TGE Q3 2018 Earnings Call
Operator: Good day, and welcome to the Tallgrass Energy Q3 2018 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Nate Lien. Please go ahead, sir.
Nate Lien: Thank you, Garald. Good afternoon, and thank you for joining the Tallgrass Energy Quarterly Earnings Call as we discuss TGE results from the third quarter of 2018, which were released through our press release this morning and 10-Q this afternoon. Joining me on the call are David Dehaemers, President and Chief Executive Officer; Bill Moler, Executive Vice President and Chief Operating Officer; and Gary Brauchle, Executive Vice President and Chief Financial Officer. Before turning the call over to David, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. Additionally, our comments today will include forward-looking statements and estimates. These forward-looking comments are subject to various risks and uncertainties and reflect management’s views as of October 31, 2018. Please refer to our filings with the SEC, which are available on our website, including our 10-K and 10-Q, which provide discussions of factors that may cause actual results to differ from management’s projections, forecasts, estimates and expectations. Note that except to the extent required by law, Tallgrass undertakes no obligation to update any forward-looking statement. Please also refer to our earnings release and website for reconciliations between the non-GAAP financial measures referenced in this presentation and the most comparable financial measure or measures calculated and presented in accordance with GAAP. With that, let me now turn the call over to David for his opening remarks.
David Dehaemers: Good afternoon, and thanks to everyone for joining our Tallgrass Energy third quarter earnings call. Our Tallgrass team again produced outstanding operational and financial results for the third quarter of 2018. Quarter performance is a short-term result of our long-term focus on our customers in our business. It's also a result of our team focusing every day on the things that we can control and not getting distracted by those that we can't control. Here are some examples of that. First, we are working to commercialize two large projects, the Seahorse Pipeline and the Plaquemines Liquids Terminal, which could have a transformative impact on our crude oil business. Next, we announced the expansion of a joint venture with one of our partners in the Powder River basin, giving us greater access to the growing Powder River crude supply. In addition, we continue to execute our approved organic growth projects approximately $500 million worth recently in service and on core under development, and we are actively working number of bolt-on acquisitions that would further expand our systems. Lastly, the utilization of our two largest assets were REX and Pony at or near peak levels. The strong reflection of the macroeconomic environment continues to improve and trend on a very supportive matter for midstream infrastructure. Our focus coupled with this positive backdrop continues to bolster our confidence regarding the long-term success. Now, let's review the third quarter financial results, which were the catalysts for our dividend increase. Adjusted EBITDA was $220 million and cash available for dividends was $183 million, producing coverage of 1.28x for the third quarter. While Q3 results are the best year-to-date, we expect even stronger results in Q4 because of the high utilization of our assets and then continued ramp from acquisitions and recently commissioned assets. As we mentioned on our last quarter's call, we expect to meet or exceed the high-end of our adjusted EBITDA guidance given earlier this year. This quarter’s financial performance drove TGE’s 13th consecutive quarterly dividend increase. Again, I kind of do this on every call just to note to everybody that when we took TEGP public, our annualized distribution was $0.53 and that was mid-year 2015, so we are not even 3.5 years to that point yet and we've almost quadrupled that to $2.04 annually right now. The $0.51 per share per quarter or $2.04 annualized is a sequential increase of 2.5% from the second quarter of 2018 and an increase of 43.7% over the third quarter 2017 dividend. I am going to now turn the call over to Gary to go for additional comments on the financial pieces.
Gary Brauchle: Thanks, David, and good afternoon, everyone. Moving to the segment performance for the quarter, the Natural Gas segment produced adjusted EBITDA of $121 million for the third quarter, which is an increase of over $7 million from the second quarter. The primary driver of the increase was higher distributions from our 75% interest in REX, resulting mainly from lower interest expense at REX due to the retirement of $550 million of debt in July. For the Crude Oil Transportation segment, adjusted EBITDA was $88 million for the third quarter compared to $78 million for the second quarter. The standout performance from Pony this quarter was a result of very strong volumetric throughputs on this system and a higher per barrel rate on those shipments. As you may have seen in our earnings release, the first two months of the fourth quarter showed continued high utilization of the pipeline. Volumes for September were prorated at 358,000 barrels per day and again prorated in October with throughput estimated to be approximately 364,000 barrels per day for the month. For November, we received record nominations in excess of 420,000 barrels per day and expect to move in excess of 365,000 barrels per day. These nominations and throughput figures are another positive sign as we complete the work necessary to expand the capacity of Pony to somewhere between 390,000 and 400,000 barrels per day by the end of the year. The Gathering, Processing and Terminal segment generated adjusted EBITDA of $14 million for the third quarter, a decrease from the second quarter of 2018 and that’s mainly due to a couple of smaller unrelated items that I would characterize broadly as timing related. We continue to expect growth in this segment and Q4 and ended 2019 primarily from water assets that we have acquired and continue to invest in. You have heard us say before and it remains true that there are a lot of growth opportunities in our water business and we are actively working on several of the best ones. Now turning quickly to capital structure. At the end of the third quarter, our leverage was approximately 3.6x based on the trailing 12 month adjusted EBITDA as calculated according to our credit agreements. As we alluded to on our second quarter call, the increase in our leverage ratio over last quarter was expected due to our financial contribution of approximately $413 million for our 75% ownership interest to REX to repay its July 2018 bond maturity of $550 million. And the second reason is that the Q3, 2017 settlement payment from Ultra rolled out of our trailing 12 month adjusted EBITDA figure. So those two reasons together combined for the increase in the leverage quarter-over-quarter. However, even considering the expected increase that I just explained, we continue to live within the investment grade leverage metric that we set for ourselves over five years ago. As for liquidity, we recently issued an additional $500 million of five years senior notes at a rate of 4.75%, the proceeds of which were used to repay borrowings under our revolving credit facility. Today, we have undrawn capacity of approximately $1.2 billion representing very strong liquidity for Tallgrass. Before I turn over the call to Bill, I would also like to mention and flag for you that both Tallgrass and REX received investment grade credit ratings from Fitch in early September, further validating Tallgrass’ commitment to an history of managing our entities to investment grade credit metrics. And with that, I'll turn it over to Bill for the commercial updates.
William Moler: Thank you, Gary. Our commercial and operational teams had another busy quarter with the build-out of organic growth projects, recontracting discussions on REX and Pony and dozens of conversations around commercializing the Seahorse Pipeline and the Plaquemines Liquids Terminal projects. In the Gas Transportation segment, we continue to see very strong volume on both ends of REX with peak throughput again reaching approximately 4.9 billion cubic feet per day. The west end averaged approximately 1.5 billion cubic feet a day, and the east end averaged approximately 2.6 billion cubic feet a day during the quarter totaling an average of approximately 4.1 billion cubic feet per day which is consistent with where volumes were in Q2. These volumes continue to demonstrate the ongoing importance of REX as a takeaway for solution for both Rockies and Appalachian natural gas production. In turn, this has lead to productive recontracting discussions with some of our legacy west end shippers, but also a number of potential new shippers. While these discussions typically culminate and signed transportation contracts only after months of discussion, we remain confident in our ability to recontract the west end of REX ahead of November of 2019. As we have mentioned on previous calls, we continue to believe that the Cheyenne Connector and Cheyenne Hub projects will play a key role in providing incremental volumes into the west end of REX. We expect a good portion of those volumes will ultimately flow on REX through contracts with the Cheyenne Connector shippers or other shippers that may purchase gas at the Cheyenne Hub. The projects continue to progress on schedule. Both recently received their notice of environmental review from the FERC and we continue to expect in service in the fourth quarter of 2019. In the crude oil transportation segment, we recently announced the expansion of our joint venture with Silver Creek Midstream, which will operate under the name Powder River Gateway. Tallgrass will own 51% and operate the JV, which will own the Powder River Express pipeline, the Iron Horse pipeline, and the terminal assets at Guernsey that will serve both pipelines. As we have said for some time, we expect the Powder River Basin to experience strong production growth over the next 12 months to 24 months. The number of producers expanding acreage positions and advancing drilling plans for the PRB is increasing and expanding our midstream footprints in the base, positions us nicely to handle more of those growing volumes. In addition to our enhanced powder footprint, work is progressing on the Grasslands Terminal in the DJ basin and the expansion of Pony Express's mainline. Further work completed to-date, capacity has increased to approximately 365,000 barrels per day already and we expect a further increase it to somewhere between 390,000 and 400,000 barrels per day by year-end. In addition, we are also working on plans to significantly expand the capacity of the system through looping some portions of the pipe. So stay tuned for an open season announcement in the near future. In Q3, the average daily throughput on Pony Express was a robust 340,000 barrels per day and as Gary mentioned earlier, September was prorated to 358,000 barrels per day. October is expected to be prorated at 364,000 barrels per day and November is also expected to be prorated at 365,000 barrels per day on record nominations in excess of 420,000 barrels. These figures support our ongoing recontracting discussions; the additional expansion plans being proposed and of course the downstream Seahorse and PLT projects. At Tallgrass midstream, our average quarterly volumes continue to grow in Q3 as we connected additional wells to our gathering system. In addition, we continue to make progress on permit applications for up to an additional 200 million cubic feet a day of processing at the Douglas Facility. Turning to BNN Water Solutions, our North Dakota water disposal assets are performing well. The build-out of the water gathering system associated with this acquisition is nearing completion and our volumes through both systems are beginning to ramp as we expected, albeit a little later than originally anticipated. We are seeing strong acquisition and organic growth opportunities within the water business and are actively pursuing a number of acquisitions, which would further expand our footprint in basins we currently serve and give us an entree into basins that would be new to us. Finally, I know many of you are interested in updates on the Seahorse Pipeline and Plaquemines Liquids Terminal projects that we announced in early August. We continue to make progress on these two separate and distinct projects. We have received extensive interest in both. We have signed between 40 and 50 confidentiality agreements for the Seahorse Pipeline alone. You may have seen that we extended the open season for Seahorse till November 15 and we are in ongoing discussions with multiple interested counterparties. As with most projects of this size and scale, the process can and will be iterative when large commitments and long contract tenders are being contemplated. Based on the level of interest, we have received to-date and the productive conversations we are having, we are extremely optimistic that the project will be commercialized in the near future. While project economics improve notably at higher volumes, we currently believe the project will be accretive between 300,000 and 400,000 barrels per day of commitments. With regard to Plaquemines Liquids Terminal, we continue to make progress on the commercialization of the project and expect to purchase in short order the land where the terminal will be located. And now, David will conclude our remarks ahead of the Q&A.
David Dehaemers: As we wrap up communicating another quarter of outstanding performance, our team have more than 700 employees continues to focus on the future, identifying, planning, and executing the many activities that support our strategic plan, which results in value creation for our customers and shareholders, and strengthens our position as a leading infrastructure company. As always, thank you to our employees for what they do everyday to keep themselves and our community safe, our assets reliably operating. Thank you as well to our shareholders for their confidence in investing in TGE and to everyone on this call for your interest in our Company. With that, we'll turn the call back to the operator to begin the Q&A portion of our call.
Operator: Thank you. [Operator Instructions] We’ll now take our first question from Spiro Dounis of Credit Suisse.
Spiro Dounis: Hey, guys. Good afternoon.
David Dehaemers: Hi Spiro.
Spiro Dounis: Hey, just wanted to start off on Pony and maybe thinking about the ability to get more crude into Guernsey in order to really fill Pony up. And I guess we were under the impression that maybe there's some pipeline constraints upstream here and the Bakken getting it down. And so I guess, where do you see the incremental crude coming from? Is it all really coming from the PRB? Obviously, the Gateway project helps with that. Are you seeing some trucked in or railed in? And then ultimately, how does this drive your view now of what we think rates might recontract next year on Pony?
David Dehaemers: I don't know that we now have any upstream pipeline constraints. In fact, I believe that the HH owners are talking about a small expansion they can do as well as the [indiscernible] companies’ lines. Most of our ramp – they are limited, I mean, there are definite size, et cetera, I don't know that that necessarily translates into constraints relative to what we see our upside being. The Powder is really – I think the big tsunami wave that I think is coming that we believe we're going to catch. Do you want to add to that?
William Moler: I think that's right. Spiro, this is Bill. Today – what's driving a little bit of today is the turnarounds of refining in Pad 2 has everything backed up. That being said, what's being produced versus what there is takeaway in the Bakken today is we do not see active constraints in the Bakken when you look at truck, rail, pipe takeaway, et cetera. The downtime and turnaround of those refineries is causing some of the backup that we're seeing today. But there is also production growth, but there is still room – infrastructure room in the Bakken to get it out, including the western pathways that come down into Guernsey that we take advantage of. We have had conversations with upstream folks about expansions. Obviously, we are working diligently to catch the tsunami that Dave talked about in the Powder and working to contract with parties on Iron Horse and PRE as we speak. And the beauty of Pony is, we are not limited to Bakken production, Powder production, Wyoming production or DJ production. We are connected to all of those sources and where one falls back, we certainly expect the others to pick up the slack.
Spiro Dounis: Got it. Okay. Makes sense. And then just in terms of Seahorse, thinking about funding there. I think your base case on that project was to basically go it alone and funded in-house. But just curious now based on some of the initial feedback you received throughout the open season, any big strategic partners stick out in your mind and maybe you could come in J.B. this project with you and take a large portion of the volume?
David Dehaemers: Yes. We alluded to it in the design remarks that we had here. We're working with a couple of potential anchors shippers now. It's safe to say, as we said before that we would suspect most anchor shippers would be interested in having equity piece of it, a small equity piece. And so again, just to reiterate that we've described that before, as you know, we may have one that is 25% of the project and we're 75%. We may have two or three anchor shippers, let's just say three that are 10% or 12% each that we end up having 37.5% out to them and we own 62.5%. So I mean that nothing has really changed from that evolution of comments.
Spiro Dounis: Got it. Appreciate the color. Thanks guys.
David Dehaemers: Thank you, sir.
Operator: Thank you. We can now take our next question from Tom Abrams of Morgan Stanley.
Thomas Abrams: Okay. Thanks a lot. Your comments actually covered a lot of the things that I was wondering about, but you did allude to that looping of Pony. Could you expand a little bit about what the potential there? Is it 100, 400, what kind of size that looping achieved for you?
David Dehaemers: Tom, Bill is going to give you some more information, but I mean let's just remember that we're starting probably from the premise that 1/1/2019 Pony is capable of doing somewhere around 400,000 barrels a day. So with that…
William Moler: Which I think is a good reminder that in and of itself is a – since inception of 70,000 barrel increase to our nameplate capacity when we put the facilities in service in 2014. So we're doing that as we speak with pumps and a few piping changes, some easy low hanging fruit type opportunities between Guernsey and Sterling. A loop of that line could double capacity out of there to 100,000 additional barrels, 200,000 barrels just depending upon what you and others maybe willing to sign up for. That was a pitch for you to sign up by the way. So we can expand the pipe between Guernsey and Sterling pretty easily and pretty economically. From Sterling South, you're talking about a much more capital expense, but it is doable.
Thomas Abrams: All right. And then this was down in Louisiana, the Seahorse comes in. I'm trying to get a sense of how the two parts, the Seahorse and the Plaquemines Terminal, where the line is? Does the Seahorse comes in? Does that include some terminalling and some dock space? And then the part that you referred to is the Plaquemines Liquids Terminal includes more storage dock and the VLCC that how you're distinguishing between those two?
David Dehaemers: Yes. We probably can’t have Seahorse without Plaquemines and to some degree where we could have Plaquemines without Seahorse. They are depended on one another. So there is nothing that Seahorse would have outside of Plaquemines. Plaquemines will essentially act as the terminalling facilities and have the dockage to load the Suezmax vessels on the Mississippi there. We would have storage there both for barrels coming down, Seahorse as well as barrels that may come up from a buoy that is about 50 to 60 miles further south that we would run to that we can load VLCCs on, but we can also offload them and bring them to Plaquemines and then out of Plaquemines, move them up into the loop and/or the St. James refinery complex. So Seahorse goes in the Plaquemines and gets barrels there and they then go onto boats either on the river or out in the gulf, and then also Plaquemines would act as a storage/terminalling/staging area for barrels that might come off of boats and/or barges to go into the refinery complex. And those would be probably – have these coming from other places. Does that help?
Thomas Abrams: Yes, it does. And just last question. In the last call when you introduced the project, I think you put out a number $2.5 billion, if everything comes together. And I wanted to understand better if you do Seahorse and some terminalling, but not the VLCC and more terminalling. Is there $1.5 billion or where's the kind of the initial must do versus the everything at $2.5 billion?
William Moler: Yes. This is Bill. I think that the must do is the Plaquemines Terminal. People want to get to the water. The water is the value, so the must do is the terminal, which would include the Suez load out. Seahorse, just as a reminder, Seahorse is going through Lafayette and through St. James before it ever gets to PLT. So we differentiate ourselves from other water bound projects by the shear fact that if the boat doesn't show or a Hurricane is in the Gulf or there is some other weather event or a geopolitical event that occurs and boats don't make it to the dock that the barrels have other places to go. That differentiates us from corpus. You know, there's 3.2 million barrels of refinery burn just upstream of [flack ovens]. And as such, those barrels have another, another location to go. So dollar wise, it's really hard to tell at this point, VLCC is, people have talked about it. They wanted it. It's got to be economic for both parties. The Terminal and the Suez is something that is much easier and readily doable in a more rapid fashion. And discussions are being held about all three parts, a Pelican pipeline, which is the VLCC connection, the Plaquemines Terminal, which is the Suez connection, and then Seahorse, which could go to St. James, and be differentiated from a PLT altogether.
Thomas Abrams: So it sounds like a definitely work in progress. But I want to give you answer. Is it safe to say that initially you might spend $1.5 billion and then depending on things happen, you extend, you add ports, you had VLCC that's the other billion, you said just order of magnitude or is it really $2 billion to $2.5 billion no matter what at this stage?
Gary Brauchle: I really wish I could answer your question at this point, but until we know volumes, locations, who's coming on, who's going off, it's a hard number to target. But what we are targeting internally is $2.5 billion.
Thomas Abrams: All right, thanks a lot.
Operator: Thank you. We can now take our next question from Colton Bean of Tudor, Pickering, Holt.
Colton Bean: Good afternoon. So Bill, when you look at the ultimate capacity on Pony Express, is there any variability there in terms of the segments? So thinking the converted capacity that was previously the natural gas line versus a newbuild portion down to Cushing? Is there variation there when you look at looping and how much of that you'd have to loop? Does it vary between those two segments?
William Moler: It can, if you're asking, do we have $400 available at Guernsey all the way to and through Cushing? The answer to that is we will have. There is a little a disparity between the two today. The Guernsey to sterling path being a little less than Sterling to Cushing and you can understand why that is because we have 100,000 barrels coming in from Northeast Colorado that joined the barrels at – that come down from Guernsey. So south of Sterling, and we really look at it in three parts. South of Sterling is full 400 nickel, today is just north of 100,000 barrels 1.20. And then a Guernsey down to Sterling is 2.60 going to 3.20 as we do the pump work, so and beyond that, if we decide to loop in.
Colton Bean: Got it, Okay, and so thinking further downstream though, it's fairly ratable across the pipe. There's no material variance past Sterling it looks like?
William Moler: That's accurate.
Colton Bean: Got it. Okay. And just to follow-up in the Cheyenne Connector. So in the event that prop 1:12 were to proceed? Is there any flexibility there in terms of capital spend between now and can a Q3 or Q4, I guess 20 19 and service?
David Dehaemers: Flexibility in terms of what cutting it down.
Colton Bean: Whether it be from a skill for – or a timing standpoint and I'm assuming there's already been capital spent today. So just any thoughts around, maybe downside mitigation if that proposal were to proceed.
David Dehaemers: First, I mean, well, no, six days from now, whether that proposal procedure or not so, we'll have full knowledge at that point whether relative to your question. Projects going forward I mean, I don't think we feel like it's impacted on the gas side nearly by 1:12. So 600 it's committed by shippers and all the pipes going in.
Colton Bean: Got it. And this is the last one. So looking at the freshwater volumes for the quarter, any commentary in terms of what kind of the step down was there on a Q-over-Q basis looks like through pretty big drop off versus what we saw in the first half of the year?
David Dehaemers: Yes. Colton, it's just timing of needs of customers, primarily around the western assets and what they need for their schedule. I wouldn't look to see that that come back quite in the fourth quarter either. I'm just so you know.
Colton Bean: Got it. Okay. Well, that's helpful. Appreciate that.
David Dehaemers: You bet.
Operator: Thank you. We can now take our next question from Ethan Bellamy of R. W. Baird.
Ethan Bellamy: Hey, guys, I'm going to beat this dead horse, on 1:12 do you guys have base cash impacted expectation in order to path. And I asked that specifically because my expectation is if it does, the stock will overreact to the downside and I'd like to be able to accurately assess, what the impact should be order to path?
David Dehaemers: Yes. The answer to your question is no, it's just a guess. Again, you'll know six days from now, this whole thing about 1:12 is frankly a little ridiculous. I mean, I don't know if you guys saw the thing where it was in the news yesterday that who was it noble at a 770 well comprehensive drilling plan for 64 acres in world county approved. I mean, you guys can go ahead and worry about this all you want. We don't like it anymore than anybody else does, the few things that I know that we're going to happen next week from today on the seventh or we'll know whether 1:12 got voted up or down and I know that the sun will come up that morning somewhere in the world and that my dogs will still love me. I'm pretty sure. Those three things I'm pretty sure about, but you're trying to if 1:12 passes you guys; everybody wants to focus on that day, that thing. I mean, it's not like the world's going to come end that day. You guys do the analysis of what really ends up being legislated in, there's going to be a lot of wells have been being permitted, so on and so forth and the no we haven't scoped it down to give you a number of what the impact is. You can make something hope if you want.
Gary Brauchle: Ethan, the reason, I'm sure you understand this, but just for everybody's benefited. Even if it does pass, okay. I mean there are so many different outcomes as to what the future from there we'll look like relative to the impact of its passage and that that is a well-by-well a customer-by-customer and a complete based on analysis that will only be known as the true impact of its passage happens and what happens around those individual wells and then the volumes on our system. So it's very difficult to predict you would think understand.
William Moler: Hey Ethan, I'll just add to that by saying, up or down legacy permits are going to get drilled. Okay. Noble just got 770 of them yesterday. Those legacy permits are attached to our systems. Is it going to happen if it passes Tuesday, do we have a cash flow impact on Wednesday? The answer is no. Do we have a cash flow impact by December 31 Q4 the answer's no. Do we have a cash impact between Q4 and Q3 of next year? The answer again is likely no. And if and when we do start to see rigs move out of Colorado, where are they going? They're going to go to the Powder River basin and we're building infrastructure to successfully capture those volumes from the Powder. It is why Pony has a diverse supply bound pipeline is better positioned than most if not all, to not have very much impact from the up or down both on proposition 1:12.
Ethan Bellamy: I have one follow-up question. Will you guys be in a quiet period or would be able to buy dock on November 7?
David Dehaemers: We will buy stock tomorrow. Yep, we'll be able to buy stock through November 7th, 8th, 9th and plus we have material nonpublic information. As of right now, I don't think I have any.
Ethan Bellamy: Thanks guys.
David Dehaemers: You bet.
Operator: Thank you. We can now take our next question from Michael Blum of Wells Fargo.
David Dehaemers: Hey Michael.
Michael Blum: Hi. Good afternoon. I think we've hit pretty much everything. I just had one kind of follow-up clarification on Seahorse. So I guess, what is the next milestone we should look for? Is it basically an FID announcement? Is that the next item that we will see?
David Dehaemers: I'll give you something. One thing, we had a Board meeting today. We did approve at the Board the go ahead to go ahead and acquire the land down in Louisiana. And so we're going forward that we had an agreement subject to Board out for the acquisition of the property there. But I would say you're thinking about it, right? The next thing you'll see is an FID. I would tell you, we were actually hoping today, although we were not going to do this every time, but we talked to the market basically once a quarter when we have these calls. We do go to conferences and things like that. I think you're thinking about it, right? Relative to FID, we were hoping to tell you that – and this just tells you how close we are to having something to tell to talk about if we wanted to and we were hoping to say that we did have one anchor shipper bound up as of today that would get us part of the way there to FID. We are unfortunately not able to do that, but we may find out that we get off this call and that happens. I absent that you're not going to see us drip dropping out information about we have this, we have that and not get to FID. You most likely will hear an announcement that we've cornered up enough stuff to have a 300,000 to 400,000 barrel project ready to go.
Michael Blum: Okay. Thanks David. Appreciated.
David Dehaemers: You bet.
Operator: Thank you. We can now take our next question from Christine Cho of Barclays.
David Dehaemers: Hey Christine.
Christine Cho: Hi. So actually as a follow-up to the last question. Is there any update on the regulatory stuff or the Seahorse Pipeline that you can update us on? I mean, I'm assuming that you're doing that stuff in conjunction with trying to garner up the commercial interest.
David Dehaemers: Christine, we are progressing forward with land, work and title search and routing and all of those things that one does as they prepare to execute on a project of this magnitude. I don't really want to get into any of the specifics or particulars about permits or land activity, but we are absolutely progressing forward and moving as rapidly as we can to make sure that we can meet the earliest possible in service date that people are looking for.
Christine Cho: What is the earliest in-service date people are looking for?
David Dehaemers: You would have to ask them.
Christine Cho: Well, maybe asked another way. Assuming – like if we were to assume that, you got customer commitments tomorrow, when do you think you would be able to issue FID at the earliest? Because I'm assuming the regulatory stuff would then be the limiting factor.
David Dehaemers: It could be. Again, this pipeline is, although it's FERC-regulated, it's not like a natural gas pipeline. You don't need to have a 7(c) certificate to construct it. You do have to go through all of the states and get the proper permitting in that regard. We're trying to – I think we've announced that we would be in service sometime in 2021. We are pushing that schedule as much as we possibly can to try to accommodate a 20 – a late 2020 in service date. And so we're out, making sure that we are tackling some of those long lead item issues now so that we can get ahead of that game.
Gary Brauchle: Yes. Christine, I think your questions are good and I think Bill was just trying to tell you, we'd like to do it tomorrow. I mean, we'd like to, but it's dependent upon when the parties come to the table and we get to binding agreements. The answer to your question is, when did we announce FID? We could announce it by the end of the year if everything lined up right, realistically, it might be the first or second quarter next year. And I think we've told everybody pretty consistently from FID. We would expect to be operating within two years of FID.
Christine Cho: Okay, helpful. Thank you.
Gary Brauchle: You bet.
Christine Cho: Can you just remind us, who is responsible for the line fill?
Gary Brauchle: Shippers.
Christine Cho: So is it the anchor shippers or is it all shippers?
Gary Brauchle: All shippers.
Christine Cho: Okay. You just there like pro rata, like capacity on the pipeline?
Gary Brauchle: Yes.
Christine Cho: Okay. And then just the clarification on one of the earlier comments, you guys talk about how you can loop it sounded from currency to Sterling and maybe open up 100,000 to 200,000 barrels per day. But what about south of Sterling, so you can debottleneck that, but can it flow further south of Sterling without spending any more money there or you do have to spend money?
Gary Brauchle: We today are already spending money, Christine, on a pump up grades and that's how we're getting to 400 or north of 400 south of Sterling to go beyond that it's either more pumps and looping or looping alone. But we're looking at those opportunities now should we be lucky enough to have that kind of expansion, opportunity presented to us.
Christine Cho: Okay. And it might be a little early for this question, but I would think that you guys would open up the possibility of doing joint tariff with Seahorse, more upstream with your own pipes. So like Pony and Iron Horse, et cetera. What about third party pipe?
David Dehaemers: Yes, I'm glad you. I'm not sure I totally understand your question there at the end of that third party pipes. But I'm glad you brought up that topic that we did have the original open season on Seahorse, it was finding, but that we've extended that and just trying to get everybody to come to the table in a linear fashion to get the contract. You most likely will see sometime in the next 30 to 45 days, you will see additional open seasons on Seahorse where we give the joint tariff rates, not just from Cushing to Plaquemines or Cushing to Belvieu, but we give joint tariff rates on all of our upstream Pony lines to through Cushing on Seahorse to those two points also. And then we are in talks with obviously our upstream third party, and this is probably what you were getting at is, the Belle Fourche line, the true lines and then the Double H lines, we're in discussions with them to try and – work with them to try and get some offerings out there relative to joint tariffs all the way from the Bakken to the water.
Christine Cho: What about other third-party pipes that feed into Cushing?
Gary Brauchle: I think Christine that we would – if a shipper from the Permian wanted to on a joint tariff basis, flow medallion to Seahorse to the water, we would sit down and try to work with medallion to develop a joint tariff to accommodate that path. If somebody wanted to come down, the other pipes that leave the Rockies that come to Cushing and we want – yes, we would sit there and negotiate with all parties to effectuate the most seamless pathway out for shippers who wanted to use other peoples' pipes to get to Seahorse.
William Moler: You were saying about Guernsey though. Do you have some – can you name a pipeline or two you're curious about?
Christine Cho: No. I wasn't specifically saying Guernsey to Cushing. I was talking exactly what he was talking about like – like the base in pipeline to Cushing or they Saddlehorn Pipeline to Cushing, et cetera.
David Dehaemers: Yes. I mean, I think it's completely possible that we have customers on Seahorse who are getting their barrels out of the SCOOP, STACK that we never would have touched before, but for Seahorse. And maybe we have a joint tariff one align that's coming out of the SCOOP, STACK. It's not inconceivable that we have a joint tariff with White Cliffs or Grand Mesa, or Saddlehorn or whatever it is.
Christine Cho: Okay. Yes, that was my question. Thank you.
David Dehaemers: You bet.
Operator: Thank you. We can now take our next question from Michael Lapides of Goldman Sachs. Please go ahead. Your line is open.
David Dehaemers: Hey, Michael.
Michael Lapides: Hey, guys. Thanks for taking my question. Real quickly just on REX. How do you think about the cadence over the next year, kind of thinking it's about a year out? So some of the – original legacy contracts start to roll-off? How do you think about the cadence for recontracting REX and what are the types of solutions or types of alternatives that customers you're talking to shippers are kind of seeking meaning longer-term contracts, very short-term measured in one or two years or even shorter-term than that. Just what's kind of the interest level and the feedback you're getting from shippers?
David Dehaemers: Yes, good question. And I'll let bill after I say a little bit, kind of maybe REX more eloquently, but just to be real as clear as I can, all these legacy contracts don't roll-off for even another year. I mean, so again, we've been – seems like we've been talking about this now for six years. Notwithstanding, we did on the west end but the stuff on the west end or sorry before we did this stuff on the east end, but the stuff on the west end that is going to expire doesn't expire for over, it's probably expires November of next year. So relative to the cadence, like we've said all along, we believe as you get closer and closer to those expertise. We may even have some renewals this year, before the end of the year, but I guess more pressing for everybody relative to the closer and closer you get to those. We have a list of like 20 potential customers, some of which are existing a number of which are new to the basin and they're sizable names you would know about him if you thought them through, et cetera, we're talking to all those people. And we do not anticipate it's just not foreseeable that we're not going to have a renewal the pipeline full at rates that are attractive in line with what we have given in our most recent slide decks that we presented. So do you want to add to?
Gary Brauchle: The only thing I would add is that we have been preparing for this recontracting event for years. It's culminated in the Cheyenne Connector and the Cheyenne Hub project, which is bringing $600 million cubic feet a day of incremental volume right into the mouth of REX. That's not coming from the [indiscernible], that's not coming from Echo Springs, that is not coming from the Powder or Wyoming. And then you have the Powder which is likely to balloon and continue to add volume. Our goal is to have enough volume at Cheyenne that people have recontract and it depends on where their gas purchases are, whether they're making a purchase at Cheyenne or whether they're making a producer out of the [indiscernible] that needs to continue flowing their gas or their new guys coming out of the Powder. So there's going to be enough volume there to go around and I think our current volumes flowing at much higher rates today is indicative of just add $600 million to our 1.5 that's flowing west to east and one could convince themselves that we may be looking at a western to expansion before it's all said and done.
Michael Lapides: And just kind of talking to investors over the next year because it seems like this is going to just play out gradually over the next year, maybe even beyond, is to just kind of continually give updates on the recontracting process, including either volume or kind of how the rates came in relative to which all have disclosed over the last six to 12 months or so?
David Dehaemers: I'm glad you asked that Michael. There is no single contract actually on Pony or REX. So I mean, we'll just stay with REX and says what you're talking about here. There is no single contract on REX that is material to our Company and having talked about it for as long as we have, I think probably what you'll see going forward from us is that just someday in the next six months, will it either one of these calls are at some conference, just say, by the way, everybody REX west end is recontracted for five years at the rates that we've told you that we were going to get. So again, I don't see us water dropping this anymore. This whole thing is seemed silly to me relative to investors, particularly ones that want to have a short thesis out there that REX is going to – we’re going to either – we have sold REX out before, it max rates for a month. Do you know what max rates are? They're a dollar $80. That $80 divided by 12 months would be $0.15 per month ratably, and we would still have the 11 months to sell it again. And so the whole concept of REX either not recontracting and/or being full is in my mind is ludicrous or not being contracted at the rates that we've told people that we're going to contract at because obviously we're in control of what rate we do recontract that, right? So it just – it's a silly thing in my mind, it's like I-70, it goes from Grand Junction, call it [indiscernible], it may even go to California for all I know. But if I-70 was a toll road and it went from, LA to Memphis, Tennessee or – and let's just even talk about where we live today, Kansas City to St. Louis. I have no doubt that there's going to be a lot of cars wanting to go from Kansas City to St. Louis on I-70. If it was a toll road, they pay that toll. I know that I wouldn't want to have to take the little two lane highways and take about twice as much time as I needed to and to get from Kansas City to St. Louis. And so that's the analogy I make relative to REX is just [indiscernible] going to be full and it's going to be at a rate that is market clearing and works for both us and our shipper customers.
Gary Brauchle: Relative to 10-year, we're going to do our very best to not replicate a contract cliff where everything expires five years from November of 2019, not the same day.
Michael Lapides: Got it. Thank you, guys. Much appreciate it.
David Dehaemers: You bet. Thanks, Michael. Did you ask for one more? End of Q&A
Operator: Yes. [Operator Instructions] There are no further questions in the queue at this time. I'd like to hand the call over.
David Dehaemers: Yes. So we – I'll just end it with a few additional comments. This is a great time of year here in Kansas City. We've got the things that I love about it or that particularly these two days here, December or October 30, October 31. We've got great fall colors. It's beautiful. Halloween is really kind of cool. I've got three small granddaughters. I love that about it. I do always love having our audit committee and Board meetings, on the 30 or 31, always makes for a lot of fun. Probably the top of the list is we went ex-dividend yesterday and I do love getting my dividends and probably the thing right behind that, but I love the most is it warms my heart to think about all those [shorts out there who are short TEGE] and needing to come up with $0.51 out of their pocket to make that dividend payment to from whoever they borrowed the stock. So with all that, really appreciate everybody's interested in our Company. I hope you are on the side of angels relative to enjoying life, enjoying the fall colors and Halloween and all that stuff. Thanks for everything and, we'll see you next quarter.