Q2 2021 ONEOK Inc Earnings Call

Good day and welcome to the second quarter 2021, 1 of his earnings call. Today's conference is being recorded at this time I would like to turn the conference over to interest Iola. Please go ahead Sir.

Thank you Casey and welcome to 1 of the second quarter 2021earnings 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.

And that's made during this call that might include 1 of the expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the securities acts of $19.33, and $19.34.

Actual results could differ materially from those projected and forward looking statements for a discussion of factors that could cause actual results to differ please refer to our SEC filings.

Just a reminder, before we turn it over to the conference coordinator for Q&A. We ask you that you limit yourself to 1 question and 1 follow up in order to fit in as many of you as we can.

With that I'll turn the call over to Pierce Norton, President and Chief Executive Officer peers, Thanks, Andrew and good morning, everyone.

Thank you for joining us today, we appreciate your interest and investment in our company.

For 32 of my almost 40 year career.

Had the good fortune to work with the assets and the people through various companies that are now a part of 1 oak I'm excited and honored to be back.

And this company has a strong experienced management team and a talented workforce and we are all looking forward to the future of <unk>.

Today's call will be discussing 1 of the strong performance and the second quarter and I'll provide a few of my initial thoughts as to how the management team and I will continue to build on the accomplishments of those that preceded me in this role.

I'm also looking forward to Reacquaint, our meeting many of you and the near future.

Joining me on today's call is Walt Hulse, the Chief Financial Officer, and Executive Vice President strategy, and corporate Affairs and <unk>.

Kevin Burdick, Executive Vice President and Chief operating Officer.

Also available to answer your questions are of Sheridan swords, senior Vice President natural gas liquids and Chuck Kelly Senior Vice President natural gas.

I'd like to first start off this call by recognizing and congratulating Terry on his retirement and thanking him for his availability to advise me and my new role.

1 of his seen tremendous growth and success under Terry's leadership. The last 7 years as he has navigated the company through several growth cycles.

And industry challenges include.

Including the.

Delivering strong results during a pandemic.

Terry championed many companies successes the <unk>.

Transition to higher fee based business model with less commodity price exposure.

Significant improvements and company wide safety and environmental performance.

The successful 1 O partners merger transaction and the completion of more than $10 billion and capital growth projects to name just a few of his many accomplishments the.

The company has grown in many ways since I was here last.

And I'm looking forward to building on what Terry The board the leadership team and 1 of 3000 employees have achieved.

It's been extraordinary.

During this first month on the job I've been re familiarizing myself with our business holding strategy and planning meetings with the team and most importantly listening.

I met with my leadership team and many employees to hear more about their focus areas.

These introductions and conversations are very important and will continue.

What you can expect from me as the CEO is that we will be disciplined and intentional and all of that we do.

And continue to encourage a culture that promotes safety.

Liability employee engagement and value creation and environmental responsibility.

These principles have served 1 oak well for decades and will continue to be a key element of our daily operations and business decisions going forward.

The energy systems today were designed to operate on the consumers' requirements for affordability reliability and resiliency.

We will continue to focus on meeting our customers' needs. While also transforming these energy systems to drive the overall lower of lowering of greenhouse gas emissions.

Yesterday, we reported a strong second quarter financial result.

Supported by increasing volumes across our system the.

The energy and economic backdrop continues to improve.

With producer activity accelerating and demand for Ngls and natural gas strengthening.

Kevin will talk more in detail about how we're addressing those needs, but first I'll turn the call over to Walt to discuss our financial performance.

Thank you peers.

And with yesterday's earnings and now we updated our 2021 financial guidance expectations.

Our view of 2021 continues to improve as we now expect 2021 adjusted EBITDA to be above the midpoint of our guidance range of 3 point O 5.

233, $5 billion that we provided back in April.

Our outlook for growth and 2022 has continued to strengthen.

Higher commodity prices and accelerating producer activity and the rising gas to oil ratio in the Williston basin provide a tailwind into next year.

With available capacity across our operations and the completion of our Bear Creek plant expansion. Later this year significant earnings power remains across our assets without the need for significant capital investment.

The strengthening momentum going into 2022 makes us confident that we will achieve or exceed the 22.

We have discussed on previous calls.

Now for a brief overview of our second quarter financial performance.

1 of the second quarter 2021, net income totaled $342 million for 77 per share.

Second quarter, adjusted EBITDA totaled $802 million, the 50% increase year over year, and a 3% increase compared with the first quarter 2021.

After backing out.

The benefit from winter storm Yuri.

We ended the second quarter with a higher inventory of untracked, Urinated Ngls due to planned and unplanned outages and some of our fractionation facilities. We expect of recognized $12.5 million of earnings and the second half of 2021 is our current inventory is fractionated and so the.

The majority of which will be recognized in the third quarter.

Distributable cash flow was $570 million and the second quarter and dividend coverage was nearly 1.4 times.

We generated more than $150 million of distributable cash flow and excess of the dividends paid during the quarter.

Our June 30, net debt to EBITDA on an annualized run rate basis was 4.3 times and we continue to work towards our goal of sub 4 times.

We ended the second quarter with no borrowings outstanding on our $2.5 billion credit facility and nearly $375 million and cash.

And July the board of directors declared a dividend of <unk> 93, and a half cents or $3.74 per share on an annualized basis unchanged from the previous quarter.

Our strong balance sheet ample liquidity and increasing EBITDA from volume growth and our system provides the solid financial backdrop and flexibility as we enter the second half of the year I'll now turn the call over to Kevin for an operational update.

Thank you all.

Our second quarter, NGL raw feed throughput and natural gas processing volumes increased compared with the first quarter 2021 driven by increasing producer activity.

And recovery and gas to oil ratios that continue to rise and the Williston basin.

We expect these tail wins to carry into the second half of the year and into 2020.2.

And our natural gas liquids segment total NGL raw feed throughput volumes increased 17% compared with the first quarter 2021.

Second quarter raw feed throughput from the Rocky Mountain region increased 18% compared with the first quarter 2021 and more than 85% compared with the second quarter, 2020, which included significant production curtailments, resulting from the pandemic.

As a reference point volumes reached approximately 330000 barrels per day in this region early this month.

At this volume level, we still have more than 100000 barrels per day of NGL pipeline capacity from the region, allowing us to capture increasing volumes on our system, including volume from a new 250 million cubic feet per day third party plant that came online in early July.

And the expansion of another third party plant that is underway and our bear Creek plant expansion, which is expected to be complete and the first half of the fourth quarter. This year.

Total mid continent region raw feed throughput volumes increased 16% compared with the first quarter 2021, and 10% compared with the second quarter 2020 the.

For our buckle 2 expansion was completed and the second quarter, increasing its capacity up to 500000 barrels per day, adding additional transportation capacity between the mid continent region and the Gulf Coast.

And the Permian Basin, NGL volumes increased 16% compared with the first quarter 2021.

Primarily as a result of increased ethane recovery and producer activity.

The petrochemical demand continues to strengthen and as seen support from our continuing global pandemic recovery.

This led to increased ethane recovery across our system and the second quarter.

Ethane volumes on our system and the Rocky Mountain region increased compared with the first quarter 2021as we continue to Incent some ethane recovery on the short term basis.

<unk> ethane recovery in the Rockies and the second half of 2021 will depend on regional natural gas and ethane pricing.

We have not included ethane recovery from the Rockies for the remainder of the year and our updated financial guidance.

Ethane volumes on our mid continent system increased compared with the first quarter 2021 due to both favorable recovery economics, and some incentivized recovery.

We continue to forecast partial ethane recovery and our guidance for the second half of the year in this region.

Ethane volumes and the Permian basin increased and the second quarter compared with the first quarter 2021.

We continue to expect the basin to be in near full recovery and the second half of the year.

Discretionary ethane on our system or said differently the amount of ethane that we estimate could be operationally recovered at any given time, but it's not economic to recover at current prices without incentives.

Is approximately 225000 barrels per day.

Of that total opportunity of 125000 barrels per day are available and the Rocky Mountain region, and 100000 barrels per day and the mid continent.

Full recovery and the Rockies region would provide an opportunity for $500 million and the annual adjusted EBITDA at full rates.

Moving on to the natural gas gathering and processing segment.

And the Rocky Mountain region second quarter processed volumes averaged more than 1.25 billion cubic feet per day and increase of 6% compared with the first quarter 'twenty 'twenty 1.

And more than 50% year over year.

And outage at 1 of our plants, which has since come back online decreased second quarter volumes by approximately 15 million cubic feet per day.

Toward the end of June volumes reached 1.3 billion cubic feet per day, and we have line of sight to even higher processed volumes later in the year, given the recent increase and completion crews and rigs and the basin.

Conversations with our producers and the region continue to point to higher activity levels and the second half of 2021 and 'twenty 'twenty, 2 particularly in Dunn County, where construction on our Bear Creek processing plant is on track for completion and the first half of the fourth quarter of this year.

Once in service, we will have approximately $1.7 billion cubic feet per day of processing capacity in the basin and we'll be able to grow our volumes with minimal capital.

And the second quarter, we connected 84 wells in the Rocky Mountain region, and still expect to connect more than 300 this year.

Based on the most recent producer completion schedules, we expect a significant increase and well connects and the second half of the year with some producers aligning the timing of well completions closer to the completion of Bear Creek.

There are currently 23 rigs operating in the basin with 9 on our dedicated acreage and there continues to be a large inventory of drilled but uncompleted wells with more than 650 basin wide and approximately 325 on our dedicated acreage.

We expect the current DUC inventory to get worked down before we see producers bring back more rigs to the basin to replenish inventory levels.

As we said last quarter. The 8 completion crews currently operating in the basin is enough to reach our well connect guidance for the year any additional completion crews would present upside to our guidance.

Rising gas to oil ratios and natural gas flaring in the basin continue to present opportunities for volume growth without the need for additional producer activity.

Since 2016 G O ours have increased more than 75 per cent.

Recent projections from the North Dakota pipeline authority show that even in a flat crude oil production environment.

<unk> could increase and additional 45% and the next 7 years the.

This could add 1.3 billion cubic feet per day of gas production and approximately 150000 barrels per day of C..3 plus NGL volume to the base and during that same time period.

Again, this growth and natural gas is only based on increasing G O R's and assumes flat crude oil production any growth and crude oil would be upside to those projections. We've added a new slide and our earnings materials to show. These latest North Dakota projections, which include various production.

Scenarios.

During the second quarter, the gathering and processing segment's average fee rate increased to $1.06 per M. M Btu, driven by higher Rocky Mountain region volumes.

We now expect the fee rate for 2020, 1 to average between $1 and of $1.05 per M and Btu.

The mid continent region average processed volumes increased 4% compared with the first quarter 2021 as volumes returned following freeze offs and the first quarter.

While the region has received some attention as commodity prices strengthen producer activity has been more moderate than other areas.

And the natural gas pipeline segment, the segment reported a solid quarter of stable fee based earnings.

The decrease in earnings year over year was driven by a 1 time contract settlement that provided of $13.5 million benefit to earnings and the second quarter of 2020.

We continue to see increased interest from our customers for additional long term transportation and storage capacity on our system. Following the extreme winter weather events earlier this year.

Since the first quarter, we have renewed or re contracted additional long term storage capacity in both Texas and Oklahoma.

Including a successful open season for more than 1 billion cubic feet of incremental firm storage capacity at our west Texas storage assets.

We will continue to work with customers to contract the additional long term capacity as we head into the winter heating season.

That concludes my remarks, thank you, Kevin and the results achieved so far this year.

Only 12 months for me.

From the unprecedented conditions and the second quarter of 2020 are nothing short of the amazing.

The resiliency of our assets and our employees and the caliber of our customers.

And we're able to.

Work with it and provide a long term runway of many opportunities for.

The key to our success will continue to be operating safely.

Stably and responsibly with the health and safety of our communities and employees at the forefront of all of that we do.

For more about our commitment to responsible operations and I encourage you to review our most recent corporate sustainability report.

Which was just published to our website last week. The report details of our most recent environmental social and governance related to performance and probe performance and programs and highlights key initiatives under way across the company.

It's 1 of employees, who carry out these initiatives every day and who prioritize the safety and wellbeing of their fellow employees customers and the public. Thank.

Thank you for your continued hard work and your dedication to safety to this company.

Again, I'm excited to be back at 1 up and looking for to the opportunities and the challenges ahead.

Operator, we're now ready for questions.

Thank you.

Like to ask a question. Please signal by pressing star 1 on your telephone keypad now and Youre using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment and again that is star 1 of you would like to ask a question.

We'll take our first question from generic of <unk> with UBS.

Okay.

Hi, good morning, everyone cash each.

He was the only 1 of the different conference call and Bob and we'd like to stay and.

And congratulations to carry all of the very successful of Korea, and and congrats on starting a new chapter.

Maybe I tip location, and and sorry to put you on the hotspot of heartbeat write offs of right off the bat here, but I was wondering if we can talk about your thoughts around buybacks and capex for 2020.2 and.

Imagine theres not much on the Capex front, and just sort of given where you are quite right and.

You know maybe of completion of the of the.

The flows and track at this point, just with the higher ethane and we probably got the kevins comments about seafood clause with respect of G. O ours, but I was talking about the pencil to be much of the capex side. When it's simply take the soft outlook for that have been presented and the paths for gasoline and to 4 billion and it's kind of been thrown around with the potential 22 run rate it sort of suggests that the law.

Average for what else could it be sub the 4 times leverage ratio target is.

The setup for buybacks and 22.

And if so how should we think about execution around buybacks.

Or if I got the thought process for online on Capex I'm just curious on your thoughts.

Sneer first of all thank you for the welcome back.

And we will certainly pass on your comments to Terry and I think we I'll echo those as well.

I'll make some kind of a broad comment and then I'm going to let the let wall kind of answer kind of more specifically, but.

We're all we're in the process of looking at our strategic plan and our earnings projection not only for 2022, but.

But also for the next 5 years as a part of that will be assessing what I would consider our capital allocation opportunities.

So I don't have a specific answer to exactly for the buybacks for.

For next year.

But I would say that that's all the part of our capital allocation plan and the strategy that we're actually currently talking about now so.

I'd like the Walter kind of weigh in on any more particulars it and the.

The insights that he might have sure thanks per well share basically of I would agree with the your assessment of the tail winds that are of behind our business today and we're excited about the opportunities that are forward and.

The cash flows that we'll generate from that will continue to.

And enhance our deleveraging strategy that's been in place for quite some time and we're starting to see some of our and goals.

And the near term coming forward and as we get closer to our goals of sub 4 times leverage and then obviously, we will expand the horizon of things that we'll look at from the capital allocation and.

We spend time with peers and we'll look at all of our options.

As we go forward Youre right that there isn't any major capex.

The project on the Horizon and here are you know we are really doubled the capacity of our long haul pipes and the NGL business over the last several years and that gives us a lot of running room going forward.

You highlighted that we have a couple of projects that we pause back with the pandemic and over the course of the Nike next year or 2 as the as producer activity picks up you know I would assume that a likely a clean some of those up and finished the them up to meet our customers' needs.

But it's really going to be routine growth and the some smaller growth projects that are very attractive going forward. So we'll have plenty of free cash flow to continue to deleverage and then look at all of those capital allocation and.

Opportunities over the next couple of years.

Really appreciate the detailed color there.

As a follow up question here.

And just given the fact that what can we go with the company for for so long and so we felt the strategy and so forth.

All of the mail.

How are things going to change a lot of the equal and it stayed the same with respect of strategy.

Are there any specific marching orders that were given to you from the board. Upon your arrival just kind of curious if you can sort of talk to that kind of holistically.

Sure I'll be.

Be glad to answer that.

I think it's not so much about what's going to change you know immediately in the company I think it's more about what's changing in the energy industry. I think we can probably all agree that the energy systems across the United States and it's gonna be very important debt.

We continued to transition into a lower carbon energy system across the United States. So really it's about how we at 1 oak and the assets and the people and the skill sets and we have are actually going to transform with debt with that energy energy system.

You know I I view that as the 3 step process first of all you got to understand what the.

And the transformation of the energy systems look like.

And then you prepare.

For that you know for what you've learned and what you understand.

And then you innovate.

And I think that's the 3 focus areas that I would say that we have going forward is understanding where we are preparing and and innovating for the future while at the same time continuing to grow.

The base business that we have and the use of natural gas and natural gas liquids, because I think the global Paul most countries are not where we are and the United States as far as the maturity of our systems and the transparency that we have and the energy systems here and the United States.

That's kind of continued to pull for natural gas demand as well as our natural gas liquids growth while at the same time, we're going to be able to use the skill sets and the talents that we have and our company.

And to transform I do think transformation is a better word and transition.

Transition to me indicates that you're going to leave 1 thing and go to another transformation in my opinion it.

It means that you're going to use something that you have and maybe use it a little bit slightly different.

And the future to meet some of the problems that we have I do think it's important for the United States to lead and the effort of of lower carbon because I think the other parts of the world can learn from what we do although there's only 6.6 giga.

And at times of C O 2 emissions and the United States versus 51 gig of tonnes over the globe.

We're a small percentage, but I think it's important for for the U S to lead and these efforts and.

And I do feel like that that 1 of his positioned.

And over a long period of time and a lot of these things as you look at.

C N G and hydrogen and the LNG for long haul and carbon sequestration and capturing methane the.

Those are all going to be opportunities that we experienced over the over the next several decades.

Great really appreciate the color and congratulations Dan.

And the new role.

Well thanks, Thanks again.

Our next question comes from Christine Cho with Barclays.

Thank you Pierre So we'll come back to the side of 1 elk.

And I thought I would maybe start with Ah and Nash.

I think question.

This quarter, you know you guys got more ethane and the Bakken and and you talk about 25000 barrels per day of ethane extraction and being an incremental $100 million, but that's predicated on you're collecting in the fall of 'twenty 10 tenants.

You haven't been collecting that when youre doing it more opportunistically and when you do provide more ethane to the market the way it sort of puts a lid on what prices can be.

Curious, how do you balance that and make sure you don't provide too much supply that is negative and it negatively impacts the tax frac spread spread economics and the other pieces that you're in and what really has to happen in order for producers to sign up for long term contracts for ethane TNF out of the Bakken and so it really helped me of firm.

To your presentation on northern border.

For Christine and thanks for the welcome back and I think Kevin and and shared and can probably add more color to your question.

Sure Christine the shared and I think and your first question on how do we determine how much ethane and they bring out of the Bakken and what's the right amount before putting a lid on ethane prices.

And to try to understand is where the next incremental ethane will come out and is that coming off of our system or somebody else's system and so if we don't bring it out of our system that somebody else can I bring ethane out of their side of the system and we will lose the whole.

With that we'll have from buying it at gas and selling and at that the value. So it's an ongoing process that we look at every month and we tried to make that determination and that's why we don't bring all of the ethane out of the Bakken that we could we could incentivize more but we just bring what we feel is the right amount of ethane to come out.

And and really on your question of what would it take for produced or sign up for ethane.

They have already signed up for it and they have the option today, whether or not to bring ethane on the system or not to bring ethane on the system. We have the capacity for them and they signed up for a certain amount of capacity.

What it really comes down to you now is what is going to drive the price high enough that we would get a full TNF rate or the full 28 cents to break that the ethane would come out and what's going to need to happen for that and you're going to need to continue to have strong ethane to ethylene spread like we have today very very widespread so that I think and continue to rise prices continue why.

And the pet cans can continue to and make money off of that the second thing is you need to have more demand and and we need to see more exports coming out there is more export capacity out there and we need to see more crackers and and the second quarter of next year. The Exxonmobil Sabic cracker is going to come online as well. So that's kind of bring on more demand and I think the third thing.

You need to look at is you need to look at the regional gas prices between the Bakken and the other areas. So we would see the Bakken gas prices dip down like we typically see in the summer I think all of those things together if they work that you have the possibility of an opportunity to see ethane come out of the Bakken at full prices.

Got it that was really helpful.

And then I guess, just moving over to I guess guidance on the prior quarter call you guys kind of gave a soft 'twenty 2 guidance of about $3.4 billion.

And I still feeling good about this and what sort of ethane extraction of assumptions or are you, including and not.

So of Kristine I'd start by saying you know, we we Havent issued our 2022 guidance yet we're in the process of looking at that but but I will let the well let the.

Walter Kevin chime in on the on the past.

Some of it.

Yeah of Kristine I mean, I think when we were still the that number is still out there that we talked about as far as where we'd be in 'twenty 2.

And since the last quarter and nothing we've.

Everything has strengthened since that time, I mean prices have strengthened their comments and the feedback we get from our producers of strengthened so.

So that's the way I would frame 'twenty 2 up as you know it is definitely more constructive today than it was 3 months ago.

Got it thank you.

Our next question will come from Tristan Richardson with true Securities.

Hey, good morning, guys.

Really appreciate the comments on kind of of what Youre seeing and the second half and particularly the comment on on July of thinking you noted maybe at 1 point and time the system and touched $3.30 a day.

Is that including some recovery or at least incentivize. The recovery. So are you seeing some recovery in the and the Rockies starting in the second half.

Yeah, Chris and this is Kevin and yes that would include some incentivized recovery, which we talked about and are in the remarks.

Okay I appreciate it Kevin and then lastly.

And Walter I think you and the past and talked about the the earnings engine at 1 outcome and the potential for this business to produce EBITDA with a 4 handle I mean without asking about of a timeframe of meeting can you talk about some of the the conditions necessary to hit that type of potential and and are you seeing some of that.

And as you look out over the near and medium term.

Well I.

I think that the the way we would frame that up and the past was that we have the assets in place, especially in the back and to achieve those types of earnings levels without any meaningful the need for capex.

And as you continue to see gas volumes, there may be at some point and the future of need for another plant up there, but that's not in the near term, we've got plenty of capacity and.

Mckenzie County, and now we're gonna have capacity down in the Dunn County so.

And we've got room to run and we've got room to run on the NGL side as we get closer to those the numbers that would start with the 4 were probably going to have to have some downstream of the additions that are you know they can be 5 and things like that that would need to be completed but none of those are major major dollars and the scheme of the the.

The earnings power of the company. So we're pretty excited about the kind of the operating leverage that we have and the company and the ability to continue to grow significantly with the modest capital needs.

And I appreciate it thank you guys very much.

Welcome and thank you.

Our next question will come from Jeremy Tonet with J P. Morgan.

Hi, good morning.

Good morning, Jeremy Jeremy.

Also wanted to send.

Terry our best going forward and to retirement there best of luck.

And maybe picking up on energy transformation as you you laid out there.

RMG biofuels hydrogen and sushi U S. Just wondering if there's any specific initiatives that went out because of working on right now it seems like theres some things on the R&D side, but just wondering specifically right now if theres anything.

Near and medium term opportunities that 1 oak is focused on.

So thank you picked up on probably the 1 that.

Is probably the most likely the quickest.

And that is the renewable the gas opportunities primarily coming from.

These are kind of listed in order of accurate culture wastewater and landfills.

I'm going to kick it over to.

Chuck here just the second because he can give you some updates on what we're doing as it relates to some of the R&D efforts, but.

The CMG and LNG for the long haul I think is another thing that could be a possibility.

And is probably out into the future because primarily in the right. Now you you can't take a certain amount of hydrogen based on the tariffs and the Interstate and intrastate the assets across the United States, but I do think thats the developing opportunity it's left to be seen economically how all that stuff plays out.

All out and then you got carbon sequestration, because the 24% of all of the carbon emitted of the $6.6 gig of times actually comes from our electric generation from coal oil and natural gas, primarily coal and natural gas. So I think that's going to be important to solve that equation.

And of course transportation has about 28%.

Of that 6.6 gig of tons. So if you've converted all of the cars today to Evs and you just switch the problem for the transportation over to electric generation.

And and and so you didn't really didnt really solve the problem. So Chuck and I'll, let you kind of talk a little bit about our R&D opportunities and what we've already done and and are doing share first.

So I'm just a little color Jeremy on our Interstate pipes, particularly the do you think about where they're located upper Midwest.

As you know quite of few dairy farms up and that area. So you have agricultural waste.

Connected.

3 of RMG facilities that are originated from dairy farms already up there and looking.

And looking at another 1 and then here on our intrastate business, particularly and Oklahoma, we've already connected a large landfill waste.

The recycling facility looking at another and then of course of some large feed lots and our Texas intrastate market. So we've been involved in and.

Connecting orange, and bringing that gas and into our stream delivering it to customers downstream. So this has been the ongoing.

Ongoing over the past.

For years, and we're seeing that accelerate so.

Excited by the RMG aspects that we see out there so and just kind of summarize that by saying that.

As part of our strategic plan, we look to develop business plans around all of these different aspects of each of these opportunities.

But I think.

More importantly, as far as what these opportunities do is they make the existing natural gas pipelines in the United States relevant instead of just moving methane that you traditionally get from the Wellheads, you're actually capturing methane debt is.

Made it to the air which is 25 times more potent.

And then the C O..2 so you get the uplift and the C O 2 equivalents and so you get the extra <unk>.

Benefit of removing that and you're using existing assets to help other industries reduce their environmental footprint. So the relevancy of it is the important part as opposed to some great business opportunity.

The boost your EBITDA and it's really it's really designed around the relevancy of making essentially $2.6 million miles of pipeline and the United States are very important to the energy transformation and future.

That's very helpful. Thanks, and just wanted to follow up.

A little bit as it relates to <unk> because it seems like North Dakota is kind of a separate themselves for model all of the states given the multiple initiatives there for Ccs with power generation for actually having primacy on the classics wells and really kind of solving that problem and streamlining it and then kind of really moving up quite a sigh.

<unk> sequestration resource within the state and just given your positioning and North Dakota I was wondering if you see and opportunity for 1 of the play a role and all of these development seems like the since it seems like things are moving more real time, and North Dakota and other parts of the country.

Definitely.

Nutrition and this is Kevin we absolutely see that is and the opportunity and our and it started and had been in with our presence up there we've got strong relationships with.

And with state University systems et cetera, and.

And are involved in Prague.

Projects and analysis to understand the class 6 permits that much of the storage has up there the ability of that puts you. Further ahead for those opportunities. So we are definitely involved and those conversations and and.

Have a long history and track record of of partnering with the state and and would expect that to continue as it relates to C. C U S.

Got it great. Thanks, Jeremy Thank you so much for taking the questions.

Thank you.

Our next question will come from Michael Blum with Wells Fargo.

Thanks, Jim.

And welcome back Pearce as well thanks.

And Michael.

I want to go back to the Bakken for a minute.

And you kind of touched on some of this but just ask for more directly like how much ethane argue the van.

Entirely recovering and the Bakken today and.

It looks to us at least like the btu limits or the people.

For clothes or had been reached and northern border. So do you envision at some point here and voluntarily recovering ethane out of the Bakken.

Michael It's Kevin.

And not going to we said last quarter, we're not going to get into and talk about the actual volume of ethane we're recovering.

Other than to say, we are we have incentives some ethane to come out that's been economic driven.

With that ethane recovery, that's actually pulling down the btu level on northern border. So it's it's.

Maybe pushing that out a little bit.

But if you just go back to the gross kind of production growth that rather it's <unk> or activity levels that are both increasing.

And at some point can we continue to believe it's just math of it that BT blended btu rate.

Is going to go up and become a problem.

Northern border of Trans Canada continues to to have discussions with.

The the various partners and Counterparties up there both on the supply side and the demand side to understand what the what a btu spec might look like.

And we expect those conversations with with the Counterparties and FERC to continue and and hopefully we'll have something of a resolution here and the next several months.

Got it thanks for that.

The other question I wanted to ask was about the.

Cotton and NGL volumes it looks like they were up sequentially I just wanted make sure I understand is that being driven by just the art buckled 2 expansion because the G&P segment, there and the mid con.

You cited production declines and so I just wanted to share them understand the dynamics there. Thanks.

Michael This shared and.

Obviously, the Arbuckle II expansion helps us move those volume, but really what we're seeing is we did incentivize the methane in the mid continent.

And the second quarter than we did and the first quarter, but we're also seeing some increased producer activity and we've seen our C..3 plus of volumes increase as well and we're probably back to a level debt on the C. III plus volumes that is equivalent to pretty close to where we were in the fourth quarter of 2019. So we've seen some pretty good recovery.

From the pandemic recovery from the ice storm and some growth. So we're seeing a little bit of activity. There and we are predicting that the mid con and will stay relatively flattish year going forward and we have seen a little uptick in volume.

Great. Thank you very much.

We'll take our next question from Becca Followill with U S capital advisors.

Hi, guys and welcome back Pearce.

Thank you Doug.

The question is on the fee rate on G&P.

The $1.6 keeps ticking higher and it looks for.

The mix continues to be right and it really fits the mix dependent but it looks like the mix continues to be for the Bakken is kind of grow faster than the mid continent. So should we expect that to continue the tick.

Higher or is 1 of the sticks kind of.

Kind of of cap here.

Okay.

Becca this is Chuck.

I think and Kevin's remarks, we talked about a dollar to $1.5 range, we still believe that somewhere in that 1 to 105 range is probably a good number for the balance of the year. The $1.6 was a little stronger than we thought it would be frankly, and it was driven really by the contract mix and the Bakken.

Okay. Thank you and.

And then the second 1 is on LPG export facilities, you've talked I think pre COVID-19. It was you talked about it we've got NGL of that hit record levels in may and the.

The U S.

Any.

Current thoughts on and NGL export facility for your guidance.

And it's Kevin.

We continue to look at it it remains it remains a priority for US. It is continued there clearly the pandemic and the pullback and production.

Slowed down.

Some of those discussions, but like you mentioned with with exports continuing to be very strong through this and production picking back up so of the conversation and so we will continue to look at that.

And as we said before rather we're talking LPG or ethane and if we get the right counterparties.

Right project, and and we'll announce something but still looking at it and it's still a priority for us.

And.

Our next question will be taken from Spiro <unk> with credit Suisse.

Okay. Thanks, Kevin.

Thanks James.

First 1 sorry, if I missed the.

Just curious.

For Youre, breaking up a little bit if you could say whatever you're saying over again please.

You guys had changed.

Alright, again, Walter and I missed on the Capex range curious, if that's trending and any direction either I would imagine a lot of the higher activity levels are pushing that higher but maybe not the case.

Okay, I think I got it the euro.

Looking at the Capex in 2020.1.

And we continue to.

The stay within our range, obviously as producer activity picks up we're going to spend a little bit more on well connects so that might.

Moving towards the higher end of the range, but.

And we're very comfortable with the 2020.1 range that we have out there at this point.

Okay.

And they will be helpful here and I know in the past you've expressed interest on some of the gas assets that were being marketed by some of the utilities out there we've seen some of those change hands at this point. So curious if there are still assets out there that could Andrew.

Yes.

So let's figure out just make abroad.

Comment about about M&A.

And I have spent about 30 years and the.

Midstream business and there's always been some level of M&A activity. It did slow down during the years, where most of the assets.

And of the Mlps.

But.

And I guess, what I would say about that is.

I've only been back for 30 days and I'd point, you back to the comments that debt.

And that I made on the in the original.

Opening debt whatever we do it's going to be intentional and.

It kind of be disciplined so whether or not we do or don't.

Participate in the M&A market, that's going to be our guiding principles.

Understood. Thanks for the Paris, Congrats and good luck for Terry.

Thanks.

Our next question will come from Jean Ann Salisbury with Bernstein.

Yes.

The ethane being rejected and the mid con or is this number for the volume kind of all the potential ethane from the mid con and as.

And as you know take 100000 of it and sort of the discretion narrowly gain being recovered.

This is sheridan.

Still is some ethane being rejected in the mid continent that here as we get into August that number is quite low we think we're at or getting close to full ethane recovery and the mid continent right now.

But for the second quarter, we did still have quite of bit of ethane off and the mid continent. So we did incentivize some and the mid continent and the second quarter in August we have very little debt, we are incentivizing out.

That's really helpful. Thank you.

And then this new slide 9 with the gas production of flat Bakken created is really interesting.

And the congestion out of whack at the CSP from here over the next 5 years, even if oil production is just flat, but there is obviously not anywhere near the Bcf day of gas takeaway out of the back and how do you see this getting resolved and would you participate and installation for that if that's what it takes.

Jean Ann this is Kevin.

Yes, that's something we will absolutely keep an eye on I mean, the good thing. There is we've got time, you've still got some capacity on northern border that can be you can displace Canadian gas.

Going back pre pandemic.

We had talked about looking at other avenues out rather that was the expansions on northern border or moving gas to the west and taking advantage of existing assets that are in the ground.

To go to the West and South.

So my guess is those things would come back up we will have those conversations as we see volumes materialized, but the good thing is we do have some time.

And we've got some available capacity to get us to that point.

Great. That's all for me thank you.

Our next question comes from Craig Shere with Tuohy brothers.

Good morning team.

Pearce will come back and the congrats to Terry on the retirement and job well done.

And historically, there was some interest and getting into the crude gathering and transportation.

Or are you just so gangbusters on the wet gas and Ngls. The this is kind of off the table at the moment or how does this look going forward.

So Craig I think our core business is pretty well defined with natural gas and natural gas liquids and that's the direction I would see and the future.

Very good and.

And just what kind of running room do we have for increased mid con for.

Firm capacity demand for avoid further winter market dislocations.

In terms of maybe it may be.

Ongoing EBIT steady state EBITDA uplift that could reduce volatility and the mid con.

So let me.

Let me kind of rewind us back to a winter storm euro because.

And I saw that up close and personal and.

And.

For the mid continent area, which is defined as southwest, Kansas and the Texas Panhandle, and Oklahoma is a net exporter of natural gas even during the month of February during the during the middle of winter to the 2.

And of about 3 Bcf a day.

That turned back between the demand that we saw in the mid continent.

And the lack of production for various reasons to to basically only 5% exports.

So the the.

The real issue is to talk about resiliency.

Of the supply chain and how we can potentially get gas and in those kind of situations.

Back from maybe the south east up into the mid continent, if it ever happens again and so those are things that debt, we would be looking at.

But it really is looking at non.

Not necessarily the capacity that's there today or are the the.

Contracting of that capacity.

We are addressing a little bit of that which is some uptick and storage and some additional volumes there.

But that's not going to get you through our second winter storm Yuri So it's kind of had to be a holistic approach between the exploration and production folks the midstream folks and the utilities to really get us to a point, where we can.

Take on another winter storm, Yuri I will say volume metrically.

There were very very few customers lost and.

In the state of Oklahoma, and so that volumetric. The league was a very positive force. The issue was where the price went to not necessarily the stability and the reliability of the <unk>.

Being able to perform so I think the focus needs to be on resiliency and and theres going to be a lot of people that's going to be involved and that process.

And Ken this process Derisk some of the mid Con EBITDA.

Craig This is Kevin and I think the.

And those assets are highly contracted and and have been highly contracted for a long time and we would expect that to continue so.

Think of what this does is maybe provide opportunities for expansion and this team has done a really good job of of rather its connect and new power plants or or doing smaller projects to bring gas from other areas to pierce's comments. We've done some of that we just think there may be more opportunities for that and the future.

Great. Thank you.

Our next question will come from Michael Cusimano, with Pickering Energy partners.

Good morning, everyone and congrats on the new roles.

And I have more of a strategic question.

Hypothetically.

Using of 540000 barrels a day of expandable capacity is.

And kind of a ceiling being filled by even like the $3.30, you touched on.

Earlier this month and the.

On June 25000 barrels a day of available ethane and you mentioned.

And that's the leaves of the 85000 of capacity available for the <unk> and volume growth opportunities that you mentioned.

So would that and mine I'm trying to understand the strategic rationale for the overland pass today.

Is that just.

And the capacity available for potential growth beyond the Elk Creek.

And just as Jim mentioned, just talk about just how that fits into the portfolio today.

Yes. This is shared and I think.

When you think about the strategic rationale for <unk>.

You need to think about Elk Creek.

And as 1 system.

And the Bakken pipeline delivering into <unk> as the second system.

So to reach the.

Total 540000 barrels a day of the capacity that we could achieve by expanding Elk Creek.

Elk Creek will run 400000 of that.

The other 140 will be on the Bakken pipeline tie and delivering that into oppo and delivering all of that into bush and so thats, where <unk> fits into our strategic.

The plan for volumes out of the Bakken.

Okay. So okay, so and it's more of thinking of.

Elk Creek from Rockies before it touches into aware oppo and connect that's more of like a 400000 barrel a day capacity.

It is if we would put the additional pumps on them right now we say that that that's 300000.

Okay perfect. Yeah, that's really helpful. Thank you.

Our next question comes from Michael Lapides with Goldman Sachs.

Hey, guys just wanted to wish Terry Congrats and Paris.

<unk> for you as well look forward to getting together at some point.

Half of volume question, you made the comment someone made the comment on the call about 330000 barrels a day is kind of what youre seeing right now.

Out of the Bakken can you give some data points for what Youre seeing right now and the mid con and the Permian.

Relative to kind of what the second quarter run rate I think on slide for Watson.

And I haven't looked specifically at what we're running right now I will say that we are running higher on both of those systems and we did and the second quarter, but I have the specific looked at what we have reached on each 1 of these systems, but we are running we are trending higher on both of those systems.

Got it and when I look at your guidance your volumetric guidance across GNP and and NGL throughput.

Do you think there is material upside to this little surprise given today's numbers and then the comment on the 330000 and that you didn't kind of 2 of volumetric guidance raise here.

Well, Michael we're still within this Kevin we're still within the range in both segments I mean, clearly as we see strengthening activity that you'd see some.

And there would definitely be some upside.

For those numbers, but.

The other dynamic that's going on is.

When you look at an annual average you had a pretty pretty tough first quarter with the winter storm as it related to volume. So so I do think youre going to see a much stronger volume and the second half of the year.

And then you did and the first half.

But Scott it still track and inside the guidance at this point got it Super helpful. And then last question just on Frac capacity can you talk about and I know you had the outage. This period. So it may be a little hard.

What the.

And what the utilization of your Fracs are and when do you actually think the earliest you might need new capacity would be.

Well right now of the utilization of our Fracs is as much as we can get through them because we're trying to.

<unk> of that backlog of inventory that we had carryover from the second quarter and go forward and and.

In terms of adding new for the Frac capacity, we're continuing to evaluate that we're seeing good strong volume growth and our in our area. We're trying to understand when the right time is to kick that project off and we're hoping that volumes continue to grow and we can see that come up pretty quick.

But Michael I would just add that to add debt capacity. All we would be doing is completing the MB 5 and you're just talking a couple of hundred million dollars to the finish up that project.

Got it but is that something you think could be needed next year or do you think it's more longer term down the road.

And.

Okay.

Well it possibly could be needed next year, I think and when we get it up and they'll take it a little bit longer than that to get it up and going so that's 1 of the kind of need to look at longer than a year and probably take us a little bit longer than that to get it up to complete what we need to have done there, but there's a possibility it could be needed next year, but still I still steel of theirs.

A bit of capacity and the and the industry right now that are outside frac deals could be done in the short term.

Got it. Thank you guys much appreciate it.

And we'll take our final question from Sunil Sibal with Seaport Global Securities.

Yes, hi.

Good afternoon, everybody and bank.

And then come back to peers and also congrats for Ekati on his retirement.

Couple of quick questions for me it seems like there has been a fair bit of the debate.

And the activity.

The levels public versus private.

And as you know how much of your volumes come from private producers versus public producers and and Bakken.

And we've got obviously, we've got the big.

There's a lot of of publics out there when you think about Conoco Phillips and continental and Exxonmobil and.

And so forth. So the majority of those are coming from from.

From the public's up and the Bakken.

But we do have some some of our smaller customers are the privates, but we really haven't seen a distinguishing factor between who's bringing rigs back it's really more of an independent company just depending on what their financial situation is and how they're viewing their balance sheet et cetera. The.

Pretty much across the board we have seen all of those customers talk about increasing activity as we move through the rest of this year into 'twenty 2.

Got it thanks for the back.

And then it seems like you know him and I look at Q2 versus Q1.

Sadly decent uptick and volumes, but your opex the flattish to lower sequentially I was curious you know guidance.

Specific and which is driving that and how should we be thinking about opex going forward.

No I think we've had a couple of quarters of of pretty close to run rate here.

We.

Relative from sequential quarter to quarter. It was really just some timing coming out of the winter of being able to starting to execute on some expense projects debt.

And that will typically do and as the weather gets better.

And that some of that was occurring and the NGL segment, but as we think going forward other than maybe a little uptick with bear Creek when it becomes operational.

Later this year other than that kind of the current run rate would probably be a decent a decent number to use.

Got it thanks.

Thank you.

Concludes today's question and answer session I will now turn it back to Andrew <unk> Iola for closing remarks.

Alright, well. Thank you all our quiet period for the second quarter for the third quarter of excuse me starts when we close our books and October and extensive until we release earnings in early November we.

And we'll provide details for the conference call at a later date. Thank you for joining us and the IR team will be available throughout the day. Thank you.

Ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect your phone lines.

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