Q3 2021 Enterprise Products Partners LP Earnings Call

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Yeah.

Greetings and welcome to the enterprise products partners third quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question. During the session. You May Please press star one on your Touchstone telephone. It is my pleasure to introduce your host for todays call Randy Burkhalter, Vice President of Investor Relations. Thank you you may begin.

Thank you Bill and good morning, and welcome everyone to the enterprise products Partners conference call to discuss third quarter earnings sorry, and apologize for the delay.

But we're ready to go now our speakers today will be co chief executive officers of Enterprise's General partner, Jim and Randy Fowler other members of our senior management team are also in attendance for the call today.

During this call we will make forward looking statements within the meaning of section 21 E of the Securities and Exchange Act 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team, Although management believes that the expectations reflected in such forward looking statements are reasonable.

We can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward looking statements made during this call and with that I'll turn it over to you Jeff. Thank.

Thank you Randy.

Our businesses continued to perform extremely well during the third quarter, we reported $2 billion of EBITDA, even though we were impacted about $30 billion of headwinds due to hurricane Ida.

Cash flow from operations was a record $2 4 billion, which more than fully funded okay.

Our capital our capital expenditures and our distributions year to date.

Distributable cash flows almost 5 billion, which is providing coverage.

One seven times and $2 billion and retain cash year to date.

As we head into the final quarter of the year, while we don't take anything for granted granted.

It looks like our businesses are going to finish with another strong year in 2021.

Our results reflect the ongoing recovery in demand for crude Ngls primary petrochemicals and refined products as the global economy continues to recover for.

For 2022, most experts agree on continued strong demand and economic growth worldwide.

We believe that economic back drop plus the need to restock virtually everything well.

Continued to provide strong demand growth for oil and oil and gas natural gas liquids and plastics. In addition to the record cash flow from operations, we had record profits from our propylene business, which contributed to the record gross operating income for our petrochemical and refined products services sector.

Our PTH and splitters complement one another in our value chain and we were able to take advantage of strong propylene spreads long term petrochemical fundamentals are very strong.

Petrochemicals have multiple competitive advantages compared to almost all of their global peers.

Likewise enterprise remains strongly positioned to provide the petrochemicals midstream services.

Being feedstock storage distribution and exports.

Footprint, that's not easily copied.

Our liquids pipelines have substantially recovered to near pre pandemic levels at $6 3 million barrels a day with gas processing volumes.

Fitting from higher prices for Ngls.

Apprised as natural gas pipeline transportation for the third quarter exceeded pre pandemic 2019 levels at a record 14.6 Bcf a day.

In total our crude oil equivalent pipeline transportation volumes were $10 1 million barrels a day for the quarter NGL.

NGL fractionation volumes remain supported at 1.3 million barrels a day, our propylene production for the third quarter of 2021 was 96000 barrels a day.

With volumes handled by our marine terminals for the third quarter were one 5 million barrels a day.

We completed construction of approximately $480 million of organic growth projects.

These projects are in various stages at varying stages of startup the major projects.

Included in natural gasoline hydro treater, which reduces sulfur content blend stocks used for motor gasoline and several petrochemical pipelines and natural gas pipelines that expand those integrated systems, we expect to complete the Acadian Haynesville and Gillis lateral natural gas.

Pine expansions in the fourth quarter of 2021.

Our Acadian haynesville gas pipelines or strategically.

Located to move growing Haynesville and cotton valley natural gas supplies to growing in higher valued industrial and LNG markets.

We have developed it.

At full project to utilize hydrogen as a fuel at our PVH to plan. This.

Project will provide significant environmental benefits as well as upgrade the co product value and produce hydrogen.

Change involves adding the capability to utilize hydrogen produced by the facility as fuel rather than relying on natural gas by modifying the design of the heaters for P. D. H two we will reduce the plants absolute carbon equivalent emissions by almost 90% construction.

Construction of PTH, two remains on schedule and on budget with completion expected in the second quarter of 2023.

We became very bullish on the hydrocarbon prices.

Triple the 20th 2020, and $80 a barrel crude oil has increased in excess of $30 since the beginning of the year and propane and natural gas prices have doubled since the first of the year.

U S oil and gas industry is now in the hands of a highly disciplined Ortiz.

We like to believe they prefer doing business with large and Samuel really responsible companies like us, but now crude oil pricing remains on a path that is dictated by OPEC plus.

Need to receive higher prices for their products in order to balance their budgets and improve their economy.

Clearly they don't seem to be interested anymore price wars.

Opec's also signaling that they believe the world is going to need every barrel, we can get our hands on in the future, including U S. Shales, we believe natural gas now has a sustained price.

$3 plus in order to encourage non associated production in places like the Haynesville and Blaine Eagle Ford Likewise, we believe that all signs point to some level of staying power for this.

<unk> priced at W. E T. Our ratios, we are seeing for propane and butane.

Over the last 10 years, we've seen significant growth in global demand for U S liquids because of their price transparency environmental attributes and transport ability. We're very proud of what has evolved into a hydrocarbon franchise that has a strong domestic presence and a global reach.

With that Randy It's yours, Okay. Thank you, Jim and good morning, everyone.

And looking at the income statement, our net income.

<unk> attributable to common unit holders for the third quarter of 2021 was $1 $2 billion or 52 cents per common unit on a fully diluted basis. This compares to $1 1 billion or 48 cents per common unit on a fully diluted basis for the third quarter of 2020.

Net income was reduced by a noncash asset impairment charges of $29 million or one cent per unit for the third quarter of this year and this compares to a charge of $77 million or <unk> <unk> per unit for the third quarter of last year.

Moving on to cash flows our cash flows from operations.

Was $2 4 billion for the third quarter of 2021. This compares to $1 1 billion.

For the third quarter of last year.

It should be noted that the third quarter of 2021 cash flow from operations benefited by $648 million of net cash provided by changes in working capital accounts.

<unk> and cash provided by or used for working capital accounts between the two quarters accounts for substantially all of the $1 3 billion dollar favorable variance between the two quarters.

Free cash flow for the 12 months ended September 32021, which is cash flow from operations less investing activities less net cash flow to noncontrolling interests. Our JV partners was $5 $6 billion compared to $2 1 billion for the comparable trailing.

<unk> months in 2020.

We declared a distribution of <unk> 45 cents per unit with respect to the third quarter of 2021 to be paid on November 12.

This distribution of approximately $1 billion for the quarter represents a one 1% increase compared to the third quarter 2020.

During the third quarter.

We repurchased approximately $75 million or $3 4 million common units.

In addition to these buybacks E. P. D E. P D distribution reinvestment plan and employee unit purchase plan purchased a combined $36 million or approximately $1 6 million E. P. D. Common units in the open market during the third quarter, our pay out ratio.

Which we define as the sum of cash distributions and buybacks as a percent of cash flow from operations for the 12 months ending September 32021, as reported was 51% and was 58% after adjusting cash flow from operations.

Cash provided by working capital changes this was consistent with the 55% to 80% payout ratio, we have maintained over the past decade throughout volatile business cycles and the pandemic.

We are in the middle of our planning process for the 2022 budget.

Our priorities for capital allocation or all of the above approach with a goal to facilitate the long term financial health of the partnership our first priority is supporting and growing distributions to investors.

Secondly to support invest investments that complement our midstream system that have attractive rates of return in excess.

Our cost of capital with the objective of growing the partnerships cash flow per unit next is to maintain financial flexibility that enables us to weather business cycles, and evolving legislative and regulatory risks to the energy sector. Finally, it will be to execute buybacks on opportunistic basis as we have for the patch.

Several years, we plan to announce distribution goat growth guidance for 2022 in January.

During the quarter, we issued $1 billion of senior notes at a fixed rate coupon of three 3% with the net proceeds to be used for general company purposes, including the repayment of our $750 million three 5% senior notes and our 650 million.

A four 5% senior notes that mature in February 2022, we elected to issue during the third quarter, rather than refinancing in 2022 to avoid interest rate risk we were able to extend these maturities by 30 years, while reducing the Q.

Part of the debt by almost a half of a percentage point, we would like to thank our fixed income investors for their continued support as this offering was had over $4 billion of demand on the busy busiest issuance day of the year.

During the quarter, we also renewed our 364 day and multiyear revolving credit facilities in September.

In addition to extending the tenor of these facilities, we proactively decided to reduce the overall size of the multiyear facility.

$500 million 233.0 billion together with our $1 5 billion 364 day facility, we have $4 5 billion of borrowing capacity under these facilities over.

Over the past two years, we have proactively reduced enterprises bank credit commitments by a total of $1 5 billion or 25%. This has principally been in response to our lower level of expected capital expenditures, while also trying to be a responsible client to our bank many of whom.

And under Investor pressure to reduce capital commitments to the traditional energy industry.

Our total debt principal outstanding was 29 $8 billion as of September 32020.

One assuming the first call date or the final maturity date for our hybrids. The average life of our debt portfolio is 16.8 years in 29 years, respectively. Our effective average cost of debt is four 4%.

Our consolidated liquidity was approximately $6 $7 billion at September 32021, including available which includes availability under our bank credit facilities and approximately $2 2 billion of unrestricted cash on hand, this amount of cash on hand, while elevate.

By historical standards is primarily due to having already completed our refinancing and having cash available to retire $1 $4 billion of senior notes in the first quarter of next year. It also provides us additional flexibility to respond to market opportunities.

Adjusted EBITDA for the third quarter of 2021 was $2 billion and $8 3 billion for the 12 months ending September 32021, our consolidated leverage ratio was three two times after adjusting debt for the partial equity treatment of the hybrid debt securities.

And reduced by the partnerships unrestricted cash on hand.

Randy we can open it up for questions. Thank you Randy the land, we're ready to take questions from our listeners.

I would remind our listeners that we'd like to keep our questions to one question and one follow up.

Go ahead Lynn.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone.

So which are your question. Please press the pound key.

Due to the essence of time, we ask that you. Please limit yourself to two questions or one question and one follow up.

Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Shneur <unk> from UBS. Please go ahead.

Hi, good morning, everyone.

I was wondering if you can share your latest thoughts around potentially accelerating return of capital.

Many of your peers are pursuing buy back some of the announced special increases and so forth, we're seeing positive stock reaction.

A lot of the producer customers are electing to pursue buybacks instead of investing in growth.

So kind of wondering about your latest thoughts in the past you've mentioned some uncertainty with respect to Washington, but there's now a draft reconciliation bill out has that thought process changed at all.

And if so is there a preference towards buyback given where the stock is trading.

Or would you be thinking about these distribution increases are stuck with distribution increases.

Yeah.

Okay.

I appreciate the question this morning.

Sure.

You know as was stated in prepared prepared remarks, so I think our our when we think about allocation of capital. It's it's all of the above approach.

We have been deliberate on buybacks.

And.

And some of that is because of the legislative and regulatory uncertainty.

Hum.

We.

As far as looking out we are still working you you might see clarity in Washington D. C. We don't.

And I.

I think we will get.

We will come in and get better clarity over the next few months.

On.

The buyback.

Activity that you mentioned from I guess, you're referring to Magellan and MPLX.

I think we need to.

More time to see market reaction to that.

There were a couple of research notes that we saw was.

You know.

What was it.

During the time period that they did buybacks that Magellan actually underperformed in that August and September period during that point in time, when they actually did buybacks and then since the time they announced all those buybacks.

They had pretty much performed in line with others. So I think I don't think we're ready to right Mike.

Knee jerk reaction to two two.

Their performance or or the outperformance as result of the buyback I would also note that.

We go back and look at several years.

We're allocating a good bit of cash in fact.

We're one of the highest in paying out returning capital to.

To our investors and again, that's principally through distributions.

Helen has coming on I'll note Magellan has come in the last year and really increase their their payout ratio.

But a lot of that has been as a result of proceeds from asset sales that they've been returning to investors, which makes sense.

But if you've noticed we just not had much in the way of proceeds asset sales. So we will we will be coming in we're going through our 2020.

Our budget cycle.

It will come in and announce what our plans are for distribution increase next.

Next year.

In January.

I would note that 2021 marks our 23rd year of distribution growth I don't think any other midstream company can say that.

So it's our practice to return.

Capital to investors and that includes both distributions and buybacks and but we will come in and we need to go through our budget cycle.

Come in and provide any more.

Clarity on that he did a pretty good job in your script laying out the priorities.

Right right.

Okay. I appreciate the color I guess I was thinking along the lines of that you've got a $4 billion.

Annual distribution and that if you reduce the unit count that it would actually fund more distribution growth in the future.

But I guess, we'll wait and see for the next update in May.

Pivoting a little bit here.

Your Capex growth range for next year kind of you sort of tighten the range any sort of seem to have a a $1 5 billion dollar cap I guess for next year is that a is that the winnowing process of some prospects dropping off.

If some ideas dropped off the table or is it a function of producers continue to remain disciplined on production.

And more focused on buybacks just kind of wondering on the tightening of the range there.

Cheniere on that not anything has dropped off the table as far as projects under development that really that we've been referring to.

For the first nine months of this year, it's more just from a standpoint of by the timing of when some of those capital expenditures would hit in 2022.

Okay. So.

At the end of the day the high end right now Youre looking at just $1 5 billion for growth Capex.

Cheniere as we sit here today on November 2nd.

Our best estimate for growth Capex in 2022 is one to $1 5 billion that'll be subject to change as we get into.

As things develop.

Alright, perfect really appreciate the color today. Thank you.

Thank you I show. Our next question comes from the line of Jeremy Tonet from Jpmorgan. Please go ahead.

Hi, good morning.

I just wanted to start off with the build back better Bill.

And just see.

What if it is passed as written today, how that might impact you know enterprise going forward.

Higher 45, Q levels be it including renewables just wondering.

What impact that would have could have on your business. If it is passed.

Yeah.

Jamie again.

You guys in New York, most have a better better visibility to D C than what we see.

Because.

I mean from what we've seen the build back better plan is still a great deal of flux.

Statements that have come out of the Senate.

Especially Senate Finance committee there it sounds like though you're still pursuing some proposals there. So I think everything is really still very much in a state of flux. So.

From from the standpoint of.

First in Senate Finance Committee, you've got.

<unk>.

They were looking to eliminate oil and gas tax preference items, which again includes.

On the.

Qualified earnings for Mlps attributable to fossil fuels the counter to that is on out of the house ways and means.

Where you have.

They do not have the provision to eliminate the oil and gas tax preference items, which again are our intangible drilling cost cost depletion and mlps and in fact, they actually expand.

The qualified business activities for Mlps to pick ups from renewable.

Activity.

And you've got some say in that the legislation is going to go from the house to the Senate, but then.

Hearing that also in the Senate that they want to start in the Senate and moved to the house. So.

Again, you guys and on the East coast might have better better visibility, but that's that's sort of the last thing we see.

As far as on the 45 Q credits it is encouraging.

<unk>.

They are looking to come in and increase the amount of credits.

In order to come in and get carbon sequestration, whether it's.

Sequestration or whether it's through <unk> I think the credits do need to be higher.

It's also encouraging to see a direct pay being.

Included in that as well.

But I think.

Right now anything we would comment on would really just be pure speculation based on the where the legislation is currently.

Okay.

Maybe just taking a step back just curious I guess you know enterprise in past years has been kind of a top performer in the space. This year has not as much just wondering.

What do you think it could be the driver of the relative performance this year and could anything be kind of change going forward to help that out.

You answer that one.

Yeah.

Yeah, Jeff.

Jeremy.

Yeah.

From a business standpoint, we're putting up good numbers.

I would I would go back in and we think we're doing our part as far as returns on capital the cash flow that we're generating.

Performance that we're recording throughout business cycles.

As I've said on the last call when we come back in and look at probably our highest correlation is to the S&P energy sector and I think.

That's that's the comp.

Sure.

That's the comp that we track most closely as far as coming in and comparing to bear.

Various midstream companies.

Hard to say.

Every dog has it today and.

We're going to continue to execute on what we're doing well and.

Our allocation of capital strategy is going to be all of the above.

And we just keep doing one seven times coverage.

We are retaining a lot of cash and sooner or later it goes up.

Got it I'll leave it there thank you.

Thank you.

Our next question comes from the line of Jean Ann Salisbury from Bernstein. Please go ahead.

Hi, good morning.

They are major Permian and Rockies NGL pipelines were down $31 million versus <unk> 2020, due to lower fees and volumes can you expand on what's happening I think that the NGL pipeline for kind of relatively stable rate.

Competition and I'm not clear also with that $31 million is related to that hurricane Ida impacts that you referenced.

Julian This is Brent there is there is volumes in Iraq, you used to continue to decline.

We started to see a little bit of rig activity up there, but for most part volumes are declining also the fee structure up there.

Has declined.

In the third quarter.

In terms of the Permian.

We offered some incentive rates in the short term on transportation to help entice volumes.

And then tugged I'm looking at you on impacts from the Hurricane I don't think we had.

I don't think we had any impacts from the hurricane as it relates to Marpol.

Yeah.

Okay. Thank you.

That's helpful.

And my follow up is on the Texas intrastate kind of a similar question. There was a $34 million decrease from <unk> 20, <unk> capacity reservation.

I think that makes sense, because overall utilization on gas pipelines.

With their kind of started but it feels like it should improve from here. Thanks, no more new pipeline spending and is that kind of what youre seeing as well or do you think that you can see Texas intrastate go lower in the next few quarters Mark contracts Ralph.

Okay.

And that will occur.

I think going forward G&A and youre going to see those volumes increase in those margins get better.

Okay.

And then I guess just quickly following up on what you said about alright answered my first question about the incentive rates from the Permian is that like.

Competitive situation I guess that that plant has multiple pipelines and youre trying to get them to.

Enterprise business that has a third party.

If we can cover our costs and make some money that's what we're going to do but ultimately.

These processing plants in the Permian, it's a very efficient market and we just have to compete harder.

Okay. That's all for.

Great. Thanks, a lot.

Thank you I show. Our next question comes from the line of Chase Mulvehill from Bank of America. Please go ahead.

Hey, good morning, everybody.

I guess first thing I wanted to follow up on was the propylene business gross margin was pretty strong coming in at $260 million.

And this was despite a 34 days of unplanned downtime on PTH one.

So I guess, maybe could you just talk to that a little bit what drove that and then how sustainable on a go forward basis. Do you think this 260 million gross operating margin number is.

Chris you want <unk>.

Sure Hi, Jason This is Chris Dan.

Overall, we have several actually significant number of contracts.

That is structured in a way that it's a fixed fee, but when the spread blows out we participate so a lot of what you saw this quarter.

Some of that benefit.

As to sustainability I think you just look at the global supply chain issues across many industries.

When that gets solved.

Maybe we return back to some normalcy in spreads, but until then I think we'll continue to see wide spreads.

Okay.

Unrelated follow up just kind of thinking about it.

In an LPG exports.

As we kind of move into 2022.

Kind of what underlying trends are you seeing today.

What do you expect to see in the 2022 for <unk>.

P G in ethylene exports.

Did you say ethane or ethylene or both so I think well you could talked about if you want to.

Flooded in there as well.

Justin and then Chris Yes.

Yes, Jason suggests enquirer.

With respect to ethane and LPG I mean, I think it's probably more of a domestic story versus LPG, but I think both the case remains switches demand will continue to outstrip the pace of supply growth as we forecast. It. So we feel good about our LPG export dock continuing to remain full regardless of how it's contracted today.

And we continue to feel good about ethane prices as a whole because domestically we still think demand is going to outstrip supply.

And what's your Apple are you on ethane exports.

Right now.

November should be a record month, okay, Chris ethylene.

Same for ethylene November is going to be a record month for us and.

We're 95% contracted to the nameplate, but we've demonstrated we can run much higher than nameplate.

Perfect appreciate the color I'll turn it back over.

Thank you.

Our next question comes from the line of Keith Stanley from Wolfe Research. Please go ahead.

Hi, good morning.

I think I recall, there might have been just following up on propylene there might have been a local press articles, saying the company was considering adding another splitter.

Is that something you would be exploring with the market condition is very strong and I guess, how do you think about the economics for that and then.

And relatedly the potential upside of the Capex for next year.

I'm going to $1 billion 2 billion and a half is that tied to a particular chunky project or several smaller ones.

As far as an splitter.

Some of the projects we're working on.

That we haven't.

Finalized.

Will dictate whether we look at another splitter.

Anything on that Chris.

No and grant can comment on this but we have a pretty standard process for projects.

Tax.

The tax piece of the first step of that so that's probably what you saw in the press.

What was the rest of the question.

Yeah.

101.

I think we're working on it Randy said, we're working on some projects that.

If they come about when it could see a little bit of an upturn in that capex.

Right that's.

Right.

Keith that's just not one chunky projects on several projects.

Okay. Okay got it thank you and then.

Just a clarification question.

On this special distribution concept, which you referenced MPLX.

Don't think.

Randy that was in your list of options, but as a special distributions something you would.

Think about and consider next year, if you had excess cash and just how you think about that versus buybacks I'm, assuming it's more efficient in your view.

To do a special if that was an option.

Keith I would think.

Our our focus would really be more on regular way, increasing the base distribution and.

And then we will see what we do on buybacks.

And the buybacks, obviously will all depend on on.

Opportunistic buybacks market conditions.

And also business opportunities at the time.

Thank you.

Thank you.

Our next question comes from the line of Michael Blum from Wells Fargo. Please go ahead.

Thanks, Hey, good morning, everyone.

Talk a little about the Haynesville, you see a little bit.

I have an uptick in your systems around there.

I'm wondering if you can just give us.

Idea of what Youre seeing increased producer activity there.

Sort of driving the uptick in volumes on those systems.

And then taken.

Yeah. So we're seeing increased activity from our existing producer customers, but not only that we are seeing new opportunities arise from potential new customers. Some hit in the cotton Valley.

Oh from a gathering treating and processing perspective.

I'd say, we're working on a project to expand the KPN, one more time, adding 400 million a day.

So by that time, that's done Gillis will add one point on two five Bcf a day takeaway to LNG market.

And then we'll add another 400 of Acadian capacity after that.

Okay.

Got it that's helpful and then.

An interesting announcement around hydrogen for PVH to just curious is it feasible to look at PD H, one and try to retrofit it effectively for the same hydrogen application or is that not possible.

Grammar.

Graeme I'll take that I think to a limited extent, we can but the technology lends itself better to the technology that we've used for PTH two theres a lot more technical hurdles to overcome on PTH, one what about other plants into your contracts rollout broken ground.

We've got other offer we've got other opportunities where we can.

Where our contracts roll off and we've got Optionality on how we look at it hydrogen versus the market, how we consume and.

And as well as the consumers on the facility other some ops options. There some of the other units that are probably more suited to hydrogen there might be even PTH fall and then we're taking a look at all of those right now.

Great.

Michael we've been selling our hydrogen.

I think Graham, saying is as those contracts roll off there ought to be other opportunities for us to use that hydrogen.

We've got that option, we've got that option to the market or internally.

Got it.

Thank you.

Thank you.

I show. Our next question comes from the line of Michael Cusimano from.

Pickering and partners. Please go ahead.

Hey, good morning, Thanks for taking my questions.

The press release mentioned lower NGL marketing activities.

As an impact of hedging.

I was hoping you could talk about the significance of those hedges as well as.

For Q and then moving into 'twenty two.

I think in terms I'll talk this is Brent in terms of.

The margins on Ngls.

It's more a function of.

Contango storage players that we had in the past.

And then in terms of the hedging us but Justin.

Yes, I think any any hedges you see there are or will be realized when physical delivery of product is made so I would view those as transitory.

I think to <unk> point.

The second half of 2020.

How significant.

Storage revenue is as a function of.

April of 2020.

Good.

Okay. So it was less of a thought like theres not much.

NGL equity exposure that you've hedged it away.

Would be impacting that.

We have very little processing exposure hedged.

Okay. Thank you and then.

Staying on the NGL segment.

And it looks like the ethane rejection from higher natural gas prices negatively affected in the NGL segment.

Mike looking quarter to quarter.

Can you talk about what youre seeing today relative to <unk> and then also if that rig.

Jackson in the NGL segment in Peru, with what you saw on the natural gas segment for <unk>.

Thanks.

In terms of what we see going forward. So you're accurate in terms of the rejection that was going on within our system.

In terms of going forward.

We're going to have to watch to see how fast producers get back, but I think ultimately.

It comes a point in time, and we'll see what happens for the demand of the petrochemical sector is going to outstrip supply.

So, we'll see how far away ethane.

Has to has to be to get Recut.

It recovered from from places that arent nearly as close to the Gulf Coast.

Permian or the Eagle Ford or Haynesville.

Haynesville, where some areas like that.

I think the other could answer your question.

Alright, Thank you I appreciate it.

Thank you.

I show. Our next question comes from the line of <unk> Siegel from single asset management. Thank you. Please go ahead.

Yeah, Hey, good morning, everybody.

I just have two questions.

I guess I'm only allowed two questions but.

Yeah in terms of growth going forward.

And capital expenditures going forward.

What what are the areas that excite you in terms of the opportunity set and could M&A be part of that.

So that's one and then the second is on inflation.

And Randy My Crystal ball is pretty pretty bad, but to the extent that we see inflation whats the philosophy around the distribution.

Regarding inflation and are you folks seeing any any inflationary pressures in the business right now.

It's the person Randy you take the second one in terms of what.

Some of the things we are we would like to do.

As we've been pretty good at Repurposing pipelines. So you can probably assume that we're looking at.

At Repurposing pipelines and as far as M&A I Love, what Randy said, all along our M&A is concerned price matters and we take a lot of times and at the right price comes along we're not gonna, we're probably going to take a look at it.

Okay can I just interrupt bright there.

Has that been.

Subtle shifts in terms of.

How you think about <unk>.

M&A I mean from and.

And I get what you said about price.

But strategically as M&A, becoming a little bit more interesting to you.

I don't think anything's changed <unk> by the way that's your second question.

[laughter].

I don't think anything's changed I think maybe some valuations are a little more.

Or a little better than that.

That's what price matters means.

Okay.

Yeah and needs to go into I guess, what is now your third question.

On inflation I want to say over 90% of our revenues have some sort of.

Escalation mechanism in there of which.

Which would benchmark to various.

Indices.

So we feel like we have pretty good protection from inflation.

I think.

Graham and his team have done a great job on our capital projects as far as on long lead items, where we've really been in a.

Pretty good shape as far as not seeing cost creep on those projects.

<unk>.

As far as how we think about the distribution you know, we we said you know.

Really what we're trying to achieve is trying to keep too.

What is it purchase power parity.

And so we would like to come in and.

With the increase in inflation.

The increase in the distribution growth rate compared to what you've seen over the last three or four years.

And really if I could use this.

In terms of that and this might get back to Jeremy's question of Av.

As far as a recognition of the progress we've made and not showing up in the unit price. Some of it may be what have you done for me lately and we came in and we shifted our posture in 2017 to come in and be able to finance the business better rather than coming in and.

<unk>.

Oh.

Relying on both the debt and equity capital markets. I think we were the first mover and coming in and self financing the business at first it was providing our own sources of equity capital in this year, our cash flow from operations.

Going to cover all of our Capex. So I think we made that shift and to a degree it might come down too.

A long term view and.

And the.

And maybe.

Because of the feedback that we get from our long term investors. They are quite pleased with what we've been doing and.

Versus short term and I think a good bit of the liquidity in the stock market. These days is high velocity short term oriented money.

And which might not aligned with how we've been allocating capital over the last.

Couple of years, but we think the way that we're progressing here is best for long term the best for the long term financial health of the partnership.

Ben.

I'll go back.

During this time period, you had a lot of mlps.

150, plus come in and cut distributions and we did not so as a result, they actually decreased the amount of capital they return to their partners over the last three or four years, while we continue to increase <unk>, but now we're at a position of what have you done for me lately.

You've got some people that might have a little bit more.

Vito and short term gains that they can do because they cut their distributions. So deeply so again, we're running a long race here.

Mindful of returning capital again, we're going to come in and do the all of the above approach.

No, but that's sort of a follow up on jeremy's questions without charging you an extra question Jeremy.

Yes, I got caught thank you.

[laughter].

I show. Our next question comes from the line of Colton Bean from Tudor Pickering Holt. Please go ahead.

Good morning, So a couple of follow ups here following up on that one to $1 $5 billion range can you clarify what level of spend was contemplated for spot or was that not one of the development projects in there.

That's not in that number.

Got it so that would be incremental to the range.

Yes.

Understood.

And then maybe circling back to NGL marketing.

I can appreciate on a year over year basis, the impacts of contango, but I think on a sequential basis. It also looked like there was a pretty material step down.

So just trying to better understand what changed from Q2 to Q3 and the NGL marketing business and then again, what the expectations are as we move towards year end in 2022.

Yeah Colton discuss inquiry.

Summing up pretty simply it's just timing of spread capture.

And that's going to change based upon markets.

Okay.

<unk> also been a final one here Brent you talked on or touched on.

How far away that they might need to be pulled from I guess as you look across your system, whether it's a tax from Apple or are there any opportunities that you all see from increased extraction.

I think there is.

Rockies volumes.

To some extent.

Not a whole lot of capacity left on there, but we do have some and then ultimately I think.

The bulk of the volume could come from the Permian the stuff that's being rejected up there currently.

Great. Thank you.

Thank you.

I show our last question comes from the line of Michael Lapides from Goldman Sachs. Please go ahead.

Hey, guys. Thanks for answering all these questions and congrats on a decent quarter real quick just curious how youre thinking about the battle between Corpus and Houston Frac crude export volumes, obviously export volumes have been pretty weak for the last couple of months, but just curious how you are thinking about the share over the next quarter or so.

And maybe even over the next 12 to 18 months.

I don't know about the next quarter I think ultimately it becomes a battle between corpus and spot.

Right.

To me what's going on is is something that we have <unk> for a long time about Houston being a market.

Corporate screen destination as some people get tired of hearing that but I don't think in terms of the export business. There. One I think it's just a function of where the pipelines end up and what they have to do.

Ultimately.

The value of the barrel is worth more domestically during those across the water.

So thats what Youre seeing go on in Houston with frankly, we've got customers that have take or pay contracts and ultimately what their netback is theres quite a bit higher domestically across our system in the Gulf coast.

Where we want to be a long term is going across the VLCC dock and ultimately over time, we think spot and pull the barrels away that want to go to the export markets.

Got it. Thank you guys much appreciate it.

Okay. Thank you and the land we're ready to for you to give our listeners the replay information if you don't mind.

I'd like to thank all participants for joining us today and we're going to go ahead and go offline if you'd give them that information. Thank you.

Thank you Sir.

This concludes today's conference call.

Play will be available from one P. M. Eastern time November 2nd 2021 to <unk> 59 P. M. Eastern time November 9th 2021.

Now 18558592056, or 404, 537, 3406 for international participants and to access code 400 783552.

Thank you and have a wonderful day.

Yes.

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Okay.

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Okay.

Greetings and welcome to the enterprise products partners third quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question. During the session. You May Please press star one on your touched on telephone. It is my pleasure to introduce your host for todays call Randy Burkhalter, Vice President of Investor Relations. Thank you you may begin.

Thank you Dan Good morning, and welcome everyone to the enterprise products Partners conference call to discuss third quarter earnings sorry, and apologize for the delay but.

But we're ready to go now our speakers today will be co chief executive officers of Enterprise's General partner Jim.

And Randy Fowler other members of our senior management team are also in attendance for the call today.

During this call we will make forward looking statements within the meaning of section 21 E of the Securities and Exchange Act 1934 based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team.

Management believes that the expectations reflected in such forward looking statements are reasonable it can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward looking statements made during this call and with that I'll turn it over to you Jeff. Thank you.

Randy.

Our businesses continued to perform extremely well during the third quarter, we reported $2 billion EBITDA, even though we were impacted by a $30 million of headwinds due to hurricane Ida.

Cash flow from operations was a record $2 4 billion, which more than fully funded okay.

Capital, our capital expenditures and our distributions.

Year to date.

Distributable cash flows almost 5 billion, which is providing coverage.

One seven times and $2 billion and rethink as year to date.

As we head into the final quarter of the year, while we don't take anything for granted like granted.

Looks like our businesses are going to finish with another strong year in 2021.

Our results reflect the ongoing recovery in demand for crude Ngls primary petrochemicals and refined products as the global economy continues to recover.

For 2022, most experts agree on continued strong demand and economic growth worldwide.

We believe that economic back drop plus the need to restock virtually everything well.

Continued to provide strong demand growth for oil and oil and gas natural gas liquids and plastics. In addition to the record cash flow from operations, we had record profits from our propylene business, which contributed to the record gross operating income for our petrochemical and refined products services sector.

Ah PTH and splitters complement one another and our value chain and we were able to take advantage of strong propylene spreads long term petrochemical fundamentals are very strong and U S. Petrochemicals have multiple competitive advantages compared to almost all of their global peers.

And likewise enterprise remains strongly positioned to provide the petrochemicals midstream services, including feedstock storage distribution and exports.

Hey footprint, that's not easily copied.

Liquids pipelines have substantially recovered to near pre pandemic levels at $6 3 million barrels a day with gas processing volumes.

Fitting from higher prices for Ngls.

Apprised as natural gas pipeline transportation for the third quarter exceeded pre pandemic 2019 levels at a record 14, six Bcf a day.

In total our crude oil equivalent pipeline transportation volumes were $10 1 million barrels a day for the quarter NGL.

NGL fractionation volumes remain supported at one 3 million barrels a day, our propylene production for the third quarter of 2021 was 96000 barrels a day liquids volumes handled by our marine terminals for the third quarter were one 5 million barrels a day.

We completed construction of approximately $480 million of organic growth projects.

These projects are in various stage at varying stages of startup the major projects.

Included in natural gasoline hotter trader, which reduces sulfur content and blend stocks used for motor gasoline and several petrochemical pipelines and natural gas pipelines that expand those integrated systems, we expect to complete the Acadian Haynesville and Gillis lateral natural gas.

Plant expansions in the fourth quarter of 2021.

Our Acadian Haynesville gas pipelines are strategically located to move growing haynesville and cotton valley natural gas supplies to growing in higher valued industrial and LNG market. We are.

<unk>.

And impactful project to utilize hydrogen.

Fuel at our PVH to plan this.

This project will provide significant environmental benefits as well as upgrade the co product value and produce hydrogen.

The change involves adding the capability to utilize hydrogen produced by the facility as fuel rather than relying on natural gas.

Modifying the design of the heaters for PVH too, we will reduce the plants absolute carbon equivalent emissions by almost 90%.

Struction of PTH, two remains on schedule and on budget with completion expected in the second quarter of 2023.

We became very bullish on hydrocarbon prices on April the 22020 and at $80 a barrel crude oil has increased in excess of $30 since the beginning of the year and propane and natural gas prices have doubled since the first of the year.

U S oil and gas industry is now in the hands of highly disciplined parties, we like to believe they prefer doing business with large and similarly responsible companies like us, but now crude oil pricing remains on a path that is dictated by OPEC plus the need to receive higher prices for.

Their products in order to balance their budgets and improve their economy clearly they don't seem to be interested anymore price wars.

<unk> also signaling that they believe the world is going to need every barrel, we can get our hands on in the future, including U S. Shales. We believe natural gas now has a sustained price up from $3 plus in order to encourage non associated production in places like the haynesville in the lane.

<unk> Ford Likewise, we believe that all signs point to some level of staying power, but the stronger price W. E. T. Our ratios, we are seeing for propane and butane over.

Over the last 10 years, we've seen significant growth in global demand for U S liquids because of their price transparency environmental attributes and transport ability. We're very proud of what has evolved into a hydrocarbon franchise that has a strong domestic presence and a global reach.

And with that Randy It's yours, Okay. Thank you, Jim and good morning, everyone.

And looking at the income statement, our net income attributable to common unit holders for the third quarter of 2021 was $1 $2 billion or 52 cents per common unit on a fully diluted basis. This compares to $1 1 billion or 48 cents per common unit on a fully diluted.

Basis for the third quarter of 2020.

Net income was reduced by a noncash asset impairment charges of $29 million or one cent per unit for the third quarter of this year and this compares to a charge of $77 million or <unk> <unk> per unit for the third quarter of last year.

Moving on to cash flows cash flows from operations.

Was $2 4 billion for the third quarter of 2021. This compares to $1 1 billion.

For the third quarter of last year.

It should be noted that the third quarter of 2021 cash flow from operations benefited by $648 million of net cash provided by changes in working capital accounts.

Swing in cash provided by or used for working capital accounts between the two quarters accounts for substantially all of the $1 3 billion dollar favorable variance between the two quarters.

Free cash flow for the 12 months ended September 32021, which is cash flow from operations less investing activities less net cash flow to noncontrolling interests. Our JV partners was $5 $6 billion compared to $2 1 billion for the comparable trailing 12.

Months in 2020.

We declared a distribution of <unk> 45 cents per unit with respect to the third quarter of 2021 to be paid on November 12.

This distribution of approximately $1 billion for the quarter represents a one 1% increase compared to the third quarter 2020.

During the third quarter.

We repurchased.

Approximately $75 million or $3 4 million common units in.

In addition to these buybacks Apd <unk> distribution reinvestment plan and employee unit purchase plan purchased a combined $36 million or approximately $1 6 million <unk> common units in the open market during the third quarter.

Our pay out ratio, which we define as the sum of cash distributions and buybacks as a percent of cash flow from operations for the 12 months ending September 32021, as reported was 51% and was 58% after adjusting cash flow.

From operations four cash provided by working capital changes this was consistent with the 55% to 80% payout ratio, we have maintained over the past decade throughout volatile business cycles and the pandemic.

We are in the middle of our planning process for the 2022 budget.

Our priorities for capital allocation or all of the above approach with the goal to facilitate the long term financial health of the partnership our first priority is supporting and growing distributions to investors.

Secondly to support invest investments that complement our midstream system that have attractive rates of return in excess.

Of our cost of capital with the objective of growing the partnerships cash flow per unit next is to maintain financial flexibility that enables us to weather business cycles, and evolving legislative and regulatory risks to the energy sector. Finally, it will be to execute buybacks on opportunistic basis as we have for the patch.

Several years, we plan to announce distribution go growth guidance for 2022 in January.

During the quarter, we issued $1 billion of senior notes at a fixed rate coupon of three 3% with the net proceeds to be used for general company purposes, including the repayment of our $750 million three 5% senior notes and our 650 million.

A four 5% senior notes that mature in February 2022.

We elected to issue during the third quarter, rather than refinancing in 2022 to avoid interest rate risk we were able to extend these maturities by 30 years, while reducing the coupon of the debt by almost a half of a percentage point, we would like to thank our fixed income.

Investors for their continued support as this offering was had over $4 billion of demand on the busy busiest issuance day of the year.

During the quarter, we also renewed our 364 day and multiyear revolving credit facilities in September in.

In addition to extending the tenor of these facilities, we proactively decided to reduce the overall size of the multi year facility by $500 million.

$233.0 billion.

Together with our $1 5 billion 364 day facility, we have $4 5 billion of borrowing capacity under these facilities over.

Over the past two years, we have proactively reduced enterprises bank credit commitments by a total of $1 5 billion or 25%. This has principally been in response to our lower level of expected capital expenditures, while also trying to be a responsible client to our bank many of whom.

Have been under investor pressure to reduce capital commitments to the traditional energy industry.

Our total debt principal outstanding was 29 $8 billion as of September 32020.

One assuming the first call date or the final maturity date for our hybrids. The average life of our debt portfolio is $16 eight years, and 29 years, respectively. Our effective average cost of debt is four 4%.

Our consolidated liquidity was approximately $6 $7 billion at September 32021, including available which includes availability under our bank credit facilities and approximately $2 2 billion of unrestricted cash on hand, this amount of cash on hand, while.

Good by historical standards is primarily due to having already completed our refinancing and having cash available to retire $1 $4 billion of senior notes in the first quarter of next year. It also provides us additional flexibility to respond to market opportunities.

Adjusted EBITDA for the third quarter of 2021 was $2 billion and $8 3 billion for the 12 months ending September 32021, our consolidated leverage ratio was three two times after adjusting debt for the partial equity treatment of the hybrid debt securities.

And reduced by the partnership's unrestricted cash on hand.

Randy we can open it up for questions. Thank you Randy the land, we're ready to take questions from our listeners and I would remind our listeners that we'd like to keep our questions to one question and one follow up.

Go ahead Randy.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone.

So which are your question. Please press the pound key.

Due to the essence of time, we ask that you. Please limit yourself to two questions or one question and one follow up please.

Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Shneur Cristiani from UBS. Please go ahead.

Hi, Good morning, everyone. I was wondering if you can share your latest thoughts around potentially accelerating return of capital.

Many of your peers are pursuing buyback some of the announced special increases and so forth, we're seeing positive stock reaction.

A lot of the producer customers are electing to pursue buybacks instead of investing in growth.

So kind of wondering about your latest thoughts in the past you've mentioned some uncertainty with respect to Washington, but Theres now a draft reconciliation bill out has that thought process changed at all.

So is there a preference towards buyback given where the stock is trading.

Or would you be thinking about these distribution increases or stop the distribution increases.

Okay.

I appreciate the question this morning.

As was stated in prepared we're prepared remarks, so I think our our when we think about allocation of capital.

All of the above approach.

We have been deliberate on buybacks.

And.

And some of that is because of the legislative and regulatory uncertainty.

<unk>.

We.

As far as looking out we are still working you may see clarity in Washington D. C. We don't and.

I think we will get.

We'll come in and get better clarity over the next few months.

You know on on.

The.

Buyback activity that you mentioned from I guess, you're referring to Magellan and MPLX.

I think we need to.

A little bit more time to see market reaction to that.

There were a couple of research notes that we saw was.

No.

Where what was it.

During the time period that they did buybacks that Magellan actually underperformed in that August and September period during that point in time, when they actually did buybacks and then since the time they announced all those buybacks.

They had pretty much performed in line with others. So I think I don't think were ready to make.

Knee jerk reaction to two two.

Their performance or or the outperformance as result of the buyback I would also note that if we go back and look at several years, we're allocating a good bit of cash in fact.

We're one of the highest in paying out returning capital to.

To our investors and again, that's principally through distributions Magellan has come in and I'll note Magellan has come in the last year and really increase their their payout ratio.

But a lot of that has been as a result of proceeds from asset sales that they have been returning to investors, which makes sense.

But if you've noticed we've just not had much in the way of proceeds asset sales. So we will we will be coming in we're going through our 2020.

Budget cycle.

We'll come in and announce what our plans are for distribution increase.

And next year.

In January.

Note that 2021 marks our 23rd year of distribution growth I don't think any other midstream company can say that.

And so it's our practice to return.

Capital to investors and that includes both distributions and buybacks and but we will come in and we need to go through our budget cycle to.

To come in and provide any more color.

<unk> on that you did a pretty good job in your script laying out the priorities we look at right.

Okay. I appreciate the color I guess I was thinking along the lines of that you've got a $4 billion.

Annual distribution and that if you reduce the unit count that it would actually fund more distribution growth in the future.

But I guess, we'll wait and see for the next update maybe pivoting a little bit here.

Your Capex growth range for next year kind of you sort of tighten the range any sort of seem to have a a $1 5 billion dollar cap I guess for next year is that a is that the winnowing process.

Some prospects dropping off.

If some ideas dropped off the table or is it a function of producers continue to remain disciplined on production.

And more focused on buybacks just kind of wondering on the tightening of the range there.

Cheniere on that not anything has dropped off the table as far as projects under development that really that we've been referring to.

For the first nine months of this year, it's more just from a standpoint of by the timing of when some of those capital expenditures would hit in 2022.

Okay. So.

The end of the day the high end right now Youre looking at is $1 5 billion for growth Capex.

<unk> as we sit here today on November 2nd our best estimate for growth Capex. In 2022 is one to $1 $5 billion that will be subject to change as we get into as things develop.

Alright, perfect really appreciate the color today. Thank you.

Thank you.

Our next question comes from the line of Jeremy Tonet from Jpmorgan. Please go ahead.

Hi, good morning.

I just wanted to start off with the build back better Bill and.

And just see.

If.

If it is passed as written today, how that might impact.

Enterprise going forward, the higher afforded by Q levels be it including renewables just wondering.

What impact that would have could have on your business. If it is passed.

Yeah.

Jeremy again.

You guys in New York, most have a better better visibility to DC than what we see.

Because.

I mean from what we've seen the build back better plan is still in a great deal of flux and statements that have come out of the Senate.

Especially Senate Finance committee there it sounds like they are still pursuing some proposals layer. So I think everything is really still very much in a state of flux. So.

From from the standpoint of.

First in Senate Finance Committee.

<unk> got.

Where they were looking to eliminate oil and gas tax preference items, which again includes.

Doug.

Qualified earnings for Mlps attributable to fossil fuels the counter to that is on out.

Out of the house ways and means.

Where you have.

They do not have the provision to eliminate the oil and gas tax preference items, which again are intangible drilling cost cost depletion and mlps and in fact, they actually expand.

The qualified business activities for Mlps to pick ups from renewable active.

Activities.

And you've got some say in that the legislation is going to go from the house to the Senate, but then we're hearing that also in the Senate that they want to start in the Senate and move to the house. So.

Again, you guys and on the East coast might have better better visibility, but that's the sort of the last thing we see.

As far as on the 45 Q credits it is encouraging that.

They are looking to come in and increase the amount of credits I think in order to come in and get carbon sequestration, whether it's.

Sequestration or whether it's through <unk> I think the credits do need to be higher.

It's also encouraging to see a direct pay.

Included in that as well.

But I think.

Right now anything we would comment on would really just be pure speculation based on the where the legislation is currently.

Okay.

Maybe just taking a step back just curious I guess you know enterprise in past years has been kind of a top performing the space. This year has not as much just wondering.

What you think could be the driver of the relative performance this year and could anything be kind of change going forward to help that out.

You answer that one.

Yeah Jeremy.

Yeah.

From a business standpoint, we're putting up good numbers.

I would I would go back in.

We think that we're doing our part as far as returns on capital the cash flow that we're generating the.

The performance that we're recording throughout business cycles.

As I've said on the last call when we come back in and look at probably our highest correlation is to the S&P energy sector and I think.

Thats.

The comp.

Sure.

That's the comp that we track most closely as far as coming in and comparing to.

Various midstream companies.

Hard to say.

Every dog has it today and.

We're going to continue to execute on what we're doing well.

<unk>.

Our allocation of capital strategy is going to be all of the above.

And we'll just keep doing one seven times coverage.

We are retaining a lot of cash and sooner or later.

Sure.

Got it I'll leave it there thank you.

Thank you I show. Our next question comes from the line of Jean Ann Salisbury from Bernstein. Please go ahead.

Hi, good morning.

They are major Permian and Rockies NGL pipelines were down $31 million versus <unk> 2020, due to lower fees and volumes.

And then what's happening I think that the NGL pipeline for kind of relatively stable.

Competition.

Im not clear also at that $31 million is related to that very thing either impacts that you referenced.

Jean Ann This is Brent there is volumes in Iraq, you use to continue to decline.

We started to see a little bit of rig activity up there, but most part volumes are declining also the fee structure up there.

<unk> has declined.

In the third quarter.

In terms of the Permian.

We offered some incentive rates in the short term on transportation to help entice volumes.

And then plug I'm looking at you on impacts from the Hurricane I don't think we had.

I don't think we had any impacts from hurricane as it relates to Marpol.

Okay.

Thank you that's helpful.

And then my follow up is on the Texas intrastate kind of a similar question.

$34 million decrease for <unk> 'twenty, If America passenger reservation.

I think that makes sense, because overall utilization on gas pipelines.

With their kind of started but it feels like it should improve from here. Thanks, no more new pipeline thing.

Is that kind of what youre seeing as well or do you think that you can see Texas intrastate go lower in the next few quarters Mark contracts Ralph.

Okay.

And that will incur.

I think going forward G&A and youre going to see those volumes increase in those margins get better.

Okay.

And then I guess just quickly following up on what you said about sorry, if you answered my first question about the incentive rates for the Permian is that like a.

Competitive situation I guess that that plant has multiple pipelines and youre trying to get them to you.

Enterprise business that has a third party that said if we can cover our costs and make some money that's what we're going to do but ultimately all these processing plants in the Permian, It's a very efficient market and we just have to compete harder.

Okay. That's all for.

Great. Thanks, a lot.

Thank you I show. Our next question comes from the line of Chase Mulvehill from Bank of America. Please go ahead.

Hey, good morning, everybody.

I guess first of all I wanted to follow up on was the propylene business gross margin was pretty strong coming in at $260 million.

And this was despite a 34 days of unplanned downtime on PTH one.

So I guess, maybe could you just talk to that a little bit what drove that and then how sustainable on a go forward basis. Do you think this 260 million gross operating margin number is.

Sure Hi, Jason This is Chris data.

Overall, we have several actually significant number of contracts.

<unk> restructured it in a way that it's a fixed fee, but when the spread blows out we participate so a lot of what you saw this quarter is some of that benefit.

And as to sustainability I think you just look at the global supply chain issues across many industries and when that gets solved.

Maybe we return back to some normalcy in spreads, but until then I think we'll continue to see wide spreads.

Okay Alright.

Unrelated follow up just kind of thinking about ethane and LPG exports.

As we kind of move into 2022.

Kind of what underlying trends are you seeing today and what do you expect to see in the 2022 four.

LPG in ethylene exports.

Did you say ethane or ethylene or ethane well you could talked about if you want to.

I'll slip it in there as well.

And then Chris Yes.

Yes, Chase's suggests enquirer.

With respect to ethane and LPG I mean, I'd say, it's probably more of a domestic story versus LPG, but I think both the case remains switches demand will continue to outstrip the pace of supply growth as we forecast. It. So we feel good about our LPG export dock continuing to remain full regardless of how it's contracted today.

And we continue to feel good about ethane prices as a whole because domestically we still think demand is going to outstrip supply.

And what's your how full are you on ethane exports.

Right now.

November should be a record month, okay, Chris ethylene.

The same for ethylene November is going to be a record month for us and.

We're 95% contracted to the nameplate, but we've demonstrated we can run much higher than nameplate.

Perfect appreciate the color I'll turn it back over.

Thank you.

Our next question comes from the line of Keith Stanley from Wolfe Research. Please go ahead.

Hi, good morning.

I think I recall, there might have been just following up on propylene there might have been a local press articles, saying the company was considering adding another splitter.

Is that something you would be exploring with the market conditions very strong and I guess, how do you think about the economics for that.

And relatedly the potential upside of the Capex for next year.

I'm going to a $1 2 billion and a half is that tied to a particular chunky project or several smaller ones.

As far as <unk> splitter.

Some of the projects we're working on.

That we haven't.

Finalized.

Will dictate whether we look at another splitter.

You got anything on that Chris.

No and grant can comment on this but we have a pretty standard process for projects.

Tax the tax piece is the first step of that so that's probably what you saw on the press.

What was the rest of the question.

Uh huh.

The one to one five.

I think we're working on it Randy said, we're working on some projects that.

If they come about when it could see a little bit of an upturn in that capex.

Right.

Yes, Keith that's just not one chunky projects out several projects.

Okay. Okay got it thank you and then.

Just a clarification question.

On the special distribution concept, which you referenced MPLX I don't think.

Randy that was in your list of options, but as a special distributions something you would think.

About and consider next year, if you had excess cash and just how you think about that versus buybacks I'm, assuming it's more efficient in your view.

To do a special if that was an option.

Keith I think.

Our our focus would really be more on regular way, increasing the base distribution and.

And then we'll see what we do on buybacks.

And the buybacks, obviously will all depend on on.

Opportunistic buybacks market conditions.

And also business opportunities at the time.

Thank you.

Thank you.

Our next question comes from the line of Michael Blum from Wells Fargo. Please go ahead.

Thanks, Hey, good morning, everyone I just.

Just want to talk a little bit about the haynesville.

A little bit of an uptick in your systems around there.

I'm wondering if you can just give us an idea of where youre seeing increased producer activity there.

Sort of driving the uptick in volumes on those systems.

And then taken.

Yeah. So we're seeing increased activity from our existing producer customers, but not only that we are seeing new opportunities arise from potential new customers. Some hidden cotton valley, but often my gathering treating and processing perspective.

I'd say, we are working on a project to expand the KPN, one more time, adding 400 million a day.

So by that time, that's done give us will add $1 95 Bcf a day takeaway to LNG market.

And then we'll add another 400 of Acadian capacity after that.

Okay.

Got it that's helpful and then.

An interesting announcement around hydrogen for PVH to just curious.

Feasible to look at PDL, one and like try to retrofit it effectively for the same hydrogen application or is that not possible.

Grammar, our AMG, which Graeme I'll take that I think to a limited extent, we can but the technology lends itself better to the technology that we've used for PVH to there's a lot more technical hurdles to overcome on PTH, one what about other plants since your contracts rollout broken ground.

We've got other we've got other opportunities where we can.

Where our contracts roll off and we've got Optionality on how we look at it hydrogen versus the market, how we consume and.

As well as the consumers on the facility other some ops options. There some of the other units that are probably more suited to hydrogen there might be even PD H, one and where we're taking a look at all of those right now.

Great.

Michael we've been selling our hydrogen what what I think Graham cyan is as those contracts roll off there ought to be other opportunities for us to use that hydrogen.

And you've got that option, we've got that option to the market or internally.

Got it.

Thank you.

Thank you.

I show. Our next question comes from the line of Michael Cusimano from.

<unk> and partners. Please go ahead.

Hey, good morning, Thanks for taking my questions.

The press release mentioned lower NGL marketing activities.

As an impact of hedging.

Was hoping you could talk about the significance of those hedges as well as how.

For Q and then moving into 'twenty two.

I think in terms I'll talk this is Brent in terms of.

The margins on Ngls.

That's more a function of.

Contango storage players that we had in the past.

And then in terms of the hedging aspect Justin.

Yes, I think any any hedges you see there are or will be realized when physical delivery of product is made so I would view those as transitory.

I think to <unk> point.

The second half of 2020.

<unk> saw significant.

Storage revenue is as a function of.

April of 2020 and Covid.

Okay. So it's less of a thought that theres not much Mike.

NGL equity exposure that you've taken away.

Impacting that.

We have very little processing exposure hedged.

Okay. Thank you and then.

Staying on the NGL segment.

It looks like the ethane rejection from higher natural gas prices negatively affected in the NGL segment.

Mike looking quarter to quarter.

Can you talk about what youre seeing today relative to <unk> and then also if that.

Rejection in the NGL segment in Peru, with what you saw on the natural gas segment for <unk>.

Thanks.

In terms of what we see going forward.

Youre accurate in terms of the rejection that was going on within our system.

In terms of going forward.

We're going to have to watch to see how fast producers get back, but I think ultimately.

It comes a point in time, and we'll see what happens for the demand of the petrochemical sector is going to outstrip supply so.

So, we'll see how far away ethane.

Has to has to be to recut.

Recovered from from places that arent nearly as close to the Gulf Coast is the <unk>.

Permian or the Eagle Ford or haynesville or scenarios like that.

I think the other could answer your question.

Yes.

Alright, Thank you I appreciate it.

Thank you.

I show. Our next question comes from the line of <unk> from <unk> asset management. Thank you. Please go ahead.

Yeah, Hey, good morning, everybody.

I just have two questions.

I guess I'm only allowed two questions but.

Yeah in terms of growth going forward.

And capital expenditures going forward.

What what are the areas that excite you in terms of the opportunity set and could M&A be part of that.

So that's one and then the second is on inflation.

And Randy My Crystal ball is pretty pretty bad, but to the extent that we see inflation whats the philosophy around the distribution.

Regarding inflation.

And are you folks seeing any any inflationary pressures in the business right now.

That's the first Randy you take the second one in terms of what.

Some of the things we are we would like to do it.

We've been pretty good at Repurposing pipelines. So you can probably assume that we're looking at.

At Repurposing pipelines and as far as M&A I Love, what Randy's I've said all along.

M&A is concerned price matters, and we think a lot of tires and at the right price comes along we're not we're probably going to take a look at it.

And Kevin can I, just interrupt bright there.

Has that been a subtle shift in terms of that.

How you think about.

M&A.

And I get what you said about price.

But strategically as M&A, becoming a little bit more interesting to you.

I don't think anything's changed <unk> by the way that's your second question.

[laughter].

I don't think.

I don't think anything's changed I think maybe some valuations are.

Little more.

Or a little better than that.

That's what price matters means.

Okay.

Yes, it needs to go into I guess, what is now your third question.

On inflation I want to say over 90% of our revenues have some sort of.

Escalation mechanism in there.

Which will benchmark to various.

Indices.

So we feel like we have pretty good protection from inflation.

Thank you.

Graham and his team have done a great job on our capital projects as far as on long lead items, where we've really been in.

Pretty good shape as far as not seeing cost creep on those projects.

<unk>.

As far as how we think about the distribution you know, we we said.

Really what we're trying to achieve is trying to keep too.

What is it purchase power parity.

And so we would like to come in and with the increase in inflation.

Have a increase in the distribution growth rate compared to what you've seen over the last three or four years.

And really if I could use this.

Just in terms of that and this might get back to Jeremy's question of Av.

As far as recognition of the progress we've made and not showing up in the unit price. Some of it may be what have you done for me lately.

We came in and we shifted our posture in 2017 to come in and be able to finance the business better rather than coming in and.

Oh.

Relying on both the debt and equity capital markets. I think we were the first mover and coming in and self financing the business at first it was providing our own sources of equity capital in this year, our cash flow from operations.

He's going to cover all of our Capex. So I think we made that shift and to a degree it may come down too.

Our long term view and.

And the.

And maybe.

Because of the feedback that we get from our long term investors. They are quite pleased with what we've been doing and.

Versus short term and I think a good bit of the liquidity in the stock market. These days is high velocity short term oriented money.

And which may not align with how we've been allocating capital over the last.

Couple of years, but we think the way that we're progressing here is best for long term the best for the long term financial health of the partnership.

Ben.

I'll go back.

During this time period, you had a lot of mlps.

150, plus come in and cut distributions and we did not so as a result, they actually decreased the amount of capital they return to their partners over the last three or four years, while we continued to increase hours, but now we're at a position of what have you done for me lately.

<unk>.

You've got some people that might have a little bit more.

Our beta and short term gains if I can do because they cut their distributions. So deeply so again, we're running a long race here.

<unk> full of returning capital again, we're going to come in and do the all of the above approach.

But that's sort of a follow up on jeremy's questions without charging you an extra question Jeremy.

Yes, I got caught thank you.

[laughter].

Thank you I show. Our next question comes from the line of Colton Bean from Tudor Pickering Holt. Please go ahead.

Good morning, So a couple of follow ups here following up on that one to $1 $5 billion range can you clarify what level of spend was contemplated for spot or was that not one of the development projects in there.

That's not in that number.

Got it so that would be incremental to the range.

Yes.

Understood.

And then maybe circling back to NGL marketing.

I can appreciate on a year over year basis, the impacts of contango, but I think on a sequential basis. It also looked like there was a pretty material step down.

So just trying to better understand what changed from Q2 to Q3 and the NGL marketing business and then again, what the expectations are as we move towards year end in 2022.

Yes, Colton discuss inquiry I mean, I can sum it up pretty simply is just timing of spread capture.

And that's going to change based upon markets.

Okay.

<unk> also been a final one here Brent you talked on it or touched on.

How far away.

<unk> needs to be pulled from I guess as you look across your system, whether it's a tax from Apple or are there any opportunities that you all see from increased extraction.

I think there is.

<unk> volumes.

To some extent.

Not a whole lot of capacity left on there, but we do have some and then ultimately I think.

The bulk of the volume could come from the Permian to stuff, that's being rejected up there currently.

Great. Thank you.

Thank you.

I show our last question comes from the line of Michael Lapides from Goldman Sachs. Please go ahead.

Hey, guys. Thanks for answering all these questions and congrats on a decent quarter real quick just curious how youre thinking about the battle between Corpus and Houston Frac crude export volumes, obviously export volumes have been pretty weak for the last couple of months, but just curious how you're thinking about the share over the next quarter or so.

And maybe even over the next 12 to 18 months.

I don't know about the next quarter I think ultimately it becomes a battle between corpus and spot.

Right.

To me what's going on is is something that we have <unk> for a long time about Houston being a market.

Corpus being destination I know some people get tired of hearing that but I don't think in terms of the export business. There. One I think it's just a function of where the pipelines end up and what they have to do.

Ultimately.

The value of the barrel is worth more domestically during those across the water.

So thats what Youre seeing go on in Houston with frankly, we've got customers that have take or pay contracts and ultimately what their net factors, there's quite a bit higher domestically across our system in the Gulf coast.

Where we want to be a long term is going across the VLCC dock and ultimately over time, we think spot and pull the barrels away that want to go to the export markets.

Got it. Thank you guys much appreciate it.

Okay. Thank you and delay and we're ready to for you to give our listeners the replay information if you don't mind.

I'd like to thank all participants for joining us today.

We're going to go ahead and go offline, if you'd give them that information. Thank you.

Thank you Sir This concludes today's conference call.

<unk> will be available from one PM Eastern time November 2nd 2021 to <unk> 59 PM Eastern time November 19 2021. Please.

Please dial one 805 58592056 or 404 537 3406 for international participants and.

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