Q3 2023 EnLink Midstream LLC Earnings Call
Greetings and welcome to the Enlink Midstream Q3, 2023 earnings conference call and webcast. At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Brian Brungardt.
Erector of Investor Relations.
Thank you Mr. <unk> you may begin.
Hey, good morning, everyone welcome to Enlink third quarter of 2023 earnings call participating on the call today are Jesse <unk>, Chief Executive Officer till August Simon Executive Vice President and Chief Commercial Officer, and Ben Lamb, Executive Vice President and Chief Financial Officer, Walter Pinto Executive Vice President and Chief operating all.
There is also in the room to answer any questions during the Q&A session.
We issued our earnings release and presentation. After the markets closed yesterday and those materials are on our website.
Today's call will also be made available on our website at investors that Enlink dotcom.
Today's discussion will include forward looking statements, including expectations and predictions within the meaning of the federal Securities laws.
Forward looking statements speak only as of the date of this call and we undertake no obligation to update or revise.
Actual results may differ materially from our projections and a discussion of factors that could cause actual results to differ can be found in our press release presentation and SEC filings.
This call also includes discussion pertaining to certain non-GAAP financial measures.
Finish use of these measures as well as reconciliations of comparable GAAP measures are available in our press release and the appendix of our presentation.
We encourage you to review the cautionary statements and other disclosures made in our press release and our SEC filings.
Putting those under the heading risk factors.
We will start today's call with a set of brief prepared remarks by Jessie the longer and then and then leave the remainder of the call open for questions and answers.
With that I would now like to turn the call over to Jesse or any of us.
Thanks, Brian and good morning, everyone. Thank you for joining us today to discuss our third quarter 2023 results.
As I sit here today I'm impressed at the solid execution drive at another record year of adjusted EBITDA.
Despite the volatility we've seen in the commodity markets our assets have been very resilient benefiting from a diverse set of customers.
We entered the year forecasting the midpoint of 1.355 billion for adjusted EBITDA and we remain on pace to achieve this spread point.
For the quarter, we generated 342 million of adjusted EBITDA, driven by robust activity behind our Permian system, which saw another record quarter with gathered volume.
Yeah.
Enlink strong execution and disciplined approach are driving returns for our investors during the quarter. We continued to execute on our unit buyback program and have executed approximately $160 million of our board authorized 200 million for the year. Since early 2022, we have repurchased over 7%.
Of the units outstanding through our consistent buyback activity.
We discussed on our last call our unique position to benefit from the energy transformation.
A world in which the energy mix will continue to include hydrocarbons complemented with Ccs, while adding newer cleaner sources of energy like hydrogen and other renewable fuels.
Since our last update we continue to see signs that suggests a growing need for traditional energy and in particular natural gas.
Last month.
I announced that the U S exports of natural gas, both pipeline and export LNG set a record high in the first half of 2023 with an average of 24 Bcf a day or an increase of 4% compared to the first half of 2022.
The Sabine pass LNG came online in 2016, the U S became a natural gas exporter in 2017.
Said another way, we have witnessed a growth of over threefold in the past seven years.
According to data by the International group of LNG importers global import capacity is set to expand by 16% or 23 Bcf a day by the end of 2024.
Operator: Greetings and welcome to the Unlinked Midstream Q3 2023 earnings conference call in Webcast. At this time, all participants are listening only mode. A brief question and answer session will follow the formal presentation.
Increasing number of countries are relying on imported LNG to help meet their growing energy demands.
In the first seven months of 2023, three countries, Germany, the Philippines, and Vietnam began importing LNG for the first time and.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As your minor, this conference is being recorded.
Integra, Australia Cypress Nicaragua.
Our expected to start importing LNG by the end of 2024 in total it's expected that 55 countries will have LNG regasification terminals online by the end of 2024.
Brian Brungardt: It is now my pleasure to introduce your host, Brian Brungardt, Director of Investor Relations. Thank you, Mr. Brungardt. You may be kidding. Thank you. Thank you, morning, everyone.
Brian Brungardt: Welcome to EnLink's third quarter of 2023 earnings call. Participate on the call today are Jesse Ernie, this chief executive officer, Dilanka Seimon, Executive Vice President, and Chief Commercial Officer, and then Lamb, Executive Vice President, and Chief Financial Officer. Walter Pinto, Executive Vice President, and Chief Operating Officer, is also in the room to answer any questions during the Q&A session.
In addition, the United States recently took over the spot for the largest LNG export or with an average of 11 six Bcf a day in the first half of 2023.
The U S. Now exports approximately one Bcf a day more than Australia and Qatar.
According to the EIA as recent international energy outlook 2023.
Brian Brungardt: We issued our earnings release in presentation after the market closed yesterday, and those materials are on our website. A replay of today's call will also be made available on our website at investors.inlink.com. Today's discussion will include forward-looking statements including expectations and predictions within the meeting of the federal securities laws. The forward-looking statements speak only as of the date of this call, and we undertake no obligation to update or revise. Actual results may differ materially from our projections, and a discussion of factors that could cause actual results to differ can be found in our press release presentation and SEC files.
As a global energy demand increases global energy related C. O. Two mission two emissions are expected to increase through 2050.
In most cases.
I examined the growth in non fossil fuel back resources like nuclear and renewables is not sufficient to reduce global energy related C. O two emissions under current laws and regulations.
Fed shortly the world cannot rely solely on adoption of renewable energy, but will require all of the above approach, including Ccs to meet their emissions reduction goals.
To sum it up.
Brian Brungardt: This call also includes discussions pertaining to certain non-gap financial measures. Definitions of these measures, as well as reconciliation of comparable gap measures, are available in our press release and the appendix of our presentation. We encourage you to review the cautionary statements and other disclosures made in our press release and our SEC filings, including those under the headings risk factors. We'll start today's call with a set of pre-prepared remarks by Jesse, Dilanka, and then, and then lead the remainder of the call over for questions and answers.
We are excited at how we can be an active participant through the energy transformation.
Our assets are uniquely positioned to provide both the supply of natural gas and natural gas liquids to local demand centers as well as export markets. While also 80 industrial meters efforts to reduce their own carbon emissions through our transportation business.
With that I'll turn it over to <unk> to provide an overview of our of an update of our commercial opportunities.
Thanks, Jessie and good morning, everyone.
Jesse Arenivas: With that, I would now like to turn the call over to Jesse Ernievis. Thanks, Brian, and good morning, everyone. Thank you for joining us today to discuss our third-quarter 20-23 results. So I sit here today, I'm impressed at the solid execution, driving another record here, and we're just at the evening now. Despite the volatility we've seen in the commodity markets, our assets have been very resilient, benefiting from a diverse set of customers.
Over the past several months since I joined and I am excited to see that the opportunities that's ahead.
We have been greater than I originally anticipated.
I think the market is well aware of the significant growth we are seeing in the Permian.
This includes our equity investment in the Matterhorn pipeline, which continues to progress as anticipated and will represent an attractive demand driven investments.
Jesse Arenivas: We enter the year forecast in the mid-point of 1.355 billion for adjusted EBDA, and we remain on pace to achieve this mid-point. For the quarter, we generated 342 million of adjusted EBDA, driven by robust activity behind a permanent system, which saw another record quarter of gathered knowledge. The in-link strong execution and disciplined approach are driving returns for our investors. During the quarter, we continued execute on our unit buy-back program, and have executed approximately 160 million of our board authorized 200 million for the year.
Beyond our G&P systems.
I'm most excited for the opportunities within the Louisiana system.
And link one over 4000 miles of natural gas and NGL pipelines.
Riding a critical connection between suppliers and end users.
Within the natural gas business.
On the bridge line system, the Louisiana intrastate gas system.
Henry hub.
Nearby storage at Jefferson Islands storage hub a J.
As well as Napoleon Vale and Sorrento storage facilities.
Jesse Arenivas: Since early 2022, we've repurchased over 7% of the units outstanding through our consistent buy-back activity. We discuss in our last call our unique position to benefit from the energy transformation, a world in which the energy mix will continue to include hydrocarbons, complemented with CCS, while adding newer cleaner sources of energy like hydrogens and other renewable fuels. Since our last update, we continue to see signs that suggest a growing need for traditional energy and in particular natural gas.
Across our system.
Approximately 15 Bcf of storage capacity with significant expansion capability.
We are currently evaluating.
We are also considering attractive projects to leverage our existing assets in the ground.
These projects will not only service the growing LNG market, but also ensure industrial users have accessed.
So the critical supply needed for the operations.
While we see this as an opportunity rich environment.
Jesse Arenivas: Last month, the EIA announced that the U.S, exports of natural gas, both pipeline and export LNG, set a record high in the first half of 2023, with an average of 20.4 BCF a day or an increase of 4% compared to the first half of 2022. Since Sabine Pass LNG came online in 2016, the U.S, became a natural gas exporter in 2017. Set another way, we have witnessed a growth of over threefold in the past seven years.
We will remain disciplined in any project, we will have to clear a high bar in terms of project economics.
With that I'll turn it over to Ben to provide an overview of our operations and our financial results.
Thanks, <unk> and good morning, everyone.
Let's start with the Permian where segment profit for the third quarter of 2023 came in at $102 7 million <unk>.
Segment profit in the quarter included approximately $2 5 million of gross operating expenses tied to plant relocations and $7 $4 million of unrealized derivative losses.
Jesse Arenivas: According to data by the International Group of LNG importers, global import capacity has set to expand by 16% or 23 BCF a day by the end of 2024 as an increasing number of countries are relying on imported LNG to help meet their growing energy demands. In the first seven months of 2023, three countries, Germany, the Philippines, and Vietnam, began importing LNG for the first time. Antigua, Australia, Cyprus, and Nicaragua are expected to start importing LNG by the end of 2024.
Excluding plant relocation opex and unrealized derivative activity segment profit in the third quarter of 2023 grew 11% sequentially, but decreased 4% from the prior year quarter.
Producer activity behind our systems remained robust driving a record quarter for gathered volumes with average natural gas gathering volumes, approximately 6% higher sequentially and 15% higher than the prior year quarter.
Turning now to Louisiana, we experienced another quarter of solid performance in the gas segment, along with strong results in the NGL segment, despite normal seasonal effects segment.
Jesse Arenivas: In total, it's expected that 55 countries will have LNG regassification terminals online by the end of 2024. In addition, the United States recently took over the spot for the largest LNG exporter with an average of 11.6 BCF a day in the first half of 2023. The U.S, now exports approximately one BCF a day more than Australia and more gutter. According to the EI's recent International Energy Outlook 2023, as a global energy demand increases, global energy-related CO2 emissions are expected to increase through 2050.
Segment profit for the third quarter of 2023 came in at $87 1 million.
Segment profit included $6 million of unrealized derivative losses.
Excluding the impact of unrealized derivative activity segment profit in the third quarter of 2023 grew approximately 8% sequentially and was approximately unchanged compared to the prior year quarter.
Subsequent to the end of the quarter Enlink agreed to sell most of our noncore, Ohio River Valley assets for gross proceeds of approximately $59 million.
Which represents a valuation of approximately six times run rate EBITDA.
Moving out to Oklahoma, We delivered segment profit of $104 6 million for the third quarter of 2023.
Jesse Arenivas: In most cases, the DEI examined the growth in non-fawful fuel back resources like nuclear and renewables is not sufficient to reduce global energy-related CO2 emissions under current laws and regulations. Feds shortly, the world cannot realize totally on adoption of renewable energy, but will require an all-of-the-above approach, including CCS, to meet their emissions reduction goals. To sum it up, we're excited at how we can be an activity through the energy transformation. Our assets are uniquely positioned to provide both the supply of natural gas, the natural gas liquids, the local demands as well as export markets, while also 80 industrial emitters efforts to reduce their own carbon emissions through our CO2 transportation business.
Segment profit in the quarter included approximately <unk> 4 million of operating expenses tied to plant relocations and $4 $1 million of unrealized derivative losses.
Excluding plant relocation opex and unrealized derivative activity segment profit in the third quarter of 2023 was flat sequentially, but grew approximately 14% from the prior year quarter.
During the third quarter, we saw operators remain active with rigs on our acreage. However, as we discussed at our last call. We saw operators deferred completion activity for a few months driving average natural gas gathering volumes, 2% lower sequentially, but still 18% higher compared to the prior year quarter.
As anticipated we have seen completion activity resumes and expect to see production from the first of these new wells during the fourth quarter.
Dilanka Seimon: With that, I'll turn it over to Delonka to provide an overview of an update of our commercial opportunity. Thanks, Jesse, and good morning everyone. Over the past several months inside joined EnLink, I'm excited to see that the opportunity set ahead is even greater than I originally anticipated. I think the market is well aware of the significant growth we're seeing in the Permian. This includes our equity investment in the Matterhorn pipeline, which continues to progress as anticipated and will represent an attractive demand-driven investment.
Wrapping up with North, Texas segment profit for the quarter was $63 8 million.
Segment profit included $5 $4 million of unrealized derivative losses exclude.
Excluding unrealized derivative activity segment profit in the third quarter of 2023 decreased 7% sequentially and decreased 14% from the prior year quarter.
Natural gas gathering volumes were 2% lower sequentially, and 7% lower compared to the prior year quarter.
Separately, we continue to make progress to reduce our C O two emissions intensity.
Dilanka Seimon: Beyond RGNP systems, I'm most excited for the opportunities within the Louisiana system. EnLink owns over 4,000 miles of natural gas and NGO pipelines providing a critical connection between suppliers and end users. Within the natural gas business, EnLink owns the Bridgeline system, the Louisiana Interrupted Gas System, the Henry Hub, and nearby storage at Jackson Island Storage Hub or GISH, as well as Napoleonville and Serrento Storage Facilities. Across our system, we have approximately 15 BCF of storage capacity with significant expansion capability, which we are currently evaluating.
We previously announced a project with our largest customer in North Texas <unk>.
To capture and permanently store Sidoti from our Bridgeport facility. This project is progressing well with an in service date in the fourth quarter of this year.
These solid results were in line with our expectations and drove another robust quarter with $342 million of adjusted EBITDA.
We are reiterating our adjusted EBITDA guidance for 2023, and we remain on pace to achieve the midpoint of the range of approximately 135 5 billion.
Capital expenditures plant relocation expenses net to Enlink and investment contributions were $126 million in the third quarter of 2023.
Free cash flow after distributions for the third quarter came in at approximately $66 million.
Dilanka Seimon: We are also considering attractive projects to leverage our existing assets in the ground. These projects will not only service the growing LNG markets, but also ensure industrial users have access to the critical supply needed for their operations. While we see this as an opportunity of rich environment, we will remain disciplined, and any projects will have to clear a high bar in terms of project economics.
Total capex spending including growth Capex net to Enlink plant relocation costs investment contributions and maintenance Capex continues to track within our 2023 guidance of 485 million to $535 million.
On the balance sheet side, we continue to be in a very strong position with a leverage ratio of three four times at the end of the third quarter and we retain ample liquidity.
Benjamin Lamb: With that, I'll turn it over to Ben to provide an overview of our operations and our financial results. Thanks, Delanca, and good morning everyone. Let's start with the Permian, where segment profit for the third quarter of 2023 came in at $102.7 million. Segment profit in the quarter included approximately $2.5 million of gross operating expenses tied to plant relocations and $7.4 million of unrealized derivative losses. Excluding plant relocation op-x and unrealized derivative activity, segment profit in the third quarter of 2023 grew 11% sequentially, but decreased 4% from the prior year quarter.
We remain investment.
Investment grade rated at Fitch, and one notch below investment grade at S&P, and Moody's with a positive outlook at S&P.
Consistent with our capital allocation plan to return capital to investors, we maintained our common unit distribution of $12.05 per unit in the third quarter, which represents an 11% increase over the third quarter of 2022.
Additionally, we remain active with our common unit repurchase program with approximately $50 million spent in the third quarter. This puts us ahead of pace to complete our $200 million unit repurchase program for 2023.
Since the end of 2021, we have now repurchased nearly 35 million common units.
Benjamin Lamb: Producer activity behind our systems remained robust, driving a record quarter for gathered volumes with average natural gas gathering volumes approximately 6% higher sequentially and 15% higher than the prior year quarter. Turning now to Louisiana, we experienced another quarter of solid performance in the gas segment, along with strong results in the NGL segment despite normal seasonal effects. Segment profit for the third quarter of 2023 came in at $87.1 million. Segment profit included $6 million of unrealized derivative losses. Excluding the impact of unrealized derivative activity, segment profit in the third quarter of 2023 grew approximately 8% sequentially, and was approximately unchanged compared to the prior year quarter.
While it's too early to provide 2024 guidance based on preliminary discussions with our customers. We expect 2024 to be a year of modest growth Sim.
Similar to this year, we anticipate 2020 for growth will be driven by our largest segment the Permian we.
We currently anticipate relatively stable volumes in Oklahoma and a modest decline in volumes in North Texas next year.
Longer term, we're bullish on natural gas demand and therefore activity in Oklahoma and North, Texas in late 2024 and beyond.
In summary, the Enlink team delivered solid results in the third quarter of 2023, and we expect that momentum to continue for the rest of the year.
With that I'll turn it back over to Jesse.
Thank you Ben.
<unk> team delivered another quarter with solid execution in the third quarter of 2023, placing us well on our way to achieve the midpoint of our 23 adjusted EBITDA guidance. We're excited for the future as we expect the momentum we built that carry into 2024 and beyond.
Benjamin Lamb: Subsequent to the end of the quarter, EnLink agreed to sell most of our non-core Ohio river valley assets for gross proceeds of approximately $59 million, which represents evaluation of approximately six times run rate EBITDA. Moving up to Oklahoma, we delivered segment profit of $104.6 million for the third quarter of 2023. Segment profit in the quarter included approximately $0.4 million of operating expenses tied to plant relocations and $4.1 million of unrealized derivative losses.
With that you may now open the call for questions.
Thank you.
We will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation to wanted to keep that your line is in the question queue you.
Benjamin Lamb: Excluding plant relocation off-ex and unrealized derivative activity, segment profit in the third quarter of 2023 was flat sequentially that grew approximately 14% from the prior year quarter. During the third quarter, we saw operators remain active with rigs on our acreage. However, as we discussed in our last call, we saw operators defer completion activity for a few months driving average natural gas gathering volumes 2% lower sequentially, but still 18% higher compared to the prior year quarter.
You May press star two if you'd like to move your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Thank you.
Our first question comes from the line of Brian Reynolds with UBS. Please proceed with your question.
Hi, Good morning, everyone. Appreciate the prepared remarks around some moderate growth expectations for 'twenty four so maybe just to dive into that.
A little bit further Permian clearly the strongest percentage of earnings going into next year with a strong exit this year, but as we think about and sensitize, Oklahoma, North, Texas, a little bit more how many rigs do you need to keep on the Oklahoma system to effectively keep volumes flat outside of the <unk> JV that three rigs assuming that completions next year. Thanks.
Benjamin Lamb: As anticipated, we have seen completion activity resume and expectancy production from the first of these new wells during the fourth quarter. Rapping up with North Texas, segment profit for the quarter was $63.8 million. Segment profit included $5.4 million of unrealized derivative losses. Excluding unrealized derivative activity, segment profit in the third quarter of 2023 decreased 7% sequentially and decreased 14% from the prior year quarter. Natural gas gathering volumes were 2% lower sequentially and 7% lower compared to the prior year quarter.
Hey, Good morning, Brian This is Ben.
Yeah in the Oklahoma system in fact, the Devon Dow JV by itself is very close to what we need to keep volumes flat.
That's fair.
That activity is in a fairly gassy as part of the field and they are fairly dense efficient developments. So really it's the degree of.
Benjamin Lamb: Separately, we continue to make progress to reduce our CO2 emissions intensity. We previously announced a project with our largest customer in North Texas, BKV, to capture and permanently store CO2 from our bridge fort facility. This project is progressing well with an in-service date in the fourth quarter of this year. These solid results were in line with our expectations and drove another robust quarter with $342 million of adjusted EBITDA. We are reiterating our adjusted EBITDA guides for 2023 and we remain on pace to achieve the midpoint of the range of approximately $1.355 billion.
Other activity beyond the Devon, Dow JV that we see that will determine whether we are.
At a very slight decline or slight growth next year that Devin now by itself to keep the business fairly flat.
Great Super helpful, and maybe to pivot to capital allocation for a minute leverages in the right spot with some positive rating agency actions.
For the past few months just looking ahead to 2024 for return of capital opportunities your buyback authorization has $40 million left.
And then just given the $50 million quarterly cadence one could we see a reauthorization of potentially upside in before year end and how should we think about potentially a return to distribution growth going.
Benjamin Lamb: Capital expenditures, plant relocation expenses, net to in-link, and investment contributions were $126 million in the third quarter of 2023. Free cash flow after distributions for the third quarter came in at approximately $66 million. Total capex spending, including road capex net to in-link, plant relocation costs, investment contributions, and maintenance capex, continues to track within our 2023 guidance of $485 million to $535 million. On the balance sheet side, we continue to be in a very strong position with a leverage ratio of 3.4 times at the end of the third quarter and we retain ample liquidity.
Going forward. Thanks.
Yes, I'll take take those in the order you asked them on the buyback you are right. We are a little bit ahead of the pace that we need to be on to complete the $200 million authorization that we currently have.
And so both of that fact and also the proceeds from the sale of the noncore <unk> assets that we announced this morning.
Give us some potentially some need to increase the buyback authorization before the end of the year now we haven't gone to talk to the board about that yet, but it is a possibility.
Or are we may roll it into next year's capital capital return plan, we're just still working through that as a team.
Benjamin Lamb: We remain investment grade rated at finish and one not below investment grade at S&P and Moody's with a positive outlook at S&P. Consistent with our capital allocation plan to return capital to investors, we maintained our common unit distribution of 12.5 cents per unit in the third quarter, which represents an 11% increase over the third quarter of 2022. Additionally, we remain active with our Common Unit Repurchase Program with approximately $50 million spent in the third quarter. This puts us ahead of pace to complete our $200 million unit repurchase program for 2023. Since the end of 2021, we have now repurchased nearly 35 million Common Units.
In terms of the distribution of course, we did an 11% increase this year.
Expect the board will re look at the distribution for next year, but at this point, we don't have any news to share on that front.
Great. Thanks, I'll leave it there and Joe the rescue morning.
Thank you. Our next question comes from the line of Spiro <unk> with Citi. Please proceed with your question.
Hi, This is Chad on for sphere, starting off could you provide an update on Ccs commercialization progress and just any details on the timeline when we could expect to see more deals signed there.
Benjamin Lamb: While it's too early to provide 2024 guidance, based on preliminary discussions with our customers, we expect 2024 to be a year of modest growth. Similar to this year, we anticipate 2024 growth will be driven by our largest segment, Department. We currently anticipate relatively stable volumes in Oklahoma, and a modest decline in volumes in North Texas next year. Longer curve, we're bullish on natural gas demand, and therefore activity in Oklahoma in North Texas in late 2024 beyond. In summary, the InLink came delivered solid results in the third quarter of the 2023, and we expect them to mention to continue for the rest of the year.
Hi.
The longer here.
Let me start by saying that.
We value our relationship with Exxon and we continue to work on to US transportation agreement.
With them, providing cc solution to the Mississippi River corridor immediate.
On our side.
Completed most of the dual runs on the natural gas pipelines, we intend to convert into <unk> service.
And of course to use permit and progressing landrieu in agreements with most of the pipelines.
As well as acquired non drive.
Jesse Arenivas: With that, I'll turn it back over to Jesse. Thank you, Ben. The InLink team delivered another quarter with solid executions in the third quarter of 2023, placing us well on our way to achieve the midpoint of our 23 adjusted even on guidance.
New pipeline from the state of Louisiana, So things up.
Progressing well and our teams are getting significant experience in the <unk> pipeline design building process now beyond that I would say that our teams.
Highly engaged with.
Operator: We're excited for the future as we expect them a minimum we built a carry in a 2024 and beyond. With that, you may now open the call for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation to want to indicate that your line is in the question queue. You may press start, too, if you'd like to remove your question from the queue. For part-discipline using speaker equipment, it may be necessary to pick up your hands that before pressing the star keys. Thank you.
With customers we are in active discussions with many other parties that are developing Ccs project in the U S. Gulf Coast Theres, nothing we can share publicly on.
The status of those projects just a second.
Okay understood and just following up.
Highlighted some commercial opportunities in Louisiana tied to LNG demand, but I believe growth concluded storage.
How meaningful could this opportunity be in regards to Capex and how are you thinking about timing of these opportunities.
Look I think our assets in Louisiana the footprint, we cover is quite.
Brian Reynolds: Our first question comes from a line of Brian Reynolds with UBS. Please proceed with your questions.
<unk> via.
Connected not only to existing industrial demand, but also to expanding industrial and LNG demand. There are many opportunities that do have bolt on projects to expand our delivery capability on the gas pipeline side, but as you alluded to storage has kind of percolating to the top.
Benjamin Lamb: Hi, good morning everyone. I appreciate the prepared remarks around some moderate growth expectations for a 24. So maybe just to dive into that, you know, a little bit further, you know, permeate clearly the strongest percentage of earnings going into next year with a strong exit this year. But as we think about incentivizing Oklahoma, North Texas a little bit more, you know, how many rigs do you need to keep on the Oklahoma system. The effect of we keep all you flat outside of the Gowd 7JV. You know, three rigs, assuming that can put me next year.
If you look at natural gas volatility and the demand pool from LNG that is coming.
That has resulted in storage valuations.
Benjamin Lamb: Hey, good morning Brian. This has been. Yeah, in the Oklahoma system, in fact, the Dev and Dow JV by itself is very close to what we need to keep volumes flat. You know, that's a that activities in a fairly gassy far of the field and there are fairly dense efficient developments. So really it's it's the degree of of other activity beyond the Dev and Dow JV that we see that will determine, you know, whether we're, you know, at a very slight decline or slight growth next year. But Dev and Dow by itself keeps keep the business fairly flat.
Brian Reynolds: Great. Super helpful.
Touching kind of levels of value that we havent seen broadly in a decade.
So so that we think is.
Attractive near term opportunity, we have about 15 Bcf of storage in our portfolio today, and we think we can expand that we're doing.
Engineering studies and thinking through how quickly a network scale, we can bring that to market, but we expect that to be one of these out of the gate.
Okay. That's helpful. Thanks for the time today.
Yes.
Thank you.
Our next question comes from the line of Gabriel Moreen with Mizuho Securities. Please proceed with your question.
Benjamin Lamb: Maybe to pivot the capital allocation for a minute, leverages in the right spot with some positive rating agency action over the past few months. You know, just looking ahead to 2024 for return of capital opportunities. You're by back authorization has 40 million left. And just given the 50 million dollar quarterly cadence, one could we see a reauthorization or potentially upside in the four year ends. And how should we think about, you know, potentially a return to distribution go for end link going.
Hi, Good morning, I had a two two parter on the Permian One is where are you at all impacted by the extreme weather during the quarter in the Permian whether.
Higher opex lower efficiencies I don't think I heard much commentary on that so I'm wondering if I'd caution you or anything and then just bigger picture question.
The next plant relocation, what's your latest thoughts are on that and as far as timing.
Benjamin Lamb: Thanks. Yeah, I'll take those in the order you asked them. On the buyback, you're right, we are a little bit ahead of the pace that we need to be on to complete the $200 million authorization that we currently have. And so both that fact and also the proceeds from the sale of the non-core ORB assets that we announced this morning give us some potentially some need to increase the buyback authorization before the end of the year.
When do you think that might be.
Hi, Gabriel Gabriel this is Walter.
I'll take the question on heat and maybe Ben can expand on.
Additional capacity.
Of course, we saw significantly higher ambient temperatures compared to last I would say three years in all of our basins, especially Permian in North Texas.
Benjamin Lamb: Now we have gone to talk to the board about that yet, but it is a possibility or we may roll it into next year's capital capital return plan. We're just still working through that as a team. In terms of the distribution, of course we did an 11% increase this year. Expect the board will will relook at the distribution for next year, but at this point we don't have any use to share on that front.
But I would say we've benefited.
From our strong operational excellence program and Rhino asset really well also.
A lot of our technology programs have been implemented really helped us on the assets.
And it's a reflection of our leadership team.
And the people out there so we didn't see any impact from that.
Brian Reynolds: Great. Thanks. I'll leave it there. Enjoy the rest of your morning.
High ambient temperature.
Operator: Thank you.
That pretty well.
Yes, Gabe on the timing of another plant expansion I'll start by just reminding you that we've been on a pace. The last several years of adding about one plant a year. This.
Spiro Dounis: Our next question comes from the line of Spiro Dunas with city. Please proceed with your question.
Dilanka Seimon: Hi, this chat on for Spiro starting off, could you provide an update on CCS commercialization progress and just any details on the timeline when we could expect to see more deals signed there. Hi, Chai. It's Delanca here. Let me stop by saying that we value our relationship with Exxon and we continue to work on the CO2 translation agreement with them, providing a fair solution to the Mississippi River corridor emitters. On our side, we've completed most of the tool runs on the natural gas pipelines.
This year the Phantom plant next year will be the <unk>.
<unk> plant in the Delaware Basin.
And so we are watching carefully.
As our customer plans developed to understand when the right time to take the next step will be I do think there will be an additional plant expansion premise in the Permian, but at this point I don't think its in 2024 I think it's I think it's beyond and so no announcement today when the time desktop.
Now the good news is we've got great options, including more options to move.
Existing plants, because it has worked extremely well for us the first three times we've done it.
Dilanka Seimon: We intend to convert into CO2 service. We filed our course to use permit and progressing land on agreements for most of the pipelines, as well as acquired land rights for new pipelines from the state of Louisiana. So things are progressing well and our teams are gaining significant experience in the CO2 pipeline design building process. Now, beyond that, I would say that our teams are highly engaged with customers. We are in active discussions with many other parties that are developing CCS projects in the US Gulf Coast. There's nothing we can share publicly on the status of those projects, just a second. Okay, understood.
Thanks, Matt and thanks, Walter and then maybe if I could just a quick follow up I realize that you're not directly commodity sensitive.
Presentation did note.
Aggressively hedging your 24 exposure can you just.
Speak to what percentages you are maybe how youre ahead of schedule, so to speak where you're hedged out relative to.
This year as far as price levels.
Yes, Gabe happy to expand on that a little bit so.
Youll recall that in 2022, we got ahead of what we feared it might be a weak gas market in 2023 by hedging substantially all of our natural gas exposure before before we ever got to.
The new year's day.
And we are in much the same position this year.
Dilanka Seimon: And just following up, you know, you highlighted some commercial opportunities in Louisiana, tied to LNG demand, and I believe that included storage. Just how meaningful could this opportunity fit be in regards to CapEx, and how are you thinking about timing of these opportunities? Look, I think our assets in Louisiana, the footprint we cover is quite attractive. We are connected not only to existing industrial demand, but also to expanding industrial and LNG demand.
Very bullish on gas prices in late 'twenty, four and beyond that.
A bit less certain for the first three quarters of next year and so once again, we have hedged almost all of our natural gas exposure for next year now as you point out we are about 90% fee based anyway. So it's not a huge driver of our business, but we've been proactive for the second year in a.
ROE and trying to take one risk off the table.
Understood. Thanks Pam.
Dilanka Seimon: There are many opportunities there to have both on projects to expand our delivery capability on the gas pipeline side, but as you alluded to storage is kind of percolating to the top. You know, if you look at natural gas volatility and the demand call from LNG that is coming, that has resulted in storage valuation. Touching kind of levels of values that we haven't seen probably in a decade or so. So that we think is a attractive near-term opportunity.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Preneed fatigue with Wells Fargo. Please proceed with your question.
Thanks, Good morning, maybe just to follow up on that last question, so as I understand it.
You were hedged at probably higher prices in 'twenty three versus what you have hedged for the first three quarters of 'twenty four is there any way to quantify.
How much of a potential I guess stepped down.
Dilanka Seimon: We have about 15 BCF of storage in our portfolio today, and we think we can expand. And now we're doing the engineering studies and thinking through how quickly and at what scale we can bring that to market. But we expect that that to be one of the first things out of the gate. Okay, that's helpful. Thanks for the time today. Thank you.
EBITDA would occur from 'twenty three 'twenty four just based on the hedging profile.
While.
Yes.
I don't have the number at my fingertips, what I can say, though is.
And giving that.
<unk> into 2024 that I mentioned in the prepared remarks that we see 2020 for being a year of modest growth compared to 2023, we incorporate in that in that look the hedging that we've done both years. So youre right. We are hedged now for 2020 for it as somewhat.
Gabriel Moreen: Our next question comes from the line of Gabriel Moreen with Mizuho securities. Please proceed with your question. Hi, good morning.
Jesse Arenivas: Other two, two-part are on the Permian. One is, did were you at all impacted by, you know, the extreme weather during the quarter and the Permian weather. Higher off that lower efficiencies. I don't think I heard much commentary on that somewhere if I'd cost you anything, and then just bigger picture question. On the next plant relocation, which are latest thoughts are on that and as far as timing. And when do you think that might be? I gave you this water.
At lower prices than we were hedged at for 2023, but not in a way that changes the growth trajectory of the company.
Got it Okay and then other question here on 2024, and your comments there maybe kind of a two part here. The first is unless I missed it I guess, how many rigs are currently running on your acreage in Oklahoma and you mentioned that the Devon Dow JV is enough to keep volumes flat. So I guess I'm just wondering.
Why Oklahoma volumes wouldn't grow in 2024, you mentioned that you expect kind of stable volumes in Oklahoma and 24%. So are you kind of effectively assuming in your guidance only the Devon Dow rigs run on your acreage in 'twenty four.
Jesse Arenivas: I'll take the question on heat, and then maybe Ben can expand on the additional capacity. Of course, we saw significantly hard ambient temperature compared to last, I would say, three years in all of our ways, especially Permian and more taxes. But I would say we benefited, you know, from our strong operational excellence program, and Rhino has said really well. Also, a lot of our technology programs are being implemented, really helped us run the assets. And in its reflection of our leadership team, up in the field, and the people out there. So we didn't see any impact on the high ambient temperature, but Rhino pretty well.
Well, a few things to take a part there first I want to be clear, we're not giving guidance at this point, we're just trying to give you.
A sneak peak as we begin to work through the budget process for 2024 May may look like.
Now specifically on Oklahoma.
Right as of this morning, the rig count on the Oklahoma system has four rigs three from Devon, Dow JV and one for another customer that's actually a bit of a low point, we have averaged pretty much all year anywhere from five to eight rigs with with Devon, Dow generally being at three <unk>.
Benjamin Lamb: Yeah, and gave on the timing of another plant expansion. I'll start by just reminding you that we've been on a pace the last several years of adding about a plant a year. This year, the Phantom plant next year will be the Tiger II plant in the Delaware basin. And so we are watching carefully as our customer plans develop to understand when the right time to take the next step will be. I do think there will be an additional plant expansion premise in the Permian, but at this point, I don't think it's in 2024, I think it's I think it's beyond.
Benjamin Lamb: And so no announcement today, when the time does come, though, the good news is we've got great options, including more options to move existing plants because it has work extremely well for us the first three times we've done it.
But remember in Oklahoma not every rig.
Is equal to every other rig it depends on where in the play their drilling and it depends on whether they are drilling a sustained program with multi well pads or.
Or something maybe less that it takes a little bit more time to drill so because of the nature of the Devon Dow activity that by itself is very close to keeping is flat.
In 2024.
The rest of the activity.
We are really determined whether we are in a slight decline very slight decline or in a slight growth position.
So to your to your question of why one Oklahoma volumes growth they may but at this point in November.
2023, we don't have perfect clarity yet on what all the customers are going to do next year.
Benjamin Lamb: Thanks man, thanks a lot there. And then maybe if I could just a quick follow up, I realize that you're not down to roughly commodity sensitive, but the presentation did note. Aggressively hedging your 24 exposures, can you just speak to what percentages you are, maybe how you're at a schedule, so to speak, and where your edge dot relative to this year, as far as price levels. Yeah, I'm happy to expand on that a little bit.
Got it thank you.
Thank you. Our next question comes from the line of Zack <unk> with Tudor Pickering Holt.
Please proceed with your question.
Perfect. Thank you. Thanks for taking my question, just circling back to the Louisiana storage opportunities, we put a lot of conversation where storage rates are actually getting close to incentivize and Greenfield projects are you guys. Looking just at a brownfield expansion are you also looking at potential Greenfield projects there.
Benjamin Lamb: You'll recall that in 2022 we got a head of what we feared might be a week gas market in 2023 by hedging substantially all of our natural gas exposure before we ever got to New Year's Day. And we're in much the same position this year. We're very bullish on gas prices in late 24 and beyond, but we're maybe a bit less certain for the first three quarters of next year. And so once again we have hedged almost all of our natural gas exposure for next year.
This is <unk> here.
Naturally we will start with in our backyard with assets we already have.
So for the moment, we are focused on <unk>.
Expanding our existing assets.
As we.
Evaluate those and bring those to market first.
We will look at third party opportunities as well, but we'd like to focus here in the near term.
Benjamin Lamb: Now as you point out, we are about 90% fee-based anyway. So it's not a huge driver of our business, but we've been proactive for the second year in a row and trying to take one risk off the table.
On assets, particularly not only because of the expansion capacity that but also the location of the advantages.
Gabriel Moreen: Thank you.
Connectedness et cetera. So there are some advantage to expanding those assets because we're already pretty well connected.
Got it that makes sense and pivoting to the Permian, you mentioned matter or and is on track.
Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad.
Praneeth Satish: Our next question comes from the line of Praneeth Satish with Wells Fargo. Please proceed with your question. Thanks.
The last update I remember seeing is in service by call. It mid 'twenty four maybe July is that is there anything you can update there on that timeline of what quarter. It is expected to come into service.
Benjamin Lamb: Good morning. Maybe just to follow up on that last question. So as I understand it, you know, you were hedged at probably higher prices in in 23 versus what you've hedged for the first three quarters of 24 is there anyway to quantify how much of potential, I guess, step down in in EBITDA would would occur from 23 to 24 just based on the hedging profile. Well, Praneeth, I don't have the number at my fingertips what I can say though is in giving the preview into 2024 that I mentioned in the prepare remarks that we see 2024 being a year of modest growth compared to 2023.
Well I think that the.
The whitewater team with tell us second half.
2024, I think it's a bit early to say exactly what month.
But very much on schedule and on budget at this point.
Okay perfect. That's all I had thanks.
Thank you. Our next question comes from the line of Sam Mill Chabal with <unk>.
Seaport Global Please proceed with your question.
Yes, hi, good morning, everybody.
So first off I think you mentioned on the call.
Benjamin Lamb: We incorporate in that in that look, the hedging that we've done both years. So you're right. We are hedged now for 2024 at somewhat lower prices than we were hedged at for 2023, but not in a way that changes the growth trajectory of the company.
Non core asset sale.
If you could provide some clarity around that in terms of the magnitude.
Praneeth Satish: Got it. Okay.
And use of proceeds and then a little bit broader.
A question with regard to the goals of returning capital to equity holders as well as credit ratings, how should we be kind of thinking about capital allocation going forward.
Benjamin Lamb: And then another question here on on 2024 in your comments there may be kind of a two part here. The first is, unless I missed it, I guess how many rigs are currently running on your acreage in Oklahoma and you mentioned that the Devon Dow JV is enough to keep volumes flat. So I guess I'm just wondering, you know, why Oklahoma volumes wouldn't grow in 2024. You mentioned that you expect kind of stable volumes in Oklahoma in 2024.
Well to start on the asset sale, we sold most of our Ohio River Valley assets. This morning for.
For gross proceeds of about $59 million and Thats, obviously, a modest sized asset evaluation of about six times run rate EBITDA.
Benjamin Lamb: So are you kind of effectively assuming in your guidance only the Devon Dow rigs run on your acreage in 2024? Well, a few things to take apart there. First, I want to be clear we're not giving guidance at this point. We're just trying to give you a sneak peek as we begin to work through the budget process for what 2024 may look like. Now, specifically on Oklahoma, I think right as of this morning, the rig count on the Oklahoma system is four rigs, three from Devon Dow JV and one from another customer.
While it's a great business, it's just not core to Enlink and in 2023, and 2024 and so it was time to find a buyer.
For whom if it better benefit for us.
In terms of the use of proceeds the first thing that we will do is to maintain the leverage ratio and so the first 35 or $40 million will just go to debt reduction.
But that does leave 20 or $25 million.
Additional and that goes back to Brian's question at the beginning here there may be an opportunity too to revisit the size of this year's unit repurchase authorization.
Benjamin Lamb: That's actually a bit of a low point. We have averaged pretty much all year anywhere from five to eight rigs with Devon Dow generally being at. 3. But remember in Oklahoma, not every rig is equal to every other rig. It depends on where in the play they're drilling and it depends on whether they're drilling a sustained program of multi well pads or something maybe less depth that takes a little bit more time to drill.
And perhaps go beyond the $200 million the board has authorized.
Previously.
Both to handle the proceeds of that asset sale, but also the fact that our our free cash flow. After distributions is in excess of the $200 million program.
Benjamin Lamb: So because of the nature of the dead endow activity, that by itself is very close to keeping us flat in 2024. The rest of the activity will really determine whether we're in a slight decline, very slight decline, or in a slight growth position. So to your question, why won't Oklahoma volumes grow? They may. But at this point in November of 2023, we don't have perfect clarity yet on what all the customers are going to do next year.
And remind me the second part of your question.
Okay.
Yes.
Praneeth Satish: Thank you.
Revisit again, what we talked about with Brian.
We really like the unit repurchase.
As an option and capital allocation as opposed to.
Higher distribution so while the board May may look at the distribution for 2024, just like it did in 2023 and make an adjustment you should expect to see the share repurchase remain a significant part of our capital allocation plan as we pointed out in the prepared remarks. If you go back to a couple of years ago.
Zack Van Everen: Our next question comes from the line of Zack Van Everen with Tudor Pickering and Hold. Please proceed with your question. Perfect. Thank you. Thanks for taking my question. Just circling back to the Louisiana storage opportunities, we put a lot of conversation where storage rates are actually getting close to incentivizing green field projects. Are you guys working just at a branch of expansion or you also can't potential green field projects there?
We've eliminated about 7% of the shares outstanding just through this consistent buyback opportunity.
We think that that is a good way to reward our equity investors.
Understood.
And then on <unk>.
<unk> pipeline business, we've seen some.
C O two pipeline projects.
Turning to regulatory issues and some other states. So I was curious you know.
Dilanka Seimon: Zack, this is Delanca here. You know, naturally we'll start with in our backyard with assets we already have. So for the moment, we are focused on expanding our existing assets. But as we evaluate those and bring those to market first in parallel, we'll look at third party opportunities as well. But we'd like to focus here in the near term on assets, particularly not only because of the expansion capacity there, but also the locations are very advantageous in its connectedness etc.
If you could update us on your regular.
Dilanka Seimon: So there are some advantage to expanding those assets because we're already pretty well connected. Got it. That makes sense. And pivoting to the Permian, you mentioned Matterhorn is on track. I think the last update I remember seeing is in service by call it mid-24. Maybe July is that? Is there anything you can update there on a timeline of what quarter it's expecting to come into service? Well, I think that the Whitewater team would tell you second half of 2024. I think it's a bit early to say exactly in what month, but very much on schedule and on budget at this point. Okay. Perfect. That's all I had. Thanks. Thank you.
Through process, if you've seen any impact of that on what we are.
I'm just curious with regard to your discussions with.
With your regulators.
Got the laundry I'm happy to take that question I think it's important to recognize.
What sets our Ccs business apart, Louisiana has one of the largest concentrations of emissions in North America. This combined with our existing market presence nearby geologic sequestration sites in the <unk>.
Political and regulatory environment, we don't see at this moment any implications to our business and our growth plan.
Based on the challenges that some of the Midwest projects have seen.
And in Louisiana, we found that the regulatory environment to be supportive of this activity. We've been doing this we've been added now for about a year. So far we think things are progressing pretty well. So we don't see any major headwinds.
Okay. Thanks for that thank you.
Thank you there are no further questions at this time and I'd like to turn the floor back over to CEO, Jesse our Nevis for closing comments.
Thank you for facilitating our call this morning, and thank everyone for being on the call today and for your continued support.
As always we appreciate your interest and investment in Italy, and we look forward to updating you with our fourth quarter and full year 'twenty three results in February.
Somal Siball: Our next question comes from the line of Somal Siball with Seaport Global. Please proceed with your question. Yes. Hi. Good morning, everybody. So first off, I think you mentioned on the call a non-core asset sale. I was curious if you could point from clarity around that in terms of the magnitude. And use of proceeds. And then a little bit broader question, you know, with regard to your goals of returning capital to equity holders as well as career trading. You know, how should we be kind of thinking about capital allocation going forward?
In the meantime, we wish you well stay healthy and have a great day.
This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.
Uh-huh.
Oh.
Benjamin Lamb: Well, to start on the asset sale, we sold most of our Ohio River Valley assets this morning for gross proceeds of about $59 million. And that's obviously a modest sized asset. That's a evaluation of about six times run rate EBITDA. While it's a great business, it's just not core to EnLink in 2023 and 2024. And so it was time to find a buyer for whom it fit better than it fit for us.
[music].
Yeah.
[music].
Hum.
Hum.
Uh-huh.
Okay.
Okay.
[music].
Benjamin Lamb: In terms of the use of proceeds, the first thing that we will do is to maintain the leverage ratio. And so the first $35 or $40 million will just go to debt reduction. But that does leave $20 or $25 million additional. And that goes back to Brian's question at the beginning here. There may be an opportunity to revisit the size of this year's unit repurchase authorization and perhaps go beyond the $200 million the board has authorized previously. Both to handle the proceeds of that asset sale, but also the fact that our free cash flow after distributions is in excess of the $200 million program. And remind me the second part of your question.
Okay.
[music].
Uh-huh.
Hum.
Okay.
Uh-huh.
[music].
Benjamin Lamb: Okay, I'll kind of revisit again what we talked about with Brian. We really like the unit repurchase as an option in capital allocation as opposed to a higher distribution. So while the board may look at the distribution for 2024 just like it did in 2023 and make an adjustment, you should expect to see the share repurchase remain a significant part of our capital allocation plan. As we pointed out in the prepared remarks, if you go back to a couple of years ago, we've eliminated about 7% of the share's outstanding just through this consistent buyback opportunity. And we think that that is a good way to reward our equity investors. Understood.
Mhm.
Hum.
[music].
Dilanka Seimon: And then on CO2 pipeline business, we've seen some CO2 pipeline projects get into regulatory issues in some other states. So I was curious, you know, if you could update us on your regulatory process, if you've seen any impact of that or what we're seeing in other states with regard to your discussions with your regulators. Guys, Delanque, I'm happy to take that question. I think it's important to recognize what sets our CCS business apart.
Hum.
Hum.
[music].
Mhm.
Hello.
Oh.
[music].
Dilanka Seimon: You know, Louisiana has one of the largest concentrations of emissions in North America. This combined with our existing market presence nearby geologic sequestration sites and the supportive political regulatory environment. You know, we don't see at this moment any implications to our business and our growth plan based on the challenges that some of the Midwest projects have seen. And in Louisiana, we've found that the regulatory environment to be supportive of this activity. You know, we've been doing this. We've been at it now for about a year. So far, we think things are progressing pretty well. So we don't see any major headwinds, is back.
Dilanka Seimon: Okay, thanks for that. Thank you.
Oh.
[music].
Hum.
Hum.
Jesse Arenivas: There are no further questions at this time, and I'd like to turn the floor back over to CEO Jesse Arenivas for closing comments. Well, yeah, thank you for still hating the call this morning, and thank everyone for being on the call today and for your continued support. As always, we appreciate your interest and investment in EnLink, and we look forward to updating you with our fourth quarter and full year 23 results in February.
Yeah.
Yeah.
Yeah.
Jesse Arenivas: In the meantime, we wish you well, stay healthy, and have a great day.
Operator: This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.
Operator: [inaudible] right or wrong, but I don't know if I'm right or wrong, but I don't know if I'm right or wrong[inaudible]