Q1 2022 DCP Midstream LP Earnings Call

Ladies and gentlemen, thank you for your patience and please continue to standby the first quarter 2022 D. C. P. Midstream L. P earnings conference call will begin in approximately one minute. Thank you for your patience and please continue to standby.

[music].

Thank you good morning, and welcome to the DCP Midstream first quarter 2022 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 web.

At DCP midstream Dot com before we begin I'd like to point out that our discussion today includes forward looking statements.

Fuel 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 risk factors. Please refer to the partnership's latest SEC filings.

We'll also use various non-GAAP financial measures, which are reconciled to the most comparable GAAP financial measures 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 Walter.

Mike Good morning, everyone. We appreciate you joining us on todays call well look at our Q1 financial performance highlighting the earnings power of the diversified DCP business model and reviewing the significant progress we've made towards strengthening our balance sheet.

Before getting into our quarterly results I'd like to briefly touch on the macro environment impacting the energy industry today.

On our fourth quarter call I highlighted the constructive environment projected to benefit DCP, which included producers commitment to capital discipline and a strengthening demand for our products and services as the world Reopens from COVID-19 restrictions.

These factors supported our 2022 outlook for moderate growth favorable commodity pricing and strong cash generation since.

It seems that coal royalty events brought a stark reminder, royalty U S oil and gas industry place in meeting global energy demand and providing energy security.

This increased focus supports the long term outlook for U S production, which will benefit our customers and DCP in line.

As we turn to our Q1 results.

<unk> announced it for adjusted EBITDA, DCF and excess free cash flow, we reported record quarterly results.

For the quarter, we realized adjusted EBITDA of $436 million and DCF of $337 million and our excess free cash flow, which we define as free cash flow after paying our distributions and funding our growth capital program was approximately a quarter of $1 billion.

This performance has enabled us to continue our delevering efforts and achieve investment grade balance sheet metrics.

In the quarter at three three times, well ahead of our internal timeline sets up well for a second half distribution rates.

This fast start exceeds where we expect it to be at this point and builds great momentum as we continue through the year.

For that reason, coupled with continued favorable fundamentals and pricing outlook I'm pleased to announce that we expect to significantly exceed our 2022 full year guidance for adjusted EBITDA, DCF and excess free cash flow.

And with that I'll turn it over to Sean to give us further insight into our financial results. Thanks matter and good morning, everyone on slide four I'll walk you through the key drivers that led to our record first quarter performance with DCF up 54% and adjusted EBITDA up 32% versus last quarter.

On our fourth quarter call I outlined a series of trends, we expected as we enter 2022 and I'm pleased to report that the business capitalized during the quarter to deliver very strong results that exceeded our initial expectations in line with our comments from the last quarter call. The favorable commodity environment proved to be a strong tailwind as our G&P.

Business benefited greatly from commodity pricing and a strengthened hedge book, which resulted in a $45 million improvement quarter over quarter.

Additionally, our logistics business performed extremely well as we optimized our gas storage business, taking full advantage of the strong natural gas markets. We saw in early January .

And as expected our cash distributions from our joint ventures were up significantly in Q1 as Q4 disparate distributions were dampened by the timing of AD valorem taxes.

Lastly, we saw a normalization of our costs and capital expenditures, placing us in line with our 2022 outlook and moving from our traditionally higher weighted Q4 spend.

These strong results more than offset the impact of winter weather had on our G&P volumes and asset performance across a couple of our key regions.

Despite the slow start on volumes, we are starting to see favorable signs in our G&P businesses.

The exit rate strengthened in the mid con and south regions, and the DJ and Permian recovered from Q1 weather our business is performing well and I'm pleased with how we're set up for the rest of the year as the commodity outlook remains very strong.

Current forward curve holds up we could potentially see 200 million plus of upside to our original full year midpoint guidance, putting us well above the high end of our adjusted EBITDA range.

We move to slide five I'd like to provide a summary of our Q1 financial position.

Starting with earnings mix, we are currently sitting at 83% fee and hedged for 2022, providing consistent stable cash flow and also leaving a significant upside as our portfolio takes advantage of the strong current fundamentals and.

And while we're comfortable with our current 2022 hedge book levels. We are capitalizing on the current market and adding hedges in 2023 and 2024 at very attractive pricing levels.

From an excess free cash flow perspective, we saw greater than 100% increase quarter over quarter, which allowed us to continue prioritizing debt reduction while the commodity environment significantly benefited margins, we experienced higher working capital needs associated with our hedge book. However, we expect that to improve over the remainder of the year.

All in we've reduced our absolute debt by roughly $100 million in Q1 and closed the quarter with leverage at three three times, which has our balance sheet in line with investment grade metrics as we continue to build momentum with the rating agencies.

In closing this record quarter is a testament to the strength of the DCP business model over the years, we've taken very deliberate actions to prioritize debt reduction leverage our DCP 2.0 digital transformation to reset our cost structure diversify our earnings mix by extending our value chain and increasing fee based earnings all one.

While exercising capital discipline.

Deliberate strategic actions allow DCP to successfully navigate the historic volatility we've seen over the last couple of years, while continuing to drive earnings growth, regardless of the commodity price environment, we have a proven track record of execution and our assets continue to prove their earnings power.

Now I'll pass it back to about or to discuss our outlook.

Thanks, Sean as we move to slide six I'll highlight the success, we've had executing our financial strategy that has both strengthened our balance sheet and given our significant financial flexibility as we move forward.

Almost two years ago, we outlined a plan to create a balance sheet resilient and whole commodity cycles targeting three five times mid cycle leverage on this slide you can see the great progress we've made towards this goal by rapidly reducing our leverage almost a full turn over the course of the past years.

Going from four two times in Q2 last year to three three times as we exit Q1.

But our optimistic outlook for 2022, we plan to continue strengthening our balance sheet through a combination of earnings growth and focused debt reduction first from an earnings perspective, our diversified and balanced portfolio has performed extremely well setting us up to deliver significant year over year earnings growth in excess of.

The high end of our financial guidance ranges and.

And at the same time from a deleveraging perspective, we plan to continue utilizing excess free cash flow to significantly reduce our absolute debt, which should have us on track to end the year well below three times leverage together, our debt reduction focus and strong earnings platform provides us the financial flexibility.

We've been targeting which creates significant optionality to address our capital allocation priorities, including targeting a distribution rate in the second half of the year opportunistically evaluating repurchase opportunities and pursuing strategic growth to drive long term value for stakeholders.

Moving to slide seven I'll handle the core areas, we see driving growth for the business.

Broadly there are still a lot of excess capacity within the midstream space that needs to be absorbed so we will continue executing our supply long capacity short strategy on the processing side, while focusing our capital investments on field gathering expansions.

This disciplined capital approach will serve as our customers' needs. While also preserving long term optionality of larger scale investments are needed.

Within the DCP portfolio, we see three core areas to provide opportunities to efficiently grow our business, the DJ Delaware and Midland basins.

In the DJ our volume forecast remains strong with expectations for steady growth with.

When our assets currently operating near capacity, we will continue to evaluate options to expand our system in order to support our life of lease acreage dedications.

And as an example of a very capital efficient solutions to support our customers' near term needs in the last couple of weeks, we successfully executed an additional offload into DJ basin to secure up to a 100 million cubic feet per day of incremental processing capacity to service our customers drilling plans.

Moving forward, we will also continue to invest in our gathering infrastructure and be in a position to pursue additional expansion options dependant on our producers' outlook.

Another exciting area for US is the Delaware basin, where we benefit from the scale and scope of our assets as our GNP and NGL network covers to northern and southern parts of the basin.

In the Delaware, we've prioritized investments to enhance our gathering infrastructure, expanding our pipeline network and adding compression in alignment with our customers' production schedules.

Our acreage dedications are core focus area for our customers and we will continue to efficiently spent capital support their long term plans.

Moving on to the Midland Basin. This is an area, where we see a lot of opportunity to increase utilization across our system.

<unk> forecast for the region continued to strengthen and we've seen increased activity from private operators.

Currently we benefit from having available capacity and we're positioned to invest as necessary to fill it.

As an example, we recently approved a capital project to add large diameter gathering lines and additional compression to optimize and enhance our gathering system.

This project is expected to increase utilization in the second half of the year and position us to complete compete for <unk> supply.

The GNP investments in the DJ and Permian are all low multiple bolt on expansions that will provide additional benefits to sand hills and southern hills supply.

With a strong long term outlook for U S production opportunities across the footprint are increasing and were positioned to respond. However, we also recognize that a key component to taking advantage of these opportunities is ensuring downstream NGL and natural gas takeaway options for our customers.

Over the last 10 years DCP has built a solid track record of developing and driving downstream solutions.

Residue takeaway has become a focal point for the Permian and a potential bottleneck to growth. We are pleased to be in advanced discussions with Gulf Coast Express partners to support our Permian customers by bringing quick and efficient capacity to the market via the expansion of the Gtx pipeline.

Early indications of strong demand and a high level of interest we expect to announce an open season in the coming days.

In summary, we're seeing a number of opportunities in these growing areas, but we will continue to take a disciplined approach when deploying capital.

Moving to slide eight let me summarize the key takeaway from today's calls.

First I'm extremely pleased with the fast start to the year as the DCP team delivered record results for adjusted EBITDA, DCF and excess free cash flow.

These very strong results coupled with our commitment to continue to strengthen our balance sheet have DCP in line with investment grade metrics.

Moving forward, we believe fundamentals will remain advantageous I would've continued strong commodity pricing environment. We are on track to exceed the high end of our 2022 financial guidance the outlook for DCP and our industry remains strong as the demand for U S. Production continues to strengthen driven by structural change and glue.

Mobile supply and demand.

While we may see periods of significant volatility volatility DCP is well positioned to deliver strong results.

<unk> transformed to DCP business built a diversified and balanced portfolio underpinned with strong fee based earnings while retaining favorable commodity upside.

This balanced portfolio and a DCP team's execution over the years has allowed us to deliver exceptional results regardless of commodity pricing.

Now as we potentially enter the start of a commodity super cycle or commodity upside as a unique advantage setting us apart from our peers and resulting in very strong earnings potential in this environment with our strengthened balance sheet, providing financial flexibility and the earnings power of the DCP business, we have great optionality.

To return additional capital and continue creating long term value for all unitholders I'm very proud of the work that has been done of DCP and I Trust that we've built a business that will continue to bring value to our customers and stakeholders alike and with that I look forward to taking your questions.

If you'd like to ask a question. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue press the pound key.

Our first question comes from Spiro <unk> with credit Suisse. Your line is open.

Thanks, operator, good morning, guys.

Wanted to start with guidance and the outlook if we can.

So you pointed to the $200 million of upside here, just just on commodity, but I guess, if we think about all the other variables volume costs, maybe optimization or marketing opportunities I guess I'm curious when you look at that midpoint and just forget about the commodity for a second.

Do you have any sense, yet so far in the year, how those other variables are trending in other words could we be above the midpoint just on those factors as well.

Yes, Spiro this is Sean absolutely Yeah, we did the 200 million plus.

Because with theirs commodity obviously, there's volatility in the commodity potentially depending on what forward to use but it's looking very very strong at the moment, but theres also.

If you think about the quarter, we got off to a really strong start the GNP outside of the weather. We had was was very solid you look at the O&M business really strong quarter storage had a great quarter.

The pipeline had a great quarter. So couple of things maybe to answer your question directly we gave that as a guide it's kind of a low point to be honest I mean, and I think youre thinking about it right. If you just get the commodity youre going to be at that level, but we think there's some upside on <unk>.

We have volumes and their volumes are directly tied to the original guidance. We gave back in February we think that still holds but maybe there's a little upside there.

Producers are still being very disciplined, but we think potentially there could be something there we shifted into.

<unk> recovery late in Q1 third party ethane recovery I think that's a potential upside you know as you think about the rest of the year.

So the base business and I think you are right. We don't want people to lose that performed very very well in Q1, and we think we're setup not only because of the commodity before all those factors I mentioned for a really strong second half of the year.

Spirit is volatile maybe to add a couple of things to what Sean mentioned.

If you take commodity fortyish corner out.

Yes.

We'd still be at a record quarter I'm like we beat EBITDA, 12% off of consensus DCF of 25% over of a consensus but again, that's not all commodity driven or base business is performing really really well I think we have a really good outlook there.

We internally look at this is we've done a lot of work over the last five years, our shell to set the business up for what we believe is a commodity super cycle that is going to kind of come come up here over the next number of quarters in years.

Think about our DCP transformation to digital to point out transformation. We started that in 16 that was about taking cost out about right sizing the business, making sure that we.

He can run through more through our plants in a very capital efficient way.

Lean manufacturing capital discipline being supply long capacity short and all of that combined with the balance sheet that we have right now really sets us up very very nice too.

Take care of that commodity upside that we do have in our business. So we like how things are set up we are very excited about very appreciative of what the DCP team has done and how we continue to set our self up and I really think in this commodity super cycle, we can unlock the earnings power of the enterprise.

Got it.

Thanks, guys on that.

The second one just turning to to bolt ons and M&A in General you guys are sort of mentioned the potential to do bolt ons I think in the last few quarters.

So curious if there's anything you guys are moving closer to on that front do you want to add some leverage targets first and when we think about the types of assets or the location of those assets what.

What should we be thinking about there.

Yeah. So yeah, they're definitely I would say additional activity that you see in the marketplace from assets that are coming to market I think it's predominantly different driven by p/e companies.

Yeah, there's a lot of a lot of companies to kind of start it in the 15 16, 17, 18 time period that obviously couldnt exit during 2020, one and I think a lot of dollars are seeing an opportunity to exit now there's over a dozen kind of assets that are on the.

On the block right now that are in the market space and we're looking at anything and everything we're going to take a really hard look at things at the same time, we're going to be tremendously disciplined just doing M&A for the sake of laminate absolutely is not something that makes sense. So we will look at it and say hey, how does it fit with our overall business how does it fit.

With our fault of being ultimately a wellhead to water type of type of company. How does it fit with you know in the DJ Basin and the Permian those are two kind of cornerstone asset base is obviously and if we can do something there that makes a lot of sense at a good value it's something that.

What you Wanna do you want to consider at the same time, you're not going to do M&A for the sake of M&A. So.

It's hard to say its a something imminent our auto stuff I, obviously cannot comment on that in any way shape or form, but if there's something that makes a lot of sense and then I think you've got to take a look at it.

Alright helpful. As always thanks for the time guys. Thanks.

Thank you.

Our next question comes from Michael Bluhm with Wells Fargo. Your line is open.

Thanks, Good morning, everyone.

I wanted to drill down a little bit more on the on the volume outlook.

I think as you mentioned I think Shawn you mentioned that you're still seeing capital discipline from the producers. Yet you also made a comment earlier, maybe that are made that comment about the <unk>.

And the global market and clearly there's a call on U S. Production. So just curious how you see that all shaking out.

In terms of how production plays out and maybe if you have any color by basin that'd be great too. Thanks.

Yeah, and maybe I can start overall Michael.

Around what we're seeing we can talk a little bit about what we were obviously talking to producers.

Very frequently in this environment, so going forward I refer back to what I said in February areas like the Delaware Basin and the DJ.

Producers are still there was growth baked in if you listen to what they're saying on their calls they're there probably still in line with that type of growth.

And you know as we talked to some producers. There is there was a little bit of a time frame on the big guys. Even if they decided to go and get some some additional.

Rigs going that would take some time that would hit later so for the remainder of this year. It feels to me that we are still what I'm, saying, we're still in line with the original guidance was 5% to 7% growth in areas like the Delaware and the DJ and I would say that that's still the case as we sit here today, maybe with some slight additional upside in <unk>.

Terms of.

What is some of it some of the global economic factors you are talking about a.

A potential upside for us in batter highlighted in his remarks is this Midland basin, you're seeing a lot of activity in the Midland Basin, we have assets there.

One of the interesting things about the Midland Basin is that we have some capacity that we can do we can utilize we've been very good in some of these other areas are getting our capacity at higher levels and utilizing offload so that could be some upside.

That actually started pre some of the global.

Unrest, but you're seeing some of that may be accelerate.

Mid continent in areas like the Eagle Ford and South although we're very excited about the exit rates stay hung in really well we're.

We're not expecting a ton of growth in those areas, but we're keeping an eye on those two regions, but again still probably slightly better than what we what I would have given back in February and may be the biggest upside that.

We see as the pipelines.

With some third party volume growth, we're seeing the potential for obviously, some additional volumes on sand and southern hills, probably mostly directed towards sand.

And then as I mentioned, a big upside for the company is the fact that we're starting to see more recovery.

Due to some demand issues and at times, the Frac spread is driving it. So I think the pipeline is definitely could could outperform this year. They definitely outperformed in Q1 producers again holding the line. The big guys are staying relatively disciplined but we'll keep an eye on it Michael I think we're looking at our product groups.

And then we're looking at our growth capital, which is modest but if we see any trends obviously, we'll let you know in the next call, but so far so good.

Great I appreciate all that that's all I had today.

Thanks.

Yeah.

Our next question comes from Gabe Moreen with Mizuho. Your line is open.

Hey, good morning, guys.

If I can ask about I think it looks like the commitment to paying also have a 1 billion maturity next year out of excess cash flow.

Can you talk about win versus other opportunities for capital return.

Maybe hearing correctly on this call. It seems like there is a further drive to deleveraging, even maybe relative to before is that related to investment grade and then I'm also getting to investment grade and then b.

I'm just wondering how youre defining mid cycle at this point.

Whether I guess its still the $70 per barrel $3 50 gas.

For the three five times leverage target.

Yes Gabe.

I'll start with that.

Yes, I would like to personally I would like to take that half a billion dollars up next year out of.

Out of excess free cash flow and I think it's important that in an environment. Like this which is you know a high cycle environment that you Delever the company on an absolute basis. So you don't just delever the company by growing EBITDA. Unlike we've all been through these cycles shown and I've been through these cycles for over.

Or a decade together now.

And just getting.

Just getting your leverage down via growing EBITDA, but not reducing.

The absolute debt.

I think it's the right thing in a high cycle environment like you're sitting here today.

<unk> swamps seem to always happen in our industry. The very definition of nature of a black Swan ish that you don't know when it happens and how it happens, but you got to be ready for it. So I think this is an absolute.

Opportune time to make sure that you get that balance sheet, absolutely right. We're not running the company for this quarter or next quarter. We're running this company for next year for the next five years and for the next decade, and you want to make sure that you set it up so therefore for us.

Taking this opportunity or this this time to get the balance sheet correct, absolutely important I think the rating agencies are going to follow suit.

I think we are investment grade rated metrics already.

<unk> reduced our leverage almost by a full point in just 12 years by fault are in 12 months.

In a full turn here and we're going to be well below three O here at the end so to your question of well how do you define mid cycle I think.

It's hard to do that I don't think $8 50 natural gas on the honor and tumble our crude has met cycle.

That's probably more in the 60 ish range on crude.

Dollar range, three and a half for oil natural gas something like that probably feels a little bit better I think the good thing from a timing point of view Gabe is borgata beat are really really quickly we're going to be at the end of this year, we're going to be well below three O probably somewhere in the mid twos and it gives you an unbelievable amount of flexibility.

I think we're set up well for distribution increase in the second half we've been talking about that for the last couple of quarters.

I think you have more flexibility around around growth around M&A around potentially doing something with common or with the preferred and I think that's why we want to beat and we want to be in a place where the balance sheet is rock solid really really strong and you have all that flexibility and we're going to be in a very very quickly based upon.

On the quarter that we showed you here today as well as the outlook for the remainder of the year.

Thanks router and then maybe as a follow up if I could can you just Sean mentioned about some of the working capital needs with collateral for the hedges I don't know where things stand in terms of the marketing.

Much working cap or using at a 50 gas either so I'm just curious about talking about.

How much might be locked up in OCI versus DCF, if you will for the quarter.

And then also bigger picture whether that.

Matters at all for capital return and how you're operating the business in a hard price commodity environment.

Yeah, Gabe this is Sean.

In terms of it mattering it we keep an eye on it obviously there were a lot of benefits and some some temporary.

Constraints that happened and when when you see gas double in price in a short period of time. So I mentioned, we talked about it last year collateral because we do run a balanced book and I think that's important you heard Wouter talk about investment grade you know it's not just your metrics. Its the are you running and how consistent are your cash flows or has it been massively consist.

And whats your diversity of your assets, we have massive diversity across portfolios and do you have the value chain different types of revenue streams, and we do but one of the things that we're monitoring it's not an issue is the increase in working capital that's one of the outcrop.

Outcrops or the high commodity environment. So you will see that it was in my written remarks, we did see that uptick.

You're right, it's probably predominantly tied to the gas move we've got plenty of liquidity.

I think I mentioned that we termed out our our facility of $1 4 billion dollar facility by the way. We also tied that to some ESG metrics, we're proud of that.

So you will we have a plenty of liquidity couple of other things that the team has done pretty interesting you can hedge multiple ways Gabe we use obviously some something like ice.

Which does require collateral, we're using banks more and more.

We liked that gives business to people that support us.

And the collateral requirements are much more diminished when you use it utilizing banks to hedge, but it's very manageable and I think to be specific we saw an uptick in Q1 versus last year.

On the collateral requirements, obviously with commodity running but we still de levered almost $100 million. So in Q1. So obviously, we're still have plenty of excess free cash flow. After we're done dealing with collateral requirements. The last thing I would tell you is when we model the remainder of the year. If you think about one allowed those hedges were put in place.

Gabe the lower priced hedges that were put on you know two years ago three years ago roll off a bunch of them roll off in Q2.

And then.

A significant portion rolls off by the end of the year, so as you're putting hedges on youre, putting them on at higher prices just because the environment is strengthening so something we're monitoring it's not something that I worry about its temporary it should remedy itself in a big way by the end of the year and we have plenty of liquidity to address it.

Yes, I think the other thing is that.

Just to make sure to add to what Sean said I'm like we still have a good chunk of open commodity positions. So yes, there is a downside to $8 natural gas as it pertains to your working capital needs and your hedge book, but were also clearing a tremendous amount of volume in our <unk> at $8.

While gas, which is pretty attractive so all in all it is a it's a good problem to have but we obviously got a budget that working capital need.

Thanks, guys. It just so to be clear leverage probably would have been three one or 302.

Presuming, none of the working capital needed to be posted or whatever.

That's a fair statement.

Okay got it thanks, Scott Thanks.

As a reminder to ask a question. Please press Star then one.

Our next question comes from Michael Cusimano, with Pickering Energy Partners. Your line is open.

Hey, good morning, guys.

Good morning, given the given the weather impact on first quarter volumes can you give us an indication maybe on where <unk> exited it was.

Or maybe just what the impacts were by basin. So you can get a sense of where we're at.

Looking heading into <unk>.

Yes, so the biggest impacts.

We're tied to the north we saw a lot of weather in the D J basin.

And again that was in February so when we the north had recovered pretty significantly if you're thinking of exits coming out of Q1, we were not quite but probably back where we thought we'd be and then the Permian saw some weather and I think the mid continent had a little bit.

As well.

And it took a little bit longer I think to get the Permian back up and running but as we sit here today. We are we had given that 5% to 7% increase in growth in those two particular areas. We're back on track for that 5% to 7% growth. So we kind of held the line a little bit in Q1 versus growing so I think it may even be.

In our written remarks, there was a little bit of a delay weather pushed back that growth that we were expecting to occur in Q1, it's now pushed into Q2, but.

As as people had to shut in and take some time to get volumes back online areas like the mid continent, and the Eagle Ford less impactful for the most part and we saw those kind of hanging in were much closer to where we thought.

When we gave guidance in February and again as I mentioned, the exit rates out of those areas. We were pretty pleased with coming out of the south and the mid continent. So back on track probably held the line more versus growing and we expect that growth now to start occurring and we're seeing some pretty good signs early into Q2, so far.

Okay, Great John Thanks.

And then quick follow up.

On the on the sensitivity HL gears.

Is there any variability that you can see.

Sit here.

As commodities run to the levels that we're at today.

You know what I'm mark to market I get north of 300 million increase versus the 200, plus which I'll lay out so I'm just trying to wonder.

Is that a linear.

Sensitivity or is there any headwinds that I need to consider.

It's it's generally linear I mean, a couple of things to consider we give those sensitivities there very strong sensitivities you know wouter mentioned him and I've been doing this for over a decade, we've been giving those sensitivities for over a decade, and if I stress test them back over time, they worked very very well clearly depending on the day you use you can come.

With much.

You don't want to make sure people understand we said $200 million plus.

That's going to depend on what day youre using what forward Youre using I think if I use yesterday's forward, we are significantly above much closer to the numbers that you had.

The only thing I will tell you that can change and we've never really modified the sensitivities would be if you had a massive sale of some assets that changed your open positions.

Or you had a big acquisition that brought assets in but aside from that they have worked really really well over the years and I think you're right I mean on certain days, it's worth much more than the 200 and again, that's why we highlighted 200, plus yes, I think Michael here, Here's the interesting thing correct, it's always hey, who's curve two years and when do you use it.

If you look at natural gas alone last Friday natural gas wells at $7 50, and we yesterday bar at age 74 natural gas that's $1.20. So think about that radical movement like we haven't really seen moves like that for a long long time. So it all depends on when do you take that curve.

And whose curve do you use obviously, but youre absolutely right. If you kind of look at where you are at the spot right now at 825 on natural gas that 200, plus number that we that we gave you is significantly higher than that.

Got it. Thank you that's helpful.

The color I appreciate it thank.

Thank you Michael.

Our next question comes from James Carreker with U S capital Advisors.

Your line is open.

Hi, Thanks for the question guys.

Just wanted to follow up on the announcement with the DJ offload capacity.

How long does that.

Set you guys up for are you thinking about in terms of your volume growth does it does it delay.

The time that you would need to think about putting new facilities into service.

Any other thoughts broadly about.

About that announcement.

Why don't I take that one James I think.

About deep discount D J.

Our systems are Chockablock full.

We're in a really great position.

Our producer customers are seeing some nice growth and a reasonable rate kind of going forward, but we are surrounded in the DJ basin with a number of midstream or do have open capacity. So this is really just prime example of why or you can use a supplier.

Long capacity short strategy, where it still works unlike to gathering and processing is really a real estate business. So you can be in a certain zip codes and things are tight and you can go move to 50 miles over and there is open capacity somewhere theres a dish is a.

A good example of where we can do a.

Not even a low capital. This is a zero capital 100 million. A day addition that we have where.

Why are we can make sure that our producer customers can continue to grow where we don't overbuild, Jim built for the sake of building and what it gives it gives us more runway to kind of think about hey, how is the basin going to develop we are going to invest a decent number.

And gathering infrastructure in the DJ basin to make sure that they can move all of this gas we are still continuing to work and look over the horizon and say do we need to build another plant in the DJ basin. So our engineering teams. Our commercial teams are all working together with our producer customers to look at that.

That plant is still it's still a bit away.

But this gives us gives us a tremendous amount of flexibility of zero capital favorable terms remembered it.

We probably have almost a full plant now that we are using an offloading wherever you didn't have to spend a dollar of capital the residue gas goes into our pipeline. The Ngls go into our pipeline and then we make a nice margin over and above the processing fee that are paying so it really is a win win win.

If we're going to continue to look at.

Further out the needs to potentially build a plant and that would be pretty exciting and like that's the business that we're in.

Yeah, I appreciate that color and then.

Maybe just following up on comments you made.

About potentially expanding Gtx is is that something that you guys would need in order to facilitate your own volumes or.

Or.

And can you also just broadly talk about how you guys are positioned or.

Permian gas takeaway and what is the.

Contract status for some of your your own pipelines out of the Permian. Okay. So so we are very well set up for our own equity gas between gcs and our ownership in <unk> and the capacity that we took on G. CX, our Guadalupe pipeline that we have so we are.

Tremendously well set up.

So we like the position that we are in for our equity gas as it pertains to Gulf Coast Express Hey over the next kind of couple of weeks, we hope to go out with an open season Theres definitely a lot of interest in the marketplace I think the good thing about GCE access.

You know you don't have to go through a lot of right of way Theres not a lot of uncertainty. It's a fairly quick to market solution. So we're going to run that open season, and then as part of that open season, we're going to see how much interest. There is so far it seems like there's a good chunk of interest in the marketplace and then as a partner we will have to evaluate.

And the investment opportunity do we like to actually own more of that <unk> I would say in general.

We like the asset it's a great strategic fit with our asset base its fee based to complement the portfolio. So I think <unk> set up very well great that we have a project like Gtx and a couple of other ones like that wherever we can gift producers.

Residue takeaway capacity fairly speedy versus versus new builds because that is what the Permian needs. The Permian does need takeaway and I think we're in a prime position to offer that to our producer customers from our equity gas position. We are in a really good place today already in for the next number of years.

Got you and then any update on how well contracted Guadalupe is.

I guess over the next couple of years.

Yeah, we took it.

James coming out of Europe last year, we took there was a great opportunity obviously for people came in for demand right to contract out. So we did contract took the took advantage of that we were able to contact or contract out Guadalupe.

Over the next five years, you know, we always take a very long view approach on our contracts. There. So it's fairly well contracted up we still it's similar to the company in terms of the overview a lot of fee based contracts set in place with some upside I think as you go out four years it starts to open.

Up even more.

Four years and beyond in and already were seeing interest in continuing to fill some of that but over the next few years, we're in great shape fairly well contracted with a with some upside if there were some disruptions that we're able to take advantage of.

Got it thanks for the color.

Thanks James.

This concludes the question and answer session I'd like to turn the call over to Mike Coleman for any closing remarks.

Thank you all for joining US today, if you have any other follow up questions. Please feel free to reach out thanks.

This concludes today's program you may now disconnect everyone have a great day.

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