Q4 2023 Kinetik Holdings Inc Earnings Call
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the conference over to Matti Wagner with kinetic. Please proceed.
Thank you.
Good morning, and welcome to kinetics fourth quarter and full year 2023 earnings as well as our full year 'twenty 'twenty four and guidance conference call. Our speakers today are Jamie Welch, our president and Chief Executive Officer, and Trevor Howard Our Chief Financial Officer. Other members of our senior management team are also in attendance for this.
Mornings call. The press release, we issued yesterday, the slide presentation and access to the webcast for today's call are available at Www Dot kinetic 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.
Excuse me, ladies and gentlemen, thank you for your patience to call will begin momentarily again. Thank you for your patience the call will begin momentarily.
[music].
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 provided schedules that 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 Jamie.
Thank you Matt Good morning, everyone. Thank you for joining our call today.
Yesterday, we reported our fourth quarter 2023 results and provided a 2024 financial guidance.
We look forward to discussing both in more detail with you. This morning looking.
Looking back on this past year. It can best be characterized as a relentless focus on execution.
We executed upon several highly strategic growth projects, our financial priorities and sustainability program and more broadly speaking our kinetic vision.
We also achieved record processed gas volumes, each quarter, and providing safe and reliable operating services to our customers.
I want to take a moment to thank God team for all their hard work and dedication over the past year.
They remain focused on delivering projects on time and on budget with an unwavering commitment to safety and sustainability. Thank.
Thank you.
Starting with our financial results, we reported adjusted EBITDA of $228 million for the fourth quarter and $839 million for the full year.
Leaving the middle of the revised guidance, we provided in November and above the midpoint of our original guidance range.
Full year 2023 capital expenditures were $531 million within 2023 guidance range, we exited the year with processed gas volumes of 156 billion cubic feet per day in the month of December.
Speaker Change: Good morning.
Megan: You for attending today's genetics fourth quarter and full year 2023 earnings call. My name is Megan and I'll be your moderator for today.
Fourth quarter average processed gas volumes were 154 billion cubic feet per day, representing a more than 22% increase when compared to the fourth quarter 2022.
After achieving our 2023 exit rate guidance of $1 5 billion cubic feet per day in April we revised our exit rate guidance to one 6 billion cubic feet per day.
We exited the year with processed gas volumes at just under our revised guidance due to a modest shift and produce it turn in line schedules in the fourth quarter and a package of new desk could tayo because of elevated <unk> concentrations.
To expand a little further that produce are brought online a large number of wells developing several benches.
The shallower zones experienced elevated concentrations that did not meet the contractual gas quality specifications to.
The producer has been working to address the issue while gradually ramping up volumes as we complete our system wide front end 19, treating project, which will allow us to accept a broader range of gas quality and provide treating and blending services to our customers further expanding our margins.
<unk> is becoming increasingly important.
As producers develop these shallower benches, including the bone spring and Avalon as well as step out from what we know is the core of the Delaware Basin.
In fact, with increasing gas quality issues associated with Cotwo and <unk> trade.
Trading is emerging as one of the most overlooked capacity constraints within the base.
With our system wide trading and blending capabilities almost fully complete.
We are uniquely positioned to support the next phase of base and growth.
Looking back over the last couple of years, our gas volume growth rate has been approximately double the growth rate of the underlying Permian basin.
Suggesting that kinetic has significantly increased its gas processing market share in the basin.
This is a testament to our system reliability.
Customer first approach and pilot service offerings.
As I touched on earlier, we demonstrated strong operational execution over the past year.
On October 1st, replacing a service Delaware link 1 billion cubic feet per day intra basin residue gas pipeline.
This pipeline connects our processing facilities directly to what providing our customers with enhanced system reliability and flow assurance.
On December 1st the 550 million cubic feet per day Permian Highway pipeline expansion was placed into service.
Then most recently, we completed our gathering system expansion into new Mexico and began flowing volumes on January 18th.
The project was completed over two months ahead of schedule.
And under budget.
Kinetic offers a differentiated service to new Mexico produces as we can provide flow assurance on a fully integrated solution from wellhead to premium Gulf coast markets on wholly owned or majority owned infrastructure today.
We're excited about the opportunities to grow our business and footprint in new Mexico, which have been a part of our long term vision.
As a new entrant into this market, we already have a strong competitive advantage with available processing capacity today.
And treating and blending capabilities.
Furthermore, we offer counterparty diversity on quality infrastructure to new Mexico produces.
Looking ahead to 2024, we remain in a period of volatile commodity prices driven by economic uncertainty and geopolitical turmoil.
Despite the announcement of the LNG permanent pause by the administration last month.
Our view remains that the demand pool to the U S. Gulf Coast will continue to be significant.
The LNG export infrastructure already under construction is slated to come online in 2025 through 2030.
As the world continues to demand cleaner lower cost and more reliable sources of energy natural gas will play a critical role as it offers lower emissions versus other traditional fossil fuels.
The U S was a net exporter of $12 8 billion cubic feet per day of natural gas in 2023.
Representing nearly 100 million metric tonnes.
Which can provide roughly 720 billion kilowatt hours of energy or enough power for almost 100 million hubs.
With existing projects in the U S. We expect to more than double that export amount by 2030.
At Qinetiq, we are proud to be a part of the value chain that delivers a cost effective reliable and lower carbon energy solutions.
While Trevor will share more specific assumptions regarding 2024 guidance, we've continued to take steps to further derisk our balance sheet over.
Over 90% of our gross profit as saw some fixed fee contracts.
We have hedged approximately 50% of our commodity linked gross profit and we will continue to hedge our remaining 2024 and 2025 exposures as we see opportunities.
The Permian is world class resource and remains one of the most prolific cost competitive basins.
Even at $70 a barrel WT I produce at economics are advantaged supporting continued growth and development.
In 2023, the EIA estimated that wellhead wet gas increased by approximately 3 billion cubic feet per day.
Now when applying a 30% fuel and shrink factor, we estimate the Permian residue supply increase by approximately 2 billion cubic feet per day.
Now I would remind the audience that due to changes in ethane gas spreads trailing 12 months residue gas growth can swing materially from one month to the next.
With Permian rig activity finding a floor at approximately 310 rigs for the last several months, which is nearly a 15% reduction from the peak reached in April 2023, we think that 2024 will struggle to keep pace with 2020 three's production growth levels.
Therefore on an exit to exit basis, we expect Permian wellhead wet gas.
To grow approximately one 5% to 2 billion cubic feet per day in 2024, which is mid to high single digit percentage growth.
According to the EIA. This past January 118 billion cubic feet per day of natural gas was consumed in the United States alone. The most in any month on record with forecast expecting gas demand to grow upwards of 20% by 2000.
30.
We strongly believe that the Permian will continue to deliver and meet the world's growing demand for crude oil natural gas liquids and natural gas.
Outside opportunities exist across our footprint, including shallower formations like the bone spring and Avalon and the deepest zones like the Wolfcamp C Barnett and Woodford shale.
We are encouraged by recent well results from these formations and zones.
Now before turning over the call to Trevor I would like to reiterate the significance of this year for kinetic.
Throughout 2023, we remain focused on our commitments and taking the necessary steps to position kinetic for a robust 2024.
We're extremely proud of what we have accomplished and we're excited for what is yet to come on a growth journey so stay tuned.
And with that I would now like to hand, the call over to Trevor.
Thanks, Jamie in the fourth quarter, we reported adjusted EBITDA of $228 million for the quarter, we generated an adjusted distributable cash flow of $150 million and free cash flow was $77 million.
Looking at our segment results, our midstream logistics segment generated an adjusted EBITDA of $146 million in the quarter up 10% year over year.
This was attributed to increased processed gas volumes and as a result gas fee based gross profit increased by 13% despite lower commodity prices.
Shifting to our pipeline transportation segment, we generated an adjusted EBITDA of $85 million up nearly 7% quarter over quarter sequential.
Growth within the segment was driven by one full month of contributions from Delaware link and the PHP expansion.
Total capital expenditures for the quarter were $95 million with $61 million within our midstream logistics segment and $34 million at the pipeline transportation segment.
For the full year, we reported adjusted EBITDA of $839 million $569 million of distributable cash flow and $60 million of free cash flow.
Total capital expenditures for the year were $531 million within the guidance range provided last February Mitch.
Midstream logistics capital expenditures totaled $244 million at the bottom half of the guidance range.
Pipeline transportation capital expenditures were $287 million above our range driven by cost increases related to the non operated PHP expansion project. It is worth noting our total operated capital came in 5% below our internal estimates for full year 2023.
We exited the year with a four times leverage ratio per our credit agreement.
In December we took a series of steps to refinance a portion of our debt through $800 million of sustainability linked senior notes due 2028 conducted in two separate transactions.
The proceeds were used to pay down the existing term loan a facility and extend the maturity by one year to June 2026.
Following the refinancing nearly 100% of our interest rate exposure remains fixed.
Also in December we facilitated a secondary offering of seven 5 million shares by Apache, increasing our public float by just under 50%.
Our public float now represents more than 15%.
Of the total shares outstanding.
On January 24th we declared a <unk> 75 per share quarterly dividend $3 on an annualized basis to be paid on March seven.
<unk> Board of directors made the decision to maintain the reinvestment level of Blackstone I squared of management's applicable fourth quarter dividend at 100%.
However, following the fourth quarter dividend payment on March 7th all shareholders will receive a cash dividend the agreement between Blackstone Apache and I squared to reinvest their dividends expires on March eight 2024.
In 2023, we repurchased approximately 194000 shares for $5 $8 million in total.
We have $94 million of remaining authorized capacity under our board approved share buyback program.
Based gross profit increased by 13% despite lower commodity prices.
We will continue to evaluate opportunistic share repurchases to return value to shareholders, while understanding the delicate balance with maintaining our public float.
Shifting to our pipeline transportation segment, we generated an adjusted EBITDA of $85 million up nearly 7% quarter over quarter.
Moving to 2024 guidance, we estimate full year adjusted EBITDA in the range of $905 million to.
Sequential growth within the segment was driven by one full month of contributions from Delaware link and the PHP expansion.
$960 million, the midpoint of $933 million implies adjusted EBITDA growth of approximately 11% year over year.
Total capital expenditures for the quarter were $95 million with $61 million within our midstream logistics segment and $34 million at the pipeline transportation segment.
In terms of each quarter's contribution to full year EBITDA, we expect 2024 to look comparable to 2023.
Our recently completed projects drive growth at both the midstream logistics and pipeline transportation segments.
For the full year, we reported adjusted EBITDA of $839 million $569 million of distributable cash flow and $60 million of free cash flow.
Specifically within the midstream logistics segment, our new Mexico gathering and processing contracts fully supported by minimum volume commitments came online early in January of this year.
Total capital expenditures for the year were $531 million within the guidance range provided last February.
Additionally, we expect to see a full year benefit to gas and produced water volumes attributed to the Permian resources incentive agreement that started during the fourth quarter of last year.
Midstream logistics capital expenditures totaled $244 million at the bottom half of the guidance range pipeline.
Coupled with our existing customers, we anticipate over 10% gas processed volume growth year over year, which outpaces expected basin growth.
Pipeline transportation capital expenditures were $287 million above our range driven by cost increases related to the non operated PHP expansion project.
I would also note that.
With what oil prices remaining depressed and volatile Apache is now planning for the next phase of Alpine high development activity in 2025.
It is worth noting our total operated capital came in 5% below our internal estimates for full year 2023.
On a quarterly basis, we forecast first quarter 2020 for volumes to be lower than fourth quarter 2023, as a result of molecular said that change outs at several processing facilities and.
We exited the year with a four times leverage ratio per our credit agreement.
In December we took a series of steps to refinance a portion of our debt through $800 million of sustainability linked senior notes due 2028 conducted in two separate transactions.
And similarly to 2023, we will see a step up in volumes beginning in the second quarter with customer development activity more heavily weighted in the second and third quarters of this year.
The proceeds were used to pay down the existing term loan a facility and extend that maturity by one year to June 2026.
In 2020 for our pipeline transportation segment will have the full year benefit from Delaware Lincoln The PHP expansion.
Following the refinancing nearly 100% of our interest rate exposure remains fixed.
To frame the full year EBITDA contribution from Delaware Link I'll remind you that this project was.
Also in December we facilitated a secondary offering of seven 5 million shares by Apache, increasing our public float by just under 50%.
Roughly a five times build multiple and we saw one full month of EBITDA contribution in the fourth quarter of 2023 as volumes ramped with the PHP expansion in service or.
Our public float now represents more than 15%.
Of the total shares outstanding.
Our forecast also calls for EBITDA growth at Shin Oak and epic crude.
On January 24th we declared a <unk> 75 per share quarterly dividend $3 on an annualized basis to be paid on March seven.
The pipeline transportation segment is expected to contribute 40% of total kinetic adjusted EBITDA in 2024, representing a 15% increase over the past two years.
Kinetics Board of directors made the decision to maintain the reinvestment level of Blackstone I squared of management's applicable fourth quarter dividend at 100%.
As jayme touched on commodity prices will continue to be choppy in 2024. However, we have and will continue to derisk our earnings and balance sheet are 2024 guidance assumes approximately $76 per barrel for <unk> $2 per <unk> for natural gas at the Houston ship channel hub and <unk> 60 per gallon for natural gas liquids.
Following the fourth quarter dividend payment on March seven.
All shareholders will receive a cash dividend they.
The agreement between Blackstone, Apache and ice squared to reinvest their dividends expires on March eight 2024.
And 2023, we repurchased approximately 194000 shares for $5 $8 million in total.
Approximately 10% of our 2020 for expected gross profit is commodity linked comprised of the following contributions 25% from natural gas or ethane, 45% for propane and butane and 30% from crude.
We have $94 million of remaining authorized capacity under our board approved share buyback program.
We will continue to evaluate opportunistic share repurchases to return value to shareholders, while understanding the delicate balance with maintaining our public float.
To date, we are hedged approximately 50% on an average across commodities with a higher hedge concentration on propane butane and crude.
Moving to 2024 guidance, we estimate full year adjusted EBITDA in the range of $905 million to.
Turning to our capital expenditures guidance, we expect capital expenditures to be between $125 million to $165 million for the full year, including approximately $35 million of maintenance.
$960 million, the midpoint of $933 million implies adjusted EBITDA growth of approximately 11% year over year.
In terms of each quarter's contribution to full year EBITDA, we expect 2024 to look comparable to 2023.
Since capital for the year, which is elevated because of the completion of multi year compression overhauls.
Our guidance reflects the return to a reduced capital program. Following the completion of last year's growth projects and in fact is slightly below our previously communicated expectations.
Our recently completed projects drive growth at both the midstream logistics and pipeline transportation segments.
Specifically within the midstream logistics segment, our new Mexico gathering and processing contracts fully supported by minimum volume commitments came online early in January of this year.
Taking the midpoint of our 2020 for adjusted EBITDA and capital expenditures guidance. This translates into nearly $450 million of incremental free cash flow before dividends year over year, marking a significant increase in kinetics free cash flow generation.
Additionally, we expect to see a full year benefit to gas and produced water volumes attributed to the Permian resources incentive agreement that started during the fourth quarter of last year.
We remain focused on our capital allocation priorities and took meaningful steps in 2023 to strengthen our balance sheet and maintain financial flexibility and with that I would like to open the line for Q&A.
Coupled with our existing customers, we anticipate over 10% gas processed volume growth year over year, which outpaces expected based on growth.
I would also note that with Wahhab prices remaining depressed and volatile Apache is now planning for the next phase of Alpine high development activity in 2025.
Thank you.
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On a quarterly basis, we forecast first quarter 2020 for volumes to be lower than fourth quarter 2023, as a result of molecular says that change outs at several processing facilities.
Before asking your question, we will pause briefly as questions are registered.
And similarly to 2023, we will see a step up in volumes beginning in the second quarter with customer development activity more heavily weighted in the second and third quarters of this year.
Our first question comes from the line of Spiro <unk> with Citi. Your line is now open.
In 2020 for our pipeline transportation segment will have a full year benefit from Delaware Lincoln The PHP expansion.
Thanks, operator and everybody.
Joe you want to start with treating if we could.
To frame the full year EBITDA contribution from Delaware Link I'll remind you that this project was roughly a five times build multiple and we saw one full month of EBITDA contribution in the fourth quarter of 2023 as volumes ramped with the PHP expansion in service.
You had mentioned be uniquely positioned there and it sounds like that is becoming an emerging issue. So I'm curious if you have any sense of the lead time, you have and some of your competition there and your ability to do that and then when you might need to be in a position again to add even more treating capacity.
Our forecast also calls for EBITDA growth at Shin Oak and epic crude.
Good morning Spirit look treating is a great question I'm glad actually we have.
The pipeline transportation segment is expected to contribute 40% of total kinetic adjusted EBITDA in 2024, representing a 15% increase over the past two years.
Maybe I will ask Matt all the sort of sooner rather heated up to the mic.
But I think look as far as trading is one aspect in the context of your.
As jayme touched on commodity prices will continue to be choppy in 2024. However, we have and will continue to derisk, our earnings and balance sheet.
Front end, aiming and obviously you contact us and what you can take as far as.
I would say impurities in the gas stream what is interesting for us is because yes.
Our 2024 guidance assumes approximately $76 per barrel for <unk> $2 per <unk> for natural gas at the Houston ship channel hub and <unk> 60 per gallon for natural gas liquids <unk>.
For us it's taken almost two years since I think we first announced as part of the merger that we would install.
Approximately 10% of our 2020 for expected gross profit as commodity linked comprised of the following contributions 25% from natural gas or ethane, 45% from propane and butane and 30% from crude.
The system wide trading we already had it a diamond obviously, we've rolled it out in the context of the rest of the rest of the system with I think Pecos bend being the last to be done.
In early April and so.
To date, we are hedged approximately 50% on an average across commodities with a higher hedge concentration on propane butane and crude.
So you look other people have front end I mean trading don't get us wrong I think what is interesting to us is <unk>.
Turning to our capital expenditures guidance, we expect capital expenditures to be between $125 million to $165 million for the full year, including approximately $35 million of.
Because of the breadth of our system.
It's as much the lending as it is trading.
Because we have a lot of sweet gas on our system and therefore, when you in fact mix. It all together you obviously blended down in the context of the level of the impurities.
Our maintenance capital for the year, which is elevated because of the completion of multi year compression overhauls.
Our guidance reflects the return to a reduced capital program. Following the completion of last year's growth projects and in fact is slightly below our previously communicated expectations.
And that obviously is helpful certainly too for our producers. So I don't think it's a case of we are just more advanced than others, others. Certainly habit. The fact is we've converted now a suite system into a <unk> system. So we are adding to that capacity and the.
Taking the midpoint of our 2020 for adjusted EBITDA and capital expenditures guidance. This translates into nearly $450 million of incremental free cash flow before dividends year over year, marking a significant increase in kinetics free cash flow generation.
The fact that we already have opened processing capacity available means that we can now take a much broader range of gas quality I don't know, Matt if there's anything else you want to add to that.
We remain focused on our capital allocation priorities and took meaningful steps in 2023 to strengthen our balance sheet and maintain financial flexibility and with that I would like to open the line for Q&A.
I think you hit the main points really it's probably.
The broadness of the footprint.
Thank you.
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<unk> and gas quality from north to South really helps with the blending.
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Spiro just on that point.
And what I'll call sort of central Southern Reeves, it's much much sweeter, we don't really see a lot of.
Not a whole lot of <unk>, there are pockets and not a lot of cotwo.
As a reminder, if you are using a speaker phone. Please remember just to pick up your handset before asking your question. We will pause briefly as questions are registered.
We certainly are aware of it in the context as we've had discussions in Lea County, and we or and as you heard in our prepared remarks, we started flowing on that pipeline.
Our first question comes from the line of Spiro <unk> with Citi. Your line is now open.
Pegasus.
On January 18th So we do know that we already seeing.
Thanks, operator and everybody.
John I'm going to start with treating if we could.
Higher elevated levels of both age to us in Seo to.
You had mentioned be uniquely positioned there and it sounds like that is becoming an emerging issue. So I'm curious if you have any sense of the lead time you have on some of your competition, there and your ability to do that.
Loving County, Yeah again pockets.
Eddy County, Best we can tell not so much not yet and maybe thats because it's in the earliest stages than maybe what we've seen with Lea County.
Then when you might need to be in a position again to add even more treating capacity.
Good morning Spirit look treating.
Understood Thanks for that.
Great question I'm glad actually we have.
Second question, just going to capital return.
<unk> met all the sort of <unk> to the mic.
You had mentioned.
<unk> $250 million of free cash flow.
But I think look as far as.
Most of the excess thereafter, the dividend probably ends up turning to the balance sheet for now, but as you sort of look beyond this in sustainability and the growth of the free cash flow going forward. What are some of the guideposts, you're looking for maybe start increasing that dividend again.
Treating is one aspect in the context of your front end, Amy and obviously you contact us and what you can take as far as.
I would say impurities in the gas stream.
What is interesting for us is because.
For us it's taken almost two years since I think we first announced as part of the merger that we would in store.
Thanks for the question Spiro So yeah, just taking the just taken the guidance that we provided and we do have an excess of $100 million of free cash flow after dividends that for right now we are earmarking for debt Paydown.
The system wide trading we already had it at Diamond obviously, we've rolled it out in the context of the rest of the rest of the system with I think Pecos bend being the last to be done.
Currently right now we are at about four times leverage with a leverage target of three five times.
In early April.
So right now we just given the landscape that we see in front of us and the deleveraging profile we're focused on.
And so you look other people have front end I mean trading don't get us wrong I think what is interesting to us is because of the breadth of our system.
Moving the football down the field and getting to that three five times, which sets us up for an investment grade.
Upgrade and so that's honestly, that's where we are right now I think until we get to <unk>.
It's as much the lending as it is treating.
Because we have a lot of sweet gas on our system and therefore, when you in fact mix. It all together you obviously blend it down in the context of the level of the impurities.
I'd say, a three five times leverage ratio or closer or within earshot.
Raising the dividend.
I'd say at this point in time is.
Is not in the <unk>.
And that obviously is helpful certainly too for our producers. So I don't think its a case of we are just more advanced than others, others certainly habit.
It's not we're not quite there yet.
And I think we do have the repurchase option, we have about $95 million of author authorized levels remaining on that program and I think if we see dislocations in the stock.
The fact is we've converted now a suite system into a <unk> system. So we are adding to that capacity and the.
We can be a little bit more flexible with how we allocate the free cash flow after dividends.
The fact that we already have opened processing capacity available means that we can now take a much broader range of gas quality I don't know Madison is anything else you want to add to that.
But right now for our 2024 program, we're going to keep the dividend flat at $3 a share and I think that's fair.
It's Jamie I think a couple of things one is yes.
<unk>.
Madison: I think you hit the main points really it's probably.
We still have we have a pretty healthy dividend just look at our yield.
Madison: The broadness of the footprint.
And I think that that shouldnt be lost on people I gave Trevor and.
Madison: <unk> and gas quality from north to South really helps with the blending.
A lot of credit in the context of how we've managed the balance sheet and I think if you just do simple arithmetic based on the guidance that we gave you you are.
Speaker Change: So spiro just on that point.
Speaker Change: And what I'll call sort of central Southern Reeves, it's much much sweeter, we don't really see a lot of.
Speaker Change: Not a whole lot of <unk>, there are pockets and not a lot of cotwo.
I think to the midpoint around three seven times on the balance sheet. So I think if you look at the guidance range on.
Spiro: We certainly are aware of it in the context as we've had discussions in Lea County, and we and as you heard in our prepared remarks, we started flowing on that pipeline.
On the low end, meaning the high level of EBITDA low end of capital 3638 on the on the sort of low end of guide on EBITDA are in our high end the capital that's a pretty good place to be and I give them a lot of credit because you know that we are really starting to get within.
Spiro: Pegasus.
Spiro: On January 18th So we do know that we already seeing.
Spiro: Higher elevated levels of both to us and Cotwo.
I'd say within earshot of of that three five times target and to me, it's not as much the target.
Spiro: Loving County, Yeah, again pockets Eddy County.
To me it was the default position of putting a <unk>.
Spiro: We can tell not so much not not yet and maybe thats because it's in the earliest stages than maybe what we've seen with Lea County.
<unk> out there that said, it's investment grade investment grade is really to me.
The important component for this company as we look at our future and the potential for us to continue to grow there is obviously a duration of element to capital that comes with investment grade you can start to think about much longer maturities and there is obviously, a just a basis point differential in the context, not just a cost to <unk>.
Speaker Change: Understood Thanks for that.
Speaker Change: Second question, just going to capital return.
You had mentioned.
Speaker Change: Incremental $250 million of free cash flow.
Speaker Change: Most of the excess thereafter, the dividend probably ends up going to the balance sheet for now, but as you sort of look beyond this in sustainability and the growth of the free cash flow going forward. What are some of the guideposts, you're looking for maybe start increasing that dividend again.
Execute being underwriting fees, but also interest rate and I think the sum total of it says you run it as investment grade business do you get a lot more flexibility to do things and Thats. What you wanted to do yes. We've always used the three five times is sort of the de facto default in the context of giving people a numerical target to think about.
Speaker Change: Thanks for the question Spiro So yeah just.
Megan: Just taking the just taken the guidance that we provided and we do have an excess of $100 million of free cash flow after dividends that for right now we are earmarking for debt Paydown.
Thank you Spiro.
Megan: Currently right now we are at about four times leverage with a leverage target of three five times.
The next question will go to the line of Tristan Richardson with Scotiabank. Your line is now open.
Megan: So right now we just given the landscape that we see in front of us and the deleveraging profile we're focused on.
Hey, Good morning, guys, just a question around <unk>.
Pnp growth.
Megan: Moving the football down the field and getting to that three five times, which sets us up for an investment grade.
Clearly outgrowing the basin.
Clearly in 2023 added a lot of new customers that will bring online volume in 2024.
Megan: Upgrade and so that's honestly, that's where we are right now I think until we get to <unk>.
But certainly you did note sort of decelerating growth in the growth in the basin overall.
Megan: I'd say, a three five times leverage ratio or closer or within earshot.
Change your timing in terms of how you think about how your capacity sold over time.
Megan: Raising the dividend.
Megan: I'd say at this point in time is.
Maybe the need for additional infrastructure.
Megan: It is not in the <unk> it.
Megan: It's not we're not quite there yet.
I think we were all kind of thinking exiting 'twenty four might have to start thinking about future infrastructure, but does that timing shifted just with.
Megan: And I think we do have the repurchase option, we have about $95 million of author authorized levels remaining.
Megan: On that program and I think if we see dislocations in the stock.
The pace of growth Youre seeing.
No good.
Megan: We can be a little bit more flexible with how we allocate the free cash flow after dividends, but.
Good morning.
I think the short answer is the timing isn't impacted at all I think what is unique and different about our system is the breadth of it as Matt intimated.
Megan: But right now for 2024 program, we're going to keep the dividend flat at $3 a share and I think.
Speaker Change: Jamie I think a couple of things one is yes.
Now with the access into Lea County, we now have access into all if every pocket I'm looking at Chris Kendrick other than Eddy County, right now we can access gas anywhere in this basin and that gives us a lot of shots on goal. If you will is that probably the right way to say it and therefore I think.
Megan: Yes.
Megan: We still have we have a pretty healthy dividend just look at our yield.
Megan: And I think that yes.
Megan: That shouldn't be lost on people I gave Trevor and.
Megan: A lot of credit in the context of how we've managed the balance sheet and I think if you just do simple arithmetic based on the guidance that we gave you.
Yes, we are seeing a general macro of.
Megan: You are.
I think to the midpoint around three seven times on the balance sheet. So I think if you look at the guidance range.
Not we don't expect the rate of pace of growth for 'twenty four as we did in 2003 and.
I don't think it changes our timing on how we think about the need for a processing plant and making a decision instead of an FID decision sometime in the second half of 2024 and that I think is consistent with what we've told you for some time.
Megan: On the low end, meaning at a high level of EBITDA low end of capital is $3 six <unk> on the on the sort of low end of guide on EBITDA and high and the capital that's a pretty good place to be and I give them a lot of credit because you know that we are really starting to get within.
And I think we still we see some pretty good good opportunities still to sell out the balance of our capacity. So that is what the commercial team is.
Megan: I'd say within earshot of of that three five times target and to me, it's not as much of the target.
He is working on and right now, we basically use the full extent and breath of our system to maximize those opportunities.
Megan: To me it was the default position of putting a <unk>.
Megan: <unk> out there that said, it's investment grade investment grade is really to me.
And the other thing that I'd add to that trust and as Trevor.
Despite a decelerating growth the growth is still pretty healthy and at the state line in north of the Stateline, it's still extremely tight on processing.
Megan: The important component for this company as we look at our future and the potential for us to continue to grow.
Megan: There is obviously a duration of element to capital that comes with investment grade you can start to think about much longer maturities.
And I think as long as that dynamic stays we're going to see opportunities to continue to gain market share in areas of the basin, where we don't have market share given we do have that open space for processing today.
Megan: And there is obviously, a just basis points differential in the context, not just a cost to execute being underwriting fees, but also interest rate and I think the sum total of it says you run into investment grade business do you get a lot more flexibility to do things and Thats. What you wanted to do yes, we've always used the three five times is sort of the <unk>.
Okay.
That's helpful. Appreciate it and then maybe just a quick follow up as we think about.
To follow on the last question that Delevering tools available to you shall.
Should we think about that.
Processing.
Megan: <unk> default in the context of giving people a numerical target to think of that.
Volume growth that you've talked about in 24, new customers the cadence of minimum volume commitments.
And then obviously the pipeline logistics assets you brought online should we think of EBITDA growth.
Speaker Change: Thank you Spiro.
Speaker Change: The next question will go to the line of Tristan Richardson with Scotia Bank. Your line is now open.
From all of that work is really the primary delevering tool in the toolbox today.
Tristan James Richardson: Hey, Good morning, guys, just a question around <unk>.
Yes, and I think look even capital, yes, Matt Ni.
Tristan James Richardson: CMP growth.
Tristan James Richardson: Clearly outgrowing the basin.
We start to think about of the 125 165 guide and $1 45 at the midpoint. This is still a bunch of we'll call one off projects meaning.
Tristan James Richardson: Clearly in 2023 added a lot of new customers that will bring online volume in 2024.
Tristan James Richardson: But certainly.
Tristan James Richardson: Did note sort of decelerating growth in the big growth in the base and overall this has kind of changed your timing in terms of how you think about how your capacity fills over time and maybe the need for additional infrastructure.
We still have 30, some odd million dollars being allocated for the Pegasus lateral the balance of the PB front end main trading.
Tristan James Richardson: I think we were all kind of thinking exiting 'twenty four might have to start thinking about future infrastructure, but.
We've got elevated maintenance Capex. This year I would say look I gave him that a lot of credit. He is Mike. He is managing this to make sure that that this year that this system is running basically top decile. He wants run times at exceptionally high rights. He wants every play.
Tristan James Richardson: That timing shifted just with.
The pace of growth Youre seeing.
Speaker Change: No good.
Speaker Change: Good morning.
Speaker Change: I think the short answer is the timing isn't impacted at all I think what is unique and different about our system is the breadth of it as Matt intimated.
<unk>, giving recoveries, whether it's in pure rejection or whether it's actually in full recovery in the context of obviously thinking about your NGL barrel and it's running to peak perfection. So.
Speaker Change: Now with the access into Lea County, we now have access into all every pocket I'm looking at Chris Kendrick other than Eddy County, right now, we can access gas anywhere in that space and that gives us a lot of shots on goal. If you will is that probably the right way to say it and therefore I think.
That's why in the first quarter as we pointed out both in our prepared remarks as well as obviously in the in the.
The press release as well, we mentioned that look we've got the <unk> change out pretty much across our system first time. It happens for Diamond I think it's the first time since since in service in 2018, 2019, so its probably overdue and we could see that the recoveries one at the I would say at the <unk>.
Yes, we are seeing a general macro of yes.
Speaker Change: Not we don't expect the rate of pace of growth for 'twenty four as we did in 'twenty three and <unk>.
I don't think it changes our timing and how we think about the need for a processing plant and making a decision instead of the FID decision sometime in the second half of 2024 and that I think is consistent with what we've told you for some time and I think we still we see some pretty good good opportunities still to sell out the balance of occupy.
A level.
We really really news.
That in fact that equipment could actually.
Extract and we're going to do it across the rest of the system. So PV east Toyota the rest of it so.
That and then on the compressors on the compression side, we've got a lot of maintenance capex as well related to top ends and major overhauls, because we own a lot of engines.
Speaker Change: <unk>.
Speaker Change: So that is what the commercial team.
Speaker Change: He is working on and right now, we basically use the full extent and breath of our system to maximize those opportunities.
And just like any any turbine.
Got it basically it requires a major overhaul just like a cap for service. So if you want to get run times up, particularly given I think they pretty much took a beating last summer do you think most of our equipment last summer everything took a beating so it was like look we got to get this done and we're doing a lot of this in this first quarter.
Speaker Change: And the other thing that I'd add to that trust and as Trevor.
Speaker Change: Despite a decelerating growth the growth is still pretty healthy and at the state line in north of the Stateline, it's still extremely tight on processing.
Speaker Change: And I think as long as that dynamic stays we're going to see opportunities to continue to gain market share in areas of the basin, where we don't have market share given we do have that open space for processing today.
Thank you Tristan.
Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.
Speaker Change: Yeah.
Speaker Change: Helpful. Appreciate it and then maybe just a quick follow up as we think about.
Hi, Thanks for taking my questions.
Speaker Change: To follow on the last question that Delevering tools available to you.
I wanted to focus a little bit on the elevated CRP levels.
Speaker Change: Should we think about that.
<unk> in the fourth quarter I was wondering if that was kind of a one off with the producer maybe looking at spacing tests.
Speaker Change: Processing.
Speaker Change: Volume growth that you've talked about in 24, new customers the cadence of minimum volume commitments.
Or was it kind of in the normal course of business and.
Speaker Change: And then obviously the pipeline logistics assets you brought online should we think of EBITDA growth.
What details you can provide.
Speaker Change: From all of that work is really the primary delevering tool in the toolbox today.
What benches, youre seeing where the Seo content CRT content is especially high.
Speaker Change: Yes, and I think look even capital, yes, Matt and I.
And then Jamie you kind of alluded to this but.
Speaker Change: We start to think about.
The different regions and where this is really a problem across the Delaware.
Speaker Change: $125 65 guide and $1 45 at the midpoint. This is still a bunch of we will call one off projects, meaning.
Alright, Chris Kendrick and Trevor the worlds.
The industry experts he is sitting in this room as far as talking about the <unk> issues I think in context multiple benches done by this particular producers and there was it was and I would say unexpected result that it was more elevated than they anticipated.
Speaker Change: We still have 30, some odd million dollars being allocated for the Pegasus lateral the balance of the PB <unk> main trading.
Speaker Change: We've got elevated maintenance Capex. This year I would say look I gave him that a lot of credit. He is Mike. He is managing this to make sure that that this year that this system is running basically top decile. He wants run times at exceptionally high rights. He wants every <unk>.
I don't think it's.
It wasn't crazy crazy outside of the ballpark kind of thing, but it was more elevated than they anticipated.
I don't think there was much else to say in the context of our.
Speaker Change: <unk>, giving recoveries, whether it's in pure rejection or whether it is actually in full recovery in the context of obviously thinking about your NGL barrel and it's running to peak perfection. So.
It wasn't.
Don't know if it was spacing or anything else honestly I think it was just doing the multiple benches in the.
The blend of the two was just high than they anticipated I'm going to hand, it over to Chris <unk>, Yes.
Speaker Change: That's why in the first quarter as we pointed out both in our prepared remarks as well as obviously in the in the.
Yes, Neal this is Chris.
As Jamie said this producer developed the same bench a few miles over and didn't see this level of <unk>. So it may be a one off.
Speaker Change: The press release as well, we mentioned that look we've got the <unk> change outs pretty much across our system first time. It happens for Diamond I think it's the first time since since in service in 2018, 2019, so its probably overdue and we could see that the recoveries one at the I would say at the.
Ill take the Sidoti today, it's blending into our system and it's increasing in volume we are adding additional trading as jamey alluded to we'll have pay.
<unk> been aiming on in April so.
One of the dynamics, we're seeing as these different benches are getting developed bone spring and Avalon, we need to prepare for it because that's where we're seeing it right bone spring Avalon that's right that's right and so as these vintages get developed as.
Speaker Change: Level.
Speaker Change: That we really really use it.
Speaker Change: In fact that equipment could actually.
Speaker Change: Extract and we're going to do it across the rest of the system. So PV east Toyota the rest of it so.
An industry, we need to prepare for that.
And then the last thing that I'll add on that this is a 45 well package coming all online in a matter of months from one receipt point and so that's a bit unique relative to how we see volumes come on the system.
Speaker Change: Between that and then on the compressors on the compression side, we've got a lot of maintenance capex as well related to top ends and major overhauls, because we own a lot of engines and just like any any turbine.
So we don't really expect we expect to see to continue to be an issue just basin wide, but with respect to our specific system. It was a little bit unique and Matt had talked earlier about just a blending capacities and capabilities, but when you have 45 wells coming online from one part of the system and it can be a little bit difficult for both the operator.
Speaker Change: <unk> got a basically it requires.
Speaker Change: Overhaul just like a cap for service. So if you want to get run times up, particularly given I think they pretty much took a beating last summer do you think most of our equipment a last summer everything took a beating so it was like look we got to get this done and we're doing a lot of this in this first quarter.
Our midstream and upstream to handle that higher elevated level of unexpected Sidoti.
Speaker Change: Thank you Tristan.
Speaker Change: Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.
Got it that's really helpful and I know you don't want to speak.
And commercially sensitive information.
Speaker Change: Okay.
Indraneel Mitra: Hi, Thanks for taking my questions.
Jamie and tremor and Chris can you maybe just comment on geographically, where this is a bigger issue I think you alluded to it a little bit earlier, but the Avalon and the bone springs, but.
Indraneel Mitra: Wanted to focus a little bit on the elevated <unk> levels.
Indraneel Mitra: <unk> in the fourth quarter I was wondering if that was kind of a one off with the producer maybe looking at spacing tests.
The new Mexico, Delaware more so than.
Indraneel Mitra: Or was it kind of in the normal course of business.
The southern Delaware.
Indraneel Mitra: And.
Where we can kind of see those those different points.
Indraneel Mitra: What details you can provide.
Indraneel Mitra: What benches, youre seeing where the Seo content CRT content is especially high.
Hi, Neal it's Jeremy absolutely look Lea County is is a fascinating understanding sort of understanding geology.
Indraneel Mitra: And then Jamie you've kind of alluded to this but.
It is the one area that we actually.
Indraneel Mitra: The different regions and where this is really a problem across the Delaware.
See that I'm aware of that we actually have.
Alright, Chris Kendrick and Trevor the worlds.
Specific treating companies like opinion in north wind and others that actually do shallow gas treating that's all they do they take the sour gas they clean it and literally redirected and redeliver it back.
Indraneel Mitra: They are at.
Indraneel Mitra: The industry experts here sitting in this room as far as talking about the <unk> issues I think in context multiple benches done by this particular producers and there was it was and I would say unexpected result that it was more elevated than I anticipated I don't think it's.
Whether it's to the to the processor or to the customer.
So Lee County, I think has more challenges from a gas quality.
And I think the further upward you go the tougher it gets actually get meaning the more impurities that are on the more elevated levels.
Indraneel Mitra: It wasn't crazy crazy outside of the ballpark kind of thing, but it was more elevated than they anticipated.
Indraneel Mitra: I don't think there was much else to say in the context of <unk>.
Thank you Neal.
Indraneel Mitra: It wasn't.
Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.
Indraneel Mitra: I don't know if it was spacing or anything else honestly I think it was just doing the multiple benches in there.
Indraneel Mitra: The blend of the two was just higher than anticipated I'm going to hand, it over to Chris <unk>.
Hi, good morning.
Wanted to I wanted to ask on Gcs I know youre waiting for the the expansion decision prior to considering monetizing the asset.
Indraneel Mitra: Yes, Neal this is Chris.
Chris Kendrick: As Jamie said this producer developed the same bench a few miles over and didn't see this level of Sidoti. So it may be a one off.
At this point, what's really the strategic rationale and still selling gcs.
Chris Kendrick: Able to take the Sidoti today, it's blending into our system and it's increasing in volume we are adding additional treating as jamey alluded to we'll have.
It seems like Youre getting pretty much to the leverage target by year end the drips done.
A quality asset the expansion would give you a modest size growth opportunity in the pipeline segment that might even actually help support ongoing dividend growth a little bit. So just how are you seeing the frozen cons at this point of selling gcs.
Chris Kendrick: <unk> been aiming on in April so.
Chris Kendrick: One of the dynamics, we're seeing as these different benches are getting developed bone spring and Avalon, we need to prepare for it because that's why we're seeing it right bone spring Avalon that's right that's right and so as these benches get developed as an industry, we need to prepare for that.
If you just did a masterful job of.
The exact.
Chris Kendrick: And then the last thing that I'll add on that this is a 45 well package come.
Rationalization and discussion that happens internally here.
Chris Kendrick: Coming all online in a matter of months from one receipt point and so that's a bit unique relative to how we see volumes come on the system.
Yeah.
It's a tough one if you've got a lights out offer at <unk>.
<unk> of the expansion and lights out obviously is far in excess of your trading multiple and what you thought fair value was.
Chris Kendrick: So we don't really expect we expect to see to continue to be an issue just basin wide, but with respect to our specific system. It was a little bit unique and Matt had talked earlier about just our blending capacities and capabilities, but when you have 45 wells coming online from one part of the system and it can be a little bit difficult for both the opera.
Then you might consider doing it.
If you just went and sold it today and as Trevor.
Regularly guy.
<unk> selling this and paying down 6% debt I'm not sure you're selling something that's like a 10 times, which is implied of a 10% cash on cash yield and you're paying down something at six <unk>.
Chris Kendrick: <unk> midstream and upstream to handle that higher that elevated level of unexpected cotwo.
So somebody has to explain to me that that actually makes any numerical sense or any value enhancing to any stakeholder in this company and it's a very fair point and the fact that we are next week. We finished the trip it's done.
Chris Kendrick: Okay.
Speaker Change: Got it that's really helpful and I know you don't want to speak.
Speaker Change: On commercially sensitive information, but Jamie and tremor and Chris can you maybe just comment on geographically, where this is a bigger issue I think you alluded to it a little bit earlier, but the Avalon and the bone springs, but specifically the new Mexico, Delaware more so than.
We no longer have to have this discussion, which actually we have much joy around this table in the context of not having to engage in that conversation anymore. So I think look to us it would be that they really would have to be a compelling offer and that there is an alternative use of proceeds that we think provides more value.
Speaker Change: The southern Delaware.
Speaker Change: Where we can kind of see those those different points.
And then just paying down at 6% debt.
Speaker Change: Hey, Neil it's Jeremy absolutely look Lea County is is a fascinating understanding sort of understanding geology.
That makes a lot of sense.
Second question I know Youre only youre, given the 24 outlook today, but.
Jeremy: It is the one area that we actually.
Thinking out a couple of years, how are you thinking about growth for the company beyond 2024. So capex is very low which is allowing you to do a lot of things.
Jeremy: See that I'm aware of that we actually have.
Speaker Change: Specific treating companies like opinion in north wind and others that actually do shallow gas treating that's all they do they take the sour gas they clean it and literally redirected and redeliver it back.
But you don't have a lot of new assets coming on do you see growth beyond this year.
Is it basically just volume growth on existing acreage do you expect more growth from new Mexico or what are the opportunities you're seeing for growth over the next several years.
Speaker Change: Whether it's to the to the processor or to the customer. So Lea County, I think has more challenges from a gas quality.
So I think.
Speaker Change: And I think the further upward you go the tougher it gets actually get at meeting the more impurities there are and the more elevated levels.
Obviously, the initial growth is to sell out the balance of your open processing space.
There will be underlying.
There'll be underlying growth given the expanse of the system and there'll be there'll be literally puts and takes so Gibson gets that we get in the context of where we're seeing those pockets.
Speaker Change: Okay.
Speaker Change: Thank you Neil.
Speaker Change: Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.
We put in the prepared remarks show you heard it you can listen to it Apache is now sort of a <unk> 25 and beyond for turn in line.
Hi, good morning.
Keith T. Stanley: One of them wanted to ask on Gcs I know youre waiting for the the expansion decision prior to considering monetizing the asset.
Big change from where we were 12 months ago, which was they moved from year end of last year and they moved it to second half of 'twenty for in line I'm looking at Chris with the in service Wright Medical and.
Keith T. Stanley: At this point, what's really the strategic rationale and still selling gcs.
Keith T. Stanley: Seems like Youre getting.
Keith T. Stanley: Pretty much to the leverage target by year end, the drips done to.
Keith T. Stanley: Quality asset the expansion would give you a modest size growth opportunity in the pipeline segment.
And obviously the best laid plans of mice in minutes. It doesn't look like that obviously hasn't come to pass just given where water gas prices up so that's a big there's a big growth swing.
Keith T. Stanley: That might even actually help support ongoing dividend growth a little bit. So just how are you seeing the frozen cons at this point of selling gcs.
Given how.
How gassy that particular areas because it's just rich gas.
Keith T. Stanley: He just did a masterful job of of the exact.
Those I think the building blocks in the context of just underlying growth looking out.
Keith T. Stanley: Rash rationalization and discussion that happens internally here.
Speaker Change: Uh huh.
Trevor has said this repeatedly 2026 comes becomes a significant adjustment during the course of 2026 and the year end 2026 on the NGL side with literally.
Speaker Change: It's a tough one.
Speaker Change: <unk> got a lights out offer at an <unk>.
Speaker Change: <unk> of the expansion and lights out obviously is far in excess of your trading multiple and what you thought fair value was then.
Speaker Change: And you might consider doing it.
Speaker Change: Yes, if you just went and sold it today and as Trevor pointed out regularly guy.
Big change as it relates to our existing contract contracts that we have with lone star and so they themselves also create great opportunity and obviously a fairly attractive margin upside.
Speaker Change: <unk> selling this and paying down 6% debt I'm not sure you're selling something at like a 10 times, which is implied of a 10% cash on cash yield and you're paying down something at six <unk>.
Speaker Change: If somebody has to explain to me that that actually makes any numerical sense or any value enhancing to any stakeholder in this company and it's a very fair point and the fact that we are next week. We finished the trip it's done.
Thank you Keith our next question comes from the line of Jeremy Tonet with Jpmorgan. Your line is now open.
Hi, good morning.
Speaker Change: We no longer have to have this discussion, which actually we have much joy around this table in the context of not having to engage in that conversation anymore. So I think look to us it would be that they really would have to be a compelling offer and that there is an alternative use of proceeds that we think provides more value.
Good morning.
Top of the day, it's one or two.
Touch on the.
EBITDA trajectory into 2024.
I gave color on contribution by quarter across the year before.
Also alpine high but just wanted to see I guess.
Speaker Change: And then just paying down at 6% debt.
As we think about 'twenty four and looking forward, how you see I guess.
This ramp.
Speaker Change: That makes a lot of sense.
Developing over time is there more of a back half waiting here just trying to get a sense for how things are evolving at this point, especially in light of overall basin growth relative to maybe whats happening in alpine high.
Speaker Change: Second question I know, you've only given the 24 outlook today, but.
Speaker Change: Thinking out a couple of years, how are you thinking about growth for the company beyond 2024. So capex is very low which is allowing you to do a lot of things but.
Speaker Change: But you don't have a lot of new assets coming on do you see growth beyond this year.
Jeremy Good morning, and thank you for the question.
As we I think we've said consistently and you cover so many stocks it would be an interesting question to ask all the management teams.
Speaker Change: Is it basically just volume growth on existing acreage do you expect more growth from new Mexico or what are the opportunities you're seeing for growth over the next several years.
Our experience and it may be unique and it may be uniform across the sector is two Q3 Q is literally when.
Speaker Change: So I think.
Speaker Change: Obviously, the initial growth is to sell off the balance of your open processing space.
Everyone gets to work.
One Q I think.
Speaker Change: There will be underlying.
On the back of steel.
Not quite the freshness of winter storm, Yuri, but certainly the experience as winter storm year, we have probably still it's within recent memory and therefore people are more.
Speaker Change: There'll be underlying growth given the expense of the system and there'll be there'll be literally puts and takes so gibson gets that we get in the context of where we're seeing those pockets.
Thinking about obviously the impact of that.
Speaker Change: We put in the prepared remarks show you heard it you can listen to it Apache is now sort of a <unk> 25 and beyond for turn in line.
Because you don't want to spend a fortune people spent so much money developing these well pads and these developments and they set it all up and then winter.
Speaker Change: Big change from where we were 12 months ago, which was they moved from year end of last year and they moved it to second half of 'twenty for in line I'm looking at Chris with the in service right at Matterhorn.
And then some.
Winter event happens and bad things really go start so I think our view is <unk>. That's when you see a turn in line ramp ramp up for Q.
And obviously the best laid plans of mice and manage it doesn't look like that obviously hasn't come to pass just given where <unk> gas prices are so that's a big deal.
I have my own suspicions on <unk> I kind of consider it to be.
Well produces obviously have seen outperformance.
Speaker Change: There is a big growth swing as you know given how.
Essentially obviously decided to throttle back on some turn in line and sort of move some stuff around.
How gassy that particular areas because it's just rich gas.
But I think look it's really two Q3, Q and then into obviously into into <unk> that youre going to see the growth for this year.
Speaker Change: Those are I think the building blocks in the context of just underlying growth looking out Trevor.
Speaker Change: Trevor has said this repeatedly 2026 comes becomes a significant adjustment during the course of 2026 and the year end 2026 on the NGL side with literally.
Got it that's helpful. Thanks, and then maybe pivoting a little bit talk of.
Higher <unk> and just wondering if you could take that one step further I guess, how do you see.
Ccs potentially evolving.
Speaker Change: Big change as it relates to our existing contract contracts that we have with lone star and so they themselves also create great opportunity and obviously a fairly attractive margin upside.
In the Permian and more specific to kinetic and what role kinetic might or might not have in.
Tcs going forward.
Well I think Jeremy the use of <unk>, that's how I am going to ascribe. It I'm looking at Matt as we speak is something that is very not only near and dear, but front incentive for him and I think.
Speaker Change: Thank you Keith our next question comes from the line of Jeremy Tonet with Jpmorgan. Your line is now open.
Watch this space I think we're going to have some.
Jeremy Bryan Tonet: Hi, good morning.
We will have some more used to share within the next I would say 30 days.
Jeremy Bryan Tonet: Good morning.
Jeremy Bryan Tonet: Top of the day, we wanted to.
Jeremy Bryan Tonet: Touch on the.
As it relates to things we are doing.
Jeremy Bryan Tonet: EBITDA trajectory into 2024.
Okay.
We definitely we definitely yeah, I don't think I'm, sorry, Jamie I don't think we've got we sort of quite big enough to Ccs I'm looking to Matt.
Jeremy Bryan Tonet: I gave color on contribution by quarter across the year before.
Jeremy Bryan Tonet: Also alpine high but just wanted to see I guess.
Looked at it we've got and there is a slightly different angle that we are looking at again full utilization of our <unk>, which is phenomenal, but a different application I am sort of thinking.
Jeremy Bryan Tonet: As we think about 'twenty four and looking forward, how you see I guess.
Jeremy Bryan Tonet: This ramp.
Jeremy Bryan Tonet: Developing over time is there more of a back half waiting here just trying to get a sense for how things are evolving at this point, especially in light of overall basin growth relative to maybe whats happening in alpine high.
Is the best way to describe it.
Great.
Thank you Jeremy.
Our next question goes to the line.
Livia <unk> with Goldman Sachs. Your line is now open.
Jeremy Bryan Tonet: Jeremy Good morning, and thank you for the question.
Jeremy Bryan Tonet: As we I think we've said consistently and you cover so many stocks it would be an interesting question to ask all the management teams.
Hi, Good morning, Thank you for taking our questions I wanted to follow up on your comments regarding open processing capacity would you be able to share commentary on how pricing is trending on deals to take capacity on your open processing footprint and then more broadly what are their margin changes could we see on your existing footprint.
Jeremy Bryan Tonet: Our experience and it may be unique and it may be uniform across the sector is two Q3 Q is literally win.
Jeremy Bryan Tonet: Everyone gets to work.
Jeremy Bryan Tonet: <unk> I think on.
Jeremy Bryan Tonet: On the back of steel.
Thanks for the question.
Jeremy Bryan Tonet: Not quite the freshness of winter storm, Yuri, but certainly the experiences winter storm year, we have probably still within recent memory and therefore people are more.
So we do have open space today, what we are seeing is that we are and still a greenfield environment and so the deals that we're competing on and we're seeing the other processors in the area are having to build processing in order to take on that gas and so.
Jeremy Bryan Tonet: Thinking about obviously the impact of that.
Jeremy Bryan Tonet: Because you don't want to spend a fortune people spent so much money developing these well pads and these developments and they set it all up and then winter.
We're still in a greenfield environment.
Previously when we.
Once the merger we gave a guidance range for what we thought the EBITDA margin contribution per Mcf would be and based off of the current environment, we're not seeing any changes to that to that original guidance.
Jeremy Bryan Tonet: And then some.
Jeremy Bryan Tonet: Winter event happens and bad things really go start so I think our view is <unk>. That's when you see a turn in line ramp ramp up for Q.
Okay that makes sense. Thank you.
Jeremy Bryan Tonet: I have my own suspicions on <unk> I kind of consider it to be.
And then just shifting a little bit to the Capex budget, we saw a meaningful step down this year, even including elevated maintenance.
Jeremy Bryan Tonet: Well produces obviously have seen outperformance they can potentially obviously decided to throttle back on some turn in line and sort of move some stuff around.
<unk> and remaining project spend how should we think about run rate capex needs from here and what could drive upside to the budget and then just more broadly how should we think about balancing upside to the capex budget with free cash flow generation.
Jeremy Bryan Tonet: But I think look it's really two Q3, Q and then into obviously into into <unk> that you're going to see that.
Jeremy Bryan Tonet: Growth for this year.
Okay. So Olivia it's Jamie as it relates to one right.
Speaker Change: Got it that's helpful. Thanks, and then maybe pivoting a little bit talk.
A topic that is discussed a lot.
Speaker Change: Higher Cotwo here and just wondering if you could take that one step further I guess and how you see it.
Within the within these holes is in fact, what is run rate.
I think as we look out I would say of the.
Speaker Change: Ccs potentially evolving.
Let's just take the midpoint to $1 45.
In the Permian and more specific to kinetic and what role kinetic might or might not have in.
I think you can certainly see that.
For growth in our existing system.
Speaker Change: Tcs going forward.
Even with accounting for let's say thinking about any additional.
Speaker Change: Well I think Jeremy the use of <unk>, that's how I'm going to describe it I'm looking at Matt as we speak is something that is very not only near India, but front incentive for him and I think.
The capital required for like Apache if they brought on stuff in Alpine high that you could be you can manage within a 100 million bucks.
That includes maintenance and I'm going to take you back you got to go back two years and the young man sitting to my right.
Speaker Change: Watch this space I think we're going to have some.
Speaker Change: We will have some more used to share within the next I would say 30 days as it relates to things we're doing.
We said 50 to 80.
And obviously thinking about yes that was.
That was enough for both maintenance and growth.
Speaker Change: Yeah.
Speaker Change: Yeah.
The offset to that is if we do our processing plant. Obviously, there will be it will become elevate in the context, if we make a second half decision on RFID.
Speaker Change: We definitely we definitely yeah, I don't think Im sorry, Jeremy I think we've got we sort of quite big enough to Ccs I'm looking to Matt.
Speaker Change: Looked at it we've got there's a slightly different angle that we're looking at again full utilization of our <unk>, which is phenomenal, but a different application I am sort of thinking.
As it relates to use of free cash flow I think Trevor explained that the point.
Right now we have if we don't see other really compelling opportunities free cash flow goes to pay down leverage that's what we should do and that's what we are doing.
Speaker Change: Is the best way to describe it.
Sure.
Speaker Change: Thank you Jeremy our next question comes from a lot of Livia <unk> with Goldman Sachs. Your line is now open.
And that's how we'll continue to run the playbook.
But the good news is it's nice to be in a position to have free cash flow and to actually be able to have that conversation with every constituency has a voice and a role to play and we decide as a team.
Livia: Hi, Good morning, Thank you for taking our questions I wanted to follow up on your comments regarding open processing capacity would you be able to share commentary on how pricing is trending on deals to take capacity on your open processing footprint and then more broadly what other margin changes could we see on your existing footprint.
What makes the most value for this company.
Thank you Olivier.
There are currently no further questions registered so as a reminder, it is star one on your telephone keypad.
Livia: Okay.
Speaker Change: Thanks for the question.
Speaker Change: So we do have open space today, what we are seeing is that we are and still a greenfield environment and so the deals that we're competing on and we're seeing the other processors in the area are having to build processing in order to take on that gas and so.
Thank you everyone. This morning, we appreciate your time I know much of the busy months well probably see many of you in March with your various conferences and stuff. So we.
We look forward to.
To being in touch.
Speaker Change: We're still in a greenfield environment.
That concludes the kinetic fourth quarter and full year 2023 earnings call. Thank you for your participation I Hope you have a wonderful rest of your day.
Speaker Change: Previously when we announced the merger we gave a guidance range for what we thought the EBITDA margin contribution per Mcf would be and based off of the current environment, we're not seeing any changes to that to that original guidance.
Speaker Change: Okay that makes sense. Thank you.
Speaker Change: And then just shifting a little bit to the Capex budget, we saw a meaningful step down this year, even including elevated maintenance.
Speaker Change: Spend and remaining project spend how should we think about run rate capex needs from here and what could drive upside to the budget and then just more broadly how should we think about balancing upside to the capex budget with free cash flow generation.
Speaker Change: Okay. So Olivia it's Jamie as it relates to one right.
Jamie: A topic that is discussed a lot.
Jamie: Within the within these holes is in fact, what is run rate.
Olivia: So I think as we look out I would say of the let's just take the midpoint the $1 45.
Speaker Change: I think you can certainly see that.
Speaker Change: For growth in our existing system.
Speaker Change: Even with accounting for let's say thinking about any additional.
Speaker Change: The capital required for like Apache if they brought on stuff in Alpine high that you could be you can manage within a 100 million bucks.
Speaker Change: That includes maintenance and I'm going to take you back you got to go back two years and the young man sitting to my right.
Speaker Change: We said 50 to 80.
Speaker Change: And obviously thinking about that was.
That was enough for both maintenance and growth now the offset to that is if we do our processing plant. Obviously, there will be it will become elevated in the context, if we make a second half decision on a Friday.
Speaker Change: As it relates to use of free cash flow I think Trevor explained that the point.
Speaker Change: Right now we have if we don't see other really compelling opportunities free cash flow goes to pay down leverage that's what we should do and Thats, what we are doing.
Speaker Change: And that's how we will continue to run the playbook.
Speaker Change: But the good news is it's nice to be in a position to have free cash flow and to actually be able to have that conversation with every constituency has a voice and a role to play and we decide as a team.
Speaker Change: What makes the most value for this company.
Speaker Change: Okay.
Speaker Change: Thank you Olivia.
Speaker Change: There are currently no further questions registered so as a reminder, it is star one on your telephone keypad.
Speaker Change: Thank you everyone. This morning, we appreciate your time I know.
Speaker Change: <unk> is a busy months, we'll probably see many of you in March with your various conferences and stuff. So we.
Speaker Change: We look forward to.
Speaker Change: To being in touch.
Speaker Change: <unk>.
Speaker Change: Yeah.
Speaker Change: That concludes the kinetic fourth quarter and full year 2023 earnings call. Thank you for your participation I Hope you have a wonderful rest of your day.