Q3 2021 DCP Midstream LP Earnings Call

Ladies and gentlemen, thank you for standing by.

So to get them all the time.

Can't think that they bought.

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Thank you.

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Okay.

Thank you for standing by and welcome to the Q3 2021 DCP Midstream LP earnings Conference call. At this time, all participants are in listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

Ask a question at that time. Please press Star then one when you touch tone telephone.

As a reminder, today's conference call is being recorded.

I would now like turn the conference host Mr. Mike Ball Ma'am you may begin.

Good morning, and welcome to the DCP Midstream third quarter 2021 earnings call today's call is being webcast and I encourage those listening on the phone to view the supporting slides, which are available on our website at DCP midstream Dot com.

Before we begin I'd like to point out that our discussion today includes forward looking statements actual results may differ due to certain risk factors that affect our business. Please review the second slide in the deck that describes our use of forward looking statements and for a complete listing of the risk factors. Please refer to the partnership's latest SEC filings, we will also use <unk>.

Non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measure and scheduled in the appendix section of the slides Wouter van Kempen, CEO and Sean O'brien CFO will be our speakers today and after their remarks, we will take your questions with that I'll turn the call over to Robert Thank you, Mike and good morning, everyone. We appreciate you joining us today.

Hope, you're all safe and well on today's call, we will discuss our third quarter results for 2021, our outlook for the remainder of this year and an early preview of 2022.

Before getting into the third quarter highlights I'd like to acknowledge and thank the DCP team over.

Over the last five plus year DCP and our industry in general has faced significant headwinds and had to manage through extreme volatility.

Through these cycles has created a stronger and more resilient DCP.

Through the years, we took aggressive actions made difficult positions and executed our strategy to ensure dcp's long term sustainability in any commodity environment. We've.

We've extended our value chain prioritize capital discipline and invested in DCP to point out to drive efficiencies in our business, while right sizing, our head count and lowering our cost structure.

Ultimately these strategic strategic actions.

To balance and diversify our portfolio and stabilize our cash flows while retaining favorable commodity upside.

The third quarter results highlight the value of our balanced portfolio and a DCP team's strong execution for.

For the quarter, we realized record adjusted EBITDA of approximately $355 million DCF of $250 million in excess free cash flow of approximately $160 million and we define excess free cash flow is free cash flow after paying all our distributions and funding.

All of our growth capital programs.

Strong performance from our north in Permian assets, along with optimizing our portfolio across our value chains continues to drive favorable results and generated the sixth consecutive quarter of excess free cash flow.

This record quarter continues our strong year to date performance.

So far this year, we have maintained our lean manufacturing model, which has us on target this year to sustain approximately $140 million of cost savings realized in 2020, while offsetting inflationary pressures.

We've also generated $375 million of excess free cash flow, which is an approximate 60% increase from the full year 2020 and.

And we have made strong progress towards investment grade ratings, resulting in favorable rating agency actions as Moody's upgraded us in the second quarter and in the third quarter Fitch moved us to a positive outlook.

Our record third quarter results, coupled with our strong first half performance have DCP on track to exceed our 2021 financial guidance and with that I'll turn things over to Shaun to run through Q3 financial results.

Thanks, <unk> and good morning, everyone on slide four I'll hit the key drivers to our record third quarter performance as DCF was up 11% and adjusted EBITDA was up 6% from Q2.

The business benefited from the favorable commodity environment, primarily NGL up 28% in crude up 7%, which resulted in a $26 million quarter over quarter improvement.

We realized favorable GNP earnings due to volume growth and our DJ and Permian regions, which are two of our highest margin business units.

These two drivers more than offset the financial impact of planned maintenance across the portfolio lower volumes in the south and lower earnings on sand Hills.

The planned maintenance drove higher costs and impacted our <unk> and volume G&P volumes for the quarter.

Specifically, we had turnarounds at our national helium plant in the mid continent, and our counter to Lucerne two plant in the DJ. Additionally, our west Texas G&P assets were also impacted as deferred maintenance from the first quarter was completed.

The lower G&P volumes had a direct impact on our O&M business at Southern Hills volumes were down, 4% and sand hills volumes were down 1%.

Overall, the strong business unit performance and favorable commodity pricing resulted in our leverage improving to four one times the higher commodity pricing has been a tailwind for the business. But has also created a temporary increase in working capital need supported by our hedges and normal business activities, we anticipate leverage continuing to improve.

We closed out the year strong.

On slide five I'd like to provide an update on our outlook for the remainder of the year.

Year to date, we've generated $650 million of DCF $961 million of adjusted EBITDA and $378 million of excess free cash flow, which has us well on track to exceed our 2021 financial guidance, we're prime for the fourth quarter as commodity pricing and fundamentals remain constructive with <unk>.

GL is trading above a dollar in crude above 80, we are set to realize another strong quarter of pricing upside.

The outlook from our DJ and Permian businesses continues to improve due to incremental producer activity and the majority of our large scheduled maintenance projects are complete which has our assets prepared as we approach the winter season.

During the quarter, we expect to realize costs related to the timing of deferred work and also expect to see increased sustaining capital driven by increased producer activity.

As we closed the year leveraging liquidity will improve as 2021 hedges expire and the business is well positioned to continue to generate strong excess free cash flow.

On slide six I want to highlight our improved financial position and trends, we see continuing into 2020 to come.

Coming into the year, we outlined our commitment to strengthen our balance sheet and prioritize debt reduction until hitting our approximate three five times leverage target.

Which would provide us financial flexibility and screen very well to investment grade metrics.

Year to date, our balanced portfolio has performed extremely well.

Excess free cash flow continues to increase leverage will continue to improve with strong earnings and over the last 12 months. We've received favorable rating agency actions from S&P, Moody's and Fitch.

As we head into 2022, we continued to build momentum with the rating agencies and are on track to hit or approximately three five times leverage target, which will provide additional financial flexibility and afford us the opportunity to leverage the earnings power of the portfolio.

Our multi year hedging strategy targets, an 80% to 90% mix of fee based and hedged earnings.

With our improving leveraging liquidity, we will enter 2022% to 82%, while keeping our eye on the potential to add opportunistic hedges further out the curve and with that I'll turn it back to Bob Thanks, Sean So as we move to slide seven let's take a look at some of the industry trends and how dcp's prepared to <unk>.

Managed to risks and opportunities they present.

Looking to next year, we are optimistic on the commodity outlook.

<unk> for our products continues to increase global inventory leverage levels are below average in U S. Shale producers currently remain committed to maintaining capital discipline and are taking a measured approach to growth.

This sets up well for the DCP portfolio as we've extended our value chain and built a balance of strong fee based assets like sand Hills Southern Hills Gulf Coast Express, while also maintaining favorable exposure to commodity pricing through our G&P business.

While producers are currently taking a disciplined approach to development plants, we're starting to see an uptick in opportunities across our footprint. We're anticipating this to benefit our DJ and Permian regions. While also offsetting legacy volume declines in the mid continent and the south.

While the fundamental setup well for commodity pricing and producer activity. The industry is still faced with excess capacity, which will continue to impact rates on securing new volumes in the last couple of years, we've been able to leverage our integrated value chain to secure incremental volumes and we believe this will be a key component to our success.

As we move forward.

One last item affecting our industry is the inflationary environment impacting the global economy like other industries, we are facing inflationary pressures and supply chain disruptions, which are impacting materials and labour pricing. However, our business is also able to partially offset these factors by leveraging built in.

Contractual escalators within our <unk> and our G&P businesses.

With a strong commodity outlook the ability to leverage our integrated value chain and built in hedges against inflationary pressures. The DCP portfolio is well positioned as we enter 2022, which brings me to our next slide and our priorities for next year.

We begin the business is set up to maximize earnings and we plan on leveraging as favorable environment to make critical and strategic investments in our business to drive long term value for our unitholders.

Yesterday, I announced a realignment of our executive team.

<unk> first executive management role focused on energy transition and sustainability was introduced and we've added technical knowledge and long term experience in our north value chain to continue to drive operational excellence.

Ultimately these changes will accelerate our efforts in the key areas, we'll cover on slide eight.

Since 2015, we built a culture based on operational excellence and safety is our number one priority on.

I am proud of our past success. Most are very excited about the continued progress that we're making as of today. We have set an all time DCP company record of 125 days without an employee Osha recordable injury.

Within our operational excellence framework reliability and asset utilization are critical to our success our customers rely on us and our reliability is our scorecard that builds trust and ultimately positions us to maintain and grow our business.

The importance of runtime and reliability are magnified during these periods of high commodity pricing and it's critical for us to maintain focus on our operational excellence.

Another priority for us in 2022 will be accelerating the progress on our sustainability efforts.

During our second quarter earnings call in August, we released our long term ESG and sustainability goals of reducing scope one scope two emissions by 30% by 2030 clinical ultimately net zero by 2050.

To achieve these goals I highlighted our three strategic horizons.

The core.

Adjacent to the core and build the core <unk>.

Cleaned the core means continuing to improve our emissions profile through increased efficiency and modernization of existing operations between 2018 and 2020, we made significant progress with a 16% reduction in scope, one and scope two emissions and we've continued driving that progress here in 2021.

For example.

Staining capital projects are now evaluated not just through the lens of profitability and reliability, but also in a way that reduces our emissions profile and supports our efforts to clean the course.

The third area of focus will be maintaining strong capital discipline.

As we leverage this favorable environment to make long term investments in our business, we will continue to prioritize our opportunities and only make select strategic investments.

We have built a track record of disciplined growth as we've executed a supply long capacity short strategy and leverage existing capacity versus large scale capital expansions.

We work to develop capital efficient solutions that benefited both our customers and DCP.

This capital light strategy has worked well and we maintained high asset utilization retained long term optionality and strengthened the balance sheet.

As we move forward, we will maintain this disciplined as we work with our customers to identify needs and opportunities.

<unk> built out their development plans.

In some cases this means investments across our G&P footprint may ramp up, especially in areas like the DJ and Permian.

These bolt on capital efficient investments will strengthen dcp's competitive position and provide further downstream earnings opportunity.

Along with investing in our core business, we will continue to pursue and develop opportunities around energy transition as part of our adjacent to the core and beyond to core strategies are adjacent to the core effort means exploring opportunities to expand our business portfolio, leveraging our intellectual capital and existing infrastructure.

And this could include carbon capture and sequestration and other emerging technologies.

And lastly beyond the GOR is largely supported by our DCP Tech Ventures group and focuses on new technologies.

The final area I would like to highlight this capital allocation as we've transformed our business over the last couple of years.

Being able to strengthen our balance sheet, we expect to meet our approximately $3 five leverage target in the second half of 2022, providing us with a strong balance sheet with the financial flexibility to withstand any economic cycle.

This flexibility will afford us the opportunity to pick up from a deleveraging focus to other capital allocation options such as select growth distribution increases our unit repurchases any of these options are a combination of them will return additional value to our unitholders.

With our strengthened balance sheet favorable fundamentals and a DCP team's ability to continue to improve our operations innovate and drive efficiencies, we are well prepared for 2022 and beyond and with that we look forward to taking your questions.

Thank you again, ladies and gentlemen, if you'd like to ask a question.

Then one on your touch that was helpful.

One moment please for our first question.

Our first question comes from Shneur <unk>.

UBS Your line is open.

Hi, Good morning battery, Sean good morning.

Maybe to start off I was wondering if we can talk about PPI a little bit here.

I was wondering if you have any contractual arrangements that have PPI and flavors in your business, where you could see potential tariff increases.

Kind of on the back of the whole PPI surge that we're seeing is there are certain parts that are more exposed.

There could be potential tariff upside yes.

Yes, good morning Cheniere.

I'll cover inflation, maybe as a whole, but we'll I'll, let you PPI so.

Bottom line.

Around the cost increases and inflation increases that we expect to see in 2022 companies actually in a really good spot. We did a lot of good things in the last couple of years to reduce cost $150 million plus centers set ourselves up with efficiencies Digitization to point out as we're going into this inflationary period.

Having said that we do anticipate some increases so I'll cover some of those we see we're seeing it in labor we're seeing it in steel we're seeing it in <unk>.

And ancillary things to labor like contractors and so forth. So we do expect some of that in 'twenty. Two in regards to 2021, we haven't really been impacted in a big way.

<unk> seen a few disruptions on the supply chain side, but really not a big story in 'twenty one to get to your direct question as we move into 'twenty, two that will be the cost side, which have increases, but theres two what I'll call hedges against those cost increases one of course is commodity prices obviously.

The inflationary measure and that's really helping the company out quite a bit with our portfolio and the short answer after all that to your question is yes, we have.

CPI.

Indicators or things that we can increase on both the O&M in the G&P side.

Were intended to help obviously, the midstream company and more specifically our company in areas of high inflation. So at the end of the day Youll Leger by likely Youre going to see increased costs next year, but there will be margin offsets and commodity price offset.

And maybe to add to that the increased cost that Sean is talking about obviously, we do have a number of CPI PPI inflate us so that's going to help the margin but I.

I think one of the things that is important in a business like ours, we are a cyclical business.

There's times, where you have to wind in your face and there are times when you have to win to your back I think right now as a company as an industry, we have to wind at our back a little bit I think next year feels pretty good if we look at our outlook and I think Thats also a good time to invest in your business and make sure you drive long term value. So next year, we have a fairly.

<unk> heavy turnaround and overall year, we're going to continue to invest in operational excellence and reliability, making sure that the run the business as good as possible, we're going to invest in our workforce and continue to do that they are trying to build a multi skilled workforce and I think that's important, especially given what youre seeing today with the work environment.

That's an energy transition and we're going to invest to make sure that we stay ahead of potential regulatory changes.

Pipeline maintenance leak detection think about the things we started in 2020.

Cairo's Aerospace, where we started the largest methane leak detection program on a voluntary basis here in the United States. It make sure that you run your assets better.

Overall, I think what it does it will create tremendous.

Benefit to your asset base, not only in 2022, but our.

Well beyond that then I think lastly, what is important if you think about cost structure.

Cost structure next year is still going to be significantly lower.

What we saw in years like 2018, 2019, I believe our cost structure in those years was about $1 billion 40, or so we're about 15% below that Bob we're having higher EBITDA, while we're being having better safety, Bob we have better.

Our reliability, Bob we have lower emissions and next year is going to be it's going to be similar like that so pretty pretty nicely setup.

Great given that you have the wind at your back.

You had mentioned in your prepared remarks about capital allocation.

As being one of the key priorities for 2022.

Just wondering if we can talk about the excess free cash flow Optionality that you discussed is there something that you are favoring towards.

Towards buyback because it towards a distribution increase.

Are you even considering special distributions.

Just trying to understand kind of the order of priorities that you are thinking about with respect to returning capital.

I think.

Hey, that's the right question.

These late kind of expected you work you were going to ask us that shneur.

It's a very fair question, Mike our focus over the last number of quarters. As you know it's been on the balance sheet that has been our number one priority reduce debt at an absolute level make sure that we set this company up to withstand any economic cycle.

Our leverage here in this quarter.

I think we're going to end up the year probably.

The leverage ratio that has a <unk> III in trauma and I believe that we're going to be somewhere in the second half of 2022, I expect to be at a three and half targets very pleased with the results that we've seen so far from the team. This year, we're well ahead of our discount.

Ahead of schedule.

I also think that if you look back at the last.

Year to year as ourself, we contained to May continue to maintain a very healthy distribution I think we took a very measured approach when things turn for the worst and that kind of March April 2020. The business continues to perform really well, we have $370 million of excess free cash flow year to date are positive for the last six.

<unk> were up 60% in excess free cash flow since 2020, and but all of that provides us here. Some time and I think the second half of 2022 is great Optionality and it's nice to have great Optionality. So what can we do I think we can invest in energy transition if theres opportunities there where it makes sense we can.

<unk> continued to invest in the most important areas in our company from a GNP point, if you like the Permian like the DJ you can raise the distribution can do buybacks I think any option or a combination of those is going to create additional value for unit holders and I think we're going to be in a great place in the second half of 2022.

To execute on any or all of those options.

Perfect. Thank you very much those are my two questions have a great day sanction here.

Thank you. Our next question comes from Michael Blum of Wells Fargo. Your line is open.

Thanks, Good morning, everyone.

I wanted to ask a little bit about the mid con just kind of get you out.

Outlook on what Youre seeing there from producers do you think theres going be any uptick in drilling activity I just wanted to try to get your sense of if we could see any change there, yes, I think Michael we see obviously Q3, we had we.

We had our largest asset our huge asset without in the mid continent in Q3 and in the area actually produce still pretty strong margins.

In terms of thinking through the rest of the year I think we see it closing the year flat to maybe slightly up and then as we think about 2022 from a producer side from the bigger producer side, we're seeing some activity some increased activity, but it's very disciplined but I think your split some potential growth there and then it's one of those areas.

The smaller producers and there are many of them are actually actively adding.

Adding quite a bit of activity. So I think it's an area that could be that could surprise us I think Q4 will be pleased with what we see and then I think as we are.

Laser locking in on 'twenty, two it's an area that probably you will see some growth flat to up and when I say flat that would be offsetting base declines with more growth than we would have thought the only thing I would remind you. Though is we had a very strong quarter from a G&P perspective, and thats because the areas, we're seeing bigger growth like the DJ and the Permian are.

Higher margin areas of the mid continent is a solid area, but it's not.

Not driving as much margin value as those other two areas, but outlook is probably neutral to positive for sure.

Great Thanks for that.

Second question I wanted to ask about ethane rejection, just where that was this quarter and then.

Any views you have on how that will trend into 2022.

So we saw I mean, it's been hovering very very if I look at the last three quarters. The last four quarters, it's been really consistent we.

We are mostly in ethane recovery, specifically, obviously, the southern hills assets, where we control most of the barrels we have been in recovery.

And the barrels we control on sand hills because of the value chain that we have we've been in recovery third party rejection has stayed relatively constant there was some periods. Michael in Q3, where we were a couple of producers came out and went into recovery, but nothing significant it's really a pretty linear trend.

This year and as you may recall, we went into the year, hoping we'd be in recovery, even the third party, we were not but that we've been seeing that every quarter right now and we'll give you more color in February but right now obviously to tell you what we're predicting for 'twenty. Two we are we're in that same mode DCP assets in recovery because of the VAT.

New chain economics, third parties and rejection and Thats, probably what youll see in our guidance as we come out next year, we're not seeing it flipped significantly the frac spreads and the strength of gas is still keeping people in rejection.

Yeah, and I think maybe maybe just to add to that unlike the ethane recovery rejection.

We're looking at today is a bit of a I don't know a champagne problem.

Historically, you were looking at it.

Gas and ethane were both fighting to be kind of the lowest right now youre looking at 43 ethane hero sport $5 50 gas so.

It's a bit oven.

It's not it's not as meaningful.

Potentially an issue as probably you would think about this in the last number of years.

Got it thank you both very much thanks.

Thanks, Mike.

Thank you.

Our next question comes from Jeremy Good.

Your line is open.

Hi, good morning, good morning.

Just wanted to get back to the cash flow Optionality as you talked about.

After hitting three five times leverage we see DCP really gosh, a lot of cash flow in the back half of next year and just wanted to drill in specifically as you think about the buyback option.

If you do pursue that do you see more value in pursuing something programmatic or opportunistic as it relates to buybacks.

Yes, Jeremy or Harry.

I don't think at this very moment im willing to kind of go into significant detail around that I think that.

The closer and closer we got two to three and a half target that we have and hopefully our expectation as we get there in the second half of 2022.

We will obviously give you more details around that.

That's very time, I think what's important and.

<unk> continues to be tremendously important is how we set up this company, we are very comfortable with where things are today.

If I look at Shouldnt, we have been sitting in our chairs now I think for eight plus years. We've done 30, plus earnings calls together and I don't think we've ever felt comfortable going into a new year as why were sitting here today at.

At the same time you noted this industry things change relatively quickly it supposed to be long cycle, but we have seen a lot of short cycle has been a lot of changes. So the good thing for US is we're set up tremendously well not only for the rest of this year I think we're going to meaningfully exceed.

Our guidance ranges that we have.

Up very very nicely for next year the balance sheet already starts to look really good it's going to look better it's going to look really really solid investment grade rated.

Metrics sometime in the middle of next year and that just provides this company a tremendous amount of optionality to do things that create additional value for unitholders and yet that's our job and that's what we're laser focused on.

As we get closer and closer to that will give you more details.

Got it Thats very helpful. Here. Thank you and just wanted to pivot towards D. C for a minute here and granted there's a lot of uncertainty in my Crystal ball is quite cloudy, but just wondering if theres anything that youre looking for there and specifically I'm thinking.

45, <unk> language kind of comes through that's been talked about or even adding renewables to MLP just wondering what type of impact that could have on DCP.

Yes, I think Jeremy you're right. Unlike the Crystal ball is quite cloudy I would think thats.

Even in an optimistic way to talk about it there are so many uncertainties I think it is so difficult right now to speculate around what is going to happen theres. So many moving pieces and things keep changing like on an hourly daily type of basis, we have a number of people in it within our company that are closely monitoring that closely and working with people in D. C.

Obviously by our industry associations for very closely involved.

But.

What exactly is going to come out we'll see maybe I'll take the question a little bit broader and talk about a couple of on our items. So around 45 queues.

Carbon capture and sequestration is something that we already doing we're doing it in southeast New Mexico, and our business that we believe is part of our adjacent to the core strategy that we have reaching our 30 by 30 that carbon capture and sequestration is something that is a really good opportunity for us.

Gathering.

So our large ethane are large aggregation points for FERC.

Greenhouse gases and so, but we believe places like the DJ South Southeast New Mexico, Michigan, We have Optionality is there at the current 45 cued language.

And the incentives that probably doesn't work, but we hope that things are getting raised and the 45 Q is going to be worth more.

As you saw on my announcement yesterday, we added.

A position here on the <unk> on the executive team that is going to be focused around energy transition and continued transformation and we're going to spend a significant amount of time on that.

Maybe give a quick update on the EPA methane update you saw that yesterday as well.

There is a number of changes that are in the works, but obviously more closely monitoring that.

I think what is important when you think about that update from the EPA specifically is that.

We're headquartered we're sitting here in Denver, Colorado, We are operating in the state of Colorado, We're operating in New Mexico. Those two states have the most stringent methane emission rules and regulations in the country and we are running a very successful business in those areas. So that's.

I think in general what we're going to continue to focus on is cleaning the core adjacent to the core beyond the guard is a variety of things that we're doing there to make sure that we run our business more reliable we do it we do it safe and we do it with the lowest emissions profile as possible and Thats why our focus is going to be home and we're going to close.

We watch what's happening in DC.

Got it that was a very helpful response.

And maybe just the last one if I could real quick Permian and DJ producer activity. What are you seeing into 'twenty two at this point and how does it vary between publics versus privates, we've heard different messaging over time, just wondering for an updated perspective from you there.

Yes, I mean clearly.

There is a differentiation between public and private so obviously the privates youre seeing a lot more activity in both of those regions that you mentioned I think the shift Jeremy that we've seen maybe as you are seeing.

The public's start to and it's very measured very disciplined which is what we want to see that's what this industry is needed for a long time, but we are seeing some positive signs in both of those areas from some of the bigger producers, but again very measured that's what we like.

I think the industry can perform very very well with modest growth and thats, probably the big shifts since we spoke to you last is that.

The publics are doing a little more activity, but again very measured with a lot of focus on capital allocation and other areas as well so that bodes if you listen to <unk> remarks, that's why we feel pretty comfortable going into 2022 those are the areas that we make.

Some of the most margin some of our best margin areas and then there is potential and what we will give you more color maybe in February areas like West, Texas. There is that we're looking at areas, where you could see some good opportunities and obviously, we have assets there in 2022, and we're pretty excited about that too early maybe to to book it.

But we're seeing some pretty good activity from a lease perspective, and a potential rig count perspective in West Texas.

Got it very helpful I'll leave it there thanks.

Thank you our next question will come from.

Justin.

At Swift.

Hi, good morning, guys.

Really appreciate all the comments on 2022, and what Youre seeing this early.

You talked about growth in your core operating areas.

And just thinking the leverage target, but it certainly implies growth for 2022, but.

I guess just to clarify does that leverage target sometime in the second half assume.

LTM view or more of an annualized run rate type of leverage target.

It is.

About the leverage target tryst, and we're basically talking about.

Trailing 12 months.

When Bader said, Hey, we think we'll be there in the middle portion of the year I mean, I think there's two things to think about we will continue to improve.

Proved Q2 to Q3.

I think youll see a pretty good improvement as Wouter mentioned, we hopefully have a three handle we're set up pretty well in Q4 to drive that and then basically as we continue to stack on very strong quarters too.

Record quarters that we saw in Q3, and we anticipate Q4 to be really strong.

We expect that three and a half on a trailing 12 month to be there in the first half of the year and barring anything significant.

Significant changing in the current forecast I think we are well set up to get there. So that's how we look at it.

And then at the end of the day, you got to be able to sustain it. So we are taking a forward book as well, but with the assets with the leverage reduction with the things that the company has been able to deliver I think we're set up for.

A pretty good trend EBIT post hitting that three five.

Makes sense, that's great Jon and then just on the capital side I mean, you talked about.

Selective investments in the assets and as well as the new energy transition group do you see some of those opportunities materialize in 2022, and I'm, just thinking 2022 relative to.

2021.

We really saw sort of extreme capital discipline, so just thinking about.

The timing of when opportunities materialize.

Think about investing in the existing asset base.

No.

Yes, let me maybe high level attrition here. So if I think about the DJ basin, if I think about the Permian.

We continue to see.

Good activity by the producer's disciplined but good activity I would think most of the investments that we would have to do there we'll be doing there to get new volumes online are focused around field infrastructure. So it is not having to build a new plant and spending $2 three.

$400 million. It is much more manageable kind of field infrastructure, five compression and things like which is which is significantly less capital than having to do very significant large infrastructure. So I think that is a good thing as it pertains to energy transition I think it's going to depend on what opportunities we see.

See there and what happens to kind of the earlier questions that Jeremy asked about 145 Q is going to look like what is the optionality to do things, how do you get and work with states and state approvals to get <unk>.

Class six wells drilled and permanent and things like that so I think that's a little bit of a to be determined but whats you are not going to see I think in 2022 is announcements of really large.

Multi $100 million $5 billion type of projects, it's much more granular around around field with obviously helps us a lot and creating significantly excess free cash flow and one other thing and we always will talk positive around.

How we look at the fourth quarter, how do we look at 2022 at.

At the same time, we also noticed there's industry turns really rapidly and really quickly. So shouldnt I always look at hey.

What is the downside.

If crude and Ngls and natural gas, let's say they go down by 50% and Thats.

Huge down cycle, and we don't expect that but what does the company look like an even in an environment like that we continue to generate excess free cash flow. After our distributions fairly significant so I think that is to really good thing about how we're balanced our setup. How we are taking to current time in the last six <unk>.

<unk> to set this company up.

Really really strong balance sheet, and just being able to run through any type of environment at this.

B.

Thrown at us.

It makes a lot of sense and just one last one if I could just on the in your opinion.

<unk> you talk about sort of the bridge from last year to this year and highlight some of the costs. Sean just curious if you can maybe frame for us how much of the incremental costs year over year were related to specifically the planned maintenance items, you talked about versus sort of that general inflation theme.

You guys talked about as well.

Interest in for this year.

We're going to I think we're going to be relatively flat 2020 to 2021, we committed to holding on but I think youre right. The mix is going to be a little bit different we drove a lot of corporate efficiencies coming out of Covid and you didn't get a full year of those last year, you'll get a full year and then what youre seeing is a little more investment even in 2021.

We went into a heavier maintenance cycle heavier turnaround cycle as you go into 2022, and we'll give you more detail, but there's two things happening there will be some on the cost line itself.

Inflation is going to have some impact we've been forecasting at looking at areas one of the benefits, though to your earlier question. We're not in this huge build cycle, we're doing some.

Some build tied to areas that are growing but it's not this gigantic capital program. So even though there will be increases on the capital side.

It'd be fairly measured, but we will see labor we're seeing the same thing as everyone else is <unk> lubes steel labor.

Contracting costs all of that is going to go up but don't forget it's about her and I mentioned there are some really good offsets.

<unk>.

Does very well in an inflationary environment, because we we benefit from the commodity and again, we have some built in escalators back to an earlier question in some of our G&P.

Pipeline contracts that will be very advantageous to us next year. So line item by line item. When we give you a 'twenty two guidance youll see costs going up but again, we're still as Bob indicated we are still be at a low level. When you go back four or five years because of all the hard work that the company has done on efficiencies, but theres going to be some offset.

<unk>.

But again 'twenty to 'twenty, one flat a little more investment in the assets and probably some additional efficiencies driven out of the corporate groups.

Super helpful. Thank you guys very much.

Yes.

Thank you again.

Again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one.

Hello.

Our next question comes from power Donna.

<unk> Suisse. Your line is open.

Hey batteries Shaun just a few quick follow ups from me.

Just coming back to capacity that you mentioned in the industry being capacity long.

But of course, if I look at your system.

It looks like some of it is getting a little bit stretched your DJ about 99% utilization of course, you've got the offload agreement deal with that Permian. It seems like it's on a path and so I know you mentioned really no plans for big sort of plant developments out there and so curious can you just highlight some of the areas, where it's looking like youre going to have to invest a little bit.

Here in the near term and.

Either print excuse me plant relocations or off loads or give me enough to kind of address that issue.

Yes, I think Glenn.

Glenn Relocations is not something that we are focused on right now.

But as I may have said earlier.

DJ and the Permian is where we believe that.

Additional growth is going to be you're right and kind of if you look at our overall system utilization is very high in both of these areas, but at the same time there continues to be a lot of people around us.

Have significant plant availability and if you take a look at the DJ Basin.

There is a variety of plants that are sitting I would say not exactly full and there's availability for us to do things. So we're looking at that.

Also still have a permit in the DJ basin solid if we need to go that route I do not expect that but we do have permits available enhance where we could add capacity if needed right. Now I don't think that is what is needed. So youre really looking at field infrastructure predominantly in the DJ and we look at the same in the <unk>.

Permian Basin.

Southeast New Mexico, we are offloading into into other people there are oil floats still available and continue to be available we're going to utilize those.

Versus building new plants.

We have to do something around field infrastructure Dara as well and then I believe <unk> mentioned that in West Texas.

We do have some availability in some capacity.

Seeing or talking to quite a lot of independents, who are looking for additional <unk>.

Processing capacity.

We are cautiously optimistic that we can start filling some of that in 2022. So that's I think why you should focus on DJ Permian and I think the pipelines are are doing very very well.

We still have some availability in the pipeline as well or we have on our options on the not call it 100% owned or controlled pipelines like a sand hills Southern Hills, where we can move things.

And on our pipes on behalf of <unk>.

Waller ownership percentages.

Okay got it okay that makes sense I appreciate the color there second one just on the topic of maximizing earnings matter you called that out earlier.

And if I look at <unk>, you guys hit a record level of EBITDA this quarter.

Very simplistic to do this but of course, if I just annualize that it gets you about $1 4 billion. If I consider maybe the maintenance issues you had in the commodity backdrop I got to think that moves closer to an earnings capacity of $1 5 billion or maybe more.

So I know youre not in a position to guide to 2022, yet I'm not asking for that but if you think about the earnings power of this business in this very strong commodity environment I guess why why is that not appropriate way to think about it what are some of those puts and takes I know you mentioned costs, maybe going higher next year, but it sounds like youre a bit hedge there as well just curious how to think about that.

Well I think I think I think youre right around hey, how do we look at things that Mike mentioned debt shown on IR I've been doing this for quite some time.

We're looking at 2022 and I think we're.

Quite optimistic I'm, probably more optimistic than we have been in most years Thats shown on I have been in these in these chairs. Unlike for me, it's really hard to comment on.

What is 2022 going to look like.

At the same time.

So interesting as I was on the phone two weeks or so ago with some folks and it was exactly 18 months ago that we saw minus $37 crude so things changed tremendously rapidly maintenance business.

For me I cannot sit here and guide towards 2022 here, but.

We likely see more optimistic than what we see I think we got more things right than we got things wrong.

Took some very deliberate strategic positions around our company, creating a lean manufacturing kind of profile that is tremendously scalable.

Done that during difficult times and that creates a lot of earnings power. If you go into a current cycle like we're having creating a good balance between fee base business and at the same time.

Retaining commodity upside that we're doing we're doing all of that I think that is helping really nicely.

The capital dollar to excess free cash flow that we have and putting it towards the balance sheet, so you're creating an ironclad balance sheet.

Creating a business that can withstand any cycle I think that has worked pretty well for us our digital transformation that we've been doing trying to make sure we reduce our overall cost.

Optimizing our operational excellence that we optimize our runtime that we're lowering our greenhouse gas emissions. So I think we've done a lot of really hard work difficult work being supply loan capacity short we've done a lot of things that other people didnt do because we had some really strong beliefs on how we want to set this company up not just.

Tomorrow next week next month next quarter about setting it up for a really really good kind of long term sustainability.

If you look at all of that together I am like I think 2022, if things stay the way. They are today it should be a really solid year and a really good year for the DCP enterprise.

Yes, certainly would agree.

One last one just really quickly.

One of your largest owners Phillips recently made a decision to fold in some of its midstream assets.

And I know, obviously, there are partial owners and sand hills Southern Hills and some of the assets you own also I imagine there are some assets that they've got that you might want to get your hands on at some point thinking about frac and export.

So curious if the simplification.

I'll bet Phillips has any read through to you is there any areas there for you to potentially get your hands on some of those assets going forward.

Yes, I don't think I am the one who can answer that question I don't work for Phillips 66, and so therefore.

I appreciate you asking but I really think that is a question that is better answered by other people.

I do think what Youre seeing is youre going to continue to see a trend of consolidation I think in the last couple of weeks. We've seen now I think three corporate to corporate types of transactions that are happening.

I would expect that youre going to continue to see M&A and consolidation in this industry. It is something that is needed and that makes a lot of sense.

That's going to happen for DCP are not amongst fine on that I'm not in a position to opine on that but I am in a position to talk about this we've set our company up to to scale well in a environment like we are today and I think we've done a tremendous amount of hard work and I applaud DCP team for all the hard work.

They continue to do every single day to set this company up as good as possible to benefit from a really good environment like we're seeing today in 2021, and hopefully 2022 and beyond.

Yes fair enough.

We will give Greg a call now thanks as always for the time guys.

Thank you Spiro.

Thank you.

Showing no further questions at this time I'd like to turn the call back over to Mike Palmer for any closing remarks.

Thank you all for joining US today, if you have any follow up questions feel free to reach out and otherwise thanks and have a good day.

Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.

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