Q2 2021 Crestwood Equity Partners LP Earnings Call
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Good morning, and welcome to today's conference call to discuss Crestwood equity Partners' second quarter.
On may 1 on operating results.
Before we begin the call listeners are reminded that the company may make certain forward looking statements and define and Securities and Exchange Act of 1934, and then on based on assumptions and information currently available at the time on today's call. Please.
Please refer to the company's latest filings with the SEC for a list.
And so on and risk factors that may cause actual results to differ.
Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributable distributable cash flow will be discussed reckon.
Reconciliations to the most comparable GAAP measures are included in the news release issued this morning.
Joining us today with prepared.
Others are chairman, President and Chief Executive Officer, Bob Phillips and.
And the executive Vice President and Chief Financial Officer, Robert Halpin.
Additional members of the senior management team will be available for the question and answer session with Crestwood as current analysis following and.
And following the prepared remarks.
Today's call is being recorded and if anyone.
And when should require operator assistance during the conference. Please press star zero on your telephone keypad.
And at this time I will turn the call over to Bob Phillips.
Thanks, operator, and good morning to everyone. Thank you all for joining us.
Early this morning, we're very excited to discuss our second quarter results.
And our revised outlook for the second half of the year, which continues to be very positive.
Due to strong commodity prices and recovering energy markets. We think the market is very constructive for a strong second half follow up our strong first half.
Importantly, today I want to make sure that we highlight our financial strength.
Strength and flexibility, which we've accomplished following some recently completed strategic transactions, including the first reserve by and which we closed in late March sometimes we call that the Holdco transaction, but it's the same deal and the recently completed stagecoach divestiture.
Sir.
Which we closed the first piece in early July and so we will be talking about pro forma debt associated with completing that stagecoach sale.
And I certainly think these deals now positioned crestwood to take the next step and our long term plan and it's a plan that we've been very.
Vocal about for the last several quarters to utilize our free cash flow.
To return capital to our investors through our previously announced common and preferred equity buyback programs, but I also want to highlight the financial flexibility.
This low debt, increasing free cash flow position.
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It gives us to pursue growth opportunities across our portfolio as well, while maintaining our financial strength.
Let's begin with the second quarter were a large part of Crestwood portfolio benefited obviously from higher commodity prices, which caused increased producer activity.
And drove adjusted EBITDA.
$146 million and DCF of $86 million, Thats up 14, and 15% respectively year over year and both numbers exceeded consensus as well.
As a result, we will be generating more than $100 million of free cash flow after distributions and the.
First half of this year and that clearly covers.
Our organic growth capital program with a balance going to reduce that Robert will talk more about that in his section.
As I mentioned earlier this month, we closed the first part of the sale of Stagecoach gas services to Kinder Morgan for 1 to 2.5.
$5 billion.
Again, I think we've led you know previously it was a well attended.
Process. These were highly sought assets and we're very pleased with the result of the process and know our partner Con Ed is pleased with the result, as well and I'm proud of the fact that we know.
And that those assets are going to a good home and Kinder Morgan and Theyre going to make good use of our stagecoach storage and pipeline business and we're pleased as to how that happen with our net 50% share of the proceeds we paid down our revolver balance.
And we now have on a pro forma basis, 3.6 times leverage.
Average ratio and more than $940 million and available liquidity.
So when you combine that pro forma second quarter leverage profile with the second quarter distribution coverage of 2.2 times.
Our balance sheet is very strong our distribution is well covered and we think that crestwood.
Offers its investors some of the best financial metrics stability and forward outlook and the entire MLP sector. So we're really pleased with completing all these transactions and sequence like that.
As you know, we've got a diversified portfolio and as our MSL business and storage and transportation businesses.
And as carried as last year during the pandemic, our G&P sector has been carrying us this year with a strong pickup and producer activity across all of our systems due to the higher commodity prices and we continue to anticipate good momentum throughout the second half of 2021, Robert will talk a little bit more about.
And our updated outlook for the second half of the year and full year.
Crude prices have stabilized between 65 and $75 a barrel natural gas and excess of $3.50 per Mcf.
Producers on our Bakken Powder River, Delaware and Barnett systems are all seeing excellent returns.
Turns and we're seeing better than expected producer activity as a result.
We had drilling and completion crews active during the second quarter. Many of those completions are <unk> occurred in the and the latter part of the end of the quarter. So we ought to see a good volume increase beginning in the third quarter.
In the Bakken, particularly for the first time since early 2019, we're very pleased to report that our producers are finally seeing significant positive net back on gas and gas liquids production.
And we just highlight that with the current Bakken gas price $3.66.
<unk>.
Cal 'twenty 1 strip you can buy out at $3.86, right now so we expect our Bakken producers oil production gas and gas liquids production to be high returning for them for the balance of the year and into next year.
And when you combine that price outlook with enhanced gas capture.
Sure practices, which were all covering but as you know crestwood has been on the forefront of gas capture in the and the Bakken play.
And increased focus on flare minimization and by our producers and I want to I want to compliment our producers for really driving home a lot of these ESG principles that crestwood.
And there has been a leader on up and the area Crestwood Arrow gas gathering and processing volumes each increased.
Nearly 60% compared to the second quarter of last year.
As well as 6% quarter over quarter. So it's a real combination of of greater producer activity greater.
Gas capture and a real attention to FLIR minimization by our producers on the reservation and the quarterly increase and gas volumes, which we expect to continue to move forward, primarily due to higher <unk>.
And did offset lower quarter to quarter crude oil and relatively flat water volumes on the arrow system.
That was largely due to increased producer shut ins per Frac protection, which we are beginning to see.
As a long term trend and the business so.
So we do expect.
A short term spike and volumes when those wells begin to return to service and we're seeing that as.
As we enter the second half of the year. So looking to the second half of 2021, we expect producers to maintain their capital discipline. We've been very pleased with how our customers have been maintaining discipline and spending within cash flow.
But we do expect that will because the prices result, and more overall activity around.
Systems, then even during the first half of the year, which as we said is up compared to last year and quarter over quarter and.
And North Dakota, the Arrow gas volume should remain high crude oil and water volume should reverse course during the second half as we expect a fairly wide range of $20 to 35, new well <unk>.
Connects to come on line between July and November and many of those are waiting on either completion crews or we're working with the producers to optimize our system to create more capacity at the wellhead. So a lot of that will be.
Very exciting for US is as we see that new production come online and the second half.
For the year, turning to the Delaware Basin, where we can see somewhere between 40 to 50, new well connects across the Nautilus and will have like systems.
We're excited about the second half of the year in the Permian, We expect our oil and gas processing plant volumes to be up about 70.
75 per 2.
About 75% of its 200 million per day capacity by the fourth quarter, a lot of active work in and around making well connections on novelis and building, new pads, and new extensions and adding compression around the Willow Lake system, we're getting that done at or under budget and we're getting it.
And time, and we're seeing a lot of producer well activity in that area. We've also seen a modest increase and utilization of our desert Hills produced water system, and we expect that to continue and the second half of the year as we have a few projects to complete around that moving to the powder River system Chesapeake.
Done on primary.
Customer there generally held second quarter volumes relatively flat.
Across really the first half of 2021, if you look back over the last 3 or 4 quarters since the rebound out of Covid. Those volumes have remained relatively flat, which is not a bad outcome given that they went through.
Bankruptcy last year and in March this year and.
And we expect that to continue through the second half of the year. We are having good luck, though and adding some third party wells on new production, we did add some wells in the third quarter and have a few more <unk> on the schedule and the second half of 'twenty 1 from those.
Third party well so we're looking for a slight increase in volumes there and we're actively engaged with a number of powder River producers.
And they begin to restart their activity in the basin and look towards 'twenty, 1 and 'twenty 2 development plans.
We're excited about that we're in a very strong competitive position.
And to be able to utilize our expansive jackalope gathering system and fill up excess capacity that we have and our bucking horse processing plant complex. So very excited about the outlook for 2002nd half 'twenty, 1 and 'twenty 2 for the.
The powder River basin assets overall, as we mentioned given.
Given current commodity prices anticipated activity from our existing customers and some of the deals that we know that we're working on that we're likely to get.
Wrestle to the ground and the second half of the year, we expect to see continued.
Improving cash flows will be maximizing our cash flows.
Across these systems with optimal utilization of our existing facilities and minimal future capital.
And we expect to be able to capture some new high quality long term supply dedications and some of these areas with what we expect to be very high return incremental.
It'll expansion projects that are immediately accretive as they are filling up existing capacity on our systems and our plants and we.
That's real operating leverage and is a real winning strategy and this market. So crestwood is going to continue to operate our GNP business in that manner.
We continue to believe that our GMP portfolio.
Those some of the best producers the best rock.
Lowest operating cost and some of the best margins and the GNP sector, and we think that gives our partnerships some of the best operating leverage to higher prices and the midstream industry as we look out over the next 2 to 4 quarters before a handle handle the call over.
Over to Robert to discuss our revised guidance and capital allocation plans I want to come in all of our employees.
On what we think was an extremely successful active first half of.
2021, when I look back and think about what we have accomplished.
As an organization and just a very short.
<unk> has the time coming out of a tough year last year with Covid and when you think back about and January we refinanced $700 million of long term debt and extended our maturity stack out to 2025, we locked in a lower interest rate that was opportunistic and accretive and March as I mentioned.
Period, and <unk> and retired 11.5 million common units from first reserve, while I think providing a well orchestrated and very elegant exit for our long term partner first reserve there.
<unk> been a good partner over 11 years, they're very supportive during our build out and acquisition years.
And.
And we bought lease to see them be able to exit very successfully without any real disruption to our stock and our and our.
And our balance sheet.
And that puts us in great position to move towards on elected board of directors were and the process of filling those 2 empty board seats and conducting.
<unk> a good search will be excited to announce the results of that later in the year and.
June as you know, we published our third annual sustainability report and I want to call out the importance of that.
Particularly as we continue to progress our sustainability journey.
When you combine that with the financial strength that we.
Created through all these transactions the improved governance, the unitholder alignment.
And our clear commitment to environmental stewardship and lower emissions.
We saw our most recent ratings and scores from Moody's and S&P S&P global.
Staying on <unk> and MSCI, all the top rating agencies for ESG scores, they all substantially improved.
Over the last several quarters and that should result in a lower cost of capital ultimately for Crestwood and its partnership and then finally in July as I already mentioned, we successively.
So divested the stagecoach asset and a great multiple.
Redeployed the proceeds to create and exceptional balance sheet really drive our financial flexibility forward, which allows Robert and the finance team to begin to Opportunistically execute on our buyback plan and build value for our unit holders.
I think when I look back over the last 11 years. Since we started the company I don't think our capital structure has ever been cleaner, our financial health has never been better.
We've never had this much flexibility to execute on the plan that we think drives value for our unit holders and we.
And we're very excited about how were positioned today.
Day to start to run and returning capital to those investors. So I know thats a quick wrap up there's a lot of detail and all of the materials ask you to go look at those Robert Im going to turn it over a year and you can talk about some of the financial highlights.
Thank you Bob.
I'd like to Echo your comments on our financial strength and our solid positioning.
And our strategic and operational successes during the first half of the year.
During the quarter Crestwood generated adjusted EBITDA of $146 million, resulting in distributable cash flow of $86 million and positive free cash flow of $40 million.
This results and an extreme.
Streamline conservative leverage and distribution coverage metrics pro forma for the Stagecoach divestiture of 3.6 times and 2.2 times respectively.
Driving these results was G&P segment, adjusted EBITDA of $124 million that a 48% increase year over year.
And SMT segment, adjusted EBITDA of $15 million that representing a 6% increase year over year. Those results help offset our MSL segment adjusted EBITDA of $13 million.
Which is lower year over year due to market backwardation and limited storage opportunities when compared to the second.
Quarter of 2020.
I would also like to highlight and congratulate Crestwood employees on achieving these exceptional quarterly results. While also lowering O&M expenses by 18% and G&A expenses net of unit based compensation by 4% year over year.
Consistent with our.
Ongoing capital allocation strategies Crestwood maintained its common distribution of <unk> 62, and a half for the second quarter, which will be paid on August 13th to unitholders of record as of August the sixth.
Now looking to our balance sheet pro forma for the first close of the Stagecoach sale Crestwood.
And $274 million outstanding.
<unk> on its 125 billion revolving credit facility, resulting in more than $940 million and available liquidity.
With $2.1 billion and total debt Crestwood and pro forma leverage ratio has improved to 3.6 times now on.
On the low end of our targeted range of 3.5 times to 375 times, allowing the company to continue investing and high return bolt on opportunities around our core growth assets and accelerate allocating excess cash flow generated towards common and common and preferred equity buybacks under our border.
Board approved a $175 million repurchase program.
During the second quarter with a continued focus on returns and capital discipline, Crestwood invested $6 million and growth capital and joint venture contributions.
Focused primarily on the southern expansion of arrows produced water gathering system.
<unk> and gas gathering debottlenecking projects, which are expected to drive exceptional returns.
Despite having only invested $15 million and growth capital expenditures and JV JV contributions year to date, we continue to expect full year growth capital to be and a range of 35 to 45.
$5 million per full year 2021, as we are seeing increasing development activity from our producers across most of our G&P assets.
And in 2021 and heading into 2022, and we have continued to have successes on a handful of our higher priority commercial opportunities.
And we still expect maintenance capital.
And $1 billion to $25 million, which along with our growth capital expenditures will be 100% funded with retained cash flow.
As we head into the second half of 2021, we are encouraged by the current commodity price outlook and the increasing activity around our gathering and processing assets.
And of Cowen adjusting $30 million out of the second half of the year for the Stagecoach divestiture. We now expect full year 2021, adjusted EBITDA to be and the range of $570 million to $600 million.
<unk> cash flow available to common unit holders to be and the range of 345 million.
The $375 million and free cash flow after distributions to be and the range of $150 million to a $180 million. These.
And these ranges reflect outperformance from our remaining asset base relative to our internal budgets and prior guidance ranges and are expected to drive and leverage ratio.
Sets of 3.4 times to 3.7 times and and a coverage ratio of 2.2 times to 2.4 times.
With our financial targets now achieved Crestwood is committed to utilizing its financial flexibility to maintain a strong balance sheet and enhanced total returns to our investors we plan to accomplish.
And this by offering a secure and stable distribution and prudent investment and the highest returning expansions of our existing assets and opportunistic common and preferred unit repurchases with our excess cash flow and.
And now that we have received the proceeds from stagecoach and are out of the earnings blackout window, and we intend to allocate.
Our free cash flow and to optimizing our capital structure through opportunistic buybacks.
We believe that this strategy best positions the partnership to maximize value creation for our investors going forward as well as positions crestwood to evaluate and participate as appropriately on potential asset.
Corporate consolidation opportunities that we expect will occur across the midstream sector.
Now before opening the line up for Q&A, we believe after the first half of the year that our accomplishments further differentiate crestwood as a best in class midstream, operator, with exceptional financial health and flexibility.
And we expect and the current macro environment, which benefits our strong asset base to see increased D&C activity for the remainder of the year and we expect that momentum to continue into 2022.
Based on the minimal capital requirements to support the increased volumes across our G&P assets.
Combined.
The achievement of our long term leverage goal, we expect to generate meaningful excess cash flow going forward that will enable us to drive increasing value for our investors.
With that operator, we are now ready to open the lineup for questions.
And at this time and will be conducting a question and answer session.
And with if you'd like to ask a question. Please press star 1 on your telephone keypad.
Confirmation tone will indicate your line is and the question queue.
On April and starting to if you would like to remove your question from the queue.
Participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
1 moment, please and while we pull for questions.
Our first question is from Brian Reynolds with UBS.
Please proceed with your question.
Hi, Good morning, everyone. This is Brian on for Shneur when looking at the guidance vision post Stagecoach there appears to be a slight guidance increase on the base business can you just talk about the change in assumptions from the Longview guidance update specifically around.
The 45, plus aerostar and well connect target.
The backwardation and the EMS business and higher commodity deck assumptions. Thanks.
Absolutely Thanks, Brian and as you alluded to I think when you take out the $30 million of expected contribution from stagecoach and the back half of the year.
We are seeing an upward revision and the remaining asset base reflected and our revised range at $570 million to $600 million.
Some of the moving pieces around that as we've talked about on the call. Our continued outperformance and our GNP portfolio, which we now expect to be comfortably at the higher end of our previous guidance range.
Here.
For GNP.
Offsetting that to some small extent, we do expect some continued pressures around the MSL segment largely attributable to the backwardation that we alluded to on the call earlier on.
And so I think all and all we expect GNP.
To really be the shining star for the year and helped drive that upward revision to our.
<unk> a range when you back out the $30 million from Stagecoach.
Great appreciate all the color switching to capital allocation and the buyback commentary from from our prepared remarks can you just provide some details on how we should think about the preference between buying back the preferred units versus common use given both are yielding revenue 9% of the time. Thanks.
And overall, yes.
Yes, I think it's a balance of really kind of overall financial objectives, and obviously with both of those instruments being publicly traded the return profile changes every single day I think while you commented on the common yield and.
And kind of where it sits obviously, we look kind of all the way through to distributable cash flow and.
And the all in return profile on the common.
I think that as we sit here today, we see probably greater amount of value and the common unit.
But obviously you had the flexibility through our repurchase program to bounce back and forth as potentially moves over time.
On the 1 thing we are 100% committed to is maintaining our balance sheet strength.
And so while we have all the flexibility and the world and have now fully achieved our long term leverage target and being in the 3.5 to 375 times range, we expect to start allocating some of that excess cash flow towards enhancing returns, but we'll always be mindful of balance sheet as we navigate that.
Great appreciate the color and.
Hi, everyone.
Our next question is from Tristan Richardson with <unk> Securities. Please proceed with your question.
Hi, good morning, guys.
Just wanted to say congrats on the stagecoach transaction.
Bob.
You've been pretty vocal over the years about this.
Industries need for consolidation.
It does.
This new found and ample flexibility offer you guys opportunities to scale your business that maybe werent necessarily available previously.
Well.
And certainly closing the.
Holdco transaction.
And converting the company from a traditional.
Private equity G&P controlled entity to now and the entity.
And that's being run by the board of directors.
With the management team.
Certain.
Certainly creates at least a wider scope of opportunities for us and maybe what we had in the past.
Sure.
And not having to deal with with the.
GP that was a 25% shareholder that was ultimately going to get out.
And wanted to be the first guy out of the door.
Probably prevented us maybe from looking at some transactions in the past that maybe we would have taken a harder look at.
But thats easy for everybody to see and that created the overhang on the stock and we always believe that if we could eliminate debt capital that structural governance problem.
And eliminate that overhang and then we would see a lot more opportunities to do some interesting things and the business.
But having said that tryst and we're really looking from the inside out right. Now we are laser focused on our big circle around our 3 big assets Bakken.
Powder and Delaware.
For the first time and the history of the company and the last.
And 4 quarters LTM, we had almost $200 million of free cash flow and we delivered on average coverage ratio of about 2 and a quarter.
And now we finally have a pro forma balance sheet of 3.6.
We have never ever and the history of this company and there have been a lot of ups and downs.
The collapse in 2014 after the merger with energy and.
13 was tough on us we have to make some tough decisions, we got smaller to survive.
The collapse in 16.
<unk> was tough on us and force us into selling the first half of stagecoach for almost $1 billion to get get on the road to recovery of the balance sheet and then don't forget we spent a ton of money and that 17 to 20 time period to.
And to build out that capacity and these 3 areas.
Total and committed to the producers the rock the contracts the low operating cost and the margins. So we're really benefiting from the operating leverage that we've put ourselves in position to benefit.
With.
Now that we're seeing higher prices better returns for our produce.
<unk>.
More solid long term drilling activity instead of peak ish type activity that causes guys to drill up inventory locations quickly and then move on to the next 1 we actually think and.
Odd sort of way that Covid did us a little bit of a favor in terms of slowing down the development.
Where we replace a lot of the core acreage that's dedicated to us under long term contracts. We actually think that was a better thing in terms of creating long term value. So I'm not dodging your question.
And we built this company around acquisitions and.
And we have been.
<unk> I think successful and our divestiture strategy, we sold assets that either became non core or were essential to achieving our financial goals.
Stagecoach was always core was always a great asset, we love owning it and operating it and building it out with.
We love the partnership with Con Ed, but it became.
Central to our primary financial thesis and that was to build financial strength and financial flexibility I am certain and a consolidating market that we are going to wind up seeing a lot more opportunities than we would have if we hadn't done the holdco deal and.
Quad Stagecoach divestitures, so I'll leave it at that we are laser focused in the areas that we operate on bolt ons on extensions on really maximizing our operating leverage without having to spend a whole lot of capital and I love the free cash flow of love given the finance team a chance to return capital.
And done with shareholders. We think ultimately that is a great formula for success and people are going to want to on the crestwood stock because of that not necessarily because we're out there actively looking for some big consolidation play that opportunity will come when it does and when it does we'll take advantage of it because we can not because we.
We want to.
Always appreciate the perspective, and then just a quick follow up.
To your point on capital efficiency, you guys have been able to grow on on such a lean capital budget this year, but.
You mentioned, increasing D&C activity for the remainder of the year and the core area.
<unk> 2.
Pursuing commercial developments and the PRP.
Could you and.
And also just focusing on on your highest returning expansion could you give us a sense of maybe what.
A.
On a normal run rate of growth capital looks like and this more constructive environment.
And as well and I'll, let Robert answer that.
Actual.
22021 second half 'twenty to kind of first look at capital budgets based on the things that are on our plate right now, but before I do that I want Jaco and <unk>, who runs our GNP business.
Give you a sense for the type of expansions optimizations.
Compression additions line loops that we're doing to meet our producers near term objectives, we're not building out and a major capacity for some long term play.
We are.
So really comprising our systems and those 3 areas to add current drilling programs and honestly I am shocked at how good the wells are particularly on the Delaware.
But we're seeing new third party wells come on and and the powder that are better than the ones that we saw before and clearly we've just been.
Our op way by the continued improvement by our Bakken producers on IPA IP rates and and how strong. These wells are after 3456 months production. The auto just give them a sense for what we're doing and those 3 areas. Yes. Thank you Bob.
When you spent the amount of capital we spent over the last 3 years, you've got the backbone.
And bill on a major system, that's already predominantly built out. So what you are looking at is minor minor expansions and as you can see for our quarterly capital numbers to be able to bring on a significant amount of volume.
It's the ability to last mile that we're touching.
And the rest of the road trips already been built out and net just leveraging.
And the incremental rate of return and as you can appreciate our operating leverage is outstanding and we are great operator, thats 1 of the strength.
And what has so that margin that you see is quite <unk>.
Strong.
I'll take an example, Bob and even bring up the Barnett.
<unk> brought on 8 wells on the Barnett the producer with the right beside us.
So and I'd say right beside us right beside us with $150000 of capital we brought on those well there are some of the best wells, we've seen in the Barnett exceeded type curves by 20%.
And that's the sort of thing.
As a.
A company Thats got extensive systems and key basins.
And im bringing up on Thats not a core based on of ours.
And we haven't set and a lot of money on recently, but thats. The operating leverage that you are seeing come in and out of our GMP results.
And it helps and maybe Tracy just to put numbers to it to answer your question specifically, yes, I think we are reaffirming our 2021 outlook at 35% to $45 million.
We spent about $15 million year to date. So we're obviously a little bit backend loaded largely tied to that acceleration of activity.
That we mentioned, but it's all <unk> just alluded to pretty pretty low capital line items as we kind of just bring incremental wells to the system and and compression and capacities where needed.
As we look forward into 2022.
We do expect and success is on some of the commercial opportunities we've been pursuing and.
Advanced stages on some of those and feeling really good about it and I would think that kind of with where things are shaping up at this point and time and what we've seen from producers, we would expect to still be within.
And that kind of $40 million to $50 million.
Mark for 2022 kind of consistent with what we had previously communicated around that so I think the benefit is as we see accelerated activity. We've got the backbone built out its really just laterals and small compression additions to be able to add that incremental capacity to bring those wells into the broader systems.
Yeah.
And I appreciate it guys. Thanks very much.
Our next question is from Vinay.
Steady with J P. Morgan. Please proceed with your question.
Hi.
Just wanted to follow up on capital allocation philosophy.
Okay got it so and yet.
It's alister do you guys have been focusing on buybacks as a priority for the shutdown, but just wanted to understand given what's going on with the shell and up on Yang.
Wanted to understand how and if you will share at any broad comments on how the JV and <unk>.
And.
It would impact any of your buyback timing and and how we should think about it.
Yeah I think.
And it's a great question on capital allocation and I think as we've talked about balance sheet strength is kind of at the top of our priorities.
We're now have achieved that objective and feel really good about the outlook.
Given the capital commentary, we just gave and so obviously returning that capital through accelerating our buyback and repurchase program kind of becomes nearest term highest priority.
We are still absolutely focused as Bob mentioned on enhancing our competitive position and the 3 core growth areas, where we operate the Bakken and the powder.
<unk> and the Delaware 1 of the unique elements of the Delaware Basin as we do own those assets through 2 joint ventures 1.
And with shell as you've alluded to and 1 with first reserve.
And I do think that it is our strategy absolutely over time to consolidate that joint venture.
And on more of that entity going forward.
To help optimize our positioning there and so I think that we arent involved in any active discussions but that is a central piece to the strategy and the Delaware basin, and and I think something that we will work towards execution around over the next call. It couple of years.
Perfect.
Let me just wanted.
On a gas capture and opportunity and they're backing up.
So it does appear to me and like you guys have pretty much.
Utilization on the gas gathering and processing side.
Given the incremental volume through July so to higher gas capture rate.
And what kind of leverage.
And that's okay. So it would have on the gas side and.
How have you could mid.
I mean, those producer demand and also just.
To understand like how much is weaker and captured I did look preorders are released and they are slightly.
Slide deck from me and it's only got about 10% of it just kind of a below average.
And so the fact that he has to be on RF opportunity.
Yes, Thank you again.
Vicky.
To answer your question, we track that every month and as Bob mentioned and as highlights.
<unk> actively with our producers on those opportunities and you are right to say.
Average house, our past performance was around 10% I can tell you. Our recent month it was around 6%. So we incrementally improve those opportunities as we tackle each 1 of them with each customer.
They are quite technically driven from an infrastructure perspective.
Where we have to work hand in hand, with each other and have the appropriate.
And it's across the system that drive that increased utilization, so there's significant amount of upside.
You can refer to the and EPA from what they forecast per gas oil ratios to progress and the basin.
And we see that as continued upside for assets and infrastructure, because it's essentially zero capital catch all that.
And it's up.
Got it thanks.
Is it from me.
And we have reached the end of the question and answer session and I'll now turn the call back over to Bob <unk> for closing remarks.
Hey, Thanks, operator, well again I want to complement our.
For executing on our long term plan, we started talking about getting down to 3 and a half to 3 and 3 quarters leverage maybe 2 years ago.
As we neared the end of our.
3 year Buildout program.
We could see forecasted volumes increase and cash flows.
<unk> roofing and.
And debt Paydown.
And we certainly didn't expect COVID-19.
Covid year last year and frankly, we.
We're excited to have the opportunity to complete the.
The 2 very strategic transactions this year it does.
Repositioning the company.
And.
And maybe I should have.
Answered <unk> question that way.
Not to not to downplay the consolidation opportunities out there, but those transactions and sequence.
And have repositioned the company.
And so we're always going to be looking.
And any opportunities to grow our business grow our portfolio, we like our portfolio, we think the diversity creates.
Hedge against market forces and.
And you can just look at what we did and the second and third quarters of last year.
Versus the second quarter of this year and see that on.
Our GNP was down last year due to reduced activity and shut in volumes, but it carried the load. This year. We think that's the way the portfolio is supposed to work and we like our position in the business and we'd like to continue to grow that as I said, though our primary focus is in the 3 areas that we operate.
And for and we're going to continue to invest capital there because we have long term contracts great producers, none with any real financial issues, all now showing real capital discipline, which we think Lincoln lengthens, our inventory position and allows us better utilization.
Pasty and more operating leverage as volumes grow. So we think that's a winning strategy a winning formula and this business, we're going to continue to execute on that plan. We've got the team to do it. We've now got the balance sheet to do it and we're in a great position and those 3 areas to continue to grow so we have not.
Not thrown the growth word out the window, yet, but it's going to be slow steady.
Type growth that you can see visually from quarter to quarter.
And we think that's a great position for an MLP thats generating over 2 times coverage and 3.5 times leverage to be and so thanks for everybody joining.
And in our call today, we look forward to hearing what you all have to say and feedback from our IR team and I know there'll be reaching out to you later on today and thanks everybody.
And this concludes today's conference and you may disconnect. Your line at this time.
Thank you for your participation.
Okay.
Yeah.
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