Q3 2020 Energy Transfer LP Earnings Call
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Greetings and welcome to the energy transfer third quarter earnings call. That's.
At this time all participants are in a listen only mode.
Brief question answer session will follow the formal presentation.
If anyone should require operator or technical assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Tom Long Chief Financial Officer. Thank you Mr. long you may begin.
Thank you operator, good afternoon, everyone and welcome to the energy transfer third quarter 2020 earnings call. We really appreciate you joining us today I'm also joined today by Kelcy Warren Mackie Mccrea and other members of the senior management team.
Who are here to help answer your questions. After our prepared remarks, hopefully you saw our press release, we issued earlier this afternoon as well as the slides posted to our website. As a reminder, we will be making forward looking statements within the meaning of section 20 Onee of the security Exchange Act of 1934.
Statements are based upon our current beliefs as well as certain assumptions and information currently available to us and are discussed in more detail and our quarterly report on form 10-Q for the third quarter of 2020.
I will also refer to adjusted EBITDA distributable cash flow or DCF and distribution coverage ratio all of which are non-GAAP financial measures you will find a reconciliation of our non-GAAP measures on our website. We expect our 10-Q to be filed Tomorrow November the fifth.
Starting with a few third quarter highlights.
We generated adjusted EBITDA of $2.87 billion and DCF attributable to the partners of energy transfer as adjusted of $1.69 billion and our excess cash flow after distributions was approximately $1.28 billion.
On an incurred basis, we had excess DCF of nearly $550 million after distributions of $412 million and growth capital of approximately $730 million, we expect significant excess cash flow over the distributions and growth capital going forward.
Our third quarter adjusted EBITDA included approximately $250 million of earnings uplift about.
About half of which was related to one time items.
The other half was primarily from optimization activities related to our various marketing and optimization groups.
One of our core strengths in providing significant upside to our earnings potential is our commercial teams ability to keep our diversified asset base highly utilized by capturing basis differentials and contango storage opportunities created from market and weather volatility our NGL segment continue.
To stand out during the third quarter with NGL transportation volumes setting another record primarily driven by record volumes on our Mariner East and Texas NGL pipeline systems.
And our fractionation volumes also reached a new high during the quarter due to an additional ramp up of volumes on Frac, seven which went into service earlier this year.
And in early September we were pleased to announce that we completed our Lone Star Express expansion project significantly under budget and ahead of schedule.
Now turning to our recent distribution announcement on October 26, we announced a quarterly cash distribution of 15 in a quarter cents per common unit or 61 cents on an annualized basis. This distribution will be paid November 19th to unitholders of record as of the close of business on Nova.
Number six.
The reduction of the distribution is a proactive decision to strategically accelerate debt reduction as we continue to focus on achieving our leverage target of four to four and a half times on a rating agency basis, and a solid investment grade rating.
We expect that the distribution reduction will result in approximately $1.7 billion of additional cash flow on an annualized basis that will be directly used to pay down debt balances and maturities. This is a significant step in energy transfer is planned to create more financial flexibility.
Okay, and lessen our cap cost of capital.
Once we reach our leverage target we are looking at returning additional capital to unit holders. This will come through unit buybacks and or distribution increases with the mix being dependent upon our analysis of market conditions at the time.
Turning to the 2020 outlook, we now expect to come in at the high end of our adjusted EBITDA guidance range. As a result of better company performance looking more closely at our cost reduction measures, which are underway and our corporate offices as well as at our field on.
Operations.
During the third quarter, we identified additional opportunities to leverage our infrastructure to drive operational efficiencies and optimize our assets and have recognized approximately $400 million in DNA and opex savings year to date.
And for full year 2020, we now expect to achieve cost savings of over $500 million relative to our original budget.
And for our growth capital, we now expect 2020 growth capital expenditures to be less than $3.3 billion. This represents a further reduction of over $100 million from our guidance provided last quarter as a result of projects coming in under budget.
Our spend for the remainder of 2020 consist of several projects that we expect to be completed by year end 2020, including the next phase of Mariner East orbit and other NGL export projects. These projects will enhance our existing portfolio and provide near and long term value.
We will see a significant reduction in growth capital spend in the years ahead with our forecast of approximately $1.3 billion in 2021 and $500 million to $700 million per year in 2022 and 2023.
Our evaluation process for new projects continues to be very stringent and our threshold for returns is the highest it has ever been.
I'll now walk through the recent developments on our major projects.
Start we'll start with Dakota access the.
The appeal process with respect to the Laker Wahid litigation is ongoing oral arguments in the case took place earlier today, we still expect a decision from the DC Circuit Court of appeals by the end of the year. We continue to believe that our legal positions in the case are strong and we are confident that our pipeline will.
Revenue to operate as normal.
The pipeline remains in service today, and like all of our assets, we will continue to operate safely and efficiently.
We continue to move forward with the Bakken pipeline capacity optimization and on October 15th we received regulatory approval from the Illinois Commerce Commission.
Which was the last remaining state regulatory approval required for us to move forward with the optimization project.
The initial phase of the optimization will accommodate the volume commitments made by shippers. During open seasons. We now expect this additional capacity to be in service late in the third quarter of 2021.
Next the Ted Collins link is an efficient way to increase the utilization of existing assets, while providing market connectivity between our needle in and Houston terminals.
It will ultimately allow us to transport up to 275000 barrels per day of crude oil from West, Texas, and Netherland to our Houston terminal and is expected to be in service in the fourth quarter of 2021.
Now onto our Mariner east system during the third quarter, we saw the highest average quarterly volumes yet through the Mariner East pipeline system with year to date 2020, NGL volumes up 40% over a year to date 2019.
Utilization of our Mariner and pipelines and our Marcus Hook terminal continued to increase leading to record amounts of propane transported through the pipeline as well as strong butane in ethane utilization. The system continues to demonstrate flexible optionality for shippers, including the ability to handle ethane spot cargo.
Those as well as provide multiple local market connections for ethane propane and butane.
Customers at Marcus Hook are currently taking advantage of this flexibility by placing barrels for the upcoming winter season into local markets and we are prepared to handle this demand with strategic NGL reserves at Marcus Hook.
Additionally, our Mariner system will have the ability to bring natural gasoline to Marcus hook for gasoline blending and local consumption by early in the second quarter of 2021.
We are eagerly awaiting the next significant phase of the Mariner East project, which we expect to be in service by the end of this year.
With the final phase expected to be completed in the second quarter of 2021.
Also our 50000 barrel per day LPG expansions at the Marcus Hook terminal is now expected to be in service in late 2020 ahead of expectations demand.
The Mariner east system in conjunction with the Marcus Hook terminal continues to provide the most efficient transportation route for liquids in the northeast.
And provides customers the optimal way to reach the best markets for their products.
And we are very excited to announce Pennsylvania access.
Which will utilize part of our Mariner east system to bring refined products from the Midwest supply regions through our Allegheny access pipeline system into Pennsylvania and to markets in the northeast.
This project will require minimal capital, which is already included in our budget and will add significant revenue and synergies with our existing refined products pipeline and terminal assets, we anticipate a fourth quarter 2020 startup for early volumes to be able to flow from Ohio into Pennsylvania and to ups.
State New York markets.
As I mentioned earlier on the call.
We were pleased to announce that our 24 inch 352 model Lone Star Express expansion was completed under budget and ahead of schedule. This project adds over 400000 barrels per day of NGL pipeline capacity from the Permian Basin to the Lone Star Express 30 inch pipeline South of Fort Worth Texas.
LPG demand continues to remain strong and our LPG expansion projects that needle and will bring our total export capacity to approximately 500000 barrels per day further integrating our Mont belvieu assets with our need or land assets.
Construction of our orbit ethane export joint venture with satellite petrochemical is nearing completion. This 180000 barrels per day project will be ready for commercial service in the fourth quarter of this year with the first shifts now arriving by the end of the year for commissioning.
Next I want to take a moment to provide a renewables update last week, we published our 2019 community engagement report, which highlights our pipeline safety management programs and our performance data risk management and emissions reduction programs.
It also covers our stakeholder outreach and community investment activities as a company, we are committed to identifying and implementing cost effective emission reductions and prevention opportunities, including the reduction of our carbon footprint. As a result, we make significant investments each year in technology to read.
Do submissions and approve our overall operations performance and efficiency.
Today, approximately 20% of the electrical energy, we purchase originates from renewables and we expect that we will continue to grow.
We continue to actively look at renewable power deals that will allow us to increase our use of power generated by renewable sources.
Additionally, we have approximately 18000 solar panel located at pipeline metering stations across the country.
We also own a gas fired electric generation company that uses renewable natural gas in Pennsylvania to generate electricity, helping to power, Pennsylvania homes.
Our dual drop compressors, which have a patented technology that allows for switching between electric motors and natural gas engines to drive compressors offers the industry a more efficient compression solution, helping to reduce greenhouse gas emissions more.
More recently, we entered into our first ever dedicated solar contract for which a 28 megawatt solar facility is currently under construction.
This will deliver low cost clean power to energy transfer under a 15 year power purchase agreement and demonstrates our commitment to reducing our environmental footprint by integrating alternative energy sources when economically beneficial.
We are also evaluating opportunities to better utilize our available capacity to transport seal too in the northeast and are looking into the potential to bring renewable diesel into west, Texas via our JC Nolan pipeline.
As the energy industry continues to evolve and customer demand for these services increases we will look for additional ways to further integrate alternative energy sources into our business when economically beneficial.
Now, let's take a closer look at our third quarter results consolidated adjusted EBITDA was $2.87 billion compared to $2.81 billion for the third quarter of 2019. This.
This was the result of strong performance from our NGL and refined products segment as well as some uplift from optimization activities.
Jeff a triple to the partners as adjusted was $1.69 billion for the third quarter compared to $1.55 billion for the third quarter of 2019. This.
This is primarily due to the increase in adjusted EBITDA, along with a decrease in maintenance capital expenditures.
Now turning to results by segment, we'll start with the NGL and refined products adjusted EBITDA was $762 million compared to $667 million for the same period last year.
This increase was primarily due to record NGL transportation and fractionation volumes as well as higher optimization gains from the sale of NGL components at Mont Belvieu.
NGL transportation volumes on our wholly owned and joint venture pipelines increased to 1.5 million barrels per day compared to 1.4 million barrels per day for the same period last year. This.
This increase was primarily due to the record volumes on our Mariner East pipeline system as well as increased throughput on our pipelines out of the Permian Basin, and North Texas regions. As a result of higher liquids production from both wholly owned and third party gas plants.
On our Fractionators utilization rates remained high during the third quarter with average fractionated volumes, increasing to 877000 barrels per day compared to 713000 barrels per day for the third quarter of 2019.
Looking at our crude oil segment, adjusted EBITDA was $631 million compared to $726 million for the same period last year. This was primarily due to lower volumes on the Bakken pipeline and our Texas crude pipelines as a result of lower production and reduced demand due to COVID-19 as well as a.
Decrease in our crude oil acquisition and marketing business related primarily to fewer optimization opportunities. These.
These items were partially offset by the contributions from the same group assets.
Which we acquired in 2019 as well as an increase related to trading gains realized from contango storage positions.
For midstream adjusted EBITDA was $530 million compared to $411 million for the third quarter of 2019. This was primarily due to the recognition of $103 million related to the restructuring and assignment of certain gathering and processing contracts in the Ark La Tex region in a.
Addition, operating expenses decreased $33 million.
Gathered gas volumes were $12.9 million in MBT used per day compared to $14 million mm Bts per day for the same period last year lower volumes in South, Texas in North, Texas were partially offset by volume growth in the Permian as well as the addition of assets acquired in 2019 and the mid Con.
Continent Panhandle region.
For our Interstate segment, adjusted EBITDA was $425 million compared to $442 million for the third quarter of 2019. This was primarily the result of a scheduled contract rate step down in January 2020 at our Lake Charles LNG facility, which.
We have referenced on previous calls this year as well as less capacity sold on our Panhandle and trunk line systems. These.
These were partially offset by increased margin from the transwestern and Rover systems due to increased demand and firm transportation.
And in our intrastate segment, adjusted EBITDA was $203 million compared to $235 million in the third quarter of last year, primarily due to lower revenues from pipeline optimization activities. As a result of the drop in spreads partially offset by reduced operating cost big.
Beginning in 2021, we expect to have less exposure to spreads as we have locked in additional volumes under long term contracts with third parties.
Now moving on to Capex update for the nine months ended September Thirtyth 2020 energy transfer spent slightly under $2.5 billion on organic growth projects, primarily in the NGL and refined products and midstream segments, excluding Sun and USA see capex.
And as I mentioned earlier for full year 2020, we now expect to spend less than $3.3 billion on organic growth, primarily in our NGL and refined products and midstream segments.
We are in the final stages of several significant growth projects, which will help support our future growth and we believe that there are exciting days ahead for the partnership as we're taking meaningful actions to build and improve our industry leading franchise.
And we currently expect our 2021 growth capex expenditures to be approximately $1.3 billion and growth capital in 2022, and 2023 to be between five and $700 million per year.
Looking briefly at our liquidity position as of September 32020, total available liquidity under our revolving credit facility was approximately $2.65 billion and our leverage ratio was 4.24 times for the credit facility.
And as a reminder, we have no additional maturities in 2020 and looking ahead, we have very manageable maturities of $1.4 billion in 2021, which will be more than covered with the additional retained cash flow from the reduction in distributions.
In conclusion throughout the third quarter.
Activity consistently improved around our Permian midstream assets across the Mariner east complex and through our NGL fractionation assets.
Looking ahead, the near and long term value that are ongoing growth projects will contribute is very clear and we will continue to leverage our expansive footprint to drive operational efficiencies. In addition, we continue to emphasize the importance of capital discipline throughout the organization as demonstrated by our growth capital reductions.
Throughout 2020.
We remain committed to our investment grade rating.
And our recent distribution reduction.
Will allow us to accelerate our deleveraging strategy by immediately using excess cash to pay down debt.
In addition, our capital discipline and growth capital reductions announced throughout this year.
Demonstrate our commitment to generating excess cash flow.
Combined with energy transfer is best in class asset base. We believe these actions will better position the partnership for continued long term success.
Operator, please open the line up for our first question.
Thank you.
Our first question comes from Yves Siegel with Siegel asset management partners. Please proceed with your question.
Oh, Thank you good afternoon everybody.
And also congratulations to Tom Mackie and building global.
The nice recognition and on the promotions.
Q2 quick two quick questions.
One is kind of the obvious.
Biden looking like he's going to win how do you think that may.
Impact.
The company and maybe if you could tie that into.
Talking about the export market and China.
So that's the first question.
On the second question if I could is how do you think upstream consolidation.
It may it may impact global business going forward.
And when do you think we.
We could see.
Consolidation in the midstream space, what do you think that the catalyst would be for that thanks, thanks very much.
Hey, this is mackie, thank you for that.
The complement to US we appreciate it we look forward to it but kelcy won't go far he'll he'll be around.
I'll start out first question and Tom will finish up with the second one so I guess kind of from our standpoint as far as the election goes I'm not sure. We're in the same boat that it's already been decided.
Certainly that could happen, we think it's probably still a tossup for a whole number of reasons, but we certainly want to open next two or three days, but just assuming your question that biden were to win we have said in the past.
We there's some uncertainty about his positions over the years one point in time. He is kind of pro pipeline. He was.
Account always pro fracking in the backed off on that and nice.
For hopefully going to ban some top fracking mainly around federal lands, but the positives are in a Democrat controlled of Gulf.
Government is that the regulations will know that increase so it will be much more difficult to build pipelines to construct pipelines to get pipelines permitted be very time consuming and and so companies like ourselves, we play kind of stand alone with our footprint throughout the country, where we go into every major basin. So we feel pretty good about.
That aspect of of them when it from the standpoint of drilling and how it might impact federal lands that it'll have very little to no impact on energy transfer as far as the exposure we have to.
Federal lands in potential.
Reduction or removal of Frac fracking from those land so.
I'll reiterate we're not sure we.
Our onboard that biden is going to be a winner, but if it does we'll kind of listen to his policies and will.
Make the best of it but.
We feel like were pretty ppas, it pretty well positioned.
And about the export market Im side, I'm, just going to ask about the export market in China do you think that Mike.
Improved.
The outlook Laurel I may be now.
Yeah, I don't know we have we.
We've been actively selling and very excited about bringing on our our next LPG project at the end of this year first part of next year were more than doubling our capacity in a lot of the customers that we have already signed up for a year or two out or five or six at least.
Customer from China, So it really hasn't prohibited the LPG side of the business. We also.
Still low crude.
Every month to a certain Chinese company, so we didn't really dona.
Anticipate that'd be an impact to us, but it certainly goes without saying that that Trump has been a friend of China in the aspect of the feels like China's taking advantage of the us over the years in these trying to kind of equal the playing field, so who knows a lot of lot of info bought a data out there around biden in China and.
So it remains to be seen how that will play out is it.
Thank you.
And ease as far as the upstream consolidation portion of your question, we actually felt feel good about that in the long term, we feel like it's going to create stronger upstream companies stronger balance sheet more more opportunities for drilling. So all in all were very supportive of the consolidation that we're seeing occur.
Her in the upstream companies.
And do you have any insight on the second half of what may push the midstream to consolidate.
Any catalyst that you may see on or not.
Well I think yes and answer your question as far as catalyst in.
And there's probably a couple of things there one of them is what I just mentioned on the on the upstream side of it as far as being able to create stronger balance sheets.
Little more financial flexibility, but the second part of it is the more of the commercial side of it meaning better utilization of available capacity on across cross sell several of the products.
Line either.
The the crude Ngls gas et cetera. So we actually see that that is up that is a positive for the midstream space and it's something that.
We do anticipate we'll we'll start occurring.
Well, thanks bonds on really nice quarter, well well down the execution.
Thanks.
Thanks.
Thank you.
Our next question comes from Shneur Gershuni with US. Please proceed with your question.
Hi, good afternoon, everyone I wanted to echo.
Congratulations.
Yes, just maybe to start off a little bit you talked about in your prepared remarks today, Pennsylvania access project.
Just wanted to understand or clarify a little bit here. If I have the understudy correct is are you effectively utilizing the mariner east two system.
In basically partitioning it to be able to move refined product on it and all of that capital.
It's sort of contemplated within your budget and so forth or is this kind of a brand new project.
This is mackie generic.
We ask all of our business development team to look for the best utilization of our pipelines and of course, we're doing that in Texas on a crude pipelines today, we've got some great ideas and excited about those but.
Some of our team came up with the idea of a while back that from time to time expense really.
During the winter months, we see kind of a blow out between Chicago, and New York markets and for refined products and we saw the opportunity. So yes, we will we're in the process and we will be converting the really the eight inch the murder. One line a portion of it into refined product service and were very excited to bring that on hopefully.
Here by the end of the year and that should provide significant upside revenue for for an asset that doesn't limit us for what we can do with the remaining portions of the mentor system to remove to be able to transport all the LPG and ethane that we have contracted and we're in the process of contracting it is.
Actual volumes.
Okay.
Hey can you just gave you the ngls on to two into wax and you're using the originally okay that duck that makes perfect sense Thats correct.
Okay, and then as a follow up question.
Or you're probably prepared for this but I was wondering if we could talk about the inside baseball around the distribution side.
Obviously, you've mentioned at a high level.
It's about pivoting towards accelerated leverage reduction, which obviously all get but I was just wondering if you can sort of share with thoughts the board discussions or rail what scenarios you were thinking about was there a thought to cut deeper.
De lever faster.
Did you preview with the rating agencies before and is there. Some is there an expectation that some of the negative outlooks will be removed at some point.
Just wondering if you can give us the broad inside baseball discussion around.
Yes.
Wow scenario that was us that was a mouthful there you got to it got through it well.
Jason we it it really is the de leveraging we it we were on a path for de leveraging to that four to four and a half even when we had the original guidance back at the 11 to 11.4, its and important Nash to stay on that same trajectory for de leveraging and getting to that and as far as the dialogue with the agency.
Thats, what we continue to show them our objective of moving forward, we feel like that we the can the conversations that we have with them are very constructive.
They they know that we're focused on the de leveraging and increasing our financial flexibility and I think that they're obviously very very pleased with it as far as the amount once again it keeps us at the same pace that we were already headed to we pulled all the other levers we've completing some some fantastic product.
Next on the Capex side, and so Capex was already.
Coming down just just naturally we've looked at cost savings and we think we've been doing a very very good job on that like talking about on this in the prepared remarks of of hitting 500 million over $500 million for this year. So we're pulling all the levers and those are the couple of discussions that we have internally.
When we when we sat down to make the decision is to continue on the same schedule we've got on deleveraging.
The company.
Yes that makes perfect sense and just one clarification.
It's pretty impressive to hit a $500 million cost reduction exercise in one year just wanted to clarify that that is fully achieved this year or is that kind of the run rate you are at now and so as we sort of think about next year costs should trend a little bit down as you sort of easing or round trip those cost cuts.
Well when you combine it with all the great projects that we have that we've talked about that we're completing this year just by naturally you're going to see opex come up.
Referring to Mariner east orbit and other smaller type projects I think the normal run rate would probably be closer to a probably $350 million.
But don't don't think that we're not continually trying to look to achieve a higher number than that but if I was to guide you for going forward I would probably say at least to the 350. Remember you also are going to have inflation just some of the normal increases that occur. When you are a company of our scale in size, but 350 should be.
That number you can use.
When you're talking about inflation, because you're adding new assets, new cost come with those assets, but on a like for like basis, you're still down about five.
Yes, I think I think thats, probably a fair fair statement.
Perfect guys.
Okay. Thank you very much really appreciate the color today and have a safe day.
Thank you.
Thank you.
Our next question comes from Jeremy Tonet with JP Morgan. Please proceed with your question.
Hi, good afternoon.
Hello, Hey, there.
Just wanted to.
Little bit forward here and based on your guidance and your commentary seems like there were some favorable items in threeq you that won't necessarily repeat in Fourq you here and so just wondering is the guidance imply with Fourq EBITDA up kind of a fair run rate of what the business can do on a recurring basis and then when you layer on kind of a slew of new projects.
Coming into service I am just trying to think through how much could EBITDA really step up here and how do you feel about the pace of deleveraging to E. T off negative watch at the agencies just want to.
How comfortable we should be feeling on that.
Well, you're right we wanted to make sure when we talk about the quarter that we highlighted some of the optimization activities as well as in the midstream on the some of the revenue recognition that we saw around around that one contract.
If you if you really look look forward.
I think it's fair to say that we have I want to emphasize once again, we have a a great commercial team that will always be looking for offered opportunities for optimization not.
Not necessarily something we bake in at the high end, we don't bake it in at the low end either so in fairness I would I.
I'd say that our guidance that we have left out there we said at the at the upper end of that I.
Thank you can really run with that.
From a standpoint, even as you start looking out into next year I'd like to I'd like to at least hold off until we do the fourth quarter analysis.
Fourth quarter earnings call to discuss further with you as to 2021.
Got it maybe just come back to the last part with the agencies here I guess how.
Comfortable are you that he is on the right trajectory here to be taken off negative watch are the really incremental actions that are needed to.
Ensure that you everything goes smoothly there.
Let me just answer that we're very comfortable I think the conversations we have with them are very constructive and I'd like to say that we are very very comfortable about the outlook coming backup.
Great. Thanks, and just one last one if I could pivoting over to renewables appreciate all the disclosure there and just wanted to get a sense. Appreciate capex is really kind of diving down here, but as you look further out and you will get opportunities across your footprint be compressors converting to electric and adding solar just what type of opportunity set how how big could that.
Before you guys and how does how does hydrogen fit into that.
Hi, This is Matt let me start out with saying you know it's interesting. This is such a big topic now and I guess, it's kind of our time to share that we've kind of been doing this for a while on our level Act on that but we we made the press release about 25 megawatts and it wasn't a project that made sense for us as far as the rate of return price.
Jack It wasn't something we were going to participate in however, the power purchase agreement that we did to get the project off the ground made a lot of sense for us under very inexpensive long term electricity. So we will look for those opportunities every day, there's probably at least another 100 to 200 megawatts.
Both in the south part of the country and the northeast there will be looking for similar type power purchases once again, unless the economics change dramatically from what we've seen we will participate but we certainly will support it with buying cheap electricity.
And Weve mentioned you other things on the opening remarks that we're looking at doing around nubile diesel carbon capture and all that but one thing you mentioned the electric compression. We have patented this dual drive compression system, where you if you have run by a.
Let trick of motor or gas engine, and gosh, I think of 2012 or so we've been around for that long and just to give an example in 2019 we.
Be admitted 1 billion less or reduced our emissions by 1 billion pounds of Seo to just do our dual dropped technology. The compressors that we have throughout many parts of our system in Texas, and we would love a lot of our competitors too.
You have to buy or to participate in the east because they are excellent opportunities to optimize your system, where you run on electricity words much.
Much more efficient as much of better for that emissions, but also if there's any issues electricity switch over to run on gas you don't have any downtime. So we'll continue to look to apply that technology as well as straight up electric compressors, where it makes sense, but oh, but I'll wrap all that up with the way interchange we will look at renewables.
Is that we will we will look at it we will chase it when it makes sense and meets our hurdles. We will participate if not we will be a purchaser.
If it makes sense for fuel purchasing standpoint around hydrogen we've looked at hydrogen and honestly the team our engineering team I've talked to we kind of dug in over the last several months and ill just hit a couple of them. For example, we've looked at Green energy. So you look at taken wind and solar food the electrolysis process.
Yes, and producing hydrogen our estimates are it's about eight times per MB to you as the value of of methane and then you look at great hydrogen where you take.
Natural gas introduced water and you produce hydrogen thats still about three times.
The cost or value of methane, so we kind of scratch our heads around hydrogen we know Europe is.
The billions of dollars of subsidies and we know there's a lot of companies you're talking about in doing it and of course air products is big time in it with their plants and pipeline, but at this point, we don't see anything close on the horizon around hydrogen it's very corrosive to pipeline. So we've got to kind of fit corrosive to compression and so that's something that.
That will continue to look at if customers come to us with ideas or or the things change or if the government provides more subtleties, where it makes sense, we'll certainly look at that but right now we are at the hedge metric.
Got it that's helpful perspective, thank you for that.
Thank you.
Our next question comes from Pearce Hammond with Simmons Energy. Please proceed with your question.
Yes, good afternoon, and let me extend my congrats to Tom and Mac is well Mike.
My first question is are you seeing any improvements in the divestiture market and would you consider divestitures to help de lever the company.
No as far as the first part of your question, we're not seeing improvements still less less capital out there chase chasing the projects and the multiples clearly clearly if come down so.
Our guidance to you is there's really not anything material that we're looking at it on the divestiture sad.
As we sit here today.
Okay. Thank you Tom and then a follow up question just from a real high level. What is your outlook for us NGL supply next year, and then as well what do you what do you see kind of a high level outlook for LPG exports out of the U.S. next year.
Well I'll I'll I'll start with the second part.
As everybody knows we we've we've got about 180000 barrels of LPG export capacity from Neil and today, we have been diligently.
Working to add to that and in approach 500000 barrels a day, we couldn't be more excited as I mentioned, a little bit earlier, we've actually now sold out for at least a year if not two years every slot that we have the ability to sell out other than spot slots that are available each month, depending on how the customers utilize the capacity.
So we're incredibly excited about that there is a enormous market, we could sit here and roll off 10, or 12 companies Im sorry countries that we're dealing with that we have signed contracts with or negotiating with around the world. So you you really don't see the the impact like you are on crude and gasoline there is a you know.
Numerous market, both domestically and around the world for petrochemicals that pretty much run our lives in the thousands of products that we use every day. So we see that as a big plus and thats going to be a huge growth area for us not just at needleman, but also at Marcus Hook as we complete years and billions of dollars of of of projects to complete.
Our pipelines and build out our infrastructure at Marcus Hook. So we're.
Couldn't be more excited and anxious to kind of kick off this next phase to become a if not the largest exporter of LPG in ethane the country pretty darn close by the end of this year early part of 2021 as far as NGL.
We know that Thats tied a lot to of course.
Drilling.
In West, Texas is kind of a core area for us for our growth in Eagle Ford to a certain degree.
We actually are somewhat optimistic now that take into account WD I've got to hang in there got to kind of hang around 42, or maybe start to grow to kind of keep this kind of optimism, but talking to our producers looking at the just a lot of ducs out in West, Texas, We do think that will be drilled in and around.
A lot of these areas. We think we will see 15 to maybe 20% growth by the end of next year kind of can certainly with a lot of our producers.
So we're I would say, we're overly bullish but we're certainly optimistic that we will see volumes grow on our systems, our rich gas.
Ultimately produce and Ngls transported fracking into export or sell into the net to net domestic markets.
Thank you Mackie further color.
Sure.
Thank you.
Our next question comes from Michael Lapidus with Goldman Sachs. Please proceed with your question.
Hey, guys. Thank you for taking my question and like the others. Congrats on the various promotions, Tom and Mackie could it.
Well quickly.
Can you talk a little bit about where you think you are in a producer kind of bankruptcy cycle and when you look forward across the different businesses. We think the greatest risk may lie to either existing producers that are 85 or producers that that may be in high just.
Yes, right now.
Yes, let me start maybe Tom can add if you would like to but and.
And we say this a lot we're pretty proud of our credit.
Of of the most of our customers. We certainly have some that are out there that are a little concerning and of course, there has been some bankruptcies already that were kind of deal with but but for the most part we don't really see anything that can happen. It's just very material and even those bankruptcy that to do happened there's things we can.
Do and renegotiating.
Renegotiating agreements.
And in.
Blend and extend with some other deals we may have with them in other areas. So I wouldn't sit here to say in Tom elaborate on this but I would sit here and say, there's there's anybody really out there that gives us a great deal of concern about bankruptcies at this point.
And.
I just want to Echo echoes mackie's comment there really isn't any one I always like to complement our credit group I think they do a very very good job of monitoring all of our counterparty risk. They do a good job of mitigating the counterparty risk and as we sit here today don't have any anyone or any concerns with any.
Got it and then one question on <unk>.
Capital or the Bakken expansion can you just remind US you know you've got the Illinois Commerce Commission approval, how much incremental capacity, you're adding and I know you've got contracts, but the market given lower production out of out of the back into the market actually need that capacity right now or even in the next year.
Well that remains to be seen certainly we need some more rigs to move back in for volume growth.
Fortunately, we know that when they do move back in we will be the pipeline of choice or the outlet of choice. So we're.
We're always very pleased to have that situation up there.
We'll be expanding from 570000 barrels a day to about 740 750000 barrels a day and as you said to a large portion of that not not the walk up space. The large portion of that is demand charge in so we'll receive payments regardless of where the volumes are there or not but we're we're somewhat optimistic that the volumes will be there.
That that volume that the drilling will.
Commence as long as crude kind of hangs in there or starts increasing early part of 21, hopefully all these economies get back going again.
Sooner than later and so we are hopeful that production returns, but from a risk standpoint from energy transfer of those are backed by demand charge agreements.
Got it. Thank you guys much appreciate and once again congrats.
Thank you.
Thank you.
Our next question comes from which will provide them with bank of America. Please proceed with your question.
Good afternoon, everyone wanted to add my congratulations to Tom and Matt huge flow.
Thanks.
I'll first begin.
On your 2021 Capex outlook, obviously you have to.
Michigan number of ongoing project.
That for in service by year end and next year. It seems you have remaining spend on.
There's two and the pit colleagues pipeline.
Outside of those two can you talk about what forms the bulk of your 1.3 billion budget.
Yes, I'll I'll take off with this and then Mackie Mackie, Kent Mackie can chime in but I would say that it's still the NGL and refined products.
Surely kick carries the majority of it 70% to 75% of it midstream brings up the next piece of and it's down to 10 that 10% to 15% of it and we do have you already highlighted this but on the crude oil side like that Ted Collins link and some of the optimization that brings up the last piece at 5% to 10%.
Got it thanks, Thanks for that Tom Im to.
Second question on double the access pipeline and so the challenging that.
Feast here appreciate the update from today's hearing.
We think the contingency plan around what you could do under an adverse outcome from the court cases.
Might help address all the market concerns here of Super illustrative purpose under a potential adverse outcome do you believe you will be able to.
Operated sections of the pipe not impacted by the current permit issue or.
Monetize.
Sections that are not impacted.
Thank you.
Yeah I'll start on the <unk>, but is Mackie again, yeah, we really don't we had a hearing today and and we will continue to go through the process, but we really don't envision or see a scenario, where we will take the pipeline out of service. We just don't think that's going to happen we.
We were highly confident that the.
Dapple will remain in service like it has safely efficiently for the last three years and so.
The real issue is that we'll have full I guess have to be completed or not and that remains to be.
Determined as time goes on but we're highly confident that the pop on and we will continue flown and not shut in.
Got it thank you and if I can just squeeze in a quick one.
So the asset so the capex reduction this year it looks like that came from project cost savings.
Can you talk about what sort of items that do that.
I'll start this Matt yes, one of them was we just completed our Lone Star Express and we came in significantly under budget.
And we kind of saw that as he was coming but we actually realized it as we brought the pipeline online here recently, so that that was some of it we also.
A little bit has been deferred and then and then some of it is just we put it on hold because some of the producers that were contract with have held up drilling in.
In held up.
The need for some of the services that we were going to provide.
Yeah, there's not a whole lot more to add to that it really is the savings we lowered it by reset a little over $100 million and those are the primary drivers. There is some other what I would call smaller immaterial type projects, but that clearly is the driver what Mackie just went over.
Thanks, Tom and Mackie for that for the color you have a good day.
Thank you.
Thank you.
Our next question comes from Gene in Salisbury with Bernstein. Please proceed with your question.
Hi.
More about Mariner east.
In the right way to think about that.
Right.
Hi, Marty.
Yes.
So hi.
Yes that will mostly be from natural gasoline sorry.
Yes, I know we should expect.
Matt.
Got it.
Volume and revenue.
Notice Mackie and that would be both so as we complete mariner two at the end of this year into it in later on in 2021, we have volumes that will be coming online both transport volumes and volumes that will need to be children and exported or sold.
In the local market. So we will increase our NGL volumes in our throughput.
Both for ethane to a certain degree a little bit and also for Lpgs for LPG the up but the portion of the eight inch line that we're converting that we'll be moving refined products that will be brand new revenue.
That we have never received new business, where we will be able to benefit from the arbitrage or the spread between the Chicago market and in the New York market really on a monthly basis wherever the highest price for gasoline is we'll be able to buy directly move either direction. So we.
We.
See that just almost as just another system.
Okay that LPG that you'll pick up.
Yes.
Correct.
Rail or some volume growth.
Yes, that's very helpful and.
And then.
Second question answered them I think that the early.
Expenses like Permian Express one and two I think those are limited to five and seven year contracts in 2013 in 2015 and can you maybe can you.
Expecting some roll off from from that next year.
It does.
From the original contracts coming up.
Yes, we've actually had one of those roll off this year, yes over the next couple of years, we will have.
Several more rolling off however.
We are working on a project moving at board going to happen where were working with another company to move barrels from Cushing that will start filling in some of the Permian Express one capacity.
The contracts will roll over so if we're unable to roll them over at rates that work for US we do have some volumes that will be filling in.
As of at least 60 of 65000 barrels a day with the ability to double that as the market.
Allows so we are.
As I said earlier that's our.
Some of the biggest focus in our partnership is to look at our crude capacity as the contracts rollover in and extend those contracts or chase new barrels and already lost some of those pipelines in a different service.
That's very helpful. Thanks.
Thank you.
Our next question comes from Keith Stanley with Wolfe Research. Please proceed with your question.
Hi, Thanks.
First one just want to confirm so you're going to have a lot of free cash flow next year after growth Capex and distributions now so I.
I think I know the answer but I just want to clarify you expect a 100% of that free cash flow to go to debt repayment at this point or is there any flexibility at all on uses of the free cash flow.
We there's always there's always flexibility, but I will say, we expected this time for 100% of that to go toward toward debt pay down. It's it's one of those that.
Once once we get into our target range of four to four and a half we will evaluate that that further but right now we're focused on bringing the leverage now.
Thanks, and one other quick one just any interest still in preferred equity market to further accelerate a de leveraging after the distribution cut.
Yes, we will take advantage of that market when it makes economic sense and we do feel like that something that that does accelerate it you're exactly right and we will we will continue to to monitor that market.
Great. Thank you.
Thank you.
Thank you.
Ladies and gentlemen, that's all the time, we have today for questions I'd like to turn the floor back over to Tom long for closing remarks.
All right.
Thank you and once again, we really appreciate all of you for joining us today and as we've mentioned today, we remain very excited about the performance of our existing asset base as well as all of the projects that we have coming online. Thank all of you for your support and we look forward to talking to you in the near future.
Ladies and gentlemen. This concludes today's web conference you May now disconnect. Your lines at this time. Thank you for your participation and have a great day.
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