ONEOK, Inc. (NYSE:OKE) Q1 2023 Earnings Call Transcript

ONEOK, Inc. (NYSE:OKE) Q1 2023 Earnings Call Transcript May 3, 2023

Operator: Good day. And welcome to the ONEOK First Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Ziola, VP of Investor Relations. Please go ahead.

Andrew Ziola: Thank you, Chad. And welcome to ONEOK’s first quarter 2023 earnings call. We issued our earnings release and presentation after the markets closed yesterday and those materials are on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that might include ONEOK’s expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Just a reminder for Q&A, we ask that you limit yourself to one question and one quick follow-up in order to fit in as many of you as we can. With that, I’ll turn the call over to Pierce Norton, President and Chief Executive Officer. Thank you.

Pierce Norton: Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today’s call is Walt Hulse, our Chief Financial Officer and Executive Vice President, Investor Relations and Corporate Development; and Kevin Burdick, the Executive Vice President and Chief Commercial Officer. Also available to answer your questions are Sheridan Swords, Senior Vice President, Natural Gas Liquids and Natural Gas Gathering and Processing; and Chuck Kelley, Senior Vice President, Natural Gas Pipelines. Yesterday, we announced first quarter 2023 earnings and affirmed our full year 2023 financial guidance. Strong first quarter results were supported by continued earnings growth in each of our businesses, with higher Natural Gas Processed and Natural Gas Liquids volumes, providing a solid start to the year.

Producer activity continues to drive new volume to our assets and recent conversations with customers point to additional activity through the remainder of the year. Crude prices well above breakeven economics in the Basins where we operate and continued strong demand for U.S. energy support, a constructive outlook for 2023. We provide midstream services to some of the largest, most well-capitalized producers in the U.S., helping contribute to our history of earnings stability and growth despite commodity prices. We continue to evaluate infrastructure and the needs of these customers so that we can provide added capacity or services aligned with their growth. The successful completion of our Demicks Lake III natural gas processing plant and MB-5 fractionator projects provide additional system capacity and resiliency, and are examples of our continued focus on organic growth aligned with our customers’ needs.

We remain financially well positioned with significant balance sheet strength and flexibility to support continued growth. Our capital allocation priorities remain consistent, with ONEOK’s unique ability to identify and execute on high return organic growth opportunities setting us apart. With that, I’ll turn the call over to Walt for a discussion of our financial performance.

Walt Hulse: Thank you, Pierce. ONEOK’s first quarter 2023 net income totaled $1.05 billion or $2.34 per share and adjusted EBITDA for the period totaled $1.72 billion. As we discussed on our last call, we booked the gain related to the Medford insurance settlement in the first quarter, resulting in a net increase in operating income and adjusted EBITDA of $733 million. This reflects the insurance settlement gain of $779 million, offset partially by $46 million of third-party fractionation costs incurred during the first quarter. We expect third-party fractionation costs to remain around this level with the potential to decrease through the remainder of the year as our MB-5 fractionator ramps up. Excluding the Medford impact, net income increased 24% year-over-year and adjusted EBITDA increased 14% over the same period, benefiting from increased NGL and natural gas processed volumes, higher average fee rates and higher natural gas storage rates.

We ended the first quarter with a higher inventory of unfractionated NGLs primarily due to the timing of the MB-5 fractionator being placed in service and expect to recognize approximately $12 million over the second quarters and third quarters as that inventory is fractionated and sold. In April, Moody’s upgraded ONEOK’s credit rating to Baa2 from Baa3, recognizing our significant deleveraging, conservative financial policy and consistent strong operating and financial governance. Our net debt-to-EBITDA remains below our long-term target of 3.5 times and we had $680 million of cash and equivalents as of March 31st. Our cash balance is primarily made up of highly liquid government and treasury money market funds and deposit fully insured by the FDIC.

We’ve reduced our total debt — net debt by more than $1 billion compared with the first quarter of 2022. In February 2023, we redeemed $425 million of 5% notes due September 2023 and we recently announced a June redemption of $500 million of 7.5% notes due September 2023, both with cash on hand. As Pierce mentioned, we affirmed our financial guidance expectations in yesterday’s earnings release. With our strong first quarter performance and positive outlook for the remainder of the year, our confidence remains high in achieving our financial guidance. I’ll now turn the call over to Kevin for a commercial update.

Kevin Burdick: Thank you, Walt. Let’s start with our Natural Gas Liquids segment. First quarter 2023 NGL volumes increased both year-over-year and compared with the fourth quarter of 2022, with higher producer activity levels driving increased C3+ or propane plus volumes on our system. Permian Basin volumes saw the largest increase up 17% compared with the first quarter of 2022 and 14% compared with the fourth quarter of 2022. We continue to have success contracting additional volumes in the Basin and connected one new third-party natural gas processing plant during the first quarter. Permian producer activity remains strong and we continue to consider incremental expansions on our West Texas NGL system to accommodate increasing volumes.

Volumes in the Rocky Mountain region increased during the first quarter compared with the same period last year and decreased slightly compared with the fourth quarter 2022. The decrease was driven entirely by reduced ethane recovery as our propane plus volumes increased sequentially. We expect volumes to continue to grow in the spring and summer months. In the Mid-Continent region, consistent producer activity in the STACK and SCOOP continues to drive NGL volumes on our system. Raw feed throughput volumes increased compared with the fourth quarter 2022, driven primarily by higher ethane recovery. Regarding the macro ethane environment, we expect domestic petrochemical utilization rates to continue to improve as we move through 2023. With lower sustained natural gas pricing and lower ethane inventory levels driving improved ethane economics and volumes across our system.

Through the remainder of the year, we continue to expect that the Permian Basin will stay at high levels of ethane recovery, the Mid-Continent will be in partial recovery and that we will have opportunities for incentivized recovery in the Rocky Mountain region. In April, we completed our 125,000 barrel per day MB-5 fractionator in Mont Belvieu. With MB-5 now fully operational, our system-wide fractionation capacity is nearly 900,000 barrels per day. The added capacity will be used to accommodate volume growth and reduce third-party fractionation needs. We remain on track to complete our MB-6 fractionator in the first quarter of 2025. In the Natural Gas Gathering and Processing segment, first quarter processed volumes averaged more than 2.1 billion cubic feet per day, an 11% increase compared with the first quarter of 2022.

In the Rocky Mountain region, processed volumes averaged nearly 1.4 billion cubic feet per day during the first quarter and have recently reached more than 1.5 Bcf per day. We connected nearly 150 wells in the region during the quarter, compared with approximately 90 connections in the first quarter of 2022, a more than 60% increase. Well connections in the region are currently on pace to exceed our guidance midpoint of $500 million for the year. There are currently approximately 40 rigs and 23 completion crews operating in the Basin with 20 rigs and approximately half of the completion crews on our dedicated acreage. We continue to expect additional rigs entering the region as we exit winter. In the Mid-Continent region, first quarter processed volumes averaged more than 750 million cubic feet per day, a 27% increase year-over-year.

We connected 11 wells in the region during the first quarter, compared with six in the first quarter 2022 and are on track to be within our guidance of 45 to 55 connections. There are currently more than 50 rigs and 11 completion crews operating in the region, with 10 rigs on our dedicated acreage. Despite weakness in natural gas prices, we continue to see strong activity in the higher crude and NGL rich producing areas of the region, where producers are focusing their drilling. In the Natural Gas Pipeline segment, strong first quarter results continue to benefit from firm transportation services and the demand for natural gas storage. We are on track to complete an expansion of our natural gas storage capabilities in Oklahoma in the second quarter, allowing us to utilize and subscribe an additional 4 billion cubic feet of our existing storage capacity.

We have subscribed 100% of this incremental capacity through 2027 and 90% through 2029. We continue to evaluate the Saguaro Connector Pipeline, a potential intrastate pipeline project that would provide natural gas transportation to the U.S. and Mexico border for ultimate delivery to an export facility on the West Coast of Mexico. There continue to be positive developments related to the potential LNG export project and we still expect to make a final investment decision on the ONEOK pipeline in mid-2023. Pierce, that concludes my remarks.

Pierce Norton: Thank you, Walt and Kevin. As you both have highlighted, ONEOK is well positioned for another year of strong financial and operational performance. We continue to execute on high return organic growth projects and remain intentional, and disciplined in looking for additional opportunities to add value for our business and our stakeholders. Demand for our products and services remains robust and we’re continually looking for opportunities to enhance the vital services we provide for our customers. Our employees take pride in our position as a leading midstream operator, maintaining our focus on operational reliability, safety and environmental responsibility. As part of our core values, a focus on safety and environmental performance is at the core of our business and we’re proud of the cultures we’ve built around these key areas.

2023 is not only a year of continued financial progress, but also a year to continue our commitment to responsible operations, emissions reduction projects and our continued pursuit of a zero incident culture. With that, Operator, we’re now ready for questions.

Q&A Session

Operator: Thank you. And the first question will be from Brian Reynolds from UBS. Please go ahead.

Brian Reynolds: Hi. Good morning, everyone. Maybe to start off on the third-party frac fees. The original guidance stipulates roughly $0.25 billion in costs for all of 2023, but 1Q trended better than expected, and now with MB-5 up and running, kind of curious if you can give us an updated view on how we should see third-party frac fees trending going forward and into next year? Thanks.

Walt Hulse: So, Brian, as we said in the remarks, we expect that $46 million level to be viewed as kind of a run rate going forward with the potential for us to do better as we bring up MB-5 throughout the balance of the year.

Brian Reynolds: Great. Thanks. And as a follow-up, maybe just touch on the Bakken activity levels are off to a strong start this year with weather helping out in 1Q, given ONEOK has completed roughly a third of its Rockies well connects in 1Q. I was wondering if we should expect a slowdown in activity from producers or if we continue to see similar activities going — similar activity going forward? Thanks.

Kevin Burdick: Yeah, Brian, it’s Kevin. I think we see similar activity levels, if not a little bit stronger. Now we did as — if you remember in the fourth quarter, we were a little light on our connections and said that just timing had slipped some of those into the first quarter, so that was part. But there — the activity levels with 20 to 20-plus rigs on our acreage and that looking to be consistent, if not growing moving forward. I don’t see the activity level slowing down. That’s why we think, right now we’re — with those tailwinds looking that we’d be ahead of our midpoint of the guidance for the well connects.

Brian Reynolds: Great. Appreciate it. I will leave it there. Thanks.

Operator: And the next question will be from Jeremy Tonet from JPMorgan. Please go ahead.

Jeremy Tonet: Hi. Good morning.

Pierce Norton: Good morning, Jeremy.

Walt Hulse: Good morning, Jeremy.

Jeremy Tonet: I just want to dial into the Bakken a little bit more, if I could. That was helpful with the 1.5 Bcf per day volume number that you provided there, but just wondering on the NGL side itself. I think we saw the Bakken NGLs tick down a little bit quarter-over-quarter, but the rates went up a little bit quarter-over-quarter. Just wondering, I guess, where you see that now? How you think about NGL volumes trending in kind of like the ethane extraction economics at this point?

Sheridan Swords: So, Jeremy, this is Sheridan. What I would tell you is that, as we said in the remarks, the decrease in volume quarter-over-quarter was due to less ethane that we incentivized in the first quarter versus the fourth quarter, and actually, our C3+ volume on the NGL system was up quarter-over-quarter. So we still see good growth — good trajectory of growth going through 2023, and with low gas prices right now and we think that ethane is really the preferred feedstock in the petrochemicals, we will have plenty of opportunity to incentivize ethane other Bakken going forward as well.

Jeremy Tonet: Got it. That’s helpful. Thanks. And just wanted to kind of pivot with the insurance proceeds, obviously, a lot of capacity on the balance sheet and thinking about where that could be deployed going forward between growth or buybacks or what have you. And just any updated thoughts, I guess, as far as incremental West Texas LPG looping or other extensions of the value chain such as LPG export facility in the Houston Ship Channel.

Pierce Norton: Well, I’ll start out with the first part of it and kick it over to the other guys for the West Texas part of. Jeremy, you’re absolutely right. Our balance sheet is in a stellar shape at this point and it does give us quite a bit of flexibility. Our priorities haven’t changed at all. Our first priority is to find very high return projects that we can grow our business. Our debt reduction has kind of achieved the goals that we were looking for and that does create our flexibility for further dividend increases and potentially even stock buybacks over time. But that is our list of priorities, and as I said, high return growth projects that they’re at the top of the list and that’s a good segue into West Texas LPG.

Kevin Burdick: Yeah. Jeremy, it’s Kevin. The — as we think about, like we said in the remarks, with — the Permian volumes have been strong for us. We’ve seen nice growth there. So, clearly, we’re continuing to evaluate and we’ll stay ahead of any capacity needs we had by through our looping of West Texas LPG. So we’ll stay on top of that and won’t get caught short capacity.

Jeremy Tonet: Got it. That’s helpful. Thank you.

Operator: And the next question will be from Michael Blum from Wells Fargo. Please go ahead.

Michael Blum: Thanks. Good morning, everyone. I wanted to ask on the Saguaro Pipeline project around contracting. What percent of the pipeline do you need to be contracted to move forward and what’s sort of an average length of contract that you’re looking for?

Kevin Burdick: Well, Michael, it’s Kevin. As we think about Saguaro, we’ll look at that project from an integrated perspective. I mean you’ve got the contracts with the LNG facility, the potential pipeline in Mexico and our potential pipeline. So all those are related. At the end of the day, the offtakers are the ones that will be looking for the transportation out of Waha. So that’s the way we’re thinking about that. Not ready to talk about any contract terms or rates or anything like that yet. Still early in the process. But we are taking the steps forward and continue to move it forward. So, hopefully, we’ll be in a position to announce something midyear.

Michael Blum: Okay. Great. So just maybe a follow-up on that, since midyear is fast approaching here. If you do go forward with the project, would that result in some increase in 2023 CapEx and then just, generally, when would be CapEx for the project be spent?

Kevin Burdick: Well, that will all depend on when it — we would announce something. But again, not ready to talk about any specific capital that might hit, because we’re still unsure when it might be FID.

Michael Blum: All right. Thank you.

Operator: And our next question is from Tristan Richardson from Scotiabank. Please go ahead.

Tristan Richardson: Hey. Good morning, guys. Kevin, I appreciate your comments on the Permian. Obviously, you’ve got production growth there, as well as adding a new plant — a third-party plant. But you also talked about contracting additional volumes. Can you kind of talk about that environment, whether these are medium-, long-term deals? Just kind of what that environment looks like and how that may have contributed to the first quarter?

Kevin Burdick: Well, I think, a lot of the volumes that we’ve seen on our system are growing volumes on contracts that may have been put in place several years ago, back when even pre-COVID. But we also have seen opportunities to go contract new volumes. And Sheridan, do you want to talk about some of the things we’ve seen there?

Sheridan Swords: Yeah. I mean, obviously, volume is growing well in the Permian Basin. And as we have a lot of relationship with producers out there and processors that we’ve been able to get our fair share, if not a little bit more of the volume that’s come up. So we’ve had good luck contracting new volume, a lot of that is coming through existing plants on our system or the potential for new plants as we look into the Board. But we think we’re — have a compelling story out there to be highly competitive in a very competitive area and we are seeing some success.

Tristan Richardson: Appreciate it, Sheridan. And then maybe just the obligatory high level question. Obviously, strong results in the first quarter. Just thinking about the full year outlook, some of the conditions necessary to hit the high end versus what might need to happen to see the low end occur?

Pierce Norton: Hey, Tristan. This is Pierce. I think you all have picked up on the fact that, we’re coming out of the first quarter with some really, really strong tailwinds and that actually is a very positive move for us, a lot of times during the first quarter we’re trying to explain kind of the different trajectories that we have, but we really, really like the trajectory that we’re on now and we’ve affirmed our guidance range and stay tuned for the quarters to come.

Tristan Richardson: Appreciate it. Thank you, guys.

Operator: And the next question is from Theresa Chen from Barclays. Please go ahead.

Theresa Chen: Hi. Thank you for taking my questions. Within the G&P segment, can you talk about the fee escalation that I think kind of just wholly steps up in the second quarter now that we’re a month and change through it, how that’s trending now and how that gets to your guidance within the fee range?

Kevin Burdick: Theresa, it’s Kevin. On the fee rate, again, that’s going to move around on a couple of factors. One is just various contract mix as new volume comes on the system every quarter and then the others is the contract escalators that kick in. So we’ve said, historically, and previously that in G&P segment, that typically occurs in the spring. So you’re just seeing just the minor moves like that or just contract mix moving around from quarter-to-quarter.

Theresa Chen: Okay. And then in terms of the third-party frac fee, so I understand that you have downsized from the $46 million per quarter as you utilize some of the space on MB-5. But as some of your competitors are also bringing on additional frac capacity second half of this year and into next year, would you expect that the spot fee will also weaken to some extent. So is there further downside even in addition to you being able to use MB-5?

Walt Hulse: I think that is the potential as we look out into 2024. A lot of what we did in 2023, we have contracted it at a certain rate. But as we get into 2024 or for some reason we would need a little bit more in 2023, we’re definitely seeing spot frac rates are a lot lower than they were six months ago and that will — we predict that will continue into 2024. So we could see some additional downside or upside as it would be for us on lower third-party frac fees.

Theresa Chen: Thank you.

Operator: The next question is from Spiro Dounis from Citi. Please go ahead.

Spiro Dounis: Thanks, Operator. Hi, guys. First question actually one for about Elk Creek. Curious, you talked about keeping pace with customer needs and I acknowledge this question is probably a bit on the early side. But just given the well connect outlook, potential breathing recovery, GOR is increasing over the next year or so. When is it sort of time to start thinking about not expansion? How are you guys thinking about some of the capital needs and timing that will go into that?

Pierce Norton: I think I’ll kind of give a high level thing, throw it to Kevin here. But I can tell you that we’ve said before that we’re not going to get short — cost short on capacity. So as your question of when does it start time to thinking about it, we’re thinking about it. So I’ll let Kevin kind of fill in the blanks there.

Kevin Burdick: Yeah. We are with the strength we’ve seen recently and even going back to last year with the activity levels and the producer, the rigs that were there. But particularly now as we move into Q1 and seeing what we have seen from the producers, we’re definitely taking steps that — are already taking steps necessary to ensure that we’ve got the capacity when we need it.

Spiro Dounis: Great. That’s helpful color. Second question kind of outside the quarter as well, but over the last two years or so, even before that we’ve sort of seen you lean more in some more utility-like businesses, new storage expansions, now the potential Saguaro Pipeline, more take-or-pay style. Is that part of kind of a larger plan to introduce even more earnings stability into the platform and how should we think about maybe other avenues where you can continue to grow there?

Pierce Norton: Well, the short answer to that is yes. This is Pierce. But those things are really driven by customer demands as well, but we definitely are looking for those opportunities. That’s part of the intentionality of the diversification into those more stable earnings type areas in our footprint. So the short answer is yes.

Spiro Dounis: Understood. Appreciate the color, guys. Thank you.

Operator: And the next question will be from Jean Ann Salisbury from Bernstein. Please go ahead.

Jean Ann Salisbury: Hi. Good morning. I just have one — another one on this Saguaro Connector. I guess my understanding is that inside Mexico pipelines have — I don’t think so a disaster, but have generally been very, very far delayed and not successful. How does ONEOK and how do investors get confidence that if you build another pipeline to the border that the rest of it will be on time?

Kevin Burdick: Okay. Jean, this is Kevin. I think the way I would answer that is, I mean, obviously, we — as we come to a decision to FID or not, that will be — we’re factoring in what’s going on with the full aspect of the pipeline. And I think it’s safe to say you know us we’ll be do the things we need to do from our contractual position to mitigate that risk as much as we possibly can.

Jean Ann Salisbury: Okay. That makes sense. Thank you for taking my questions.

Operator: And thank you. The next question is from Neal Dingmann from Truist. Please go ahead.

Neal Dingmann: Good morning, all. Thanks for the time. My first question is just on the contract structure. I’m just wondering maybe in the type of valid commodity tapered now, could you remind me, I don’t think it’s changed much, but I just want to make sure I’ve got this. What percent of this year’s earnings you expect to be fee based and I’m just wondering, do you all have availability. I don’t know any of these contracts to potentially walk them up the remainder of the year?

Walt Hulse: Just, overall, we said we’re 90% fee-based and 10% commodity exposed. And then you think about the G&P business with our POP contracts where some of the direct commodity exposure occurs. We’re well hedged in 2023. So that even reduces that commodity exposure further. So really, it’s a — when you just look at it on an earnings perspective, it’s a small percentage that we have direct commodity exposure.

Neal Dingmann: Perfect. Okay. And then my second just on the Rocky Mountain Nat Gas G&P. You did have a nice step up last quarter on the total there. I’m just wondering if you remind me, how should we think about the expected cadence for the remainder of the year? I see that — I forget what slide I’m looking at here, but obviously, the guide you’ve got for the year still, we’re now already at the low side, but you’ve got a pretty good range. I’m just wondering how is pretty good step-ups we should think about?

Walt Hulse: You’re talking about the Gathering and Processing the volumes…

Neal Dingmann: Correct. Correct.

Walt Hulse: …from Rocky Mountain region.

Neal Dingmann: Yeah.

Walt Hulse: Okay. I mean, yeah, we — the first quarter, you were at the low end, and if you go to the — we referenced, we had reached here recently 1.5 Bcf. So we definitely think there’s some — there’s a ramp and that’s one of the tailwinds Pierce mentioned is where we sit today from a Bakken or Rockies volume perspective, we’re in really good shape.

Neal Dingmann: Great to hear. Thank you all.

Operator: And the next question is from Neel Mitra from Bank of America. Please go ahead.

Neel Mitra: Hi. Good morning. Thanks for taking my question. A lot has been answered. So I wanted to go a little bit beyond the quarter and with the Medford proceeds and what seems to be a strong 2023, it seems like your leverage levels are trending well below kind of the 3.5 times target. So when you think about that a little bit longer term, do you plan to stay lower like some of your peers or are you thinking more about dividend increases, repurchases or possible acquisitions and just in terms of how you plan to think about the mix?

Walt Hulse: Sure. Neel, this is Walt. Well, if you back out the gain from the Medford settlement, we’re at 3 — we are around 3.4 times. So, yes, we’re through 3.5 times, but we’re not meaningfully below it at this point. We are not concerned if that trend is lower. We would — if we don’t have investment opportunities, we like it probably would trend lower in the short-term. But we continue to look at attractive opportunities. We’ve spoken a little bit about the increases we’re seeing in the various basins and some of the expansion plans that we might need to do on some of the pipes and the like. So those are very, very high return types of projects and that’s where we like to be first. And then we have flexibility for other capital return now that we’re down and achieve these goals.

Neel Mitra: Got it. And then second question, I know you’ve seen a lot of stickiness in terms of the rigs on your activity, but now the — just we’ve seen crude fall below $70 twice this year. How do you see the producer activity given that a lot of publics have budgeted around $70 if we stay in this environment over intermediate to longer term?

Kevin Burdick: Well, Neel, this is Kevin, and I haven’t had a lot of time to talk to our customers over the last couple of days. But, what I would say, you’re right, the rigs have been very sticky. I like that word. As we — as prices — if you rewind, rigs really start coming back to the Bakken in earnest as prices move through $50, $55. That’s when we started seeing the stickiness. Now when it ran up to $110, rigs didn’t necessarily follow. But then as the prices came back down, they didn’t go away either. So we still feel very good. It’s not a matter of — that’s still well above breakeven. Producers are still make — generating a tremendous amount of cash flow even at the prices we’re seeing on the tape right now. So that would give me a lot of confidence that we’re going to continue to see that stickiness even in this type of environment.

Pierce Norton: And the only thing I’d add to that — this is Pierce is, I get the opportunity to go around and meet with these heads of many of these exploration and production companies, and they take a really long-term view. So it’s not just what is the price today, yes, the price has fallen off, improved the last couple of days. But they’re taking a long-term view of what do they think crude is going to do over time, because until they get the rigs drilled out there, drill wells producing, you don’t have the opportunity to capture whatever price it is out there. So they really take a long-term view and it seems to be a very wide path that they look at now as far as a range of prices that they don’t really get emotional and go either up or down. They stay very steady.

Neel Mitra: Okay. Great. I appreciate the color.

Operator: And the next question will come from Sunil Sibal from Seaport Global Securities. Please go ahead.

Sunil Sibal: Yes. Hi. Good morning, everybody, and thanks for the clarity on the call. So I wanted to start off on Bakken. I think there has been some chatter in the E&P community about well productivity. So I was curious if you could talk about — in the past you’ve talked about close to 400 wells per year to maintain your gas volumes. I was curious if that number has changed in your view based on some of the recent results and also it seems like gas-to-oil ratio have trended down recently?

Kevin Burdick: This is Kevin. There was a couple of questions in there. One is on well productivity and we really have not seen a degradation at all in the well productivity. We’ve — there has been a little bit of movement with the strong prices to different areas of the play. So we’ve seen some changes a little bit in potentially the gas-to-oil ratio, but nothing that would cause us concern to think that wells are getting less productive. If anything, producers, if they’re drilling in the same areas, the technology continues to improve and we’ve seen strong results. So we don’t have any concerns at this point on what’s going on with well productivity or the GORs.

Sunil Sibal: Okay. And then my follow-up was on your Natural Gas Pipeline segment. It seems like a pretty strong Q1 and even if the remainder of the year turns out to be similar to last year. I think you would exceed that guidance. So I was just curious if there are any one-time items in Q1, which helped the gas pipelines?

Chuck Kelley: Sunil, this is Chuck. No. Q1 was a solid quarter for us in all regards. Our storage revenues were higher. Obviously, we had some gas sales that we were able to pick up in the quarter like we typically do first quarter. So there wasn’t a single outlier that generated debt performance. So balance of the year, we expect to be at or above our midpoint and looking forward to see what opportunities come about this summer.

Sunil Sibal: Got it. Thanks for that.

Operator: Thank you. And the next question will be from Colton Bean from Tudor, Pickering & Holt. Please go ahead.

Colton Bean: Hi. Just a quick follow-up on Saguaro. It looks like the proposed 48-inch diameter would offer plenty of capacity over and above the proposed LNG exports in that. So can you speak to how you scope that project and what opportunities you might be tracking downstream apart from LNG?

Kevin Burdick: Colton, this is Kevin. Well, we’re just lining up again with what’s going on with the possible export facility. So as we just back up from there and what they’re talking about building in Mexico and what we would need to build for the border crossing. That’s what we’re looking at right now. But not ready to talk about any other opportunities or so forth. But there’s potential plans for the LNG facility for additional trains and so we scoped the pipe kind of what — and what they were looking for.

Colton Bean: Understood. Thank you.

Operator: And the next question is from Craig Shere from Tuohy Brothers. Please go ahead.

Craig Shere: Good morning. Just a couple of quick ones. So the Permian NGL unit rates were shown at about $0.06 versus over $0.06 in the fourth quarter. Wondering if there’s any detail or trending there? And could you remind us roughly on the increments that you can increase Elk Creek with additional pumping and what kind of CapEx that would incrementally run?

Walt Hulse: Craig, I’ll take the first — I’ll take the last one and then let Sheridan talk about the fee rates. On the Elk Creek expansion, as Pierce alluded to, Yes, we’re — it’s adding pumps up and down the pipe. So that’s — that would be the scope of the project. We haven’t talked to any specifics on what that would cost and — but, again, we’re not going to get caught short of capacity and we’re already taking the steps necessary to hopefully bring that forward.

Sheridan Swords: Craig. This is Sheridan here.

Craig Shere: Thank you. Sorry. I am sorry. Could you quickly just elaborate how quickly or soon that can be done. It’s pretty efficient stuff, right? So can you do it well under a year once the decision is made or how quickly can you roll that out?

Walt Hulse: That — again, we’re still working through. That’s the steps we’re taking is to understand exactly what that would be working with power companies, working with pump providers and things like that. So we — those are the steps. The types of steps we’re taking to ultimately come up with how long it might take. But, yeah, it’s not like building a brand-new pipeline start to finish.

Pierce Norton: Hi. This is Pierce.

Craig Shere: All right. Thank you.

Pierce Norton: The only thing I’d add to that is, the thing to remember on that as it relates to capital is, these are very high return projects. So whatever the number is, when we announced today that we’re going to do this, just be assured that it’s a very high return project.

Craig Shere: Understood. And those Permian NGL unit rates?

Sheridan Swords: Yeah. Craig, this is Sheridan. I mean we always see a little bit of escalation or changing up and down in our fee rates. It all depends on where the volume is coming from. And one of the biggest thing that drives that is if we’re getting a little bit more volume from a transport-only contract versus the TNF contract or is that mix is a little bit, it’s going to play with that rate just slightly and you’re just seeing just a little bit of a slight change. I mean it’s just noise. It’s really immaterial. It’s just kind of contract mix.

Craig Shere: Got it. So no trend going on there, just bouncing around.

Sheridan Swords: No trends. There’s no trends going on.

Craig Shere: Thanks.

Operator: And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Andrew Ziola for any closing remarks.

Andrew Ziola: Well, thank you all for joining us today. Our quiet period for the second quarter starts when we close our books in July and extends until we release earnings in early August. We’ll provide details for that conference call at a later date. Thank you all and have a good day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.