Q4 2021 ONEOK Inc Earnings Call
Good day and welcome to the fourth quarter 2021, one Oak earnings call Today's conference is being recorded.
At this time I'd like to turn the conference over to Andrew <unk>, Vice President of Investor Relations and Corporate Affairs. Please go ahead Sir.
Thank you Jennifer and welcome everyone to one of its fourth quarter and year end 2021 earnings call.
We issued our earnings release and presentation that includes 2022 guidance after the markets closed yesterday and those materials are on our website.
After our prepared remarks will be available to take your questions.
Statements made during this call that might include one offs expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the securities acts of 1933 and 1934.
Actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our SEC filings.
Just a reminder, before we turn it over to the conference coordinator for Q&A. We ask you that you limit yourself to one question and one follow up in order to fit in as many of you as we can.
With that I'll turn the call over to Pierce Norton, President and Chief Executive Officer peers.
Andrew and good morning, everyone.
We appreciate your interest and investment in one oak. Thank you for taking the time to join US we've got a lot to cover today.
With me on the call today is Walt Hulse, Chief Financial Officer, and Executive Vice President strategy, and corporate Affairs, and Kevin Burdick Executive Vice President Chief Operating Officer also available to answer your questions are Sheridan swords senior Vice President natural gas liquids and Chuck Kelly Senior Vice President.
Natural gas.
Yesterday, we announced strong fourth quarter and full year 2021 performance recording our eighth consecutive year of adjusted EBITDA growth.
That equates to a 13% annual growth rate during that eight year period, highlighting the stable and resilient earnings power of our assets, despite various economic and commodity cycles.
In 2021 during a year of continued economic recovery and lingering panic I mean diavik related challenges, we grew adjusted EBITDA, 24% compared with 2020.
Continued to strengthen our balance sheet and achieve record natural gas and NGL volumes on our Rocky Mountain region assets.
2021 provided other milestones as well, including our announcement of a greenhouse gas emissions reduction target.
Saving upgraded double a ESG rating from am.
And once again, receiving a perfect score in the latest human rights campaign corporate equality index.
These are only a few of the many great things, we're doing as a company to ensure one oak remains a great workplace community partner and service provider.
With yesterday's earnings announcement, we also provided 2022 financial and volume guidance expectations.
We expect increasing producer activity and improving market demand to drive strong volume and earnings growth across our operations.
As we've said before we are well positioned financially and operationally in 2022 and for many years to come.
Before I hand, the call over to the team for more details on 2022, I'd like to reiterate what makes one oak so uniquely well positioned for the long term.
First our extensive and integrated assets.
Which are located in some of the most productive U S shale basis, our customers are well capitalized with decades of proven reserves and many have announced plans to sustain and grow production levels in 2022.
In the Williston basin in particular steady crude oil productions still means NGL and natural gas growth for one oak due to rising gas to oil ratios.
Second our dedication to safe reliable and environmentally responsible operations are.
Our commitment to safety and the environment is a core value for <unk>.
It's critical for us to be safe and reliable service provider and we strive to be a good partner in the areas, where we operate our ESG related performance is a source of pride for one oak and we're committed to continuing to make progress.
Third our strong balance sheet and investment grade credit ratings, which provides significant financial flexibility.
We've reduced our leverage to below four times and continue to drive that lower providing optionality for the future cash flows and investor returns.
Fourth our built in operating leverage and proven track record of disciplined in it.
No growth.
After completing more than $5 billion of capital growth projects prior to the pandemic our.
Our systems have significant capacity to grow alongside the needs of our customers.
And because of our large infrastructure projects are complete.
We now have opportunities for short cycle volatile type projects at attractive returns.
It.
The resilient and increasing demand for natural gas and Ngls we.
We deliver energy products and services that are vital to an advancing world and we believe these resources will play an important role in the energy transformation and finally, the depth and experience of this management team who have a proven track record and extensive experience. This team has been through commodity cycles.
Adapted business models and adopted significant changes in technology and innovation over the years. This team continues to grow our core business and advance our company forward.
This is because of these factors and the segment specific drivers the team will discuss in a moment.
Have such confidence and excitement for one oak's future with that I'll turn the call over to Walt for discussion of our financial performance.
Thank you Pearce, one oak's fourth quarter and full year 2021, net income totaled $379 million and $1 $5 billion respectively.
Adjusted EBITDA for the same periods totaled $847 million and $3, three 8 billion, respectively, representing year over year increases of 14% for the fourth quarter and 24% for the full year.
Our December 31, net debt to EBITDA was just below four times.
It seemed through an important marker and our continued deleveraging strategy.
We continue to prioritize reducing leverage below four times and <unk>, three and a half times or lower as our long term aspirational debt to EBITDA goal.
In 2021, we reduced our total outstanding debt more than $600 million by proactively paying off nearly $550 million of maturing debt in November 1st with cash on hand, and being opportunistic with open market repurchases earlier in 2021.
We currently have no debt maturities.
For the fourth quarter of 2022.
Fourth quarter results reflect volume growth in our Rocky Mountain region that was offset by higher operating cost.
These higher costs were driven by discretionary employee related benefit costs and expenses related to planned O&M maintenance projects completed in the fourth quarter and our natural gas liquids and natural gas pipeline segment.
As Bruce mentioned with yesterday's earnings announcement, we provided 2022 financial guidance, including net income midpoint of $1 $69 billion and EPS of $3 76.
Our diluted share.
We also provided an adjusted EBITDA range of three five to $3 $8 billion with $362 billion as our midpoint, representing a 7% increase compared with 2021.
We expect double digit earnings growth at the mid points for both the natural gas liquids and natural gas gathering and processing segments.
Driven by higher volume expectations across our operations.
Kevin will provide more detail on our volume outlook.
In our natural gas pipeline segment, we expect earnings to be stable year over year, when adjusting for winter storm Uri in the first quarter of 2021.
Our 2022 guidance assumes producer activity associated with W. Ti crude oil prices in the low $70 range.
Sustained higher prices could lead to more activity and a quicker volume ramp.
Which could drive earnings towards the higher end of our guidance range.
We expect total capital expenditures of approximately $975 million, which includes growth and maintenance capital.
This midpoint reflects the investments necessary to keep up with the expected increase in producer activity and volume expectations.
<unk> investments to complete that makes lag three in early 2023 and MB five in mid 2023.
Our routine growth capital accounts for a higher number of well connects and other high return.
Routine growth projects, such as pump stations compression expansions in other debottlenecking projects to meet our customer needs.
Our guidance also assumes the impact of inflation.
As we've mentioned previously we have escalators on many of our natural gas liquids and gathering and processing contracts. These.
These are typically tied to either CPI or PPI indexes and provide protection from rising cost.
We expect these types of escalators to keep pace, where exceed inflationary costs as we move forward.
I'll now turn the call over to Kevin for an operational update.
Thank you will.
Fourth quarter volumes continued to show strength, particularly in the Rocky Mountain region were processed volumes increased 5% and NGL volumes increased 6% compared with the third quarter of 2021.
Natural gas processed volumes in the mid continent increased in the fourth quarter compared with the third quarter as we've seen as we've continued to see more activity in the region, while NGL volumes in the mid continent decreased due to some reduced third party volumes and lower ethane recovery levels.
Overall for 2021 natural gas and NGL volumes saw significant increases from 2020 levels.
We saw a record natural gas and NGL volumes on our Rocky Mountain region assets with significantly higher activity and rising gas to oil ratios.
In the fourth quarter alone our team connected 130 wells nearly doubling the amount from the third quarter for a total of more than 320 in 2021.
Great accomplishment for our team in meeting the needs of our customers and continuing to provide momentum into 2022.
Now taking a closer look at 2022.
At the midpoint, our volume guidance would result in an 8% increase in total NGL volumes and an 11% increase in total natural gas processing volumes compared with 2021.
These higher expectations are supported by increasing producer activity volume growth from recently completed one oak and third party projects rising gas to oil ratios in the Williston basin and ethane recovery opportunities across our NGL system.
With the recent completion of our Bear Creek plant expansion, we are already seeing increasing volumes from Dunn County, and we expect the plant will continue to ramp up over the next two to three years, however, with activity levels in the area consistently outpacing our expectations, we could be looking at and even <unk>.
Wicker ramp.
Okay.
The natural gas liquid segment, we expect continued volume growth from our existing customers and from New third party plant connections in the Williston basin volumes are expected to increase compared with 2021 supported by higher activity levels and recently completed an expanded processing plants.
The mid continent also continues to pick up particularly from private producers with very recent activity levels, providing potential tailwind not fully factored into our guidance expectations.
Our NGL system is connected to more than 90% of the natural gas processing plants in the mid continent. So any increased producer activity in the region is likely to provide NGL volume to one oak, regardless, if the activity is on our gathering and processing dedicated acreage.
In the Permian Basin, we expect double digit NGL volume growth on our West, Texas, NGL pipeline compared with 2021, driven by increased volumes in the Midland and Delaware basins.
Growth is primarily from long term contracts entered into a few years ago as well as new contracts, we have recently signed.
Switching to ethane.
Demand continues to increase with more than 300000 barrels per day of incremental demand expected to come online in 2022 from new and expanding petrochemical facilities and from growth in exports.
Our NGL volume guidance assumes full ethane recovery in the Permian basin.
And partial mid continent recovery throughout the year.
We've assumed no full rate Rocky Mountain region recovery.
However, we do anticipate opportunities to Incent some recovery.
This opportunity will fluctuate throughout the year, but a conservative amount is assumed in our 2022 guidance.
Moving on to the natural gas gathering and processing segment.
We expect volume growth this year in both the Rocky Mountains and mid continent regions.
In the Rocky Mountain region, we expect processed volumes to grow 15% at the midpoint compared with 2021.
And average nearly 1.5 billion cubic feet per day in 2022.
Just five years earlier in 2017 volumes totaled 830 million cubic feet per day.
That's an approximately 12% annual growth rate over the last five years, while crude oil production has increased in the low single digits.
Accordingly G O ours have increased nearly 70% during that same time period.
The Williston basin remains resilient and highly productive.
Producers continue to gain efficiencies as they drill and this proven and highly economic region.
And the core of the basin is expanding.
North Dakota pipeline authority recently estimated that in the last two years alone more than 7000 drilling locations have been added to inventory that are profitable at $60 per barrel.
This is consistent with what our customers are telling us.
As most of them still have decades of inventory remaining.
There are currently 33 rigs and 10 completion crews operating in the basin with 15 rigs and five completion crews on our dedicated acreage.
This is more than enough activity to grow gas production on our acreage and we expect that as ducks are completed through the spring rigs across the basin will increase.
As we've said previously approximately 14 to 15 rigs, which can drill around 300 wells per year is enough to maintain one 4 billion cubic feet per day of production on our system.
Any additional rigs combined with the rising gas to oil ratios of wells already connected to our system would provide additional volume growth.
Additionally, more than 475 Ducks remain basin wide with more than 250 on our dedicated acreage.
We expect to connect 375 to 425 wells in the region. This year.
In the mid continent region activity continues to increase.
We expect processing volumes in the region to increase compared with 2021.
And we expect to more than double our well connections in 2022.
230 to 50 wells compared with 15 last year.
And the natural gas pipeline segment.
We expect transportation capacity to be approximately 95% contracted and earnings to remain nearly fully fee based in 2022.
Following a successful open season in 2021, we're in the process of expanding our Texas natural gas storage capacity by $1 1 billion cubic feet, which will increase our total system wide storage capacity to more than 53 billion cubic feet.
We continue to work with customers seeking additional long term transportation and storage capacity on our system, which remains highly valued as these critical services are used year round Pierce that concludes my remarks.
Thank you Kevin and thank you Walt strong financial and operating results in 2021 have provided momentum for another year of growth.
We continued to benefit from our interconnected systems built.
Built in operating leverage and the ability to incrementally grow with our customers. We continue to invest in our core businesses remaining focused on optimizing our assets and staying dedicated to operating responsibly and reliably.
Service is another one of <unk> core values and it is something that our more than 2800 employees know very well.
Through 2021, they worked tirelessly through severe weather events like winter storm Yuri to serve our customers and continue delivering the vital energy products necessary for the global economy to run.
Our employees dedication to meeting customers needs, while operating safely and responsibly enabled our strong 2021 performance and has set us up for another year of growth in 2022.
With that operator, we're ready to answer questions.
Yeah.
Thank you.
If you'd like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question.
And our first question today comes from Michael Blum with Wells Fargo.
Thanks, Good morning, everybody.
I wanted to go back to the comments on incentivize ethane recovery in 2022 can you just give us a sense of you know what's going to drive that and have you changed the rates directionally, you're charging on that incentivize effort.
Michael This is Sheridan what we as we said before what drives that is the difference between natural gas prices in the Bakken compared to ethane prices in Mont Belvieu.
So what's going to drive that rate higher as if we see that spread continue to wide, we will incentivize more ethane out of the Bakken to capture that spread so it's not we're not putting out a new tariff or reducing TNF. These were actually literally capturing gas price to ethane prices, which today has widened out wider than what we saw in 'twenty one.
Okay, Great I appreciate that and then.
Just maybe a related question can you give us your latest thoughts on.
Some of the proposed including your own natural gas pipeline expansion projects out of the Bakken do you think we're getting closer.
To a place where we're going to need some more gas capacity. Thanks.
Yeah, Michael this is Chuck.
I do and we do we believe that the Bakken will need some residue takeaway lets say in the next call. It three years either side of that.
And as you may have heard on TC Energy's call. They said don't be surprised if you see an open season. This spring and frankly I think all stakeholders are processors pipelines and producers realize a decision probably needs to be made this year are to effectuate that timeline. So.
Between Northern Border's Bison Express pipeline and some underutilized pipelines in the powder River basin.
It will be able to go ahead and manage that egress.
And our next question will come from Jeremy Tonet with J P. Morgan.
Yeah.
Hi, good morning.
Just wanted to.
Pick up on the Bakken a little bit here I guess are you now more thoughts about N b P L and heat content and given kind of the trajectory here.
Just wondering if you could walk us through I guess.
Procedurally you know next steps if it's viewed that the heat content would get too high and they would need to be adjustments in the rate or you know less.
Ethane accepted or just any thoughts you could share there.
Yeah, Jeremy it's Kevin.
Yes that phenomenon still exist if you if we rewind a little bit pre COVID-19 .
We were bumping up against those some btu a downstream challenges and there was a lot of discussion in the basin and northern border and proposed a new tariff.
It ultimately got denied.
The FERC asked the pipe to go back and work with shippers worked with markets.
To produce a little more information.
Covid hit and it really reduced the volumes back to where it wasn't an issue.
If you look at gas production or gas capture in the Bakken today, we are back up to the pre COVID-19 levels.
So the only thing thats keeping that problem from person being persistent is the ethane that were recovering on an incentivized basis, which is reducing the heat content.
If that market turns around and we don't Incent ethane then that's going to raise the btu content back on border to the levels, we were seeing pre pandemic.
So absolutely northern border continues to have those conversations it's our understanding them. They will go back to FERC with a recommendation sometime this year.
But in the meantime, we've proven if we do end up with a heat content issue, we can always recover ethane.
Two two to make that okay. The btu spec back okay on that.
Hi.
But if that's a forced ethane recovery because of a btu limit that would be at full rates.
Got it that's helpful context, there and maybe just kind of pivoting towards the guide for a minute here and thanks for kind of listing some of the puts and takes but just was curious you know if we think about kind of the formation of the guidance I imagine. This was informed US last night and has formed a little while ago and if you kind of overlay you know the world.
Today as we see it.
You know within and how that applies to the guidance range could you provide any color there would that put you guys kind of at the high end or any.
Any other thoughts on whats happening today, and how that colors I guess at where you could fall in the guidance range.
Jeremy This is pierce.
I think given our asset capacity that we have today.
And then given kind of the backdrop that you described which is improved demand and improved commodity prices is really what's kind of driving this volumetric growth and we all know that volume impacts us.
I'd, probably say that our outlook today is as good or better than our guidance midpoint.
And we'll hear next from Brian Reynolds with UBS.
Yeah.
Hi, Good morning, everyone, maybe just a follow up on the guidance and I'm talking about the upper end of the guidance range, but we seem to be pointing towards.
Kind of curious if you can help me reconcile the upper end of the the GNP growth versus the NGL throughput.
It seems like you know GMP growth is a little bit higher just kind of curious if you can give a little bit more commentary around ethane recovery assumptions are you, assuming a little bit of ethane rejection in the 'twenty two or is that just kind of a conservative estimate with ethane recovery to the upside.
Brian This is Sheridan I think what they need to look at is on the G&P side.
But we.
I noted in our.
The release was that an increase in the Rocky Mountain region on the NGL the increase was across our region.
One of the big contributors to that as the mid continent is growing less than 8%. So that's bringing down the average for GE and for our NGL segment and also in our guidance, we have less incentivized to ethane.
In 2021, so that's another reason that you brought it down a little bit as well.
Okay, I really appreciate that color and as a follow up just on capital allocation now the high end of the guide kind of implies 22 leverage exiting or three five just curious if you could talk about the evolution of the long term leverage target and you know how we should think about future opportunities around return of capital.
And then get into the end of the era and it's one of the three.
Well, we're very pleased with.
How we progressed on our leverage metrics and that we broke through that four times and are heading in the direction that you mentioned.
I think that as I said on the last call. We're trying to triangulate between a couple of different metrics and just not entirely focused on.
No.
On the debt to EBITDA metric, we're also focusing on a dividend payout ratio.
As you see at the guidance, we're starting to break.
Under 100% and that's trending to look again and also in the right direction and we'd like to see that get some room under that 100% as we look and think about capital in the future.
But theres no doubt that our flexibility as we move forward in these metrics get in line.
Continues to.
Broadened and be a little bit more flexible and.
We'll look at that as the year.
Going into 'twenty three progress.
Great I appreciate the color I have a great day everyone.
You too.
And our next question comes from Theresa Chen with Barclays.
Good morning, I was wondering if you wouldn't mind, providing some incremental color on your production outlook on the protection outlook in your areas.
In 2022 and may be beyond F. L X.
Mark.
When you say production.
So you're talking about the crude.
As we see it or.
By our cost yes.
I mean, when we think about crude yeah, we think about crude production in the flat excuse me in the Bakken, it's going to be we believe it will grow slightly but we don't think it's going to grow at 10%, but we do believe there will be some level of growth based on what our customers are telling us.
And the completions that we see on schedules et cetera with that crude production growth. We obviously then believe our gas production is going to grow.
At the percentages that we've outlined previously so I guess, that's how we're thinking about that stack scoop go down in the mid continent. I'm. You know this is one that we've been saying flat to slightly declining however, with the recent activity pick up we're probably looking at it in a slight increase.
<unk> type environment, and I think that's consistent with what some others have said on their calls as well with some of the recent information and obviously the Permian is going to grow and has shown growth and we believe we will continue to get our fair share.
With both our West, Texas, LPG asset and R. R. O W. T system out there. So we believe we can participate in that growth in the Permian.
Got it.
And would you mind, just sharing and what kind of commodity price assumptions underlie our euro 2022 guidance.
Well, that's where Walt mentioned as we as we look at activity levels and things like that we were using a low seventy's type number for crude for 'twenty two.
As we think about the rest of the commodities you know we've driven so much exposure of the commodity exposure out of our business and with how we contract them.
We really are that doesn't have a huge impact to us I mean, it is a little bit of a tailwind right now at these prices.
But it was it was definitely it back if you think of crude in that $70 environment that would be the associated NGL and gas prices that we would've been looking at.
Thank you.
Okay.
And well hear next from Colton Bean with Tudor, Pickering, Holt and company.
Good morning, So I think he may have just touched on this but with the 2022 GNP guidance. It looks like EBITDA per Mcf is the fact that effectively flat year on year.
And our fee rate as guided to a similar range.
So it sounds like part of that well I guess, just broadly could you walk us through why unit margins would be flat if the Bakken is comprising a greater share of volumes and then it sounds like commodity margin.
That may be skewed a bit by a price deck, but it seems like for both hedged and unhedged volumes you'd have a.
A better outcome there.
Colton are you talking about specifically about GNP or are you talking about the G&P segment.
Followed exactly what you're asking.
Looking at the G&P segment, if I just tell you <unk>, yeah, the G&P EBITDA versus volumes it looks like EBITDA per M. So on a unit basis is kind of flattish, but I would've thought that the fee rate would have seen some escalation with the Bakken drilling as quickly as it is and then on the commodity side. It sounds like that maybe you know partially attributed.
To a difference in price deck.
One thing.
Excuse me Colton. This is this is Chuck one thing I would add is.
You've seen our volume guidance or obviously, our volumes are up year over year.
As part of that you know, we do have some percentage of proceeds exposure roughly call it 15% to 18%.
And at these volumes and these prices you have a larger commodity piece contribution to our EBITDA sort of flip the dollar or dollar five average fee rate is across our segment, obviously the Bakken is higher.
So not necessarily following your question Colin I think another thing Thats factored in there is just we've.
We've seen that fee rate bounce around periodically quarter to quarter.
So we're giving you were doing our best to give you the average for the year that fee rate can move around depending on specific producer characteristics. So if a producer that has a more of a PLP contract with a lower fee all of a sudden completes a bunch of wells in one given quarter.
Order that can actually move that fee right.
Down so what you are getting there is a blend but its going to bounce around quarter to quarter.
Yeah, no understood can follow up to that I think looking at it from a high level. It just looks like the EBITDA per ammers is relatively flat. So at both commodities and Bakken drilling was a bit confused there, but can follow up on that and then just on.
On the Opex side of things I know you mentioned.
Compensation factored into that so can you give us an idea of how you'd expect that to progress relative to Q4 levels.
Well I think Q4, obviously as Walt mentioned had a couple of anomalies with the higher employee costs that were discretionary in the and the timing on some of our expense projects do you think about 'twenty two relative to 'twenty one.
One and look at our run rate.
You know you're going to have a full year Bear Creek too from an end youll see increased cost just with increased volumes.
Which we'll see.
And then lastly.
You will see some level of Oh, sorry, I just lost my train of thought here.
Those are the two big drivers, we'll see and then but from a timing perspective, historically, our expenses, you'll see that kind of grow over the year.
Just related to the timing of a lot of the expense projects will do in the summer fall and then trying to get them done by the end of the year.
Does that help you.
It does yes. Thank you.
Okay.
And our next question comes from Jean Ann Salisbury with Bernstein.
Hi, Good morning, I had a question about any kind of guidance. It looks like you are projecting basically flattish gathering and processing volumes in 'twenty to 'twenty, two 2021 and the mid con, but you're connecting many more wells than you did in 2021 and are you expecting much more oil directed drilling or is it a timing thing or am I missing something else.
Yeah.
Julian This is Chuck.
We see an increase of I think our volume guidance came up roughly 2%, we actually think that might be a little light might be more like 3% to 5%. So we did guide on volume or slightly higher than our actual from last year and we do have good line of sight to the 30 to 50, well count that we put out in guidance.
Right now we've got four rigs operating on our acreage.
Well capitalized publix behind that with a couple of privates.
Coming in Q2, and early Q3, so I would say that our mid continent volumes will be up obviously relative to 2021.
Okay and that's helpful. Thanks.
And then how are you thinking about the timing of Elk Creek expansion when do you need pellets Bakken pipes to be approaching four are just out Craig to be basically full and back and doesn't have to be false to pursue it.
Jean Ann This is Sheridan when we think about Elk Creek expansion really we do look at it both together. So we both look at Elk Creek and the.
The Bakken pipeline to understand when we need to expand and really the next expansion on Elk Creek will come on what we call. The east West portion as we used to see sustainable volume that has to be delivered to both PPL as we optimize that and we may decide to increase the pumps on that east west sections. So that we can move on.
Back off or P. P L to optimize our earnings so that's kind of what we look at when we are going forward. So right now we feel with the Bakken Oh, PPL connection and Elk Creek, we have plenty capacity to.
To meet our customers' needs and it's just going to be an optimization when we expand.
Great. Thanks, that's all for me.
Yes.
And our next question comes from Michael Lapides with Goldman Sachs.
Hey, guys. Thank you for taking my questions just curious.
Cost of everything in the World Cup.
Michael we could barely hear you.
Hey, guys can you hear me now.
Hey, guys.
Real quick.
Everything's up.
Inflation's, Ralph out there steel labor et cetera.
Can you talk about that and that trend that's impacting kind of all industries and whether that's had an impact on your capital budget. So if we look at your Capex forecast.
Are you seeing changes at all and what your original expectations for either <unk> or <unk> or the average cost for every new well connect relative to what it cost in maybe 2021 or 2020.
Okay.
Michael It's Kevin not not significantly and those numbers are baked into the to the guidance as we think about it.
Related to Bear Creek tuned it makes like three we were so far down the road on those projects that when you think about steel in and a lot of the materials a lot of that stuff was already purchased bought onsite in many cases.
You know installed at the site.
Since that time, we've gone out and re contracted everything rebid everything and we're not seeing anything that would cause us to deviate from where were you know what we articulated from a cost standpoint.
We are seeing probably a little tick up as everybody else is on just kind of your general materials and services.
But so far nothing that would be outside of what we would consider norms that and the philosophies developed when we put the guidance together.
Got it meaning you're not seeing a lot of pressure and the cost to do new well connects relative to what you've seen over the last couple of years.
No I mean, there may be a.
Minor uptick in some of the prices again of the materials, but but again all of that's baked into what we've got from our growth.
Our growth and maintenance capital budget.
Got it and then when we think about the capital budget for this year really the impact of MB five as the bulk of the spend on that Frac in this year and Theres just a little trickle into next year or is it more evenly weighted across the year.
Uh huh.
Well I think it'll be your your heavier spend will be this year and early next year, we do believe.
Both MB five in that makes like three will be completed early in the quarters that we provided out there and we're doing everything we can to accelerate them even more because.
Because we like to have that capacity available.
And some of that is factored into the guidance expectation as well.
Got it. Thank you guys much appreciate it.
You bet.
And we'll go next to Craig Shere with Tuohy brothers.
Hi.
Congratulations on the ongoing progress here.
With with regards to.
The realized NGL pricing and I'm, sorry, if I missed it seemed like the Rockies was just the plenty lower sequentially.
And I was wondering to what degree that that's just random fluctuation or flex or.
No.
The level of.
Incentivize the ethane or does it impact Oh, maybe some volumes actually starting to increase all the PRP RB.
Okay.
No. Craig this is Kevin that realized NGL pricing I think you're referring to on the G&P side. That's just a function. It does include our hedges in there which is what is what pulled that down slightly from Q3 I think is what.
You're referring to so it's just a function of all our hedges getting lumped in with what's going on on the prices, It's got nothing to do.
In summary, a lot of sense versus the 24 cents.
Oh on the on the Elk Creek or the Rockies right, yes that that is a function of the incentivised ethane so that drop in a penny has nothing to do with anything contractually that's going on it's purely the incentivised ethane.
Gotcha.
You all have been talking about.
For some time 25 rig collections or Oh, well connections.
<unk> 300, a year of the Williston pretty much holding volumes.
Volumes flat.
You've kind of been saying that over a couple of quarters as the volumes have been increasing.
And at the same time you know.
<unk> GPM and overall well productivity keeps improving.
If if we're thinking about you know.
Rural one and a half b.
Year end run rate do you think what are the prospects there and.
And even more subdued.
Right, well Tonight to say 300 versus the 422 guidance.
Could keep that higher level of production flat versus what we had seen in the third quarter.
Yes, Craig this is Kevin I.
I do think that's possible if we continue to be surprised I think.
I said in my remarks producers continue to get better and better.
So as each well gets more prolific and as the gas oil ratios continue to increase that just means youre going to need fewer wells to hold production flat.
Now, we'd like to see the obviously the same capital deployed and grow production.
But at the pace, we're going on right now that that's been a trend over the last several years as each year. It seems like the same number of wells will allow us to stay flat, even though the baseline keeps getting larger so I you know that trend could absolutely continue.
Great. Thank you.
Okay.
Your next question comes from Tristan Richardson with true of Securities.
Hi, Good morning, guys just one from me.
Just thinking about 2023 and beyond and your large projects.
Clearly theres a lot of cost advantages.
Zooming, whose projects and if you think about the volume ramp on projects. Once online can you talk about maybe the return on capital advantages or incremental return on capital for this year's budget maybe relative to.
Previous returns on capital are our historical returns on capital.
Interest and Theres no doubt that we continue to see an upward trend in our return on invested capital and that really comes back to the operating leverage that we're seeing growth and we don't have to put capital no meaningful capital into.
Our pipeline assets, we built them you know, obviously, a pump station here or there as volume grows but.
That operating leverage is.
Year over year continues to fall to the bottom line.
We have enjoyed and expect to continue to enjoy increasing return on invested capital going forward.
Telco work appreciate it thank you.
Yeah.
And our next question comes from Sunil Sibal with Seaport Global Securities.
Yes, hi, good morning folks and thanks for all the clarity are just a couple of follow ups first of all you know it seems like the well completion activity.
And and Rocky Mountain was very strong in Q4.
I was curious you know as you kind of can talk about what kind of cadence, we should see volume growth.
In that region, especially considering that you know typically Q1 also see somebody that event. So should we be thinking off you know a little bit of a subdued growth in Q1. Despite this strong well completions and then there's ample Bosch is it should we be expecting some of the trends.
So Neil this is Chuck.
What I'd say about our well connect cadence for 2022 in some ways it resembles 2021 .
As you said a lot of momentum 130, plus well connects coming out of Q4.
2022 is more back weighted to Q2 and Q3 just as it was in 2021.
We did have some momentum obviously carry into here and into Q1 of this year or Q2, typically it's a little dip every year, because it's brought up Ross laws and the weather spring.
But so the cadence would be more back weighted to Q3 and four volumes associated with that would probably resemble the well connect activity.
Got it.
And then one follow up on the on the cost issue I realize that.
You know Q4, it seems like sequentially the costs went up about 25 million or so versus Q3.
What's a good way to kind of think about that you know a big dawn and one time costs, what's this kind of ongoing costs.
Well like I said, if we just I guess the way to think about if we look at kind of the full year 2021, I do think our costs will be up a little bit in 2022, I'm just just overall.
I mentioned before you'll see a full year bear Creek to the other item I forgot to mention earlier was taxes Youll see it will have an increase in our AD valorem taxes and 22 versus 21. So those types of things and then just the ongoing volumetric cost center.
Associated with the volumetric growth.
Which we'll see with the growth we're seeing across our system.
Got it.
Thanks for the color books.
Our next question comes from Michael Cusimano, with Pickering Energy partners.
Hey, good morning, everyone. Most of my questions been answered, but if you can just talk about the progress that you've made in adding plant connections in the Permian.
And then maybe what you view as your competitive advantage there and if that's a growth area from here and then lastly, just if you've looked at any acquisitions in order to I guess.
Grow your footprint there.
Michael the shared and when we look at the Permian, we still continue to be very competitive because we continue to sign up for more people.
Lot of our competitive advantages, we have a pipe in place there today, we're connected to a lot of.
On the integrated players that want an alternative source, but we also have chief expansions on our system that we can continue to grow. So we can continue to provide a competitive alternative to other people out in the basin and we see that because our volumes continue to grow.
We're seeing as we mentioned we're seeing double digit growth. We're also seeing growth from people who've already contracted as the volume up their growth other system.
So our system and we have long term contracts in place as we do in every other place.
On the M&A question.
So my club.
And that this is Pierce I mean, yes, we do.
Look at M&A opportunities in all of these basins with kind of drop them into kind of two categories. The defensive kind of play versus a verb.
As a proactive look at it.
As it relates to looking at the east when you look at especially.
Especially in our NGL business.
When you look at the length of our contracts and a lot of these places and you look at maybe the prices that you have to pay.
To get the G&P opportunities that feed the NGL business.
Then we just don't see that as being you know me.
May be a place.
Place, where we would deploy our capital when you look at it as the.
The benefit to our shareholders.
So yes, we look at them, but so far we havent found anything that we think is attractive there.
Great. Thank you.
Okay.
And our next question comes comes from Alex Kania with Wolfe Research.
Hi, good morning.
Maybe two questions. The first is.
I just I was thinking about the the headroom on the kind of your pipeline infrastructure out of out of the Rockies and could you remind us maybe you said it I might've missed it on the call, but you're at $3 35 in Q4.
Sort of what's the expectation of that going.
Your assuming for for 2022 and the second question would be if you could maybe talk a little bit just about the kind of commodity components.
I'm kind of what price deck are you assuming.
Talking about the outlook for the G&P business for for this year. Thanks.
Alex This is shared and as we think about capacity on.
Bell Creek and the Bakken as I said, we think about them together. We currently have a 440000 barrels a day of capacity as you said, we're running in the mid in the 330 to $3 50 range today.
We see that but having plenty of capacity for that period of time now a lot of that we had incentivized ethane on there as well so we're pulling that into that so we we think we have plenty of capacity on that system going forward for a period of time and we can take it up another 100000 barrels a day pretty easily just adding some additional pumps and a very.
Short period of time, so we feel very comfortable with our capacity coming out of the Rockies.
And Alex on the question about the <unk>, we provided that earlier, where again, we're thinking about it in the low $70 type crude environment. If you go back and look at what NGL prices were doing when crude was kind of in that range that gets you in the ballpark.
And then gas kind of that same one it would be in the upper threes.
Upper $3 type number there.
Other thing to remember when you're thinking about the <unk> as we are about 75% hedged when you look at it in the for those PLP contracts in 2022, So theres really just not a lot of commodity exposure left when you factor in the impact of the hedges as well.
Got it okay. Thanks for that.
Yeah.
And our last question today will come from Jeremy Tonet with J P. Morgan.
Alright, Thanks for squeezing me back in here just a real quick question, our conversations with regulators in North Dakota.
Just to see a lot of emphasis on the potential for carbon capture and state policy as well as really kind of a support this development and.
North Dakota being only one of two states that has classics primacy that allows a C O two wells to be developed at the pace. The state set there you know kind of sets them apart from others and also you have the summit pipeline pointing towards North Dakota and progress. There just wondering any updated thoughts that you have that one O cast on carbon capture.
Sure and could this be something.
That realistically enters the fold at some point do you have any visibility here.
Yes, Jeremy it's Kevin Yes. This is something we are actively involved in conversations with state officials with other private entities et cetera for opportunities we've.
We've had a few conversations with them so far and we've got conversations scheduled with them in the very near future.
To have discussions around that I do think there's some opportunities when you look at that's what we do right. We've got a lot of we know how to process things, we know how to build pipelines and we are we know how to store things and so I think theres opportunities. It's just finding the right the right partners up there and getting.
The right opportunities before we pull the trigger on something but it's definitely something we're actively working on.
Got it that's helpful I'll leave it there thank you.
And this concludes our question and answer session. Mr. <unk> I'd like to turn the conference back to you for any additional or closing remarks.
Alright, Thank you Jennifer our quiet period for the first quarter starts when we close our books in April and extends until we release earnings in early May We will provide you details for that conference call. At a later date. Thank you for joining us and the IR team will be available throughout the day. Thank you Paul.
Yeah.
And this concludes today's conference. Thank you all for your participation you may now disconnect.
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