Q2 2019 Earnings Call

If anyone should require assistance during the conference. Please press Star then zero all your Touchtone telephone as a reminder, this conference is being recorded I would now like to introduce your host for today's conference Sarah Sandberg Senior director of Investor Relations you may begin.

Thank you Jim Good morning, everyone and welcome to the DC Me DCP Midstreams second quarter 2019 earnings call today's call is being webcast and the supporting slides can be accessed on the investors section of our website at DCP midstream Dot com.

Before we begin I'd like to point out that our discussion today includes forward looking statements.

Actual results may differ due to certain risk factors that affect our business.

Please review the second slide in the deck that describes our use of forward looking statements and for a complete listing of the risk factors. Please refer to the partnerships latest SEC filings.

We will also use various non-GAAP measures, which are reconciled to the nearest GAAP measure and schedules in the appendix section of the slide not a van Kempen, CEO and Sean O'brien CFO will be our speakers today and after their remarks, we'll take your questions with that I'll turn the call over to dollar. Thank you Sarah Good morning, everyone. We appreciate you joining us on today's call. We will discuss our second quarter results announcement highlights our girls Boardex provide an outlook into the second half of 2019.

Our team continued the excellent momentum of Q1, resulting in a strong first half of the year and solid progress toward our financial targets in Q2, we achieved adjusted EBITDA of 278 million.

DCF of 173 million, representing the respect of 12, and 18% year to date growth compared to 2018.

Our distribution coverage is 1.12 times for the quarter and 1.28 times year to date.

We have ample liquidity and financial flexibility and our bank leverage ratio was 3.7 times as of June 30 is demonstrating the strength of our balance sheet.

Our earnings are underpinned by effective execution of our capital allocation strategy and operational optimization efforts, resulting in strong volumes, including double digit year over year volume growth in the DJ Basin Southern Hills and Southern Hills.

We're excited to highlight several capital growth projects.

First last week, we were happy to announce that we executed a very capital efficient and accretive long term offload agreement in the DJ basin with Western Midstream partners, which will provide up to 225 million cubic feet per day or incremental processing capacity for our producer customers.

Second we're increasing our NGL take away capacity on Southern Hills would a 40000 barrel per day expansion, bringing your total capacity up to 230000 barrels per day.

And third and last night or called corner to blend is now in service increasing our total processing a bypass capacity to over 1.3 Bcf per day in the DJ Basin.

At the same time, we maintain our focus almost effectively managing risk in both the short and long term.

We significantly reduced our commodity sensitivity through a multi year approach to become fully integrated midstream service provider with a 50 50 balance between or fee based logistics and marketing segment and our GMP segment.

We negotiated strong contracts within our GMP footprint, including minimum volume and margin commitments and we have navigated Beijing bottlenecks in infrastructure constrained by leveraging strong partnerships to she's commercial opportunities and move molecules in all we continued to make great progress on our DCP 2020 vision to become the safest most reliable low cost midstream service provider sustainable in any environment.

Slide five details the recently executed long term offload agreements that will provide DCP went up to 225 million cubic feet per day incremental processing capacity at Western DJ Basin gas processing complex by the middle of 2020.

As we continue to optimize our capital spending disagreement offers a highly accretive solution at an attractive multiple and we believe it's a win win for all stakeholders in the DJ.

This incremental capacity is the fastest solution to meet our processing commitment to our customers and this agreement is a tremendous strategic outcome for DCP for three critical reasons.

What we're delivering on the promise of future cash while small eliminating the need to spend capital on new processing capacity. That's a proposed big Horn facility. This intern allows us to significantly reduce our 2020 gross capital by utilizing this third party infrastructure.

Two.

We will continue to control the NGL barrels, allowing us to capitalize on full value chain economics by connections to or D.J. Southern Hills expansion front range and the Cheyenne connector for residue gas and ultimately the sweeny fractionator on the Gulf Coast.

And lastly, with Burma and lab already secured we preserve the optionality to build future capacity by the Big order facility if customer demand requires it.

As with the majority of our DJ Basin assets. These incremental capacity is supported by very strong producer partnerships and life of leaf lease acreage dedications, and we maintained strong processing margins fire existing contracts.

Coupled with yellow quarter, two facility, we're providing our customers with over half a bcf of new capacity in the DJ by the middle of next year.

Additionally over the past several years, we've added multiple smaller bypass them off load capacity additions in the DJ basin.

These additions have not told a meaningful some and together with the addition of the okun or to bypass and our newly announced offload. Our total available DJ basin capacity will be almost 1.7 Bcf per day by the middle of 2020.

Moving to the next slide you can see does it continue to successfully execute a capital allocation strategy that integrates balances our portfolio to drive increased future cash flows.

But our slate great projects coming on line in the second half of this year. The majority of our growth capital spend was weighed the first half of 2019 as we invested in Gulf Coast Express and the O'connor two facility.

With that in mind, we remain comfortable with our growth capital guidance range for 2019.

Now let me quickly highlight some project updates since our last call.

In the Permian the Gulf Coast Express pipeline is expected to come in line slightly ahead of schedule with an anticipated in service date at the end of September .

In the DJ we're excited to announce that we're increasing the NGL take away capacity on southern hills by approximately 20% of 40000 barrels per day by the end of 2020 at a very attractive multiple.

30, additional incremental pump stations. These expansion is underpinned by future volume growth and the added capacity from the DJ Southern Hills extension, which remains on track to be in service in Q4 2019.

The front range and Texas Express pipeline expansions are underway and are now expected to be in service in Q4 of this year.

And lastly, the 600 million a day Sham connector is a waiting for approval and is now targeting a Q1 2020 in service date.

Good all of this together and you will see that we are unparalleled in our commitments to our DJ basin customers.

We have reliable access to the full value chain of midstream services and are the sole midstream company supporting all three major downstream expansions from a capital commitment and an ownership perspective.

Looking at our overall portfolio growth the vast majority of our investments are focused on fee based logistics assets and combined with our existing premier footprint, we are well positioned to achieve our long term strategic goals, while also solving for needed capacity additions and these top tier regions now I'll turn it over to Sean to take you through our financials. Thanks about her and good morning looking to slide seven on the heels of record earnings in Q1, we continue to make solid progress on our financial goals. While we worked effectively managed the business through dynamic pricing environment.

We achieved Q2, adjusted EBITDA of 278 million and DCF of 173 million, resulting in a distribution coverage of 1.12 times.

Our logistics segment continues to produce excellent results with margins up 45 million over last year, driven by growth from our sand Hills, Southern Hills and Guadalupe assets.

And I'll remind you the Guadalupe acts as a natural hedge more than offsetting the adverse impacts from low Permian gas prices.

On the GNP side earnings were down 7 million driven by a decrease in mid continent margin and volume opportunities. We saw in Q2 2018, partially offset by growth in the north overall costs were down 5 million prior to a $9 million nonrecurring charge relating to the voluntary separation program or VSP focused on accelerating our DCP 2.0 transformation. This VSP will drive full year cost efficiencies in 2020 forward.

Year over year, lower commodity price impact was unfavorable by 27 million net of hedges. This is primarily due to NGL and crude price declines of 33% and 12% respectively over the same period of time.

Despite these commodity price challenges our cash flows increased year over year as our diversified portfolio continues to deliver solid earnings.

Now on slide eight on one on lab rate on our earnings outlook for the remainder of 2019 and highlight some of the key drivers carrying us into 2020.

Following a strong first half of the year, we anticipate commodity headwinds and select takeaway constraints to impact the remainder of 2019.

Partially offsetting these headwinds are incremental cash flows from our predominantly fee based growth projects coming online throughout the second half of the year and coupled with our strong year to date coverage, we reaffirm our 2019 guidance ranges.

Specific to Q3, we expect commodity prices to dampen sequentially and then rebound modestly in Q4 with the forward curve, indicating lower expected prices than what was realized in the first half of the year.

Costs will be higher in Q3 compared to the second quarter due to increased planned reliability spend.

GP cash flows will benefit modestly as o'connor to volumes gradually ramp up throughout the third quarter, yet will be partially dampened as volumes are temporarily constrained by delayed NGL and gas residue takeaway projects, including the front range, Texas Express and Cheyenne connector.

Moving to Q4 Gulf Coast Express in the Permian will deliver a full quarter of cash flows in the DJ both the front range expansion and the southern Hills extension will be coming on mine, providing needed NGL takeaway capacity and driving incremental margin growth.

However, we still anticipate potential residue gas takeaway capacity limitations until the Cheyenne connector project is placed into service in Q1 of next year.

Now looking into 2020, we will benefit from a full year of earnings from Gulf Coast Express O'connor too and the DJ Southern Hills extension and a full year labor savings from the VSP.

Additionally, with the Cheyenne connector and the new DJ Basin offload coming into service in the first half of the year, the DJ basins constraints will effectively be eliminated.

Finally in the latter part of 2020, we will enhance our fully integrated value chain as the southern Hills expansion and the Sweeny Fractionators go into service in Q4.

As mentioned all of this builds to reaffirm our 2019 guidance range based on our solid earnings outlook in any environment.

Moving to slide nine I'll summarize the continued strength of our financial position and our effective approach to risk management with 1.4 billion available on our bank facility, we have ample financial flexibility and liquidity, we are delivering on our commitment to self fund our growth through strong year to date, DCF proactive debt capital market execution and cash flows from non core asset divestitures, including over $100 million of asset sales year to date.

On the risk management side of the equation in 2019, our margin of 77% fee based or hedge.

To close we are continuing our track record of maintaining a strong balance sheet mitigating risk and meeting our financial commitments and with that I'll hand, it back over to Bob Thanks, Sean in summary on slide 10.

Our execution continues to drive solid results and a good outlook for the second half of 2019 and beyond.

Our team delivered year to date distribution coverage of 1.28 times driven by growing volumes in our logistics segment margin opportunities on Guadalupe and growth in key areas within the GMP segment.

We're effectively managing commodity price volatility through our multi year approach to diversifying our portfolio and focusing the vast majority of our investments on fee based logistics assets.

This is exemplified by our 12% growth in year to date adjusted EBITDA compared to 2018, despite an almost 25% decline in NGL prices over the same period.

Finally, our capital efficient capital our efficient capital allocation strategy for installed bright future of solid cash flows and increased unit holder value as we extend our insert integrated value chain throughout every segment of our business.

With these themes in mind, we've laid an excellent foundation for the rest of this year 2020 and beyond I look forward to taking your questions now and Gigi Please kick us off.

Ladies and gentlemen at this time if you have a question. Please press. The Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

To prevent any background noise, we ask that you. Please place your line on mute. Once your question has been stated and our first question assumption or Gershuni from yes. Your line is now open.

Hi, good morning, everyone.

I was wondering if we can start off with the agreement that you signed with western gas.

Hi, I very much appreciate the capital efficiency benefit of of not spending capital.

I just wanted to understand or is there a revenue sharing agreement with western gas.

Whereas you're effectively subletting their plant and here you are still earning some of the revenue that you would have had from big corn.

But you don't have to spend any capital to to actually to earn that I just kind of wanted to understand that and then if you can also talk about if I remember correctly big Horn was supposed to be a PLP contract West. This plant is not is is it still PLP I'm. Just wondering if you can walk through the mechanics of that for US. Okay. Yes generic let me let me take that for you.

You know I.

It does I think the way you should look at this is Alan let me take a couple of different things here.

This is a seven year agreement for 225 million a day of capacity about 75% of that is covered on an MVC and the remaining piece of that is if we need it it's available to us the way you should look at how we kind of earn.

A margin on that and how in the lesser and some margin on that as well as we paid was a fixed fee per app. We will continue to have our PLP contracts, which are deep in the money PLP contracts with our producer customers in the DJ basin. So our producers we charge our producers a PLP fee that fee even at the current rate is above what we would say Wes Wes in fees. So we will make a spread of the two of those the other piece that we're continuing to gap, which I think is really really attractive for us as we continue to have access to all of the downstream.

Economics as well so the Ngls that are coming out of this plant out of this the offload agreement well go into the Southern Hills extension into the DJ Basin. That's why we're doing doing to southern Hills expansion. So we will get transportation revenue on those I mean, we'll be able to push that through for instance, the sweeny fractionators that we expect to take an interest in later and later in 2020 and will earn a fee on that we also controlled residue gas and Cheyenne conductor gets approved by the FERC and comes on line. The gas will find its way into the Cheyenne connector and we will get a transportation fee on that so overall it is very very accretive to us. If you go into kind of the appendix you will see that we will spend about a $125 million of capital in field infrastructure to make sure that we can get the gas to delay some plants.

Complex and.

But we're not spending as the additional couple of $100 million that we would spend for the big Horn facility.

And so it is very very capital efficient for us if you think about what we spent on our corner to newborn.

Newborn threed kind of blends of programs like that you're probably saving about a quarter of a billion dollar share overall, so very very attractive for us. It reduces our 2020 growth capital very significantly we continue to preserve the big Horn option and people have asked can say hey.

How close were you on Big Horn, we were very very closely because the big horn literally it was a deliberate golf we are very close on executing that until we start to having these discussions with Anadarko Wes around this capacity being available and in the end for US we want to always make sure that you don't overbuild a basin you want to add between Wes and ourselves we are by far the two largest.

Processors in the basin and there was a great opportunity to not only create a win win for the two of us, but I look at this as a win win win for ourselves for our unitholders for west filling up capacity that was otherwise going to be excess capacity for them and then for our producer customers, which is really important. This is the fastest way for us to get additional capital.

Capital our processing capacity online so.

I think I think that answers all of your questions I Hope does it China no no. It did and I would just thank you for confirming that you are basically still earning return get the downstream benefits and basically without spending all the money.

If you look at from a return point of view said 125 million unlikely tend to always say Lee do you have a five to seven X type of multiples. This would probably be closer to five to seven so it's pretty it's pretty attractive for us.

Or even lower.

Okay and then.

Just wondering if we can talk about.

DCP 2.0 for 2020.

You talked to I think Sean you talked about the Sps in terms of some cost efficiencies and so forth.

Are there targets that you shared with the board in terms of how much you expect costs to actually come down further and I recognize that you guys have already made a ton of progress.

And then as part of that sharing of targets.

You've been very successful this year.

Synthetically, adding capacity through efficiencies.

Are there more opportunities to do that and is there a target you can share with us as well on that side too.

So Haitian here, Sean I can start on the cost side of the equation.

I'll just remind everyone. The 2.0 efforts has has done some really good things around the margin side.

With the FCC and with some of the things we've been able to do on the pipelines. It has shifted significantly I think you're picking up on it right in 2019 to be more to also drive cost efficiencies. They are definitely targets batter has said significant targets around the team their broad, but they are efficiency based I can share a few numbers with you.

And I talked about that VSP that voluntary separation program that was a way to sort of accelerate some of the things we're doing but think about it. This way we are already if I think about where we came into the year versus where we are right now the company is about 15% lower on head count So thats pretty substantial improvement that is I would tell you in line with the goals that battery and the board set for the company in terms of longer term, our goal would be to get to around that 30% number reduction.

By the by the end of 2020. So those are some targets specific to the goals and they are pretty substantial.

We're doing that through adding digitization automating things changing our processes remotely operating assets I'm, just giving you some of the drivers, but all those things the corporate functions are in the mix considerably I think when you were here a while ago, we focused on mostly the operations, but things are progressing well.

You saw I think you're seeing some good cost trends as I mentioned that onetime charge will not reoccur as we go through the year and we're excited that the benefits continue to grow through the remainder of this year and into next year in terms of asset consolidations.

It's something we always look at I don't know if you noticed I mentioned 100 million of year to date.

Sales that was obviously, we talked about the propane business, we did a small.

Divestiture in Q2 were up around 10 million, but these are things that continue to help the portfolio reduce our costs by the way I'm sure I'm going to get questions on maintenance capital, but as we divest these assets.

Our maintenance capital continues to go down these are usually less efficient noncore assets.

And that will help us on the maintenance capital side as well.

Okay I really appreciate the color guys I think have used up my two questions. So I'll jump back in the queue and wait for the IDR question.

Yes, Thank you Shin there.

Thank you. Our next question is from Spiro Dounis from Credit Suisse. Your line is now open.

Hey, guys I guess I'll take the bait on IDR, then since generic segway to me right into it.

So one of your your two sponsors recently removed them of course, and I think the implied multiple around that was was 16 times. Just just curious what your reaction was that deal maybe how you think about the process from here and then anything we should read into the timing.

Yes, so as far as obviously I am not I am not a philips simply im not a PSVM. Please I have no inside say in how they kind of look at their transaction. So I'm not going to comment on their transaction I think.

So.

Our our our message continues to be the same message. This is not going to be a question of if it's going to happen, it's going to be finding the absolute optimal finding for us to do this so.

I think the great the great thing for.

You know everybody is that if you think about Enbridges think about Phillips. They clearly are very comfortable with doing something and removing I'd ours, because they both done it. So I think that that should give you a little bit of insight about hey, how are we talking about this and what are we thinking about this.

Yes, so for us, it's all about making sure that we have the right coverage.

And so that we can withstand a down cycle and one can argue that.

The way things are going right now we're in a little bit of a down cycle and we continue to have a close to 1.3 X type of coverage here for the first six months of the year. So.

As we continue to have really good discussions around this and.

It continues to be it's a matter of when this is going to happen. It's not a matter of if this is going to happen so stay tuned.

Understood appreciate that.

And just think about new growth opportunities and capital efficiency. So he's Philips has been spending considerably on midstream and.

I guess it there is a precedent here for for some of those assets to make their way to you by the Sweeny Frac I'm sure. Some of those will also make their way to PS XP, but just curious that as some of the new projects that they've laid out. If you think there is another opportunity for you guys to maybe comment on some of those and take options.

Yes, yes, I think I think we have been very very synergistic and how we went to market together with with with Phillips 66 said.

I think theres a great benefit for Ford Ford is entity, if we find commercial opportunities Dudley that we can do together and that doesn't have to be just with Phillips 66, and like if we can find a great opportunity to do with Enbridge would love to we'd love to do that as well but.

No Ed.

If there is an opportunity for us to continue to direct the barrels towards the sweeny frac and taken ownership interest and and Frac for and we're very very open to do that if theres an opportunity to go even further.

Dumb down the value chain with them I think we're very open to do that.

We have discussions around this.

A lot of different times and.

Part of decision you got to look at some of the bigger picture on what we're doing here.

Why did we do for instance, the southern Hills extension into the DJ Basin now lets to make sure that we have flexibility and control of all the barrels that we continued to produce an AD in the DJ basin and that gives us flexibility to movement pipelines that we own 100% to direct those barrels to fractionators that we think are very attractive in our portfolio ready we potentially can take an ownership interest and that's what you've got to see here also with this southern hills expansion that we're doing and that is really all about the growth that we have in the DJ and gives us the flexibility to work those barrels and potentially leverage those barrels into more downstream investments.

Got it.

Makes perfect sense, Thanks, Brad I appreciate it.

Thanks Mark.

Thank you. Our next question is from Jeremy Tonet from JP Morgan. Your line is now open.

Hey, Good morning. This is Charlie for Jeremy here I was wondering if you could talk a bit about mid come mid con volumes.

Kind of dropping a bit sequentially, just any commentary from producer activities and kind of expectations for the balance of second half 19.

Yes couple of things.

The volumes are definitely down I mentioned it in my remarks, and and also the margins. The average margins were down because we're settling more the product this year and Conway, we were able to get more of that to Bellevue last year, you get higher Netbacks, we do see that easing up as some of the capacity in some of the infrastructure. We're talking about comes online in terms about looking forward.

The mid Con is an area that we continue to see volumes in that decline. It is in line with the guidance that I gave at the beginning of the year.

So theres no surprises going on that we weren't surprised in any way we continue to see those volumes probably decline. There you. There's some infrastructure in some of the areas. We're in scoop stack, but in light of the other areas we're into a base decline type environment.

On the positive side I can tell you and more to come throughout the remainder of the year. It is an area that we continue to focus on consolidating assets getting more efficient shedding infrastructure, where were not where volumes are declining and we've had some really good progress.

And hopefully we'll be able to share more of that on the second half of the year I think theres. Some exciting stuff basically that is cutting our costs lowering our maintenance capital and our proactive way to kind of be very efficient. So you will continue to expect to see volume declines there that was the guidance I gave earlier in the year and we're trending us along those lines.

Great. Thanks.

One more from me could you comment on some of the producer consolidation we've seen a news specifically in the DJ maybe if at all how that might impact your growth outlook.

Yes.

Yes, I think.

For us a much better than there was something out yesterday of two producers potentially combining I can't comment on that.

I think in the end.

The acreage that we have here in the DJ basin continues to be tremendously good acreage. It's all on our life of lease so India and a transaction doesn't switch what that Bob.

That acreage where it would go to so if companies combine it will continue to go to.

To to DCP and so overall.

I think more more consolidation, it's probably a theme that starts to make sense at the same time when people consolidate normally.

They take time to drill the acreage very few companies go and consolidate and tried to add additional acreage and then just put it in inventory and do nothing with it so I think for us its a.

It continues to be a pretty good outlook here in the DJ basin.

Great. Thank you.

Thank you. Our next question is from Gabe Moreen from Mizuho. Your line is now open.

Hi, Good morning, just a question in terms of outlook on Guadalupe now that you see exercise here to come on to your plan there to essentially leave that open as far as.

Volumes and marketing around it or.

Any long term contracts that you may be putting in there and I guess is your expectation that over the medium term as to Cxtwo philosophical basis may blow out again, and when that may happen.

Yeah, Hey, Gabe John couple of things.

Quad had a record quarter in Q2, obviously tied to them wide basis spreads.

Our strategy on Quad is still it's been the same obviously, it's been a little more exaggerated recently, but we typically hedge you'd out.

You know into the future approach or a portion of it we have a portion of an open I think youve alluded to some some longer term agreements I know the marketing teams and working on that we really like those those are more annuities right you lock in sort of physical for a duration and you lock in those cash flows and I think they've worked on a couple of deals along those lines in terms of the outlook.

For Guadalupe second half of the year, we do see the first half as as being stronger than the second half.

Thats driven by the comments you just made with Gcs coming online. We seek won the bid our earnings on that open position kind of diminishing little in Q4, and maybe even a little in Q3 on the positive side you got to think about it holistically you've got Gtx, then coming online. So thats. The we're going to start driving earnings on that pipeline and what we've started to see in a very small way is the is the gas prices that we settle in the Permian start to increase so if you think about the second half of the year. The net net of all three of those things is favorable to the company. However, I think your point is quad, probably diminishes a little second half of the year on earnings and that is true maybe to add gave to what Sean said to Mike to the marketing team has absolutely executed on a number of longer term multiyear deals at pretty attractive prices. They may not have been as attractive and as high as some of the.

Massive blow outs that we saw in bases spreads here in the second quarter, but they're very attractive prices that we've locked in for a mill to a number of years, so thats kind of going to sean's point of creating an annuity out a bit and I think thats very good thing at the same time.

There are.

I think I think everybody agrees, there's more pipelines that are needed under the gtx coming out of the Permian. So.

I wouldn't be surprised somewhere in 2020, we see basis.

Basis start to opening up again, and then we will have we will be able to take advantage of that.

Got it thanks, and then as a follow up and sort of speaking of hedging your approach to hedging Ngls right now given spot volumes, you talked about a little bit the forward curve.

Improving a little bit but to what extent do you want to let things kind of feel improve versus unlocking pricing right now for for 2020.

Yes, so I think.

On the positive side, but we're actually a little more hedged in Q2 or I'm sorry in the second half of the year than we were in the first half of the year as we have not put any NGL hedges on for 2020 gave that's probably what you're alluding to in the environment just hasn't been conducive to it we do have a multiyear hedging program we focus on that.

We'll look for opportunities, we do see the forwards telling us that things, we actually saw July get a little bit stronger than June . So wish you are starting to see a little bit of movement.

To the positive and then the forwards telling US Q4 gets stronger and then with some of the infrastructure coming online. Later this year next year. There is a lot of individuals and analysts that believe that 2020 will strengthen to the point of hedging we will look for opportunities we're always very.

Proactive and try and get some 2020 hedges on when when and if those prices come back the latter the other thing I do want you to focus on as well, though you know we got the 65% fee based this year on our core assets. That's up as you know thats up massively from where the company was just 345 years ago.

And we're not giving 2020 guidance, yet, but that will grow if you think about all the projects about are highlighted that are coming online later this year and next year. The fee based portion of this business will continue to grow and.

Think about Q2, where commodity was down I think bauder in his remarks that hey, NGL was down 25% versus last year and we grew the company pretty substantially. So I think we have a good strategy in place as it pertains to hedging we will continue to look proactively for opportunities to put NGL hedges on and Im hopeful those will come through the remainder of this year.

Got it thanks I appreciate it.

Thank you. Our next question is from Dennis Coleman from Bank of America Merrill Lynch. Your line is now open.

Good morning, all thanks for taking my questions.

Most of mine have been asked but a couple of detailed ones for me if you would.

Seems like Theres, some some drift on the Texas Express front range projects into the fourth quarter.

Anything to read into that.

Matching customer flows or just sort of normal delays any any commentary there.

Yes, so that's a it's a third party managed projects that were an equity owner in the project were not executing.

The the pump stations that needs to be said above what basically happened. There there were some regulatory delays in in one of one specific R&D here in Colorado those have been solved now and but Thats probably took piano.

A number of weeks to kind of get things the things done couple of months and that made the project basically slip from Q through Q3 into into Q4.

Okay. Thanks, Thanks for that and then.

Another more detailed one on southern Hills additional 40000.

Is that.

We should assume that contracted and is there any kind of terms that you might talk about if it is.

Yes, so think about that really driven by a number a number of different kinds of projects that we already spoke about Saudi open or two plant is now online in service as of today, which is great for our customers. We're very excited about that yes, that's 200 million a day of capacity. So let's call that 20000 barrels right. There those will flow into into that Southern Hills extension think about the.

Well flowed agreement that we spoke about that so that's you know.

200, 225 million a day, that's not our 20 25000 barrels a day. So just between the two of those that it gave you 40000 plus barrels a day, which kind of mimics the expansion that we're doing here and if you're looking at the details that we provided.

Southern Hills today runs at 88, 90% capacity, so were very kind of close to filling that southern hills pipeline up that's why we're doing this project and this is one of those projects that you should think about what we did with sand hills to first sand Hills expansion was highly highly accretive why because it just setting pump stations. It's the same over here, we're not adding five for just adding to pump stations.

So that creates photos 40000 barrels a day and you should look at that project as probably a two three X five multiple we always talk about whenever you can set pump stations on a bike and you have to volumes those are great projects because they are highly accretive.

That's great color. Thank you for that any permitting issues there that.

Just to watch items.

No we don't expect any permitting issues happening there so to pump stations.

Well be set in the in the mid continent. So now we are very comfortable on this need the lead time and monk and say Hey, let's do pump stations why for all Q2 thousand 20.

Hey, we think thats, when we need it but secondarily pump stations have a pretty long lead time. So just the leads for the bumps are probably 12 months. So thats why this will take a little bit of time.

All right great color. Thank you.

Thanks, Dan Thanks.

Thank you. Our next question is from Michael Blum from Wells Fargo. Your line is now open.

Thanks, Good morning, everyone.

Just a quick question for me, so I realize you're not giving.

Any kind of 2020 specific guidance here, but.

It does sound like you.

Obviously with the western.

You have guns on capital avoidance can you just give us a at least directionally a sense of.

What where Capex you think will trend in 2020, just kind of directionally. Thanks, So yes, Michael Malter here. So we have given guidance around a variety of projects that we've done okay. So.

One of the bigger projects for 2020 is going to is the option for take 30% ownership interest in the sweeny Fractionators and we've disclosed how much that is so assume that we're going to execute that one the other project. The Cheyenne connector, we're continuing to wait FERC approval. So thats on a slipping into next year. We hope coupon 2020, we have an ownership option that we expect to exercise on that.

And then think about part of the capital that we need to to set the field infrastructure for deal flow to western part of that will be spent in 19 part of that will be spent in 2020. So you take all of those together I think you can get a pretty good.

Kind of idea of what you are looking at.

For next year, which is you know.

Fairly significantly below what we're looking for are doing this year. So it gets us really close very close.

If not completely there from a self funding point of view, which is very important to us.

Perfect Thats all I had thank you.

Hi, Michael.

Thank you. Our next question is from David Amoss from Heikkinen Energy. Your line is now open.

Hey, good morning, guys.

Just wanted to.

Thinking about the agreement you have with western that you put into place.

And 125 million you are spending on access to that plant is there the potential that you can do other things that could benefit from the capital spend.

Anything you can give us in terms of.

The potential of the geography that you'll be providing yourself. Thanks.

Yes.

I'm trying to understand.

Let me try to say someone hopefully I'll take it into right direction.

In the end for us to to make sure that we get to kind of.

Our gas to our various processing plants that we have in the DJ basin, you've got to put money in for field infrastructure. So that's kind of what we're doing here for it is 225 million a day, we obviously the way our system is set up to think about.

You know a variety of projects that we that we have done over over the years, where we create great connectivity between plants. So pardon the lace implant Vicki right next door to some other plants that we have so in the future.

After seven years for instance that field infrastructure that you put in place can be easily directed to.

To our own infrastructure, if we need it so I think thats, how you should think about how we set up the system. We always try to set up the system in a very flexible way. So we can get the so we can get the volumes not just to bond plans, but get them to that super system of different plans. So I think thats. How you should look at look at this.

Okay. Thanks, and then one more I'm just thinking about you guys kind of pointing to a five times multiple on that project just wanted to confirm that that's just on the processing capacity.

It doesn't include the potential that you can.

Make money downstream as well.

And then.

Fair that we assume that that's based on strip pricing.

At this point.

Yes, so no sort of Fivex is on kind of full value chain economics. The way, we the way we kind of look at it.

And then yes, let me look at this kind of current strip pricing. So we are not looking at.

Some crazy Crazy numbers.

In the future.

Great. Thank you very much that's helpful.

And David.

Thank you. Our next question is from Selman Akyol from Stifel. Your line is now open.

Our question was asked thanks.

Thank you.

Our next question is from Jeremy Tonet from JP Morgan. Your line is now open.

Hi, Good morning, just wanted to kind of follow up on some of the points talked about before.

With regards to the DJ in egress, especially on the on the Nat gas side was just wondering in advance of Cheyenne coming online are there other kind of initiatives to get the gas out of the basin do you see any other kind of bottlenecks there in just for the basin as a whole on the NGL crude oil side.

How tight do you think things can get for new capacity comes online and is there enough takeaway capacity in general coming on the line out of the DJ right now.

So.

Right now, especially right now things are tight okay. So and we spoke about this on prior earnings calls.

Multiple times.

This is not just about putting new processing capacity in place. It's you've got to make sure that you can get the Ngls out of the basin you can get the residue gas out of the basin and then you can get.

Into fractionators at the Gulf Coast, and that's why I continue to say and I mentioned this in my prepared remarks that we are de only midstream company that is supporting all three major downstream expansions not only by putting capital in but we're taking commitments with putting ownership percentages and so if you think about that from an NGL point of view between front range, Texas Express and the DJ Southern Hills expansion and extension and now the expansion on Southern Hills, we are very comfortable far for quite some time here for years to come around Hey, do we have an awful NGL takeaway out of the basin.

From a residue point of view and Thats really BARDA tightness is sitting Thats why we went out with multiple companies to build the Cheyenne connector Shine connector would give 600 million a day of of capacity out of the basin and we need that.

Oh Gee is the owner of main outlet is doing some expansions, which is helpful. But we need much more than that so we really need FERC to act and hopefully act quickly. So we can get that.

That piece going.

And then I think you were talking from a crude point of view I think from a crude point of view things look pretty good right now and then lastly, you need you need fractionation as well and what we're doing with with Phillips 66 at Sweeny and building significant capacity. There. If you take all of those together I think things look very good.

I think for all of you to kind of think about Hey, how do we model does O'connor to plant that is now in service as of today.

We maintain currently mobile probably about 100 million a day for the remainder of this year to go through to plan and that is not because of the fact that the gas is not there the gas is absolutely there.

The NGL take away will be there we are waiting to make sure did we get enough residue gas takeaway, we need to get to Cheyenne connector online once that Cheyenne connector is built and online that's low basically completely.

Levy eight any issues that we have in the basin and hopefully that is happening here pretty pretty soon.

That's helpful. That's it for me thanks.

Okay. Thank you.

Thank you.

And our next question is from James Carreker from US Capital Advisors. Your line is now open.

Hi, Thanks for the questions.

Just a follow up on 2020, Capex you mentioned the.

Discrete capital projects and kind of Guesstimating from there.

I mean, how should we think about the capital for kind of the singles and doubles the well connects.

Field infrastructure things of that nature, and 2020, as we're kind of formulating a capex number.

Hi, This is Sean James I, there's as we have we have been giving 2020 guidance, but as you are trying to think through the next year I would the around the singles and doubles I would not expect a significant deviation from where we have been.

So with one caveat on the down side, what I mean downside on the lowering is we are we continue we've sold a few things. This year. There is capital tied to those projects that were continuing to look at some small things here and there which will lower but I would hold serve.

If you're trying to model going forward until we give guidance next year.

Okay. Thank you that's all I had.

Thanks.

Thank you at this time I'm showing no further questions I would like to turn the call back over to Sarah Sandberg for closing remarks.

Thank you for joining us today, if you have any follow up questions. Please don't hesitate to give me a call have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program you may now disconnect.