Kinetik Holdings Inc. Q2 FY2022 Earnings Call

Hello, everyone. Thank you for joining the Kinetik Second Quarter 2022 Results Call. My name is Darius, and I'll be moderating the call today. I now have the pleasure of handing over to Maddie Wagner, your host. Please go ahead, Maddie.

Thank you. Good morning, everyone. And welcome to Kinetik's Second Quarter 2022 Earnings Conference Call. Here with me is our President and CEO, Jamie Welch; as well as Matt Wall, our COO; Anne Psencik, our Chief Strategy Officer; Steve Stellato, our CAO; Todd Carpenter, our GC; Trevor Howard, our VP of Finance; and Kris Kindrick and Tyler Milam, our VPs of Commercial. The press release we issued yesterday, the slide presentation and access to the webcast for today's call, are available on our website at www.kinetik.com. Before we begin, I would like to remind all listeners that our remarks, including the question-and-answer section, will provide forward-looking statements, and actual results could differ from what is described in these statements. These statements are not guarantees of future performance and involve a number of risks and assumptions. We may also provide certain performance measures that do not conform to US GAAP. We've provided schedules that reconcile these non-GAAP measures as part of our earnings press release. After our prepared remarks, we will open the call to Q&A. With that, I will turn the call over to Jamie.

Thank you, Maddie. Good morning, everyone. Thank you for joining us. In my prepared remarks this morning, I'll reference various pages of the presentation. So just for those of you following along or who have not had the opportunity to do so, just go to www.kinetik.com. Following a strong first quarter, we've continued to deliver solid results, outperforming our original guidance. We've achieved a number of our operational and financial goals thus far and have executed upon various strategic value-added growth opportunities. We reported our second quarter 2022 results yesterday and look forward to sharing them with you this morning, in addition to providing a few more recent business highlights that occurred following the second quarter close. Following our robust second quarter results and updated business outlook, we have revised our 2022 guidance higher for both EBITDA and capital expenditures to reflect additional producer development, new commercial agreements and new capital projects, such as the PHP expansion. Similar to our first quarter earnings results, many of the figures today will be reported on a pro forma basis, assuming the business combination between our predecessors, BCP and Altus, closed on January 1st of this year. We believe it is more reflective of our actual results and provides our investors with more meaningful information and helps to reconcile our 2022 full-year guidance. So let's begin with a few recent highlights, on Slide 3. We reported a pro forma adjusted EBITDA of $208 million for the second quarter, representing a 24% increase year-over-year and a 9% increase quarter-over-quarter. This is largely attributed to an increase in volumes and margins across both the midstream logistics and pipeline transportation segments. We processed nearly 1.2 billion cubic feet per day this quarter, representing a 7% increase year-over-year and approximately a 5% increase quarter-over-quarter. In June, we completed our comprehensive $3 billion refinancing and retired all of our legacy Altus and BCP debt facilities. Our newly issued senior notes, Term Loan A and revolving credit facility, are 100% sustainability-linked. In fact, Kinetik is now the first and only North American midstream company to link 100% of its debt capital financings to sustainability initiatives. Our refinancing was an important step in simplifying our capital structure and improving our financial transparency. Following the close of the second quarter, we fully redeemed the outstanding balance of the Series A preferred, which in turn completed our overall capital structure simplification. We have provided our updated organizational structure on Page 4 for your reference. We have continued to identify and execute on a number of strategic organic growth opportunities within both of our midstream logistics and pipeline transportation segments. We, along with our partners, Kinder Morgan and Exxon, reached a final investment decision on the PHP capacity expansion in June. The 550 million cubic feet per day expansion is 100% sold out with 10-year take-or-pay transportation agreements and is expected to be in service by November 1, 2023. Capital spend will begin this year and is now reflected in our revised capital expenditures guidance. Following the in-service of the expansion, Kinetik's ownership in PHP will increase to over 55%. The PHP expansion is an important catalyst for our 1 Bcf a day Delaware Link residue gas pipeline to be completed and in service in 2023. We look forward to providing more updates on these exciting projects over the next year. Last week, Enterprise announced the Shin Oak NGL pipeline's initial capacity expansion of up to 275,000 barrels per day achieved through pipeline looping and pump station modifications. The capacity is expected to be online by the first half of 2024. We also look forward to providing more detailed updates about this expansion project in the quarters to come with our partner, Enterprise. During the second quarter, Gulf Coast Express pipeline announced an open season to solicit commitments for an expansion project that would increase GCX's transportation capacity by nearly 570 million cubic feet per day. With our partners, Kinder Morgan, DCP Midstream and an affiliate of Aflight, we are continuing to secure interested customers for the possible expansion, which would provide takeaway capacity necessary for facilitating continued natural gas production growth sourced in the Permian. As we have previously shared, these exciting pipeline expansion announcements are highly capital-efficient and will help to address the near-term takeaway constraints facing the Permian Basin and meet the demand needs along the Gulf Coast and overseas markets. For context, Permian natural gas volumes are expected to exceed 16 billion cubic feet per day by year-end, an increase of over 1 Bcf per day for this year alone. And Permian NGL volumes are likely to grow by over 300,000 barrels per day by 2025. Moving on to our midstream logistics segment. We're excited to report positive recent developments with our customers and their development activity. Apache recently completed drilling operations of its six-well pad on its DXL acreage in Central Reeves County, which is committed to gas gathering and processing to Kinetik beginning November 1st of this year. The rig has now been relocated to Alpine High to develop its five-well Bonzai pad, marking Apache's return of development to the area since 2019. Following up on very encouraging well results from the Willow state, which was completed and turned to sales in 2021, Apache plans to maintain a two-rig program shared between the Northern Alpine High and its Texas Delaware position for the foreseeable future. As previously disclosed, we have executed a number of new gathering and processing agreements with large-cap and private Permian producers that begin later this year and in early 2023. These new agreements will provide steady, attractive gas processed volume growth in the fourth quarter. Year-to-date, we have executed nine new long-term gas gathering and processing agreements, four of which are with new customers we previously had no business with. Additionally, we have executed numerous amendments on other agreements, either adding acreage, increasing volume, or securing long-term residue gas and NGLs for downstream commitments. In a basin where processing capacity is tight, we see great value in having spare processing capacity available today, that highlights the value of our operating leverage. We continue to receive inbound inquiries from customers interested in accessing our spare capacity at Diamond Cryo and the legacy BCP facilities. We view the continued customer consolidation in the Permian Basin as a positive for us as our customers' balance sheets and acreage positions strengthen, cost of capital, and access to capital significantly improve, and consolidation offers us an opportunity to optimize legacy agreements to the current needs of our new customers. We expect to see incremental development activity on our dedicated acreage following the merger of Colgate and Centennial and look forward to strengthening our partnership with the merged entity. Most recently, Apache announced their acquisition of tuck-in properties in the Texas Delaware with an inventory of undrilled locations. Much of that acreage is already dedicated to us long term for all three streams: gas, crude, and water. This is just another example of how we can grow alongside our customers as they enhance their acreage portfolios. We published our 2021 ESG report on July 21st. I encourage you to take a look, if you've not already done so, as it highlights a number of achievements made by both Altus and EagleClaw over the last year. Moving to Page 5 of our slides, we presented a summary of our second quarter financials. We reported a pro forma adjusted EBITDA of $208 million. We generated an adjusted pro forma distributable cash flow of $170 million and free cash flow of $127 million. On July 20th, we declared a $0.75 per share quarterly cash dividend pro forma the June two-for-one stock split. This represents a pro forma dividend coverage ratio of 1.7 times. Free cash flow generated during the period was used to redeem 75,000 units of the Series A preferred, excluding the PIK preferred units. The remaining outstanding balance was redeemed in early July with cash and borrowings on our then undrawn revolver. The accelerated redemption results in immediate cash savings to Kinetik. Additionally, it completed our capital structure simplification and streamlined our internal quarterly processes with no negative impact on our overall credit ratings. We exited the quarter with a 3.7 times leverage ratio and remain on track to achieving our long-term leverage target of 3.5 times. Pro forma the revolver draw to fully redeem the Series A preferred quarter-end leverage is 4.3 times. On Page 6, we provided our segment-specific adjusted EBITDA contributions. Midstream logistics EBITDA was $141 million, up 47% year-on-year. This was primarily driven by increased volumes and favorable commodity prices. Gas processed volumes increased 7% year-over-year due to modest growth by producers, top dedications effective in 2022, and the annualization of new contracts that began in the second half of 2021. Crude volumes grew 15% year-over-year, while produced water volumes decreased by 3% as a result of increased producer recycling by our largest customer. Approximately 70 new wells for which we provide midstream services were turned to sales in the second quarter. Our pipeline transportation second quarter EBITDA was $71 million, relatively flat year-over-year. However, we continued to see volume growth on Shin Oak this past quarter. Now let's shift our focus to our guidance on Slides 8 and 9. After two strong quarters, we are revising our guidance higher to reflect a number of factors, including volume outperformance, commodity prices, higher synergies, newly executed gas gathering and processing agreements, and the PHP expansion. Our updated 2022 EBITDA guidance range is now $820 million to $840 million, up from our original EBITDA guidance range of $770 million to $810 million, representing a $40 million increase or 5% at the midpoint. This was driven by new large gathering and processing agreements, including the two large-scale agreements previously announced in May, volume growth on our joint venture pipes, commodity prices, and synergy realization. Our new commercial agreements are conservatively expected to increase our EBITDA by approximately $15 million this year. Both of the new agreements announced in May will begin flowing in the fourth quarter. Increased volumes on our JV pipes translate to an additional $10 million this year, and synergy and commodity price outperformance represent an incremental $25 million increase. So this roughly $50 million increase is offset by a $10 million reduction associated with selective volume underperformance. Several legacy contracts did not meet volume expectations due to inclement weather and record high temperatures in West Texas in May and June. Approximately half of the actual underperformance was associated with our crude and water segments. Regarding the gas volume underperformance, these contracts were primarily POP, which further reduced our commodity exposure benefit as well. Our original guidance presented in February assumed a crude price of $84.88 and a natural gas price of $3.95. Over the past six months, commodity prices have been favorable with WTI averaging over $100 per barrel and Waha averaging $5.50 per MMBtu. Our revised guidance now reflects strip pricing as of August 4th for August through December of this year, which implies the remaining crude price of $86.65, $6.90 for natural gas, and $38.25 for NGLs. We are currently working on reducing our remaining commodity exposure for this year. As expected, we have seen inflationary cost pressures compared with our expectations at the beginning of the year when providing guidance. However, I am proud of the work done by our whole team, especially our operations team led by Matt Wall to reduce costs where possible to offset cost inflation in lubes and chemicals, labor, and repair and maintenance activities. Despite inflation running at levels not seen since the 1980s, we expect full-year operating expenses to be $2 million greater than budget, representing only a 1% increase. I would also add that much of this increase is associated with the two new high-pressure gas gathering and processing agreements that were not contemplated when developing our original budget. It is also worth noting that all of our gas gathering and processing agreements do have annual contract escalators in place, which do help offset these inflationary pressures. In addition to our EBITDA guidance, we are revising our 2022 capital guidance upwards. Our updated capital guidance range is now $280 million to $300 million in total. It is worth noting that our prior guidance reflected capital solely for our midstream logistics segment. When we reflect only the midstream logistics segment, our new range is $170 million to $190 million, representing a $42.5 million increase at the midpoint, $33 million of which is directly associated with new capital projects and contracts that were not contemplated at the beginning of the year. If excluded, our CapEx would be in line with our original February guidance. The revision reflects the incremental $25 million required to construct the infrastructure supporting our new long-term gas gathering and processing agreements; approximately $8 million for the 120 million cubic feet per day Diamond Cryo processing expansion, which is expected to be in service in the first quarter of next year; early capital spend associated with Delaware Link; and some pull forward of Alpine High GMP equipment surplus relocation projects. Delaware Link is our 1 billion cubic feet per day residue gas pipeline that will connect our assets in Central Reeves County directly to Waha and the PHP. This project will be fully subscribed and in service ahead of the PHP expansion. We will be providing more details in the coming quarters. Our original capital guidance provided in February did not contemplate or include any pipeline transportation capital. Now that we have reached the final investment decision on PHP, our pipeline transportation capital spend is estimated to be $110 million for this year as we expect this spend to occur in the second half of this year. We will ensure that expansion capacity is fully online and inspected by November 1st of next year, and the capital calls for 2022 represent approximately 35% to 40% of Kinetik's capital commitment. I would now like to move to Slide 11 and provide an update on our integration efforts following the merger in February. After completing our accounting, IT, and HR transition in May, our engineering and operations team has been focused on executing our system integration projects. The super system interconnect began flowing gas on June 22nd. This project was both on time and on budget. The pipeline connects the legacy Altus and BCP systems and allows us to move 500 million cubic feet per day bidirectionally. As we increase the processing capacity at Diamond Cryo in the first quarter of next year, this connection will allow us to utilize the full available capacity at Diamond and harness the value of our system's operating leverage in the currently tight processing market. We are underway with our compressor relocation projects. We've already replaced roughly 15,000 horsepower of rental compression with surplus equity-owned units and are on track to relocate an additional 17,000 horsepower by year-end. We're in the detailed engineering and design phase to install surplus front-end amine treating equipment at East Toyah, Pecos Bend, and Pecos complexes and have begun procuring the necessary long lead equipment. These projects are estimated to be in service next summer and will allow us to expand our service offerings to gas treating as well as to receive a wider range of gas with respect to gas quality specifications. This, in turn, will enable us to extend our footprint into regions of the Permian Basin with higher H2S and CO2 concentrations. On Page 13, I would like to pivot to our capital allocation priorities and near-term financial goals. As I mentioned earlier, we completed our comprehensive $3 billion refinancing, providing us with a fully unsecured capital structure. In addition to our $2 billion of debt and $1 billion of notes, we have a $1.25 billion five-year revolving credit facility in place. We received initial credit ratings from Moody's, S&P and Fitch that place us on track to achieving our financial goal of investment-grade ratings in 2023. In July, we redeemed the outstanding balance of our Series A preferred, executing our redemption goal almost six months ahead of schedule. We declared a $0.75 per share quarterly dividend pro forma of the June stock split, which will be paid on August 17th. Over the next 18 months, we are confident in our ability to achieve a 3.5 times leverage target and secure investment-grade ratings, which will now complete our original financial targets laid out in October 2021 when we first announced the BCP and Altus merger. On Slides 14 and 15, I would like to commend the Altus and EagleClaw teams for their achievements in 2021 with respect to our ESG initiatives. We published our 2021 sustainability report on July 21st, highlighting the achievements of our predecessors, and I encourage you to take a moment to review. On a pro forma basis, we reduced our Scope 1 and Scope 2 emissions by 16% between 2020 and 2021. The reduction in our Scope 2 emissions was largely driven by migrating BCP's purchased power to 100% renewable sources in April 2021. We will look to migrate Altus assets to renewably sourced energy to further reduce future Scope 2 emissions. The company was awarded GPA Midstream Perfect Record Award for no lost time incidents in 2021 and realized a 55% reduction in preventable motor vehicle accidents year-over-year. I'm extremely proud of our company's commitment to the environment and the communities in which we live and operate. Sustainability is core to Kinetik, and it is woven into every detail of our business from operations to finance. The oil and gas produced in the United States continues to be the cleanest and most responsibly sourced. We are blessed with an abundance of natural resources in the US and recognize that we can drive positive change throughout our industry as we look to meet the global energy needs and demands. As Kinetik, we represent energy for change. Through the first half of 2022, I'm extremely proud of what we've been able to accomplish as Kinetik. We have executed upon a number of our operational, commercial and financial goals, all while remaining committed to sustainability and creating value for our shareholders. Thank you all again for your continued support and for joining us this morning. And with that, I'll turn the call back over to Maddie.

Thank you, Jamie. Darius, would you please open the line for Q&A?

The first question comes from Gabe Moreen from Mizuho.

Jamie, if I could start out with a broader Delaware Basin processing capacity question. I'm just curious, the landscape seems to continue to be evolving here, new processing plants announced, some M&A. So I guess I'm curious what your latest thinking is in terms of expansions on your system. I think you mentioned last quarter about kind of surveying your assets to see if you could squeeze out some more capacity and then also to the extent that all these new plants are getting announced, whether you feel the need to join the queue there.

Yes, I found Mackie's quote from last week very interesting, where he mentioned that anyone claiming to build cryo is indeed building one. When we consider all the cryo announcements made during this earnings cycle, they are quite impressive, especially those expected in late 2023 and early 2024. Do we believe there is a need for more? Not really. We still have significant operating leverage to sell. Our focus has been on selling what we currently have available. It's fascinating to talk to producers about selling space in 2024 and see how quickly the landscape has changed in just 18 months; it's like a lifetime. In fact, I’m not sure how many lifetimes could fit into 18 months. What we're observing is a shift in conversation towards immediate needs, which aligns well with our assets and strengths. We are continuously assessing our BCP facilities to maximize available capacity, adding residue compression, and working on debottlenecking projects, as well as expanding stabilizer capacity at the front end. We are also dedicating more time to improving our front-end treatment, particularly regarding H2S and CO2, focusing on the gas quality specifications we can achieve, especially as we see considerable variation when moving up in the basin, from Loving County to the state line and into New Mexico. Right now, we're evaluating everything. Regarding M&A, we are looking at opportunities but haven't found anything that aligns with our cost and financial criteria, nor anything that adds to the scale of our system. Connectivity to our system remains essential. With Tyler and Kris here, they are actively engaging with customers about new deals, acreage positions, and acreage swaps. We believe we are executing well and can focus on expansions at the appropriate time without worrying about it for the rest of this year.

I have a follow-up question. With the Shin Oak expansion underway and new frac capacity being announced on the Gulf Coast, have you considered leveraging some of your NGL volumes to move downstream and potentially partner in these frac expansions? Would that offer any commercial benefits for you?

It's clearly a shift towards more fee-for-service. In short, we have been very open about our desire to expand. It's reasonable to assume discussions with Enterprise as they consider their expansion. This aligns well with the growth on Shin Oak, and it could be an opportunity to explore joint ownership of a fracturing operation. We've observed a significant increase in frac capacity recently, and there has also been a rise in frac rates following the Conway incident, with spot frac rates nearly doubling. As a result, anyone without firm frac agreements is currently feeling the pinch. This highlights how constrained the overall infrastructure landscape is; a single unexpected event can have a remarkable ripple effect. We will certainly consider the frac situation, potentially in conjunction with our broader expansion plans for Shin Oak. This will be an issue for discussion with our partners at Enterprise, and we will keep everyone informed once we have updates to share.

If I could just squeeze one more in, in terms of hedging and you've got, I think, the ability to do it now. I'm just wondering what your approach is, programmatic, opportunistic, how you're looking at it.

We recently held a Board meeting and are focused on the residue side as we approach year-end. Last week, we announced the return to service for Freeport in October, which took the market by surprise, and we noticed a reaction. The drop in gas prices was evident following the fire at Freeport. Our discussions in the boardroom are centered around crude oil prices since we believe the financials in the physical market are somewhat misaligned. In the next 60 days, as we enter October and the heating season, especially in Europe before the US, we expect shifts in dynamics. We are actively considering our next steps and will ensure we secure what we identify as the risk components at pricing that serves the interests of our stakeholders while providing a balanced risk-reward scenario.

The next question comes from Neel Mitra from Bank of America.

I just wanted to first walk through the puts and takes for the updated 2022 drivers. So it sounded like some higher T&F rates are deducting some of the benefits from 2022. So now that you have the super system done and Shin Oak connects into Diamond, does that allow you to get more volumes on Shin Oak at better rates? And then the second part of that is, can you explain how the POPs were negative for you just given that NGL prices and gas prices at Waha have both come up substantially since February?

I will have Trevor go through the various components because we aim to break it down for you. But let's discuss the overall situation. When we referred to volume underperformance, we noted that we have only a few POP contracts. A couple of those experienced maintenance or workovers, which obviously affected volumes. The underperformance does not stem from the POP contracts not functioning as intended. Timing expectations regarding maintenance or workovers were impacted by the limited availability of labor, so we acted to secure a workover rig when we could. This happened sooner than we anticipated, particularly in June, which led to softer volumes for those contracts. Consequently, the value of our POP was decreased. We all expected the increases in T&F rates. If you spoke with transfer companies like Targa, Enterprise, One Oak, and DCP, we likely anticipated double-digit increases in the 9% range due to inflation. However, some increases were even higher, which erodes value depending on the specific contract and the NGL service provider. Unexpectedly high levels of escalation in one or two instances exceeded our expectations, as inflation continued to worsen through the second quarter. The only relief appeared this morning with the CPI at an 8.5% reading. Would you like to discuss the factors influencing this situation further?

I'd say the $25 million in commodity price outperformance you see on Page 8, when you consider the full year strip or actuals today along with the full year strip for the commodity prices compared to what we projected back in February, you'd likely arrive at an increase between $35 million and $40 million compared to our previous 2022 guidance. As Jamie mentioned, some of this is affected by higher transportation rates on our liquid side. Additionally, several contracts relate to this, and if you look back at some of the press releases for our customers, you'll see that many projects have been delayed, with some pads expected to come online several months later or in 2023. This is also due to corporate mergers or acquisitions that have taken longer than anticipated or unexpected changes in the drilling schedule. Therefore, when considering the 2022 calendar year, having less contribution from those pads significantly impacts our ability to benefit from the upside in commodity prices.

Neel, what's notable is that during May and June, with Matt and Tyler present, it appears we may have experienced one of the hottest summers on record, especially early on, despite the well-known heat in West Texas.

And you just don't see respite to much later in the evening. So every piece of equipment that we run has a harder time. There's more maintenance involved. It's just a tough thing to deal with when temps are up over 105 degrees and in the line of the day…

And that affects not just us but also our producers. What we often encounter is when a major storm occurs, it results in a significant expense for our system. We may lose several producers, and by the time they are able to get back online and resume operations, you could be looking at a seven-day period. With a month consisting of 30 days, that means almost 25% of the month can be impacted by a single weather event. We obviously take this into account when assessing risk and making forecasts, but these situations significantly influence overall volumes and our efforts to achieve the best results possible.

And I guess the question I had in there also was now that you have the super system interconnect done, Shin Oak goes straight into Diamond and you can put more volumes through there, does the ability to flow through more volumes in Shin Oak, or are you able to transfer some of those contracts, and would the rates be lower if you're able to do that versus other third-party transportation providers for NGLs?

So the short answer is we have three outlets for our NGLs. We have a commitment with Lone Star and a target around a pre-commitment region. We honor each of these commitments based on the intent and the contracts that back those downstream dedications. Interestingly, we signed nine new contracts this year, which allows us to process those at Shin Oak at Diamond Cryo. This means we can meet all our commitments. Yes, we will see an increase in volumes. The volumes you're looking for, Neel, will start to emerge in the fourth quarter. We're currently moving around 280, above the 260 inlet we have with Apache. So you'll see over 500 going into Diamond. The commercial team has been actively discussing with Matt and the operations team about accelerating that expansion because the fourth quarter is approaching, and we have two large projects coming online. We need to ensure we have adequate space to accommodate the gas.

And then I just wanted to kind of understand the criteria for how you would evaluate the potential Grand Prairie drop down. So two things: One, obviously, when you look at your 2023 EV-to-EBITDA multiple on consensus expectation below 10, and I'd assume that there is some bid-ask spread between transacting that pipe and you probably wouldn't want to pay over your corporate multiple. And then second, it looks like with all of the growth in the Permian, that type would require some expansion capital, and you're already expanding capital on Shin Oak to handle more volumes. So with those two factors in mind, can you just talk about how you're thinking about that and where you are in the process?

Well, Neel, what we said in the context of the drop down is a conversation with Blackstone, that narrative hasn't changed. I think we are very comfortable. We've got so much on our plate. As you can tell, we've been very focused on execution. And we will continue to have a dialogue with Blackstone around that potential opportunity for us. We think highly of the Targa team. Matt and the team do a fantastic job. I have no doubt that there will be an expansion opportunity for Grand Prairie at some point. From the little I do know, I think it's got more room to run from a base volumetric standpoint on volumes versus West Shin Oak, which is over 500,000 barrels a day. I think they're probably closer to 400,000 and change. So that does tell me that maybe timing would be a little different in the context of that. But look, with the acquisition of Lucid and the continued growth from Pioneer in the Midland, I think that's a great opportunity. We think it would be a wonderful opportunity and investment for us. Just stay tuned, more to come. But no pressure to do anything.

And if I can slip one in really quickly. So Jamie, you mentioned that spot frac rates have basically doubled since Medford. And it sounds like from some midstream companies that perhaps are making some long-term decisions on frac based off of this. Do you think that the Medford outage, if it's a total loss, is enough to warrant new fracs coming online or just higher spot rates for the interim until kind of the situation is resolved?

I think it will be a combination of two factors. Yes, it will depend on how long the outage lasts and the potential for restoration, which will definitely affect a long-term investment decision. With the announcement of the Shin Oak expansion, we're looking at an increase of 275,000 barrels a day, which is just under two cryo units at 150,000 barrels each. That’s a significant amount. The market was already tight, whether it was with Lone Star, Transfer, Targa, or Enterprise. Additionally, we are experiencing rising gas volumes, with over 1 Bcf a day and projected to reach 16 Bs by the end of this year from the Permian. This gas will either flow as ethane or remain as residue, which complicates the situation further. I believe there will be some activity, and the positive aspect is that we have three or four large players who will likely be very pragmatic in their investment decisions moving forward.

It appears you have no questions at this moment. So I'm going to hand back to the management team for any final remarks.

Thank you very much, everybody, for your time this morning. Have a wonderful rest of August in the summer, and we look forward to seeing and talking to you many of you very shortly.

This concludes today's call. Thank you for joining. You may now disconnect your lines.