Q2 2020 DCP Midstream LP Earnings Call

August 6, 2020

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Ladies and gentlemen, thank you for standing by welcome to the Q2 2020, DCP Midstream earnings Conference call. At this time, all participants are gonna listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone.

Please be advised that today's conference is being recorded pure acquire any further assistance. Please press Star then zero I would now like to hand, the conference over to your speaker today Ms., Sara Sandberg Senior director of Investor Relations. Thank you. Please go.

Thanks, Jamie Good morning, welcome to the DCP Midstreams second quarter 2020 earnings call today's call is being webcast anchors those listening on the Sun to view, the supporting slides, which are available on our website at DCP midstream dotcom.

Before we begin I'd like to point out that our discussion today includes forward looking statement actual results may differ due to certain risk factors that affect our business. Please review the second part in the deck that describes our used to forward looking statements and her completely thing about risk factors. Please refer to the partnership's latest FCC filing.

Also use various non-GAAP measures, which are reconciled to the nearest GAAP measure and schedules in the appendix section of the slide better van Kempen, CEO and China, Brian CFO will be our speakers today and after their remarks, we'll take your questions with that I'll turn the call over to better. Thank you Sir I'm. Good morning, everyone. We appreciate you joining us and hope girls safe and well.

Today's call, we will discuss our strong strong Q2 in first half results or guidance and I would look for the remainder of the year and new developments in the DJ Basin.

From a firstly, thank you to team DCP, an incredible credit goes to every employee for delivering some of our best safety reliability and financial results and what has been an exceptionally challenging environments, our team and our diversified asset base is strong our strategy remains consistent and effective the earnings power of the DCP business.

Model is evidenced by our outstanding financial results, we generated $220 million of distributable cash flow in the second quarter and $440 million year to date, representing our strongest performance since the company most combined with DCP midstream LLC.

As a result of our early and aggressive efforts to optimize cash we create is 54 million of free cash flow the second quarter and our bank leverage improved from Q1 now down to a target of 4.0 times.

Underpinned by our strong year to date performance in recent market stabilization, we have three issues, our original adjusted EBITDA and DCF guidance, which Sean will discuss shortly.

During the quarter volumes across both segments remained stronger than a worst case scenarios as a result of fewer than anticipated shut ins and the earlier return of curtailed production.

Importantly, we were also able to proactively work with our customers to optimize their netbacks throughout our integrated value chain. This insurance that's been shut in decisions were made DCP versus service provider of choice volume stayed on our system, creating a win win for our customers and for DCP.

On our pipes ethane recovery and opportunistic NGL marketing kept for utilization rates high and our earnings balanced.

Looking to honor highlights in the quarter with our liquidity now six now squarely secured through successful capital market execution. Our primary financial focus is to utilize our growing free cash flow to de lever to company.

Apply long term capital capacity short capital allocation strategy.

CP 2.0 transformation and integrated footprint will continue to drive efficiencies and generate significant free cash flow throughout 2020 and 2021.

Finally, several positive developments in the DJ basin have completely unleashed the future potential production and I look forward to discussing those later in the call.

Slide five one offline how combination strategic execution and deliberate self help measures in first half of this year has helped us overcome a year over year at first price impact of $125 million and while also positioning us well for long term sustainable success first most importantly.

Our goal with 19 responses prioritized and protect the health and wellbeing of our workforce.

Next Saddam turn to cold or fully integrated footprint became a critical assets approximately 65% over Q2, adjusted EBITDA was generated by our logistics and marketing segment, demonstrating the earnings power of our pipelines downstream assets and highlighting the drive over commercial teams.

Not only has this segment produced high quality earnings, but our ability to optimize producer customers Netbacks, most critical to keeping volumes on our system and throughput rates high.

As a result of our efforts an increase ethane recovery average Q2, NGL throughput remained flat compared to Q1.

On top of a great portfolio of assets, we're retaining nearly $900 million of cash on an annualized basis with a sole purpose strengthening the balance sheet, which has made a critical impact in the first six months. This year, our cost started up $87 million year over year, driven by a relentless dedication to improving.

Efficiencies in our contract services consumable labor and utilities.

Our sustaining capital is down 23 million year over year due to fewer well connects risk based prioritization for projects and deferral of some innovation efforts.

And finally, our DCP 2.0 transformation effort allowed us to not only take cost out of the system. Early it also enables us to continually optimize margin enhanced flexibility and speeds within the organization and perform operations completely remote including safely operating gas processing plants from employees homes.

Our team has achieved significant success and proven our resiliency and navigating this downturn as demonstrated by the impressive financial and operational excellence outcomes with about six months, including an 11% increase in DCF kind of 5% increasing adjusted EBITDA compared to the first half of 2019 now to talk.

Sort of details over Q2 results guidance outlook and financial position I'll turn it over to Sean.

Thanks, Sadder and good morning on slide six you'll find the key drivers to our strong second quarter financial results.

In Q2, we generated adjusted EBITDA of $311 million and DCF $220 million, representing a 27% increase in DCF year over year and driving an improved leverage metric of four times. Despite one of the most challenging quarters or industries that Racine.

Our results were driven by our early and proactive execution on cost and sustaining capital reductions and strong I want them performance in Q2, we achieved the lowest quarterly costs in the history of the company and set our lowest first half trend ever.

Our Allen EMS segment, adjusted EBITDA increased 18% year over year, driven by solid Gulf Coast Express and NGL marketing results and strong volumes from our NGL logistics assets supported by ethane recovery, all partially offset by lower Guadalupe earnings.

We continue to effectively manage our sustaining capital, reducing our year over year spend by 13 million, while still ensuring safe and reliable operations in total these efforts more than compensated for an unfavorable year over year commodity price impact of 39 million net of hedges due to NGL and crude price declines of 37% and 53% respectively over this.

Same period of time finally, GNP margins were down 9 million as result of lower overall volumes in the GMP segment tied to our Eagle Ford and mid continent assets.

Which were partially offset by increased DJ basin, and Permian volumes I.

I want to close out my Q2 comments by giving a little color what we're seeing from a volume standpoint early in Q3 July Ngs NGL volumes on sand and southern Hills of both increased over Q2 average throughput and GNP volumes remained relatively flat versus our Q2 average.

With our strong first half of the year setting a solid foundation on slide seven you'll see that Weve reissued our 2020 adjusted EBITDA and DCF guidance originally given on our February call. This year.

We've also added to free cash flow measure defined as distributable cash flow less distributions and less expansion capital expenditures with our current distribution coverage sitting at 2.7 times for the quarter free cash flows them replaced coverage as a more relevant financial target highlighting a comprehensive measure of cash flow and indicative.

Of of our ability to de lever looking to our guidance as expected the composite of our earnings has shifted from earlier this year driven by strong self help actions focused on preserving cash flow to offset the unprecedent impacts of cobot 19, and as dampened price environment with that said, we see strong DCF performance this year driving toward them.

Midpoint of our range with EBITDA trending toward the low end as many of our self help measures were strongly focused on cash generation, which is not captured within EBITDA.

We've also updated our sensitivities due to the shift into ethane recovery.

Slide eight give some color around our current second half year outlook in potential upside and downside drivers were expecting relatively flat NGL throughput across our full portfolio of pipelines.

With ethane rejection forecasted in the fourth quarter, resulting in potential declines.

Our residue takeaway earnings will increase beginning in Q3, driven by incremental earnings from the new we in service Cheyenne connector on the GNP side of the house, we expect second half overall well to volumes to be slightly higher than Q2 averages. We continue to maintain frequent dialogue with our customers and expect all previously shut in volumes to be back on our.

System during Q3.

Finally, as you know we have dedicated substantial effort to reducing our costs in capital. This year with a year to date cost reduction of $87 billion from 2019, we expect to see higher costs in the second half the year, but again, we're still on target for a more than $120 million decrease year over year.

Our sustaining capital will be more heavily weighted to the back half of the year and our growth capital will be significantly lower for the remainder of 2020 as we spent the vast majority on projects in the first half of the year and are now expecting our spend to trend to the high end of our $150 million to $190 million range, but still down approximately 400 billion for me.

Our original guidance.

Taking all this into consideration, we're projecting free cash flow to substantially grow in the second half of the year, which we will prior prioritize on reducing debt and strengthening our balance sheet.

As the industry outlook continues to remain dynamic on the right side of the slide we've highlighted some potential tailwinds like sustained ethane recovery and also headwinds that could result from ongoing pandemic volatility that we will monitor for the rest of the year.

On slide nine I want to highlight our solid and improving financial position, our multiyear evolution to fully integrate our footprint and increase our logistics assets, coupled with our strategic hedging program have enabled us to achieve an 81% fee based in hedge ratio exceeding our goal of 80%.

This de risks our earnings and provide stable cash flows evidenced by our strong first half performance.

In Q2, we significantly shored up our liquidity with strong execution of our $500 million bond transaction, bringing our Q2 liquidity to approximately $1.1 billion with abundant liquidity now secured our primary financial priority is to utilize our growing free cash flow to de lever the company.

In Q2, we produced 54 million of free cash flow, allowing us to lower our leverage to 4.0 times, we expect to be significantly free cash flow positive for the remainder of the year and throughout 2021, enhancing our liquidity and allowing for debt reduction.

To close we're continuing our track record of meeting our financial commitments, even in extremely challenging times now I'll hand, it back over to valor. Thank you shown on slide 10, I want to highlight one of the premier basins in our country. We set for years that are produces our drilling some of the best growth with the strongest returns right here in Colorado.

And we're excited to see the potential to DJ basin now fully unleashed.

Just a few weeks ago several developments in short political and regulatory certainty in Colorado for years to come.

First plus confirmed that there will be no anti industry statewide ballot initiatives during the 2020 elections and following debt announcements governor bolus reinforce reaffirmed that the oil and gas floors are over by announcing a broad coalition to support the implementation of Senate Bill 181.

This included an agreement with key stakeholders, including environmental Ngls and state elected leaders to actively oppose any oil and gas belt and isn't initiatives or any substantial legislation on oil and gas through 2022.

Colorado is open for business will continue and it's essential role, providing our nation with critical critical energy supply we demand.

To ensure that supply can get to markets in Q2 to 600 million cubic feet. A day Cheyenne connector came online providing residue gas takeaway from the DJ basin to the Rockies Express pipeline. Additionally, the front range infectious express expansions went into service, allowing for incremental NGL takeaway capacity.

These projects in addition to the recently and service Southern Hills extension of now eliminated all logistic constraints in the basin.

The leasing to offload originally slated for a mid 2020 in service date will not be online in Q4, allowing us to meet our minimum volume commitments and ensuring we're in lockstep with our customers production forecast.

With the political risk, but in Colorado substantially minimized by states full elected officials and our final projects coming online the DJ basin is ready to realize its full potential.

To wrap things up on slide 11, as we enter 2020, we set our past and future success comes down to driving strategy built around operational excellence and sustainability.

Solid financial execution and advancing our DCB 2.0 transformation efforts and this has absolutely held true we have delivered our strongest first have DCF and lowest first half costs. During one of the worst economic and industry crisis, we have ever experienced demonstrating our stability and.

Our resilience, we secured our liquidity became free cash flow positive and improved our leverage as a result of a premier and fully integrated value chain early an aggressive self help measures and our investments in our DCP 2.0 transformation.

We expect to be significantly free cash flow positive in 2020 and beyond funding our distribution and all capital expenditures, while prioritizing long term de levering and maintaining an attractive yields for our unitholders.

On the capital side, we've always been clear did we have no intention or building to last plans for the last pipeline.

This disciplined supply long capacity short approach to capital allocation has ensured high utilization rates and attractive returns on our projects. Additionally, as part of our efforts to mitigate against overbuilt coming into 2020, we have executed all floating every region over footprint and were able to return.

Volumes to our system to improve our own utilization rates during the downturn.

Finally, and most importantly, we remain steadfast in our commitment to operational excellence as evidenced by the execution of our pandemic response plan, which has ensured the safety of our workforce and reliability of our operations. The past two years of represents our best safety outcomes in the history if the company.

Dealer recently honored by the GBA Midstream Association with the Energy Conservation Award and the awards for Environmental Excellence.

These successes are result of dedicated and strategic execution, we will continue our proven track record of effectively managing through the cycle.

In the future limited growth, our multiyear strategy of transforming the company has prepared us well and we're confident in our ability continue to harvest strong returns from a premier asset base.

Finally, I will say, thank you again to our employees for their incredible accomplishments and to our investors for their continued commitment to DCP with that look forward to taking your questions and Jamie Please kick us off.

Thank you as a reminder to ask the question you'll need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.

Please stand by what we compile the Q and a roster.

Our first question comes from Chris seeking Alpha with Jefferies. Your line is now open.

Hey, good morning, everyone.

Morning, Chris.

Better we've seen a lot of companies.

Cut costs and lead to significant improvement in operating results, but I think.

Quite like you guys have so congrats on all that progress made today on those fronts.

If I could this kind of where I want to start.

Clearly you've had overarching initiatives for a couple of years with regard to technological adoption.

You know remote facility operation things of that nature.

You Didnt have a cost reduction associated with headcount reduction earlier, this year, which are announced and turn just kind of getting I guess I want to get a better flavor.

In Sean's comment about possible rise in the back half here as to maybe what were the acute drivers into Q that might reverse you did because business conditions mandated and heightened uncertainty in.

Cobot limits things of that nature, and what it is sort of a sustainable.

Carryforward effect into in your mind as sort of permanent levels at the company.

Great Great essential health Tech team thousand appreciate your comments.

Just overall to say I think it's great when 9100 people ROE in the same direction and all that hardware phase often that's on the Im pleased with DCP midstream have done here over the last six months and I think you're seeing the results of debt.

To your point of cutting costs and what else can you do and what's going to sustainable kind of run rate you heard shown talk about that $120 million is what we're looking at.

For 40 year. So we feel very strong you can pick and $120 million of cost going into the bank is there a little bit of shape to that yester, absolutely. Yes, we have $87 million kindness. The first half and then into second half we do see some of the cost kind of come back that we're kind of temporarily so let me give you an example.

DCP 2.0 transformation, we talk about remote operations on you know how we ask you know running 20 plus facilities remotely from 20 stores floor here in Denver, our goal for this year was to get another 15 or 20 facilities remotely operated.

And what we decided in the first half a dozen of into March timeframe that when you start kind of a double black Swan prices in the face what you're doing is you're going to focus on liquidity and saving every penny. So we decided to defer that and movement out and say, let's see how do we get to this to these kind of this this crisis. So we may.

Start picking up some of those costs again into back half of the year investing in the business to make sure that we can continue to GAAP, great margins lower cost in the future. So that is going to flaunting.

We did things around our workforce I think that is tremendously sustainable we always look at Blizzcon, we do from a company how do we make sure well from an operational excellence point of view reliability safety can we run reliably and safely we have some of the best reliability and safety records in the history of the company.

Here in the last six months in the last two years. So we believe that were very prudent there we could continue to be safe. So overall.

Yes, there is going to be a little bit shape, but I think the important thing for you all to now it's a $120 million that we kind of talk about of savings year over year, we feel very very strong about that and we believe that can take in the vast vast majority can be taken into 2021 shown you and only a couple of things that Chris.

We typically are made the backend loaded on overhauls on turnarounds and things of that nature. So my comments earlier really also point to those types of activities that really didnt occur that variable rate and very little fashion in the first half the year, you'll see a lot more of that in the second half of the year and then batter alluded to is one thing I do want to in terms.

Sustainability of our costs.

You have some of the actions we've taken this year head count reductions various things on efficiencies things. We've learned that we can do differently via the cobot environment and utilizing all the work that we've done to digitize the company.

We will get a full year benefit of many of those things next year and we're not getting that we're getting a partial year. This year. So that I'm really excited about that I mean, the headcount reduction.

We took that $9 million charge.

In Q2, but the ongoing annual savings of that I think we're we're thinking on a loaded basis is 40 to 50 million. So you'll see more of that next year.

So at the end the day a lot of what we're doing is sustainable definitely some back in shape. This year just want to make sure you guys were aware of that but I'm incredibly pleased with the performance on the efficiencies at the company has been able to deliver.

Thats, great and yet they added color is very helpful. I think maybe falling on your comments about the shape for the back half and Chinese you'd noted overhauls turnaround activity in the back half.

As sort of a typical cadence I did notice year that what you define as maintenance Capex went up to an endpoint at 85, you've only spent 19% and that midpoint number in the first half so.

And in contrast, you've already spend I think above the midpoint on the on the growth side in the first half. So can you just talking about maybe some of that the items that might have shifted around there and should we just really think about it at an aggregate capital number and and sort of dispense with this bifurcation.

Yes.

As we've gone to a free cash flow measure that includes and both I think I like your recommendation of just putting them both in but I think.

So since we're focused on that and then a both come out of it probably not as big of a deal, but they don't always link most of the projects. If you talk about the growth capital unit, where the.

The majority of that's already been spent most of those projects were front end loaded.

And then obviously the big product that we pulled off the 400 million. The Sweeney option was more backend loaded or mid to back ended the year on sustaining capital couple of things to think through I mentioned two drivers obviously, we spend some of that money.

On overhauls and on turnarounds.

Additionally volumes are down in some key areas well connects or down.

So you would expect product replacement to be down.

The first half we are we may expect to see some increases there, we'll wait and see some producers have given us some outlooks that could require a little more.

In the back half of the year, there's some environmental spend Chris that we're looking at doing in the back ended the year, which would hit sustaining capital so that sort of shaping it.

And then I think those are the primary drivers and then batter mentioned some transformation costs, we pretty much put it for the most poor part on hold you'll see in those hit sustaining capital by the way you will see those hit more in the second half of the year as well maybe baby shown to quickly add on well connects obviously not a lot of all connections in the sector.

For our Bob if you look at our largest customer in the DJ Basin that announced earnings yesterday, they're going to put completion crew in hearing this third quarter day expect to grow strategic volumes. So that'll keep some well connect capital, which is great we love that.

If you look at our largest customer in southeast New Mexico that announced earnings yesterday, they're talking about drilling that they're doing in the Delaware in southeast New Mexico on volumes that are coming our way. So all of that will create some well connect capital and again I would like we like well connects capital, especially in the DJ, especially the Permian because.

Those are high margin regions.

That's that's great I also appreciate the color there final question for man and I'll hop back in the Q.

Is it the distributions from unconsolidated affiliates were sort of a surprise to us that the strength of that it's up significantly adding a year on year, you do detail that and pretty specific detail on your 10-Q, but.

Feeling patient this morning, I just want to ask is the whether it was there one of the assets that so that in terms of.

Cash contribution to this period that you type.

Sand Hills.

Short answer Chris Sandals.

The ads have very strong cash distributions grew remember the second half would there from a cash perspective distribution perspective, Q1, there's always tax at galore and payments that did that the assets make so they're usually a little bit lighter.

The assets had a good Q2 performance I don't want to discount that with going back into recovery mode.

With the company the commercial team did a great job of making sure volumes stay on those pipes, but sand hills was the driver.

Was there was there something there Sean and I guess that as a special onetime or type of distribution policy that from time to time okay.

Okay. Thanks, a lot for the color smart guys and congrats on a really nice numbers. Thanks. Thank you Chris.

Thank you. Our next question comes or Jeremy Tonet with JP Morgan. Your line is now open.

Hi, good morning.

Morning morning journey.

Just wanted to get a little bit more color I guess on.

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Ethane I guess, the extraction and how that kind of pulled up the volumes. There just trying to see what's baked into your guide on ethane capture.

It feels like we're stuck in a low twentys so not share with the economics look like today to extract C. In the DJ Permian, but just want to get a sense, there and how that influences DCP.

So we when we we went into recovery mode in the second half of Q2.

As did the industry. So when you look at Christmas is asking about the strong cash flows from the pipeline.

That was a pleasant surprise.

From us.

Our models to be honest, we did not have recovery baked in in Q2. So that was a definitely pleasant surprise, obviously when we look at those economics were couple think we're factoring in obviously the frac spreads the value of gas versus the gap the value of the C. And then don't forget we also bake into value up the transport on died pipes I sand hills.

In Southern Hills. So we are in recovery mode, a lot of our third parties that put volumes on our pipelines went into recovery mode. It was a benefit was benefiting factor for Q2 as we sit here today, you asked a little bit about the future outlook. We're still in recovery mode. I think some third parties may have pulled off.

I'm not privy to their their their economics and why they did that but we're still generally in recovery mode. You may have hurt our comments, we expect based on future frac spread to potentially go back into rejection in Q4.

If we end up not doing that and ethane stays strong and gas doesnt strengthened as much as the forward says it will.

That would be up.

Tailwind for the company at the upside potentially is pipelines, we get some additional volumes, but as we sit here right now I think we're thinking Q3 recovery Q4 potential to go back into rejection inserting jeremys month or two to add too much on the saying I think we have relatively conservative.

Assumption in our in our outlook for the second half where are we will see the volumes on the pipes going down a little bit because of the lack of ethane ethane recovery at the same time and you mentioned kind of where we're sitting from a pricing point of view.

Ethane is hanging up 22 cents net gas is a 225, so what's really interesting here.

If you look at what our price forecast is for the second half we have met gases 195, so were 15% to bump that we have Ngls at 40 cents. We're at 46 cents Ngls, we have $40 crude in our forecast we're at 42 and a half. So the thing is very very strong demands for ethane right now I'd like lumping to cope with.

19 has brought US is actually a significant increase of single use plastics and ethane is as a feedstock or not.

So one of two things is going to happen.

It's either gas is coming down when that if ethane stays the same or ethane prices have to start running with Nat gas to make sure that all of us are staying in recovery. If the latter half instead, it's kind of three acts good guide for US we benefit from higher gas prices, we benefit from higher ethane prices and we benefit from higher.

Volumes Omar on our pipeline. So that's obviously the scenario different rooting for but it's not what we have baked into our plan for the second half in trying to be conservative and saying Hey, we're just looking at both the strip to styling US right now and that's what we're putting in.

Got it that's very helpful. Thanks.

And it's been a very volatile year so far.

But it seems that things are settling out a bit here you guys brought back Youre your guidance.

It seems like producers I think have settled out in their plans and I. Appreciate I might begin a bit ahead of myself here, but just wondering any preliminary thoughts as you think about 2021 trajectory in trends relative to the back half 20, any early thoughts you could share here.

I think well packing that and I appreciate you, saying very.

Very political I think thats, probably will be understatement of today.

It's being definitely it's been pretty Crazy, obviously again I think lot of 900 people at this company have done so kind of work ourselves through that is really really monumental but yes. It feels like a little bit more calm even though the environment is still pretty pretty rapidly changing every single day, but.

As it pertains to 2021, Mike are going to give guidance in February. So we're not going to give you an awful lot here you heard me say in shown today that we believe you will be significantly free cash flow positive in 2021 as well so I.

I think thats going to be a pretty good outcome. This company can throw off a lot of cash you're seeing that right now and we're not spending an enormous amount on building infrastructure that means very significant cash left over to Delever. The company and that's really our primary focus and we feel very good about.

In 2021.

Mobile based ad.

The outlook does feel pretty strong right now, but we've got some good tailwinds you got a full Cheyenne connector just came online you've got those earnings as you think about 2021.

Battery alluded to in his comments the growth capital. We we took our we went down 400, but still somewhere in that high range of 190, I anticipate that to be lower next year. So you've got.

The benefits there I mentioned earlier.

For me that you're going to get a full year of headcount savings, that's not small $40 million to $50 million annually. We didnt see all that benefit. This year. So we've got a lot of good things for the company going into next year that I think could set us up quite well, obviously, we'll give you a full detail is better alluded to in February.

Got it that's helpful. Thanks for taking my questions.

Thanks, Jeremy.

Yes.

Thank you and our next question comes from Tristan Richardson with Truest Securities. Your line is now open.

Hey, good morning, guys just.

Quick question on you mentioned prepared comments around sort of optimizing that backs to customers in curious.

Got a little bit about that was that primarily look like is it is that incentivizing volumes on tier or some of these temporary arrangements carrying or some of this more kind of a permanent blend and extend type.

As we think about fees beyond just 2020.

Yes, I think you should really think about some things that you can do in short term, obviously things are really difficult for everyone.

Producers had a difficult times producers make choices around shutting in and most producers have a choice and can say in a lot I can shut something in overhead as maybe goes to midstream service provider, Amy or I can shut something in that goes to midstream service provider B and bubbly debt and.

Our strategy has always been here for the last number of years to make this company fully integrated midstream service provider, which means to her clipping coupons all the way from the well have to the market sensor and when you do that you have an opportunity to go back to your customer and say I.

I can help you here in a short term basis I can make things a little bit more attractive for you for the next couple of months. So you state on our system and may be.

You take your volumes of midstream service provider B and Thats kind of that said the type of arrangements that we did when our customers.

Incentivize them to stay on our system does mean men's we may have given them a discount somewhere along the value chain, but that you're doing the ship, creating a win win. Unlike your customer who is having is difficult difficult on your helping them out it's a win for DCP midstream because we continue to keep the volumes on our system and I think it also creates a longer term when we.

Our customer Mark ups when times are tough and your dare to help your customer people people can be remembered that so that's the type arrangements that we have done and you know and then lease kind of goes back to normal than normal happens then the good thing as the margin in fact is not not enormous and you'd see that unlike our second quarter.

Gross margin was great and earnings were greater than or profitability was very strong. So it just wanted to write things to do in an environment that is pretty tough.

Helpful. Thank you and then maybe just on the other side of that coin with on the downside in terms of revenue for protections.

Is there a dollar number on how to think about how revenue floors kicked in just during all the disruption we saw into Q.

So we have.

A variety of places we have minimum volume commitments and other stuff, we've never really hit though some people were always above their minimum volume commitments everywhere throughout our system be it on the GMP site or to logistics and marketing side. So we've never never had any issues there.

Okay, great. Thank you guys very much.

Kristen.

Thank you. Our next question comes to Spiro Dounis with credit Suisse. Your line is now.

Hi, good morning, guys.

First one for you just on de leveraging sounds like it's still very much a priority, but maybe some of the pressures come off here a bit. So just curious you walk through what the plan is now and maybe how aggressively you plan on approaching it hi. This is there an appetite the buyback debt or preferreds are you looking at asset sales and then can you take external cap.

Little or even a second distribution cut off the table at this point.

Yes, that's all I'll try to hit those in sequence the made out what about or chime in at the end.

But in terms of I think you're picking up on it exactly right I mean, our focus is to de lever.

We were able to I was incredibly pleased that we took our leverage ratio down from Q1 that is amazing from for one to four zero sets us up we're in a really good physician as you guys that we have the fireboat covenant, where a full turn away from their waste. We added this cash free cash flow measure so people can see how much we generating.

Again, our priority is to de lever with that cash flow and I think that can be that can happen relatively quickly and be pretty substantial over the next.

18 months 12 months two years and that is a primary goal of this company is to continue to usual utilize that free cash flow to de lever set the company up well favour used a key word harvest we've invested over the last half decade, a lot in our assets. We don't feel like we have to spend a lot more and we've set ourselves up quite well to continued.

Harvest and do those types of things I want to be clear you know we're targeting three five were sitting at four O I would really like to get the company down to three five on the bank metric I think that that gives us a lot of flexibility what space that we're in an industry that is going to have some downturns ups and downs at three five I think that sets us up quite well.

Well it also brings our rating agency metrics down considerably.

You know maybe even have to a full turn I think that goes along way with that with the our raise so clearly a focus of the company.

Over the future. We definitely are focused on de levering in terms of distribution and obviously once we get to that three five and I'll handover to battered a minute, but theres various things. We can do you can buyback debt you can.

You can buy back shares you can yield at some point potentially reinvested some limited growth projects that come our way and of course, you can always at some point down the road when we get leverage where we want to be potentially raise the distribution I'm going to hit the buyback real quick we were very focused on liquidity coming into this year are coming into this quarter.

Terrific job by our Treasury team to get that $500 million deal off puts us sets us up massively well on liquidity, we will grow our liquidity unit.

If you're looking into the future we have a 500 million dollar.

Surety in September of next year, we're going to be in phenomenal shape, if we need to put that on the revolver will still be a 1 billion plus on that so there is opportunities right now all the debt that I've looked at is trading at a premium so not a lot of opportunity, but nothing's off the table I'll, let batter talk about long term.

Distribution policy.

Triston I think shown hit most of it I think one other things you ask is what you buyback preferred.

Didnt buy back or sorry, spera would have buyback preferred because you get equity treatment on that so that acute doesn't help your help your leverage but I think as it comes to.

But just a distribution policy in March we tried to have a very balanced approach off taking growth capital off the table looking at our distribution policy looking at our balance sheet and trying to kind of make sure that between all of our stakeholders. We're doing the right thing I work.

Freeing up capital. So we can start Delevering. The company, we are still keeping a distribution in place. So our long term equity holders to value that distribution. They still got a distribution and then.

And then take on of some growth capital off the table if I look at kind of where we are here in the next kindness 612, 18 24 months every model that I am steering units.

And some of them are pretty pretty bearish models were good from a leverage points of view where an upcoming.

To any kind of close to any type of issues around around leverage.

And I think look we do are significantly free cash flow positive, we're going to use that cash to de lever the company.

And after that and maybe if its next year or 2022, we should have this company to that kind of three point fivex, what Sean the stocking amount by that time, just continues to be cash machine still throwing off a lot of debt cash and we can decide what we want to do at that very moment, but right now.

Don't look at anything that SAS Darcy Mott our distribution caught in the works.

Got it Thats helpful.

Second question is if you think about 2021, Capex, specifically I think last quarter, you sort of talked about the range of 50 to 150 million.

It sounds like that with mostly producer activity driven so just curious it sounds like overall activity is fairing all of a better I'm curious to understand you decide that range at this point.

I think Spiro I think on the growth capital side.

We'll still I think we gave guidance that would probably be at the low into that range or and that we gave you an outlook I should use that word guidance.

And I think we'll be at the low into that range on the growth sustaining capital you could see go up a little bit you see product replacement coming in you see a little more activity the industry dampened and volumes have come off since 19, so until we get back to that level of getting the volumes back to flat everything will be mostly sustaining really for awhile. So I.

Your thought process is right more sustaining potentially but I don't see a big ticket growth capital.

Great Thats it from a hi, guys.

Thanks, Jeremy.

[music].

Thank you and our next question comes of Skanska sharing with US Your line is now.

Hi, good morning, everyone get tier one is well.

We've got our TV I wanted to follow up first on one of the question Fitzgerald just asked.

In terms of your response.

Yes, no appetite at all to go after any of the preferred searching your sub notes I mean, I get that you get equity credit for it I think 50% Boyd.

Is there a yield level, where its high enough, where it's kind of worth it because you were able to effectively get the same credit back within a year or two basically just because of how you will prove your EBITDA cash conversion ratio.

So I'll, let Sean kind of go through that obviously you know generic we're looking at this kind of stuff every single day and say what can you optimized but you also got a 100% bank credit for it. So yes. So maybe you take US I mean, you know you're getting 100 versus the 50% from the RH in year, 100% on the bank.

Equity treatments, so thats very very advantageous.

Look every time when when the debt was trading at a discount when the press were trading at a discount.

We looked at a pretty hard obviously liquidity at that point until we got out and got that's a nominal debt transaction done liquidities King I would tell you see near liquidity is still came I think we have.

We were performing very very well.

There is still the cobot the second half the year, we're still seeing some some cosentyx.

Applications those could continue I want to stay focused on liquidity, we are de levering with free cash flow I know some of these other things could help us de lever and generate some cash a little more but I'm going to focus on making sure we have liquidity.

At September seems like forever from now, but that September maturity I want to make sure the company's in great shape that if we had to hopefully we don't shinier put that on the revolver, but as I said, we want to set the company up that if we had two we'd still have over $1 billion that liquidity set ourselves up well and again, it's really hard to get over that 100%.

Equity treatment on the bank.

I think chimera I think homes at a reasonable I think it's a bit of balance. Okay. So is there a way that you can potentially arbitrage buying some of that back yes.

Spot, but are you going to say, if you're going to say, maybe 10 million, maybe 20 million bucks or so and it's not immaterial and lets get but the flip side. If you want to have liquidity and if there's something you want to prioritize and say hey, I want to have plenty of liquidity in the world that is still pretty darn uncertain or I want to go after being kind of growth.

Ladies and try to say extend our 20 million marks Gaslog I know, what I'd say outtake liquidity any single day of the week. So that's kind of how we're looking at at the analyst who knows where we earned three months from now six months from non nine months from now things can change things can look better and more obviously look at things and trying to figure out how you can arbitrage something.

But liquidity continues to be king.

Okay fair enough I, just kind of wanted to understand that.

So like my two questions actually were.

I know that you guys are big data folks.

Given the fact that we had a pause in capital spend during the second quarter you have wells that went off line any of wells that came back online or are you able to share with us an updated view on what the decline rate looks like is it actually trending better than you would have previously thought or just any color that you can give us just based on the data because of the positive.

Capital spend that if the unique opportunity to take a look at it.

I think there's couple we go get it junnier and we alluded to it a little bit the models that we had and we are at the data that we had showed bigger declined obviously you look at the what was a big driver on the GNP side, even though volumes are down they're not down anywhere near what we had anticipated and obviously what many of you anticipated couple drivers to that.

And we'll talk about natural declines, but the shut ins again, we're not a severe not as an end the duration was much shorter than we anticipated that was a great thing. The other thing that we saw and I think it's an interesting point the diversity of our portfolio. We have these assets in the Eagle Ford in the DJ into in the Delaware in them.

Scoop stack, what we saw as some declines that did come in at the levels, we might have anticipated in areas like the Eagle Ford the mid continent, but because of the strong economics in the Delaware about or talked about this earlier the strong economics in the DJ.

We actually were pleasantly surprise, we did not see the volume declines to the levels that we had anticipated. So shut ins were again not as deep not as long duration in terms of natural declines and the outlook there.

I think we gave you some guidance that we actually expect second half of the year GMP volumes to be slightly up versus first half again thats going to vary by region. I think those two regions I mentioned bear, we'll do better than mid continent in Eagle Ford.

But the diversity of this portfolio has helped us.

Whether this the ability for price to come back a little bit sooner I mean, these prices are not what I'd call high but they are much stronger than I think people anticipated two months ago has kept the producers kept their breakevens in line and kept our outlook a little bit better and again listening to their calls this week in last week the outlooks.

Appears to be a little bit better than what we would have thought just a little while ago. So that's kind of how we're thinking about.

The volume profile and what we saw in Q2, and what we'll see the remainder of the year.

Okay, that's great and maybe one final question just go back to the whole thing.

Discussion.

In some of your responses I think with both the Chris entered Jeremy.

You sort of talked about the ethane recovery I think at one point you said that you are expecting a reversion to projection in the fourth quarter at the same time, you talked about thinking of the pricing impact.

How much of your guidance uplift is specifically about the.

Stronger ethane recovery number.

Versus price like to separate out price separate out the cost improvements that you've done how much it specifically about a better than expected ethane recovery angle.

So far.

It was great to see Cheniere it happened late in Q2.

And obviously, we're expecting some of that in Q3, it's not a huge driver I think when you really think about what is what puts this company back to be able to reissue the guidance if the self help it's it's the the way the company has executed.

Hopefully it's come across from bad or NIE that were incredibly thankful to how the 1900 employees at this company are delivering on the cost on the efficiencies the assets are running really well worth the running the safest they've ever been I wouldn't I mean, it's great.

I love that were in recovery mode didn't see it coming didn't have it in our models. It is not in the top two drivers of why we feel comfortable reissuing guidance, but I'll take it.

Perfect Alright. Thank you very much guys really appreciate all the color today will stay safe.

Thank you there.

Thank you. Our next question comes from James character with US Capital Advisors. Your line is now.

[music].

Hi, guys. Thanks for the questions Congrats again on the quarter.

So let me just asked a question about the reinstated EBITDA guidance looks like you're targeting the low end of that.

And just given six months of actuals just wondering if you had given any thought to kind of revising that should we think about the low end is the midpoint and.

The upper end of that achievable or or what would you need to see the kind of towards the to the net as to the higher Simon.

I think.

One the company's heavily focused on cash flow Thats why we added the free tangible measure not that EBITDA I mean, the to share a lot of commonality, but all the negatives are hitting EBITDA. There also hitting DCF the volume declines. The fact that price that we are happy you heard battered say prices are better than we thought the spot is better than ours.

Items, but they're still nowhere near where prices were last year. Those things are adversely affecting EBITDA and DCF why we went to the low end on the EBITDA is if you think about some of the levers that we pulled cash levers.

They do not.

They are not embedded in the EBITDA calculation. The all the sustaining capital work that we've been able to do and efficiencies there benefit DCF I'll take it all day long benefit free cash flow take it all day long the reductions in our growth capital ultimately you in short run really are more of a cash metric, they're not going to affect dcs or I'm sorry EBITDA.

Media late so.

That's why we feel so comfortable on the DCF being back to the middle of the range, we guided towards the lower end on EBITDA less certain self help measures are really just helping the DCF, they're not helping EBITDA.

Well, we gave you also some sub some.

Tailwinds that could help us get to that the midpoint of the range on EBITDA will continue to monitor those so far you know into Q3, we're we're seeing some pretty good things, but that's why you see the difference more cash focus helping DCF not always impacting EBITDA in the calculation James bother.

Aaron there's there's there's still a lot of uncertainty theres still lot of volatility Unlike where we don't really know what's going to happen with with covert 19, and it's something done to happen here in the second half the year rigs are down fairly significantly. So how do you plan for debt I think blending furtive worst hoping for the fastest right strategy.

To take care.

Commodity is pretty strong right now if you look at kind of what we having our in our.

Outlook for the second half for the second half for probably trading, 15% operational and commodity Rob NGL 90 gas and oil.

We have ethane rejection, we have the model to inform the second half of the care. So there's a lot of different things that can kind of continued to shape and shifting share into second half July looks really good. We're very pleased to see July volumes and kind of how to how to cost on our stuff is coming in so I think the company.

They use to be on the really really good trend at the same time I.

Big believer and you planned for the worst you hope for the best and that's what we're doing here and various theres still decent amount of uncertainty.

Yes, and I guess just to ask another wave if your initiating this new ranging expecting to come into low end I mean.

And your conservative outlook, I mean, and maybe there's some headwinds and some uncertainty you still feel comfortable with the ability to hit the low end of that.

Hi, guys loss.

And we hope we usually do that's why we.

We're very comfortable around that.

Yes like onset here at I. Unfortunately don't have crystal all kind of say, hey look our things going on loop line on January 15 win win shown collectible the numbers, but yes, we are with what we're looking at here today with the assumptions that we have given you with knowing that pay there's still a lot of uncertainty we're very comfortable.

With monthly, giving you here Thats, why we decided to reinstate it still modeling that theres a lot of Inds announced that could happen here over the next five months.

Thanks for that color and then I guess just.

Thinking about the recovery broadly in NGL volumes kind of holding in maybe a little bit better than we expected maybe better than you expected.

At what point does.

Debt Sweeny Frac option come back on the table for you guys does it.

Summing that you still have available or is it and continue red laufer kind of transition goalpost that you need to see where that.

That comes back on the tables or potential investment.

Yes, no. So yes, we got to Seth as we were not going to exercise the option at the same time between Phillips 66 in between US I think rebuilds degreed strategically it makes tremendous sense for us to own part of the Sweeney complex. So we've had.

Those discussions between ourselves and Phillips I think we have alignment around that that strategic needs makes a lot of sense. We are the largest.

Rolled mix provider into Sweeney shows that makes I think combining strategically something between the two of US makes a tremendous amount of sense at the same time here over the last three months, we havent had any detailed discussions about what we would do when we would do it.

The agreement, we have with Phillips 66 on delivering Rome mix into Sweeney two in Threeq is that pretty long term agreements. So we have time I think when when all the stars aligned to say Hey, maybe maybe we should do that again, so I think we'll pull pickup those discussions or limit on the times right.

And if I could fit one more in real quick I was wondering if you guys.

I have ever quantified exactly how much of your Permian position.

Is exposed to federal lands, if something were to happen with the election in that.

They've become some sort of drilling moratorium or something you guys have that number off the top of your hand.

While we leave we do have quite a lot of detail around that I think just first to talk about about this.

Our our portfolio has very limited federal land exposure. The vast majority of our portfolio is is on private lands and all the states that we're doing business the largest exposure would be in southeast New Mexico.

I think as being very clear for everyone that if something would happen and we'd get a moratorium on on tracking on federal lands, you've gone butadiene on the retroactive base solve the amount of land that our largest service provider our largest producer half in southeast New Mexico is very very.

And there's no there are different director there theres no scenario under which they cannot continue to develop that for the next 10 plus years or so so I think that has gone into key item here I think the other thing there is always going to try to point out to people as yes, thats could be a potential negative that sits over the industry has.

The same time, there could be a kind of corollary positive stood out as well and you know what is happening to price is one that is going to happen I would think prices are probably going up and you would probably benefit from that so absolutely no short term exposure for us is probably something of a long long time away. The other thing is that vast vast majority.

The portfolio is all on private land.

Thanks.

Thank you Jay streams.

Those are all of our questions in the queue I want to thank you for joining us today and if you have any follow up question. Please don't hesitate to give me a call have a good day.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by welcome to the Q2 2020, DCP Midstream earnings Conference call. At this time, all participants are in listen only mode.

The speaker presentation, there will be a question and answer session to ask questions. During this that's when you'll need the press Star then one on your telephone please be advised to todays conference is being recorded you acquire any further assistance. Please press Star then zero.

Now I'd like to have the conference over to your speaker today, Ms., Sara Sandberg Senior director of Investor Relations. Thank you. Please go.

Thanks, Jamie Good morning, welcome to the DCP Midstreams second quarter 2020 earnings call today's call is being webcast and I encourage those listening on the phone to view the supporting slides, which are available on our website at DCP midstream Dot com.

Before it again I'd like to point out that our discussion today includes forward looking statement.

Actual results may differ due to certain risk factors that affect our business.

The second part in the data that described how are you at the forward looking statements are completely thing about risk factors. Please refer to the partnership latest RPC filing.

Also use various non-GAAP measures, which are reconciled to the nearest GAAP measure and schedules in the appendix section of the slide thought a van Kampen CEO and shot O'brien CFO will be our speakers today and after their remarks, we'll take your questions with that I'll turn the call ever daughter. Thank you Sir I'm. Good morning, everyone. We appreciate you joining us know girls, saying well.

Today's call will discuss our strong strong Q2 in first half results our guidance and outlook for the remainder of the year new developments in the DJ Basin.

Firstly, thank you to team DCP, an incredible credit goes to a rapidly for delivering some of our safety reliability and financial results and what has been an exceptionally challenging environment.

Our team and our diversified asset base is strong our strategy remains consistent and factor the earnings power of the DCP business model as evidenced by our outstanding financial results, we generated $220 million distributable cash flow in the second quarter $440 million year to date, representing our strongest.

Four month since the company was combined with DCP midstream LLC.

As a result of our early an aggressive efforts to optimize gosh, we create 54 million of free cash flow in the second corner and our bank leverage improved from Q1 now down to a target of 4.0 times.

Underpinned by our strong year to date performance. The recent market stabilization, we have re issues, our original adjusted EBITDA and DCF guidance, which John will discuss shortly.

During the quarter volumes across both segments remain stronger than a worst case scenarios as a result of fewer than anticipated shut ins and the only a return of curtailed production.

Importantly, we were also able to proactively work what our customers to optimize our netbacks for wells are integrated value chain. This ensures that's on shut ins decisions were made DCP bus service provider of choice volume stayed on our system, creating a win win for our customers and for DCP.

No buybacks same recovery and opportunistic NGL marketing kept our utilization rates high and our earnings balanced.

Looking daughter highlights in the quarter, what our liquidity now six <unk> no squarely secure through successful capital market execution. Our primary financial focus is to utilize our growing free cash flow to de lever to company.

Well I long combined capital capacity short capital allocation strategy, DCP 2.0 transformation and integrated footprint will continue to drive efficiencies and generate significant free cash flow throughout 2020 and 2021.

Finally, several positive developments in the DJ basin of completely unleashed the future potential production and I look forward to discussing those later in the call.

Slide five one outline our combination of strategic execution and deliberate self help measures in first half of this year has helped us overcome a year over year adverse price impact of $125 million, while also positioning us well for long term sustainable success.

First most importantly, our goal with 19 responses prioritize some perspective to health and wellbeing of our workforce.

Saddam turn to cold or fully integrated footprint began a critical assets approximately 65% over Q2, adjusted EBITDA was generated by our logistics and marketing segment, demonstrating the earnings power of our pipelines downstream assets and highlighting the driver or commercial teams.

Not only as this segment produced high quality earnings, but our ability to optimize producer customers Netbacks, most critical to keeping volumes on our system throughput rates high.

As a result of our efforts and increased ethane recovery average Q2, NGL throughput remained flat compared to Q1.

Okay, great portfolio of assets, we are retaining nearly 900 million dollar from cash on annualized basis with a sole purpose strengthening the balance sheet, which has made a critical impact in the first six months. This year, our cost started up $87 million year over year, driven by a relentless dedication to approving a.

Fishing season in our contract services consumables labor and utilities.

Our sustaining capital is down 23 million year over year due to fewer well connects risk based prioritization for projects and deferral of some innovation efforts.

And finally, our DCP 2.0 transformation effort allowed us to not only take cost out of the system. Early it also enables us to continually optimize margin enhanced flexibility and speeds within the organization perform operations completely remote including safely operating gas processing plants from employees homes.

Our team has achieved significant success, improving our resiliency and navigating this downturn as demonstrated by the impressive financial and operational excellence outcomes of about six months, including an 11% increase in DCF kind of 5% increasing adjusted EBITDA compared to the first half of 2019 now just.

Sort of details of our Q2 results guidance outlook and financial position I'll turn it over to shop.

Thanks Saturn good morning on slide six you'll find the key drivers to our strong second quarter financial results.

In Q2, we generated adjusted EBITDA of $311 million and Bcf EUR $220 million, representing a 27% increase in DCF year over year and driving an improved leverage metric a four times. Despite one of the most challenging quarters, our industry has ever seen.

Our results were driven by our early and proactive execution on cost and sustaining capital reductions.

And strong I want them performance in Q2, we achieved the lowest quarterly costs in the history of the company instead, our lowest first half trend ever.

Alan EMS segment, adjusted EBITDA increased 18% year over year, driven by solid Gulf Coast Express and NGL marketing results and strong volumes from our NGL logistics asset supported by ethane recovery, all partially offset by lower Guadalupe earnings.

Same period of time finally, GNP margins were down 9 million as result of lower overall volumes and the GMP segment tied to our Eagle Ford and mid continent assets.

Which were partially offset by increased DJ basin in Permian volumes I.

So additive free cash flow measure defined as distributable cash flow less distributions and less expansion capital expenditures with our current distribution coverage sitting at 2.7 times for the quarter free cash flows them replaced coverage as a more relevant financial target highlighting a comprehensive measure of cash flow and indicative of.

Our ability to de lever looking to our guidance as expected the composite of our earnings has shifted from earlier this year driven by strong self help actions focused on preserving cash flow to offset the unprecedent impacts of cobot 19, and dampened price environment.

That said, we see strong DCF performance, if you're driving toward the midpoint of our range with EBITDA trending toward the low end as many of our self help measures were strongly focused on cash generation, which is not captured with an EBITDA.

We've also updated our sensitivities due to the shift into ethane recovery.

Slide eight give some color around our current second half year outlook and potential upside and downside drivers.

We're expecting relatively flat NGL throughput across our full portfolio pipelines.

With that same rejection forecasted in the fourth quarter, resulting in potential declines.

Our residue takeaway earnings will increase beginning in Q3, driven by incremental earnings from the New William Service Cheyenne connector on the GMP side of the house, we expect second half overall well to volumes to be slightly higher. Thank you to averages. We continue to maintain frequent dialogue with our customers and expect all previously shut in volumes to be back on our.

System during Q3.

Finally, as you know we have dedicated substantial effort to reducing our cost and capital. This year with a year to date cost reduction of $87 billion for 2019, we expect to see higher costs in the second half a year, but again, we're still on target for a more than $120 million decrease year over year.

Well our original guidance.

As the industry outlook continues to remain dynamic on the right side of the slide we've highlighted some potential tailwinds like sustained ethane recovery.

I'd also headwinds that could result from ongoing pandemic volatility that we will monitor for the rest of the year.

On slide nine I want to highlight our solid and improving financial position, our multiyear evolution to fully integrate our footprint and increased our logistics assets, coupled with our strategic hedging program have enabled us to achieve an 81% fee based in hedge ratio exceeding our goal of 80%.

This de risks our earnings and provide stable cash flows evidenced by our strong first half performance.

In Q2, we produced 54 million of free cash flow, allowing us to lower our leverage to 4.0 times.

We expect to be significantly free cash flow positive for the remainder of the year and throughout 2021, enhancing our liquidity and allowing for debt reduction.

Close we're continuing our track record of meeting our financial commitments, even in extremely challenging times now I'll hand, it back over to better. Thank you, Sean slight them I want to highlight the premier basins in our country. We set for years that are produces or drilling some of the best Rockwood the strongest returns right here in Colorado.

And we're excited to see to potential to DJ basin now fully unleashed.

Just a few weeks ago several developments in short political and regulatory certainty in Colorado for years to come first first confirmed that there will be no end by industry statewide ballot initiatives. During the 2020 elections and following that announcement governor bolus reinforce reaffirmed that the oil and gas floor.

As our over by announcing a broad coalition to support the implementation of Senate Bill 181.

This included an agreement with key stakeholders, including environmental Ngls and state elected leaders actively oppose any oil and gas ballot initiatives or any substantial legislation on oil and gas through 2022.

Colorado is open for business will continue and it's essential role, providing our nation with the critical critical energy supply we demand.

To ensure that supply can get to markets in Q2 to 600 million cubic feet. A day Cheyenne connector came online providing residue gas takeaway from the DJ basin to the Rockies Express pipeline. Additionally, the front range from Texas Express expansions went the service, allowing for incremental NGL takeaway capacity.

These projects in addition to the recently in service Southern Hills extension of now eliminated all logistic constraints in the basin.

The leasing to offload originally slated for a mid 2020 in service date will now be online in Q4, allowing us to meet our minimum volume commitments and ensuring we're in lockstep with our customers production forecast.

With the political risk, but in Colorado substantially minimized by the states salt elected officials and our final projects coming online the DJ basin is ready to realize its full potential.

To wrap things up on slide 11, as we enter 2020, we set our past and future success comes down to driving strategy built around operational excellence and sustainability.

Solid financial execution and advancing our DCP 2.0 transformation efforts and this has absolutely held true we have delivered our strongest first half DCF and lowest first half costs during one of the worst economic and industry crisis, we have ever experienced demonstrating our stability and.

Our resilience, we secured our liquidity became free cash flow positive and improved our leverage as a result of our premier fully integrated value chain early an aggressive self help measures and our investments in our DCP 2.0 transformation.

We expect to be significantly free cash flow positive in 2020 and beyond funding our distribution on all capital expenditures, while prioritizing long term de levering and maintaining attractive yields for our unitholders.

On the capital side, we've always been clear then we have no intention or building to last plans or to last pipeline.

This disciplined supply long capacity short approach to capital allocation as insured high utilization rates and attractive returns on our projects. Additionally, as part of our efforts to mitigate against overbuilt coming into 2020, we have executed all floats in every region over footprint and were able to return.

Same store system to improve our own utilization rates during the downturn.

Finally, and most importantly, we remain steadfast in our commitment to operational excellence as evidenced by the execution of our pandemic response plan, which is ensuring the safety of our workforce and reliability of our operations.

Last two years of represents our best safety outcomes in the history of the company and we were recently honored by the GBA Midstream Association with the Energy Conservation Award and the award for Environmental Excellence. These successes are a result dedicated and strategic execution, we will continue our proven track record.

Okay, effectively managing through the cycle.

Future limited growth, our multiyear strategy of transforming the company has prepared us well and we're confident in our ability continue to harvest strong returns from a premier asset base.

Finally, I will say, thank you again to our employees for their incredible accomplishments during our investor for their continued commitment to DCP with that look forward to taking your questions. Jamie Please kick us off.

Thank you as a reminder to ask the question you will need to press Star then one on your touched on telephone to withdraw your question from the Q. Please press the pound key.

Please stand by what we compile the Q and a roster.

Our first question comes from Chris seeking Alpha with Jefferies. Your line is now open.

Hey, good morning, everyone.

Morning, Chris.

Better we've seen a lot of companies.

Cut costs and lead to significant improvement in operating results, but I think nobody quite like you guys have so congrats on all that progress made today on those fronts.

If I could this kind of where I want to start.

Clearly you've had overarching initiatives for a couple of years with regard to technological adoption.

Remote facility operation things of that nature.

You did have a cost reduction associated with headcount reduction earlier, this year, which you announced and so I'm just kind of getting I guess I want to get a better flavor.

Sean's comment about costs will rise in the back half here as to maybe what were the acute drivers in Twoq you that might reverse you did because business conditions mandated and heightened uncertainty and.

Hi, good limits things of that nature, and whatever that is sort of a sustainable.

Carryforward effect into in your mind sort of a permanent levels at the company.

Great Great essential health Tech team dolls, and appreciate your comments.

Just overall to say I think it's great when 9900 people ROE in the same direction and all that hardware phase often that's left the im pleased with DCP midstream have done here over the last six months and I think you're seeing the results of that.

To your point of cutting costs and what else can you do and that's kind of sustainable kind of run rate.

It's shown talk about that $120 million is what we're looking at.

For 40 year. So we feel very strong you can pick at $120 million of cost cutting to the bank is there a little bit of shaped to that yester, absolutely. Yes, we have $87 million kindness. The first half and then into second half we do see some of the cost kind of come back that we're kind of temporarily so let me give you an example.

DCP 2.0 transformation, we talk about remote operations on you know how we ask you know running 20 plus facilities remotely from 20 start floor here in Denver. Our goal for this year was to get another 15 or 20 facilities remotely operated.

And what we decided in the first half and kind of into March timeframe that when you start kind of a double black Swan prices in the face what you're doing is youre going to focus on liquidity and saving everybody. So we decided to defer that at movement out and say, let's see how we get to this to these kind of this does crisis. So we may.

Start picking up some of those close again into back half of the year investing in the business to make sure that we can continue to.

Great margins lower cost in the future. So that is kind of one thing.

We did things around our workforce I think that is tremendously sustainable we always look at Lufkin, we do from a company how do we make sure well from an operational excellence point of view reliability safety can we run reliably and safely we have some of the best reliability and safety records in the history if the company.

Here in the last six months in the last two years. So we believe that were very prudent there. We can continue to be safe. So overall.

Yes, there is going to be a little bit shape, but I think the important thing for you all to now it's a $120 million that we kind of talk about savings year over year, we feel very very strong about that and we believe that can take in the vast vast majority can be taken into 2020 Watt shown you and only a couple of things that Chris.

We typically are made the back end loaded on overhauls on turnarounds and things of that nature. So my comments earlier really also point to those types of activities that really didnt occur that very limited and very little fashion in the first half the year, you'll see a lot more of that in the second half of the year and then batter alluded to it one thing I do want to in terms.

Sustainability of our costs.

We'll get a full year benefit of many of those things next year and we're not getting that we're getting a partial year. This year. So that I'm really excited about that I mean, the headcount reduction.

We took that $9 million charge.

In Q2, but the ongoing annual savings of that I think we're we're thinking on a loaded basis is 40 to 50 million. So you'll see more of that next year.

So the end today a lot of what we're doing is sustainable definitely some backend shape. This year just want to make sure you guys were aware of that but I'm incredibly pleased with the performance on the efficiencies at the company has been able to deliver.

Thats great. They added color is very helpful. I think maybe falling on your comments about the shape for the back half an inch on you'd noted overhauls turnaround activity in the back half.

Sort of a typical cadence I did notice you're at what you define as maintenance Capex went up to a midpoint 85, you've only spent 19% and that midpoint number in the first half so.

And in contrast, you've already spent I think above the midpoint on the on the growth side in the first half. So can you just talked about maybe some of the the items that might have shifted around there and should we just really think about it at an aggregate capital number and and sort of dispense with this bifurcation.

Yes.

With regard to a free cash flow measure that includes in both I think I like your recommendation of just putting them both in but I think.

So since we're focused on that M&A, both come out of it probably not as big of a deal, but they don't always lake most of the projects. If you talk about the growth capital we're on.

Yeah Thats already been spent most of those projects were front end loaded.

And then obviously the big project that we pulled off the 400 million. This way the option was more backend loaded or mid to back ended the year on sustaining capital couple of things to think through I mentioned two drivers obviously, we spend some of that money.

On overhauls and on turnarounds.

Additionally.

James are down in some key areas well connects or down.

So you would expect product replacement to be down in the first half where we may expect to see some increases there, we'll wait and see some producers have given us some outlooks that could require a little more.

In the back half of the year, there's some environmental spend Chris that we're looking at doing in the back ended the year, which is sustaining capital so thats sort of shaping it.

And then I think those are the primary drivers and then batter mentioned some transformation costs, we pretty much put it for the most for part on hold you'll see in those hit sustaining capital by the way you'll see those hit more in the second half of the year as well yeah, maybe beatty shown to quickly add on well connects obviously not a lot of all connection in the second.

Florida about if you look at our largest customer in the DJ Basin that announced earnings yesterday. They are going to put a completion crew in here in the third quarter. They expect to grow DJ volumes. So that will give some well connect capital which is great we love that.

If you look at our largest customer in southeast New Mexico announced earnings yesterday, they're talking about drilling that they're doing in the Delaware in southeast New Mexico on volumes that are coming our way. So all of that will create some well connect capital and again I'm like we like well connects capital, especially in the DJ, especially the Permian because.

Those are our high margin regions.

That's that's great I also appreciate the color. There final question from and then I'll hop back in the Q.

Is that distributions from unconsolidated affiliates were sort of a surprise to us the strength of that it's up significantly year on year, you detail that and pretty specific detail on your 10-Q, but.

Feeling patient this morning, I just want to ask whether it was there one of the assets that so that in terms of.

Cash contribution to this period that you type.

Sandoz.

Short answer Chris Sandals.

The adds a very strong cash distributions, we remember the second half.

From a cash perspective distribution perspective, Q1, Theres always tax act Laurent payments that the assets make so they're usually a little bit lighter.

The assets had a good Q2 performance I don't want to discount that with going back into recovery mode.

The company the commercial team did a great job of.

Looking for volume stay on those pipes, but sand hills was the driver.

Was there was there something there Sean like is that as a special onetime or type of distribution I'll see that from time to time okay.

Okay. Thanks, a lot for the call. This morning, guys and congrats on a really nice number. Thanks. Thank you Chris.

Thank you. Our next question comes or Jeremy Tonet with JP Morgan. Your line is now open.

Hi, good morning.

Morning journey.

Just wanted to get a little bit more color I guess on.

The.

Ethane I guess, the extraction and how that kind of pulled up the volumes. There just trying to see what's baked into your guide on ethane capture.

It feels like we're stuck in a low 20, so not sure with the economics look like today to extract C. In the DJ Permian, but just wanted to get a sense there and how that includes the DCP.

So we went we we went into recovery mode in the second half of Q2.

As did the industry. So when you look at Christmas is asked me about the strong cash flows from the pipeline.

That was a pleasant surprise.

From us.

Our models to be honest, we did not have recovery baked in in Q2. So that was the definitely pleasant surprise, obviously when we look at those economics were couple of things were factoring and obviously the frac spread the value of gas versus the gap the value of the C. And then don't forget we also bake in the value up the transport on pipes I sand Hill.

As in Southern Hills. So we are in recovery mode. A lot of our third parties that put volumes on our pipelines went into recovery mode. It was event was a benefiting factor for Q2 as we sit here today, you asked a little bit about the future outlook. We're still in recovery mode. I think some third parties may have pulled off.

I'm not privy to their their economics and why they did that but we're still generally in recovery mode. You may have hurt our comments, we expect based on future Frac spreads the potentially go back into rejection in Q4.

If we end up not doing that and ethane stay strong and gas doesn't strengthened as much as the forward said it will.

That would be.

Tailwind for the company at the upside potentially pipelines, we get some additional volumes, but as we sit here right now I think we're thinking Q3 recovery Q4 potential to go back into rejection and so I think jeremys month or two to add too much on the saying I think we have relatively conservative.

Assumption in our in our outlook for the second half where are we will see the volumes on the pipes go down a little bit because of the lack of ethane ethane recovery at the same time and you mentioned kind of where we're sitting from a pricing point of view.

Ethane is hanging up 22 cents Nat gas is a 225, so what's really interesting here.

If you look at what our price forecast is for the second half we have not gases. While 95, so were 15% to bump that we have Ngls at 40 cents, where that 46 cents Ngls, we have $40 accrued in our forecast we're at 42 and a half. So the thing is very very strong demand for ethane right now I'm, Mike one thing to cope with.

19 has brought US is actually a significant increase of single use plastics and ethane is as a feedstock or not.

So one of two things is going to happen.

Cider gas is coming down, but if I think stays the same or ethane prices have to start running with Nat gas to make sure that all of us are staying in recovery. If the latter happens that has gone into three X. Good guy for US we benefit from higher gas prices, we benefit from higher ethane prices and we benefit from higher.

Volume's Omar on our pipeline. So that's obviously the scenario different rooting for but it's not what we have baked into our plan for the second half and trying to be conservative and saying Hey, we're just looking at booked strip is telling us right now and Thats all for putting in.

Got it that's very helpful. Thanks.

It's been a very volatile year so far.

But it seems that things are settling out a bit here you guys brought back Youre your guidance.

It seems like producers I think have settled out in their plans.

I appreciate it might be getting a bit ahead of myself here, but just wondering any preliminary thoughts as you think about 2021 trajectory in trends relative to the back half 20, any early thoughts you could share here.

I think well factoring that then I appreciate you saw him very.

Very political I think thats, probably will be understatement of today.

It's being definitely has been pretty crazy, obviously again I think lucky.

1900 people at this company have done so kind of mark ourselves through that is really really monumental but yes. It feels like a little bit more call, even though the environment is still pretty pretty rapidly changing every single day, but.

I think thats, that's going to be a pretty good outcome. This company can throw off a lot of cash you're seeing that right now and when we're not spending an enormous amount on building infrastructure that means very significant cash left over to de lever to company and Thats really our primary focus and we feel very good about.

In 2021.

Well based ad.

The outlook does feel pretty strong right now, but we've got some good tailwinds you've got a full Cheyenne connector just came online you've got those earnings as you think about 2021.

Battery alluded to in his comments the growth capital. We we took our we went down 400, but still somewhere in that high range of 190, I anticipate that to be lower next year. So you've got.

Benefits, there I mentioned earlier.

For me that you're going to get a full year of headcount savings, that's not small $40 million to $50 million annually. We didnt see all that benefit. This year. So we've got a lot of good things for the company going into next year that I think good set us up quite well, obviously, we'll give you a full detail is better alluded to in February.

Got it that's helpful. Thanks for taking my question.

Jeremy.

Sure.

Thank you and our next question comes from Christian Richardson with Truest Securities. Your line is now open.

Hey, good morning, guys just.

Quick question on.

You mentioned prepared comments around sort of optimizing that backs to customers and curious.

Got a little bit about valley was that primarily look like is it that incentivizing volumes honesty or some of these temporary arrangements.

Or some of this more kind of a permanent blend and extend type.

As we think about fees beyond just 2020.

Yes, I think you should really think about some things that you can do in short term, obviously things are really difficult for everyone producers had a difficult times producers make choices around shutting in and most producers have a choice on can say I can shut something in overhead as may be goes too.

<unk> midstream service provider eight or I can shut something that goes to midstream service provider B and but we death and our strategy has always been here for the last number of years to make this company fully integrated midstream service provider, which means divert clipping coupons all the way from the well have to the market centre and win.

You do that you have an opportunity to go back to your customer and say okay.

I can help you here in a short term basis I can make things a little bit more attractive for you for the next couple of months, so you'd say on our system and maybe.

You take your volumes of midstream service provider B and Thats kind of that said the type of arrangements that we did with our customers.

Incentivize them to stay on our system to mean men's we may have given them a discount somewhere along the value chain, that's what you're doing a ship, creating a win win I'd like your customer who is having a difficult difficult on your helping them out it's a win for DCP midstream because we continue to keep the volumes on our system I think it also creates a longer term when we.

Our customer Mark ups when times are tough in order to help your customer people people kind of be remembered that so that's the type arrangements that we have done and.

And then they kind of go back to normal then normal happens then the good thing as good margin impact is not not enormous and you'd see that unlike our second quarter margin muscles, great and earnings were great and our profitability was very strong. So just wanted to write things to do in an environment that is pretty tough.

Helpful. Thank you and then maybe just on the other side of that coin weather on the downside in terms of revenue for protections.

Is there a dollar number on how to think about how revenue floors kicked in just during all the disruption we saw into Q.

So we have.

A variety of places we have minimum volume commitments and other stuff, we've never really hit though some people were always above their minimum volume commitments everywhere throughout our system be it on the GMP side or to logistics and marketing side. So we've never never had any issues there.

Okay, great. Thank you guys very much.

Kristen.

Thank you. Our next question comes to Spiro Dounis with credit Suisse. Your line is now.

Hi, good morning, guys.

I am personally for you just on deleveraging sounds like it's still very much a priority, but maybe some of the pressures come off here a bit. So just curious you walk through what the plan is now and maybe how aggressively you plan on approaching it just is there an appetite the buyback debt or preferred just are you looking at asset sales and then can you take external cap.

Little or even a second distribution cut off the table at this point.

Yes, that's all I'll try hit those in sequence the made out what about or chime in at the end.

But in terms of I think you're picking up on it exactly right I mean, our focus is to de lever.

We were able to I was incredibly pleased that we took our leverage ratio down from Q1 that is amazing from for one to four zero sets us up we're in a really good position as you guys that we have the five oak Covenant, we're a full turn away from their waste. We added this cash free cash flow measure so people can see how much should we generating.

Again, our priority is to de lever with that cash flow and I think that can be that can happen relatively quickly and be pretty substantial over the next.

18 months 12 months two years and that is a primary goal of this company is to continue to usual utilize that free cash flow to de lever set the company up well that are used to key word harvest we've invested over the last half decade, a lot in our assets. We don't feel like we have to spend a lot more and we set ourselves up quite well to continue.

To harvest and do those types of things I want to be clear you know we're targeting three five were sitting at four O I would really like to get the company down to three five on the bank metric I think that that gives us a lot of flexibility.

Let's face it we're in an industry that is going to have some downturns ups and downs at three five I think that sets us up quite well. It also brings our rating agency metrics down considerably.

Maybe even have to a full turn I think that goes along way with dealt with the our raise so clearly a focus of the company.

Over the future we definitely are focused on de levering in terms of distribution.

And obviously once we get to that three five and I'll handover to battered a minute, but theres various things. We can do you can buyback debt you can.

You can buy back shares you can look at some point potentially reinvest in some limited growth projects that come our way and of course, you can always at some point down the road when we get leverage where we want to be potentially raise the distribution I'm going to hit the buyback real quick we were very focused on liquidity coming into this year are coming into this quarter.

Terrific job by our Treasury team to get that $500 million deal off puts us sets us up massively well on liquidity, we will grow our liquidity unit, if you're if you're looking into the future. We have a 500 million dollar maturity in September of next year, we're going to be in phenomenal shape, if we need to put that on the.

Revolver will still be a billion plus on that so there is opportunities right now all the debt that I've looked at is trading at a premium so not a lot of opportunity, but nothing's off the table I'll, let battered talk about long term.

You know distribution policy, yes.

Tristan I think Sean have most of it I think one other things you ask if they would you buyback preferred wouldn't buy back or sorry Spiro.

I would have buyback preferred because you get equity treatment on that so that actually doesn't help your help your leverage but I think as it comes to.

Just a distribution policy in March we tried to have a very balanced approach off taking growth capital off the table looking at our distribution policy looking at our balance sheet and trying to kind of make sure that between all of our stakeholders. We're doing the right thing I work.

Then take kind of some growth capital off the table if I look at kind of where we are here in the next Skynyrd 612, 18, 24 months every model that I'm staring us.

And some of them are are pretty pretty bearish models. We're just from a leverage point of view where an upcoming.

To any kind of close to any type of issues around around leverage.

And I think look we do are significantly free cash flow positive, we're going to use that cash to de lever to company.

After that and maybe if its next year or 2022, we should have this company to that kind of three point fivex, what's shown us talking about by that time just continues to be the cash machine still throwing off a lot of debt cash and we can decide what we want to do at that very moment, but right now I don't.

Look at anything that SAS theres about our distribution in the marks.

Got it at that helpful.

Two questions. If I think about 2021, Capex, specifically I think last quarter, you sort of talked about the range of 50 to 150 million.

And it sounds like that with mostly producer activity driven so just curious it sounds like overall activity is fairing old with better.

It's interesting you decide that range at this point.

I think Spiro I think on the growth capital side.

We'll still I think we gave guidance it would probably be at the low end to that range or and that we gave you an outlook I shouldn't use the word guidance.

Your thought process is right more sustaining potentially but I don't see a big ticket growth capital.

Great that's it for me at that.

Thanks barrel.

Thank you and our next question comes of circa sharing with US Your line is now.

Hi, good morning, everyone getting everyone is well.

You know we've got our degree I wanted to follow up first on one of the question. If it's fair just asked.

In terms of your response.

Yes, no appetite at all to go after any of the preferred searching your sub notes I mean, I get that you get equity credit for it I think 50% Boyd.

Yeah, So I'll, let Sean kind of goes I would add obviously you know generic we're looking at this kind of stuff every single day and say what can you optimized but you also got a 100% bank credit for it. So yes. So maybe you think it's I mean, you know you're getting 100 versus the 50% from the our Asian near 100% on the bank.

Equity treatment, so thats very very advantageous.

Look every time when when the debt was trading at a discount when the press are trading at a discount.

I looked at a pretty hard obviously liquidity at that point until we got out and got that's a nominal debt transaction done liquidity scanning I would tell you. It's near liquidity is still came I think we have.

We were performing very very well.

There is still cobot, the second half the year, we're still seeing some some cope with it.

Implications those could continue I want to stay focused on liquidity, we are de levering with free cash flow I know some of these other things could help us de lever and generate some cash a little more but I'm going to focus on making sure we have liquidity.

Thats September seems like forever from now, but that September maturity I want to make sure the company's in great shape that if we add to hopefully we don't shinier put that on the revolver, but as I said, we want to set the company up that if we had two we'd still have over $1 billion that liquidity set ourselves up well and again, it's really hard to get over that 100%.

Equity treatment on the bank.

Yes, I think generic I think homes at a rate of all I think it's a bit of balance. Okay. So is there a way that you can potentially arbitrage buying some of that back. Yes. There is spot what are you going to say, if you're going to say, maybe 10 million, maybe 20 million bucks or so and thats not immaterial on its good but the flip side as you want to have liquid.

Entity and if there's something you want to prioritize and say hey, I want to have plenty of liquidity in the world that is still pretty darn uncertain or I want to go after being kind of gradient try to say extend our 20 million Bucks Gaslog I know, what I think I'll take liquidity any single day of the week. So that's kind of how we're looking at at the analyst who.

Who knows where we earned three months from now six months from non nine months from now things can change things can look better obviously look at things and trying to figure out how you can arbitrage something.

Liquidity continues to be king.

Okay fair enough I, just kind of wanted to understand that.

So like my two questions actually were.

I know that you guys are big data folks.

Given the fact that we had a pause in capital spend during the second quarter you have wells at went off line any of wells. There came back online are you able to share with US an updated view on what the decline rate looks like is it actually trending better than you would have previously thought or just any color that you can give us just based on the data because of the pausing.

Capital spend that it's a unique opportunity to take a look at it.

Yes, I think its giveaway go get engineer and we alluded to it a little bit the models that we had and we are at the data that we had showed bigger declined obviously you look at the with abate driver on the GNP side, even though volumes are down they're not down anywhere near what we had anticipated and obviously what many of you anticipated couple drivers to that.

And we'll talk about natural declines, but the shut ins again, we're not a severe not is and the duration was much shorter than we anticipated that was a great thing. The other thing that we saw and I think it's an interesting point the diversity of our portfolio. We have these assets in the Eagle Ford in the DJ into in the Delaware in them.

The scoop stack, what we saw as some declines that did come in at the levels, we might have anticipated in areas like the Eagle Ford the mid continent, but because of the strong economics in the Delaware about or talked about this earlier the strong economics in the DJ.

We actually were pleasantly surprise, we did not see the volume declines to the levels that we had anticipated. So shut ins were again not as the not as long duration in terms of natural declines and the outlook there.

But the diversity of this portfolio has helped us.

Appears to be a little bit better than what we would have thought just a little while ago. So that's kind of how we're thinking about.

The volume profile and what we saw in Q2, and what we'll see the remainder of the year.

Okay, that's great and maybe one final question just go back to the whole thing discussion.

In some of your responses I think with both the Chris entered Jeremy.

You sort of talked about the ethane recovery I think at one point you'd said that you are expecting a reversion to projection in the fourth quarter at the same time, you talked about the pricing impact.

How much of your guidance uplift is specifically about the stronger ethane recovery number versus price like to separate out price separate out the cost improvements that you've done how much of specifically about a better than expected ethane recovery yet.

So far.

It was great to see Cheniere it happened late in Q2.

And obviously, we're expecting some of that in Q3, it's not a huge driver I think when you really think about what is what put this company back to be able to reissue the guidance. It's the self help it's the way the company has executed.

The were in recovery mode didn't see it coming didnt have it in our models. It is not in the top two drivers of why we feel comfortable reissuing guidance, but I'll take it.

Perfect Alright. Thank you very much guys really appreciate all the color today stay safe.

Thank you there.

Thank you. Our next question comes from James Carreker with US capital Advisors. Your line is now.

Hi, guys. Thanks for the questions Congrats again on the quarter.

So I could just asked a question about the reinstated EBITDA guidance looks like you're targeting the low end of that.

And just given six months of actuals just wondering if you had given any thought to kind of revising that should we think about the low end is the midpoint and.

The upper end of that achievable or what would you need to seating is kind of towards the to admit it's the higher side.

I think.

[music].

One the company's heavily focused on cash flow Thats why we added the free cash flow measure not that EBITDA I mean, the to share a lot of commonalities, but all the negatives are hitting EBITDA. There also hitting DCF the volume declines the fact that price that we're happy you heard batteries. They prices are better than we thought the spot is better than our guidance, but there's still no.

Were near where prices were last year, those things were adversely affecting EBITDA and DCF why we went to the low end on the EBITDA is if you think about some of the levers that we pulled cash levers.

They do not.

They're not embedded in the EBITDA calculation the all the sustaining capital work that we've been able to do and the efficiencies there benefit DCF I'll take it all day long benefit free cash flow ticket all day long the reductions in our growth capital ultimately you in the short run really are more of a cash metric theyre not going to affect Dcs or I'm sorry EBITDA.

Deeply so.

Well, we gave you also some sub some.

Tailwinds that could help us get to that the midpoint of the range on EBITDA and we'll continue to monitor those so far you know into Q3, we're we're seeing some pretty good things, but that's why you see the difference more cash focus helping DCF not always impacting EBITDA in the calculation James bother.

Aaron there's there's there's still a lot of uncertainty theres still lot of volatility Unlike where we don't really know what's going to happen with with cobot 19, I Miss something going to happen here in the second half the year rigs are down fairly significantly. So how do you plan for that I think blending furtive worse, hoping for the fastest right strategy.

To take care.

Commodity is pretty strong right now if you look at kind of what we having our in our.

Outlook for the second half for the second half for probably trading, 15% operational and commodity Rob NGL Dirty gas and oil.

We have ethane rejection, we have that model then for the second half of the.

So there's a lot of different things that can kind of continued to shape and shifting share into second half July looks really good. We're very pleased to see July volumes and kind of how to cost our stuff is coming in so I think the company continues to be on a really really good trend at the same time.

Im a big believer and you plan for the worst you hope for the best that's what we're doing here and there is there still decent amount of uncertainty.

Yes, and I guess just to ask another wave if your initiating this new ranging expecting to come into low end I mean.

And your conservative outlook, I mean, and maybe there's some headwinds and some uncertainty do you still feel comfortable with the ability to hit hit the low end of that.

Hi, guys loss.

And we hope we usually do Thats why we previously so we're very comfortable around that.

Yes, I can sit here.

Unfortunately don't have crystal all kind of say, both our things going to look like on January 15 win win shown collectible the numbers, but yes, we are with what we're looking at here today with the assumptions that we have given you with knowing that hey, there's still a lot of uncertainty we're very comfortable with monthly, giving you here thats why we decide.

Added to reinstate it still modeling that theres, a lot of ins and outs that could happen here over the next five months.

Yes, thanks for that color and then I guess just.

Thinking about the recovery broadly in NGL volumes kind of holding in maybe a little bit better than we expected maybe better than you expected.

At what point does.

Got sweeny Frac option come back on the table for you guys does it.

Summing that you still have available or is it and continue red laufer kind of tradition goal post that you need to see where that.

That comes back on the tables or potential investment.

Yes, no. So yes, we got to satisfy the we're not going to exercise the option at the same time between Phillips 66 in between US I think repos degree to strategically it makes tremendous sense for us to own part of the Sweeney complex. So we've had.

Those discussions between ourselves and Phillips I think we have alignment around that that strategically does makes a lot of sense. We are the largest.

Rolled mix provider into Sweeney, so that makes I think combining strategically something between the two of US makes a tremendous amount of sense at the same time here over the last three months, we havent had any detailed discussions about what we would do when we would do it.

The agreement, we have with Phillips 66 on delivering roll mix into Sweeney two in Threeq is a pretty long term agreements. So we have time I think when when all stars aligned to say Hey, maybe maybe we should do that again, so I think multiple pickup dose, especially.

During the times right.

And I guess it one more in real quick I was wondering if you guys.

Have ever quantified exactly how much of your Permian position.

Is exposed to federal lands, if something were to happen with the election in that.

Before they become some sort of drilling moratorium or something you guys have that number off the top of your hand.

While we do have quite a lot of detail around that I think just first to talk about about this.

Our portfolio has very limited federal land exposure to the vast majority of our portfolio is is on private lands and all the states. We're doing business the largest exposure would be in southeast New Mexico.

I think it has been very clear for everyone that if something would happen and would get a moratorium on on tracking on federal lands, you've gone butadiene on the retroactive basis solve the amount of land that our largest service provider our largest producers have in southeast New Mexico is very very significant.

And there is no there are different dr. fared during the third no scenario under which they can that continue to develop that for the next 10 plus years or so so I think that has gone if the key item here I think the other thing that I always try to point out to people as yes, thats could be a potential negative that sits over the industry at the.

The same time, there could be a kind of corollary positive stood out as well and you know what's happening to price is one that is going to happen I would think prices are probably going up and you would probably benefit from that so absolutely no short term exposure for us is probably something of a long long time away. The other thing is that the vast vast majority.

Ultra portfolio is all private land.

Thanks.

Thank you James James.

Those are all of our questions in the queue I want to thank you for joining us today and if you have any follow up question. Please don't hesitate to give me a call have a good day.

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program and you may now disconnect.

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