Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Generated $306 million of adjusted EBITDA for the quarter, driven by the Tiger II plant going into service in the Permian.
- Achieved solid free cash flow after distributions of approximately $53 million.
- Repurchased approximately $50 million of units outstanding, taking total buyback execution to more than 10% of units outstanding over a little more than 2 years.
- Announced the first expansion of natural gas storage assets in Louisiana, representing the third project to meet the evolving market.
- Successfully brought online the third relocated processing plant in the Permian, Tiger II, which represents efficient capital allocation with significant cost savings.
Negative Points
- Unable to find alternative CO2 transportation projects with ExxonMobil, leading to a reassessment of the Pecan Island CCS project.
- Segment profit in Louisiana decreased approximately 39% sequentially and 9% compared to the prior year quarter, reflecting seasonality and weather-related activity.
- North Texas segment profit decreased 11% sequentially and 28% from the prior year quarter, driven by a one-time contract reset.
- The CCS business has been slower to develop, impacting potential future growth in this area.
- Capital expenditures, plant relocation expenses, and investment contributions were high at $103 million for the second quarter.
Q & A Highlights
Q: If we look at the first half results and compare against the midpoint of full year EBITDA guidance, it would imply a fairly steep ramp in the second half. Can you unpack some of the drivers of growth between first half and second half?
A: Benjamin Lamb, CFO: The Tiger II plant, which came online in May, will contribute more in the second half. Additionally, the NGL business typically sees its strongest quarter in Q4. We also expect storage-related activity in Louisiana and some contribution from the Matterhorn JV in Q4.
Q: Can you discuss the opportunity to renegotiate NGL transportation rates in the Permian?
A: Dilanka Seimon, CCO: We control about 150,000 barrels per day of NGLs in the Permian. These contracts start to expire over the next 3 to 4 years, and we expect to recontract at lower rates, capturing some value.
Q: What should we expect next in Louisiana, particularly around Phase 3 projects?
A: Dilanka Seimon, CCO: We are working on renewing 2025 expirations and debottlenecking projects. We see opportunities from LNG, power demand, and industrials, particularly ammonia projects. We are also considering further expansions at Jefferson Island Storage Hub (JISH) or Napoleonville.
Q: How are you thinking about the need for the next processing plant in the Permian?
A: Benjamin Lamb, CFO: We have been on a pace of a plant a year in the Permian. The next plant will likely be in the Midland Basin and another cost-effective plant relocation. We may have news on this front soon.
Q: What is the timeframe for the CCS market to mature and support more commercial arrangements?
A: Jesse Arenivas, CEO: The CCS space is slower to develop, but we are well-positioned with nearby sequestration and existing pipelines. We are in ongoing discussions with multiple parties, but the timing is uncertain as emitters are still evaluating their options.
Q: Can you remind us of the level of commodity price exposure in the business today?
A: Benjamin Lamb, CFO: We are about 90% fee-based and 10% commodity-based, with significant hedging in place. The Permian has some POP gathering and processing agreements, but the impact is minimal due to hedging.
Q: Any updates on the timeline for the Matterhorn pipeline to start service?
A: Benjamin Lamb, CFO: We expect the Matterhorn pipeline to be in service in September, with some contribution to financials in Q4.
Q: How do you see the impact of negative Waha prices on your operations?
A: Benjamin Lamb, CFO: We hedge our Waha basis exposure proactively. The impact on producer behavior is minimal in an oil-directed basin, so we haven't seen much effect from weak Waha prices.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
