Q4 2020 ONEOK Inc Earnings Call
Good day, everyone and welcome to todays fourth quarter 'twenty 'twenty, one oak earnings call quick amongst the today's program is being recorded and at this time I'd like to turn the floor to Andrew's Iola. Please go ahead Sir.
Thank you, Greg and welcome to one of <unk> fourth quarter year end of 'twenty 'twenty earnings call, we issued our earnings release and presentation. After the markets closed yesterday and those materials are on our website.
After our prepared remarks will be available to take your questions.
A reminder, that statements made during this call that might include one of his expectations or predictions.
It should be considered forward looking statements and are covered by the safe Harbor provision of the securities acts of $19 33, and 1934 <unk>.
Actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our SEC filings.
Our first speaker is Terry Spencer, President and Chief Executive Officer Terry.
Thanks, Andrew Good morning, and thank you all for joining us today and as always we appreciate your continued trust and investment in one of <unk>.
Joining me on today's call is Walt Hulse, Chief Financial Officer, and Executive Vice President strategy, and corporate Affairs, and Kevin Burdick, Executive Vice President and Chief operating Officer.
Also available to answer your questions are Sheridan swords, senior Vice President natural gas liquids, and Chuck Kelly Senior Vice President natural gas.
Before we discuss our 2020 results and 2021 guidance I want the first express my deep appreciation for our employees, who have been working tirelessly through recent extreme winter weather in the U S from North Dakota to the Gulf Coast.
We have continued to meet the needs of our customers, while faced with personal challenges of their own homes moving power.
Without water freezing pipes you name it.
I continue to be amazed by all of that they do to provide exceptional customer service under very challenging circumstances.
After a year like 2020, and so far in 2021, it's understandable to want to focus on what's the hit.
First I'd like to highlight several operating financial and E. S Z related accomplishments achieved during the challenging 2020.
One of them suggested EBITDA grew 6% year over year despite of global pandemic.
Reduced worldwide energy demand and the perhaps financial markets.
Our resilient business the advantages of our integrated assets and the dedication of our employees.
Never been more evident.
The credit goes to those employees, who have continued to prioritize the health and safety of the communities families and fellow employees, where the continuing to report on one side or the.
The monitor assets systems or juggling, the complexities of working from home all of our employees are critical in keeping natural gas and natural gas liquids flowing on our systems and these energy products are critical for the economy. The quickly recover from this pandemic.
From an ESG perspective.
We received numerous recognitions this year, including recently being named an industry mover.
The S&P global Sustainability awards.
And the only North American energy companies included in the Dow Jones sustainability World Index.
One of them also was the only Oklahoma based company, who received a perfect score of 100, and the 2021 human rights campaign corporate equality index.
We formed a stand alone environmental sustainability two of them back in mid 2017 that accelerated our ongoing environmental stewardship efforts.
In collaboration with those efforts, we recently created the group charged with the commercial development of renewable energy and low carbon projects. The team is actively researching opportunities that will complement our extensive midstream assets and expertise and not only lower our greenhouse gas emissions.
Also of help enhance the vital LOE, we expect to play in the future transition to a low carbon economy.
Opportunities under evaluation include the further electrification of compression assets.
Potential carbon capture and storage opportunities.
Renewable energy for operations and other longer term opportunities such as hydrogen transportation and storage.
As we develop these opportunities we will remain disciplined in our capital approach the flooring similar project criteria in terms of return thresholds.
Contractual commitments and operational fit.
Just as we do on the other projects.
We accomplished a great deal of 'twenty 'twenty and financially we ended the year stronger than we started it with the improved leverage and the more solid balance sheet.
Strategic financial decisions and strong operating performance have positioned the company for another year of growing the growth in 2021, yes.
Yesterday, we announced our 2021 adjusted EBITDA guidance range of two nine to $3 $2 billion, which is a 12% year over year increase compared with the midpoint.
As of the fundamentals of our business continue to improve we're more likely to end the year at the higher end of our earnings guidance range and will likely adjust guidance upward accordingly.
Yeah.
Earnings growth in 2021 isn't dependent on significant increases in producer activity on sustained higher commodity prices, although we have seen both in recent months.
The earnings power of our assets and available capacity from completed projects enables growth even in an environment continuing to rebound from 2020.
Kevin will talk more about the key operational drivers of our guidance shortly.
Let me touch briefly on the Dakota access pipeline.
Since we provided our original outlook in July we believe that the potential impact to one oak if the Apple were shut down has significantly decreased.
Producers have had time to secure alternative crude transportation and we've seen crude oil prices increase making rail transportation even more feasible.
We believe that even if the dapple is shut down quickly after a ruling in April.
The earnings impact to one of 2021 would be less than $50 million of EBITDA.
Assuming the Python was shut down for the remainder of the year.
We remain confident in the long term resiliency of our business are well positioned in the integrated assets and especially our employees in these challenging times.
The world events have resulted in volatile times one.
The businesses remain resilient and will continue to provide essential services for decades to come.
Delivering much needed natural gas liquids and natural gas to our customers.
With that I will turn the call over to Walt.
Thank you Gary one of its fourth quarter and full year of 2020, adjusted EBITDA totaled $742 million of $2 $72 billion, respectively, representing year over year increases of 12% for the fourth quarter and 6% for the full year.
Distributable cash flow was nearly $520 million in the fourth quarter of 6% increase compared with 2019, we also generated more than $100 million of distributable cash flow in excess of dividends paid during the quarter.
Our December 31, net debt to EBITDA on an annualized run rate basis was four six times compared with four eight times at the end of 2019 flow.
Proactive financial steps taken through 2020, and the earnings contributions from completed projects enabled us to improve our leverage metrics. Despite challenging market conditions, we continue to manage our leverage toward four times or less and maintained three five times as a longer term aspirational.
Goal.
We ended 2020 with no borrowings outstanding on our $2 5 billion dollar of credit facility and approximately $525 million of cash.
One of them is now rated investment grade by three major credit rating agencies.
Fitch issued a first time rating of Triple B with a stable outlook in November.
Additionally, Moody's and S&P, both reaffirmed one of the investment grade ratings in 2020.
We proactively pay it off upcoming debt maturities and were opportunistic in repurchasing nearly $225 million of debt through open market repurchases in 2020.
We currently have no debt maturities due before 2022.
We ended up achieving cost savings of more than $150 million last year compared with our original plan and would expect a good portion of that the carryover into 2021.
Last month, the board of directors declared a dividend of 93, and a half cents or $3.74 on an annualized basis unchanged from the previous quarters.
As Terry mentioned with yesterday's earnings announcement, we provided 'twenty 'twenty, one financial guidance, including a net income midpoint.
[noise] of more than $1 $2 billion and an adjusted EBITDA midpoint of three point O $5 billion 12 per cent increase compared with 2020.
Earnings that's the earnings.
Earnings expectations are supported by increasing producer activity ample capacity and efficiency gains from recently completed projects and the continued opportunity for flare gas capture and strong gas to oil ratios in the Williston basin.
Additionally, due to higher natural gas and propane prices driven by extreme weather.
The weather across our operating areas over the past two weeks of natural gas pipelines and natural gas liquid segments benefited from our ability to supply the increased demand to meet critical needs. During this time.
We expect the benefits from these short term opportunities to be partially offset by decreased natural gas and natural gas liquid volumes from well freeze offs, but the still represent upside to our guidance our guidance of mid points.
Our 2021 guidance assumes first quarter W. T I crude prices at the current strip and assumes a range of 45 to $50 for the remainder of the year.
Some of producer activity standpoint, we are also assuming volume levels that correspond with a 45 to 50 dollar of W. T I a range.
Sustained higher prices the lead to a broker volume ramp and drive earnings towards the higher end of our guidance range.
Total capital expenditures for 2021, including growth and maintenance capital are expected to range between 525 and $675 million.
A more than 70 per cent decrease compared with 2020.
This range reflects improved proved producer activity levels and volume expectations, including capital to complete the Bear Creek plant expansion and associated field infrastructure later, this year, which we referenced on our third quarter call.
The conversations with producers in the Dunn County area of the Williston Basin, we remain extremely positive and the likelihood of meeting this additional capital this year is high.
The original adjusted EBITDA multiple of four to six times still holds for this project with the multiple on the incremental remaining capital being much lower.
In terms of 2020 capital expenditures, we completed an expansion of our Elk Creek pipeline in December. Another example of low capital operating leverage on our system.
The 100 million dollar expansion, Inc. Increased capacity of 60000 barrels per day and provides added transportation capacity on our most efficient pipeline out of the Williston basin.
Because we like to remind people every 25000 barrels per day of the Ngls from the region contributes approximately $100 million, but of the annual EBITDA to one of them.
Financially our growth.
Our priorities in 2021 remained largely unchanged with the primary focus on debt reduction and investing alongside of our customers.
Now I'll turn the call over to Kevin for a closer look at our operations.
Thank you Walt.
Start with a quick recap of fourth quarter operations, and then discuss 2021 growth drivers.
In our natural gas liquids segment fourth quarter raw feed throughput from the Rockies region increased 13% from the third quarter 2020.
And 24% year over year.
In January propane plus volume from the region exceeded our fourth quarter average despite typical winter weather challenges.
In the mid continent region ethane on our system decreased nearly 40000 barrels per day in the fourth quarter compared with the third quarter, primarily due to high ethane inventories from hurricane related petrochemical outages in the third quarter.
In the Permian Gulf Coast region Raw feed throughput volumes were lower in the fourth quarter compared with the third quarter due to short term fractionation only contract that rolled off as well as the third party plant outage and the reduced ethane on our system.
Moving on to the natural gas gathering and processing segment.
In the Rocky Mountain region fourth quarter volume fourth quarter processed volumes increased 16% compared with the third quarter and 11% year over year as nearly all curtailed volume came back online.
The return of volume with a high fee percentage in the Rockies combined with lower volume in the mid continent drove the segment's average fee rate to $1.04 per btu compared with 94 cents per <unk> in the third quarter.
In the natural gas pipeline segment, we reported another strong quarter of stable fee based earnings the firm capacity of 95% contracted.
The segment continues to provide one oak with firm fee based earnings driven by end use demand.
You can find more detailed information on our fourth quarter and full year 2020 results in our earnings materials.
Now moving onto 2021.
As we sit today the operating environment is much improved from even a few months ago.
Conversations with our customers remain positive and we're seeing increasing producer activity across our operations.
Our 2021 volume guidance at the midpoint would result in the 7% increase in total NGL volume and the 5% increase in total natural gas processing volume compared with 2020.
And the natural gas liquids segment, we expect the volume growth to be driven by projects completed in 2019 and 2020.
Continued growth from well completions and the ramp of new plant connections and expansions completed in 2020 and 2021.
In the Williston basin. The recent low cost expansion of our Elk Creek pipeline increased its capacity to 300000 barrels per day and increased our total NGL capacity from the region to 440000 barrels per day.
With this expansion, we had ample capacity to transport, our Williston and powder River basin volumes exclusively on the Elk Creek pipeline at the beginning of this year.
Which reduces transportation costs paid the overland pass pipeline and as expected. The result in 40 to 50 million of dollars in additional earnings in 2021.
The Elk Creek expansion provides added capacity, which is also available for potential ethane recovery if needed.
Our current NGL volume guidance does not assume Williston basin ethane recovery, but it does assume partial mid continent ethane recovery.
Currently have approximately 100000 barrels per day of incremental ethane opportunity in both of the mid continent, and the Williston basin.
As we look forward domestic and international petrochemical demand and export dynamics look strong.
But we continue to expect ethane volumes on our system to fluctuate throughout 2021.
With available pipeline capacity between Conway and Mont Belvieu the differential between the two market centers is expected to be near the historical average of two to three cents per gallon for ethane.
However, so far in 2021, we've seen prices for several of the NGL products fluctuate outside of this range.
The recent extreme winter weather and the resulting increase in propane prices in the mid continent created opportunities for both of our optimization and marketing business as we utilized our pipeline and storage assets to meet market needs.
In the Permian Gulf Coast region, our firm contract. The offload 25000 barrels per day on third party NGL pipeline expired at the end of 2020 and these volumes are now flowing on our system, eliminating the additional transportation costs.
From the federal lands perspective, we estimate that less than 10% of our NGL volume is from acreage on federal lands, primarily in the Permian Basin.
Moving on to the natural gas gathering and processing segment.
Higher 2021 volumes are expected to come from the Williston Basin.
There are currently 16 rigs operating in the basin with eight on our dedicated acreage.
<unk> with producers indicate that in the current price environment.
Spec to bring more rigs back to the region once weather improves in the spring.
There also remains a large inventory of drilled but uncompleted wells in the basin with more than 650 basin wide and more than 375 on our dedicated acreage.
The capture of additional flared natural gas in the region remains an opportunity.
The latest North Dakota data, which is for the month of December.
The state of achieving a record of 94% gas capture.
This leaves approximately 185 million cubic feet per day still flaring in the basin with approximately half of that on one of dedicated acreage.
The increase in rig activity.
<unk> gas capture ducks, and continually increasing gas to oil ratios provide solid tailwind for volume growth in the region.
At the midpoint of our guidance, we expect of 17% increase in 2021 processed volumes compared with 2020, which would result in an average volume greater than one 2 billion cubic feet per day.
We expect the connect between 275 and 325 wells in the region this year, which would be 25 completions per month at the midpoint.
The segment's average fee rate is expected to range between 95 and a dollar in 2021 based on our volume mix the assumptions for the year.
As we said previously nearly 80% of our dedicated acreage in the Williston basin is on private land the small.
Walter portion on federal land is primarily outside of the core base in the acreage for little to no activity was expected.
And the mid continent region, we expect the can at 30 wells in 2021 of the same amount of connected in 2020.
The rig activity and natural production declines in the region are factored into our volume guidance for the year. However, producers have indicated that with strengthening commodity prices, particularly natural gas and Ngls.
We're evaluating adding rigs in the stack and scoop areas.
In the natural gas pipeline segment, we expect transportation capacity to be approximately 95% contracted in 2021.
As we've experienced recent extreme cold temperatures across our operating areas. We've continued to transport natural gas on our extensive natural gas pipeline systems to the markets that need it most of.
Our well positioned assets and connectivity within these customers have enabled us to provide services on our pipelines to meet higher demand. During this critical time.
When both of the Permian and mid continent areas, we're experiencing a significant reduction of supply due to well freeze offs one of more than 52 billion cubic feet of natural gas storage assets, which are primarily located in the mid continent, we're able to bridge the supply shortfall.
Fall by providing natural gas to meet critical needs.
Some of the gas provided from storage is owned by one of which we retain through our transportation contracts and sell as part of our normal course of operations.
While these were short term weather events, our preparedness and our ability to quickly react and adjust services for customers highlights operational flexibility and financial upside in an already financially stable segment Terry that concludes my remarks. Thank you Kevin.
In a good position both financially and operationally as we began 2021.
And the current market environment is showing positive signs of increased producer activity and increasing demand for our products. As we said many times before we will remain focused on delivering value to our shareholders in a profitable safe and environmentally responsible way.
Thank you again to all of our employees for the work you did in 2020.
To prepare us for growth in 2021.
Operator, we're now ready for questions.
Wonderful. Thank you, Sir ladies and gentlemen, if you have any questions. Please signal by pressing star one on your telephone keypad.
Just to make sure you have your mute function.
That signal.
Again at this time of star one for any questions.
And the first from Wells Fargo, we have Michael Blum.
Great Good morning, everybody.
Just wanted to go back to Jim.
The comment you made earlier about the guidance I thought perhaps trend towards the high end of the guidance range of.
I just wanted make sure I understood that correctly is that just based on year to date pricing versus what's baked into your guidance or the other other factors that's moving.
Meaning is that conclusion.
Yeah, I think well I think if.
The primary.
What what you're looking for right now is what our producers are going to do in 2021 and they are providing is pretty good indications of given the stronger backdrop in the commodity price.
The prices that we're seeing you have given us good signals, but.
It's going to take a little bit of time for them to submit the ribs and do the things that day.
They they'd like to do in response to those prices. So it will take a little bit of time.
Right now, but the body language is very good and as Kevin indicated in his comments it looks really positive, but as we see this as we see prices now we've got crude with the six handle on it.
Producers, even further going to the.
The increase their activity and we think that they will but it's going to take a little bit of time to sort through that Kevin you got anything.
That's what we're hearing the feedback from producers continues to be positive of that strengthening activity given these prices. So.
Just watch that play out so Michael I'll, just make it sound like it.
The comment you.
Remember, where we were last year at this time.
We issued guidance in February and two weeks later, we got hit with a global pandemic.
But I understand.
A bit of conservatism here.
And the guidance that we put forward, but we're certainly given the pretty good body lean in what we think.
It's going to happen in 2021, and we'll adjust it accordingly.
We will wait till the end of the year to adjust the guidance will jump on it the jump on it pretty quick if we continue to see.
Some of the strength that we're seeing today.
Great I appreciate that and then.
Probably a little greedy with this question, but I think historically at this point of view here you have given kind of like a soft directional guidance for the for the following years of this year of between 22, the obviously I haven't done that this year.
But just based on some of the data that you're providing your own slides I think you've said that you can kind of back into the I think you need kind of low twenty's rig count to keep production flat in 2022. So I think we're right now we went before of about 15 rigs in the Bakken So.
Is that still the right math of it sounds like based on your prior comments that you think you're heading in that direction, but you're just not sure yet.
I'll, let Kevin take that question, Michael I think there I guess, but I think that the 20 counts probably a little high.
Based on that May hold crude flat, but again with the rising gas to oil ratios.
And our ability to continue to capture more and more of the gas.
That number to me is probably somewhere a little bit less in 'twenty.
Excuse me.
Great. Thank you very much.
Michael.
And we'll move onto our Cheniere giussani with UBS.
Hi, Good morning, guys just wanted to follow up on the 'twenty, two kind of the impact callable at par.
Medical question here, so given the plan to finish building the bear Creek keep flat all else equal whenever realizes lots of political situation or scenario is it fair to assume that there will be incremental EBITDA going into 'twenty two versus kind of where you are standing with respect to 'twenty, one and then.
Sort of how it goes through the plant, but then also when we think about Elk Creek, and we think about the heat rate of northern border.
The the.
Possibility that you get incremental recovery of the <unk>.
The same but ends up onto Elk Creek as a result of hitting one of the time northern border.
Yes for sure.
Well take our Bear Creek first then yes, you are thinking about that right I mean, I think when we paused it.
Originally we were probably thinking more of a 'twenty two timeframe, but now that we're looking at it by the end of this year that would absolutely add incremental EBITDA.
EBITDA into 'twenty two if we.
If we go forward and finish it by the end of the year.
So that is that is absolutely an upside to how we were thinking about 'twenty two previously.
As it relates to northern border and potential for ethane, yes debt potential still exist as you see volumes continue to increase in the basin on the gas side debt high Btu gas is going to go into northern border.
And so the math just continues to work that day.
The blended content of the heat content, it's going to go up which over time is going to drive the need to pull that back down a little bit northern border.
Opposed the tariff FERC asked him to go back and work with <unk>.
<unk> and the producers and other stakeholders in the region.
The most kind of sort of understanding those conversations or are underway at this point. So we'll watch the debt for an official.
Tariff that might get filed but I would expect that process to continue over the coming months.
Okay.
And maybe as a follow up to the first questions that were asked all of its just wondering if you can give us a little bit around sensitivity can just clarify one of the responses to Michael's question.
And sort of like an EBITDA per cent of NGL debt, we should be thinking about the debt you can share of thoughts in terms of how we think about modeling and then just in answering the question about the rigs you said it was below 20, if I do my math you need of 25 wells.
Day flag per months.
Bye Bye bye to as you think about two wells per rig day, she brick and mortar around 13 of 14 range. Just wondering if you can clarify those points.
Okay. What was your first question again sorry.
So just wondering when I think about changes in NGL prices and impact to changes of EBITDA is there like a 5% change of the NGL with equal X amount of dollars of EBITDA as we sort of think about your guidance range and then the second part of what's about.
How many rigs you need.
Specifically, the keep yourself flat versus growing.
You said below 20, but it's sort of it sounds like it would be the low teens, if I do my math correctly.
Okay. So on the first of all of the on the just the commodity price and given how the heavy fee based we are and how much hedged we are theres really not a not a massive or significant move in.
In pricing just with our fee based at this point.
Yes, with the with an improving.
Commodity backdrop, you are going to get pick up a little bit, but it's not.
We're not talking about hundreds of millions of dollars there.
On the second question.
I do believe you're I do agree that it's.
The number of rigs we believe we've made is in more of that mid mid teens ish.
Is what were thinking there as we look at that you know in a range of material we have.
We have kind of of different shows different completion rates and what that would do to our gas production.
Over time I think that's the key so much written about what it what the base of needs to hold production flat debt. All of that is typically crude oil based and again with the with the strengthening gas to oil ratios in the.
The number of rigs we need the whole gas production flat is quite a bit less than that.
But I would put that number in the mid teens.
No that makes perfect sense, if I can slip one last one on the the timeline on the green investments that relation of the pair of remarks is that something that can happen relatively soon or do you need some sort of tax incentives to the past it gets kind of like the three year view or is it something that can happen in the next 18 months.
Yeah, if the.
More near term I mean, we've got debt is worth thinking about that some of the smaller investments in these projects. The Terry you mentioned.
But as opportunities present themselves.
On a larger scale, we will consider them and with the appropriate return thresholds.
Perfect. Thank you very much of really appreciate the color today.
Sure.
Yeah.
Great we'll move on to the next question Christine Cho with Barclays.
Good morning, Thanks for taking my question.
Maybe if I could start with the female street furniture Linky income guidance of 95 cents per dollar of came in and thought that <unk> and I think Bakken production on the increasing the fly out make time decreases of Fiat.
This shouldn't that support FTE base range similar to what we saw Inc. <unk> if not better.
Kevin is that just conservatism and is there a cap on the E Bay Street at some point.
Christine This is Chuck.
I'd say when we when we put our forecast together. We go ahead, and we break down whats the mix of our of producer volumes by contract. So.
So as we did that these different contracts have varying levels of fears of a component of total of total value. So based on the projected mix of volume we feel comfortable in the 95 per cent per $1 range.
We may have quarters, where it in fact exceed that because of the mix, maybe a little bit different than what we originally the soon.
And we've seen some of that obviously here in Q4, so you could see some to the upside above the dollar, but we feel pretty confident in the 95 per $1 range.
Okay, and then if I could ask a move onto some of the prepared remarks talk about some tailwind, which sounds like it's kind of materialize you know first quarter or at least the first half of them you know you.
Talk about the NGL spreads you know providing opportunity for the NGL segment, but then you also talked about you know 50 52 Bcf of storage that you happened to make high and you know you can talk about regaining some of that and selling it as part of your normal course of operations just to clarify does that mean you're.
Selling gas into the grid.
And if you could also give us some color on you know.
What's the Max deliberately deliverability of the economy stories like how much gas can you take out of the storage each day.
Christine we will let you handle that question. So Christine we of the storage as we're referring to are located in Kansas, Texas, and Oklahoma with the largest of.
Of the 52 Bcf of call It 46 Bcf and in Oklahoma, the remaining fields in Texas of about another four of five and the balance up in Kansas.
So yeah as we as we.
Transport gas, we do retain some fuel that becomes equity for us and we have an ongoing normal course business. We go ahead, and we'll store that gas where the sales program portfolio.
When we look in the forward strip relative to wake logs as anyone would and choose how we want to monetize debt equity gas. We also keep some gas available obviously for unexpected situations market movements of what have you.
And we set up each of each way each year of this way. So if it happens this year, we set up in this event occurred so we were able to participate in.
These market prices.
You may have seen here in Oklahoma, and Texas and I'm sure, we'll talk more about that in the Q1 earnings call.
And any color on you know.
Max withdrawal of Inc.
I don't know if we publicly of have provided that in the past, but just generally.
Oklahoma when when we're fully pressurized.
You could see us withdrawing as high as one of 415 Bcf per day.
Our Texas numbers, obviously, the caverns are smaller so you're more in the 350 of 400 million of day again, one of the pressurized.
Great. Thank you so much.
Sure.
And our next question will come from Tristan Richardson with true of Securities.
Hey, good morning, guys.
Appreciate all of the commentary.
Around the assumptions for 'twenty, one just wanted to follow up on a previous question with respect of rigs in the Rockies I think just on the the range of completions you guys have talked about for the year do we need the directionally seen improvement in rigs from your customers to achieve the range of should we think of that range is that's the range of outcomes.
With just the current state of rates today.
Yes.
I think the way we look at again back to the original remarks.
We talk to our customers and in a lot of these conversations were taking place with crude in the 45 to $50 environment.
That's the the activity levels that we kind of have baked in.
Very recent conversations with the strengthening of the commodity strip those conversations are starting to get stronger as far as the amount of activity.
So that's the way I guess, we would think about this and in our remarks around the range and Terry.
Terry's comments about us.
The trending towards that upper end, if we see the current commodity environment hold because we do believe customers will bring more activity at the current price environment. If it holds.
Sure. Thank you and then and then just on the Capex I think in previous quarters.
You guys have talked about 300 of 400 million of here has the potential kind of new run rate.
Can you talk about.
The current guide and what's embedded in that should we think of that maybe that incremental spend is purely the bear creek expansion or just the.
The bridge that gap between the previous range you guys have talked about hypothetically.
Sure.
So if we just kind of put the 300, the 400 million dollar the.
Discussion in context, you know that was initially made back when crude was back in the summer when crude was in the thirties.
So even at our other 45 to $50 level assumption you expect a lot more activity, which is built in so that's one part.
Bear Creek, two you're right, yes, so it's probably a little over 100 million of debt number.
And then the rest of you should think Theres, another 100 million well. We've we've found opportunities for example of a compression replacement and expansion project on one of our Interstate pipes, that's not only going to provide additional capacity more reliability and reduce our emissions footprint.
We're doing some work down of Mont Belvieu to expand our storage position.
That's a good project. We're also doing some work in Bellevue to expand our distribution network and get more direct connected due to a few customers.
So those are things again, none of them by themselves. Each one is 2030 and $40 million that you had three or four of them together and there is another $100 million. So they're all good projects. There is strong return projects.
And we found those opportunities so we're going to we're going to go execute on them.
I appreciate it thank you guys.
Thank you.
And moving on we have Jeremy with JP Morgan.
Hi, good morning.
Hey, Jeremy.
Just wanted to dig into the guide a little bit is some of the buildup there.
When you talk about kind of the potential for increased activity if current commodity prices hold.
Are these produces more on the public side or the private side, just trying to get a feeling for who might be increasing activity here and just curious if.
The <unk>.
The ratio as that continues to improve over time kind of.
How do you have any thoughts of quantify as far as how you think that ratio of kind of improves over time that at least in your forecast.
We will attempt to handle it the first of course.
Yeah Jeremy.
Sort of your peer.
First question I'm, sorry, I was thinking about the <unk> question can you give me. Your first question one more time, if you don't mind share yes.
Yes, just as far as the if commodity prices hold in there is the activity pick up or is it more from the public or private larger or smaller just trying to get a feel for who could be increasing activity here.
Sure no. It's a combination I mean, obviously you've seen a couple of the public to say that the capex position that they said, they're going to hold that for 2021 pending.
Some of it's the Apple some of it at the time that they said that we run of 45 to $50 crude environment. So.
The rethinking that a little bit obviously, but it's the combination of the large capitalized public plus some of the privates up there.
And then as far as the G. O. R question, you know G of ours increase the past just in the past year of 15% year over year and I think we pointed out in our slide 63% since 2016, so pretty significant increases, particularly this last year, saying that 15%. So you know when you think about it the of rising over time as pressures decline.
So more of that trapped gas is released relative to crude and producers of confirm this for us as well the they think the implied yours will continue to rise and I can't say it at 15% year over year, but it's definitely horizon.
The pretty pretty significant tailwind for us.
Yeah.
Got it that's helpful. Thanks, and just if I think about.
The Capex as you guys outlined it there does that include a bear Creek right now or if the current commodity price holds and there's the upside opportunities where would you expect kind of capex to fall out of these things come to fruition as you outlined here.
No of Bear Creek is included in the Capex number of the midpoint of $600 million.
Yes, Jeremy this is Terry the only comment I'll make about the Bear Creek is what you have to think of the two thirds of the capital of the complete Bear Creek twos It sucks.
Its equipment its materials, it's a lot of labor debt.
We incurred debt that's sunk cost and so this the small amount that Kevin is referring to.
The returns on that incremental investment are huge.
And so so it makes a lot of sense.
Given the given the specifically in Dunn County, where we're seeing this activity it makes sense to address it.
And that's all of this.
I can't stress enough how outstanding the economics of our how compelling the economics are.
And completing that project.
Got it and so maybe just to clarify if the upside opportunity emerges as you said the capex as you budget. It now kind of covers that being able to service that production or with Capex move up a little bit more from here to kind of cover that higher activity level.
It would just move up it will just move up just a little bit because you're only talking about well connect capital at that point, which is the most efficient capital.
We spend in the portfolio.
Understood that's helpful.
Yes.
Okay, great. Thank you.
Yes.
Alright next from Tudor Pickering, Holt <unk> company, we have Colton.
Good morning, So just circling back to some of the comments on throughput it looks like for the midpoint of the gathering guide. It falls just below Q4 'twenty levels can you frame the expected trajectory over the course of the year asked differently does that assume exit to exit declines or that we're entering the year of its softer and then rebounding there.
Thereafter.
Well if the in the up in the Bakken, where we exited 2020 of it of the very good level of writing at 1.2 range of course here in Q1, you typically see weather and we've seen the effects of weather throughout February.
Back half of January of primarily February. So if you think about the shape of the volume throughout the year Qs two and three of always been a very strong force at the beginning of Q4 equally strong December is kind of day see you again for weather.
Got it and then just on sticking on the G&P side, there's a little bit wider gap between gathered and process volumes in the Rockies in Q4.
Just on the guide it looks like that should close in 2021, where you offloading more volumes during the quarter or anything else the point too.
I'm, sorry, I missed the last part of it they couldn't understand that.
Yeah, just interested if you were potentially offloading some volumes of third party processing or what drove that that gap in the Bakken and then.
Why exactly that would close over the course of 2021.
No we want off loading so I'm not I.
I just can't answer what GAAP your breath of Youre, referencing because frankly I didn't see it.
There was nothing from the business perspective, there is nothing going on so it would just the kind of normal course of fluctuation of the.
Of the gathered versus process.
Okay.
Of the Frac protect going on it could have impacted it.
I understand yeah. It was just a little bit wider than historical so wanted to follow up I appreciate it.
Alright next question will come from Mizuho, we have Gabe moreen.
Hey, good morning, everyone I, just kind of on the follow up on the events of philosophy.
I'm just wondering from your perspective I know, it's early days here, you'll see the conversations with customers.
In terms of the gas winter rising assets you know clearly there's only so much you can do about well freeze offs could just wondering in terms of processing plant reliability, and then kind of as you look at the portfolio overall, whether it's gas pipeline capacity coming out of Canada or whether it's some of your gas storage assets, where do you think of.
There will be some upward pressure maybe on some of the rates you can first of all those services.
Gabe this is Chuck in the.
In the Williston, obviously, we repurchase winterized packages for all of everything I mean, we've got heat tracing of equipment in our plants, we purchased the Arctic packages for our compression. So so you know this is normal course of business in the in the Bakken We've seen it was minus 30 and are.
Our amazing people are still out there running these assets, it's incredible and we don't have very high utilization very rarely offline who of freezes as the wellheads come on down to.
Oklahoma, and Texas, and frankly, that's just a of a value proposition for producers and frankly, the processors and pipelines do you go ahead and winterize the spend whatever that percentage of extra might be for a small of them.
And I'd say going forward people are going to really look at those costs and see if in fact.
He is willing to pay for the service.
Gabe This is Kevin the only thing I would add is when you think about the the last several weeks our pipeline assets performed incredibly well I mean, they ran the nail bar.
The entire time and our field folks did a fantastic job keeping those assets.
<unk> and reliable whether it was pipeline compression and dehydration all of the equipment that we needed to run they they ran virtually uninterrupted.
The processing plants ran extremely well too even in the mid continent. The really the only disruptions, we had with whom power when we lost power, which was really there was one of them that we could do about that but I do think you know obviously with all of there's been a lot of conversation about.
How the market should respond and the availability and having storage assets and having pipeline assets.
We're always looking for those opportunities to expand those expand that footprint and the and will be there. If some of the customers needs of additional services, we can with our integrated assets, we can provide them.
Great. Thank you and then maybe if I could just follow ups sort of on the art.
The initial cap of comex in the opening remarks Jim.
Just as a follow up to that I was wondering how warm or hot warm conversations on potentially converting Elk Creek would be with producers and <unk>.
I don't recall, you ever having put out of Capex figure of one of our conversion does that is that something you'd be only the kind of took of Starbucks.
Yeah, I think you're referring to.
The gave the shared I think in front of the conversion of the upgrade to a crude.
Crude oil system right now the contingency really good volumes on the Ngls on Elk Creek system. They don't think of conversion is in the cards at this time.
In fact, it through the sole February as Chuck said the Bakken.
Based on the best out of all the regions on the NGL system their volume dropped the least of mountain, it's already almost back to pre winter of pre storm levels. At this time. So I think right now we don't see a case, where we're going to convert Elk Creek the crude oil system in talking with the producers up there are a lot of them are securing.
Space on the other pipelines in anticipation of the dapple going down and on rail terminals and as we talked to the customers. They really don't see an impact to their volumes.
The Apple would go down at this time.
And I'm sure of it in there.
They're hesitant to sign up for long term capacity the underwrite.
And then the crude life or the.
Crude convergence so.
They've got the factor as well.
What's the main factor I mean, they don't want to sign up for a long term deal to convert the system when they already have viable hours per day.
Got it thanks, everyone.
Next question will come from Jean Ann Salisbury with Bernstein.
I think my name.
And the Wednesday of calling the GAAP catch the opportunity what level of flaring would that represent in your acreage to keep the cashier at all and the 50.
But the captured already vehicles are going to happen.
Dan This is Kevin.
No.
We've gotten that question a lot clearly we think we can capture more gasoline than.
<unk> captured some of the gas its still flaring.
Even with the percentage is coming down and well into the single digits, We think theres more room to drive that even lower.
A lot of our conversations that we're having with customers now, especially some of the larger ones.
They like that number to be zero net.
Now that ultimately is going to require some.
Would require some kind of changes in the way we work together in the in the way some of the equipment on the wellhead.
<unk> is structured but again it can be done and we're encountering those conversations with the customers.
In total does it go to zero probably not.
With the operational disruptions et cetera, but we've got many customers now working with US wanting the just from a variety of perspective from a value capture from an emissions perspective.
Just bringing that number as low as we possibly can.
Okay. Thank you.
And then the true.
Starting off and energy transfer, suggesting they may try to come back to some of the naval. Thank you I'll production system. It seems like there maybe some of the challenges doing its dominance in the kind of Ngls of thing can you comment on the medium term pressure that you see here.
And how much of kind.
If I read your bad debt.
Well, what I would say about the energy transfer enabled deal was that in the mid continent are the volumes on our system are tied up under long term contracts, which have many years left of them. Then we don't specifically talk about.
The contract terminations of volumes on the system.
We think our contracts right now for the immediate future of very well secured.
Okay. Thank you.
Alright, and next we have Sunil Sibal with Seaport Global Securities.
Yeah, Hi, good morning, guys and thanks for all of the clarity on the call today.
Ted.
The.
Yeah can you hear me.
Service.
Yeah.
So my question was on the.
Sensitivity you provided.
The Apple will shut down some time in April of 15 million per 2021.
Curious you know how would you characterize that the impact seen 'twenty 'twenty two if that's what the remains shut down and be ready net 45 to $50 of BPI price.
This environment.
Well, we haven't gotten into trying to speculate what would happen beyond that.
What day.
They're well end of the EIF process.
I think we believe that the.
They will ultimately be successful even if it gets shut down that they would get the the.
The proper easements.
And permit approvals.
But that again, you could maybe do a little extrapolation. If you wanted to think about 'twenty, two but but again, that's going to be dependent on if you're in a if this type of price environment, it's going to be it's not going to be a big number because again rail is continues to be very attractive.
At these commodity prices.
Got it and then on the.
Sorry go ahead.
The second question was on the pretty good expansion the two completed.
In the fourth quarter of mosquitoes did well and we see commitments tied to that.
The season.
Does the <unk> kind of the whole public expanded capacity zone.
I think the answer is is the expanding Elk Creek. The 300000 did a couple of things for us of when we mentioned on our calls is that ensures that we can move all of our volume off of the PD L onto the Elk Creek in debt and still have ample capacity to be able to bring ethane out of the Bakken.
That is needed as well that was of the preemptive. That's why we did the expansion of the Bell Creek.
Yeah.
Okay got it thanks.
Yeah.
Alright, and then moving on we have Michael Lapidus with Goldman Sachs.
Hey, guys. Thank you for taking my question just real quick high level. How are you thinking about the path to deleveraging and kind of of the balance between.
Using the incremental cash flow.
And at the high end of your guidance your free cash flow positive after the debt after the given it seems how youre thinking about allocating cash flow between dividend growth between new growth projects or between paying down debt.
Well, Michael what I would say.
Sorry about that is that are we.
We always want to make sure that we have the you.
If we have a good project with the is going to serve our customers' needs the wasn't it.
We're going to make that investment.
As Kevin mentioned, we've got smaller projects here that we're kind of adding to our system around we don't have any wire.
Larger capital plans on the horizon, the around the near future.
It's really the.
More additive to our existing system, so you're going to see the bulk of the free cash flow go to the debt reduction.
Here in the near term and our deleveraging plan is right on track.
If these commodity prices hold at this level of student do nothing but accelerate.
Got it. Thank you guys much appreciate it.
Thanks, Mike.
Alright, everyone looks like our last question is going to come from Derek Walker with Bank of America.
Hey, Anthony.
Yes.
Yes.
Got it yes definitely on the Levered one.
The.
All of it.
What's the confidence in kind of hitting the you know the four times versus the three of half time.
The kind of getting to that three of half of them or.
Is it more growth projects.
Project is just the the operating leverage.
Except the just any color you can provide there would be helpful.
Well I think that the.
What's going to take us the three and a half from Florida is definitely going to be the continued growth that we see on their system.
That obviously is going to produce cash flow and help us from the debt reduction standpoint, So we'll try to do it from both sides of the coin.
But if the.
It's the continued growth of would you see on our system.
Over time, and the fact that we have so much headroom within our asset base.
Rice of lots of lots of capacity.
So that we've got great operating leverage going forward.
Okay.
Got it and then maybe just following me.
I think of it talk about Inc.
Pretty well connects this year.
But that's all we can talk about some customers actually adding.
That's sort of activity.
Do you see that kind of plateauing at the Detroit, two or how do you kind of think about the day cut.
Yeah kind of coming out of a total of platelets.
From a well connect and activity perspective, and I think as we move through <unk>.
'twenty one.
We've had a lot of conversation about that as you move into 'twenty, two it's going to be a function of of commodity price I mean, if we're still sitting in this if you're still sitting in a 55% to 60 type of environment.
Then you're going to see an increase in activity.
And I believe that activity will sustain theres a lot of drilling location.
Up there left a lot of inventory depth and the and I think youll see that sustained through 22.
Kevin It's it's it's not all of just about crude price.
Obviously, the Ngls and natural gas are a big driver for the activity up there.
Have you seen stronger natural gas prices, particularly as we come through the polar vortex.
The other side of this thing I think fundamentally the fundamental backdrop is we were gonna see.
Higher values for Nat gas and certainly for liquid. So those will also be important drivers for producers, particularly in Oklahoma.
Got it and then maybe the last one for me.
Yeah, definitely I think of recovery I think any of that.
Factoring in the growth then I think some of the day count.
But you kind of mentioned there could be some volatility. So I guess, how do you think about the ethane recovery throughout the year.
Okay.
Oh.
Well, what would keep of the ethane recovery of the mid continent, we do feel we'll see some ethane recovery. This year, probably may be a little bit more in the second half of the year.
Obviously, what we've seen now is in February of lot of the petrochemical facilities have gone offline due to loss of power and gas.
So in February we did see a lot of ethane rejection across the assistant Ironically, even as we come out the other side of the Gulf of gas prices. Today, we are starting to see an increased amount of ethane recovery in the mid continent, but we do think throughout this year it will be a little lumpy, which more weighted towards the back half of the year the fundamentals for the petrochemical.
Interest you are very are very good right now as we see the price of propylene and ethylene very hard and as these plants come back and get them back on they're going to run at very high rates. So we think we will see more ethane recovery potentially in the first half of the year, which would drive us more to the upside of our guidance.
So complete recovery from the hurricane impact in there.
Late last year.
All of that flow through all of that and so now that's got to get them back up after the storm.
Okay I appreciate that I think the times of that.
The debt.
Alright, and the run that looks like that'll conclude our Q&A session today I'd like to turn the floor back to Andrew for any additional or closing remarks.
Okay. Thank you Greg our quiet period for the first quarter of 2021 starts when we close our books in April and.
And extends until we release earnings in later April will provide details for the conference call at a later date. Thank you for joining us and have a good week.
And once again folks that does conclude our call for today. We do appreciate you joining US you may now disconnect.
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