Earnings Call Transcript - EPD Q3 2021

Operator, Operator

Greetings and welcome to the Enterprise Products Partners Third Quarter 2021 Earnings Conference Call. It is my pleasure to introduce your host for today's call, Randy Burkhalter, Vice President of Investor Relations. Thank you, you may begin.

Randy Burkhalter, Vice President of Investor Relations

Thank you, Dylan. Good morning, and welcome, everyone, to the Enterprise Products Partners conference call to discuss third quarter earnings. Sorry, and I apologize for the delay, but we're ready to go now. Our speakers today will be Co-Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by the information currently available to Enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. And with that, I'll turn it over to you, Jim.

Jim Teague, Co-CEO

Thank you, Randy. Our businesses continued to perform extremely well during the third quarter. We reported $2 billion of EBITDA even though we were impacted by $30 million of headwinds due to hurricane Ida. Cash flow from operations was a record $2.4 billion, which more than fully funded both our capital expenditures and our distributions. Year-to-date distributable cash flow is almost $5 billion, which has provided coverage of 1.7x and $2 billion in retained cash year-to-date. As we head into the final quarter of the year, while we don't take anything for granted, it looks like our businesses are going to finish with another strong year in 2021. Our results reflect the ongoing recovery in demand for crude, NGLs, primary petrochemicals, and refined products as the global economy continues to recover. For 2022, most experts agree on continued strong demand and economic growth worldwide. We believe that economic backdrop, plus the need to restock virtually everything will continue to provide strong demand growth for oil and gas, natural gas liquids, and plastics. In addition to the record cash flow from operations, we had record profits from our propylene business, which contributed to the record gross operating income for our petrochemical and refined product service sector. Our PDH and splitters complement one another in our value chain, and we were able to take advantage of strong propylene spreads. Long term, petrochemical fundamentals are very strong and U.S. petrochemicals have multiple competitive advantages compared to almost all of their global peers. Likewise, Enterprise remains strongly positioned to provide petrochemical midstream services, including feedstock, storage, distribution, and exports. It's a footprint that's not easily copied. Our liquids pipelines have substantially recovered to near pre-pandemic levels at 6.3 million barrels a day with gas processing volumes benefiting from higher prices for NGLs. Enterprise's natural gas pipeline and transportation for the third quarter exceeded pre-pandemic 2019 levels at a record 14.6 Bcf a day. In total, our crude oil equivalent pipeline transportation volumes were 10.1 million barrels a day for the quarter. NGL fractionation volumes remained supported at 1.3 million barrels a day. Our propylene production for the third quarter of 2021 was 96,000 barrels a day. Liquid volumes handled by our marine terminals for the third quarter were 1.5 million barrels a day. We completed construction of approximately $480 million of organic growth projects. These projects are in various stages of startup. The major projects include a natural gasoline hydrotreater, which reduces sulfur content and blends stocks used for motor gasoline, and several petrochemical pipelines and natural gas pipelines that expand those integrated systems. We expect to complete the Acadian Haynesville and Gillis lateral natural gas pipeline expansions in the fourth quarter of 2021. Our Acadian Haynesville gas pipelines are strategically located to move growing Haynesville and Cotton Valley natural gas supplies to growing and higher-valued industrial and LNG markets. We have developed an impactful project to utilize hydrogen as a fuel at our PDH 2 plant. This project will provide significant environmental benefits as well as upgrade the co-product value of produced hydrogen. The change involves adding the capability to utilize hydrogen produced by the facility as fuel rather than relying on natural gas. By modifying the design of the heaters for PDH 2, we will reduce the plant's total carbon equivalent emissions by almost 90%. Construction of PDH 2 remains on schedule and on budget with completion expected in the second quarter of 2023. We became very bullish on hydrocarbon prices on April 20, 2020. And at $80 a barrel, crude oil has increased in excess of $30 since the beginning of the year, and propylene and natural gas prices have doubled since the first of the year. The U.S. oil and gas industry is now in the hands of highly disciplined parties. We like to believe they prefer doing business with large and similarly responsible companies like us. But now crude oil pricing remains on a path that is dictated by OPEC+, who need to receive higher prices for their products in order to balance their budgets and improve their economy. Clearly, they don't seem to be interested in any more price wars. OPEC is also signaling that they believe the world is going to need every barrel we can get our hands on in the future, including U.S. sales. We believe natural gas now has a sustained price up to $3 plus in order to encourage nonassociated production in places like the Haynesville and the lean Eagle Ford. Likewise, we believe that all signs point to some level of staying power for the stronger prices to WTI ratios we are seeing for propane and butane. Over the last 10 years, we've seen significant growth in global demand for U.S. liquids because of their price transparency, environmental attributes, and transportability. We're very proud of what has evolved into a hydrocarbon franchise that has a strong domestic presence and a global reach. And with that, Randy, it's yours.

Randy Fowler, Co-CEO

Okay. Thank you, Jim. And good morning, everyone. In looking at the income statement, net income attributable to common unitholders for the third quarter of 2021 was $1.2 billion or $0.52 per common unit on a fully diluted basis. This compares to $1.1 billion or $0.48 per common unit on a fully diluted basis for the third quarter of 2020. Net income was reduced by noncash asset impairment charges of $29 million or $0.01 per unit for the third quarter of this year, and this compares to a charge of $77 million or $0.03 per unit for the third quarter of last year. Moving on to cash flows. Cash flows from operations were $2.4 billion for the third quarter of 2021. This compares to $1.1 billion for the third quarter of last year. It should be noted that the third quarter of 2021 cash flow from operations benefited by $648 million of net cash provided by changes in working capital accounts. The swing in cash provided by or used for working capital accounts between the two quarters accounts for substantially all of the $1.3 billion favorable variance between the two quarters. Free cash flow for the 12 months ended September 30, 2021, which is cash flow from operations less investing activities less net cash flow to non-controlling interest, our joint venture partners was $5.6 billion, compared to $2.1 billion for the comparable trailing-12 months in 2020. We declared a distribution of $0.45 per unit with respect to the third quarter of 2021 to be paid on November 12. This distribution of approximately $1 billion for the quarter represents a 1.1% increase compared to the third quarter of 2020. During the third quarter, we repurchased approximately $75 million or 3.4 million EPD common units. In addition to these buybacks, EPD's distribution reinvestment plan and employee unit purchase plan purchased a combined $36 million or approximately 1.6 million EPD common units in the open market during the third quarter. Our payout ratio, which we define as the sum of cash distributions and buybacks as a percent of cash flow from our operations for the 12 months ending September 30, 2021, as reported, was 51% and was 58% after adjusting cash flow from operations for cash provided by working capital changes. This is consistent with the 55% to 80% payout ratio we have maintained over the past decade, throughout volatile business cycles and the pandemic. We are in the middle of our planning process for the 2022 budget. Our priorities for capital allocation are an all-of-the-above approach with a goal to facilitate the long-term financial health of the partnership. Our first priority is to support and grow distributions to investors. Secondly, to support investments that complement our midstream system that have attractive rates of return in excess of our cost of capital with the objective of growing the partnership's cash flow per unit. Next is to maintain financial flexibility that enables us to weather business cycles and evolving legislative and regulatory risk to the energy sector. Finally, it will be to execute buybacks on an opportunistic basis. As we have for the past several years, we plan to announce distribution growth guidance for 2022 in January. During the quarter, we issued $1 billion of senior notes at a fixed rate coupon of 3.3%, with the net proceeds to be used for general company purposes, including the repayment of our $750 million, 3.5% senior notes and our $650 million of 4.05% senior notes that mature in February 2022. We elected to issue during the third quarter rather than refinancing in 2022 to avoid interest rate risk. We were able to extend these maturities by 30 years while reducing the coupon of the debt by almost 0.5 percentage point. We would like to thank our fixed-income investors for their continued support as this offering had over $4 billion of demand on the busiest issuance day of the year. During the quarter, we also renewed our 364-day and multiyear revolving credit facilities in September. In addition to extending the tenure of these facilities, we proactively decided to reduce the overall size of the multiyear facility by $500 million to $3.0 billion. Together with our $1.5 billion 364-day facility, we have $4.5 billion of borrowing capacity under these facilities. Over the past two years, we have proactively reduced Enterprise's bank credit commitments by a total of $1.5 billion or 25%. This has principally been in response to our lower level of expected capital expenditures while also trying to be a responsible client to our banks, many of whom have been under investor pressure to reduce capital commitments to the traditional energy industry. Our total debt principal outstanding was $29.8 billion as of September 30, 2021. Assuming the first call date or the final maturity date for our hybrids, the average life of our debt portfolio is 16.8 years and 20.9 years, respectively. Our effective average cost of debt is 4.4%. Our consolidated liquidity was approximately $6.7 billion at September 30, 2021, which includes availability under our bank credit facilities and approximately $2.2 billion of unrestricted cash on hand. This amount of cash on hand, while elevated by historical standards, is primarily due to having already completed our refinancing and having cash available to retire $1.4 billion of senior notes in the first quarter of next year. It also provides us additional flexibility to respond to market opportunities. Adjusted EBITDA for the third quarter of 2021 was $2 billion and $8.3 billion for the 12 months ending September 30, 2021. Our consolidated leverage ratio was 3.2x after adjusting debt for the partial equity treatment of the hybrid debt securities and reduced by the partnership's unrestricted cash on hand. With that, Randy, we can open it up for questions.

Randy Burkhalter, Vice President of Investor Relations

Thank you, Randy. Dylan, we are now ready to take questions from our listeners. Thank you. Go ahead, Dylan.

Operator, Operator

Our first question comes from Shneur Gershuni from UBS.

Shneur Gershuni, Analyst

I was wondering if you can share your latest thoughts around potentially accelerating the return of capital. Many of your peers are pursuing buybacks. Some have announced special increases and so forth; we're seeing positive stock reactions. A lot of the producer customers are electing to pursue buybacks instead of investing in growth. And so I'm kind of wondering about your latest thoughts. In the past, you've mentioned some uncertainty with respect to Washington, but there's now a draft reconciliation bill out. Has that thought process changed at all? And if so, is there a preference towards buyback given where the stock is trading or would you be thinking about these distribution increases or special distribution increases?

Randy Fowler, Co-CEO

Okay. Shneur, I appreciate the question this morning. As we stated in prepared remarks, when we think about allocation of capital, it's an all-of-the-above approach. We have been deliberate on buybacks, and some of that is because of the legislative and regulatory uncertainty. As far as looking out, we still are working, you may see clarity in Washington, D.C., but we don't. I think we'll get better clarity over the next few months. On the buyback activity that you mentioned from, I guess, you were referring to Magellan and MPLX, I think we need to give a little bit more time to see the market reaction to that. There were a couple of research notes that we saw where during the time period that they did buybacks, Magellan actually underperformed in that August and September period during the time when they actually did buybacks. And since the time they announced all those buybacks, they have pretty much performed in line with others. So I don't think we're ready to make a knee-jerk reaction to their performance or the outperformance as a result of the buyback. I would also note that if we go back and look at the past several years, we're allocating a good bit of cash. In fact, we're one of the highest in paying out returning capital to our investors, and again, that's principally through distributions. Magellan has come in, and I'll note, they have come in in the last year and really increased their payout ratio, but a lot of that has been as a result of proceeds from asset sales that they've been returning to investors, which makes sense. But if you've noticed, we just haven't had much in the way of proceeds from asset sales. So we will be coming in. We're going through our 2020 budget cycle. We'll come in and announce what our plans are for distribution increase next year in January. I would note that 2021 marks our 23rd year of distribution growth. I don't think any other midstream company can say that. And so it's our practice to return capital to investors, and that includes both distributions and buybacks. But we'll come in, and we need to go through our budget cycle to provide any more clarity on that.

Jim Teague, Co-CEO

You did a pretty good job in your script laying out the priorities we look at, right?

Randy Fowler, Co-CEO

Right.

Shneur Gershuni, Analyst

Okay. I appreciate the color. I guess I was thinking along the lines that you've got a $4 billion annual distribution and that if you reduce the unit count, that it would actually fund more distribution growth in the future. But I guess we'll wait and see for the next update. Maybe pivoting a little bit here. Your CapEx growth range for the next year, you sort of tightened the range and you sort of seem to have a $1.5 billion cap, I guess, for next year. Is that the winning process of some prospects dropping off and if some ideas dropped off the table? Or is it a function of producers continuing to remain disciplined on production and more focused on buybacks? Just kind of wondering on the tightening of the range there.

Randy Fowler, Co-CEO

Yes, Shneur, on that, not anything has dropped off the table as far as projects under development that really we've been referring to the first nine months of this year. It's more just from a standpoint of maybe timing of when some of those capital expenditures would hit in 2022.

Shneur Gershuni, Analyst

Okay. So, at the end of the day, the high end you are currently looking at is $1.5 billion for growth capital expenditures.

Randy Fowler, Co-CEO

Shneur, as we sit here today on November 2, our best estimate for growth CapEx in 2022 is $1 billion to $1.5 billion. That will be subject to change as we get into – as things develop.

Operator, Operator

I show our next question comes from the line of Jeremy Tonet from JPMorgan.

Jeremy Tonet, Analyst

I just wanted to start off by discussing the Build Back Better bill and see how its current form, if passed, might affect Enterprise moving forward, particularly regarding the higher 45Q levels and the inclusion of renewables. I'm curious about the potential impacts on your business if it goes through.

Randy Fowler, Co-CEO

Yes, Jeremy, again, you guys in New York must have better visibility to D.C. than what we see. Because I mean, from what we've seen, the Build Back Better plan has a great deal of uncertainty, and there are still many proposals coming out of the Senate, especially from the Senate Finance Committee. They sound like they are still pursuing some proposals there. So I think everything is really still in very much a state of flux. From the standpoint of first in Senate Finance Committee, you've got where they were looking to eliminate oil and gas tax preference items, which again includes the qualified earnings for MLPs attributable to fossil fuels. The counter to that is from the House Ways and Means where they do not have the provision to eliminate the oil and gas tax preference items, which, again, are intangible drilling costs, cost depletion, and MLPs. In fact, they actually expand the qualified business activities for MLPs to pick up some renewable activities. You've got some saying that the legislation is going to go from the House to the Senate but then we're hearing that also in the Senate they want to start in the Senate and move to the House. Again, you guys on the East Coast might have better visibility, but that's the last thing we see. As far as the 45Q credits, it is encouraging that they are looking to come in and increase the number of credits in order to come in and get carbon sequestration, whether through sequestration or whether it's through enhanced oil recovery. I think the credits do need to be higher. It's also encouraging to see a direct pay included in that as well. But I think right now, anything we would comment on would really just be pure speculation based on where the legislation is currently.

Jeremy Tonet, Analyst

Okay. Maybe just taking a step back, just curious, I guess, Enterprise in past years has been kind of a top performer in the space. This year has not been as much. Just wondering what you think could be the driver of the relative performance this year? And could anything be changed going forward to help that out?

Jim Teague, Co-CEO

You answer that one.

Randy Fowler, Co-CEO

Yes, Jeremy, from a business standpoint, we're putting up good numbers. I would go back and we think we're doing our part as far as returns on capital, the cash flow that we're generating, the performance that we're recording throughout business cycles. As I said on the last call, when we come back in and look at probably our highest correlation is to the S&P energy sector. I think that's the comp we're tracking most closely. As far as coming in and comparing to various midstream companies, it's hard to say. Every dog has its day, and we're going to continue to execute on what we're doing well. And our allocation of capital strategy is going to be all of the above.

Jim Teague, Co-CEO

And we just keep doing 1.7x coverage, keep retaining a lot of cash, and sooner or later, it pays off.

Operator, Operator

Our next question comes from the line of Jean Ann Salisbury from Bernstein.

Jean Ann Salisbury, Analyst

In the release, you note that your major Permian and Rockies NGL pipelines were down $31 million versus 3Q 2020 due to lower fees and volumes. Can you expand on what's happening? I had thought that NGL pipelines were kind of relatively safe from rate competition. And I'm not clear also if that $31 million is related to the hurricane Ida impacts that you referenced.

Brent Secrest, Senior Management

Jean Ann, this is Brent. There are volumes in the Rockies that continue to decline. We started to see a little bit of rig activity up there, but for the most part, volumes are declining. Also, the fee structure up there has declined in the third quarter. In terms of the Permian, we offered some incentive rates in the short term on transportation to help entice volumes. Tug, I'm looking at you on the impacts from the hurricane, I don't think we had any big impacts from the hurricane as it relates to MAPL.

Jean Ann Salisbury, Analyst

Okay. That's helpful. And my follow-up is on the Texas Intrastate, kind of a similar question. There was a $34 million decrease from 3Q '20 based on lower capacity reservations. I think that makes sense because overall utilization on gas pipelines, Whistler kind of started, but it feels like it should improve from here. Is that kind of what you're seeing as well? Or do you think that you could see Texas Intrastate go lower in the next few quarters as more contracts roll?

Brent Secrest, Senior Management

Okay. I think going forward, Jean Ann, you're going to see those volumes increase and those margins get better.

Jean Ann Salisbury, Analyst

Okay, that makes sense. I just wanted to follow up on your answer to my first question about the incentive rates from the Permian. Is that a competitive situation where that plant has multiple pipelines and you're trying to encourage them to use Enterprise instead of a third party?

Brent Secrest, Senior Management

That’s it. At the end of the day, if we can cover our costs and make some money, that’s what we’re going to do. But ultimately, a lot of these processing plants in the Permian, it’s a very efficient market, and we just have to compete harder.

Operator, Operator

I show our next question comes from the line of Chase Mulvehill from Bank of America.

Chase Mulvehill, Analyst

I guess first thing I wanted to follow up on was the propylene business. Gross margin was pretty strong coming in at $260 million, and this was despite 34 days of unplanned downtime on PDH 1. So I guess maybe could you just talk to that a little bit, what drove that? And then how sustainable on a go-forward basis do you think this $260 million gross operating margin number is?

Jim Teague, Co-CEO

Chris, do you want to take it?

Chris D'Anna, Senior Management

Sure. Chase, this is Chris D'Anna. Overall, we have a significant number of contracts structured as fixed fees, but when the spread widens, we benefit from that. A lot of what you observed this quarter reflects that advantage. Regarding sustainability, we should consider the global supply chain challenges affecting various industries. Once those issues are resolved, we might see a return to normal conditions and narrower spreads. Until then, I expect we'll continue to experience wide spreads.

Chase Mulvehill, Analyst

Okay. All right. On a follow-up, just kind of thinking about ethane and LPG exports as we kind of move into 2022, kind of what underlying trends are you seeing today? And what do you expect to see in 2022 for LPG and ethylene exports?

Jim Teague, Co-CEO

Did you say ethane or ethylene or both?

Chase Mulvehill, Analyst

I said ethane. Well, you can talk to both if you want to. I'll slide that in there as well.

Jim Teague, Co-CEO

Justin? And then Chris.

Justin Kleiderer, Senior Management

Yes, Chase, this is Justin Kleiderer. With respect to ethane and LPG, I mean, ethane is probably more of a domestic story versus LPG. But I think in both cases, demand will continue to outstrip the pace of supply growth as we forecasted. So we feel good about our LPG export dock continuing to remain at full capacity regardless of how it's contracted today, and we continue to feel good about ethane prices as a whole because domestically, we still think demand is going to outstrip supply.

Jim Teague, Co-CEO

And how full are you on ethane exports right now?

Justin Kleiderer, Senior Management

November should be a record month.

Jim Teague, Co-CEO

Okay. Chris, ethylene?

Chris D'Anna, Senior Management

Yes. The same for ethylene, November is going to be a record month for us. We’re 95% contracted to the nameplate, but we’ve demonstrated we can run much higher than nameplate.

Operator, Operator

I show our next question comes from the line of Keith Stanley from Wolfe Research.

Keith Stanley, Analyst

I recall there might have been a local press article indicating that the company was considering adding another splitter. Is this something you are exploring given the strong market conditions? Also, how do you view the economics of that? Additionally, regarding the potential increase in CapEx for next year to $1 billion to $1.5 billion, is this related to a specific large project or several smaller projects?

Jim Teague, Co-CEO

As far as a splitter, I think some of the projects we're working on that we haven't finalized will dictate whether we look at another splitter. Do you have anything on that, Chris?

Chris D'Anna, Senior Management

And Graham can comment on this, but we have a pretty standard process for projects, and the tax piece is the first step of that. So that's probably what you saw in the press.

Jim Teague, Co-CEO

What was the rest of the question?

Unidentified Company Representative, Unidentified

The $1 billion to $1.5 billion.

Jim Teague, Co-CEO

I think we're working on some projects that could potentially lead to an increase in that CapEx. Right, Tug?

Michael Hanley, Unidentified

That's right.

Randy Fowler, Co-CEO

Yes. And Keith, that's just not one chunky project; that's several projects.

Keith Stanley, Analyst

Got it. I have a clarification question regarding the special distribution concept you mentioned in relation to MPLX. Randy, I don’t believe that was included in your list of options, but would you consider a special distribution next year if there was excess cash? How do you view that in comparison to buybacks? I assume you find it more efficient to pursue a special distribution if that option is available.

Randy Fowler, Co-CEO

Keith, I think our focus would really be more on regular way increasing the base distribution, and then we’ll see what we do on buybacks. The buybacks, obviously, all depend on opportunistic buybacks, market conditions, and also business opportunities at the time.

Operator, Operator

I show our next question comes from the line of Michael Blum from Wells Fargo.

Michael Blum, Analyst

I just want to talk a little bit about the Haynesville. You've seen a little bit of an uptick in your systems around there. I'm wondering if you can just give us an idea of if you're seeing increased producer activity there. And what's sort of driving the uptick in volumes on those systems?

Jim Teague, Co-CEO

Do you want to take it?

Unidentified Company Representative, Unidentified

Yes. So we're seeing increased activity from our existing producer customers. But not only that, we're seeing new opportunities arise from potential new customers, some hitting in the Cotton Valley, but all from a gathering, treating and processing perspective. I'd say, we're working on a project to expand Acadian one more time, adding 400 million a day. So by the time that's done, Gillis will add 1.025 Bcf a day of takeaway to LNG markets, and then we'll add another 400 of Acadian capacity after that.

Michael Blum, Analyst

Got it. That's helpful. And then an interesting announcement around hydrogen for PDH 2. Just curious, is it feasible to look at PDH 1 and try to retrofit it effectively for the same hydrogen application? Or is that not possible?

Jim Teague, Co-CEO

Graham or Angie?

Graham Bacon, Unidentified

Graham, I'll take that. I think to a limited extent we can, but the technology lends itself better to PDH 2. There are a lot more technical hurdles to overcome on PDH 1.

Jim Teague, Co-CEO

What about other plants that your contracts roll up, Graham?

Graham Bacon, Unidentified

I believe there are additional opportunities as our contracts expire, giving us flexibility in how we approach hydrogen in comparison to the market, our usage, and the preferences of consumers at the facility. There are various options available. Some of the other units may be better suited for hydrogen than PDH 1. We are currently evaluating all of these possibilities.

Jim Teague, Co-CEO

We've been selling our hydrogen; what I think Graham is saying is as those contracts roll off, there ought to be other opportunities for us to use that hydrogen.

Operator, Operator

I show our next question comes from the line of Michael Cusimano from Pickering and Partners.

Michael Cusimano, Analyst

So the press release mentioned lower NGL marketing activities as an impact of hedging. I was hoping you could talk about the significance of those hedges as well as how it affects Q4 and then moving into '22?

Brent Secrest, Senior Management

I think regarding the margins on NGLs, it's primarily influenced by the contango and storage strategies we employed in the past. Now, about the hedging aspect, Justin?

Justin Kleiderer, Senior Management

Yes, I think any hedges you see there will be realized when physical delivery of product is made. So I would view those as transitory. And I think to Brent's point, the second half of 2020 saw significant storage revenue as a function of April 2020 and COVID.

Michael Cusimano, Analyst

Okay. So there's not much NGL equity exposure that you've hedged away that would be impacting that?

Justin Kleiderer, Senior Management

We have very little processing exposure hedged.

Michael Cusimano, Analyst

Okay. And then staying on the NGL segment, it looks like the ethane rejection from higher natural gas prices negatively affected the NGL segment, like looking quarter-to-quarter. Can you talk about what you're seeing today relative to 3Q? And then also if that rejection in the NGL segment improved what you saw in the natural gas segment for 3Q?

Brent Secrest, Senior Management

I think in terms of what we see going forward, so you’re accurate in terms of the rejection that was going on within our system. In terms of going forward, we’re going to have to watch to see how fast producers get back. But I think ultimately, there comes a point in time, and we’ll see when it happens where the demand of the petrochemical sector is going to outstrip supply. So we’ll see how far away ethane has to be to get recovered from places that aren’t nearly as close to the Gulf Coast as the Permian or the Eagle Ford or Haynesville or some areas like that. I think that answers your question.

Operator, Operator

I show our next question comes from the line of Ed Siegel from Siegel Asset Management.

Ed Siegel, Analyst

I just have two questions. I guess I'm only allowed two questions, but in terms of growth going forward and capital expenditures going forward, what are the areas that excite you in terms of the opportunity set, and could M&A be part of that? So that's one. And then the second is on inflation. And Randy, my crystal ball is pretty bad. But to the extent that we see inflation, what's the philosophy around the distribution regarding inflation? And are you focusing on any inflationary pressures in the business right now?

Jim Teague, Co-CEO

I'll take the first question, and Randy can address the second. One of the things we aim to do is improve how we repurpose pipelines, so you can assume that's on our agenda. Regarding M&A, I appreciate Randy's consistent message that price is crucial, and we thoroughly evaluate potential opportunities. If the right price presents itself, we will definitely consider it.

Ed Siegel, Analyst

Can I interrupt for a moment? Have you experienced any changes in your perspective on M&A? I understand your comments about pricing, but is M&A becoming more appealing strategically?

Jim Teague, Co-CEO

I don't think anything's changed, Ed. By the way, that's your second question. I don't think anything's changed. I think maybe some valuations are a little better. And that's what price matters means.

Randy Fowler, Co-CEO

Yes. And Ed going to, I guess, what is now your third question. On inflation, I want to say over 90% of our revenues have some sort of escalation mechanism in there, which are benchmarked to various indices. So we feel like we have pretty good protection from inflation. I think Graham and his team have done a great job on our capital projects. As far as long lead items, we've really been in pretty good shape as far as not seeing cost creep on those projects. As far as how we think about the distribution, we said really what we're trying to achieve is to maintain purchase power parity. So we would like to come in, and with the increased inflation, have an increase in the distribution growth rate compared to what you've seen over the last 3 or 4 years. And really, if I could use this just in terms of that, and this might get back to Jeremy's question of as far as recognition of the progress we've made and not showing up in the unit price. Some of it may be about what have you done for me lately. We came in and shifted our posture in 2017 to come in and better finance the business rather than relying on both the debt and equity capital markets. I think we were the first mover in self-financing the business. First, it was providing our own sources of equity capital. This year, our cash flow from operations is going to cover all of our CapEx. I think we made that shift, and it may come down to a long-term view. Feedback that we get from our long-term investors is that they are quite pleased with what we've been doing, and it contrasts with short-term feedback. A good bit of the liquidity in the stock market these days is high velocity, short-term-oriented money, which may not align with how we've been allocating capital over the last couple of years. But we think the way that we're progressing here is best for the long-term financial health of the partnership. During this time period, you had a lot of MLPs, 150-plus, come in and cut distributions, and we did not. As a result, they decreased the amount of capital they returned to their partners over the last 3 or 4 years, while we continue to increase ours. But now we're at a position of what have you done for me lately. You've got some people that might have a little bit more short-term gains because they cut their distribution so deeply. So again, we're running a long race here. We're mindful of returning capital. Again, we're going to come in and do the all-of-the-above approach. And that's sort of a follow-up on Jeremy's questions without charging you an extra question, Jeremy.

Operator, Operator

I show our next question comes from the line of Colton Bean from Tudor, Pickering, Holt.

Colton Bean, Analyst

So a couple of follow-ups here. Following up a $1 billion to $1.5 billion range. Can you clarify what level of spend was contemplated for SPOT? Or was that not one of the development projects in there?

Jim Teague, Co-CEO

That's not in that number.

Colton Bean, Analyst

Got it. So that would be incremental to the range?

Jim Teague, Co-CEO

Yes.

Colton Bean, Analyst

Understood. And then maybe circling back to NGL marketing. I can appreciate on a year-over-year basis, the impact of contango. But I think on a sequential basis, it also looked like there was a pretty material step down. So just trying to better understand what changed from Q2 to Q3 in the NGL marketing business? And then again, what the expectations are as we move toward year-end and 2022?

Justin Kleiderer, Senior Management

Yes, Colton, this is Justin Kleiderer. I mean I could sum it up pretty simply. It's just timing of spread capture, and that's going to change based upon markets.

Colton Bean, Analyst

Okay. And also then I have a final one here. Brent, you talked on or touched on how far away ethane might need to be pulled from. I guess as you look across your system, whether it's ATEX or MAPL, are there any opportunities that you all see from increased extraction?

Brent Secrest, Senior Management

I think there are Rockies volumes, ATEX to some extent. There's not a whole lot of capacity left on there, but we do have some. Ultimately, the bulk of the volume could come from the Permian, the stuff that's being shifted up there currently.

Operator, Operator

I show our last question comes from the line of Michael Lapides from Goldman Sachs.

Michael Lapides, Analyst

Congrats on a decent quarter. Real quick, just curious how you're thinking about the battle between Corpus and Houston for crude export volumes. Obviously, export volumes have been pretty weak for the last couple of months. But just curious how you're thinking about the share over the next quarter or so and maybe even over the next 12 to 18 months?

Jim Teague, Co-CEO

I don't know about the next quarter. I think ultimately, it becomes a battle between Corpus and SPOT.

Brent Secrest, Senior Management

Look, to me, what's going on is something that we have preached for a long time about Houston being a market and Corpus being a destination. Some people get tired of hearing that, but I don't think in terms of the export business, they are one. I think it's just a function of where the pipelines end up and what they have to do. Ultimately, the value of the barrel is worth more domestically than it is across the water. So that's what you're seeing going on in Houston. Frankly, we've got customers that have take-or-pay contracts, and ultimately, what their netback is, is quite a bit higher domestically across our system in the Gulf Coast. Where we want to be long term is going across the VLCC dock. Ultimately, over time, we think that SPOT can pull the barrels away that want to go to the export markets.

Randy Burkhalter, Vice President of Investor Relations

Thank you. And Dylan, we’re ready to – for you to give our listeners the replay information, if you don’t mind. And I’d like to thank our participants for joining us today, and we’re going to go ahead and go offline if you’d give them that information. Thank you.

Operator, Operator

Thank you, sir. This concludes today's conference call. A replay will be available from 1:00 p.m. Eastern Time, November 2, 2021, to 12:59 p.m. Eastern Time, November 9, 2021. Please dial 1 (855) 859-2056 or (404) 537-3406 for international participants, enter access code 478-3552. Thank you, and have a wonderful day.