Q3 2020 Western Midstream Partners LP Earnings Call
Good day and welcome to the Western Midstream partners third quarter 2014 earnings Conference call.
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Please note today's event is being recorded.
I would now like turn the conference over to Christian Schultz, Vice President Investor Relations and Communications. Please go ahead. Thank you I'm glad you could join US today for Western Midstreams third quarter 2020 conference call I'd like to remind you that today's call. The accompanying slide deck and last nights earnings release contain important disclosures regarding forward looking statements and not.
GAAP reconciliations please reference western Midstreams form 10-Q, and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today.
Relevant reference materials are posted on our website with me today are Michael Your our Chief Executive Officer, and Chief Financial Officer, and Craig Collins, Our Chief operating Officer, I now would like to turn the call over to Michael Your Thank you Kristen and good afternoon everyone.
Yesterday, we reported $518 million of adjusted EBITDA, the highest adjusted EBITDA in West is history and $339 million of free cash flow.
We generated $198 million a free cash flow after distributions almost three times more the last quarter.
The team at West has worked incredibly hard on our strategic positioning and the steadfast commitment to excellence has culminated in this quarter's success.
The outstanding results from our third quarter performance is a testament to what we can achieve with the harmonization of our portfolio. This quarter represents a pivotal moment in our company's history as we highlight the strength of our premier asset portfolio, the resiliency of our producers and the consistent and exceptional performance of our people.
This time last year, we announced three focus areas for Wes, which included optimizing our existing assets developing and growing our relationship with Occidental and generating additional third party business.
I'm pleased to say, we have made substantial progress towards these goals all while overcoming the headwinds of the pandemic and challenging market environment.
Our ability to attract additional volumes onto our system and generate sustainable cost savings and operational efficiencies has better positioned west to emerge from this downturn as a stronger more resilient company.
Our ability to realize it readily available economies of scale and self funded 2020 capital requirements have enabled us to capitalize on unique opportunities and attract additional business onto our system.
Those successes continue to this day as our commercial teams secures mutually beneficial commercial solutions with new and existing customers.
We have also further strengthen our relationship and communication with Occidental by identifying opportunities for our two companies to improve operability deploy capital more efficiently and ultimately drive value for our stakeholders.
Above all optimizing our existing assets, including the transition to a standalone midstream business has proven to be the most transformational work in our company's history, we expect to realize approximately $175 million of all one m. and DNA savings compared to our originally issued guidance and we believe that substantially all of these.
Cost savings are sustainable.
Through a comprehensive review of our operations and supporting processes, we have identified opportunities to reduce our cost structure and enhance operational efficiencies, thereby generating improved sustainable results with fewer resources through these efforts we have become a cost leader among our peers. The hard work from our teams coupled with produce.
Sure outperformance increases confidence in our ability to exceed the high end of our pre co bid originally guided EBITDA target of $1.975 billion, despite slightly reduced throughput, while reducing our capital expenditures by more than 55%.
This EBITDA growth exemplifies the benefits of the contractual protections to support our business during downturns, our renewed focus on driving cost and operational efficiencies and their responsiveness and scalability of our capital profile.
Year to date, we have utilized free cash flow after distributions to repurchase $194 million of debt.
Furthermore, we have recently repaid the entire second quarter outstanding balance of $75 million under our revolving credit facility, enabling us to accelerate to leverage reduction. These.
These actions yield the current debt to adjusted EBITDA ratio below 4.0 times, which is below both our targeted year end 2020, and 2021 leverage ratios.
In fact, our leverage ratio has returned to early 2019 pre simplification levels, we remain committed to maintaining our target of at or below 4.0 times at year end 2021 continued restoration of our balance sheet and maintaining investment grade credit metrics.
Before I turn it over to Craig I'd like to take a minute to extend my thanks to our entire organization there long hours and hard work to unlock our company's full potential and their dedication to realizing substantial cost savings and operational efficiencies, which positions us to be an industry leader for the foreseeable future.
With that I would like to turn the call over to Craig to discuss our operational performance for the quarter.
Thank you Michael operationally gas throughput decreased by approximately 160 million cubic feet per day or 4% on a sequential quarter basis, although throughput did decrease in the Delaware and DJ basins. This 4% decline was driven primarily by throughput at our Wyoming Granger straddle plant returning to a more normalized.
Level, when compared to second quarter 2020, our water throughput decreased by approximately 86000 barrels per day, representing an 11% sequential quarter decrease as a result of lower producer throughput and the Delaware Basin.
During the third quarter, we continued to convert trucked water volumes from our existing producers under our system and we have reduced these water volumes in excess of 90% year to date by transferring these volumes to our extensive network of permanent underground water pipelines, we have significantly reduced environmental risks and trucking related emissions and improved road safety.
Our operated crude oil and natural gas liquids assets experienced a sequential quarter throughput decline of approximately 28000 barrels per day or 4%, primarily due to decreased throughput at our DJ and Delaware basin facilities.
Our crude oil and NGL throughput and produced water throughput increased 11% and 18% respectively from third quarter 2019.
In total our volumes declined approximately 6% on a sequential quarter basis. Despite these volume declines our adjusted gross margin decreased by approximately 1% or $5 million on a sequential quarter basis further demonstrating the benefits of the contractual protections that are superior portfolio provides.
I'm incredibly proud of what our operation engineering and commercial teams have achieved thus far in 2020.
Earlier this year, we implemented a companywide safety program known as lifts safe to enhance and strengthen west is already robust safety culture year to date, our system availability is above 98% providing needed reliability for our producers and exceeding our internal targets as.
As Michael highlighted earlier, we have also reevaluated, our operational needs and expect to deliver approximately $175 million of owning them and DNA savings for full year 2020, Our engineering organization continues to optimize designs across our assets further improving reliability, reducing project cycle times and.
Reducing capital spend.
For example, we have redesigned our salt water disposal facility and compression designs to achieve cost savings of 20% and 30% respectively. This quarter. We successfully commenced operations of train four at the loving road of adding 30000 barrels per day of treating capacity to the DBM oil system in West Texas through.
Improved communication clear expectations and cost controls our team completed the project nearly two months ahead of schedule and acquired approximately 35% less capital than our previous north loving trains subsequent to quarter end and as noted in the earnings release. The company closed on the sale of West was 14.81% equity.
The interest in Fort Union gas gathering LLC and entered into an option agreement to settle wess bison treating facility. During the first quarter 2021 for upfront consideration of $27 million without impacting 2021 cash flow, we will continue to evaluate portfolio optimization and the sale of non core asset.
To accelerate our financial goals now I will turn it back over to Michael to discuss our 2021 guidance and financial priorities.
As with others in the industry are 2020 financial and operational performance has been ever evolving amid the pandemic and transitioning Westway Standalone midstream enterprise has provided an additional challenge this year.
Understandably the current macroeconomic uncertainty and tempered producer expectations. In 2021 has increased scrutiny concerning our 2021 forecasted results as such we felt it prudent to issue preliminary guidance today with plans to release, our official guidance early next year.
First we expect 2021 adjusted EBITDA between 1.825 and $1.925 billion based on our customers current production forecast information.
We expect producers to complete DUC inventories throughout the remainder of 2020 and into 2021.
Furthermore, we expect modest activity levels to continue throughout 2020 with increased activity during 2021.
Through DUC completions producers brought online 10 wells during the third quarter in the Delaware Basin.
We expect an additional 68 wells to be brought online in the DJ and Delaware basins by the year end 2020. Additionally, we expect total 2021 capital between 275 and $375 million.
A decrease of approximately 24% compared to the $425 million mid point of our previously updated 2020 guidance.
The combination of our Delaware backbone infrastructure and our ability to continue our cost efficient operations should generate significant EBITDA with limited capital.
These activities, which are supported by contractual protections and the sustainability of 2020 cost saving initiatives and operational efficiencies are expected to result in meaningful 2021, EBITDA for western midstream.
Our contractual protections are in place so that a decline in throughput does not lead to an equivalent decline in EBITDA.
Using 2021 preliminary guidance as an example, if DJ and Delaware throughput levels decreased by an additional 10% we would experience an asset level EBITDA decline of only 5% to 6%, we expect to generate significant free cash flow, enabling west to remain at or below our year end 2021 target.
A 4.0 times.
We will continue to prioritize returning excess free cash flow to stakeholders by repaying debt repurchasing units and paying meaningful cash distributions.
Our premier asset portfolio strong fee based contracts and the ability to realize operational efficiencies and cost savings have generated meaningful EBITDA and free cash flow. These.
These results aid and reducing leverage below 4.0 times and increased stakeholder value even during challenging economic conditions after.
After our third quarter distribution, we will have returned approximately $1.15 billion to stakeholders. This year through debt repurchases cash distributions and units acquired should the Anadarko note exchange, that's roughly 10% of our enterprise value. The September exchange of the note receivable from Occidental for West common.
Units generated $18.1 million of incremental free cash flow after distributions and required no additional capital outlay you're.
Year to date, we have repurchased a $194 million of debt for an aggregate price of $180 million or approximately $14 million discount to par further.
Furthermore, in October we optimized our portfolio with the Fort Union equity interest sale and the bison facility option agreement. Additionally.
Additionally, we recently announced a unit buyback program for the repurchase of up to $250 million of Wess outstanding common units.
These transactions evidenced our ability to be flexible and opportunistic in how we generate and return value to stakeholders and approach we intend to continue in the future.
Before we open it up for Q and a I'd like to preview the upcoming release of our inaugural SG report.
We're excited for you to learn more about who we are how we safely and responsibly manage our daily operations and our approach to environmental social and governance issues throughout our sponsorship history with Anadarko and Occidental, we have cultivated a culture of strong corporate responsibility. We feel it is imperative to take the next step as they stand.
Alon midstream company to introduce stakeholders to our independent SG efforts. This report details our work toward reducing our environmental footprint and positively contributing to the lives of our workforce and local communities.
From our field level employees to the board of directors. Each one of US is responsible and accountable for sustainability, we strongly believe that focusing on people supporting a sustainable environment and operating responsibly is the right way to run our business and our internal standards regularly exceed regulatory requirements.
We are proud of our role in delivering affordable energy and industrial feedstock to improve the quality of life globally, our direct to wellhead pipeline infrastructure significantly reduces release risks and leads to reduced trucking related emissions improved road safety and limited road degradation. Furthermore, the design of our call.
Loreto, Kocis and West, Texas, Roadhouse enable us to gather oil directly from producers well sites, eliminating the need for well site storage tanks and associated oil vapor flaring and reduces emissions across the upstream sector.
As a lower emission bridge fuel natural gas plays a vital role in the global transition to cleaner energy sources.
It supports the use of renewables by providing a versatile quick to ramp up fuel source for times when wind solar and other alternative fuels are not available or cannot meet peak demand.
In closing.
This past year has been a time of great significance in west is history.
Despite the challenges, resulting from the global pandemic and the precipitous decline in commodity prices, we have made tremendous progress in establishing Wes as a sustainable leader in the midstream space surpassed expectations, and our derived financial and operational efficiencies and generated significant incremental value for our stakeholders are too.
Has repeatedly proven their ability to overcome adversity with exceptional performance and I want to personally. Thank every individual for their agility innovative spirit and continued commitment to the long term success of western midstream with that I would like to open up the line for questions.
Thank you we will now begin the question and answer session.
You ask your question.
I'm going to 100 touched so.
We are using a speakerphone please pick up your handset facilities.
So George your question. Please press Star then too.
Today's first question comes from Jeremy Tonet.
JP Morgan. Please go ahead.
Hey, Good afternoon, guys. This is James on for Jeremy.
Thanks, taking my question I, just want to start off with third party activity here. If you can remind us what percentage by basin or if you disclose that.
Our portfolio is third party activity.
And then just to get to 2021 guide is there any incremental third party activity baked into that or what are your sensitivities around there.
Yes. So currently about roughly 40% of our production comes from third party sources and thats across the portfolio.
As we look at our 2021 guidance. It incorporates both the expectations of activity levels of both our third parties as well as our largest customer Occidental. So it includes.
The feedback that we've received from from all of them regarding activity.
Got it thanks, a lot and then.
You know.
You've mentioned in the past asset sales to kind of accelerating leveraging.
And the Fort Union equity interest so this quarter.
Sorry is it.
On your marks that the noncore portfolio is still on the block, but I'm just looking at the contribution from that part of the portfolio.
Dr. Between 21, it looks kind of flat year over year, maybe you could just talk piece by piece.
The parts of that.
Non core portfolio.
And kind of the durability.
It seems like maybe.
I actually wanted there would be natural decline, there, but it looks pretty flat year over year. So.
Any color there would be appreciated.
Yes, I don't think Theres it'd be it would take a long time to go through.
Specifics of all of our equity interest we have a lot of them.
In total the.
The value of those assets actually is highlighted specifically in your question in that they provide.
A pretty sustainable overall contribution to our enterprise.
As it relates to asset sales.
As we highlighted on the previous call and certainly is played out in this most recent quarter, we have the opportunity and optionality with regard to the options to any of those sales because of our financial performance. We've already achieved a leverage target that we had set for the end of 2021.
And do expect to to exit 2021 at or below those levels, even despite any impact on the asset sale side and so as we look at potential sales of any assets, including potentially equity investments, it's going to be on a value basis something that we take a look at are going to be very value sensitive related to it.
Because we have that flexibility in light of the great performance that the team has been able to achieve.
Great that's helpful and if I could just sneak in one more.
Just on the on the pace for the buyback program is there any bogeys or.
What factors would it would affect your base the buyback here 2021.
Yes, great question, so we intend for it to be a programmatic so.
Structure for for the buyback the level that was set was intended to allow us.
The ability to repurchase units, while still staying underneath the four times leverage ratio exiting 2021, and so thats. The the dollar amount that was set.
And it will be going forward on a just on a programmatic basis that will repurchase those units.
Great. Thanks for the color I appreciate it.
And our next question today comes from Spiro duties.
Ladies please go ahead.
Hey, Thanks, Hey, Mike Hey, Greg.
Just want to go back to that first question and.
And maybe map it a little bit tighter to October guidance ads based on the call. This morning, it sounds like Aki targeting flat 2021 relative to the four key 20 exit rate and seems to imply that that maybe capex as it stands.
Yes ceiling and so upside would be maybe limited I'm just curious when we're looking at your your latest guidance and we think about the mid point does that imply that sort of flat outlook and as we think about getting to the either high or low end.
Curious, where you're seeing growth or where the other variables are outside of oxy sort of base case flat exit rate.
Yes, so a couple of comments I would I would make there and the first comment is that.
In one oxys discussing those items, it's on eight on a company wide basis right. A company that has 1.1 million barrels and the west assets actually are are frankly, only covering a fraction overall of.
Oxys, a very attractive and large asset base and so you can't necessarily derive.
Comments as it relates to what they're intending to do on a corporate wide basis as it specifically relates to Wes what our expectations are based on conversations with our customers, including oxy and third parties.
Is that the we will exit 2021 at a higher level than we are exiting 2020, if that gives you any any.
Assistance there.
No. It does and I appreciate you pointing that out from a corporate perspective second question just sticking with the themes that came out of the call earlier. This morning, and Mike you talked about DSG in your normal report coming soon.
Actually spent considerable amount of time talking about carbon capture.
And it seems like that's an area that they're looking to develop and grow potentially even larger as larger if not larger than he can.
I realize the data of Dropdowns are over but still a very tight relationship with oxy. So just curious wet and participate in the build out of that business would seem to have a lot of Serbia's service fee.
Structures or infrastructure oriented nature to it.
Yes, that's a great question and yes, we do maintain a.
Very active and great relationship, our overall with oxy and Dubai.
I do believe that there are opportunities that might exist within the incredibly.
Just powerful.
Development on local low carbon venture side that was discussed on the call. This morning.
As it relates to our EPS you report, we plan on getting that out actually in the coming days and.
Really encourage you to take a look at that report we're really excited about is the first one that that.
Will be published on a standalone basis and.
Something that we're really proud of all of the work that the team has done up to this point as it specifically relates to.
Some of the low carbon ventures front, you know, they're likely are some opportunities there and it's certainly something that.
But we're taking a look out.
Great I'll leave it there thanks, everyone.
Q.
And our next question.
Capital One securities. Please go ahead.
Hey, good afternoon, and thanks for taking the question.
My first one I want to start with the margins on a per unit basis were better than expected in the third quarter. So.
Michael I appreciate you mentioned it sounded like those are sustainable, but wondering if you could just talk a little bit more about your cost control efforts and how we should be thinking about that going forward.
Yes, we do we do consider them sustainable we've really taken a ground up approach on the way that we function on a standalone basis, which has involved a great efficiencies overall frankly, it's a it's a transformation that that has been accomplished over the past year that we're really proud of and anyone who is.
But a part of west over the past year should should really take some pride in.
The impact that we've been able to achieve as a whole.
By frankly, just looking at the way that we do things and making it more efficient as we have been.
But able to now produced those results over a couple of quarters.
And the changes that we've made being it just and frankly the way that we do things on a day to day basis in the state of the sustainability of that we do expect that of the $175 million, we've been able to achieve thus far for 2020.
The the majority if not the entirety of that we will be able to carry forward on a on a long term basis, I mean think about that $175 million effectively of EBITDA. That's.
Thats been created if you apply a multiple to that as billions of dollars of value that.
The team as a whole has been able to do it.
Through just rethinking the way that we have done things in the past and and figure out more efficient ways to do it going forward. So we would expect that and what is embedded in our forecast for 2021 is that those.
Savings are sustainable.
Got it that's very helpful.
And also as we're thinking about the capital budget.
Yes, I realize you pointed out that.
The 2020 spend should be lower than the.
Hi, guys, sorry below the low end of your prior guidance range. So just curious if that could be similar to what we saw in the third quarter and then how we should think about that.
Kind of rolling forward into your plans for 2021.
Yes, we would expect that the fourth quarter would be at a higher level than operated on for.
For the third quarter, so there will be an uptick.
As we undertake some maintenance activities additional maintenance activities that will happen in the fourth quarter in particular as well as some of the activities related to an expected ramp up in activity for 2021, and so would expect capital to be higher fourth quarter relative to third quarter.
Did I answer your question Collyn on 2021, sorry, what was the question there I want to make sure I answered that.
Oh, well really thinking about 2021, just kind of how the cadence of spend would look through the course of the year. If there is any.
Any outliers or if it's kind of a ratable through the course of the year.
Yes, it's largely ratable a little bit like.
Likely higher little front end focused you know again as we as we pick up some of the activity levels that were expecting to to ramp up.
I would expect that that is a little more front loaded.
And then slightly declining into the back half of 2021.
Got it Thats helpful. Thanks, Michael I appreciate it.
Yes.
And our next question comes from Shneur Gershuni with yes.
Hi, good afternoon, everyone.
Yes, maybe to come back to the guidance question a little bit here.
Not specifically about oxy or anything short I was wondering if you could give us a little bit of color kind of like what you said for the fourth quarter, you expect 68 docs to be completed.
What is the variables from the high end and low end for your guidance range in terms of.
Permits.
Adjustments like what what are the assumptions that youre using to come to the bottom end versus the top end. If you can share that with us yes.
Yes, sure so as with any guidance that we've put out and others tend to put out there tend to be some variables that you bake in a little bit of.
Risking if you will around.
That incorporates.
Our expectations are right on the production side or throughput side Theres, a slight delay overall and when that development activity might take place than that impacts on that throughput might come in.
You know that all of all of those variables is the risking associated really with timing.
As much as anything you know is where is where you have the high end and the low end of the range.
You can't share the like is it 100 docs for the year or something like that or.
No.
Okay. So.
At the show.
Second question its stride.
[laughter].
Second question is just with respect to the water assets.
Kind of a two part question here one.
You talked about the conversion from truck.
Onto your system and so forth how much of a margin uplift do you get as a result of that.
And is that a substantial portion of the cost savings that you expect to achieve going forward or how much more is there left to go at this stage right now.
Shneur this is Craig and I'll.
I think I just want to make sure.
We're not.
Speaking past one another as far as what was intended to that.
At the explanation and earlier in the call what what we're referencing really is is that we have producers that that are hauling water or paying others to haul water for them and rather than those producers continuing to ship water on trucks.
We're getting more and more of that volume shifted onto our system, where we can charge fees. So.
Im not sure if you're implying or asking about our our direct costs associated with trucking versus piping, but but were not trucking water.
We're just moving it by pipe and so it's really the incremental volumes that were bringing onto the system that would otherwise be flowing on on third party trucks.
Is that addressing your question or okay. Yes. It does you are basically saying, it's an operating leverage benefit and the EPS GE uplift that you sort of referenced earlier is really more for your customers, but you are part of that.
You might characterize it correct.
That's right sooner and then on the cost savings part it it doesn't play into the cost savings at all the cost savings are.
Just related to our operating costs in our DNA.
Okay, perfect and if I can just sneak one last question in.
With respect to the water assets.
I understand your intermodal returning capital to unit holders, but.
But there are some water assets that are on the market that are near your assets is that something that you would be interested in for the right price or right. Now you are just focused on.
Buying back units and paying down debt.
Yes, our primary focus Shneur is.
Again, we've attained the leverage target that we set out and our focus is to retain.
That leverage level as we exit 2021.
We have opportunities to return capital to unit holders, including through the buyback end.
Depending on how our units are performing potentially even reinstituting growth on the distribution side. If there are opportunistic M&A transactions that result in efficiencies that we can build into our system and the valuation is attractive overall to us than that will definitely consider that but.
It's all in the context of the other levers that we have to to return capital to our unit holders.
Perfect. Thank you very much for the color today and have a safe day.
Thanks, Sir.
And our next question comes from Derek Walker of Bank of America. Please go ahead.
Hi, good afternoon, good afternoon everybody.
One follow up on a shares a question there Mike mentioned.
Potentially increasing the distribution.
What are some of the sort of the avenues, there that would actually.
And make that a more likely scenario.
Is it just getting to the high end of your guidance.
Just wanted to see what some of the items there would be for that to happen and then yes.
Maybe I'll stop there.
Sure I'm, sorry to cut you off.
I didn't intend to do that.
You're done.
So first is our distribution is something that the board visit revisits on a on a quarterly basis and so some of the factors that would play into that would be.
Hi into the higher end of the guidance, therefore, additional free cash flow that could be.
Delivered back to our unit holders.
The success of the buyback program.
Where our units might be trading and therefore.
Kind of the.
Cost of capital nature associated with the buyback or the.
The distribution.
A couple of together is something that we would take a look at it again with our board on a quarterly basis. So those are all factors that we should think about.
Got it.
Appreciate the color on the on the buyback so maybe just a.
Couple of other quick questions on it when does that when does that start and is there anything.
From your perspective that.
Basically would not allow you to sort of complete up to the 250 number.
Again, it is just sort of a sort of volumes declining.
And neither DJ Permian I'm, just trying to figure out some of the moving parts there as far as how you think about that utilization next year.
Sure. So we do have access to be able to repurchase units.
Into the fourth quarter of this year and it extends through the end of 2021.
You know it is a on a programmatic basis. So obviously volume of our units as a factor.
You know value of the units obviously is a factor I mean these.
Go into into those program.
Natures, we're confident in being able to and the reason why we set that level, where we did as we're confident that with that repurchase will still allow us to exit 2021.
At or below the four times and so really it's just a matter of whether or not theres a sufficient units between now and then to be able to repurchase within the program guidelines that we provided.
Got it and then maybe just one last one for me.
Sure the preliminary Taiwan guidance kind of hearing so far.
Formal guidance for next quarter is there is there anything.
In the formal guidance.
Items, there that we should expect to be included today outside of sort of calibrating for.
Updated producer behavior in volumes is it just the rate Redetermination server side are there any other is there that you expect to to include for the formal guidance piece. Thanks.
Yes, no I think the only real difference between the preliminary in the formal as we as we look forward to when we would issue that would be.
You know an affirmation or any potential changes that might result, as it relates to producer activity.
When we I think the really the only real driver there.
Got it appreciate it thanks, Mike Thanks.
You bet.
And our next question comes from gave marine with Mizuho. Please go ahead.
Hey, good afternoon, everyone. Just two quick ones for me for the unit repurchases should we assume that those are going to be done to reduce the public phone or is there a possibility that.
Some of that could be arranged in terms of buying back some of the units that acciones.
Yes, So our program is agnostic as to where those units come from so that so could become could be a combination of of public or.
Oxy units, obviously up to their discretion on whether or not they would like to participate.
Thanks, Michael and then in terms of getting back to investment grade can you just talk about how the announcements today potentially fit into that goal.
Or whether that's still is a goal given I guess to the weight that being so tethered to oxy has sort of on your own credit ratings.
Yes, so it is definitely a target and the goal for hours.
Obviously.
US being able to achieve our leverage target much earlier than expected plays really well and being able to to get those investment grade ratings.
Reinstated.
Hi, there Fitch in particular is actually de coupled our rating relative to Oxys and so are our hope is that now that we've gotten our.
Ratios back to a level that we believe would put us on the investment grade territory that we can begin to have.
Active conversations with the with the agencies to.
To potentially pursue that obviously, it's at their discretion, but the fact that we've now been able to achieve those leverage metrics, we think puts us in a position to begin to.
To push for the that rating.
And last quick one from me if I could just on I know commodity extra commodity exposure isn't really a big part of the West story.
But can you talk about that margin in your assumptions for 21 are you just assuming the forward curve and have you done any hedging.
Yeah, we don't hedge soon will have a material commodity price exposure and we don't actually look at our forecasts on a commodity basis, we take actually the inputs.
From our customers and our customers are the ones that.
Kind of lever that their activity levels up or down depending on what their expectations are for commodity prices and so for us.
It's it's not something that we sensitize just related to.
Commodity prices.
Thanks, Michael.
And our next question today comes from Novartis.
Capital markets. Please go ahead.
Hey, Thanks, good afternoon, everyone.
I was just wondering I know you provided a lot of detail, but it took a little more around the cost saving.
What would you say is the biggest driver of getting.
Okay. That's 175 million and then do you see potential to do even more cost reductions cost efficiency.
Yes so.
One of the main things really is that we now have a group of employees across the board has only focus is on efficiencies on the midstream side.
And so.
As a result of that you're able to drive greater excellence as you narrowed down to focus overall.
In the organization and frankly, the organization has stepped up at a really big way.
Two to expand what they do on a day to day basis.
You know to make sure that we're all pitching in to to accomplish those cost savings and Thats happened both at the DNA level as well as at the Opex level and.
Right I've asked myself the same question on.
Whether or not there are more opportunities and on the last call I think we feel very comfortable in the $115 million estimate and within a corridor, we've increased another $60 million and so.
Based on that I definitely think that there are going to continue to be additional opportunities for us to drive cost savings and efficiencies through the system.
Great and then on just the one.
A follow up question on the option to sell five cents does.
Does that option expire I mean, what what caused the sale.
Yeah that Elvira that option extends through the first quarter of next year and so at some point.
Prior to the end of third quarter next year, we will get an election from the counterpart.
Great. Thanks for that and obviously, if they don't elect and we'll continue to add to own and operate the facility but.
We felt like it was a transaction that made a lot of guidance.
Without impacting our 2021.
EBITDA and those.
Those assets.
Fit better and other hands than they do ours and so it was an example of US monetizing something on a highly accretive basis and we'll continue to look for other opportunities although.
I wouldn't say, we have anything on the block first day.
We will be thoughtful around.
Strategic opportunities to monetize non core assets in the future.
Okay. Thanks, a lot.
And our next question today comes from Selman Akyol with Stifel. Please go ahead.
Thank you two quick ones for me please.
First of all as you think about.
Growing third party volumes and all the M&A, we see going on.
At the producer level, how is that impacting your outlook for that.
Yes, Selman I would I would say that as you could imagine from an upstream perspective the activity levels in 2020 have slowed down significantly and we will continue to be.
Pretty modest paces and 2021, I think what what it does is it really highlights the quality of our assets the footprint that we have both in the Delaware basin as well as the DJ basins and the quality of rock that underlies them I think when we look at where producers are operating rigs are eight.
It is very favorable to what they have in their portfolios and as we continue to see as we continue to see consolidation on the upstream side I think that continues to bode well for us because I think the the inclination by those consolidators will be to focus their their capital spending.
In the most attractive areas and we feel like we're very well positioned for that.
With where our assets sit and.
I would say that.
From my perspective, and from the perspective that we've taken you know the value proposition that we're offering a third party customers.
First of all we're offering best in class at access to best in class assets.
We've worked tirelessly as Michaels outlined and lowering our cost profile to be more competitive in this space.
But the other side of that is were making strategic.
Actions down further downstream that will flow through and accrue to the to the producers benefit.
To enhance their net back and so I think between.
The work that we're doing.
Within our systems as well as what we can offer.
For producers downstream, we're offering a compelling value proposition to them on a go forward basis that really differentiates us from where we had been historically.
Okay. Thank you and.
Looking at your Capex budget for next year clearly.
Clearly weighted towards the Delaware basin versus the DJ Basin, and I know that in parts being driven by the conversations you're having with your producers, but I'm. Just curious is there anything you can say in terms of Colorado and some of the lines.
Language and around setbacks et cetera.
Being discussed there if that's a factor as well in terms of the way thats being weighted.
Yes element, it's it's for US really just awaiting of expected active really activity levels relative to where our asset footprint is.
And so nothing specific as it relates to the Colorado side the only.
Comment I would make is that the feedback we've received from producers is that there are sufficient opera offer EPS that you haven't provided as part of that.
These changes and in regulatory means that they will still be able to adequately adequately pursue their development programs and so it's early.
The capital program as following where those volumes are.
Okay. Thank you.
Thank you and ladies and gentlemen, as it.
A reminder, ask a question. Please press Star then one.
Next question today comes from James Carreker with US capital Advisors. Please go ahead.
Hi, guys. Thanks for the question.
I was wondering if I could ask just on the 2020.
EBITDA Guide you knows quite.
An increase versus kind of bolt was you were looking at three months ago. I know you guys talked about some nice cost savings just wondering if there's any other.
Factors that kind of went into why we see such a big increase.
In your 2020 expectations.
Yes, so can be explained in a couple of matters first there was a producer outperformance from a throughput perspective in the third quarter that.
We project will continue through the end of the year relative to the way that was sitting about three amongst months ago, and importantly, again, we increased our cost savings targets by another $60 million, which is a very meaningful impact overall on our.
On our EBITDA through the end of the year I mean, the third quarter is.
Indicative, we actually had volumes decline and yet our EBITDA went up because of the incredible cost savings that the teams have been able to achieve so.
As you roll that through for the through the end of the year.
You know Thats, what Thats, where you get the difference between the guide that we had a quarter ago and what were expecting through the end of 2020.
Okay.
Okay. That's helpful.
And then I wanted to ask about I guess, the 2020 Capex you talked about coming in below the low end.
I believe on your free cash flow statement in your.
Press release, it looks like you are already at about 390 million of Capex year to date. So I was just wondering if you could square the circle for me on that.
Total year capital actually I have as a as a different number James.
James So.
Let's see I mean do the math, it's about $250 million is what I have give or take so.
If if it makes sense James what all what I'll do is I'll ask Chris at an Avenue to reach out to you maybe.
Maybe after the call to go through and reconcile that.
Okay I'm just looking at your free cash flow calculation in your press release, but that's that's fine, it's 370 million Capex and and 19 million contributions to equity.
Well, we could set off not guidance that now I think I think the difference there was definitely we can reach out to walk through I think here I think the difference are going to be explained through cash versus accrual catch.
Capital. So what are we follow up and walk through that with you.
Okay, and if I could squeeze in one more just looking on the DJ crude side there was a.
Very sizable step down was that all natural declines or was there.
Some shut ins or some maintenance or some other things to kind of explain and then I guess the implication to that.
On future volumes into Q4 into 21.
Yes part of that was due to some turnaround work that we did in the third quarter, but most of it was just due to natural declines.
Okay. That's all I had thank you.
Thank you and ladies and gentlemen. This concludes our question and answer session I'd like to turn the conference back over to the management team for any final bars.
Thank you and thank everyone I'd like to thank everyone for participating on the call I wanted to take just a moment and personally thank the.
Exiting directors from from our board right.
Really grateful for the leadership and Mentorship that they provided to me.
I would like to welcome the new board of directors.
Look really look forward to working with them over the coming years and growing and developing under their leadership and Mentorship. So thank you all for participating on the call.
We'll see until next quarter.
Thank you. This concludes today's conference call you May now disconnect your lines and have a wonderful day.
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