our neighbors for whom we processed gas.
With their own curtailment, they didnt need us as much as they needed as a in the first quarter and so we saw a significant reduction in those volumes.
But we more than made up for that with gas for which we provide a full service the gathering compression and trading or a processing I mean to say.
Which which of course has a higher margin business for us and so the 4% and 5% sequential increase if anything understates the strength of the core business. The full service business that we provide the Permian.
You know asked as you know how how are we up when you know what others are down it gets a few things.
One is we provide the best service in the industry and I believe that that matters when people decide where they're going to curtail production.
Second thing is we have a great team the stays in constant communication with the customers and is able to respond in ways that support the customer through.
Through difficult times, and then the last thing I would say some of it is is lucky to draw.
You know our customer base on our particular acreage I'm, just didnt see a need to curtail as much as some others did.
But that that makes perfect sense appreciate the color I'm guys. Thank you very much sort of color today and how the same day.
Like Shneur.
Our next question is from Jeremy Tonet from JP Morgan.
Go ahead.
Hey, Good morning, guys. This is James on for Jeremy.
Maybe just starting with a more broad question on the assumptions built into.
The second half a year that kind of brings you to the higher the guide I'm just gonna volumes have rebounded a lot quicker than I guess expected across the entire portfolio, but I just think you've touched on productivity trends through July and what you're seeing across your footprint.
With particular emphasis on just the out year part, especially with a recent strength in gas prices as it pertains to kind of your Oklahoma.
Yeah, Hey, James it's been.
As to how we're in the a higher into the range. You know obviously part of it is printing a really strong second quarter stronger than than we anticipated when we roll on the phone together three months ago.
But I'd also say, we've seen a really nice level of activity given the environment that we're in across a across the asset. So if you think about our Midland gas business, which is the biggest contributor to the Permian segment.
We had a good level of drilling activity all throughout the crisis now we saw a slowdown in completions.
But with 40 to 40 call it $3. This morning.
The crude strip.
Back enough of a price incented to bring the completion crews back and that is what we're saying.
I do expect to see that more 2021 weighted than in 2020 weighted because it does take time for for those volumes to Oh to show up but it will have an impact it will have some impact later in the year.
In Oklahoma, we've seen.
Modest level of activity threw out a and it varies from from month to month at times, we might have been no rigs at times, we were three or four rigs.
Today.
We're at attitude.
And I expect that will.
Continue to see that level of activity as we go forward through the rest of the or.
Got it thanks.
Then I got something similar kind of.
Anthony but do you guys didn't find the 50 million of flex Capex last quarter that I. Soon we'll be spent just given the updated outlook. <unk> is that you know could you maybe like talk about where that 50 million spend is going in terms of for price is that go into the Permian primarily.
Yeah, James just gone primarily to the Permian and and you rightly point out.
That is tied to producer activity levels and because we've seen those levels pulled up in in fact, we've seen the completion activity accelerates a bit.
We expect to be right in the middle of the range right now we expect to be around the middle of the range that we've given for Capex guidance.
Got it thanks for the color and then just one more of a could you guys. Obviously bad benefited this quarter from crude oil marketing Permian.
Can you talk about the opportunity carrying into Threeq you at all.
Yeah. Thanks, Yeah, well first let me take the opportunity to kind of science for everybody to the the benefit from the storage assets. It was only about $4 million and so while it was a nice contribution is quite small scale you know a scale thing and so if the street number or something.
<unk> to 35, and we printed to 55, if we never done anything in storage, we still would have had a really nice performance for the quarter.
Of that 4 million I would say roughly three or so was in the Permian and then there was a small piece in order being a small piece and Oklahoma crude.
That was a simple you know a fairly straight forward storage trade that took advantage of the very steep contango in the crude market.
That we saw the second quarter in terms of repeatability. It is repeatable when we see contango, but if you look at the scrip right. Now there is not you know not a lot of contango out there and so you know I don't I don't expect to see a much of that in the third quarter and what we know right now.
Got it a appreciate the question.
Thank you James our mix.
Next question is from Colton Bean from T. P. H C [noise].
Go ahead morning.
Hey, good morning, just a follow up entrepreneurs first question there ounce financial policy.
As you evaluate the appropriate leverage targets can you speak to the factors that go in about four times are better and how you think about the preferred equity in that context.
Yes, good question.
So the factors going into the four times leverage is.
[noise] first that we're generating really strong free cash flow right. The we talked about earlier in the prepared remark. The company took very Swift action to preserve $600 billion of cash flow relative to 29 team and so we're in the fortunate position of I'm not only.
Being a self sustaining but also generating excess.
[noise]. So you know we will get comparative to work towards that target, but in terms of the timing really depends on pace of recovery.
I'd just say we were closed and have good momentum around it.
Yeah in the preferred they're not they don't factor into that four times that correct.
No they're not in four times you know they are treated us equity, but I would say as Barry mentioned earlier, we are looking at opportunities across the capital structure.
To to see what we can do to optimize that.
Got it and then maybe a question for Ben.
With the Ngls recovering over the course of Q2 and an increased ethane premium are you seeing any opportunities in Louisiana processing footprint at Pelican or black and then.
Yeah Colton. We are you know you saw that we had a little bit of a sequential increase in the processing volumes are up to 100, 1100, 97000, a and b to use a day into Q.
Today, we're north of that but you know.
Just look at the price action on the weak right. We had gas up 30 cents Monday Tuesday, and that they didn't move that much in so it's an extremely dynamic market, but when you know when when it's there.
Our team a in operations and in topline control is very fast take advantage of it.
Got it thanks for the time.
Thank you called our next.
Next question, it's from spire Donuts from quite a sweet go ahead.
Hi, Good morning, guys I'm just follow up on on the guidance seems to imply flat for the rest of the year and I guess for instance, with Tiger plant coming online and the returning to shut in production time. It sounds like things are going well I'm just curious what's offsetting that give you that implication that's going to be flat.
Yeah.
I hesitate to say you know to say too much about you know about a quarter to quarter comparison, but you're right.
We have some volumes ramping in the Permian with with Tiger coming online at the same time, we'll expect to continue to see a bit of decline in north, Texas and while we've seen the shut in of the second quarter come back online in Oklahoma. The asset itself is still going to be.
In a in a bit of a decline mode and so could put all that are in the mixing bowl and a you know you end up in the guidance range. We're in and yes, as we said expect to be in the higher end of it.
Got it and then.
And having a very fine scope for spending on projects going forward.
And just maybe I guess a bit of a follow up to scenarios question, but how do you think about the return hurdles. When do you see your stock trading at a 20% free cash flow yield as you mentioned.
And making this decision between you know when you've got that free cash flow. Obviously deleveraging is a priority liquidity is a priority, but when it comes to grow with first your 20% free cash flow yield does does buying back your own stock become a consideration at some point.
Yes.
Thank you first of all I think you point out that we've got a lot of opportunities and we are very focused on the allocation of capital.
So we will look at that.
The good news is we believe that we have opportunities that are right around our platform today that do meet those thresholds and that our competitive with buying back our stock, which we think is a better long term answer and so.
I think the emphasis really though would be that the filter is that high the bar is that high and we will be very disciplined as we look at all the opportunities and how we allocate capital across the the balance sheet and the investment opportunities that we see.
That's it for me thanks, guys well.
Thank you Sir.
Again, if you have a question. Please press Star then one.
Our next question is from game Marine from Mizuho go ahead.
Thank you good morning, everyone. There you keep using the phrase I think scalable and a lot of your prepared remarks.
And your dock operating your assets differently than you had in the past him I would surmise different than a lot of other people in the industry.
Can you just talk about Zap platform that you're building and the ability maybe to consolidate some of the sector in the capital constrained environment, if you see that happening.
I guess in the near to medium term.
Enlinks can clear older given like us the scalability of the popcorn.
Yes. So good thanks for the a question, let me start and Ben will also add something here, but.
What I would say is we've done a great work around process improvement operational excellence focusing on improving the performance of our assets and all of those things go in to our ability to do to be a low lowest cost provider and so.
As we've said it is a mindset is a mindset that is will continue.
And I think we've seen a again some tremendous work that kinda begins to feed on itself as we go forward. So.
As it relates to how does that create opportunities I I think the lowest cost provider does have greater opportunities for consolidation.
We will be actively looking at opportunities to consolidate and optimize operations around our assets.
In the near term I think that's where the opportunity is that it's probably not broad consolidation of but close and tuck in type opportunities that we will be focused on a again you will see very different structures in terms of how we achieved that it will be in some cases, it's come on.
Contracting in other cases, there may be an outright ownership consolidation of where we are acquiring something or a joint venture.
So you know a lot there a and it is absolutely a focus for us in our resource allocation today is a very much in the direction of those types of opportunities.
Yeah, only only thing I would add to that is that we have the biggest position in central Oklahoma, we have the biggest position in north, Texas and so.
That gives us the flexibility to absorb.
Volumes from others, whether that's through a commercial contract is very says.
Sure or potentially through tuck in acquisitions, if we were to pursue those they would have to be accretive and at worst would need to be leveraged neutral and ideally would be a enhancing to the leverage and liquidity position.
But we're well positioned to do those in our core basins, where we have big flexible scalable platforms.
Thanks, guys and I know one quick call. It seems like doesn't announced last night the TV transaction.
Closing a little earlier.
You spoken to them and like there was also something about the contracts I think certain a little bit.
Once that deal close can you just speak to that and as a matter forgotten set off this year.
Yeah, I gave 'em we have spoken.
Both with Devon, and several times that would be kv, we're beginning to build a a strong relationship would be kv, who will be our new customer I.
Hopefully in the fourth quarter, a this year according to a or pursuant to their current plans.
In terms of the contract or changes this is a.
A reminder of some news that we shared with the market last year as part of that transaction. We agreed to provide a modest reduction in the processing fees that BK be a pace.
Well on the on a rich gas.
In exchange for.
Some value in our NGL segment.
And we think that we're a a modest net winter in you know in that in that value trade.
And so it was a deal where everybody everybody. One you know we got some NGL value be kv gets to pay lower processing fees and in Devon, presumably realized a little bit better value for the asset then are you know than than if they hadn't done.
Done done that deal with us and that will all take effect at the time transaction closes whether that's a you know whether that the fourth quarter or or some other time.
Thanks appreciate it.
Thank you good.
This concludes our question and answer session I would now like to turn the conference back over to Barry Davis for closing remarks.
Thank you Kate for facilitating our call. This morning, and thank you everyone for being on the call today and for your support as always we appreciate your continued interest and investment in Italy. We look forward to updating you with a third quarter results in November in the meantime, we wish you all well and stay healthy have a great day.
[laughter] the confidence is now conclude that.
Thank you for attending today's presentation you may now disconnect.