Q3 2022 Kinetik Holdings Inc Earnings Call
[music].
Good morning, and thank you for attending the kinetics third quarter 2022 results call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if you'd like to queue for a question on today's call you can do so by dialing star one on your telephone I would now like to pass the conference over to your host Matthew Wagner.
Kinetic. Thank you you May proceed.
Thank you good morning, and welcome you cannot Inc's third quarter 2022 earnings Conference call here with me is our president and CEO , Jamie Welch as well as Matt Walsh, our CFO , Andy <unk>, our Chief strategy Officer, Steve Stellato, our CEO Tod Carpenter, our general Counsel Trevor.
Howard our VP of finance and Chris can drag in Tyler Mylan, our VP of commercial.
Press release, we issued yesterday, the slide presentation and access to the webcast for today's call are available at Www Dot kinetics Dot com before we begin I would like to remind all listeners that our remarks, including the question and answer section. We will provide forward looking statements and actual results could differ from what is described in these statements.
These statements are not guarantees of future performance and involve a number of risks and assumptions. We may also provide certain performance measures that do not conform to U S. GAAP, we've provided schedules to reconcile these non-GAAP measures as part of our earnings press release. After our prepared remarks, we will open the call to Q&A with that I will turn the call over to Jay.
Thank you Matt Good morning, everyone and thank you for joining US today, we reported third quarter 2022 results yesterday afternoon, and I am pleased to share with you. This morning that we reported a record quarter with respect to both processed gas volumes and adjusted EBITDA.
In this first year post merger, we have continued to improve quarter over quarter across all facets of our business as we realized integration synergies optimize our system and grow customer relationships.
Having grown one 5 billion cubic feet per day through the end of September the Permian Basin remains on track to grow natural gas volumes by 2 billion cubic feet per day exit to exit in 2022 with consultants expecting another 2 billion cubic feet per day of growth in 2020.
Three.
Drilling down further we estimate that the Delaware basin accounts for well over half of total Permian supply growth.
Moving a bit further downstream, we are beginning to see tightness at the long haul residue gas transport outlets earlier than expected.
In October approximately one 3 billion cubic feet per day of takeaway capacity was taken offline for routine maintenance, which resulted in <unk> moving into negative price territory.
Stark reminder of the 2017 to 2020 wahhab basis collapse.
This recent event reinforced to us a few things first Permian natural gas takeaway appears to be fairly balanced and wahhab pricing is volatile when utilization rates at this time.
This point is further reinforced when looking at north bound natural gas volumes historically viewed as a transport Avenue of last resort.
Which in September and October hit levels, not seen since the in service of Permian Highway pipeline almost three years ago.
As expected the immediate supply response is already underway with Permian processes, largely switching plants into recovery with the takeaway supply demand equation fairly balanced further supply growth will likely only exacerbate discounted wahhab prices.
Second the event highlighted how critical it is to differentiate ourselves from our peers by offering our customers integrated solutions E.
Even in the face of inflation and weaker commodity prices. The Permian basin continues to grow and supply both the U S and the worlds energy needs.
Permian rig count has remained steady at roughly 340 to 350 rigs since may despite a 20% reduction to WTS crude since then.
In the third quarter, we kinetic averaged approximately 17 rigs on our system and had approximately 70 wells turned to sales.
We've continued to see a steady ramp of activity over the course of this year in.
In a basin, where processing capacity and pipeline egress to the Gulf coast are becoming tighter.
<unk> stands apart.
As mentioned earlier, we are able to offer our customers processing capacity today.
And an evacuation route for residue gas to the Gulf Coast.
As we move into 2023 and beyond this only becomes more meaningful.
Similar to our first and second quarter earnings results. Many of the figures today will be reported on a pro forma basis, assuming the business combination between our predecessors BCP and altice closed on January one of this year. We believe it is more reflective of our actual results and provides our investors with more meaningful information.
<unk> and helps to reconcile our 2022 full year guidance.
On page three moving to our recent highlights we reported a record adjusted EBITDA of $212 4 million for the third quarter.
This was driven by increased gas volumes across our midstream logistics segment.
And stronger than expected contributions from our pipeline transportation segment.
Two previously announced gas gathering and processing agreements with large cap investment grade Counterparties began on October 1st.
Also beginning November 1st we commenced our new gathering and processing dedication with Apache for its DSL acreage in Central Reeves County.
We have continued to identify both organic and.
Inorganic growth opportunities.
Year to date, we have added six new customers to our system, representing a 20% increase in overall customer count.
In the third quarter alone we added three new private customers not only have we added new customers, but we have expanded our relationships with existing ones.
As I just mentioned, we have established relationships with several new private producers along our system. This.
This is a net positive for us as these producers will pull inventory forward accelerating development on our system into 2023.
These teams have proven track records and we look forward to being part of their emerging growth story.
In September we acquired Brandywine NGL this acquisition affords kinetic greater control over system Ngls and provides interconnectivity to downstream natural gas liquids outlets.
Kinetic NGL, our 250000 barrel per day intra basin NGL pipeline system is comprised of the <unk> and Brandywine assets. It is wholly owned and operated by kinetic.
Progress continues on the 550 million cubic feet per day expansion of PHP.
The required compression equipment has been secured and preconstruction activities are well underway to secure construction contractors land and others associated materials.
The project remains on schedule to be in service by November one 2023.
On page four in the third quarter, we achieved a new quarterly record for gas processed volume at one 2 billion cubic feet per day, representing a 4% increase year over year.
Crude volumes gathered were approximately flat year over year at 67000 barrels per day.
Although we benefited from 25 wells turned in line on our crude system in the third quarter that drove it 8000 barrel a day increase in October .
Those third quarter average levels.
Gathered volumes were down approximately 11% quarter over quarter simply due to produce a recycling in July from our largest customer.
The Diamond Cryo expansion of 120 million cubic feet per day of incremental capacity is on schedule for completion in the first quarter of next year, we have procured the long lead time equipment and kicked off construction.
In June we completed the Super system interconnect connecting the legacy BCP and ultra systems.
The interconnect has allowed us to access latent capacity at Diamond Cryo and utilize the ISR X technology available at Diamond Cryo to further enhance our NGL recoveries, achieving up to 19, 9% ethane recovery.
An additional benefit to the system interconnect enlightened capacity as that we were recently able to temporarily bring several BCP facilities offline to perform routine maintenance without curtailing any processed gas volumes for our customers.
This year, we will have replaced or avoided. The addition of 32000 horsepower of rental compression with 10 company owned surplus compression units.
Annualized this translates to over $5 million of annual operating expense savings.
In 2023, we will harvest additional synergies with the installation of one surplus running amine treating equipment at the BCP complexes.
And continued compression relocation projects.
Still on page four on financials, we reported adjusted EBITDA of $212 4 million.
We generated distributable cash flow of $158 million and free cash flow was $34 million.
On October 19th we declared a <unk> 75 per share quarterly cash dividend pro forma the June two for one stock split representing a dividend coverage ratio of one five times, we exited the quarter with a four times leverage ratio and remain confident in our ability to achieve our long term leverage.
<unk> of three five times.
Our total capital expenditures for the quarter were $145 million.
$84 million of which was associated with the pipeline transportation segment.
On page four we have provided some segment specifics.
Our midstream logistics segment generated adjusted EBITDA of $137 5 million in the third quarter.
Year over year that segment pro forma adjusted EBITDA is up 25%.
In the third quarter, we realized a full 2022 EBITDA synergy target of $25 million. This was achieved three months ahead of schedule.
And as a result, we're increasing our 2022 synergy capture guidance to over $30 million as shown on page seven.
Shifting to our pipeline transportation segment, we had a record quarter and beat our internal expectations, we generated an adjusted EBITDA of $78 7 million in the quarter.
Moving to pages, five and six the strong third quarter and the fourth quarter outlook gives us confidence to reiterate.
Our adjusted EBITDA and capital expenditure guidance.
Our adjusted EBITDA guidance is $820 million to $840 million with $830 million at the midpoint.
Over the course of this year, we have realized adjusted EBITDA growth quarter over quarter.
In the fourth quarter, we have a number of new gathering and processing agreements commencing.
Two previously announced gathering and processing agreements with large cap investment grade.
<unk> commenced on October one.
And our Apache DHL agreements started last week on November 1st.
There are also several other new contracts with private producers that have or about to commence.
We will continue to further capture additional integration and cost synergies offsetting the sequential improvements in EBITDA is slightly weaker natural gas and NGL prices.
Our capital expenditure guidance remains unchanged at $280 million to $300 million.
This includes a $170 million to $190 million of midstream logistics capital and $110 million of pipeline transportation capital.
Our projects at both on budget and on schedule and are insulated from the inflationary environment as long lead time equipment and materials have been secured.
Within our pipeline transportation segment, the $110 million.
Guidance includes.
Our total funding commitment to the PHP expansion for this year, the <unk> acquisition and early spend on Delaware link.
Our producer customers are currently in their budgeting season, and as a result, we will provide our 2023 EBITDA and capital expenditure guidance in February when we report our fourth quarter and full year 2022 results.
If you go to page nine I would like to provide a few updates before we move to Q&A.
As we previously announced we completed our comprehensive 3 billion refinancing in June .
Most recently, we have locked in a fixed rate on our term loan a to may 2023.
Specifically 2 billion the full amount of our term loan a bank facility is now fixed at a sofa rate of 445% and from May of 2003 through may of $25 billion is fixed at a sofa rate of 446%.
These actions taken together will reduce our floating rate exposure to less than 15% of total current debt outstanding to may of next year, and then approximately 40% thereafter through the maturity of the term loan.
We just marked the one year anniversary of our merger announcement.
We commemorated this event at the New York Stock Exchange on October 24th with members of management and the board at the opening Bell ceremony.
Looking back we have remained steadfast and committed to executing upon the financial goals and strategy presented a year ago.
We completed our 2022 capital allocation goals earlier this year.
And we remain confident in achieving our three five times leverage target and securing investment grade ratings by year end 2023.
Thank you again for your continued support and for joining US this morning, and with that I'd like to open the lines for Q&A.
We will now begin the Q&A session, if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
Any recent you'd like to remove that question. Please press star followed by two.
To ask a question press star one.
We'll pause briefly to allow questions to generate in Q.
Okay.
The first question is from the line of Jeremy Tonet with Jpmorgan you May proceed.
Hi, good morning.
Good morning, Jeremy.
Thanks for all the details today I really appreciate going through the business and Permian outlook and just wanted to build.
Build on a little bit more as far as Permian takeaway is concerned.
<unk> questions. There I guess, just with PHP coming online.
Is that a distinct date, where everything starts up day, one or could it be some of it.
The servicing volumes partial in service earlier than that and if we think about later due to takeaway how would you think about the chances of <unk> expansion versus Permian pass versus another project.
Coming to fruition.
You asked you asked all the questions, which are top of mind for everybody. So let me deal with.
With PHP. So the short answer is yes, there is always going to be a period for which there may be some incremental capacity how much that is on a volumetric basis and what the period that is still TBD right depends on when we're mechanically complete and tie ins are done so I think it's.
Bit of a moving target we will keep you apprised and I am sure Kinder will too as we travel along this path on getting to an in service date of November 1st So there could be some attractive upside don't get us wrong. We just don't know how to quite measure that at this point in time.
As it relates to the overall takeaway capacity.
I think third quarter next year, we are anticipating the Whistler expansion to happen then obviously November one will be PHP. The sum total of the two of that will add just over a Bcf then obviously I think going into 'twenty four you've got matterhorn.
And so that will be interesting however.
If the pundits in the consultant and the experts are right and we do hit two Bcf a day of growth for this year and we hit two bcf of gas growth for next year.
I think it is going to really accelerate the discussions around incremental takeaway and whether thats.
Lauria transfer or anybody else.
I think yes, there are lots of projects out there trying to be commercialized and I think it's just a case of waiting to get that balance when customers can clearly see the net benefit to them.
Think as we listen to one of our favorite customers the guys at Permian resources yesterday.
<unk> had negative price in October was a bit of a shocker. It felt like we were.
It was deja vu all over again living that 2017 to 2020 timeframe and so I really do think that may very much jumpstart some overall activities and on the commercial side.
Do I see it impacting gtx don't really know I, it's hard to it's hard to weigh that up I don't really.
Im not sure exactly where the.
A new pipeline of new 42, which is the right answer I think it might be in that in the eyes and in the mind of many producers because the more steel on the ground the more egress the better as opposed to the same stick a pipe just having a larger volumetric throughput.
But yes, it's hard to handicap.
Got it.
Helpful. Appreciate your thoughts as always there and.
Turning to 'twenty, three and not running from running guidance there, but just wondering any incremental bread crumbs you can leave for us as far as how EBIT could shake out a lot of moving pieces there with growth in new projects, we're happy, but I wanted to see even with commodity price sensitivity I guess, how you see direct commodity price sensitivity evolving over time.
Any thoughts to share with us on how that could impact 'twenty three.
So interestingly enough I think the as we've been very consistent.
You are in a commodity price environment, where traditionally you have migrated from PRP or coal contracts to traditional fixed fee.
That's not to say that theres not some commodity upside with overall system performance plant performance ESR X technology, 99% ethane that is state of the App.
But the overall percentage of that as a contribution relative to the overall base fee that you would get from a from a customer is going to be.
On the on the lower end and I think as we think about the overall expectation.
Migration will be two more fixed less less.
PRP.
And therefore less commodity sensitivity going forward and certainly the pipeline transportation component will also as that continues to increase that will continue to decline the overall contribution factor.
As we look at 2023.
<unk> it looks like this.
Really good growth great contracts that are now <unk> annualized obviously contracts that have started this the last part of 202022.
And you annualize them over 2023, you've got some really good pull forward growth I would say the interesting thing is the amount of private activity I think we've seen what privates can do we've all lived through this over the last several years, where the publics have been very disciplined.
In the overall capital expenditures and all about returning cash back to shareholders and other stakeholders.
And the privates really accelerating the inventory and capitalizing on that commodity price windfall.
We've got six new customers three we just signed up this past quarter and we've got an accelerant right now going into 'twenty, three which is great. The headwind for 'twenty three is commodity prices.
And whether it's what's going to happen is when freeport going to come back online, what's going to happen with wahhab pricing.
<unk> is going to look relative to the overall growth because as we said if you do have two bcf of growth.
With no incremental capacity until the September and in November .
You've got two Bcf a day theoretically for 2023.
And you've got only a bcf coming online as far as takeaway capacity and that being Whistler and then obviously PHP towards the back end of that year of 2023.
I think there is.
We've got some really good puts and takes on the expense side the opex side.
Yes, we're really being mindful of how we think about compression costs salaries and benefits much like the rest of the entire economy are obviously feeling some pressures because we've got we've.
We've got <unk>.
People, obviously thinking about the pocket book and disposable income.
And synergies right synergies that that 25 already to be achieved by the third quarter and now increasing guidance to 30, Yes. We said originally it was going be 50 run rate. We said, we're going to have significantly beat that so that 30 is both a pull forward and I would say it is a micro snapshot.
All of the potential to significantly increase that $50 million overall target.
Got it.
Very helpful I'll get back in the queue. Thank you.
Thank you.
The next question is from the line of Gabe Moreen with Mizuho you May proceed.
Hey, good morning, everyone, Jamie maybe if I could continue on with 'twenty three outlook.
Just with all the activity and new customers Youre signing up can you talk about where things stand right now in terms of how you feel about <unk>.
Processing capacity utilization.
The <unk> contracts and whether that gives you visibility to potential further expansions or even new builds.
Maybe I'll just see what your thoughts are there.
So I think.
It has not been lost on us as we've seen all of the associated announcements around processing facilities being added late 'twenty three into 'twenty four.
So there's a little bit of a of a motto within this organization, which is time is now we are selling this today and as I said the integrated solution is we are a foundation shipper on PHP, where a foundation shipper pro forma the expansion we can start as people see.
What's going on with gas prices, and whether they're private or public there's a reticence to flare they really want to find economic value for that side of the hydrocarbon stream. So I think it's very clear that we can offer something that differentiates and we've got space today. These people the <unk>.
Private are focused today.
And we have capacity to give them today. So it's a very nice marriage.
What does that mean as far as how we think about app processing, we increasing the processing footprint by 120 million cubic feet a day for diamond So going from 600 to 720 as of late March of next year that being 2023.
And Matt and the engineering team have already been looking at the rest of the fleet and we're seeing whether we can get 10% to 20% improvement across our larger trials, which obviously would also be very low low cost.
And nice immediate upside because we can make it happen immediately.
Realized what is important to us.
We want to sell at everything we can once we start getting within that 90% ZIP code looking out sort of six months out at overall processing volumes relative to capacity. That's the point in time, you will see us make decisions on what we do next on a processing plant.
And just as importantly, where.
Where are we going.
Yes.
Like where exactly do we think we wanted to go where the puck is going to be not where it's necessarily act.
Thanks, Jeremy and then maybe if I could turn to commodity prices and hedges.
You mentioned I think in your answer to Jeremy's question about trying to negotiate contracts to more fee basis is that playing at all in your decision on hedges.
The latest also I guess between.
Rejection or not.
Just wondering what the latest thinking is on hedging here.
We've been working on the operational hedging as it relates to 2023. So that would then determine whether we have plants running recovery or rejection. So that we've already been putting in place as far as other fundamentals on the on the hedging side.
We are looking acutely at all the potential opportunities that present themselves to in fact.
Mitigate the hedging exposure and looking to make sure that we.
Capitalize on what we think makes the most sense relative to our overall.
Supply stack, meaning.
How do we think about growth that's coming on with different contracts because not every customer is the same and not every contracts aside.
So we've got a lot of internal work going on Trevor Ross and Graham working with any panic on the on the NGL side, we've really been spending a lot of time and effort.
As we now are really get headlong into 2023 activity.
Great. Thanks Darren.
Thank you.
Next question is from the line of Neel Mitra with Bank of America. You May proceed.
Hey, good morning.
Just wanted to clarify your late in processing capacity going into 2023, Jamie It sounds like.
You've landed.
Some private agreement.
Yeah.
We haven't necessarily known the full amounts.
I think the last presentation said you had about half a bcf a day.
Of latent capacity.
The Diamond Cryo expansion included can you can you kind of give us your views on on where you'll be in 'twenty three with that.
With existing customers.
Well I think as we said the one five Bcf was a projected viewpoint in the context of the bigger contracts that we had just signed in the first quarter.
And with the private obviously, we can aggregate them. They would obviously take of that remaining half a bcf.
I would say in total I am looking at Trevor wouldn't be more than 100.
So I think youre looking at about 20% of that further being impacted.
Good contracts.
Really a good contracts from a fee and from an economic margin standpoint.
And I think.
We probably risk those volumes a lot more heavily just because there is a.
There is a sense of a little bit of the unknown.
Got it.
Second question.
You have.
56% interest in PHP expansion.
I know, you've you've contracted a little bit down with some of your two.
Contracts that you announced earlier this year, but are you able to bundle G&P.
And takeaway agreements.
On that expansion going forward or are they going to be distinct.
Contracts.
No.
We will bundle.
That was part of the commentary around Inc.
<unk> going to do more things with our existing customers and some of the things we've done.
With them on guests on gaining control of the residue gas, which as you know Neil firsthand, we have a couple of contracts, where we do have some taken calling customers.
One customer in particular that we've now got control of the rest of you going forward in exchange for which they get some very attractive Gulf coast pricing.
Alright.
A follow up to that do you see any flow assurance issues. This time around and <unk> 23.
<unk>.
Just with the with the amount of.
Gas, that's coming out and the lack of takeaway capacity in.
The inability for a lot of guys to flare.
No.
Thanks for that.
Permian Okay.
Yes.
And then sorry.
This is trevor.
No sorry, I'm just are you talking about general Permian or are you talking about kinetics specifically.
Generally in terms of.
Got it look I mean.
Given what we saw.
Yeah.
And if if supply growth resumes and continues.
There will I mean, yes, there's going to be concerns about the ability to actually go and move that gas out of the basin, yes, but specifically with kinetic.
Due to our downstream capacity.
Arrangements as well as our marketing arrangements, we do not see a risk and just further hammering on that point and 2020 before PHP even came online when the basis was blown out we didn't have any issue is actually going to physically flowing the gas.
Got it.
Hey.
So I was going to sorry, I was going to say.
Set in my in my early remarks will just be in recovery.
And so there might be an impact in the context of how what happens with ethane pricing Shaw.
But obviously, that's one of the first triggers that I would say self help.
That you can actually utilize.
Got it and if I could just ask one more on your view of NGL takeaway tightness.
We've seen Shin oak postpone the year.
Daytona announce on the Targa system.
Come on in 2024, so looks like different systems have different views of tightness.
You're obviously involved or.
Could be involved in that ownership with both and how capacity is close.
What are you seeing in terms of tightness, when we need it or if there's there's pockets.
That are tighter than others within the Permian.
Yes.
Look I would say on the <unk> side, we see.
More broadly from a market perspective, 2025, we really start to see.
Some very interesting.
Some very interesting.
Elements affecting the market and Thats when obviously, we we really do see a need for the incremental takeaway capacity.
Shin Oak expansion as enterprise has said is ready to go they're trying to work out phase one phase two what does it look like.
And they are lifting engaged in conversations with their customers thinking about what they have with their own footprint. They're also talking to us as their partner in the context of trying to work out what it is we want to do.
And so I think.
We saw the Daytona I think there obviously its a different discussion and obviously that should.
Obviously that gives us cause for optimism I think around the overall AGA expectation on volumes and they continue.
Customer growth, so I think that we'd we're okay for now.
And I think youre, Okay. As you go through next year into 2024 and 2025 is when.
Certainly we think that needs to be in service just given the combined needs of the existing two partners and we can't really comment on what Tiger is thinking as it relates to the timing on Daytona.
Got it thank you very much.
No problem. Thanks, Dan.
Yeah.
Thank you.
Next question is from the line of Michael <unk> with Pickering Energy Partners you May proceed.
Hey, good morning, everyone.
I wanted to say Michael Capex for 'twenty three.
I was hoping you can go through some of the puts and takes there rolling in from 2022.
And how maybe like the Chinook delay effect, which you were looking for for 23.
Sure Phil I, probably means that there's less spend in 'twenty, three which is a good call.
Have a good a good guy.
We've got PHP expense, so knocking down the bigger buckets, we've got trading as it relates to the carryover. So you've got the front end surplus I mean trading.
At our existing BCP sites, so that's a.
That was a.
A modestly large capital item on the midstream logistics side.
We'll have well connects we're obviously going through all of that Delaware link, which is the 30 inch 40 miles residue gas, which.
Is <unk>.
Fully sold out in <unk>.
Feeds into PHP and the expansion of the HP. So we've got the Delaware link piece Youre going to have the PHP expansion piece.
And we've got just in the context.
75% of us of a PHP spend is to be spent in 'twenty three.
Because 25%, which was this year and you're looking at.
I think it's around $4 25, four <unk> of total cost eight eight.
So that's some of the bigger items.
I think that's probably the biggest ones that I can tell you and then the unknown is exactly how much we end up having to spend it.
You've got a little bit of maintenance, we've told you $40 $50 million on the maintenance side <unk> got some base growth.
With our with the just our overall customer footprint, which obviously continues to expand.
They're not huge huge dollars that just little bits and pieces right, but everything obviously edge up.
Okay, that's really helpful.
And then it seems.
And the industry are pointing to ethane recovery in the <unk>.
<unk> to free up some gas takeaway, but I'm wondering if if you have a view on how that affects ethane markets in Bellevue.
And if that puts additional pressure there.
Alright, so why don't I get you.
Let all of you had the opportunity to talk to any pending.
Who is a resident NGL expert and she can give you her perspectives on.
The ethane market.
It will put some pressure on the ethane market just because of the petrochemicals right now are not performing very well I mean, theres not a lot of demand and with China.
Not pulling like they used to.
We're going to see pressure on ethane.
But I do believe that youll find that the midstream.
The integrated midstream well be able to deal with.
And that shows up in Mont Belvieu export it out.
I know right now they are full and their issues were shipping.
But all of them are working on it to try and make sure that we get more out of the market.
But it will put some pressure on pricing.
Because you have I think universally youll have everyone be in recovery and that obviously just that incremental ethane in the stream will obviously put some pressure despite whether you can export it or debottleneck existing.
Impacts on the overall dimension.
Alright that is helpful. That's all I have I appreciate the help.
Thanks, Michael.
Thank you. The next question is from the line of Jackie Conatus with Goldman Sachs. You May proceed.
Hi, good morning, Thanks for the time.
You guys move forward on the Brandywine and <unk> acquisition, you're also working on the Delaware Link project are there any other opportunities like these around the footprint either on the bolt on M&A side or on the organic capex side.
Okay.
I think there is there are always more things that we can do.
Brandywine to us was about.
Security of supply and.
And ensuring that we control the Ngls.
The Ngls coming out of Diamond Cryo, we do obviously out there is the potential related to our major shareholder dropping down 25% or engaging in a discussion with us about.
Dropping down to 25% and Grand Prix grocery is obviously now <unk> plus the.
Dakota Daytona expansion.
So I do think there are some other bits and pieces.
Jackie there that are out there relatively modest in size as far as other merchant acquisition opportunities I think we've been very consistent on the GMP side.
It's got a it's got to fit.
Our proverbial pistol, it's got to be something that we see is tremendously value accretive.
Additive to who we are and what we do.
And that means that collectively from a commercial standpoint from an NGL standpoint residue standpoint operational standpoint, and when I say commercial thats on the customer side and the cost and the types of customer contracts that we all collectively believe.
This business is worth that that opportunities with more in our hands than.
On a standalone basis, we havent found anything that really fits that criteria.
So we're being very very strict in how we think about things and I think we've got enough growth organically here.
To keep us so fully occupied.
That I would say none of us just sitting idling our phones.
Great. Thanks, so much for the color.
No problem. Thanks Jack.
Yes.
Thank you.
Again, if you'd like to ask a question. Please dial star one.
The next question is a follow up from the line of Jeremy Tonet with Jpmorgan you May proceed.
Hi, Thanks for squeezing me back in here just wanted to.
Shifting a little bit I know, it's a very small part of the portfolio, but epic just wondering.
What's your latest thoughts there and outlook I guess on that asset.
Trevor would you like to.
To give some thoughts Randy.
Yes, I'm happy to jump in here. Thanks for the question Jeremy.
Look on epic crude is as you noted its a small part of our business.
When you look at the when you look at the outlook for Permian crude production growth in the contract profile.
Margins and volumes should continue to expand the pipeline is actually running pretty full so from here. It's more of a margin it's more of a margin expansion game.
And due to their contract nature.
It really is going to follow what that spread between MH and Midland looks like and so when you look at the forwards.
Continuing to widen which should be a good thing for the pipeline and so we see margin expansion on that business for the next several years.
But as we look at it from the net.
From today, we're still not seeing distributions coming out of it in 2023 and that's that's what we're prepared to comment on today.
Okay.
Got it that makes sense I mean, maybe.
It's not something to talk about at this point, but just wondering is that an asset that you could see more capital going into or is the cap structure kind of.
Sustainable as it is just kind of curious on that side.
I think if margins continue to if you see the net improvement that we've had there has been net improvement. This year, just let me be very clear.
And I think where they started the year and where that finishing the year two very different places.
That should make it that.
That should keep make sure that they can deal with it.
Capital profile, obviously, there's the <unk>.
Complete onto what happens 24 2025, they've got debt that comes due I mean, theres a lot of things and a lot of unknown and unknowable.
Elements to the overall prospects for.
That pipeline so.
We're just as we have we've written that investment down to zero and as Trevor noted we have no anticipation of any.
Distributions coming nor do we have any viewpoint that there'll be.
Any further capital.
Committed got it thats helpful. There and if I could ask just one last one and it's been touched on on the call a number of different ways, but I was just curious as you look forward now in your.
Area in the Permian.
Tailwind and headwinds for production growth, but.
Do you see upside or downside to current upstream budgets and production targets at this point just given the great resource versus potential takeaway issues next year.
I think you continue to see modest growth.
I think suddenly 2023 is going to show up and everyone's going to.
Again.
I'll open up.
The site and take all the money out and basically put it back into drilling I think.
We have seen a change of behavior. The nice thing is you can still get lots of growth, we get a lot more gas growth the decline rates crude 70% year over year, it's only 50% for gas that's what's creating all of the gas and that is going up so we're seeing gassy and gassy a benches.
Formations, obviously now starting to be actually.
Overall exploited.
And with obviously a lot more private folks back at it.
Youre going to see the cycle of smaller folks grow grow acreage positions and then we will fold into publix and lifecycle will start again and that's what we're seeing so I think that's a really that's a nice dimension to have as a backdrop for 'twenty three and Jeremy I will just add on that one thing is unless you.
See a supply response on the services side.
Given where costs are.
Hard for us to see rig counts materially moving higher I mean, they've been relatively flat for the last six months and like I said, unless there's a change to the supply demand dynamics with with services in the basin, it's hard to see us break out from that number from here.
Very helpful. Thank you.
Thank you.
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