Q3 2022 Secure Energy Services Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the secure energy Q3, 2022 results conference call.
At this time all lines are in a listen only mode.
Knowing the presentation, we will conduct a question and answer session.
If at any time during this call you require immediate assistance. Please press star zero for the operator.
This call is being recorded on Wednesday November <unk> 2022, I would now like to turn the conference over to Aneel Agarawala VP Treasury and IR. Please go ahead.
Okay.
Thank you Michelle welcome to secure energy conference call for the third quarter of 2020, joining me on the call today is ready MRO, our Chief Executive Officer, Alan Graf, our newly appointed President and Chattanooga, Our Chief Financial Officer. During the call today, we will make forward looking statements related to future performance.
We will refer to certain financial measures and ratios that do not have any standardized meaning prescribed by GAAP and may not be comparable to similar financial measures LOE ratios disclosed by other companies.
Forward looking statements reflect current views with respect to future events and are based on certain key expectations and assumptions considered reasonable by secure.
Forward looking information address future events and conditions by their very nature of the involve inherent assumptions risks and uncertainties and actual results could differ materially from those anticipated due to numerous factors.
Please refer to our continuous disclosure documents available on SEDAR as Daniel if I risk factors applicable to secure factors, which may cause actual results to differ materially from any forward looking statements and identify defined our non-GAAP measures I will now turn the call over to Ray for his opening remarks.
Thank you Neal and good morning, everyone.
So open today I'd like to congratulate Alan branch and on his appointment to president and.
Cory Hi, as our new Chief operating officer.
Both individuals bandwidth secure since it was founded in 2007.
A critical part of our leadership and entrepreneurial culture, we are a big part of why we are leaders in this industry today.
Today, We will review, our financial and operational results for Q3.
2022, followed by our outlook for the remainder of the year, our third quarter was another historic quarter for secure we generated record adjusted EBITDA of $154 million achieved our $75 million synergy target ahead of schedule and improved our debt to EBITDA ratio to two two.
Hi.
With the success in the business and a stronger balance sheet. We're excited to announce our capital allocation priorities that will result in significantly higher shareholder returns, while continuing to prioritize a strong balance sheet.
Effective with our next dividend payment in January our quarterly dividend will jump from <unk> <unk> per share to <unk> 40 annually. This is a substantial increase from our current annual dividend. This new dividend amount is sustainable backed by contracted and reoccurring cash flows and can grow over time.
In addition, we plan to begin a share repurchase program in early 2023, we will be opportunistic with our buyback program, which should result in additional shareholder returns in terms of our Q3 performance. We continue to be extremely pleased with the progress in integration of the Davita acquisition of the <unk>.
End of Q3, we achieved 76 million of annualized run rate cost savings that impact adjusted EBITDA exceeding our target of $75 million, we have achieved additional savings from requirements and our capital structure by repurchasing outstanding 11% Senior secured notes there are additional.
Final opportunities to optimize our facility network and make operational improvements. However, we don't intend to continue reporting these synergies going forward the macro.
Environmental for the oil and gas industry remains strong and we see that continuing even if the economy slows down in the near future as the fundamental need for oil and gas should continue to be supportive.
This is leading to strong demand for our infrastructure across all our business lines. In Q3, we generated adjusted EBITDA of 154 million a 47% increase from Q3 2021, which was our first full quarter. Following the attribute of transaction and another record quarter for secure this allowed.
US to reduce our leverage ratio from two five to $2. Two we remain focused on deleveraging and currently have a debt principle balance of $1 billion versus our target of $8 50 to 950 $950 million. In addition to our financial and operational strengths our commitment to ESG remains an important part of our busy.
We are on track to exceed our target of 5% freshwater usage reduction having reached seven 6% in the first half of the year Chad will now walk us through the key financial highlights of our Q3 results then Alan will review, our operational highlights and integration update and I will go over more details on our capital allocation.
Outlook for the remainder of the year in 2023.
Thanks, Randy and good morning to everyone on the call.
Our third quarter results continued to demonstrate the enhanced scale of our business, our ongoing focus on managing costs and reducing debt and overall improvement in the underlying markets.
Important to note that this is the first quarter, where the comparative data includes the <unk> business as the transaction closed July 21.
We recorded net income of $60 million or <unk> 19 per share an increase of 82 million or <unk> 26 per share for the third quarter.
From the third quarter of 2021.
Funds flow from operations increased 78% to $132 million.
39% increase on a per share basis to <unk> 43 per basic share.
Our adjusted EBITDA of $154 million increased 47% or $49 million from $105 million a year earlier and on a per basic share basis was <unk> 50 <unk>.
47% increase from the prior year.
Realized synergies contributed $11 million of incremental EBITDA compared to the third quarter of 2021, and the remainder of the increase is primarily due to higher industry activity levels, which led to higher processing and disposal volumes at our midstream infrastructure processing facilities, including a 7% increase in water disposal volumes.
And at our industrial landfills, which saw volumes increased 22%.
Our adjusted EBITDA margin of 37% increase from 33% in the third quarter of 2021.
Due to the positive impact from the cost synergies and increased industry activity levels.
Inflation has had an impact on our costs, but we have been able to effectively manage this an offset through operational synergies efficiencies and price increases.
As well our G&A as a percentage of revenue excluding oil purchase and resale also improved to 7% compared to 9% in the third quarter of 2021.
And midstream infrastructure, our third quarter segment profit increased to 117 million, 38% higher than $85 million recorded in Q3 2021. This is largely due to higher water disposal processing crude oil terminalling and pipeline volumes from higher oilfield activity and production.
Higher crude oil pricing in the third quarter also positively impacted recovered oil revenue.
Long with increased marketing volumes to help increase oil purchase and resale revenue by 85% to $1 7 billion in.
In environmental and fluid management third quarter segment profit.
So 39% from 49 million to $68 million. This strong performance was largely due to higher revenues across our business units, including some landfills waste services and drilling and production services or.
Our metals recycling business saw increased volume throughput at prices remained relatively strong in the quarter.
Our positive operating results and capital spending that was in line with our expectations allowed securities generated $108 million of discretionary free cash flow in the third quarter, an increase of 42% compared to the prior year or 40% on a per share basis.
All of that was used mainly for debt repayment.
We continue to remain focused on strong balance sheet as.
As we target a lower debt balance and where we ended the quarter.
With respect to our balance sheet. Our capital structure consists no near term maturities with the first fixed note maturing in 2025, we retain a strong liquidity position of approximately $381 million of availability on our credit facilities, which matured also mature in 2025.
In the third quarter, we renewed our $800 million revolving credit facility at more favorable terms than our previous facility, we were able to negotiate lower interest pricing margins and additional financial flexibility to allow us to continue to refine our capital structure.
We continue to buy our 11% senior secured notes through open market repurchases in the third quarter, we repurchased just $3 million of notes, but in October we have repurchased an additional 46 million U S. As of today, we have 174 million U S. A.
Our senior secured notes outstanding down 65% from $500 million U S. In July of last year when the transaction is closed.
We estimate this will save us approximately approximately $20 million annually in interest charges.
As a result of our focus on debt repayment and positive operational results, we significantly enhanced our overall debt metrics, our total debt to EBITDA ratio improved to two two times down from two five times at the beginning of the quarter and significant progress from three five times at the end of the third quarter of 2021.
Overall, we're extremely pleased with our balance sheet management since completion of the merger and now that our initial debt reduction targets something that we are able to increase our returns to shareholders. This was made possible because of our significant reliable cash flow, providing the platform to support the dividend, while also allowing us to continue to reduce outstanding debt.
I will now pass the call over to Alan to provide operational updates.
Thanks, Chad good morning, everyone looking at our operational highlights in the third quarter, we continued to see high activity levels at our facilities. The midstream infrastructure statements saw higher volume throughput as a result of increased production volume drilling and completion activity.
Water disposal volumes in the third quarter of 2022 compared to the same quarter of 2021 increased 7%, which followed the trend of our same store sales we've seen over a number of years, where water volumes continue continue to steadily increase 6% to 7% on an annual basis as production wells mature.
Our facility network handled approximately 26500 cubic meters on a daily basis or about 160 167000 barrels a day in the third quarter of 2022.
Our terminalling oil Terminalling and pipeline volumes increased 26% from the prior year, which helped contribute to strong crude oil terminalling Ned Mark in results.
We have approximately 16200 cubic meters per day or 102000 barrels per day in the third quarter of oil are waste processing volumes were also slightly higher in the quarter than last year due to higher activity levels.
The third quarter volumes increased at our midstream processing facilities are a result of higher activity levels that require more treating processing and disposal.
Our facility utilization continues to trend upward and at the ended the quarter at approximately 65% to 70%.
As we have noted in the past we continue to add capacity to handle additional increases in volume without needing to invest significant additional capital.
We continue to focus our growth capital on opportunities that involve partnerships with longer term contracts take or pay volume commitments in the third quarter. Our midstream segment. We have continued to advance opportunities for two pipeline tie ins to existing water infrastructure and our pipeline tie in and Terminalling infrastructure in the Clearwater region of Martin.
Nor thats all Berta all backed by long term arrangement with.
The significant growth in the Clearwater area over the past year has required additional infrastructure to support the growth in production.
In our environmental and fluid management business segment. We are also benefiting from higher commodity prices and increased activity levels landfill volumes were up 22% compared to Q3 2021 and as a result of increased activity levels and increased remediation work. It's a trend we expect to continue with the recent changes to the regulations.
Rounding asset retirement obligations, we expect.
<unk> increased abandonment remediation and reclamation activity to positively impact our Canadian operation, both the Alberta, Saskatchewan governments have introduced minimum spending requirements starting in 2023 with targeted spending levels with targeted spending levels at companies with retirement obligation liability smart spend.
The Alberta program requires a minimum of $700 million spent in 2023 with yearly planned increases in the years to come and secure is well positioned in the environmental business segment to support this work, including adding additional landfill capacity that we'll likely see more volume as a result, as a result of this regulatory change.
Our vis transfers floods pad volumes have increased 59% compared to the same period of 2021 as all facilities are seeing higher volumes activity in the lower mainland of British Columbia have increased two additional new customers combined with volumes from construction of the Trans Mountain pipeline.
Northern Alberta volumes have more than tripled due to non contaminated sludge disposal material from producers in the region Q.
Q3 activity had significant increases through a variety of cleanup job completed for customers combining the expertise of our norm treatment with an established facility in the Grande Prairie area have been a direct benefit of the merger.
Our metal recycling facility continues to benefit from robust pricing as ferrous and nonferrous pricing remains strong with health, that's driven volumes in our facilities throughout the quarter. We took delivery of additional 25 railcars along with more efficient operations resulted in a 34% increase in ferrous volumes.
Throughput at a 54% increased nonferrous volume throughput.
Onto synergies, we are extremely proud of our team's hard work to achieve the synergies target of $75 million during the quarter.
At September 30, we have generated $76 million in annual reoccurring recurring synergies. This is despite secure deferring some facility rationalization originally forecast for this year, but being put on hold due to higher than expected activity levels.
We are seeing the impact of synergies in our quarter quarterly results as realized synergies have resulted in more efficient operations and lower overall costs and improving margins.
In the midstream infrastructure segment, the third quarter margin was 65% compared to 64% last year and the environmental and fluid management statements saw a 3% increased to 29%. We continue to work on making our operations more efficient and as a result of the integration. We are working on additional synergies that will in total it.
See the $76 million realized to date.
Additional savings through initiatives, such as improving our capital structure as well as minimizing sustaining capital by managing the underutilized assets are expected to provide incremental discretionary free cash flow beyond our $75 million cost savings target.
We are also progressing our short and long term ESG goals as ESG remains an important priority for our company one of our short term goal was to reduce breast <unk> usage by 5%. In 2022. We are pleased to report that we have reduced usage by seven 6% in the first half of the year. In addition to the short and long term.
<unk> targets, we have set we are continually evaluating opportunities to participate in carbon capture infrastructure and that evaluation will continue throughout the next few years in.
In Q3, we spent a total of $30 million of capital, which included $21 million of sustaining capital primarily spent on well and facility maintenance landfill cell expansion and asset integrity and inspection programs.
Capital of $9 million related mainly to the pipeline tie in and produced water infrastructure in the Grande Prairie area.
I will now turn it back to ready to address our outlook for the remainder of 2022 and 2023.
Thanks, Chad.
Third quarter was another extremely successful quarter for secure we realize our synergy targets. Following the merger with Davita, we reduced our debt to EBITDA ratio of 2.2 is we continue to allocate most of our discretionary free cash flow to the balance sheet, we had record adjusted EBITDA as all segments of our biz.
<unk> continued to see strong demand and we are making good progress on our ESG goals with our strong results to date, we are demonstrating that our enhanced scale better positions us to optimize existing assets and operations. So we can add more value to our customers and provide greater optionality and allocating capital through all market environments.
Our outlook for the remainder of the year and into 2023 is supportive continued strong energy industry activity. We do expect continued volatility in the benchmark crude oil and gas price as a result of macroeconomic factors such as inflationary pressures the prospect of a near term recession geopolitical risk premium due to the current warranty claim.
All resulting in continuous changes to the supply and demand.
Having said that we believe demand for hydrocarbons will remain strong and producer cash flows very robust bid.
The business should benefit in 2023 from the following full year realized seasons of our synergies increased utilization of our midstream processing facilities, driven by higher drilling completion and production volumes required treating processing terminalling and disposal.
Increased volumes at our industrial landfill waste facilities as industry activity and reclamation work. Both continued to trend higher there is clear direction from the Alberta energy regulator, requiring minimal spend levels in 2023 and future years that must be used for reclamation activity.
Similar program is expected to begin in Saskatchewan in 2023, these should positively impact all of our operations.
Particularly with our environments and fluid management segment, as we expect higher demand for our services.
And also reduced interest costs as we continue to improve our capital structure with strong momentum in our business and industry activity, we expect to see higher year over year, adjusted EBITDA and discretionary free cash flow in 2023, given this backdrop, we have made some significant updates to our capital allocation priorities in order to return more cash.
The shareholders, while remaining focused on reducing our total debt.
Our priority will remain on reducing our debt along with a return of capital to our shareholders. We have set a debt target up $8 $50 million to $950 million, which is below two times EBITDA and gives us sufficient financial flexibility to run our business to take advantage of opportunities beginning with the next dividend payment payable in Q1 'twenty.
<unk> 23, a quarterly dividend will increase to 10 cents per share for a yearly dividend of 40 <unk>.
Per share that compares to the <unk> <unk> per share. We currently paying out 40 dividend translates to a total of approximately $125 million in 2023 that amount is sustainable and backed by contracts and reoccurring cash flows from our business lines and the <unk>.
Last 12 months, we've generated $321 million of discretionary free cash flow. This dividend represents approximately 40% from a payout perspective, providing us room to grow the dividend over time as our balance sheet strengthens and the business continues to grow in addition to the dividend we will look at buying back our share.
<unk> on an opportunistic basis starting in 2023. This should result in additional returns to shareholders. We have established initial capital plan for next year of $135 million comprised of $50 million of drove capital $60 million of sustaining capital and $25 million of additional sustaining capital related to landfill.
<unk> growth capital will continue to be allocated to opportunities that leverage our built upon our existing infrastructure through long term contracts backed by partnerships sustaining capital is based on current and future activity levels.
We're excited by the future of secure we are in the process of digitizing a few of our processes that will reduce paper flow and allow for quicker payments. We remain focused on helping our customers develop the highest ESG standards and lowest cost structure in the world, ensuring we create sustainable energy and environmental solutions for many decades.
If the last six months have taught us on this.
And the thing is that Canadian oil and gas industry should be celebrated the high energy prices. We have seen partly as a result of the war in Ukraine has caused the world moved backwards not forwards in terms of meeting our collective goal of reducing carbon emissions richer and poor coordinations alike, not wanting their citizens.
To freeze their industries to shutdown for there to be food on the table are turning to higher carbon forms of entities such as coal that provide needed energy to come with much higher emissions renewable energy has proven to be a good source of energy when the wind is blowing or the Sun is shining and technology will continue to probe.
<unk> renewables, but it cannot be relied on for base load energy and is too far away to be a realistic replacement for fossil fuels anytime soon.
Indians have much to be.
Thankful for including our homegrown energy industry, Canada, as the ability to provide cost effective and more reliable energy developed under the highest social and environmental standards in the world providing security to other nations Theyre not as fortunate as we are my hope is that governments of the world.
In particular, our own come to the realization that the way to a sustainable lower carbon future as more Canadian energy not less with our efforts to date and the continuing hard work of our employees. We believe we are part of the long term Canadian solution for the World, we are well positioned for the remainder of the year.
As we head into 2023 I want to thank all secure employees that have continued to contribute to our to our and our customers' successes I would also like to thank Joe lens from Angelo Gordon joining the secure board, we look forward to him, adding value and great governance for many years to come with.
So like to thank our customers and stakeholders for their continued support and partnership that concludes our prepared remarks, we would now be happy to take your questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
Should you have a question. Please press star followed by the one on your Touchtone phone.
You will hear a three ton prompt acknowledging your request and your questions will be pulled in the order of the RBC.
Should you wish to decline from the polling process. Please press star followed by the team.
You are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
The first question comes from Cold Korea of Stifel. Please go ahead.
Hi, just on the buyback front can you give a sense of how material you think that might be this year or is it just going to be very price dependent.
So as we mentioned.
We'll probably kicked that off in early 2023.
And really what we want to do is obviously.
As we see our debt targets being hit.
Take advantage of where.
Where we think we are.
Trading at and currently obviously feel that we're very undervalued so the magnitude of that.
Is yet to be determined but as you can see with that excess free cash flow.
We do we do have some tremendous amount of flexibility as to how large that might be.
But.
We will probably have youll see us have a better sense going into Q1 as we as we report youll.
You'll see it obviously.
In terms of how much we're buying.
Okay, great, Thanks, and thinking about the dividend, it's obviously very attractive now, but how do you think about the policy longer term I mean is it going to be sort of an annual increase or do you maybe think about specials and balancing that with buybacks as well.
If you look at our our stable cash flow.
Alan has mentioned many times about the contracted as well as the reoccurring cash flow. We just don't think the variable dividend has a place based on how we're able to generate free cash flow. So I think what you should expect from us.
As growing the base dividend over time, and certainly we want it.
Not only do not only to grow but.
Be in a position where we're not worried about.
Ever decreasing that dividend, it's really going to be a long term sustainable dividend accruals overtime.
Got it and just quickly on the industrial services Slash industrial waste disposal business I mean, it's a smaller piece.
But it's a pretty high multiple business, how do you think about more material growth.
In that segment, whether organically or via M&A.
Good morning call down here, Yes, no great question I think when you think about our assets, we have a sludge pad facility in Edmonton and we have another one in Richmond we.
Benefited from some of the Tms or construction that happen throughout the year, you have LNG, Canada occurring on the on the West Coast and I think there's opportunities for us to work more closely with them and so there are opportunities to permit more infrastructure and to grow and we do like the margins and we do like having this.
Infrastructure tied to some some industrial segments that provide that opportunity for future growth, so pretty happy with the increase in volumes like our slides Pat volumes were up 59% this year.
This quarter, so very happy with how these facilities are performing and they fit very well within our network.
Okay, Great. That's all for me, Thanks, I'll turn it back.
Thank you.
The next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Hey, good morning.
Just maybe back to the inflationary cost pressures.
If you could provide maybe an update on.
What increases youre able to flow through to customers today, what challenges you still see ahead in terms of <unk>.
Having to absorb some of the pressures near term and how you're looking to mitigate those longer term. Thanks.
Yes. Good question, Patrick so in the third quarter. When you look at our midstream infrastructure, our margins were 65% compared to 64% in the prior period and.
And on our environmental and fluid management business. It was 29% versus 26%. So we're able to increase our margins, but part and parcel to that is our synergies and obviously with some of the synergy work that we've done and achieving our targets earlier than we had expected is obviously proving.
So the bottom line and improving our margins, but we're very cognizant of cost.
Look at the Canadian input inflation numbers for for Q3 and were up on average around 7% and we.
We did slow through some pricing increases here in Q4 to match that inflationary increase that we're seeing so we are trying to stay ahead of it I would say in terms of supply.
<unk> constraints on our chemicals.
The chemicals coming out of the golf I think we're definitely starting to see less of a supply shortage and are able to get those chemical that at more about <unk>.
Regular cost not an inflated cost, but we are stockpiling some chemicals overseas that we need for some of our blend plan, which are taking longer to get and have seen some inflationary pressures, but I'd say overall in the business. When you think about our main drivers, which is electricity Nat gas fuel.
All we have been able to and have done a great job of maintaining those costs within our margins, but we will monitor that and we will talk with our customers as they see it too on these increasing costs to flow through via pricing, but so far I think we've done a great job managing.
And just on labor shortages economy wide.
Maybe for any you mentioned the need for more.
Government support for industry in your prepared remarks, I'm wondering if you've had any discussions with.
Premier Smiths or the new cabinet yet.
Your initial take might be on any new policies or support that might be on the horizon to help accelerate activity in the province, even further into 2023.
We had some conversations.
Back in the spring and the summer.
Some of this in.
I think.
A big Big part of this is.
Our industry getting creative in terms of weather.
Our future workforce is going to come from Eastern Canada is I think we're going to.
Certain parts of the country youre going to slide into recession.
Federal government, which right now controls immigration has just announced that.
They want to bump up immigration over the next three years by $1 8 million. So I think it's going to be a combination of.
Immigration and maybe things slowing down in eastern Canada, that's going to help that.
Current gap from a workforce point of view I mean, we're quite fortunate in that a lot of our facilities are.
No.
Are not remote I mean, we do obviously, we have some casual labor that do have to go into accounts, but a lot of our workforce is SAP.
<unk> got a lot of our workforces.
Well to go home at night, and provide a steady steady shift in.
And that helps us attract here at secure but to your point, it's an industry issue not not.
Not so much what the.
Secure sportsnet at its definitely an industry issue.
If you don't have the crews to run the drilling rigs and the Frac Frac crews then.
Ultimately production would slow down so we're kind of working together as an industry and I think the solution is going to be a combination of probably.
Canadians outside of Alberta, and Saskatchewan, and probably having a robust immigration policy from the federal government.
Got it that's great guys. Thanks, I'll leave it there.
Okay.
Thank you. The next question comes from Aaron Macneil of TD Securities. Please go ahead.
Hey, good morning, all thanks for taking my questions.
Maybe I'll start with a bit of a different take on calls questions.
Just given the strength of the outlook and then most of the heavy lifting around Covina is now behind you is now the time to try to revisit the sale of our secondary business lines.
And.
Especially those related to turn data are there any that you need.
You as noncore or now that you sort of focused on.
Shareholder returns are all of these segments now critical to your shareholder return strategy or capital allocation priorities.
Yes no.
One of the things that.
That we've we've done as a management team and our board is trying to look out five years. So we do have a five year strategy and.
One of the things that you always look at.
No matter how much you loved the business is.
What's creating the highest return to the shareholders.
As as we've gone through that process and are continuing through that process, there will be core and noncore.
Business units.
We will change overtime.
I mean, what I do love about the.
The businesses that we have today is the high amount of free cash flow that they are able to contribute to our bottom line that obviously fuels.
Fuels.
The dividend and the buybacks and the debt repayment and ultimately shareholder value. So.
We don't really have any deadlines that say, we have to do something by such and such date, so much as yes.
Yes.
Other industries look at our business units and think they are more valuable than we would always look at that but the fact of the matter is a lot of these business units.
Our complementary they don't take a lot of Capex to run.
And provide a tremendous amount of free cash flow. So I don't know if you wanted to add anything out, but it's something that we.
We just don't have any.
Urgency around yes, no I would agree with those comments, Randy and I think over the last 15 months, we've really focused on.
Areas, where we have redundant equipment or areas, where we have land that we werent going to develop and divesting just ex that asset and so.
Our discussion of our strategic plan, which we laid out in both our press release and MD&A as really right now our focus is.
Let's provide great great service for our customers, let's off continue to optimize I mean, we we're not quite done on the synergies we won't be reporting on it any more we will.
It will be part of our optimization and improvement in our margins going forward, but there is more to do from an optimization standpoint, we do want to continue to grow our volumes across our network.
Theres lots of small things, we can do to continue to add value contract volumes.
Into our infrastructure.
Mall brownfield type tie ins and create more partnerships with our customer and we did.
It closed down a few facilities, where we needed to be more efficient and as we look forward, we don't need more redundant capital, we need more efficient capital and get that utilization rate up I think I mentioned in my notes that our utilization right. Now is currently in that 65% to 70%. So we <unk>.
Want to continue to increase that utilization across that network because that that's.
That's the most value for our shareholders and we're going to continue to do that and as we get through 'twenty three as Randy mentioned in some of these smaller business units that arent aren't material, we'll take a look and if there's opportunities to divest and we will execute.
Great. Thanks, Alan you mentioned the.
The operational efficiencies and synergies I know youre not going to speak to it but.
Would you be willing to provide any potential goalposts in terms of.
But the order of magnitude could be for future realizations.
I think Aaron It just comes down to what will our ultimate free cash will be in 'twenty, three and 'twenty four.
We set the target and we wanted to beat the target extremely pleased with our team on how they executed.
Earlier than we wanted and obviously we are at 76 that we reported and we know that number is going to be higher chat did some great work on restructuring the balance sheet and savings in interest costs for us So I won't I won't.
Provide a number to it but there is more to go and extremely pleased with how we're entering 2023 here with that kind of all all cylinders firing.
Perfect.
Maybe I'll sneak in one other quick question the $50 million in growth capital just wondering how much of that is currently committed or.
For a placeholder and if theres any chance.
Industry activity is stronger than you think that we could see.
Spending over and above that 15 billion figure in 2023.
Yes, good question, Aaron the $50 million, we're going to finish this year close to that $45 million target that we established and again, we've talked about what type of investments we want to make we want to tie into infrastructure and have it backed by committed contract.
Or recurring volume Dan when I think about $2023 50. There is some projects that will be started here in Q4 and will carry over into 2023, and then there will be some projects that were still working on that we know could come to fruition.
At $50 million does have.
Parcels some components of it.
But right now our target is 50 will more opportunities come to light throughout 2023, My guess would be at that activity pick up there is always more opportunities. We just want to make sure they fit our investment strategy and it's something we want to execute on but right now it's <unk>.
$50 million.
Okay. Thanks for the time.
So ill leave it there.
Thank you.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one at this time.
The next question comes from John Gibson of BMO capital markets. Please go ahead.
Good morning, guys and congrats on the strong quarter here just first can you maybe talk about the volatility in commodity prices during the quarter and how much this impacted your midstream.
Business with regards to marketing.
Well I think.
We don't we don't really.
Certainly.
Of course.
Our crude oil marketing is a very low risk.
Not really.
But it's not so much the W. W. <unk> in volatile volatile, but its the differentials and so what we're trying to do we're not only secure but more importantly for our customers is how do we get a better net back from them and part of that is.
Trying to get their condensate light sweets light sours and heavy stream that they can optimize and get better netback. So.
As you saw in the quarter. It was more a case of lots of volatility around the differentials. So.
We don't really.
Pay too much attention to betting on WTS, Glenn so much is.
Really working very closely with the customer and part of that is you have a lot of product on truck, making sure it's cost effective to get them the best.
Why I call it the best netback, because sometimes putting the product in one stream you don't get the best Netback and there's higher transportation to to do something to go into another stream. So that's what our guys. We have a dedicated team that's they do nothing but that.
That work with our customers every day to increase in and we share that with the customer so it's a win win.
Great. Thanks.
Just on the dividend.
Wonder if you have a target payout ratio I know you mentioned, 39%.
What are your trailing 12 month free cash flow going.
Moving towards the dividend, but I'm wondering if you could look to increase or decrease this level depending on your outlook.
Yes, good morning, John .
We don't have a formal payout ratio at this point in time, but we look at it from coming out with this dividend that we want to make sure it was sustainable and.
So we looked at the recurring nature of our revenue.
And cash flow.
And based at all our percentage of that and just want to make sure that as we move forward with that.
Those assets would provide that platform to grow that dividend.
Ratably over to over the next several years.
Okay and then just last one for me just in terms of leverage once you get down to that $2 $50 million to $900 million total debt level could we expect more capitals to shift towards capital returns or would you maybe target more growth projects.
Once you get there.
Okay.
Good question.
That's our that's our next target and we see that as a relatively.
Short term target.
We can see ourselves getting there by the end of 2023, we will continue to assess the opportunities you have and look what is the best return.
For our shareholders, so, but I think what youll see is it will probably be a combination going forward.
You too.
Try to increase that dividend.
We will still pursue capital opportunities.
But we will also always be mindful of where our outstanding debt is.
Great I appreciate the time and congrats again.
Yeah.
Thank you. Thank you.
Thank you.
There are no further questions at this time please continue.
Alright, if there is no further questions.
I want to thank you for being on the conference call today broadcast of the call will be available unsecured website. Thank you again.
Ladies and gentlemen, this does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your lines.
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