Q3 2020 ONEOK Inc Earnings Call
Good day and welcome to the third quarter 2021, Okay earnings call Todays conference is being recorded at this time I would like to turn the conference over to Mr. Andrew. Please go ahead Sir.
Okay. Thank you Sarah good morning, and welcome to <unk> third quarter 2020 earnings call.
We issued our earnings release and presentation. After the markets closed yesterday and those materials on our website.
After our prepared remarks will be available to take your questions.
A reminder, that statements made during this call that might include one EPS expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the Securities Act of 933, and I think 34 actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our FCC filings.
Our first speaker is Terry Spencer, President and Chief Executive Officer Terry.
Thank you Andrew Good morning, and thank you all for joining US today as always we appreciate your continued trust and investment you would work.
Joining me on today's call is Walt Hulse, Chief Financial Officer, and Executive Vice President strategic planning and corporate Affairs.
Kevin Burdick, Executive Vice President and Chief operating Officer.
Also available to answer your questions are Sheridan swords senior.
As president natural gas liquids, and Chuck Kelly Senior Vice President natural gas.
Our third quarter results were driven primarily by curtailed volume returning to our system increased ethane recovery.
The majority of volume across our operations has now exceeded pre pandemic level and better represents our volume expectations prior to the widespread production curtailments thing last quarter.
We're in a much improved position today than we were on our second quarter call.
Back in July you discussed the expectation for curtailed volumes to return in the third quarter.
No just three months later not only has essentially all of the curtailed volumes on our system return better.
Better returns at a faster rate than expected.
Its momentum.
Especially from September is expected to continue with the fourth quarter being just as good if not better than the third quarter.
Each also sets a good baseline to 2021.
Additionally, we successfully captured more previously flared natural gas in the Williston basin.
Leading the effort to reduce flaring, even as production has returned in the region.
In August we captured a higher percentage of gas and then the state wide average of 92% at.
An opportunity we discussed for numerous quarters.
Infrastructure put in place earlier this year and the hard work of our employees allowed us to help producers in the region decreased flaring, allowing both our customers and one up to benefit from previously Uncaptured earnings.
This is just one example of our continued to focus on customer service safe.
Safety and environmental responsibility.
Despite the challenges of operating in conducting business during a global pandemic.
Operating conditions have greatly improved from second quarter lows, but there is still uncertainty around the pandemic.
Recover.
Despite that uncertainty we remain focused on continuing to meet the needs of.
Some of our customers.
Our conversations with producers are increasingly positive as commodity prices have shown some stability and demand has shown positive signs.
These conversations shifted more towards 20 twond.
Indicating the potential for an improving pace of drilling and completion activity next year.
That's curtailed volumes have recovered so have earned.
We expect 120 earnings to approach the midpoint of our previously provided outlook ranges.
Which walt will discuss shortly.
On our last call I shared our outlook for 2021 and today the backdrop is even stronger volumes.
Volumes in the Bakken ramped throughout the third quarter setting us up for a strong fourth quarter and 2021.
We expect to achieve double digit earnings growth in 2021, compared with our new and updated 2020 outlook.
As it relates to our dividend distributable cash flow this quarter exceeded the dividend by $125 million.
The earnings strength expected in the fourth quarter and into 2021, we expect distributable cash flow to cover both the dividend and our 2021 capital expenditures.
We continue on our path to de leverage.
As always has been the case the dividend remains a potential lever we could pull if our de leveraging expectations are not being met.
This quarter demonstrated the reliability of our assets.
Unwavering dedication of our employees and the resiliency of our extensive and integrated businesses.
While the second quarter was challenging our employees remain focused on serving customer needs.
Preparing our assets for the eventual return of curtailed volumes.
The key infrastructure projects, we completed prior to the pandemic creates substantial capacity for future growth.
Markets continue to improve.
With that I'll turn the call over to all thank.
Thank you Terry.
<unk> third quarter 2020, net income totaled $312 million or 70 cents per share.
Third quarter, adjusted EBITDA totaled $747 million, a 15% increase year over year, and a 40% increase compared with the second quarter of 2020.
Distributable cash flow was more than $540 million in the third quarter, a 12% increase year over year with a healthy dividend coverage of 1.3 times.
We also generated more than 125 million a million dollars of distributable cash flow in excess of dividends paid during the quarter, an 11% increase compared with the same period last year.
Our September September 30, net debt to EBITDA on an annualized run rate basis was 4.6 times as we saw a significant step up in EBITDA in the third quarter from the return of curtailed volumes across our system.
We continue to manage our leverage towards four.
So, let us and maintain three and a half times as our long term aspiration goal.
We ended the third quarter with no borrowings on our $2.5 billion credit facility and nearly $450 million in cash.
Last week, the board of directors declared a dividend of 93 and a half so its a $3.74 per share on an annualized basis unchanged from the previous quarter.
We took proactive steps earlier this year to provide ample liquidity and protect our investment grade ratings, we demonstrated our ability to access the capital markets, even during challenging market conditions and have been able to use our balance sheet flexibility to help guide financial decisions throughout this period.
There's uncertainty if.
We are proactively paid off upcoming debt maturities and have been opportunistic in repurchasing more than $200 million.
The open market repurchases in the first nine months of the year.
They've been upcoming debt maturity standpoint, we have no maturities due before 2022.
As Terry mentioned was yesterday's earnings we announced that we now expect 2020 net income and adjusted EBITDA results to be higher.
Broaching the mid point of our previously provided outlook ranges.
Our improved outlook is supported by the volume strength, we're seeing across our assets the pace the control, but curtailed volumes return and our ability to capture previously flared gas results in an earnings run rate more in line with our original 2020 expectations and providing a clear path.
Now to our continued deleveraging.
Yesterday, we also announced the early completion of our two remaining active projects the Bakken NGL pipeline, it's been extension.
And arbuckle to pipeline extension.
Which were originally scheduled for completion in the fourth quarter 2020, and first quarter 2021, respectively.
Third quarter Capex included dollars pulled forward from the fourth quarter and 2021 for these projects and routine growth capital, primarily for well conduct and maintenance activities.
We have now substantially completed all of our active capital growth projects. We continue to expect a run rate of total cap annual capital expenditures, including maintenance and growth of $3 million to $400 million.
Base level of annual capital will be maintained until producer activity levels provide visibility to volume growth warranty expanded capacity.
But as always we remain flexible with the ability to restart projects quickly as customer needs change.
Recent conversations with producers, particularly those who have substantial positions in the Dunn County area. The Williston basin are indicating that more rigs.
Well returning 2021.
Insulting potential need to restart bear Creek to construction if this activity materializes.
Even in this scenario, our 2021 capital expenditures would likely be in the 500 million dollar range.
We now expect our cost saving measures to total approximately $130 million this year compared with our 2020 plan.
Well September through September we recognized approximately $100 million in savings and continue to look for additional efficiencies.
From a financial perspective, we remain well positioned with ample liquidity and balance sheet strength to withstand additional market uncertainty certainty should or the rock.
And to be opportunistic in the event of a faster paced recovery.
I'll now turn the call over to Kevin for a closer look at our operations.
Thank you all with nearly all curtailed production back online by the end of the third quarter. We saw a large step up the NGL and natural gas volumes across our system compared with the second quarter.
NGL volumes across all of our operating areas exceeded pre pandemic levels in the third quarter and natural gas volumes processed in the Rocky Mountain region have reached more than 1.2 billion cubic feet per day in October.
I'll start with the natural gas liquids segment.
Third quarter, NGL wealthy throughput volumes across our system increased 7% year over year, and 15% compared with the second quarter.
In the Rocky Mountain region, which is our highest margin business volumes are averaging approximately 245000 barrels per day in October.
A 14% increase over our third quarter, 2020 average and a more than 50% increase from the second quarter 2020.
The return of curtailed production completion of Ducs and increased flared gas capture has contributed to higher volumes.
As the primary NGL takeaway provider from the region, our natural gas liquids segment, not only benefits from the gas captured on one of its dedicated acreage, but also for many third party plants across the base.
With more than 130000 barrels per day of available capacity out of the region and the ability to expand capacity with minimal capital if needed. There is a long runway to grow with our customers.
We expect NGL earnings in the region to see additional benefit from two other areas as we move into 2021.
First the early completion of our Bakken NGL pipeline extension in August.
This lateral extension connects our system with an area of Williams County, which has historically had limited NGL transportation options.
In addition to the original contract with an expanding third party plant in the area. We have also contracted two additional third party plants near the pipeline.
Volume has already started flowing one the extension we expect a continued ramp into next year.
As a reminder, this project is also supported by minimum volume commitment.
Second we expect the transport all of our Williston and powder River basin volumes exclusively on our Elk Creek and Bakken pipelines beginning very early next year. Once we complete a low cost pump expansion on Elk Creek.
Which will reduce our transportation cost paid to overland pass type one.
In the mid continent region, we completed the Arbuckle to pipeline extension in August earlier than our target date of the first quarter 2021.
This extension improves connectivity from our Elk Creek pipeline to the arbuckle to pipeline, allowing increasing rocky mountain volumes, the optionality to be transported to the Mont Belvieu market hub.
Increasing petrochemical demand and favorable ethane economics resulted in significant ethane recovery across the mid continent region through a good portion of the third quarter.
Our rafi throughput volumes in the region increased 9% compared with the second quarter of 2020, largely due to ethane recovery.
Ethane volumes in the mid continent averaged more than 245000 barrels per day in the third quarter 2020, compared with the second quarter 2020 average of 210000 barrels per day or more than 17% increase driven by nearly all of our mid continent plant connections we can.
Covering ethane in July and August.
September we saw a reversal back to ethane rejection as pricing and volumes were impacted by decreased petrochemical demand due to hurricane Laura.
We had seen some plants in the mid continent returned to recovery. This month, but expect ethane volumes on our system to fluctuate for the remainder of 2020 and then to 2021.
In the Permian Gulf Coast region third quarter, NGL, Rafi throughput volumes increased 16% compared with the second quarter 2020, benefiting from returning volumes and approximately 30000 barrels per day of short term fractionation only volumes.
Even without the additional short term volume.
Rafi throughput in the region still increased more than 6% compared with the second quarter.
As we mentioned previously we continue to offload 25000 barrels per day on third party NGL pipes. This firm contract will expire at the end of the year, which will eliminate this expense as we move these barrels to our integrated system.
Moving on to the natural gas gathering and processing segment.
Total natural gas volumes processed increased 13% compared with the second quarter 2020 and.
And processing volumes in the Rocky Mountain region have reached more than 1.2 billion cubic feet per day in October.
More than 16% increase from our third quarter average.
The return of curtailed volumes to our system in the Williston basin drove the third quarter average fee rate to 94 cents per annum due to you compared to 71 cents in the second quarter as a number of high fee percentage large producers brought production back online so.
Sooner than expected.
Going forward, we expect the average fee rate to remain around this level.
The 13 rigs currently operating in the Williston basin with eight on our dedicated acreage, which is an increase from the past few months.
Drilled but uncompleted wells in the basin total more than 850 with approximately 400 on our dedicated acreage.
We've said previously that it takes 15 to 20, well completions per month to maintain our processing volumes around 1.1 to 1.2 Bcf per day.
This is a relatively small number of well completions, considering we have averaged 28 completions per month through the first nine months of 2020.
When you factor in our current volume levels, a significant DUC inventory that is profitable to complete in this price environment. The rigs currently on the system and some additional flare gas opportunities, we have ample inventory to support current volume levels through 2021, assuming no increase.
In producer activity during that time frame of.
Of course, any additional producer activity in the basin would present upside, resulting in more wells drilled and door completed driving higher volumes and ultimately earnings for that.
Slide seven in our earnings presentation has been updated to illustrate the ability to maintain current natural gas processing levels with minimal well completions. This slide is meant to be a representation not guidance or an indication of our expected future volumes were.
For reference there are four to five frac crews in the region today, each with the capability to complete five to six wells per month.
In addition to the substantial inventory of wells on our system other volume Tailwinds in the basin include rising gas to oil ratios and additional gas capture opportunities.
Well orders have continued to increase and remain well over two to one.
The result of activity concentrated in the core of the basin and maturing wells.
This level of gas production suggests that even at a flat or slightly declining crude oil production environment, we could still see stable to increasing gas volumes in the region.
The latest North Dakota data, which is for the month of August showed 215 million cubic feet per day still playing in the basin.
Approximately 80 million cubic feet per day of that on one of its dedicated acreage.
State wide flaring in August decreased to 8% compared with nearly 20% at the same time last year as.
As Terry mentioned flaring on one of the acreage was below the statewide average.
Reflection of the infrastructure that our employees have worked hard to construct and operate in the region over the last decade, and specifically over the last couple of years.
With 1.5 Bcf of processing capacity, we will continue to push to capture even more of the gas produced as we move through 2021.
In the natural gas pipeline segment.
Reported another strong quarter of stable fee based earnings the firm capacity remaining nearly 95% contracted this.
The segment continues to be a stable fee based earnings driver for the company, providing essential natural gas to end use customers. Terry that concludes my remarks. Thanks, Kevin that was a great overview of a strong quarter headlined by the expected return of volumes and a solid demonstration of the resiliency of our businesses.
This quarter was not only marked with volume related milestones and accomplishments.
In August we issued our Twelveth annual sustainability on the U.S.G. report and just recently, we received notable SG related recognition.
Moving being recognized by Jeff capital for the second year in a row as the industry leader in energy equipment and services sector and receiving an award for environmental Excellence from the Environmental Federation of Oklahoma.
We're always evaluating ways to improve our SG related performance and enhance our long term business sustainability. This.
This includes planning and preparing for potential changes to our industry customer needs or the broader demand for energy.
There has been much discussion about the future state of the energy industry and we get asked frequently what our role could be in the low carbon world.
The answer is simple one oak has always promoted a business culture prioritizing safety environmental responsibility and profitability in all that we do.
And as we always have we will do our homework to gain knowledge and prepare diligently for the future as our industry continues to meet the worlds energy needs in an environmentally responsible way.
Whether its actively evaluating the use of renewable energy at our facilities.
Eloping carbon capturing projects or assessing the feasibility of using our extensive assets for hydrogen transportation and storage.
Our commitment to environmental stewardship remained steadfast.
Our assets their location and our midstream skill set is compatible with many of these types of projects.
But they still need to make strategic sense for our business in many cases technology or large scale application, maybe further into the future, but we'll continue to evaluate opportunities that fit within our businesses.
Because we absolutely believe that are large and extensive infrastructure has a vital role to play in the long term energy transition.
And while we evaluate new and future opportunities I want to thank our employees for doing what they do best.
Operating our assets safely and responsibly.
And transporting essential Ngls and natural gas that are used to heat your home generate electricity and create the many end use products that help us lead healthier safer and more productive lives.
With that operator, we are now ready for questions.
If you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach or equipment again that is star one to ask a question.
We'll go ahead and take our first question from Jeremy Tonet with JP Morgan.
[noise] gains on for Jeremy.
I just want to start with the 21 guidance here.
For double digit growth.
And just given where the strip is today.
The price assumptions built into that guidance and then just looking at the slide seven let's let's see.
Well completion guide is it.
I was kind of the ballpark for well completions needed to kind of maintain volumes come back and [noise].
Well, Jerry you will.
Hard to understand you, but let me take the.
First the first place some of that growth into 21.
You know we talk to producers in this price environment. They they clearly the ducks are our profitable to complete I mean, I think thats the focus, especially as we look as you move through the rest of this year in the early parts of 21.
You got that substantial DUC inventory in the Bakken and you've seen some rigs come back so.
You know we as we've said before you know in a in a 35 to $40 environment. The Ducs will work well as far as the economics.
Get north of 45, that's when we saw rates come back in material ways in 15, and 16 and I think our conversations with customers today. It that would still hold so as we think about 21 were absolutely not thinking about it in the context of that 55 dollar environment, It's more in line with what the strip.
Look like today.
Chuck you name it but no I would agree with that those prices those and as far as what your reference with producers we've had discussions with our our Bakken producers and looking at their 2021 forecasting drill schedules and what they've provided you know they expect the pace of completions. The first half of the year to be duck, driven as Kevin mentioned Uh huh.
However, they anticipate adding rigs in the spring. So I think as you as you look at the strip in 21 of the pretty much supports supports that statement. So.
Got it thanks.
Hi, This is Dan.
Okay.
The next question.
He had seen kind of JP Morgan.
Imaging team.
I was just kind of captured.
Hi, [laughter].
And just as high level can you talk about how much of that is non windows and improved volumes and kind.
And of course the peak.
Good bye.
The call.
The GP food.
Hi, Matt.
Thanks.
Any color you could provide that.
[noise] Jeremy we're struggling did you is your question about the fee rate in the GNP business.
Yes.
Did you state what is behind the buyback.
Yes.
He.
How much of that is attributable to improved volumes of various kinds of.
Sure.
Sure Jeremy this transmission is really bad.
Connection so we're having real difficulty understanding here just hearing your question so.
What we what we could do is try to get to you offline.
Thank you, Jeff if you've got any commentary around.
Right that might be helpful for Jeremy I'm sure we can buy club.
Pretty much with what drove our increase in the fee and the fee rate quarter over quarter to think about it. It's really a combination of two things based on mix and contract mix. So as we as we saw our Williston basin curtailed volumes returning to our system, particularly from our large producers. This.
These producers that contract to our fee only or high have a high fee with a lower percentage of proceeds component and it's at least curtailed volumes came back on.
Then then what happened was the mix of the basin contribution to that average should be changed in Q2. It was more toward a 50 50 mix between mid continent, and backend with what's in that kind of being a lower fee a lower fee margin business. So here in Q3.
We saw our Rockies volumes contribute upwards of approximately 60% of that calculation. So combination of large producers higher fee higher fee lower pop components, although it's been volume related and roughly 60% of that basin mix than the average of the basin waiting in the average drove that fee rate to 90.
Four cents.
Well go ahead and take our next question from Sheila Gershuni with caveat.
Hi, good morning, guys, hopefully like connections okay.
Just to clarify before I ask my questions. You are basically say the mix shift of where the volumes came from this part of the reason why were like one off that we bought.
Well.
I'd characterize it your last response.
Yeah that was I mean again, it's a shift in the it's a shift in both the volume of from the mid Con you know kind of decline in the higher percentage of Williston volume and then also the mix of contracts that we had a lot of our larger.
Higher fee based.
You know customers bought gas back online.
In a sizable way in the third quarter.
Okay. Thank you for that.
Just moving on team to my questions here.
First of all thank you for providing all the in carload data well connections and that's like several of our kind of feel like Thats in chiasma adventure.
So when I think about slide seven I, just want to understand how to utilize it correctly here.
Suggest 15 average well completions in months and so that keeps you flatter I guess, that's about 180 completions for the year for for 21 and to grow you know you've got the 25 35 45 scenarios.
And then as you mentioned in the call you've got 400 Bucks that are in the money right now, but maybe they are not all the right areas. So.
What I'm trying to piece that together, if I see lets say half the docs get completed and you mentioned that you have eight rigs running on your acreage, which gives you what two wells per rig per month.
It's so it seems like you can deal with.
Materially above the 28 average while completion that you sort of highlighted in getting Saddam September.
So when I think about that all else equal that you can have a material increase in production year on year it might be too simplistic in my analysis here or or or is dr. way to be thinking about that.
No share this Kevin I think that's a that's a that's exactly how we're looking at it and the unit that DUC inventory.
That provides you a substantial runway.
For for growth and you add the rigs on top of that.
And we do expect to capture a little more gas in that gives you that volume strength that we foresee.
It is in the paradoxically Terry mentioned that double digit growth for 21 versus twice, which one of those scenarios or you will see a lake is it 25 to 35.
Trying to understand that.
We haven't again, we haven't necessarily provided the specific link there, but again I'd go back to the previous comments from Jim that I made a journey that you know we're.
We're not we're thinking about this in the context of the 40 to 45 dollar type environment as we look at 21.
Okay, and then maybe as a follow up question one of your peers yesterday sort of was talking about the real estate in general that the producers are becoming significantly more efficient more stages per frac longer laterals, and so sports and sort of intimated. The geo ours are going to continue to go up and maybe even.
Three of them that have previously which is that something that youre hearing from your where customers as well too is that something that youre seeing as well Joe.
Yes. This is Chuck we are and we're seeing that from our producers.
I think we mentioned on last call lateral lengths were seeing are pushing out to the three mile level. We're also seeing a increase frac stages. So we are seeing so you're seeing greater production efficiencies and of course, the geo ours continue to rise in the basement. So when you look at those those three components.
You know, it's all paying a pretty good picture a prudent for these new wells coming on line.
Jeff at the bottom line is that as the breakeven costs continue to come down significantly that's correct.
No that that's super helpful and maybe one final question if I may for Walt.
You know what I sort of think about the results for the third quarter. If I annualize, we'll look at your leverage compared to that you start to get down to the Wellbore 4.6 is Alan and so forth.
Yeah, as we move into next year, what's the leverage ratio on an annualized basis that you would like to get to before you would consider buybacks.
[noise] Shneur I would.
To answer that question in a couple ways I think that yeah. We we will continue to see that leverage ratio trend in the right direction.
We did when we originally gave 2020 guidance, we gave some expectations of where we thought a leverage we get to at the end of 20 or early twenties 21, and that kind of got moved out 12 to 15 months. This based on the pandemic. So.
I think we'll still trending that range towards.
So its four times and the.
Whether that happens.
On a run rate basis.
The end of 21 or early 2022 will be headed the right direction.
Perfect. Thank you very much today for all the color.
Yes.
Well take our next question from Christine Cho with Barclays.
Oh, good morning, everyone I'm going to apologize in advance, but I also want to act if that's slide seven.
When you talk about the 15 to 20 wells online in the back and people buying flat at one one or so one two bcf a day level when I can buy not like your comment right.
At least 3 billion and EBITDA next year, but whats Minneapolis implied Boston volumes.
With that.
From current levels.
Is your top that has 300, plus 400 million next year and to keep that level of lot of 15 to 20 per watt lots in the Bakken or how should we think about that.
Yeah. Christine this is Kevin Yeah, I think we would we would expect to be able to do that again, we've got available processing capacity. So all we're talking about a net.
That we would need would be.
You know well connect capital to go connect well, we might need to add a compressor station or something like that and that would be within the you know that three to 400 million dollar type range given the environment that we're looking at today.
Okay, and then if I could actually move over time overland pass and I. Appreciate the comments that you made and prepared remarks about you know looking at Potter with Arpus, and Oh that scale alcohol, but.
You know, although half earnings are down in Q2 and that level continued impact. Thank you.
Did you guys love volumes from the Bakken NGL and over a long path to l. creep or get a large customer that off.
I thought the PIFA previously fall that should we think that there's available capacity.
Alright.
Christine it's sharing we did lose some volume also though PPL into the outbreak boffin system in both the second and third quarter.
I'm in probably the run rate you're at today is what you'll see through the fourth quarter and then once we get into 2021, and we will our plan right now is to remove all the volume off that system and once we get to 2021 by moving that volume off the system and it was on our own system, we think due to.
Cost savings that we will see we should see approximately a 40 or $50 million uplift in earnings.
Okay.
To do that are you going to happen and L. Creek.
Let's get into the earnings while we have a low cost expansion that we will complete by the end of the year and that will allow us to move all the volume off of open dialogue.
Got it and Im sorry, one follow up did you see.
Hey, anything to take your volumes off of all the long haul.
On the last quarter, both quarter on quarter.
Well, we have some contractual obligations that we can't get into it this time than any obligations or any context, we have will not extended to 2021.
Got it thank you.
Well take our next question from except in Richardson with <unk> Securities.
Hi, Good morning, really appreciate all the comments on 21, particularly clarifying some of the assumptions and and especially uncertain environment and.
As noted that customer conversations are encouraging and rigs could potentially return in the spring, which would presumably accelerate that completion activity. So.
To the extent of a turn of a rigs occurs as you noted any of that return would be upside to the general assumptions driving this 3 billion plus 2021 expectation.
Yeah, I mean, I think theres clearly the potential for that on the ethylene we talked in the in the in our opening remarks that you know that that would be upside.
I think that it just will boil down to how the producers and our customer determined to deploy that capital as far as completing ducs and and.
Rigs coming back the other thing that rigs coming back if you think about the lag of those rigs coming back.
That also then would start supporting you know growth into 22 as well.
Really helpful and then I guess Conversely.
And Conversely, do you see out.
Outside of a reduction in completion at their pace of completion activity are there headwinds out there that would prevent you to that sort.
Sort of 3 billion dollar number in 2021.
I mean, that's the.
Again, just other than you said that the activity levels.
And we all know the risk that would come with that might drive that but other than that the thing I think we just keep coming back to is we've.
We've got plenty of processing capacity, we put a lot of compression in field infrastructure in place to get the gas to the plant. We've got an NGL system. That's got available capacity, though so we're sitting in a good spot to be able to grow with our customers with very little capital.
Kevin I think the only thing I would add to your comments is that as you.
As we talk to the producers certainly they're making their decisions based on a longer term view of commodity prices. Now certainly you could have you've got OPEC risk out there you've got cold at 19 risk out there in the universe. It certainly could impact impact these numbers as we think about 2021.
But the fact of the matter is the industry has done some thing.
The other one the way they operate but also in the way they manage their markets.
Got new pricing indices, and the Gulf coast that could mitigate and ensure that the phenomenon. We saw in the springtime in terms of negative crude prices does not happen again.
We're pretty certain were not going to see that type of scenario materialize, but certainly we will see month to month or quarter to quarter volatility in commodity prices look like we always do.
But oh, we don't anticipate that even if we see a some of these other phenomena other things happen like OPEC or or or the cove. It. We don't think were going to get back in a scenario like we saw in the springtime, which was a huge impact.
You what transpired in the second quarter Cnos negative for advisors.
Well take our next question from Michael Blum with Wells Fargo.
Thanks, Good morning, everybody.
I wanted to ask about essay.
For next year really I.
I guess, what ethane price.
Thank you need to see recoveries in the Bakken and.
Would you consider already considering a lower tariff to incentivize some of those.
And recoveries next year and I apologize for the multi part question here, but is any of that or any ethane recovery soon and you are.
Forecasts or expectations for double digit growth in 21.
Michael This is shared and what I would say and your first question the ethane price that we would need in the block and obviously depends on what the gas prices in the block and that it'd be fair to say that we would need to be in.
In the 40 cents per gallon range I am correct the structure that we have today.
We only had the ability to flex our fees or change our fees team said ethane to come out if we think that's the best thing to do.
But a lot of it depends on obviously, we have to get still had the price that seems to be higher than the gas price in the area if.
If we look into 2021, we are are not assuming any ethane recovery out of the Bakken and our double digit growth.
We are only assuming a partial ethane recovery through the year in the mid continent for the double digit growth as well, which is where we could see some upside as we go into next year based on the volume Apis.
I think thats represent kind of a a call option that we have that if volume doesn't show up that would.
Force people to go into different areas to extract ethane where it volume.
As I felt like we think it is next year you could see ethane the economic coming out of the Bakken that should support our growth rate for next year.
And shared and we do see some additional pet chem demand come in as well as the.
That's right there's a one cracker this to be completed here in the fourth quarter of 2020, and then we also have an export docks and that is to complete it had had been completed and we'll start.
Exporting for asking into next year. So we see good demand coming on for next year and.
And that's why we're if we could see some ethane recovery proportional up the year at 2021.
Uh huh.
Got it thank you very much.
Well take our next question from fired units with credit Suisse.
Hi, Good morning, guys first question after a while just with respect to leveraging and getting to that three and a half times Aspirationally target I think I heard your response this scenario that strategy at this point is maybe steady deleveraging.
Cash flow over time, which sounds like obviously had been pushed out a little bit just curious beyond some of the the repurchases you're guiding down in the open market.
Maybe there's lots of opportunity here going forward.
Any appetite to get more proactive here and then secondly, one thinking about is just on the M&A side and using M&A as a tool to maybe both de lever as well as the something strategic not sure if any screenings for new on that front.
Well, we think we're going to naturally de lever and you know I think where were we shouldn't before times first three the S.S. durational overtime.
But you know if we didn't get into the Fourq on goal.
Is the near term target no. We obviously are going to look at opportunities that come along the way and assumption.
You know it was was attractive from a de levering standpoint that would be a positive, but I don't think that would be a driver for us to do a transaction for sure.
Yes. We are this is Terry so what were what we always think about acquisitions and opportunities to add assets or businesses to our business. That's just an ongoing process, it's really not our top priority right now and managing the core business.
Managing the balance sheet is is our priority and we're just going to stay focused on that and stay focused on our operations. We will stay focused on serving our customer needs and optimizing our business, where we can the fact the matter is is that as I said before M&A opportunities are kind of few and far between.
And in particularly those that are actionable. So we don't spend a whole lot of time worrying about that so right now in this environment stay focused on the core business.
Well take our next question from generic father's day with Bernstein.
Hi, good morning.
The flaring that it's still happening on your acreage and in the back and forth I believe and what would need to happen next year to get it even my work or is this just kind of.
Okay, I know, Jim it's Kevin and I think you'll get the flaring that's left.
There will still have some isolated pockets of of wells and door pads that.
That.
Haven't been connected and door, we have some maybe pressure limitations.
We're we're we're working to continue to put in some infrastructure. Obviously, we've taken out a lot of that flared gas as production has come back online.
As we said before you're always going to have some level of flaring, especially when you look at you know IP rates and.
And and you know if a producer brings on a a very large pad and we're not building for the peak 30 days or things like that.
So those are the types of you've got operational disruptions it could cause some flaring. It from time to time. So we'll continue to work to obviously look for ways to capture all the gas that that's out there connect a few of these in and continue to watch the pressures on our system.
Okay, So maybe a little bit lower.
Not that.
Correct.
Okay, and then I just wanted to follow up on that.
Exactly.
I think pricing will not have to get all the way to 40 cents. So you put start sort of recovering and getting some benefit.
Right I think you have.
The person that you might get yourself, you can do it at a lower price.
[laughter].
Yes, we could always this shared and we could always lower our fees.
To make it economical to recover ethane, we always have that option and that's not only with our own volume coming off of our plants at but that it also be that a lot of third party volumes.
And this is something at times, we've done in the mid continent. When we think ethane may be coming into rejection to get him come in earlier, we've reduced our feed that time too.
Two for a month to allow them to come in so we have that option and if we see.
See the opportunity to do that and we think that it makes sense that is definitely within our wheelhouse to do that same thing and to come out.
Well take our next question from Gabe Moreen with Newsy route.
Hi, Good morning, everyone, Tom if I could ask maybe a little bit about what you're seeing with the poor per foot gas here being north of three bucks if.
I assume some of the legacy areas of that conversation, maybe some refracs or producer interest and some stuff like that.
A detailed discussions are happening.
James This is Chuck was the last question regarding mid continent, a producer discussions I didn't quite hear us.
So that's that's a pretty bucks disciplinary producers are looking at with Rockstar or more with that.
No.
Yeah. That's that's a good question, we have seen some refracs here this year.
Particularly last quarter and them my understand there is a couple of scheduled here in our Q4.
Other than that Midcon and producers we've spoken with have shared their preliminary plans for 2021.
And they're indicating a restart in activity in both the stack and the scoop.
We're seeing a two to three rigs are talking about next year for US right now on our acreage maybe there might be a fourth.
And what they're citing is strengthening mid continent gas prices.
For some of the Gassier plays, particularly in the stack.
I hope that gives you a little bit of color what we're hearing in the mid con.
That was helpful. Thank you and then two quick clarification housekeeping questions for me one is kind of what your expectations now are for.
Total second half 2020, capex, given the Bluetooth spending I think some of that pull forward.
And then the other is just the guidance on double digit growth.
For 21, well I think last quarter, you sort of sensitized to DAPL being on or off are there any sensitivities are topping off.
Dave This is Kevin I'll start and Walt can chime in as we think about Capex yet.
Clearly with with what we spent in the third quarter with the acceleration of some of these projects and the activity levels. We saw you know we are at the high end and and.
Capital, usually tapers off in the fourth quarter, I'm, especially with weather and other things.
And that will definitely trending towards the upper if not slightly above the top end of the range just given what we've spent year to date that we think going forward about capital. The the notion that we can continue to spin you know the kind of in a run rate to to continue to grow with the customers.
In that $300 million to $400 million range.
Would would be solid.
Absolutely worth thinking about dapple, and ER and continue to think about it or our outlook remains.
Consistent with what we said before that that Ah you know if you would experience or the industry will experience a dapple shut down we still believe it would be a mid single digit type growth.
You know four four dapple, even in that scenario to our customers as we talk to them. They definitely have been exploring alternatives some of them have been.
You know securing some some re osama bin moving some volumes to be up to other pipes and getting allocation. There. So we do feel we could we'd be able to support volume growth you know in that even in the dapple shut down scenario.
Yeah, and shared and you have anything to say in the event that will shut down could happen you got the potential to that.
The accrued transporter out here with some piping currently operate.
Yeah, we still continue to look at whether or not we would take that blocking the 12 inch pipeline into crude service.
As Kevin said that producers out there have really looked at alternatives and there's a lot of alternatives beyond ours as well.
Rail being one of them knowledge. The other pipes that may be in a better position to start up quicker than are balking, Pat did need to convert but we still continue to investigate that and make sure. It should it's ready to move if we need to do that.
Based on the debt dapple shutdown.
Well take our next question from Iran, Scotto with RBC capital markets.
Hey, good morning, everyone 'cause it we've seen an acceleration of upstream M&A what are your thoughts on that and clearly having larger better capitalized because I understood then would be a positive but do you see any potential impact contracting and do you think that.
The larger more integrated midstream companies like no one else that can offer services across the value chain benefits yet.
So far this is Kevin I don't know that we see I don't think we definitely don't see that as a negative we got a lot of very large customers I don't see it as a contract issue at all you know we've got the vast majority of our contracts are long term, though the locked in.
And we like those contract structures.
You know it.
The company's typically the larger companies, we will deal with you own many of them have a long term view of this play, especially as we think about the Bakken and they're looking at the the reservoir over the next 10 to 20 years not over the next three to four so so that thing.
Help from the standpoint, it just feels good strong ratable growth over time, but.
Don't know that we see it as a as a as.
The significant pro or con either way.
Got it thanks, and then on the quick following up that M&A question I. Appreciate the comments that you made on wondering within M&A, but interested in your thoughts on Oh well.
Trend that we think we can see.
In midstream and then potential.
Well I have to keep Joe L.
Our certainly there is some potential in the midstream space for consolidation gathering processing and I've been I've been saying for better part of 15 years that there's going to be significant consolidation this year and I've been wrong every time.
But we do see some some potential for a private equity to potentially look at.
At placing assets into the market. The fact of the matter is that most of those assets don't really make a whole lot of sense for us those that don't fit with the bigger picture.
We've done a lot of work in trying to.
Yes.
Manage our risk as it relates to wellhead risk and so we've got a real good job, they're contractually as well as how we operate our businesses.
So so were really it to the extent, we do see some things in midstream space specifically in gathering processing.
As I see the landscape today don't don't really fit that well and certainly carry with it some risks that.
We don't like.
But.
Broadly speaking on a large scale for midstream that years you know there's there's there's some there's you see some assets that are being spun out from other companies and utility companies those some of those assets.
Our our assets that looked pretty good it could could make some sense, but certainly were you know we're going to we're going to look at the landscape in and be diligent and.
And disciplined.
The way we consider acquisition.
Just as we always have.
Well take our next question from Sunil Sibal with Seaport Global Securities.
Yes, hi, good money. So hopefully you can get in there right.
No. It's just going to the question you.
Keep in mind as you don't go up you know you have on deal terms.
Cash flows explore here, we've been putting on that slide.
Lives you know Indian lives.
Oh, I'm, sorry, I couldn't make out your question very it's.
Connections kind of garbled so.
Yeah.
Maybe to try the next question will [laughter], if we can hear that order I understand that with the connection is really the audio is really poor.
Yes.
So my question same question was related to a capital allocation strategy.
I was wondering if you have had any recent discussions dwt against see how this actually got it.
Uh huh.
Sorry.
Yeah, well yeah.
We have regular conversations with the rating agencies.
We have throughout this through out the pandemic, we would we would have regular conversations in before the end of it.
Yeah, I think they've done a supportive you can talk to them directly.
We have been pretty clear about a a a view on the dividends that it's part of the capital allocation process with our board thinks about every quarter and no, but we really see the strength of the business and where we.
The the dividend coverage or is that Oh, we saw in this quarter and what we think of moving forward.
Is supportive of the de levering that were seeing them with the rating agencies.
I've been looking at as well, so I can't speak for them, but Oh, we have a very regular dialog with them.
Okay. Thanks for that and I would take my other questions offline.
The reason, thank you well take on the question.
Well take our next question from Michael the Pizza topping Goldman Sachs.
Hey, guys. Thanks for taking my question and congrats on a great quarter.
Quake, we've had lots of M&A questions and they've all been asset acquisition or company acquisition, driven I don't want to take it on the other side if there anything within the one oak portfolio that might not necessarily be core to want to have a pretty antiquated system, but just curious how you're thinking about that.
Central path.
Accelerating the de leveraging process.
Yeah, Michael It we always think about that or we can constantly.
Constantly thinking about asset rationalization. The fact of the matter is that.
Really don't materially have any assets that we consider to be core to our business.
But we will.
We may have assets and certainly don't generate quite as high rate of return as others. So we'll always think about those and we'll look at the landscape and the market opportunity.
HM.
The German if if ownership if the whole value for somebody else is greater so we're always thinking about those kinds of things that as we sit today, our asset collection, all fits together pretty well.
Got it and then 20 I got questions just on the third quarter first of all in the Bakken what went the well connects in September like what the cadence I didn't get it in five during the quarter what would the well what was the cadence of back to the quarter debt, what's it down significantly.
Higher in September as an exit run rate relative to what it was at the beginning of the quarter.
Michael. This is this is Chuck I know our quarterly number was 55, frankly I don't have the monthly breakdown.
In in front of me, so [noise] really can't speak to how it how it broke out over the quarter.
We do have line of sight here.
In Q4 with a similar type number.
So.
Well take our next question from Craig Shere, but to me about that.
Hi, guys. Thanks for taking the question congratulations on churn for the quarter.
First store based on conversations with other producers any color around the magnitude of potential Olson recovery, but you can see on your dedicated acreage in the spring.
And you know kind of Dovetailing with terrorists comments about breakeven costs. You know following are you getting body language that $40 is the new 45 that felt like what we saw in 2015 2016 as far as spring.
Material rig count recovers.
Hey, Craig its CASM, yeah, the conversations with producers is going great.
They continue to get better and better Chuck referenced lateral leasing and the frac the completion technologies et cetera.
In addition to that you know they they have figured out spacing and they know exactly what they're going to get I think one of the charts, we provide not in our quarterly materials I think in our investor deck that shows year over year, how the type curves in pet improved every year and you know as we.
Talk to producers they they don't expect that to change and as they continue to get better. So yeah. There's that take the you know that take 40 45 to a new 40 or vice versa. I don't know that all I can tell you is in this price environment all the conversations we're having with customers right now.
Now or about increasing activity not about shutting activity down.
Right, Okay, and a last question.
I just want to dig deeper into your clean tech and environmental problems I.
I mean, some things we've kind of vaguely heard of his lithium extracted from all four Brian hydrogen, perhaps cheaply derived from over oil fields and infield liquefaction, perhaps assisting with flaring in certain basins.
Polishing is a lot of uncertainty over the next five to 10 years are there any areas of transition that will stand out more or are you where you could potentially participate.
Well, let me just hoped.
Hopefully this will answer your question I think when we think about our participation in a low carbon environment. It comes and basically three buckets.
First is reducing the impact on on the <unk>.
From our existing assets.
Leasing or emissions, we've got opportunities to do that in terms of enhanced pipeline integrity and leak leak protection or lead prevention. We also have the opportunity with the electrification of existing.
Natural gas fired equipment in particular compressors and so we've got a.
We've done some of that work, we've got a lot to lot of electric drive machines are in service and that's growing.
And we're looking at continuing to do that as we go out over a 10 year timeframe that can have that can and will have a significant impact and lower emissions.
It also gives us the opportunity to consume a solar and wind derived electricity, which which obviously is good a good thing to do or the other bucket is the transportation and storage and logistics for hydrogen as you mentioned.
C O two carbon capture we got some projects that were looking at this pretty low hanging fruit to reduce the amount of C. O two emissions.
And then when we're thinking about renewable fuels and other in their types of commodities or substances.
So that fit very well with our existing capabilities and assets and then we're thinking about the other low carbon projects that just make strategic sense for our business and that could be investing in some new technologies that potentially hydrogen fuel cell technologies.
Could you could have investments and those types of projects the direct investments in some of those.
So you know the thing so gross profitability.
Business strategy. All these things has to make sense with that that broader objective to be a profitable company.
And to make a make us better and to reduce our impact.
Oney environment so.
That's kind of how we think about it I'm, probably not going to invest in projects that absolutely don't have a fit or don't don't connect in some form or fashion strategically with our core.
Core business and our core capability of midstream company. So that's how I think of a long winded answer to that thank you question hope hopefully that helps.
Well take our next question from Derek Walker with Bank of America.
Thanks, everyone I know early hour and I appreciate Oh excuse me yes.
Basketball and that's the other questions offline.
If I heard you right during the phone remarkable you said you captured $100 million of cost reductions this year up to this point and.
I know, there's some commentary around cost savings with shipping volumes around because kind of 40 to 50 million.
Did that 40 to 50 is that incremental to that 100 or have you seen some of that already I guess is there a general.
So the cost reduction target that you have oh.
Going into next year, I think you had 120 last year, but.
Just want to make sure I'm you know that that's incremental to what you already talked about.
No. This is Kevin the $45 million to $50 million I believe you're talking about that shared and you referenced that that's related to a mortgage union in our NGL business day, and so that would not be included in the $130 million, we expect to say from a cost savings.
So those are two separate things.
Got it thank you.
Well take our next question from cash slots, but Oh.
Hi, Thank you for taking my question.
Just following up on Doug's question on the cost side, we saw a meaningful step down in the opex on into GMP segment.
Just wanted to understand if there was something unique happened in this particular quarter or this is a decent run rate to think off from your total opex perspective going forward.
The step down you, referring to the compared to the second quarter are you compared to last year.
Both actually because you know I guess you have you know many more plants that are online this year than last year and yet your numbers were meaningfully new so just curious if you know if there's something happening unique to this quarter or if this is the new normal in terms of cost structure.
No I I don't know that I'd say, it's a new normal but clearly when in <unk>. You know we have worked really hard over the last several months really since the beginning of the of the pandemic to cut cost out wherever possible. So you know we are doing things like there's you know we have compressor station.
Is that we can reroute gas in and shutdown compressor stations and and there was a couple of plants in the mid continent, we have temporarily idled that pulls costs out you don't need as much materials and services and probably the biggest driver is more contract labor you know we are doing most every.
Anything ourselves at this point with our employees is as as volumes a blip. So you know with some process improvements and other things. We found we expect that some of that will be sustainable, but you would also expect it as as our volumes will pick back up.
The cost will go up a little bit just from you know from that additional volume.
Got it thank you.
I thought I had.
That concludes today's question and answer session Mr. Thiola at this time I'd like to turn conference over back to you.
All right. Thank you, Sir our quiet period for the fourth quarter starts when we close our books in January and extends until we release earnings in late February well provide details for the conference call at a later date. Thank you for joining us and have a good week. Thank you everybody.
Thanks, Andrew.
Concludes todays call. Thank you for your participation you may now disconnect.
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