Q4 2020 EnLink Midstream LLC Earnings Call
Ladies and gentlemen, thank you for standing by low can get on the midstream fourth quarter 2020 earnings call. All participants will be in listen only mode. So the need assistance. Please thank the only country specialists by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask the question. You May Press Star then one on you touched on something to withdraw. Your question. Please press Star then two please note that this call it'd be near record of today Wednesday February 17th 2021 at nine a M E.
Certain time I would now like to turn the meeting over to Kate Walsh, Vice President of Investor Relations impacts. Please go ahead. Thank.
Thank you and good morning, everyone. Welcome to Enlink is fourth quarter of 2020 earnings call participating on the call today are Barry Davis, Chairman and Chief Executive Officer, Ben Lamb, Executive Vice President and Chief operating Officer.
And Pablo Mercado Executive Vice President and Chief Financial Officer.
We issued our earnings release and presentation. After the markets closed yesterday and those materials are on our website.
A replay of today's call will also be made available on our website at www Dot Enlink dotcom.
Today's discussion will include forward looking statements, including expectations and predictions within the meaning of the federal securities laws. The.
Forward looking statements speak only as of the date of this call and we undertake no obligation to update or revise.
Actual results may differ materially from our projections and the discussion of factors that could cause actual results to differ can be found in our press release presentation and our SEC filings.
This call also includes discussion pertaining to certain non-GAAP financial measures.
The finishing of these measures as well as the reconciliations of comparable GAAP measures are available in our press release and the appendix of the presentation.
We encourage you to review the cautionary statements and other disclosures made in our press release, and our SEC filings, including those under the heading risk factors.
We'll start today's call they've got a brief prepared remarks by Barry ban on Pablo and the lead the remainder of the call open for questions and answers.
With that I would now like to turn the call over to Barry Davis.
Thank you Kate and good morning, everyone. Thank you for joining us today to discuss our fourth quarter and full year 2020 results.
We will also spend time discussing and unpacking, our 'twenty 'twenty one outlook.
On behalf of been like we hope you your families and colleagues are staying safe and healthy as we continue to navigate the ongoing pandemic.
I also want to acknowledge those on the Frontlines battling our most recent significant weather events were extreme cold is having a severe impact on the number of our home states.
I want to personally thank our Enlink team members, who have and continue to work through frigid temperatures to get impacted operations back up and running and to ensure that we all have the energy that we need the power of our lives. Thank you for what you're doing.
After an incredibly challenging 2020, we are truly proud of Enlink performance, we took swift and aggressive action at the beginning of the pandemic and are in my team continuously stepped up to the challenges all year long to produce strong financial and operational results.
And it's the strength of the 'twenty 'twenty results that is the foundation for the solid 'twenty 'twenty one guidance targets, we have set.
For the fourth quarter Enlink delivered another strong resilient quarter, we achieved adjusted EBITDA of $262 million and we achieved $92 million of free cash flow after of distributions.
In line with our expectations.
Fourth quarter rounded out overall, 'twenty 'twenty performance, where we exceeded the high end of our guidance ranges for both adjusted EBITDA and free cash flow after the distributions.
We achieved over $1 billion of adjusted EBITDA and over $300 million of free cash flow after distributions for the year.
When we drill down into our asset segment performance all four segments generated free cash flow during 2020.
This is of tremendous outcome from one of the most challenging periods in our industry's history.
We couldn't have achieved our 2020 results without relentless execution from our team.
We reduced our cost structure by 23% removing over $140 million of costs from what is essentially the same store business.
We elevated our return thresholds and reduce total capex net to enlink by 65% year over year.
And we've reduced leverage improved liquidity and strengthened our capital structure.
Now, let's talk about what we're going to accomplish in 'twenty and 'twenty. One we have four key focus areas that our team is executing on today.
First is operational excellence and innovation.
We have developed a rigorous company wide program to mindful of opportunities, which elevate our efficiency and we execute the ones with the highest returns.
Our goal is to be a leader in innovation and efficiency and we are well on our way with what our team is accomplishing.
We have fully embraced an efficiency mindset and are challenging how to operate our business better each and every day.
We have over 100 initiatives identified which push forward, how we maximize asset utilization, while minimizing capital spending and achieved substantial improvements in our processes and operations all of which improve our bottom line.
Our second focus area is financial discipline and flexibility.
The tremendous cost savings we achieved in 2020 are largely sustainable in 'twenty, 'twenty, one and likely beyond.
And with the operational excellence and innovation focus I just discussed we think we can reduce costs further in certain areas.
We continue to sharpen our approach to capital expenditures and of reducing Capex by 25 per cent this year.
And we are forecasting another year of very strong free cash flow after distributions in 2021 similar to what we achieved in 2020.
Our third focus area of strategic growth.
We are going to be deliberate and disciplined with our approach to strategic growth are.
The plan is centered around finding small highly accretive bolt on opportunities around our footprint that are leverage neutral or better.
We are dedicating an outsized portion of our business development efforts to finding opportunities that leverage our extensive Gulf coast infrastructure, and which will increase our natural gas and NGL presence downstream.
We also see a number of small scale capital light truck the N type of opportunities around our assets that are very capital efficient and then have the types of compelling return profiles, we are searching for.
As Ben will discuss we recently completed a small transaction whereby we acquired the Jefferson Island storage in hub assets.
These assets provide a unique opportunity for us because of the interplay of they have with our Henry hub assets and our existing Louisiana natural gas network.
We will continue to evaluate every opportunity through our return on investment lands and will not execute anything that isn't highly accretive to the strong platform we operate today.
And our fourth and final focus area is sustainability and safety.
Having high standards for sustainability and safety is in our DNA at Enlink, and we consider sustainability and safety in everything that we do.
You will see us ramp up our efforts both in substance and communication in 'twenty and 'twenty. One we're working on new emission reduction targets, which along with our third sustainability report, we will make public this year.
To achieve our goals, we'll use technology and innovation to lower our carbon footprint. For example, we are going to increase the use of renewable energy in our own operations.
And one last key point, despite the distractions and storms over the past 12 months Enlink safety performance continues to be the best it has ever been.
With that I'll turn it over to you Ben for our operational update thanks.
Thanks, Barry and good morning, everyone.
Before I give our asset update I want to address the severe weather event, Barry mentioned that we've experienced recently and that we're still dealing with.
As you all know the areas in which we operate have experienced extreme prolonged cold weather during the past 10 days and of which the frigid temperatures along with unusual levels of ice and snow of wreak havoc on the energy grid.
Our operations have felt the repercussions of the recent weather and we've experienced a significant but short term reduction in volumes, mainly in Oklahoma and Texas.
At this point the financial impact isn't quantifiable, but one thing that is certain is how proud we are at our enlink team for how they have responded and for operating in the freezing cold not only day minimize the impact to our business, but more importantly, the make sure we get natural gas and Ngls back on line to heat our homes and <unk>.
Power of our lives.
Now, let's walk our assets and let's start with the Permian.
We achieved strong segment profit in the Permian for the quarter reporting $48 million, which is approximately 3% higher than the third quarter of 2020, and approximately 29% higher than the fourth quarter of 2019.
Strong results for the fourth quarter compared to a year ago were driven primarily by growth in natural gas volumes with additional contributions from cost reductions.
Average natural gas gathering volumes for the fourth quarter were approximately flat compared to the third quarter of 2020, and approximately 16% higher compared to the fourth quarter of 2019.
Average natural gas processing volumes for the fourth quarter decreased sequentially by approximately 2% driven by lower on loaded volumes from neighboring midstream companies, but increased by 7% compared to the fourth quarter of 2019.
Drilling activity remained strong on our footprint throughout the fourth quarter and continues to be consistent as we make our way through the first quarter of 2021.
Top of mind. These days for the investment community when we talk about our Permian business is our exposure to federal land.
Companywide, our exposure is very limited around 4% of total segment profit net to Enlink.
The impact to US is primarily limited to our operations in new Mexico.
And for the most part of our business in that area is in a joint venture of which we own 50%.
Also producers on our footprint had been very proactive in accumulating a multi year inventory of drilling permits.
Pivoting to the Midland side of the Permian yesterday, we announced the low cost high return on natural gas processing capacity expansion.
We are going to relocate and underutilized plant on our Oklahoma footprint to the Midland Basin.
We are forecasting the relocation to cost approximately $30 million, which represents savings of roughly 65% as compared to a newbuild.
The expansion will add 80 million cubic feet, a day of natural gas processing capacity and should be operational during the second half of this year.
When we look forward, we are projecting another strong year of growth for our Permian business at the midpoint. We are forecasting the segment profit will increase by over 20% to $210 million.
The expected growth is primarily driven by our Midland natural gas footprint, which is why we need the additional processing capacity in the second half of the year.
We also have a deep inventory of drilled but uncompleted wells on our footprint and it is our expectation that many will get completed throughout 2021.
Turning now to Louisiana segment profit for the quarter was strong coming in at $88 million.
This represents the 27% increase from the third quarter of 2020 and of 2% increase from what was the very strong fourth quarter in 2019.
The strength in segment profit was driven primarily by seasonal tail winds in our NGL Subsegment was also bolstered by NGL enhancements coming out of North, Texas and strong natural gas transportation volume throughout the quarter.
Louisiana segment profit for 'twenty 'twenty, one is forecast to be $305 million at the midpoint, which is similar to what we achieved in 2020.
Our natural gas subsegment is expected to benefit from strong demand throughout 2021.
The growth in the natural gas business is expected to be somewhat offset by a lower current run rate and the Ohio River Valley sub segment and.
And slightly muted result in the NGL sub segment as a result of near term excess fractionation capacity in the Gulf Coast market.
That said our business development team is very focused on additional business opportunities like our transportation agreement with venture Global's Calcasieu pass LNG facility, which began as of this month.
During the fourth quarter of 2020, we closed on a small bolt on transaction that is consistent with our strategy of focusing on highly accretive tuck in opportunities around our footprint with an emphasis on downstream projects.
We bought the Jefferson Island of storage in hub assets, which include two in the quarter Bcf of working natural gas capacity strategically connected to our Louisiana natural gas system.
These assets can be expanded at an attractive cost and we will provide transportation services across a variety of pipelines, which access markets via these new assets and the Henry hub, which we own and operate.
The Jefferson Island assets are uniquely valuable to us because of the connectivity with our existing footprint.
And it's a great example of the types of opportunities, we're evaluating across our asset base.
Moving on to Oklahoma next we delivered $104 million of segment profit for the fourth quarter of 2020, which was approximately 4% lower than the third quarter of 2020, and 11% lower than the fourth quarter of 2019.
Natural gas gathering volumes decreased by approximately 7% sequentially and decreased 20% year over year.
Natural gas processing volumes were down 6% sequentially and down 15% year over year.
Oklahoma continues to be a very strong source of cash flow for us we will see that cash flow stepped down a bit in 'twenty and 'twenty, one with the roll off of the minimum volume commitment, we have with Devon, where we had been collecting deficiency payments.
This is the last significant roll off of an MVC deficiency that we have on our contract portfolio.
For 'twenty 'twenty, one we are forecasting Oklahoma segment profit to be $310 million at the midpoint, representing roughly of 25 per cent reduction from 2020.
More than half of that reduction is related to the M. D C exploration.
During the second half of 'twenty 'twenty, one we expect to begin receiving volume from Devins joint venture project with down.
The JV brought rigs onto our footprint in early January and policy of modest impact to our 'twenty 'twenty. One results from this project, we will realize the full benefit in 2022.
Wrapping up with North, Texas segment profit for the quarter was $62 million, which decreased by approximately 7% compared to the third quarter of 2020 and by 14% from the fourth quarter of 2019.
The lower segment profit was driven in part by expected volume decline in this mature basin.
And also in part due to the reduction in processing fees charged to the BK V. In exchange for NGL enhancements realized in our Louisiana segment.
For 'twenty and 'twenty, one we are forecasting segment profit of $230 million at the midpoint of our guidance range North Texas continues to be of predictable stable and significant source of free cash flow for us.
And if we continue to see consistency of natural gas price strength, there could be additional upside the harvest as the year progresses.
With that I'll pass it over to Pablo to discuss our financial update.
Thank you Ben and good morning, everyone.
I'll start with the fourth quarter highlights.
As Barry mentioned Enlink delivered a strong fourth quarter, achieving $262 million of adjusted EBITDA interest.
This result is the same as last quarter and underscores the stability and resiliency of our platform.
Enlink also achieved $92 million of free cash flow after distributions for the fourth quarter of 2020, including an $11 million expense to unwind interest rate hedges associated with our term loan repayment importantly, all of our four segments delivered strong cash flow.
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For full year 2020, Enlink delivered adjusted EBITDA of 1.039 billion and free cash flow after distributions of $311 million.
We exceeded the high end of our guidance ranges for both key metrics as a result of our team's strong execution capital discipline and ongoing cost control.
Our team continues to do tremendous work on all fronts as we began 2021.
On the cost control front, our teams focus on the efficiency allowed us to take out 23% of annual operating and general and administrative costs from our structure relative to 2019.
This is something that our team can truly be proud of we.
We took swift the necessary actions to position Enlink financially and operationally for long term success.
100 per cent of the 'twenty 'twenty of cost reductions will be sustained in 'twenty 'twenty one on.
Although some of the savings are variable in nature and will come back as industry activity increases, we expect the 85% to 90% to be sustainable even in the moderate growth environment. Additionally.
Additionally, we have of continuous improvement process embedded in our operations and I am confident that our team will repeatedly find ways to operate more efficiently.
Along with the tremendous focus on cost of our team is showing great capital discipline.
Capital expenditures net to Enlink for the quarter were $33 million and $219 million for full year 2020 in.
In line with our guidance midpoint.
Capex was down 65% from 2019 and will step down again in 'twenty 'twenty one.
We are committed to a disciplined investment approach with high hurdle rates and quick paybacks.
One of our top priorities continues to be maintaining our strong liquidity and financial position and our team did great work in this regard during the fourth quarter.
We completed a three year of $250 million, a our securitization facility with an attractive rate of LIBOR plus 162 in the half basis points.
We also issued $500 million of seven year senior unsecured notes with a coupon of five and five eighths.
We used the proceeds to repay $500 million of our $850 million term loans.
Although there was ample demand to grow the offering we chose to keep $350 million on the term loans. So that we can continue to reduce debt through free cash flow.
Also in the fourth quarter, we repaid the remaining $75 million of borrowings under our revolver ending the year with nothing drawn on the $1 75 billion facility.
Our debt to adjusted EBITDA ratio was four one times at year end as calculated per our credit agreement.
Reducing leverage below four times continues to be our objective and we will likely set of new lower objected overtime.
With the strong free cash flow generation of our business and our ample revolver availability, we are solidly positioned to repay the remaining $350 million term loan balance by the end of the year.
As we look forward, we have a very favorable debt maturity horizon with over 30% of our bonds non maturity for another 20 years or more and now our next senior notes maturity not until 2024.
Yeah.
Next let me turn to the 'twenty 'twenty, one guidance, we announced yesterday.
From an adjusted EBITDA standpoint, we are forecasting a range of $940 million to $1 billion with the midpoint of $970 million.
When you remove the $56 million of N V. C deficiency payments, we received from <unk> during 2020 the.
The 'twenty 'twenty, one adjusted EBITDA midpoint is forecasted to be close to flat year over year.
In addition, the MVC roll off is the one time event as we don't have other significant nbc's on which we are collecting payments expiring in coming years.
Approximately 90% of our adjusted EBITDA ski base, leaving the remaining 10% directly linked to commodity prices.
Our guidance is based on average prices of 55 cents per gallon for Ngls and $3 per M. N V to use of natural gas and $50 per barrel for W. T O.
If the commodity backdrop improves throughout the year, we will likely be able to capture some additional upside from prices and customers may also ramp up activity, which could contribute to volumes.
We expect EBITDA to the ramp up in the second half of 2021 as additional volumes come online.
Incremental to normal seasonal strength that we see in our Louisiana business in the fourth quarter.
Total capital expenditures, which include the costs associated with project workforce. The plant relocation. The band discussed are forecasted to be between the 140 million on $180 million in 2021.
Aside from project workforce, we expect 'twenty 'twenty, one capital to be heavily weighted to well connects and gathering infrastructure projects.
Projects that have very high returns and quick paybacks.
Although 2021 Capex is 25% less than 2020, we believe that this level of sufficient to support a modest level of EBITDA growth beyond 2021.
We will continue to evaluate small tuck in acquisition opportunities around our existing footprint, but those investments will have to clear high bar with respect of returns and not impede our deleveraging objectives.
With respect of free cash flow. After distributions, we are forecasting a 'twenty 'twenty, one range of $275 million to $325 million, which is $300 million at the midpoint very similar to our 2020 of results.
The free cash flow generation of our platform is tremendous with all four segments contributed.
We are committed to a disciplined and balanced allocation of our free cash flow.
While delevering the balance sheet remains our top of objective we have the financial flexibility to pursue other high return opportunities and return capital to unit holders we.
We feel our distributions are at a very sustainable level.
In addition, we completed approximately $1 million of unit repurchases in the fourth quarter of 2020 out of it.
Yield of 12, 5%.
And we will remain dynamic with how the unit repurchase program rather than having the formulaic approach.
The last thing I wanted to mention is the thank you to our team for their very high level of commitment to our success and the strong execution focus the.
The team's efforts have helped us to strengthen our financial position and exceed our financial objectives for 2020.
I am confident in our team our platform and our ability to continue to deliver in 2021.
With that I'll turn it back to Barry.
Thank you Pablo as you know about 90% of Enlink business as natural gas and NGL services when.
When I walk around our assets there is a lot to be optimistic about going forward.
Our Permian business continues to see of very high level of rig activity on our footprint and we are forecasting double digit growth again this year.
In Louisiana, we have the largest natural gas pipeline network in the state and the bullish demand market for natural gas and Ngls offer significant upside and opportunity for us.
In Oklahoma, we have of leading midstream position in the stack and the Devon Dow JV has been running two rigs on our acreage since early January.
In this commodity price environment could incentivize incremental rig activity.
In addition, we see compelling opportunities for midstream asset rationalization, which could lead to attractive small bolt on acquisitions around our footprint.
And the North, Texas, we have of leading midstream position in the Barnett and although it is a mature natural gas play the strong natural gas demand outlook could spur new activity on our footprint as the year progresses.
With that you may now open the call for questions.
We will now begin the question answer session to ask the question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily.
Towards some of our roster.
The first question is from James <unk> with JP Morgan. Please go ahead.
Hey, good morning.
Good morning, James good.
Just wanted to start off with the the Permian It looks like your processing volumes were down slightly sequentially. I think you cited lower automotive volume from midstream peers nearby are you seeing that continue into 'twenty and 'twenty, one and then just larger picture in the Permian.
How are you thinking about well connection and cadence.
For the year in the.
In the basin.
Yeah, Hey, James it's been.
On the first part of your question, Yeah processing volumes were down a little bit but gathered volumes were up and so what that's telling you is that we've got more full service field production from dedicated acreage.
And in this particular quarter it happened to be offset by less on loaded volume from from our neighboring midstream companies and that's not unexpected we we expected that to happen.
And that's fine because it frees up the space that we need for the growth that we're expecting to see and in the Midland Basin are in in 'twenty and 'twenty one.
In terms of well connect cadence.
It's been a busy first quarter.
And I think it will continue to be busy.
Throughout the year, you know we have a.
Our record level of DUC inventory as a result of of the fact that our producers drilled through the cycle last year, even as at times. They kind of took a frac holiday. So we are expect to see robust volume growth, especially on the Midland basin side of the of the Permian.
Got it thanks that's helpful.
And then maybe just shifting to.
To the you mentioned commodity.
Outside of the business and I was wondering if theres any color commentary you can share on the on maybe sensitivities to teach commodity or maybe in the context of the guide is the upper end of.
Hum.
Is there is there of higher prices kind of built into the upper end of that guide there.
Yes. This is Pablo that's the that's a good question. So so first of all of you referred to the guidance range.
Which is plus or minus $30 million from the midpoint. So that's that's about a 3% range.
We provided the price deck that we used for that guidance and yes, you would note that given today's commodity prices and the forward curve. There is a little bit of upside there, particularly with respect to Ngls.
So price deck would have some impact in the sort of ability to put us towards the top end of the range.
The other factor of course is the pace of activity of ramp up in the Midland Basin and in Oklahoma with the Devon, Dow JV and how our volumes can also flow and affect our Louisiana business.
So you know not specific on what the the.
Of the pricing upside would be just because it's complicated with NGL prices gas prices differentials seat.
<unk> spread and other factors, but suffice it to say that there is a little upside from pricing there.
Okay got it thanks I'll leave it there I appreciate it.
Thank you James.
The next question is from Gabe Moreen with Mizuho. Please go ahead.
Hey, good morning, everyone, Barry if I could circle back to your comments on M&A, you mentioned I think.
The tuck in acquisitions, and I think trying to target certain area of strategically like NGL downstream can you maybe elaborate a little bit more on that and then as far as of the nature of the M&A being tuck in would you characterize that is precluding the.
The bigger midstream deals at this point clearly there was a major transaction announced this morning, just curious for your thoughts there too.
Yeah. Thank you Gabe.
As I said in the prepared remarks, our focus today is on the close in.
The consolidation type of opportunities that we see or things that are really leveraging off of our existing footprint and oh just to highlight.
I mean, I think if you go around the areas that we focus you've got kind of different.
Stages of readiness, if you will I mean, we've been doing that in north Texas for some time in the more mature basin I think Oklahoma certainly is in the middle of the consolidation and I think.
The Permian is sometime in the future.
So that that is our focus we think we will see opportunities there and then as far as the bolt on opportunities in Louisiana.
Glad to deliver on something in the Jefferson Island storage of acquisition of Great addition to our assets, they're very complementary with everything we're doing around the Henry hub and our existing storage facilities and just really the the merchant business that were in there in Louisiana. So.
That's our focus.
I think it's a lot like what we said a lot about which is what we're focused on our internal the.
The self help things that we can do and certainly those close in opportunities or in that day.
As it relates to the larger scale I guess I was prepared the last night to answer the question on that by saying that I felt like all of US were focus more internally on self help things.
But we saw the the announcement this morning.
But I guess I would say notwithstanding that announcement.
Most of US are focused internally, making our businesses better and we're doing some really good work around that and so.
I do think that are the subject of a consolidation of combinations.
<unk> is one that the the market will continue to focus on and I think it's a good thing when when you can accomplish the result of increased scale a stronger financial position.
When you can achieve synergies and cost.
<unk> those are good things and I think the market will continue to focus on that so the challenge will be to deliberate of that for all of us. If we look at the of things in the future.
I think that's what we've gotta do we got to deliver on them larger for larger sake is not a it's not the game today and we have to deliver on the the things that we're after if we look at combinations.
Thanks, Barry and if I could just follow up with kind of two smaller ones. One is just on Jefferson Island, if you'd be willing to disclose the cost of maybe contracts behind that asset and then also I think the comments on renewable energy and incorporating that is that something you could actually you could be spending on the capex on or is it more just contracting per potential renewable power.
Yeah, Hey, Gabe I'll I'll start on Jefferson Island, It was about a $30 million acquisition. So like Barry says a small tuck in the.
The assets are really work well with what we have a little bit of history, probably most people don't realize.
Jefferson Island was actually developed by by leg, which is the system that we own today and then when when the previous owner of LIG sold the assets. They chose to split them up and so what we're really doing is putting the assets back together, but they were built to work together.
And it gives us a salt dome storage cavern Ah that is directly connected to our Henry hub assets and lets us offer a pretty unique.
Product to the market.
And also has some interconnectivity with pipelines that we didn't have on our gas system and so it's a pretty unique way to integrate an acquisition.
Yes, Gabe let me let me address your renewable energy question towards the end, let me say this our focus right now is to do the things that are practical the things that we can do to leverage off of our business to make it better and to continue to expand.
On the really good position that we have today, which is 90% of our business is on the lower carbon natural gas business and we believe natural gas will be a major component of global energy for the next several decades.
But there are things that we can do to become better and we're focused on those.
Longer term I think we can use our extensive assets.
And the relationships that we have with our of our customers to participate in opportunities that makes sense, but I want to be really clear about this.
Chase renewable energy just to say that we've done renewable energy, it's got to make sense for us its got to be strategic and it's got a hell of a return associated with it and so when we see those opportunities will be in a position to take advantage of it.
Thanks Barry.
The next question is from sneakers.
Please go ahead.
Hi, good morning, everyone, maybe to start off a little bit here I, just kind of wanted to focus on the cost and optimization side.
In your prepared remarks, you talked about being able to most of the maintain the cost reductions that you achieved in 2020.
We're focused on on incremental opportunities and I understand the fact that with <unk>.
All items gross variable costs could go up as well to show it in the scenario of hypothetical just holding that flat if volumes don't change can you give us some details and colors of round.
What kind of cost reduction exercises you're now pursuing.
Is it further labor cost reductions are those mostly done whether other type of opportunities and is there kind of of dollar target that you have set internally to achieve in that respect.
Yeah sure I think again to highlight of what we said in the prepared remarks first of all the we believe that the cost savings that we were able to experience first of all of our industry, leading to be able to reduce about 23%, we're very proud of that.
Secondly, it is a mindset is something that we were working on well before we got into the global pandemic situation of early 2020.
In the second half of 2019, we started making significant adjustments to the way that we run our business and started taking cost out.
And so we weren't of good position going into 2020 to continue that effort.
That mindset continues to day.
We have teams that are woke up this morning, who are very focused on driving costs out of the business and getting more efficient.
As I mentioned, we've got 100 initiatives that we're currently evaluating and processes that we are running.
The two to do a better job of.
We're running our business efficiently so we're getting better all the time.
Again, we as we said the cost savings that we saw in 2020 are largely sustainable in 2021, it's hard for us to predict that we're going to see enough change in 'twenty and 'twenty one to see those cost come back as.
As we get into 2022, and then certainly as we see more activity you could see some of that come back, but again I think we will be finding new savings that will offset the cost that may come back into the business. So our goal of our challenge will be to maintain as much of that and largely we think we can.
Then Pablo would you go to any specific areas on that.
Okay.
Yeah.
Yeah, I'd, just say you know Barry you you covered it the shneur, it's it's all across the business.
It's it's a you know operating expense.
It's G&A expense, it's every facet of the business and what I want to really emphasize.
Is that it is the continuous improvement process.
We define.
And measure ourselves.
We find solutions and implement those solutions and then most importantly, we control those solutions over time, so we don't let anything backslide.
And over time, we can go through our business piece by piece and just continue to drive that cost out and drive the efficiency in the business and that's that's the magic is you're never done it's it's truly a continuous process.
So Ben are you tactically instead of maybe asking the question a little differently instead of asking for a dollar target and so forth or are you, sending inefficiency target or of productivity target like we want to have X percent of increasing productivity or efficiency during 'twenty one.
Yes, sure its I would say it's in so many pieces that it doesn't lend itself to an easy soundbite, but you know just just to give you. One example.
Last year, we had a goal for our field compressor stations to be online 98 per cent of the time, which we think is already probably 100 basis points better than than the industry. This year. We're at 98 five per cent on that goal and if we achieve that the next year. We may we may.
Move up and that's one example, you know there's a dozens and dozens of those kinds of targets that we set for ourselves.
Yeah.
Okay that makes sense and then maybe to ask the question on a on a revenue optimization side as well too.
Noticed in in your remarks on the slides that you were talking about centralizing and so forth.
Is that the way or centralized controls is that the way that you plan to capture some revenue opportunities as well also like your capture irregularities in the market faster than or equal to two pounce on them when they when they arrived the I'm. Just wondering if you can give some examples on revenue optimization opportunities.
Yeah, Shneur, you're thinking the right way about that and maybe an easy example is we have fantastic operating teams in the field at all of our plant sites and they do amazing jobs every day.
But their job is hard you know they they are they're running the plant but are there also are managing any contractors that might be in the plant that day.
They're interacting with the.
You know with the with the field operations team.
And so we have a second layer.
Of of monitoring that happens in the central location, where we can see all of the plants in real time. The exact same screen. The plant operators can see in the plant control rooms and.
And when that second layer of monitoring sees an opportunity you know sees that with the change in pressure of change in temperature within the plant, we could perhaps get a little bit more recovery or use of little bit less fuel the.
Then we have the ability for them to communicate in real time and make sure that we never never missed that opportunity and that also.
Promotes best practice sharing you know what what we found works well at one plant often can be translated the others and so it's a very collaborative approach.
And it promotes a lot of communication.
Between our central monitoring center in the field and also between the various field operations themselves.
Okay great.
Maybe one final question just for Pablo here.
With the expected free cash flow after distributions expected to be generated this year is the Gould chew directed primarily towards paying off the term loan or will there be some flexibility for buybacks.
Yeah. Thanks for that question you know our approach is really a balanced approach.
Not so formulaic, but the the left.
Deleveraging the balance sheet is clearly the top priority so you'll likely see most of the cash flow go to that.
I do think we find ourselves with good financial flexibility.
And Barry talked about our focus on our growth.
Growth projects or tuck ins with very high returns and quick paybacks.
We can also return capital to shareholders.
Which we're doing through a very stable distribution.
But it's not a formulaic approach on the on the share repurchase program.
Alright, perfect. Thank you very much I appreciate the colors today and stay safe and stay warm.
Sure.
Again, it's the other question. Please press Star then one the next question is from T. J Schultz with RBC capital markets. Please go ahead.
Great. Thanks, Hey, good morning.
Just first for the Midland outlook this year.
Just to follow up on the record Ducks that you mentioned it sounds like.
The busy so far this year can you just provide your view on <unk>.
Sensitivity to the oil price for completion activity to continue at that pace or maybe even accelerate quicker if the <unk>.
Outlook moves to $60 oil rather than $50.
Thanks.
Yeah, Hey, T J, it's Ben.
So I think that for the most part.
The big public producers, who who account for the majority of our business in the Permian I think their plans are largely set for this year and.
And I think if they see higher crude prices then you know.
That becomes a capital allocation question for them, they probably doesn't turn into incremental 2021 activity I think it could turn into incremental 'twenty 'twenty two activity, if we see those prices hang on where.
Where we might see a little bit of change in pace or even a little bit of incremental activity would be among our private customers who are.
Perhaps have different expectations from their investor based on the public guys do.
So I you know for the most part.
I think the table is pretty well set and are the good news is it set well for us with the number of ducks that we have on the system and supportive price environment. I think we will we will see the completion schedule come come to fruition and maybe a little bit of upside around the edges on the private side.
Yeah.
Okay. Thanks, and then are the tuck ins and bolt ons that you've talked about and including Jefferson Island, and what maybe anticipated all considered within the growth capital budget.
Gave for 'twenty 'twenty, one or is it additive.
Hey, Jay this is pablo of those would be additive so in the capital budget. If that's primarily the the work index and associated infrastructure.
Primarily in the Midland Basin, and then the project work horse plant.
Anything outside of that would be incremental.
Okay perfect. Thanks.
Thank you Didier.
This concludes our question and answer session I would like to turn the conference back over to Barry Davis for any closing remarks.
Thank you operator for facilitating our call. This morning, and thank everyone for being on the call today and for your support as always we appreciate your continued interest and investment in them like we look forward to updating you with our first quarter of quarterly results in May and in the meantime, we wish you all well stay healthy.
Stay warm have a great day.
Okay.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.