Q2 2019 Earnings Call
Ladies and gentlemen, thank you for your patience in holding we now have our speakers in conference. Please be aware that each of your line is in a listen only mode. At the conclusion of my presentation. We will open the floor for questions instructions will be given at that time and the procedure to follow if you would like to ask a question.
It is now my pleasure to turn this conference over to Andres He'll then you may begin.
Thank you, Sean Taylor and welcome to <unk> second quarter earnings Conference call.
This call is being webcast live and a replay will be made available after our prepared remarks will be available to take your questions.
A reminder, that statements made during this call that might include one oaks expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provision of the Securities Act of night, Cdthirty, three and 1934.
Actual results could differ materially from those projected in forward looking statements.
For a discussion of factors that could cause actual results to differ please refer to our SEC filings.
Our first speaker. This morning is Terry Spencer, President and Chief Executive Officer Jerry.
Thanks, Andrew Good morning, and thank you all for joining US today as always we appreciate your continued interest and investment in one okay.
Joining me on today's call is Walt Hulse, Chief Financial Officer, Executive Vice President strategic planning and corporate Affairs, and Kevin Burdick Executive Vice President and Chief Operating Officer also available to answer your questions are Sheridan swords senior Vice President natural gas liquids and Chuck Kelly Senior Vice President natural gas.
It's an exciting time for one oak as we begin placing some of the largest capital growth projects in our history into service our projects remain on or ahead of schedule and on budget.
The Southern section of Bell Creek pipeline began flowing Ngls on July 15th from the Rockies region into the mid continent with the northern section still on target to be completed in the fourth quarter.
Last week, we announced additional low cost expansion projects across our system, which continued to demonstrate one of its ability to incrementally grow with our customers.
These projects will help address NGL transportation and fractionation needs of producers and will further address flaring in North Dakota with added natural gas processing capacity.
All our projects, including these recent expansions are built to meet the needs of our customers and are backed by long term contracts.
We continue to see strong producer activity levels across the basins, where we operate with NGL and natural gas volume growth that is in line with our expectations. So far this year.
Now more than halfway through the year, our confidence in our 2019 financial expectations and 2020 earnings outlook has strengthened significantly.
With our projects remaining on or ahead of schedule, we expect accelerated earnings growth leading into 2020 and beyond.
And additional cash flow to reinvest in our business reduce leverage and continue to return value to shareholders.
With that I will turn the call over to Walt for comments on our second quarter results.
Thank you Terry.
Our second quarter 2019, net income totaled $312 million or 75 cents per share an 11% increase year over year.
And second quarter, adjusted EBITDA totaled $632 million, a 5% increase year over year.
Distributable cash flow in the second quarter 2019 was $540 million up 19% from the second quarter 2018.
With a healthy dividend coverage of 1.51 times.
We also generated more than $180 million of distributable cash flow in excess of dividends paid in the second quarter 2019.
During the second quarter, we paid a dividend of 86 and a half cents per share and last week, we announced a dividend increase to 89 cents per share or $3.56 per share on an annualized basis.
[noise] this increase further underscores our confidence and the increasing cash flow, we expect to generate from projects. We have recently completed or will complete in the coming months.
The dividend is payable on August 14th to shareholders of record on August six.
Our our June 30, net debt to EBITDA on a trailing 12 month basis was 4.2 times.
With the earnings expected from these projects, we expect to be at four times debt to EBITDA run rate in the fourth quarter of 2020 or first quarter of 2021 with deleveraging continuing in the quarters to follow.
Our liquidity remains strong as we ended the second quarter with the full $2.5 billion available on our credit facility and more than $270 million of cash on hand.
We announced additional natural gas and NGL expansion projects last week.
And that we expect to provide attractive returns for minimal capital invested.
We do not expect these projects to impact our 2019 gross capital guidance range of 2.5 billion to 3.7 billion.
As most of the spending will happen in 2020 and 2021.
Because of the accelerated timing on some of our projects, we anticipate ending the year towards the higher end of our capital guidance range as spending on our large pipeline projects winds down early next year, we expect capital expenditures in 2020 to be lower than 2019.
[noise] producer activity project timing and additional committed volumes on our system.
All add up to an impressive backdrop for one oaks growth.
As we sit today, we are even more confident in our outlook that are 2020, adjusted EBITDA will increase greater than 20% with an emphasis on the greater than when compared with our 2019 guidance midpoint.
Ill now turn the call over to Kevin for a closer look at our operating performance.
Thank you all we continue to see strong producer activity across our operations driving increases in both NGL and natural gas volumes in the second quarter.
Total NGL raw feed throughput volume increased nearly 110000 barrels per day or 11% year over year and increased 80000 barrels per day or 8% compared with the first quarter 2019.
Natural gas volumes processed increased more than 150 million cubic feet per day, or 9% year over year and increased more than 80 million cubic feet per day was 4% compared with the first quarter 2019.
Let's take a closer look at our volume growth.
And project timing in each of the basins, where we operate.
Starting with the Rockies region.
Producer results remain strong in the Williston and powder River basins, North Dakota natural gas production is more than 2.8 billion cubic feet per day.
And there continues to be around 60 rigs operating more than 500 million cubic feet per day of natural gas being flared and nearly 1000 drilled but uncompleted wells in inventory.
All of these factors provide an inventory of growth for our natural gas liquids and natural gas segments.
As Terry mentioned, we completed the southern section of Elk Creek pipeline from the Powder River basin to the mid continent and it is currently flowing more than 30000 barrels per day of Ngls.
With the southern section in service, we have moved volumes previously railed onto our pipelines, eliminating higher rail transportation cost.
This is also freed up rail capacity, which can be used to address continued NGL growth in the Williston basin until Elk Creek is fully in service in the fourth quarter.
As further growth as expected, we will add pumps on Elk Creek as needed to increase capacity. These projects are low cost and can be completed incrementally to address additional volume growth, including the need for potential ethane recovery.
[noise] approximately 850 million cubic feet per day of new natural gas processing capacity is coming online basin wide between now and the end of the first quarter 2020, which translates to approximately a 110000 barrels per day of propane plus NGL production. When these plants are full.
With all of the NGL from those plants dedicated to one.
And more than 30000 barrels per day already flowing on the pipeline, we remain confident that throughput on Elk Creek will reach approximately 100000 barrels per day in the first quarter of 2020.
One of them is now announced a total of 600 million cubic feet per day of additional natural gas processing capacity in the Williston basin expected to come online between now and early 2021.
Our latest announcement was the 200 million cubic feet per day expansion of our Bear Creek plant in Dunn County.
An area that has recently experienced some of the highest production increases in North Dakota and has a decades long runway of well inventory yet to be drilled we expect volumes on the bear Creek expansion to ramp up over a 12 to 24 month period once in service.
This expansion also increases our NGL volumes contracted for natural gas processing plants in the Rocky Mountain region from 200000 barrels per day to 225000 barrels per day.
Our Demicks Lake one plant remains on schedule to open full in the fourth quarter 2019 in conjunction with the completion of the Northern section of Bell Creek.
Demicks Lake to expect it's expected to be complete early in the first quarter 2020.
Moving on to the mid continent.
Producer activity in the region remains in line with our expectations for the year.
In the second quarter, we saw increases in both NGL Rossi throughput volumes and natural gas volumes processed in the mid continent, compared with the first quarter 2019.
Large well pad completions early in the quarter drove the increase in natural gas volumes processed and two new third party plant connections contributed to the increase in NGL volumes.
Our local too is on schedule for completion in the first quarter of 2020 and its contracted capacity now totals 375000 barrels per day compared with 350000 previously.
Last week, we announced NGL fractionation facility expansions totaling 65000 barrels per day in the mid continent. These projects will increase our propane plus fractionation capacity to help address the heavier NGL barrels from the Williston basin.
15000 barrels per day of capacity is expected to be completed in the third quarter 2020, with the remaining 50000 barrels per day completed in the first quarter 2021.
These types of projects can be efficiently completed at cost substantially lower than new construction.
Recently completed expansion projects and our natural gas pipeline segment continued to drive higher firm capacity contracted in the second quarter compared with both the second quarter 2018, and the first quarter 2019.
These projects increased the capacities of our mid continent, and Permian Basin pipeline systems and will continue to provide increased from transportation earnings going forward.
Now, let's take a look at our Permian Basin and Gulf Coast operations.
NGL raw feed throughput volumes in this region increased 20% compared with the first quarter 2019, primarily driven by volume growth on our West, Texas LPG pipeline.
We continue to expect our average fee rate in this region to trend higher in future quarters.
As legacy volumes roll off West, Texas, LPG and are replaced with market based transportation and fractionation volumes and has expansion of the system come online, which are contracted at market rates.
The 80000 barrel per day expansion of West, Texas LPG remains on track to be completed in the first quarter 2020 with volumes ramping up quickly. After it is placed in service.
And last week, we announced a third expansion, which will add 40000 barrels per day of capacity to the system.
The expansion is supported by long term dedicated NGL production from processing plants in the Permian Basin and is expected to be completed in the first quarter 2021.
Our NGL fractionation capacity given current product composition is approximately 820000 barrels per day and was approximately 90% utilized in the second quarter.
We now expect to complete our 125000 barrel per day in before fractionator in phases.
Phase one will provide approximately 75000 barrels per day of capacity and is expected to be available in the fourth quarter of this year earlier than originally planned.
Phase II will consist of the remaining 50000 barrels per day and is expected to be completed in the first quarter of 2020 as originally announced M. B five remains on track for completion in the first quarter 2021.
Terry that concludes my remarks, thank you Kevin.
The progress on our capital growth projects. This year is setting us up well for a significant volume and earnings uplift in 2020.
As Walt emphasized we're even more confident in our 2020, adjusted EBITDA growth outlook of greater than 20% compared with our 2019 guidance mid point.
The impressive production results across our operations highlight the widespread quality of our operating basins and well capitalized and experienced producers operating there.
The volume growth, we've discussed today has high visibility.
Both NGL and natural gas volumes are ready and waiting for processing and transportation now.
Producers are looking to want us to provide the critical infrastructure they need to connect their products with demand markets and we're well equipped and ready to grow our operations efficiently in order to do so.
I'd like to recognize our large project teams and operations personnel located both at our headquarters and at our various field locations.
For their hard work to keep our growth projects on time and on budget and specifically to those working on our Elk Creek pipeline, who are able to place the southern section in service early benefiting many of our customers.
Thank you to all our employees for your dedication to our customers and dedication to one of your continued focus on safe and responsible operations has led to our continued reliability and operational success.
With that operator, we are now ready for questions.
[noise]. Thank you very much.
If he would like to ask a question. Please signal by pressing star one on your telephone keypad now.
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Our first question will come from Danilo Juvane BMO capital.
Thanks, and good morning, you mentioned in the press release.
You mentioned in the press release, having significant upside in the second half of the year off from the early start of <unk> Greek and other projects as well where do you see.
What are your 2019, EBITDA number residing relative to the midpoint and to the extent that you reside hide in the midpoint do you still see a 20% growth rate between.
2020 2019.
Well they know we're Oh, we haven't changed any of our guidance and don't expect to do that today on this call.
Obviously as we get through the through the year, we'll continue to evaluate whether we're going to adjust that.
Right now, we're giving that Oh look on 2020 off of the midpoint to let people have a bases on which to think about it.
Oh, thanks for that well.
DCF was pretty strong during the quarter and it looked like it potentially came from northern border or anything going on there.
Nothing really out of the ordinary northern border made an off cycle distribution. In addition to our normal quarterly distribution in the second quarter.
But nothing nothing out of the ordinary course of business.
We shouldn't expect that to continue going forward.
I'm sorry, you said that you Didnt expect any anymore off cycle distributions for the for the balance of the year.
No. It's it's a distribution in excess of earnings for the quarter and that catches up so distributions going forward will track with earnings as they have in the past.
Got you last question for me to the extent that you continue to see strong production out of the Bakken.
Any thoughts on a potential residue gas takeaway solution.
I think I mean, clearly there you know it's something we're looking at we're paying attention to and when you look at the capacity that is getting ready to come online across the basin.
And we do believe we can continue to in the basin will continue to displace gas coming from Canada.
But but absolutely there could be you know there are conversations going on.
Variety of different outlets and we're participating in all those conversations.
Thanks, Kevin doesn't my question.
Thanks.
Thank you very much.
Our next next question will come from.
Chris Cigna volley Jefferies.
Hey, guys. Good morning, a nice compressing in execution. Thanks for taking my questions well I just wanted to circle back on that question to now I'd asked about northern border just for my own edification I understand it is.
I guess, what what's the mechanism for that this cash build at the JV and then you and your partner make the decision to pay that out on a periodic basis.
Yes to the extent that overtime, we we may do a.
Regularly quarterly regular quarterly distribution and to the extent that the management Committee believes that there is a capacity to do more than that they have the ability to do it as a one time basis and that's what happened here.
And and as it pertains to DCF guidance and things of that nature. This this was anticipated fall this year.
Correct.
Well I think that it's fair to say that are you know as we the plans to do this kind of develops throughout the course of the year.
So.
I think on a going forward basis, we would expect.
Distributions more in line with where they have been on a quarter by quarter basis.
Okay, Alright, great and then if I could switch and just kinda and I wanted to touch base you guys have done a really nice job continuing to contract out.
Arbuckle to seemingly every corner we got another.
20, or 25000 barrels a day of commitments there.
And I just wanted to better understand or just I guess review and remind myself as to.
Where the volume slate now for that pipeline will be sourced I guess between.
What's that do it for me Craig what comes from the mid Con plant and then what comes from.
Third parties is there is there a rough rule of thumb at this point given.
All the incremental contract that you've had.
Well I mean it it just it varies as we can track new new plants, obviously, if you're getting the plant in the mid continent, and new contracted plant, that's going to be tied directly to our local too.
As we get a new Bakken plant if those barrels are going to all go all the way to Bellevue then that will be included in both Elk Creek and Anoro buckle too.
So that's how we break it down I mean, your share and you have any other thoughts on just in general how do I think that that's the right to definitely you can see that.
On a very macro sense of the difference between what we've contracted for our Bulkers and what we've contracted for Elk Grove that death.
Difference is definitely coming out and they called it.
Okay and is it fair then if I look at just you know the.
Table that you guys have long provided that looks at the bundled rates on your NGL rock feed service.
If I like I guess, when I guess when I want to be careful of doing is making sure I'm, giving you.
Enough credit and appropriate credit for each of these two assets, but not double counting volume that's moving in and help create that then something about the moves down.
Arbuckle too and so is it fair to just try to Oh screens volume with a bundled rate on that.
On the Bakken portion and then.
The incremental volume that I would see above that give that mid continent right.
That fairway.
Think about it or would you advise.
No I think that's a fair way to think about it.
Okay.
All right great. Thanks for taking my questions.
Yeah, Thanks, Chris sure.
Thank you. Our next question will come from Tristan Richardson Suntrust.
Good morning, guys just on the expansion project for mid Con Frac capacity.
Talked about that in prepared comments just about the heavier barrel. It is this purely really just optionality for you guys and the customer or.
Just kind of curious could talk about sort of the need for new capacity there.
Relative to what the projects you have going on at Bellevue.
But I think it just came down a lot of it just came down to we had the ability is our teams looked at how we provide more fractionation capacity that that was a low cost option forest and would drive the best return.
With our other types clearly, we'll have the ability to move those purity products I'm down to Belvieu once our buckle twos up so.
We do get that optionality, but but it really came down to where we look at where we can provide the lowest cost most efficient frac capacity.
Great and then just a follow up on your.
Appreciate your commentary on Directionally, where 2020 Capex might stack up relative to 2000 2019 range.
Should we think about that as just sort of on the projects you have sanctioned today or does that contemplate other.
Other projects that you might be looking at that haven't necessarily been it.
Green light yet.
No I think that our expectation given everything that we oh, we see going forward, both what we've been able to announce and what we're thinking would have lower capex and 2020, then it will be in 2019.
[noise] I appreciate it thank you guys very much.
Thanks.
Thank you.
Our next question will come from Christine Cho Barclays.
Hi, everyone. Likewise, there what is the financial benefit going to be wing male and third party frac costs roll off I'm, assuming it's all off by first quarter next year. When all your assets are online like could you provide the cadence of the roll off between now and then as well.
Well I guess, what we've talked about previously the way to think about that is the the barrels that have already rolled off rail I think we've said, we save about 20 cents per gallon of transportation cost. So as we put more barrels on rail through the rest of this year. Then the next step will be when the full pipeline is in place and all those rail barrels moved to the pipe then you'll see another up lift at that point, well along with other volumes coming from processing plants. When the flare start getting put out when the processing capacity comes online.
Did that answer your question Christy.
Yeah, I guess, okay, but you've moved 30000 barrels per day off right now with the southern portion coming on.
But you are still continuing to mail, so I guess and I'm guessing that the rail is still gonna increased throughout the end of the year. So at what point does that Pete like how much are you feeling today and how much do you expect to mail at the peak between now and year end.
Well the rail volume when we brought on the southern section the rail volume at that point in time went to nearly zero. So we pulled pretty much everything down and then that rail volume you have plants coming online between now and when Elk Creek comes in you know gets in service. So we will use rail that will start building back up as the as volumes from those plants start coming online. So it will build back up and then once the full pipeline is in place all of it will obviously move back over to the pipe Okay got it Christine.
Christine This is shared and we think by the time, we bring LP Creek back off when we get the Northern section at Bell Creek completed we will be railing upwards of 30000 barrels a day again.
Okay Super helpful.
And then Youre a contracted bubbles on Al Creek at the production capacity can you remind us.
How long it would take to expand the pipeline. If you decide to do so and also discuss at what point you would do that just given its probably low cost and you remember system minimal ethane extraction and I'm not sure at what point that might change.
We look at it continually you know clearly those those projects are two year projects like pills in the pipe there they're measured in terms of months not years and we also have the ability to do things like order in pumps and a lot of the long lead time, a long lead equipment and other engineering things. We can go ahead and do you know to prepare for that so that it drives the time required to to get that done to <unk> again, just a matter of months.
Okay, and then last one for me.
There was an increasing backend processing volumes, but your NGL pipeline volumes remained flat a lot of the reason for that.
We just drove our ethane rejection just continued to drive deeper and deeper so to get more throughput through the plans and remain you know the pipe. The NGL take away was at capacity. So we were able to through our plans to drive deeper rejection and run more in lit, but not produces much liquids.
So you are doing Max Ralph at a point or two then.
I mean towards the it yes that we were pretty much at Max right. Okay. Thank you.
Thank you Jim I next question will come from Michael Blum Wells Fargo.
Hey, good morning, everyone.
I'm curious if you can just comment a little bit obviously NGL prices have been pretty volatile and I was curious for your latest views on how you see things trending for the rest of the year and into 2012, and a 2020 and then.
Kind of related to that if you have any oh, dear friend or updated views on how the Conway belvieu spread is going to trend here for the rest of the year.
Michael This is shared and I think as we look at the overall price if you keep crude.
At that level. It is today, you will see a little uptick in prices, obviously, we're seeing more export capacity for propane come online, which should create more demand and you're seeing more crackers come online that you should see some uptick in absolute price here through the end of the year and into 2020, not a huge spike, but I think you'll see some strength on the Conway to Belvieu spread right now we think that where it is today is where it's going to.
B or in this range through the third quarter and stored into the fourth quarter, then you'll get into some seasonality issues that probably will bring that spread in.
A little tighter than it is today and then of course as we've said before once we bring our buckled to online that spread will go back to more what we've seen historically, which is much narrower than we have today.
Okay great.
I appreciate that and then just this.
Recent slate of projects that you just announced.
So we just think or their returns the returns on those projects.
Would you consider those to be kind of.
Within the normal course of of your typical return profile or would those be better because some of them are kind of bolt on in nature, how do we think about that thanks.
Yeah, I think Michael it's Kevin I think you know the plant projects are going to be you know in our kind of us our standard four to six times, but some of the other just expansions and frac expansions that we've talked about could be done at lower cost than new construction, we're going to be better than that.
Thank you.
He very much our next question will come from Jeremy Tonet JP Morgan.
Hi, good morning.
I appreciate that you guys are not.
Updating guidance at this point, but just curious within the the GMP and the gas pipeline segment. It seems like you guys are trending quite strong versus the ranges that you put out there.
Is there anything in the back half of the year that could kind of.
Tempur this trajectory or is kind of like the high end or above the high end it seems like it could be possible for those.
Jeremy This is Chuck we can.
Talk first about about GMP.
I think we could trend higher it's going to come down to one or pipeline infrastructure some of our field.
Fuel facilities come on so it's a matter of timing as we get towards the end of the year and as you think about our gas pipe business.
We've seen very good demand for our not only interoperable volumes, but are balancing services. It's a short term storage services, which are kind of driving some incremental earnings that we hadnt necessarily planned on so both of those segments are doing very well right now demands up and we're just taking care of customers at this point.
Great. That's a that's helpful.
And then thinking about the balance sheet here.
It seems like I think before it leverages going to peak I think at the beginning of 2020 with all the projects coming online.
You've added some more to the backlog there and.
Or you that it's more brought into what you can do and just wondering how you see leverage I guess you know moving across 2020 is that still the same peak or any color that you can provide on how that all comes together.
Well, Jeremy our heavy heaviest spending is definitely in the third and fourth COVID-19. So.
And when you enter that first quarter, we've said that.
Without creek coming on in the fourth quarter and.
The volume metric.
Disclosure.
The guidance that we've put out there as it relates to our expectations of how quickly.
Oh Creek is going to build its volume.
You know around that 100000 barrels.
We're going to see a significant uplift in our EBITDA in the first quarter of 2020 and throughout 2020, and Thats going to Delever US right from the get go in 2020, so as we cross over the year that will be our peak the projects that we've announced to date.
Yes, it will be.
Towards the backend of 2020 and into 2021 from a capex spend and we will already be well down our road to de levering and.
My prepared remarks, I gave you some thoughts on where we might end the year. So.
We're.
Good to see the same trajectory in the.
Still looking for some significant de levering going forward.
That's helpful. That's it for me thanks.
Thank you. Our next question will come from Dennis Coleman Bank of America.
Hi, good morning, everyone.
One for me with regard to the to the Fracs.
Just I'm a little interested in.
Sort of this phasing of bringing on Frac four if I understand it right.
Can you just talk I don't really sort of have a concept of how you bring on a a fracking stages. So maybe if you could just talk a little bit about how that's happening.
Yeah. This is Kevin well in this case with our complex down there we had some spare.
Capacity for some what I'd call it kind of utilities, some refrigeration some heaters.
They are typically long lead equipment long lead time type equipment items, and so we're able to leverage some existing spare capacity, we have to bring up the frac and kind of a partial load.
And then as we've installed the rest of that equipment, that's what we'll get it up to full capacity and in 20.
Okay. So the vessel itself is there and then just to add to that.
So.
I guess the follow on question is if you are using up that capacity would would should we expect that to.
Be a model for a frac five as well.
We will evaluate it we may not have the same type of spare utilities, if you will.
For for Frac five.
But that's something obviously, we'll take a look at a variety of different things to do but I wouldn't expect that to happen for for the Nvfive.
Okay. Okay. Thanks for that.
And then.
Im sorry about this but just to go back to this northern border distribution.
Hi, Denise flowing and Chris both hit on it but.
This onetime payment we should know that wasn't included in the guidance correct and so we should just use the guidance and sort of use this onetime payment and and think of it that way. So if we add that in.
We should think about the guidance you're going to be above the guidance.
It's fair to say that that was not included in the original guidance.
Perfect that's what I need okay. That's it for me thanks.
Thank you. Our next question will come from Spiro Dounis.
Credit Suisse.
Hey, good morning, everyone, just maybe going back to the 20% growth expectation for next year not I'm not sure. We've seen you guys highlight that in a while you are maybe not since the original guidance was provided so getting the sense that that means you're getting pretty confident that that figure I'm. Just curious how you're thinking about some of the underlying assumptions to get there maybe just around commodity differentials in some of the base business growth.
You made some comments earlier just around the differential outlook, but if you could just expand there in the context of that 20% growth next year.
Yeah. This is Kevin I mean, I think the obviously the huge driver there is the the backlog of flared gas and the inventory we talked about up in the Bakken. When you think about just kind of put the math to the 100000 barrels a day that we expect on Elk Creek by the first quarter and you put that out over the course of the year and then you've got a full demicks Lake one plant running full for the entire year Youve got demicks to ramping up.
And then you've got growth on you know out of the Permian and mid continent, as well, but when you just go back to the 500 million cubic feet a day, that's flaring in the Bakken.
Across the basin and the processing capacity, that's coming online between now and the first quarter that just generates a significant amount of Ngls, which is the primary driver.
For the 20 number.
Got it and so if I'm hearing that right. It sounds like there is no real major call being made here on big bond girls outside of that or any sort of commodity or differential moves is that fair.
Yes, that's fair in fact, we've been talking very openly as Sheridan mentioned with Arbuckle too we expect spreads to come back in much narrow narrower than they are today and that is included in that assumption is included in that 20%.
Greater than 20%.
Got it got it okay. I appreciate that and then maybe just more broadly and how you're thinking about your mid con footprint longer term.
Clear to see the most of your growth is really focused outside that area.
And I guess lately producer commentary there has been somewhat lukewarm. So just curious what sort of optionality you have around that footprint to maybe offset some potential volume headwinds sort of past 2019.
Or heating that's even fair to be cautious on the mid con at this point.
You know I think.
Just in general the mid continent likely remarked in our prepared remarks, the the volumes have been in line with our expectations.
Yeah. There may have been a couple of producers that you've seen some things written that we're we're off a little bit, but then you'd been had we've had some that have outperformed our expectations and I think one of the things. We continue to remind people is you know, we we kind of have our own expectations, given the footprint and the size of our system.
Both in the GNP and the NGL side, so as we set our forecasts out there. We're we're factoring in.
All that information. So so we feel good about it and we do expect growth out of the mid continent.
As we move forward.
I mean gosh.
Although I would say that we we're still planning on hooking up another two more plants in the mid continent. The second half of this year.
So we're still seeing some need for a capacity.
And what I would say of gamma <unk>.
One of GNP standpoint would be.
I think our well connect guidance that we gave were running it as though we're going to exceed that on I think probably will usher.
Got it I appreciate that just one last quick one if I could and sorry, if you guys touched on it just trying to LPG exports, obviously been considerable amount of new capacity announcements made recently I imagine that factors into your market outlook. So just how are you thinking about that now.
I think when we think about LPG exports, we're going to continue to engage the market to understand what the market is and what's going on there.
But what we're not going to do is go out there and do an economic project or just build something to say we have an export terminal. So we'll continue to use our capital disciplined as we evaluate that but we'll always be involved in engaging them working on and exports and when we get to the time that we see that we have an economic project that we want to go forward and we will we will go forward with that though.
Got it appreciate all the color thanks, guys.
Thank you very much our next question will come Jr. Weston Raymond James.
Hi, Good morning, just wanted to ask real quick.
On Bakken GMP volumes, so far this year kind of relative to guidance looks like you're tracking pretty well, but it looks like youve got almost 60% of the well connects.
Still expected in the second half of the year. So just kind of curious if there are other moving pieces in that guidance or if it seems like maybe you are tracking above expectations.
Well I think we we did lag or early into Q1 due to weather and there was let's face it not only cold, but there's a lot of snow. So it's difficult to get out there and then connect wells second quarter. We are obviously strengthening conducted quite a few.
I think the remainder of the year and we'll we'll hit our guidance on our well connects and some of that is just waiting on some capacity that certain compressor stations. So I think we're in good shape to hit our guidance numbers for the year on a welcome Alex when volume goes.
That's it for me thanks.
Thank you. Our next question will come from Shneur Gershuni, yes.
Hi, good morning, guys.
Maybe more.
Couple of quick follow ups here, you just with respect to the guidance you sort of maintaining this 20%, but in your prepared remarks, you kind of emphasized greater than 20% <unk> was the comment.
Until a few days ago.
Everything has been under severe pressure and if I remember correctly, you had a big ethane rejection reversal tailwind in the last two years.
Did your guidance when you originally said it out in saying the plus 20% did that include some reversal of the ethane rejection and you know is that being offset by some better Elk Creek expectations, just kind of wondering what the the moving parts have been positive and negative from the time, you said it versus where you sit today.
Well, what I would say in when we look at the NGL volume growth in 2019 that has exceeded our expectations part of that is we probably have not seen quite as much ethane come out of rejection as we thought but we're seeing more ethane on our system than we thought from the from the growth and and other and other areas. So we are seeing that offset a little bit but I think the big thing is we are seeing more volume growth than we thought we would see at this time.
Okay.
And then secondly, with respect to.
Announcing a third plant in the Willis Dan.
I was just wondering what your flexibility was around the spend in the in service date.
When I sort of look at the the flaring numbers that you have out there in your slides for 300 Mmcf a day on on your acreage I sort of look at two plants sort it looks like it would take care of the flaring plus some growth.
Weve recently seen a big dip in Williston rig count if that's just not moving around in that trend continues do you have some flexibility around the spend to sort of push out the in service date of this third plant.
Shneur this is Kevin.
I mean, yes, technically you would have that flexibility, but we see nothing right now that would cause us to do that in fact, it's just the opposite you know our customers are.
Are they need more capacity in this Dunn County area. The results they've seen and these are some large well capitalized producers with with large acreage blocks.
They want to drill this area out and the plants full.
And the only reason, they're not deploying more capital down there right now is because of capacity so.
So we clearly see this as a growth area for us.
And and we you know we started off looking at it at a smaller expansion and the more color we got from producers.
About their immediate plans as we continue to push it up and decided to put a 200 million a day expansion in.
All right that sounds great. Thank you very much appreciate the color guys.
Thank you. Our next question will come from Dan Southbury Bernstein.
Hi, Good morning AG could you give us an estimate of how much ethane is being rejected into northern border today, and the Max and anything that can handle it.
Yes. This is Chuck.
Today, you know, there's roughly about 150000 barrels a day of ethane going into northern border. We actually looked at this just the other day and North Dakota pipeline Authority has some information out at their website about it.
With forecasts over time, depending on the mix between Bakken gas and Canadian gas filling that pipe you could see it as much as 180 to 200000 barrels of ethane.
Great that's really helpful. Thank you.
And then obviously, there's a lot of crude pipelines that are running open seasons out of the Bakken and just a general question easily find the MPS when they sign up for crude takeaway tend to parent <unk>. Other take away like for example, if they find a new 10 year contract for created when do you expect them to be looking for NGL takeaway to match that.
Typically we don't see that where we see people come up need NGL takeaway capacity is when you're looking at building a new plant. So when they build the new plants when they'll secure the NGL takeaway capacity for that complete new plant and then they'll grow into it as they on the crude on that side of it. So just because they sign up for a long crude term deal doesn't necessarily mean, they're going to sign up brand jails and vice versa.
But you really got to look at when you start seeing more plants being announced they have either are going to sign up for Ngls that are have already signed up for the NGL take away.
Really helpful. Thank you that's all for me.
Thank you. Our next question will come from Ethan Bellamy Baird.
Hey, good morning ill, there's some concern by investors that the Bakken may decline in the next three to five years, what's your expert <unk> expectation for North Dakota volumes on your acreage longer term.
Oh, we are again Ethan this is Kevin we we continue to see growth. When you just look at the track record.
Of even with rigs in that that 55 to 60 range for the basin.
We have seen significant gas production growth.
And just remember that gas production is growing at a faster clip than crude production because of the geo or.
In the increases there so there's a lot of positives about gas production you'd look at some of the forecasts out there.
We believe there is definitely growth beyond that that horizon you mentioned.
Okay. That's a good segue to my next well beyond the sorry go ahead.
No just said well beyond that okay. Thank you I was just going to ask it looks like we might need a new gas export pipe to handle that volume do you agree with that and is that a project you're betting.
Yes, I think we definitely agree with that and there again as we discussed earlier there are a variety of projects being discussed.
So in in different avenues to get more residue out, but clearly if we.
If we stay on a growth trend you were the basin is going to need some additional takeaway capacity you know over the next 234 years.
Okay.
Moving down South how have how has the decline in NGL prices impacted if at all the the rates in negotiations with customers for Frac capacity.
It has not impacted them at all.
We go in the reprice our services off of off of you know alternatives also what the marketplace is and member that Ngls or a byproduct it needs to be taken away in areas people if they can't get the capacity there flaring, what they say so that the absolute price of the NGL does not have an impact on what we can charge for our services.
And Mark is still fairly tight.
Market fractionation capacity is still very tight there's a lot coming on and pipeline capacity. Obviously is tied because we're building new ones as we come on as well. So yes. The market is still fairly tied and all areas.
Okay and then last question there are a lot of assets on the market and even though a few whole partnership.
What's your appetite for M&A here.
Ethan This is Terry not very high candidly when you look at the gross slate of opportunities that we have going forward. When you. When you think about it from an accretion standpoint, we're talking dollars a share.
In addition, the learnings to come to come to the company over the next several years, we can't we can't really get that.
From <unk> from strategic M&A now there may be some assets from time to time that we can we could buy with cash that could make some sense, but right now I'm really don't see anything out there. That's that's the second film slate.
Or valuations in particular that makes sense, particularly when you think about the alternative we have to invest organically.
Alright, thanks, so much appreciate it.
You bet.
Thank you.
Our next question will come from Craig Shere till you better.
Good morning, congratulations on another great quarter.
Thanks, Greg.
On on the <unk>.
Fee based margins.
Our record in the second quarter.
It is that sustainable.
What's driving.
Craig. This is Chuck you know, we guided to 90 to 95 cents were at 93 today, obviously with more Bakken gas coming on it's it's higher margin relative to our mid con business. So that's part of the driver. In addition to that you know you get into contract mix.
Ah different producers, we have different season and.
So is it sustainable I think I think were solid in that range.
Okay great.
And.
I just want to understand all the system integration gives and takes.
Relates arbuckle too.
[noise] possible kind of modularity of your system.
Describe it that way.
Currently you're you're coming on at 400000.
Hi, Chris.
Oh, you're contracted 375.
[laughter] switched sterling.
Security products.
And any excess Y grade that hasn't been fractionated would would have to go to.
And then you may wind up putting.
All the growth.
West, Texas LPG into southern leg.
So I'm just trying to think through.
How quickly the entire system can fill up.
Ah well.
That is a good question, we continue to look at how fast can to fill up and we're as we said we can add pumps fairly quickly as we go forward, but youre right. We if I go back to the original started your question the modularity in the Optionality, we have through our system.
Gives us a lot of flexibility in the first one is actually Sterling three is on raw feed today, we will take all sterling feet threes raw feed put it on arbuckle, an open that up for four.
Purities and Thats why we believe the spreads between Conway and Belvieu will come together.
And then we will take.
We think hopefully very quickly we will take our buckle up to a million barrels with that if all the capacity comes online as we think it's going to come online we see into the future, but we still think above that level, but the pumps and to go to a million barrels we still have some headroom.
To breach that million barrels that we have not contracted for today, but we should be in the upper end up arbuckle to and.
Full pipelines are a good thing and if we need to build another pipeline because we see that kind of volume come out we'll build another pipeline.
So.
Sure.
Questions.
Uh huh.
[noise] section.
<unk> <unk>.
Uh huh.
Southern section right. So.
If you do take West Texas volumes.
Charles we can't ignore that section right.
No. It's actually can do 600000 barrels in the southern section can do a million barrels so that leaves in in West, Texas pipeline is going to come in right where.
Arbuckle to transitions from a 24 inch or 600000 barrels to a 30 inch or a million barrels. So that leaves 400000 barrels a day, that's open for west, Texas to feel that does not impact the volume coming down from the north and that's how the system was designed that was our plan in the beginning. So you you were anticipating we could see upwards of 400000 barrels come off West, Texas and go on Oracle too.
Okay, and then if I understand it that would.
Southern section of West, Texas for potential crude service.
Yeah, that's correct or as we continue just get to 400000 barrels a day on West, Texas, we're going to have to have a complete new line out of the Permian, two or buckle, too, which would free up west, Texas from the Permian The legacy West, Texas system from the Permian to the Gulf Coast to use for some other service which would include group.
I see and the like.
From Sterling three.
The West Coast.
Sorry to Arbuckle too, but that's got nothing to do with the 375, a day of contracted up through 70 fives, all incremental to what you have today right and then moving capacity over to take advantage of the purity product.
It's just extra.
That is correct. The 375 is that does not include the volume that's moving on Sterling three today.
Great. Thank you very much.
Thank you. Our next question will come from Sunil Sibal Seaport Global Securities.
Hi, Good morning, guys and thanks for the clarity on the call just one quick question on the GNP segment.
Oh, what do you see the results were fairly strong and I noticed that your opex in that segment actually fell sequentially as well as much as last year.
Despite a decent pickup in volumes I was just curious was there anything going on there or I know, sometimes you know commodity prices, especially the gas prices kind of impact that opex still so I just was trying to get a little bit clarity on that.
Yeah. This is Chuck no. The sequentially were we were about $6 million lower aums for pretty much just due to timing between the quarters. So confused if you average those two quarters together run rate might be a little bit a little bit higher as we as we progress toward demicks wanting to bringing on more employees and a more field cost, but it's pretty much a.
Those are good numbers for the year.
Okay and gas is more like a pass through costs that natural gas prices, they don't really impact that that number correct.
No it does not impact that number.
Okay. Thanks for that and then I'm, just trying to understand a little bit better on the you know LPG export side of things.
From what I've been hearing obviously, you know there've been a number of dog expansions coming on line.
But seems like can't know that's maybe some constraints in moving those LPG volumes to the end customer started immediately.
I was curious if you have a view on Dod and Oh, sorry is there some way that you know when you're talking to customers on that'd be keysight.
So some way for you guys for taking I you know.
Got an opportunity out of that.
I mean again is shared and it kind of alluded to on the on the dock question. Yeah. There have been announcements out there there there's more capacity that's going to be announced.
Yeah, we do see you know some of the short term rates are spot rates as they have been pushed down.
But like shared mentioned I think the key is as we talk to customers were looking you know longer term. We're looking for rates are going to the economically justify a project and that's the way that's the way we'll approach it.
Oh, Okay got it thanks guys.
Thank you. Thank you my last question will come from Michael Lapidus Goldman Sachs.
Hi, guys. How are you guys thinking about what a 2021 step up looks like versus 2020, I mean, you've got a lot of projects that come online in 20, and trying to think about how much that 20% plus capture is that for 2020 versus what drives that 21 step up.
Well, Michael I think that a you know we're not we're definitely not going to give you a 2021 guidance and Oh.
We're stepping out a little further than we usually do I'll give you an outlook on 2020 so.
I'm going to have to do your own work here, but if you just take the the capital that were investing in the <unk>.
Recognize that we're in the same multiple and then some of these you know some of these incremental projects were even better multiples 2021 is looking pretty good too.
Got it and diesel assume a four to six times multiple on most of these projects or do you think some can even be better than that once you get them at full run rate.
Well I think that the Frac is a perfect example of.
Putting adding capacity at about half the price of build is definitely better than a four to six multiple.
Got it okay guys. Thank you much appreciated.
Sure.
Thank you very much because at this time, we have no further questions in the queue.
All right well. Thank you everyone. Our quiet period for the third quarter starts when we close our books in early October and extends until we release earnings in late October will provide details for that conference call at a later date.
Thank you for joining us on the IR team will be available throughout the day for your questions have a good week.
Thank you very much ladies and gentlemen at this time. This now concludes your conference you may disconnect your phone lines and have a great rest of the week. Thank you.