Q1 2022 Western Midstream Partners LP Earnings Call
Great.
[music].
Good afternoon. My name is Selena and I will be your conference operator today at this time I would like to welcome everyone to the <unk> 20 to Western <unk>.
Stream partners earnings Conference call all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press the pound.
Thank you I would now like to turn the conference over to Daniel Jenkins Director of Investor Relations. Please go ahead.
Thank you I'm glad you could join US today for Western Midstream first quarter 2022 conference call I would like to remind you that today's call. The accompanying slide deck and last night's earnings release contain important disclosures regarding forward looking statements and non-GAAP reconciliations please reference western midstream most re.
<unk> Form 10-Q, and other public filings for a description of risk factors that could cause actual results to differ materially from what we discuss today relevant reference materials are posted on our website with me today are Michael <unk>, Our Chief Executive Officer, Christian Schultz, our Chief Financial Officer, and Craig Collins.
Our Chief operating Officer, I will now turn the call over to Michael.
Thank you Daniel and good afternoon, everyone.
Yesterday, we reported another quarter of strong financial performance.
We generated net income available to limited partners of $302 million and record breaking adjusted EBITDA of $539 million, representing a sequential quarter increase of 27% and 12% respectively.
Taking a closer look at our first quarter results the sequential quarter EBITDA increase was driven by the following factors.
Our contracts with minimum volume commitments and associated deficiency payments helped support our gross margin despite volume declines across the portfolio relative to the fourth quarter.
These declines were the result of well completion timing and weather impacts in the Delaware basin as well as expected declines in the DJ basin and on our equity method investments Craig will extend on throughput shortly.
We also entered into and converted certain natural gas processing agreements from actual recoveries to fixed recoveries for multiple customers during the first quarter.
As a result of strong plant performance, leading to actual recoveries exceeding the contractually specified recoveries, we've retained excess natural gas liquid volumes in the Delaware basin under these contracts.
Therefore, these additional volumes along with high commodity prices led to an increase in gross margin. Despite a decrease in throughput.
Third we realized lower operational costs during the first quarter relative to fourth quarter, and our first quarter expectations.
Compared to fourth quarter, we realized a 12% reduction in operational and maintenance expense, primarily due to lower utility costs, which is typical during the first quarter.
Lower equipment rental expense and reduced land costs associated with our produced water business and a 13% reduction in general and administrative expense, primarily due to reduced corporate expense and lower contract labor cost, which fluctuates from quarter to quarter. Additionally, in the fourth quarter of 2021, we recorded 26.
Of unfavorable revenue recognition cumulative adjustments associated with lower cost of service rates predominantly at the DJ Basin oil system, which we did not see in the first quarter of 2022.
Turning to cash flow, our first quarter cash flow from operations totaled $276 million, which declined compared to the prior quarter in large part due to normal working capital changes specifically changes in accounts receivable.
Free cash flow totaled $200 million and free cash flow after the fourth quarter distribution payment in January totaled approximately $66 million I'm incredibly pleased with our financial results this quarter.
And I'm, even more excited about our team's success in creating additional value for Wes as Craig will discuss shortly the team executed numerous contracts in both the Delaware and DJ basins that will generate incremental adjusted EBITDA in 2022 and beyond I'd like to highlight a few of these recent successes in the Delaware Basin.
First we executed long term amendments to Occidental as gas processing agreement, increasing the FERC capacity on our system.
Second we executed a new long term gas gathering and processing agreement with Conocophillips to provide firm capacity for dedicated volumes on our system.
Lastly, we added a new publicly traded customer to our gas and water portfolio, highlighting our ability to service multiple product lines in the basin.
These new long term agreements along with increased producer activity levels support our need for additional gas processing capacity and solidify our decision to sanction a new 300 million cubic feet per day gas processing train at our existing mental implant, which is part of our west Texas complex.
With this expansion west will be one of the top three gas processors in the Delaware Basin.
The combination of our premier infrastructure, our ability to provide a three stream midstream solution to producers and our continued success and expanding business with our existing customers and with new third party customers solidifies us as a leading midstream provider in the Delaware Basin.
Our exposure in the Delaware Basin is a competitive advantage relative to our peers and we're excited to play an integral role in the growth of the base in the country's energy production as a whole ill now turn it over to Kristen, who I would like to formally welcome as our newly appointed Chief Financial Officer to discuss our financial performance Kristen.
Thank you Michael.
We recently declared a first quarter cash distribution of <unk> 50 per unit payable on may 13th.
Probation represents a 53% increase over the prior quarter's distribution and is consistent with the previously announced annualized base distribution target of $2 per unit.
Continue to reduce leverage ending the quarter with a net debt to trailing 12 months adjusted EBITDA leverage ratio of three three times and we expect to further reduce our net leverage as we continue to generate strong adjusted EBITDA and significant free cash flow.
Additionally on April 1st we retired $502 million of senior notes.
This retirement, we've now retired 165 billion of senior notes are 20% of the aggregate debt balance since our January 2020 bond insurance.
The market environment resulted in limited opportunities to execute on our 1 billion buyback program.
We repurchased approximately 225000 units for aggregate consideration of <unk>.
$5 1 million in the first quarter of 2022.
Since January 2020, we have repurchased $41 7 million units or just over 9% of our unit count.
On a per unit basis, we've now returned $5.24 through debt retirement and unit repurchases and $3 31.
Distributions for a total of $8 55.
Return to unit holders since the onset of the pandemic.
Excludes any market driven appreciation in our current unit price.
We are committed to employing a balanced approach regarding capital allocation.
Retiring debt, increasing the distribution and returning excess cash to unit holders through the unit buyback program or potentially through an enhanced distribution. We continue to return value to stakeholders, while adapting to the rapidly changing environment.
Based on our performance this quarter and our updated expectations for the remainder of this year, we have reevaluated, our previously announced 2020 Twos Island.
Such we're revising our adjusted EBITDA capital expenditure and free cash flow guidance ranges specifically.
We expect adjusted EBITDA to range between $2 25 to two to two 5 billion, an increase of $200 million to the midpoint from our previous guidance range of $1 95 to 2.25 billion.
We expect a meaningful increase in rig activity and additional wells to come online during 2022 in the Delaware basin as compared to prior expectations.
We also expect volumes associated with the new Conocophillips agreement to come online during the first half of this year.
We anticipate the strong plant performance, we experienced during the first quarter to continue throughout this year to the extent commodity prices remain elevated we expect to generate incremental gross margin associated with the retained excess natural gas liquid volumes in the Delaware and DJ Basin.
<unk> associated with an amended processing agreement with DCP midstream and the D. J basin, which Craig will discuss later in more detail are already flowing and generating incremental adjusted EBITDA.
We expect total capital expenditures to range between $550 million to $600 million, an increase of $150 million to the midpoint from our prior guidance range of $375 million to $475 million due.
Due to additional well connect and expansion capital, which includes the portion of the capital needed to fill a Nintendo and train three.
We expect free cash flow to range between one to 502 to 135 billion, an increase of $50 million to the midpoint from our prior guidance range of one two to one 3 billion.
The distribution guidance of at least $2 per unit remains unchanged.
With that I'll now turn the call over to Craig to discuss our operational performance Craig.
Thank you Kristen on a sequential quarter basis natural gas throughput decreased by 3%. This decrease was primarily due to reduced throughput in the Delaware basin due to well completion timing and instances of inclement weather during the quarter lower expected volumes at our DJ Basin complex and our equity method investments and production.
Lines and our other operated assets.
Our crude oil and natural gas liquids throughput decreased by 4% on a sequential quarter basis, primarily due to lower volumes at the DBM oil system, resulting from well completion timing and weather impacts as well as lower expected volumes in the DJ basin and from our equity method investments produced water throughput decreased by 5% on a sequential.
Quarter basis due to decreased volumes at the DBM water systems, primarily from lower production related to well completion timing and weather impacts our per Mcf adjusted gross margin for our natural gas assets increased by <unk> relative to fourth quarter 2021.
Primarily due to strong plant performance and contract mix at the West, Texas and DJ Basin complex.
These factors led to increased product recoveries and coupled with higher commodity prices resulted in increased gross margin.
Our per barrel adjusted gross margin for our crude oil and natural gas liquids assets increased by 66.
On a sequential quarter basis. This was primarily due to the annual cost of service rate adjustment that decreased revenue during the fourth quarter of 2021 at the DJ Basin oil system and the treatment of lease revenue under the operating and maintenance agreement with Occidental at the DBM oil system that was terminated effective December 31 2021.
We estimate the impact of the cost of service rate adjustment in the fourth quarter at the DJ Basin oil system was <unk> 47 per barrel. Additionally, deficiency fees recorded in the first quarter led to a higher per barrel adjusted gross margin than originally expected.
Our per barrel adjusted gross margin for our produced water assets increased by <unk> relative to last quarter.
Primarily due to deficiency fees recorded in the first quarter of 2022.
As Michael mentioned earlier, we achieved significant commercial success in both the DJ and Delaware basins in the first quarter, particularly in our gas business I want to thank all of our employees who are involved for their hard work in creating substantial value for west.
In the DJ Basin, we executed a multiyear amendment to Dcp's gas processing agreement, providing an additional 60 million cubic feet per day of firm processing capacity fully backed by minimum volume commitment with DCP youre retaining rig feet per day.
This amendment highlights the creativity of our commercial team to cost effectively maximize throughput at our processing facilities.
While we expect these volumes to help offset a portion of the forecasted gas throughput decline in the DJ Basin, we still expect both oil and gas volumes to development associated with the current permanent hitting.
Bidding environment.
We continue.
There is and provide the necessary support.
I'd like to point out there.
Despite our declining volume outlook within the DJ Basin, our expected financial performance for the year underscores the strength and stability.
Turning to the Delaware Basin.
We executed a long term gas gathering and processing agreement with Conocophillips to provide up to 100.
Pasty on our system to service dedicated volumes.
Sure we secured the significant additions.
<unk> dedication that generates a high return and support Conocophillips ongoing development of the acreage.
Capital requirements are limited and are included in our 2022 capital guidance.
We're excited to grow our existing relationships.
Chip with Conoco Phillips and to support their long term success in the Delaware Basin.
Throughout the quarter many of our producers revisited and adjusted their drilling programs in light of the sustained high commodity price environment.
Both private and public customers are increasing activity on the acreage, we service, which demonstrates confidence in our ability to provide flow assurance and competitive value for their products producers have recognized the need for additional capacity on our systems to support their growth in processing needs as capacity in the basin tightens.
Our commercial teams have worked diligently to put the appropriate agreements in place.
One such agreement signed this quarter was with Occidental, we executed long term amendments to their existing gas processing agreement to provide an additional 250 million cubic feet per day.
Supported by up to 200 million cubic feet per day of minimum volume commitments. This amendment reflects new firmed.
Commitments for volumes that were previously forecasted as well as newly anticipated volumes.
Operate and exemplifies the strength and foundation of our relationship provider of choice and continue to support that.
So come the aggregate of our.
Commercial success in the anticipated interest.
Led us to update our outlook for our expected year end exit rate percentage increases across the portfolio.
<unk> gas by mid single digits and oil by low single digits.
Our recent commercial.
So success and increased producer activity levels in 2022 and beyond underpinned the neon Plex, therefore to secure.
Sure additional capacity our teams of value.
The weighted multiple options and thoroughly reviewed each to ensure we utilize capital in the most.
Processing train at our mentor.
On plant and the execution of offload agreements with third party processors.
The initial design and construction of the midterm plan had already incorporated plans for a third processing train, making this expansion cost effective relative to a new Greenfield construction project Midtown train three will operate with a nameplate capacity of 300 million cubic feet per day, and we anticipate it to be.
Three.
We believe increasing operated capacity in the Delaware Basin reflects our long term commitment.
So our producers and further cements our position as a leading midstream service.
Provider in the basin, while Menton train III is under construction we are secure.
There is additional capacity through offload arrangements with third party processors with excess capacity in the basin. These offload agreements are both economic to Wes and further demonstrate our track record of taking actions to benefit our unit holders.
Combination of our strong long term commercial agreements backed by producer commitments and dedications and the overall tightening of processing capacity in the Delaware Basin, all contributed to us sanctioning Menton train three.
Turning to our capital budget for the year, our needs for 2022 relative to when we issued guidance have changed due to our commercial success.
Yes, and the expected increase of volumes onto our systems in the Delaware Basin. Therefore, as Christian outlined earlier, we have provided revised 2022 capital guidance of 550 million base and will receive the majority of our capital for about 80% of our total forecasted.
Budget, our expected spend on expansion capital has increased to 66%.
To account for this year's portion of spending from Midtown train three as well as the additional infrastructure necessary to service anticipated increased volumes I'd now like to turn the call back over to Michael Michael.
Before we open it up for Q&A I would like to emphasize how Wes and its unit holders are extremely well positioned to benefit from the greatly improved operating environment.
Since becoming a standalone enterprise, we are focused on lowering our overall cost structure and chips as well as attract new business.
We've attracted additional volumes from legacy customers, including Occidental and Conocophillips. These meaningful agreements will be drivers of throughput growth and profitability for years to come.
We've added new third party customers, bringing approximately 15 customers into our water and gas portfolios, our strong asset base, specifically in the Delaware Basin allows us to capitalize on increasing producer.
Activity levels.
We were the first in the industry to focus on free cash flow generation and we use.
So that free cash flow to meaningfully derisk, our enterprise through leverage reduction we.
We've been a leader in creating shareholder value through a balanced approach of capital return without putting our balance sheet at risk.
This resulted in the lowest debt to EBITDA leverage ratio when taking into account the $502 million senior note maturity. We retired in April of 2022. Additionally, less leads in total units repurchased since January 2020, taking advantage of Opportunistically repurchasing a significant amount of equity over the past couple of years.
The distribution has also remains a core component of our capital return program.
This has resulted in one of the highest aggregate payouts.
<unk> of enterprise value.
We're still remains one of the highest yields even without taking into consideration.
Distribution, which is also the first of its kind in the industry.
We believe that <unk> is firing on all cylinders.
And is now able to better capitalize on the improved operating environment to generate.
Strong returns for our unit holders and were to return incremental capital to stakeholders I'd like to close by extending my appreciation to the entire west workforce. All of our teams have worked tirelessly to enable recent commercial successes ensure our system reliability remains high and maintained excellent customer service, while staying focused on safely reducing costs.
Yes.
Our first quarter performance provides a strong start to the year and sets us up for great success for the remainder of 2022 and beyond with that we'll open the line for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Here for just a moment to compile the Q&A roster.
The first question comes from Spiro <unk> with credit Suisse. Please proceed.
Thanks, operator afternoon team.
First question, Michael maybe starting with commercial you highlighted those two deals with oxy and Conoco and one of your Delaware peers last night also highlighted about 400 million cubic feet a day of new Mdc's.
And also made a decision to increase processing capacity, so I don't want to say.
So, it's a trend or anything but it seems like sort of a sudden acceleration of commercial activity.
And a lot of us were sort of under the impression that a lot of this acreage kind of already been dedicated so surprisingly sort of see this all at once so curious was hoped to get your view, maybe give us a steric deals coming or is this kind of it for now.
Well Im definitely.
Thanks for the question.
Sure I'm definitely not going to say that there are new opportunities coming we definitely continue to look for additional opportunities as it arises but.
You are highlighting the incredible opportunity that exists within the Delaware basin as it relates to potential volume growth coming.
Coming out of it I mean, just to just to highlight how significant that is.
For us for 100 million a day of new <unk>.
Nations is that 30% increase on the volume. So we thought we thought there are processing stack during the first quarter. That's just in one.
Quarter, the additions that we were able to achieve and that in and of itself. If all we did was process those increased commitments. It would have us approaching a top 10 position in total processing in the Delaware basin. So.
What you are referring to there is an enormous amount of.
Potential that exists for growth coming out of the basin and the opportunity that the less it is very.
Well poised to be able to capitalize on.
Great. Thanks for that Michael second.
Second one maybe for you Christine just on capital return.
A two part question, but.
You've got this improved outlook now and so one was just curious to get your latest thoughts on how to think about the enhanced distribution and what that could look like later this year or in early 'twenty three and then also on the buybacks you did about $5 million this quarter.
I'm curious how much of a factor was it that you still had you repay the $500 million of senior notes in other words with that prepayment or.
For repayment behind you now in April .
Does that sort of internally for you to do more on opportunistic buybacks for the rest of the year.
Yes, why don't I go ahead, and take that and then Chris and please feel free to add on as you said.
You did highlight the.
Key factors that we took into consideration in addition to just general overall market dynamics, but.
But we had $500 million debt reduction paydown that we did on April one.
We were also in the midst of looking at our capital program for the year.
In light of the commercial successes that we're having and so youre talking about $150 million increase in capital on our $500 million.
Debt reduction and so it was prudent for us to take that into consideration into in addition to normal market conditions as it relates to the buyback, but obviously as my prepared remarks referenced the buyback has been something that we have been utilizing very very effectively over the past little while.
<unk> industry, leading.
And being able to utilize the buyback program. So it's obviously a core component of how we think about.
Potential return of capital as it relates to the enhanced distribution. These updated guidance figures very much put.
As a potential opportunity and enhanced distribution to be paid in 2023, we think it's a really exciting development in light of the successes that we've had this quarter and expect for the remainder of the year and very much was core as we thought about the financial policy for our <unk>.
There has to be able to get rewarded for those who SaaS is that we're able to achieve during each annual year.
Great Thats, all I had guys very helpful. Thanks for the time.
Your next question comes from the line of Colton Bean with Tudor Pickering. Please proceed.
Good afternoon. This is John Oxy is call earlier, I think I mentioned, some permitting delays in the DJ and the potential to reallocate activity to the Delaware as a result, so maybe a two part question for you first wanted to confirm that was contemplated in the guidance update and second is that activity reallocation actually margin accretive just given the broader scope of operations.
<unk> do you have in the Delaware.
Go ahead, Chris.
So that was contemplated in the guidance that we just came out with the revised guidance.
And not only the increase.
Thanks, Paul.
Yeah on that acreage, but also on the private sale.
We've seen just increased activity Fran.
Many of our providers on the acreage that survey.
In general yes.
Along with that increase we expect additional gross margin to come from the Delaware.
50% of our EBITDA for this year to come from the Delaware and the capital spend that we're spending at the park.
The majority of that is coming from the Delaware.
Studying it that far.
Great.
Yes.
And then maybe just to follow up on that.
For like basis, if you had the option to put a rig in the Delaware versus DJ do you all have a preference I guess in terms of impact to your overall margins.
I think overall, they're both pretty returning data foray.
D J just from a capacity standpoint, we've got it thats helpful platform with ebay and <unk>.
It's always great to be able to fill.
Dan. Thank you I'll follow up with any midstream provider right so with the.
Delaware is a very competitive and.
And we're seeing a lot of the cross selling price.
Okay, Great and then maybe on <unk> III it seems like with the new processing agreements announced and then the offered capacity available to you in the interim would you expect to bring in two and three on at a fairly high utilization rate.
Yes.
Anticipate menton III coming online late 2023.
When it does come online, we do expect it to be.
<unk> pretty full.
From the outset and.
We're continuing to.
Monitor monitor what our processing needs are going to look like going forward.
And based on the recent success that we've had and that continued.
Yes.
Improvement in our increased activity levels from our producers as well as new opportunities.
I expect that we'll be able to.
Well the source and asset portfolio, we're already starting to look at.
What else can we may need beyond it sounds great.
Perfect I appreciate the detail.
Your next question comes from the line of Chase Mulvehill with Bank of America. Your line is open.
Hey, good afternoon, everyone.
Yes.
First question.
Do you have a view on natural gas egress bottlenecks in the Permian next year and maybe.
If you see some tightness or evolving kind of in the first half of next year.
What steps do you think you can take to be able to best manage any potential constraints.
In the Permian.
Yes.
We expect to see more of those constraints in 2024 and beyond but I think in the interim should should there be some episodic tightness in the downstream takeaway.
Market.
I think what will naturally pivoted towards us.
Making sure that.
We're recovering all the all the ethane that we can in order to.
Lean out the remedy.
Yes screens in.
I think.
I think the physical volumes are going to be able to move out of the basin I think it's more of a pricing issue, particularly.
Near term.
Hi, it's going out to the west coast, not really aware of molecules.
Prefer to go from an economic standpoint, but but.
I think there'll be able to move that way in.
We have many of our larger producers.
Take care, the residue gas in kind and make their own downstream marketing commitments.
And we work with the balance of our customers too.
The market there their production or their residue on their behalf and we've got a third party marketer that that we work very closely with them.
We're watching those downstream markets.
And really what what.
How that situation may evolve, but I think Pete.
Theme here of late that there's been a couple of expansions announced an additional one is it's probably pending shortly so we'll.
No it should be shorter sort of turnaround and expansion.
<unk> capacity, so that should help.
Okay.
Kind of a related follow up.
I guess.
Now all the way through earning season or midstream earnings season, we've seen a lot of midstream companies add processing capacity in the Permian.
And it's hard for us to see exactly how much as associated NBC contracts with the capacity additions.
But it does seem like that the midstream companies are setting themselves up for significant production growth in the Permian.
This significant growth actually is a bit contrast to what we're hearing from at least public e&ps.
So I guess given do you feel like that the midstream is getting a different message from the E&P industry and what the market expects and other words do you think as the market should be set up for significant growth in the Permian or do you think that theres going to be more disciplined in.
Yes.
We're seeing all of this capacity being added but we keep hearing from A&P as debt.
We're going to be more difficult.
Yes, a couple of comments I would make darrin, it's great question.
First as you know.
You, obviously have to take into consideration a lot of the private.
Companies and frankly, a lot of them are <unk>.
<unk> full scale at this point and the acceleration of their <unk>.
All of our programs have been.
Then continued and strong and definitely don't show any sign of a reduction according to the conversations that we're having.
Second thing I would just make mention of is that.
When when the upstream companies talk about disciplined very much talking about that really on a portfolio basis right and so.
What you have to take into consideration is are they reallocating capital to some of the.
The highest return areas and so for us where we take a look at the Delaware Basin is being.
Our footprint is being in the heart of the core of the core.
If you have a limited amount of capital Youre trying to utilize that capital to some of the shorter cycle development programs in some of the best areas, where you have an acreage position and so.
I'll definitely there has been a great <unk>.
Capital is being allocated allocated to and so as we have conversations with our customers where that capital seems to be finding its home.
In the areas, where we have core assets within the Delaware Basin.
Really helpful.
I could squeeze one more in real quick and just thinking about commodity exposure.
You disclosed that you've got 92% fixed based gas contracts and a 100% fee based liquids contracts, but not sure. If some of these contracts that you have three floors.
Provide you some commodity price upside.
So I guess, maybe if you can answer that or just maybe if you don't want to answer that.
About the raised 22 EBITDA guidance of $200 million, how much of that was volume based versus commodity base.
Yes so.
I guess there was there was a factor for bolt obviously that went into it the vast majority of it however was an increase in activity as well.
As we talked about.
In addition to the.
To add on top of the prepared remarks that we referenced.
Some of our gas processing contracts, where you have the fixed recovery rate and as much as we operate those plants.
More efficiently than what that takes your recovery rate would indicate.
The excess volumes.
Our to our account and so and as much as we continue to operate those plants more effectively still a fixed fee as it relates to that processing contract. However.
The excess if there is some as we continue to operate our plants more efficiently and that does come in the form of increased volumes for us and for our account and so there is.
Incremental commodity exposure from that standpoint, despite the fact that it is still a fixed fee contract Craig is there anything else you'd add there.
Yes, I think the the contrast that you may be really asking about is.
Some of our competitors for example may have a.
People are.
Percent of proceeds contract structure with a minimum floor fee.
Fee based.
And that's really not how our contracts are structured they are predominantly overwhelmingly fee based in terms of the economics they deliver.
And then there's just some additional economics on top.
As Michael pointed out to the extent we recover.
Our percentage of Ngls and what the producer bonus in the contracts.
But.
Okay.
Overwhelming majority is from the fee component versus versus having a highly variable component.
Okay, Alright makes sense appreciate the color thanks, everybody.
Thanks.
Again, if you'd like to ask a question press Star then the number one on your telephone keypad.
Your next question comes from the line of Michael Cucinello with Pickering Energy Partners. Please proceed.
Thank you and good afternoon, everyone.
I wanted to follow on <unk> question earlier on the T J permitting.
Just curious if youre seeing similar issues in the DJ with any of your other operators or if this is oxy specific to the way they went about their planning process.
Yes, I Wouldnt say its oxy specific I think it really comes down to the specifics around.
The areas in which each of the.
Producers as operating up there.
Obviously theres a lot of.
Urban development in the greater Denver area, and I think the the proximity of that urban development relative to the undeveloped acreage is really the.
The key criteria for how those permitting processes go and so.
Yes, I think so.
Some producers have had.
A lot more permits approved.
I think through the last few months, but but I think there are also probably much further removed from the urban development and so there just arent nearly as many concerns I think it really is is less operator specific and more acreage specific and so.
I think.
As I outlined.
Deep learning.
Through the permitting process and they're optimistic about what that looks like going forward.
And.
I think their.
Our comments speak for themselves.
Okay got it that's helpful. That's all for me. Thank you all.
Thank you.
Your next question comes from the line of Matt <unk> with Wells Fargo. Your line is open.
Hi, Thanks for taking the questions so spending on mental and three will likely continue throughout most of next year and you also noted increased producer activity in the Delaware.
So could you could you give us a rough indication of what is a good capex range for 2023.
Or as differently do you still expect 23 spending to be lower than.
2022, as some of those system investments Youre, making this year will not be part of the budget next year.
Yes, I mean, we.
<unk> increased our 2022 capital program as you saw and that increase was really attributable to.
Capital that we brought forward into 2022 to support the increase in activity levels that we see coming at US. Both this year as well as next year and then of course, the other large contributor to that capital increase for 2022.
Was based on the 2020 to Sten for the Perm Nintendo III.
And as you point out that capital spend on the plant expansion will continue through the first three quarters or so of 2023 and.
As far as what 2023 looks like I think.
We've outlined our program for this year and we continue to.
They are outlet based on producer engagement and.
Sure.
Too early to tell what 2023 is going to look like.
<unk>.
We're very encouraged by the overall.
Levels of activity that we're seeing the.
Our commitment to developing acreage in and around our system. So.
Frankly it.
It's pretty good time to be.
The operating assets, where we are.
That makes sense.
I guess staying on mental and three could you could you maybe talk about the terms of the contract that underpin this facility and just broadly whether the economics are comparable to.
The economics are.
Processing investments that you have made in the past.
Yes, great question Matt.
The way that we take a look at this first of all becomes a part of our broader complex and so in services volumes that we have throughout the area not necessarily just tied to a specific or a small group of contracts. The way that we look at it is that we set ourselves a threshold.
Mid teens.
Hurdle rate.
And in this project as we look at it.
Exceeds that hurdle rate and so.
We're really excited about the opportunity not only to grow.
Into the future is obviously points towards in our comments of highlighted there but.
While growing at a really great rate of return.
Got it that's all I had thank you.
Thank you.
There are no further questions at this time, Mr. <unk> I turn the call back over to you.
Thank you everyone for joining the call we'd like to reiterate my thanks to the employees for an excellent quarter and for the opportunity set that we have in front of us as I mentioned in our prepared remarks, we're really excited about the opportunity and prospects that we have in and feel really great about the physician call.
And a couple of months time.
This concludes today's.
This conference call you may now disconnect.
Yes.
Sure.
Sure.
Yes.
Sure.
Yes.
[music].
Okay.
Sure.
Yes.