DCP Midstream, LP
Q2 2019 Earnings Call Transcript

Published: 7 Aug 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q2 2019 DCP Midstream Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call 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.

[Sarah Sandberg:]

Thank you, Gigi. Good morning, everyone, and welcome to the DCP Midstream second quarter 2019 earnings call. Today's call is being webcast and the supporting slides can be accessed under the Investors section of our website at dcpmidstream.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 partnership's latest SEC filings. We will also use various non-GAAP measures, which are reconciled to the nearest GAAP measure in schedules in the appendix section of the slides. Wouter van Kempen, CEO; and Sean O'Brien, CFO will be our speakers today. And after their remarks, we will take your questions.With that, I'll turn the call over to Wouter.

[Wouter van Kempen:]

Thank you, Sarah. Good morning everyone. We appreciate you join us. On today’s call, we will discuss our second quarter results, announce and highlight our growth projects and provide an outlook into the second half of 2019. Our team continued the excellent momentum of Q1, resulting in the strong first half of the year and solid progress toward our financial targets. In Q2, we achieved adjusted EBITDA of $278 million and DCF of $173 million, representing a respective 12% and 18% year-to-date growth compared to 2018.Our distribution coverage is 1.12x for the quarter and 1.28x year-to-date. We have ample liquidity and financial flexibility and our bank leverage ratio was 3.7x as of June 30th demonstrating the strengths of our balance sheet. Our earnings are underpinned by effective execution of our capital allocation strategy and our operational optimization efforts resulting in strong volumes including double-digit year-over-year volume growth in DJ Basin and on Southern Hills and Sand 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 of incremental processing capacity for our producer customers. Second, we're increasing our NGL takeaway capacity on Southern Hills with 40,000 barrel per day expansion, bringing our total capacity up to 230,000 barrels per day. And third, as of last night, our O'Connor 2 plant is now in service, increasing our total processing and bypass capacity to over 1.3 Bcf per day in the DJ Basin.At the same time, we maintained our focus on effectively managing risk in both the short and long-term. We significantly reduced our commodity sensitivity through a multi-year approach to become a fully integrated midstream service provider with a 50

[Sean O'Brien:]

Thanks, Wouter, and good morning. Moving to Slide 7 on the heels of record earnings in Q1, we continue to make solid progress on our financial goals while we worked to effectively manage the business through a dynamic pricing environment. We achieved Q2 adjusted EBITDA of $278 million and DCF of $173 million resulting in a distribution coverage of 1.12x. Our Logistics segment continues to produce excellent results with margins of $45 million over last year, driven by growth from our Sand Hills, Southern Hills and Guadalupe assets.And I'll remind you that Guadalupe acts as a natural hedge more than offsetting the adverse impacts from low Permian gas prices. On the G&P side, earnings were down $7 billion, 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 non-recurring 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 8, I want to elaborate 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. Cost will be higher in Q3 compared to the second quarter due to increased planned reliability spend. G&P cash flows will benefit modestly as O'Connor 2 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 and 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 online, 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 2 and the DJ Southern Hills extension and a full year of labor savings from the VSP. Additionally, with the Cheyenne Connector and new DJ Basin offload coming into service in the first half of the year, the DJ Basin’s 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 9, 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're 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 assets sales year-to-date. On the risk management side of the equation in 2019, our margin is 77% fee-based or hedged. To close, we're 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 Wouter.

[Wouter van Kempen:]

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 1.28x, driven by growing volumes in our Logistics segment, margin opportunities on Guadalupe and growth in key areas within the G&P 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 and almost 25% decline in NGL prices over the same period.Finally, our capital efficient – our efficient capital allocation strategy points to a bright future of solid cash flows and increased unit holder value as we extend our 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.

[Operator:]

[Operator Instructions] And our first question is from Shneur Gershuni from UBS. Your line is now open.

[Shneur Gershuni:]

Hi, good morning everyone. I was wondering if we can start off with the agreement that you signed with Western Gas. I very much appreciate the capital efficiency benefit 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 you're still earning some of the revenue that you would have had from Bighorn, 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, Bighorn was supposed to be a POP contract, WES plant is not. Is it still POP? I'm just wondering if you can walk through the mechanics of that for us.

[Wouter van Kempen:]

Okay. Yes, Shneur, let me take that for you. And I think the way you should look at this is – and 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 needed it's available to us. The way you should look at how we kind of earn a margin on that and how WES earn some margin on that as well, as we paid WES a fixed fee per annum. We will continue to have our POP contracts, which are deep in the money POP contracts with our producer customers in the DJ Basin. So our producers – we charge our producers a POB fee. That fee even at the current rates is above what we would pay WES in fees. So we will make a spread of the two of those. The other piece that we're continuing to get, which I think is really, really attractive for us is 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 offload agreement will go into the Southern Hills extension into the DJ Basin. That's why we're doing this Southern Hills expansion. So we will get transportation revenue on those. And we will be able to push that through for instance the Sweeny fractionators that we expect to take an interest in later in 2020 and they'll earn a fee on that. We also control the residue gas. And when Cheyenne Connector gets approved by the FERC and comes online, 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 $125 million of capital in field infrastructure to make sure that we can get the gas to delay some plant complex and – but what we’re not spending is the additional couple of $100 million that we would spend for the Bighorn facility. And so, it is very, very capital efficient for us. If you think about what we spent on O'Connor 2, Mewbourn – Mewbourn 3 kind of plant programs like that, you're probably saving about a quarter of a billion dollars here overall. So very, very attractive for us. It reduces our 2020 growth capital very significantly. We continue to preserve The Bighorn option and people have asked and say, hey, how close were you on Bighorn?We were very, very close on Bighorn. The Bighorn literally was at the [indiscernible] and we were very close on executing that until we started 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 have between WES and ourselves. We are by far the two largest processors in the basin and that 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 unit holders, for WES 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 – our processing capacity online. So, I think, that answers all of your questions, I hope. Does it, Shneur?

[Shneur Gershuni:]

No, it did. And I was just – and thank you for confirming that you're basically still earning a return, get the downstream benefits and basically without spending all the money.

[Wouter van Kempen:]

Yes, and I think if you look – from a return point of view, Shneur, $125 million and like we tend to always say we do 5x to 7x type of multiples. This would probably be closer to the five than seven. So it's pretty attractive for us.

[Shneur Gershuni:]

Are even lower, okay. And then, just wondering if we can talk about DCP 2.0 for 2020, you talked – I think Sean you talked about VSPs in terms of some cost efficiencies and so forth. I mean 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 in synthetically adding capacity through efficiencies. Are there more opportunities to do that? And is there a target that you can share with us as well on that side too?

[Sean O'Brien:]

So, - hey, Shneur, it’s Sean. I can start on the cost side of the equation. I'll just remind everyone that 2.0 efforts have done some really good things around the margin side with the ICC 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. Wouter has set significant targets around the team. They're 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 headcount. So that's pretty substantial improvement. That is, I would tell you, in line with the goals that Wouter and the board have set for the company. In terms of longer-term, our goal would be to get to around that 30% number reduction by the end of 2020. So those are some targets specific to the goals and they're 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 of 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 one time 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 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 of 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 non-core assets. And that'll help us on the maintenance capital side as well.

[Shneur Gershuni:]

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

[Wouter van Kempen:]

Thank you, Shneur.

[Operator:]

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

[Spiro Dounis:]

Hey, guys. I guess I'll take the bait on IDR then Shneur segwayed me right into it. So one of your two sponsors recently removed them of course. And, I think, the implied multiple around that was 16x. Just curious what your reaction was to that deal, maybe how you think about the process from here and then anything we should read into the timing.

[Wouter van Kempen:]

Yeah – so, Spiro, obviously, I'm not a Phillips employee. I'm not a PSXP employee. So I have no insights and how they look at their transaction. So I'm not going to comment on their transaction. I think 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 timing for us to do this. So, I think the great thing for everybody is studying, if you think about Enbridge, you think about Phillips, they clearly are very comfortable with doing something and removing IDRs 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? 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 downside and we continued to have a close to 1.3x type of coverage here for the first six months of the year. So 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.

[Spiro Dounis:]

Understood. Appreciate that. And just thinking about new growth opportunities and capital efficiency, so I guess Phillips has been spending considerably on midstream and I guess if they’re the President here 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 PSXP. But just curious out of some of the new projects that they've laid out, if you think there's another opportunity for you guys to maybe comment on some of those and take options?

[Wouter van Kempen:]

Yes. I think we have been very, very synergistic in how we went to market together with Phillips 66 and I think there's a great benefit for this entity if we find commercial opportunities 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 we'd love to do that as well. But if there's an opportunity for us to continue to direct barrels towards the Sweeny frac and take an ownership interest in frac 4, we're very, very open to do that. If there's an opportunity to go even further 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 this is and 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? I want to make sure that we have flexibility and control of all the barrels that we continue to produce and add in the DJ Basin, and that gives us flexibility to move them in pipelines that we own 100% to direct those barrels to fractionators that we think are very attractive in our portfolio where we potentially can take an ownership interest. And that's what you kind of see here also with the 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.

[Spiro Dounis:]

Got it. That makes perfect sense. Thanks, Wouter. I appreciate it.

[Wouter van Kempen:]

Thanks, Spiro.

[Operator:]

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

[Unidentified Analyst:]

Hey, good morning. This is a Charlyn for Jeremy here. I was wondering if you could talk a bit about Midcon volumes kind of dropping a bit sequentially. Just any commentary from producer activities and kind of expectations for the balance of second half of 2019?

[Wouter van Kempen:]

Yes, Jeremy. A couple of things, the volumes are definitely down, I mentioned it in my remarks and also the margins – the average margins were down because we're settling more of the product this year in a Conway. We were able to get more of that to Bellevue last year. You get higher net backs. We do see that easing up as some of the capacity and some of the infrastructure we're talking about comes online.In terms about looking forward, the Midcon 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 there is no surprises going on that we weren't surprised in any way. We continue to see those volumes probably decline. There's either some infrastructure in some of the areas we're in SCOOP/STACK, but in a lot 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 we're 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 there's some exciting stuff. Basically that’s just 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 yearly on year and we’re trending along those lines.

[Unidentified Analyst:]

Great, thanks. One more from me. Could you comment on some of the producer consolidation we've seen in news, specifically in the DJ, and maybe if that all how that might impact your growth outlook?

[Wouter van Kempen:]

Yes. I think for us, there was something out yesterday of two producers potentially combining. I can't comment on that as 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 in the end a transaction doesn't switch what that acreage, where it would go to. So if companies combined it will continue to go to DCP. And so overall I think more consolidation, it's probably a theme that starts to make sense. At the same time when people consolidate normally, they tend to drill the acreage. Very few companies go and consolidate and try to add additional acreage and then just put it in inventory and do nothing with it. So I think for us it's continues to be a pretty good outlook here in the DJ Basin.

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

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

[Gabe Moreen:]

Hey, good morning. I just have a question in terms of outlook on Guadalupe, now that GCX is set here to come on. So your plan there to essentially leave that pipe open as far as volumes and marketing around it or any long-term contracts that you may be putting in there. And I guess as your expectations over the medium term as GCX fills up, the basis may blow out again and when that may happen?

[Sean O'Brien:]

Hey, Gabe, Sean. A couple things, Guad had a record quarter in Q2 obviously tied to the wide basis spreads. Our strategy on Guad is still – it's been the same obviously it's been a little more exaggerated recently, but we typically hedge it out into the future. A portion of it – we’ve a portion of it open. I think you've alluded to some, some longer term agreements. I know the marketing team's been working on that. We really liked those; those are more annuities, right? You lock in sort of physical for our duration and you lack 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 being stronger than the second half. That's driven by the comments you just made with GCX coming online. We see Guad – 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 GCX then coming online, so that’s the – we are going to start driving earnings on that pipeline. And what we've started to see in a very small way 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 Guad probably diminishes a little second half of the year on earnings, and that is true.

[Wouter van Kempen:]

And maybe to add Gabe to what Sean’s – the marketing team has absolutely executed on the number of longer term multi-year deals at pretty attractive prices. They may not have been as attractive and as high as some of the massive blowouts that we saw in basis spreads here in the second quarter. But there are very attractive prices that we've locked in for a number of years. So that's kind of going to Sean’s point of creating an annuity out of it and I think that’s very good thing. At the same time there is – I think everybody agrees there's more pipelines that are needed other than GCX coming out of the Permian. So I wouldn't be surprised that somewhere in 2020 we see basis start to opening up again and then we will be able to take advantage of that.

[Gabe Moreen:]

Got it. Thanks, Wouter. And then the follow-up in sort of speaking of hedging – your approach to hedging NGLs right now, given spot volumes, that you talked about a little bit to forward curve improving a little bit, but to what extent do you want to let things kind of see if they'll improve versus in locking pricing right now for 2020?

[Sean O'Brien:]

Yes. So I think on the positive side we're actually a little more hedge 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 game that's probably what you're alluding to and 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 the things. We actually saw July get a little bit stronger than June. So at least we’re 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 and if those prices come back. The other thing I do want you to focus on as well though, we got the 65% fee base this year on our core assets. That's up – as you know that’s up massively from where the company was just three, four, five years ago.And we're not giving 2020 guidance yet, but that will grow. If you think about all the projects that 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 you know, think about Q2 where commodity was down, I think, Wouter in his remarks said, 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. I'm hopeful those will come through the remainder of this year.

[Gabe Moreen:]

Got it. Thanks, Sean, appreciate it.

[Operator:]

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

[Dennis Coleman:]

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. It seems like there's 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 delay, any commentary there?

[Wouter van Kempen:]

Yes, so that's a – it's a third party managed projects, so we’re an equity owner in the project. We're not executing the pump stations that need to be set, but what basically happens are there are some regulatory delays in one of – one specific county here in Colorado. Those have been solved now and – but that's probably took a number of weeks to kind of get things – the things done couple of months and that made the project basically slip from Q3 into Q4.

[Dennis Coleman:]

Okay, thanks for that. And then another more detailed one on the Southern Hills additional 40,000 is that we should assume that's contracted and is there any kind of terms that you might talk about if it is?

[Wouter van Kempen:]

Yes, so think about that really driven by a number of different kinds of projects that we already spoke about. So the O’Connor 2 plant is now online in service as of today, which is great for our customers. We're very excited about that. That’s 200 million a day of capacity. So let's go with 20,000 barrels right there. Those will flow into – into that Southern Hills extension. Think about the offload agreement that we spoke about that. So if that's 200 million to 225 million a day, that’s another 20,000, 25,000 barrels a day. So just between the two of those that it gives you 40,000-plus barrels a day, which kind of mimics the expansion that we're doing here. And if you're looking into details that we provided, Southern Hills today runs at 88%, 90% capacity. So we're 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. The first Sand Hills expansion was highly, highly creative. Why? Because it just setting pump stations. It's the same over here. We're not adding pipe. We're just adding two pump stations. So that creates those 40,000 barrels a day. And you should look at that project as probably a 2, 3x type of multiple. We always talk about – whenever you can set pump stations on a pipe, then you have the volumes. Those are great projects because they're highly creative.

[Dennis Coleman:]

That's great color. Thank you for that. Any permitting issues there that just a watch items?

[Wouter van Kempen:]

No, we don't expect any permitting issues happening there. So the pump stations will set in the Midcontinent. So – and we are very, very comfortable on this. The lead time and one can say hey, it's two pump stations, why [indiscernible] 2020? We think that’s what we needed but secondarily pump stations have a pretty long lead time. So just the leads for the pumps are probably 10, 12 months so that’s why this will take a little bit of time.

[Dennis Coleman:]

All right. Great color. Thank you.

[Wouter van Kempen:]

Thanks, Dennis.

[Sean O'Brien:]

Thanks, Dennis.

[Operator:]

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

[Michael Blum:]

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’ve obviously with the western deal, you've done some capital avoidance. Can you just give us at least directionally a sense of where CapEx you think will trend in 2020 just kind of directionally? Thanks.

[Wouter van Kempen:]

So yes Michael, Wouter 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 takes 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 that one is slipping into next year. We hope Q1 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 set the field infrastructure for the offload to western. Part of that will be spent in 2019, 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 we're looking at for next year, which is very significantly below what we’re 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.

[Michael Blum:]

Perfect. That's all I had. Thank you.

[Wouter van Kempen:]

Thanks, Michael.

[Operator:]

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

[David Amoss:]

Hey, good morning guys. Just wanted to, thinking about the agreement that you have with Western that you've put into place in the $125 million you're spending on access to that plant. Is there the potential that you can do other things that can benefit from the capital spend? Anything you can give us in terms of the potential of the geography that you'll be providing yourself access to?

[Wouter van Kempen:]

I'm trying to understand. Let me try to take someone, hopefully I take it in the right direction. In the end for us to make sure that we get 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 this 225 million a day. We obviously, the way our system is set up, think about a variety of projects that we have done over the years where we create great connectivity between plants.So the Latham plan is actually 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 our own infrastructure if we need it. So I think that's how you should think about are 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 one plant but get them to that super system of different plants. So I think that's how you should look at – look at this.

[David Amoss:]

Okay. Thanks, Wouter. And then one more, I'm just thinking about you guys kind of point into 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 is it fair that we assume that, that's based on strip pricing at this point?

[Wouter van Kempen:]

Yes. So that 5x is on kind of full value chain economics. The way we kind of look at it and then yes, what we look at this kind of current strip pricing. So we are not looking at some crazy numbers in the future.

[David Amoss:]

Great. Thank you very much. That’s helpful.

[Wouter van Kempen:]

Thanks, David.

[Operator:]

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

[Selman Akyol:]

Our question was asked. Thanks.

[Operator:]

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

[Jeremy Tonet:]

Hi, good morning. Just wanted to kind of follow-up on some of the points talked about before. With regards to the DJ and egress, especially on the nat gas side. I was just wondering, in the event of Cheyenne coming online, are there other kind of initiatives to get the gas out of the base?Do you see any other kind of bottlenecks there and 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 online, out of the DJ right now?

[Wouter van Kempen:]

So right now especially – right now the things are tight, okay. So – and we spoke about this on prior earnings calls, multiple times that 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 continued to say, and I mentioned this in my prepared remarks, that we are the only midstream company that is supporting all three major downstream expansions, not only by putting capital in but we're taking commitments, we are putting ownership percentages in. So if you think about that from an NGL point of view, between Front Range Texas Express and the DJ Southern Hills expansion – extension and now the expansion. On Southern Hills we’re very comfortable for quite sometimes here for years to come around. Hey, do we have enough NGL takeaway out of the basin?From a residue point of view that’s really where the tightness is sitting. That's why we went out with multiple companies to build the Cheyenne Connector, the Cheyenne Connector which gives 600 million a day of capacity out of the basin and we need that. CIG 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 base 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 fractionation as well. And you know what we're doing 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 this O’Connor 2 plant that is now in service as of today.We internally model 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 guys is absolutely there. The NGL takeaway will be there. We are waiting to make sure that we get enough residue gas takeaways, we need to get to Cheyenne Connector online, once that Cheyenne Connector is built and online that will basically completely alleviate any issues that we have in the basis, and hopefully that is happening here pretty soon.

[Jeremy Tonet:]

And that’s helpful. That's it for me. Thanks.

[Wouter van Kempen:]

Okay. Thank you.

[Operator:]

Thank you. And our next question is from James Carreker with U.S. Capital Advisors. Your line is now open.

[James Carreker:]

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 in 2020 as we're kind of formulating a CapEx number?

[Sean O'Brien:]

This is Sean, James. There's – as we haven't given 2020 guidance, but as you're trying to think through the next year, I would around the singles and doubles, I will not expect a significant deviation from where we have been. 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. The risk capital tied to those projects that we're continuing to look at and some small things here and there which will lower. But I would also serve if you’re trying to model going forward until we give guidance next year.

[James Carreker:]

Okay. Thank you. That's all I had.

[Sean O'Brien:]

Thanks.

[Operator:]

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.

[Sarah Sandberg:]

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.

[Operator:]

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