EnLink Midstream LLC (ENLC) 2019 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to EnLink Midstream Second Quarter Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded today, Wednesday, August 7, 2019, at 9 a.m.

Eastern Time.

I would now like to turn the meeting over to Kate Walsh, Vice President of Investor Relations.

Please go ahead.

Thank you, and good morning, everyone.

Thank you for joining us today to discuss EnLink Midstream second quarter of 2019 earnings.

Participating on the call today are Barry Davis, Chairman and CEO; Eric Batchelder, Executive Vice President and Chief Financial Officer; and Ben Lamb, Executive Vice President and Chief Operating Officer.

To accompany today's call, we have posted our earnings release and operations report at the Investor Relations portion of our website.

Shortly after today's call, we will also make available a webcast replay on our website.

I will remind you that statements made during this conference call about the future, including our expectations or predictions, should be considered forward-looking statements within the meaning of the federal securities laws.

Actual results may differ materially from what is described in these forward-looking statements.

Forward-looking statements speak only as of the date of this call, and we undertake no obligation to update or revise any forward-looking statements.

Additional information on factors that could cause actual results to differ from what is described in the forward-looking statements and sources for certain statements we make herein are available in the earnings press release and the operations report located at enlink.com and in our SEC filings.

This call also includes certain non-GAAP financial measures.

Definitions of these measures as well as reconciliations of comparable GAAP measures are available in our earnings press release and our operations report on enlink.com.

We encourage you to review the cautionary statements and other disclosures made in our earnings press release and in our SEC filings, including those under the heading Risk Factors.

As a quick reminder, we modified our segment reporting earlier this year to better align with how we're running our business.

Any comparisons between 2019 and 2018 at a segment level are done using 2018 segment results recast into the 2019 segment reporting methodology.

We'll start the call today with prepared remarks by Barry, Ben and Eric, and then leave the remainder of the call open for questions and answers.

With that, I would now like to turn the call over to Barry Davis.

Thank you, Kate.

Good morning, everyone.

As you all know, we announced yesterday that I am returning to serve as CEO of EnLink while maintaining the role of Chairman.

Over the last 18 months as Executive Chairman, I have worked closely with the Board and management team to help guide the company.

The Board of Directors and I have decided that given how the world in energy has changed, now is the right time for me to return full-time as CEO to advance Enlink's growth strategy and take advantage of the significant opportunities we see in the sector.

First, I would like to thank Mike Garberding for his leadership of EnLink.

He has been my close partner in growing this company for the past 11 years and has played a critical role in helping build EnLink into the diversified company that it is today.

I know that Mike will continue to be successful in his future endeavors.

Going forward, I am very excited to lead EnLink through what we see as a defining time for our industry and for our company.

The playbook for producers continues to evolve, with producers prioritizing capital discipline, focusing on strengthening their balance sheets with debt repurchases, returning capital to shareholders through dividend increases and share buybacks and moderating production growth in response to commodity price volatility and limited access to attractive capital.

Lower production means less infrastructure needed, and less infrastructure needed means more competition and more capabilities required to win.

Midstream companies that will win in today's environment are those that have deep customer relationships and are able to deliver the best solutions that are integrated across the value chain, are proactive and opportunistic in identifying new growth opportunities and have the financial resources to move quickly and capitalize on opportunities.

With a diversified portfolio of high-quality, differentiated assets, deep customer relationships, a strong financial profile and a strategic partner, GIP, that is committed to investing in our long-term growth, we see compelling opportunities to invest in this environment and believe the EnLink team is uniquely well positioned to win.

This is not the first time our industry has experienced significant change, and it won't be the last.

We've been here before, and we know how to adapt to turn this environment into opportunities to create value.

Going forward, we will take decisive action to unlock the potential of our business, drive growth and create value for all of our stakeholders.

To achieve this, I have set out our near-term priorities along 3 key areas: first, connecting more deeply with our customers; second, creating a sense of urgency to activate the energy of our organization to drive the next leg of growth; and third, leveraging the strategic value of our partnership with GIP to grow our market share.

I look forward to sharing progress on these initiatives with you in the coming weeks and months as well as additional details on Enlink's strategic plan for 2020 and beyond.

Now turning to the results.

Our performance in the second quarter demonstrated the financial resilience of our business, the strength of our differentiated platform and the flexibility and diversity of our operations as all 4 segments generated substantial cash flows in an evolving environment.

On a year-to-date basis, outperformance in our Louisiana and North Texas segments drove solid results, driven by high-return projects such as Cajun-Sibon III and the North Texas bolt-on acquisition.

These segments offset weaker-than-expected performance in Oklahoma and the Permian.

In Oklahoma, we are continuing to see moderated growth as a result of slowing producer activity.

While we continue to see Oklahoma as a stable, strong area of growth, we now expect that growth will be slower than we anticipated.

And in the Permian, some producer activity was deferred, and we now expect to realize the benefit of that activity in the second half of this year.

During the quarter, Oklahoma producer, White Star Petroleum, defaulted on a payment to EnLink, which negatively impacted adjusted EBITDA by approximately $10 million.

Excluding the impact of this missed payment, second quarter adjusted EBITDA, distributable cash flow and distribution coverage were roughly in line with our expectations.

Going forward and in light of this evolving operating environment, we are adjusting our outlook for the full year.

We are updating our full year adjusted EBITDA guidance to a range of $1.07 billion to $1.1 billion, primarily as a result of the White Star default and moderating producer activity in Oklahoma as well as North Texas and the deferred timing of producer activity in the Permian Basin.

Our estimate for overall growth capital expenditures net to ENLC is updated within the original range to a narrowed range of $630 million to $710 million.

This estimate takes into account new project announcements in the Permian during the first quarter of 2019 and sequencing of capital to align with our revised outlook for well completions in Oklahoma.

Finally, our target distribution growth rate going forward is updated to a range of up to 5%.

This reflects a more disciplined approach to capital allocation and strengthens our ability to decisively capitalize on high-return opportunities that will arise in this dynamic environment.

It also reflects investor feedback we have received and a focus on taking actions that will drive shareholder value.

As we look to the future, we are pleased with our competitive position and potential for our business to outperform over the long term.

We have a large integrated asset platform spanning premier supply basins and key demand centers.

As producers continue to evolve with their development strategies, we're confident our business can generate strong and growing cash flows as we seek to capture market share, execute incremental, highly accretive bolt-on projects and identify larger-scale growth opportunities.

And we will be acting with urgency to do so.

We are confident in our ability to deliver our revised outlook for the year.

The bolt-on acquisition in North Texas is expected to drive segment profit contribution greater than our initial expectations.

Cajun-Sibon III in Louisiana is expected to increase its contribution due to 2 sequential quarters of full operations and seasonally higher expected volumes in the second half of the year.

Oklahoma second half expectations reflect our updated volume outlook.

And the Midland natural gas assets remain on track for strong utilization ramp by year-end as the riptide expansion comes online.

Longer term, we continue to see a bright future for the Gulf Coast region fueled by strong and growing demand for exports of all commodities.

We intend to play a sizable role in that region's growth and are well placed to do so given our existing, flexible, high-quality asset base in Louisiana, which includes a significant network of gas pipelines with available capacity for incremental LNG transport opportunities.

We recently signed a new long-term precedent agreement with Venture Global to provide natural gas transportation services for its planned Calcasieu Pass export facility in Louisiana.

This agreement, which is expected to generate a highly attractive adjusted EBITDA multiple of between 1 to 2x, is reflective of our ability to identify and execute on incremental opportunities to strengthen our platform.

We intend to capitalize on additional similarly high-return opportunities going forward, enabled by our financial strength and flexibility, which is further enhanced by our partnership with GIP, which we will be focused on leveraging in a more proactive manner.

With that, I'll turn the call over to Ben Lamb to discuss each segment's performance in more detail.

Thanks, Barry, and good morning, everyone.

Turning first to Oklahoma.

We saw higher volumes in the second quarter as we experienced an uptick in well completion activity.

Gas gathering and transportation volumes increased 6%, gas processing volumes increased 5%, and crude volumes increased 86% sequentially compared to the first quarter.

Although producers have moderated their activity levels in the near term and we are tempering our growth outlook accordingly, the STACK will continue to be an important stable source of cash flow for us over the long term.

For 2019, we are now forecasting 10% year-over-year segment profit growth compared to 2018 segment profit.

We continue to view the STACK as a top-tier play, and we serve a diverse set of well-capitalized producers with the best acreage in the region.

We expect capital expenditures in Oklahoma to scale up and down with producer drilling activity going forward as the majority of our capital spending is now on gathering infrastructure.

In the Permian Basin, gas gathering and transportation volumes increased 2%, gas processing volumes increased 3%, and crude volumes decreased 1% sequentially compared to the first quarter.

Our gas gathering and processing assets now support close to 1 Bcf per day of gas processing capacity.

And our crude gathering platforms provide tremendous opportunities for future high-return expansions.

We continue to see the strongest drilling economics in the U.S. in the Permian Basin, supporting high levels of expected producer activity.

In the second half of the year, we expect segment profit from the Permian to grow 15% to 25% compared to the first half of the year, driven in part by the projects we announced in the first quarter.

In North Texas, we continue to generate significant cash flows with minimal capital expenditures.

The bolt-on acquisition we made during the first quarter is helping to contribute to better-than-expected performance.

Looking forward, we are assuming a conservative scenario for North Texas, given Devon's ongoing divestiture process for their Barnett Shale acreage.

We are assuming that Devon will suspend its drilling and refrac activity later this year in preparation for the sale of the asset.

Likewise, we assume very limited activity levels for other producers for the remainder of 2019 and into 2020.

Our Louisiana segment delivered solid segment profit during the quarter, slightly exceeding our expectations due to the strong ramp in volumes through our newly expanded Cajun-Sibon NGL pipeline.

We brought the Cajun-Sibon Phase III expansion online in April and are now able to transport approximately 185,000 barrels a day of NGL to our fractionation complex in Louisiana.

In the second half of the year, the segment profit contribution from Cajun-Sibon III is expected to increase as a result of having 2 sequential quarters of full operations in the third and fourth quarters.

As Barry mentioned, our large Louisiana NGL footprint will be a growth driver for us in the future as it provides access to key Gulf Coast markets, including growing LPG exports.

In fact, while our current LPG export footprint is modest in size, in the first half of 2019, we saw our LPG export volumes increase more than 50% compared to the first half of last year.

Our significant network of gas transportation pipelines provides available capacity for incremental LNG transport opportunities.

In the near term, we expect stable, significant cash flows from this region with low capital requirements, and we are actively exploring the potential for larger-scale projects.

With that, I'll turn the call over to Eric to provide more information on the financial performance.

Thank you, Ben, and good morning, everyone.

Enlink delivered strong cash flow results for the second quarter of 2019 despite the impact of the loan default of one of our Oklahoma customers.

During the quarter, White Star Petroleum Holdings, LLC filed for bankruptcy protection under Chapter 11 of the U.S. bankruptcy code.

And as a result of their financial situation, White Star defaulted on an approximate $10 million loan payment owed to us.

We are also owed approximately $11 million in the fourth quarter of 2019 and have conservatively assumed that we will not be receiving that payment either.

We achieved adjusted EBITDA of $259 million for the quarter, which, excluding the impact of the White Star default, would have been $269 million, roughly in line with expectations for the quarter.

We achieved distributable cash flow of $168 million for the quarter, which would have been $178 million, excluding the impact of the White Star default.

Distribution coverage was 1.2x for the quarter and, again, excluding the White Star default, would have been 1.27x.

Oklahoma segment profit increased over 7% versus the prior year period and 3% versus the first quarter of 2019.

Our Permian business achieved 7% segment profit growth versus the prior year period.

When compared to the first quarter of 2019, our Permian business declined 13%, primarily due to a decrease in margin in our physical crude business and lower commodity prices.

We hedge our exposure in the physical crude business, but the timing of the realization of those hedges can cross quarters and will be reflected in our corporate segment.

Louisiana segment profit was relatively unchanged versus the prior year period and was down 15% compared to the first quarter of 2019.

The second quarter of the year is typically the slowest for Louisiana due to regular seasonality in the business.

Segment profit for North Texas decreased by approximately 21% year-over-year, driven primarily by the expiration of our minimum volume commitments with Devon Energy in the Barnett Shale at the end of 2018.

Segment profit for North Texas declined modestly by 3% for the second quarter of 2019 as compared to the first quarter of 2019.

Reflecting the strength and diversification of our cash flows from the business, EnLink increased its quarterly distribution in the second quarter of 2019 with an increase of approximately 6% as compared to the second quarter of 2018 declared distribution.

As Barry mentioned, we expect our distribution to continue to grow, albeit at a more moderate rate of up to 5% going forward.

During the second quarter of 2019, we spent approximately $142 million on growth capital expenditures, and we have spent approximately $362 million on growth capital expenditures in the first half of 2019.

We expect to spend less in the second half of the year, and in the absence of any new project announcements, we are forecasting spending approximately half of what we expect to spend in 2019 in 2020.

From a leverage perspective, we achieved a solid debt-to-adjusted EBITDA ratio of 3.97x as calculated under our credit facility, which is consistent with our long-term financial goals.

We continue to maintain a flexible liquidity position and exited the quarter with revolver availability of around $1.6 billion and are not planning to issue any equity under our at-the-market program this year.

From a long-term outlook perspective, we continue to target a range of 3.5x to 4x for debt-to-adjusted EBITDA as calculated under our credit facility and a distribution coverage ratio of 1.3x to 1.5x.

Our strong financial outlook supports our commitment to sustainably creating and returning value to stakeholders over the long term despite volatility in the near term.

With that, we are now ready to take questions.

Operator, please open the line.

(Operator Instructions) The first question comes from Shneur Gershuni of UBS.

I was wondering if you can walk me through what's changing strategically.

I definitely understand Mike is out and so forth, but the Board is largely the same.

GIP was a large investor previously.

Are you going to be taking a new shift in your kind of approach?

You signaled being more integrated in partnering with GIP.

I guess why wasn't that happening previously?

Are you thinking about selling assets to shrink to grow?

Or are you going to continue down the path of more diversification and adding assets and so forth?

I'm kind of confused as to what you're signaling and where you would like to be on a go-forward basis.

Yes.

Shneur, this is Barry.

Thank you for the question.

And first, let me just acknowledge what a great partner Mike Garberding has been for the last 11 years.

We're thankful for everything that we were able to do together.

And as I said earlier, we really expect Mike to do great things going forward, and we wish him the best.

Our focus is now on the future.

Our focus is to unlock the potential of our organization.

We've said that we believe things have changed dramatically over the last several years and months.

And so our focus is on taking advantage of all that we have to work with to be successful in this business.

And when we talk about strategy shift, it's more about the way that we approach each day.

Our focus is going to be primarily in 3 areas.

Number one, we are going to connect more deeply with our customers.

We think the more that we can do there will create opportunities to not only provide more services across the assets that we have today but across different areas, different basins and just to provide the services that we've always done.

Secondly, we believe there is an opportunity to unlock the potential of our team, to inspire this organization to be entrepreneurial, to have a winning mindset and to really unlock the entrepreneurial DNA that has gotten us to where we are and created the opportunities that we've been able to take advantage of in the past.

You ask about what's going to be different with GIP.

It's been an evolving relationship, and I think it's only now that we really recognize the potential that there is to work with GIP, to take advantage of what we think are going to be terrific opportunities that evolve in this different environment that we're in today.

GIP not only brings financial capability to our organization but the ability to evaluate large-scale projects, M&A opportunities and then once we see something that makes sense.

And let me assure you, we're going to be disciplined about that.

We're not going to do things for the sake of doing things.

We're going to do things that make sense, but we're going to be extremely active and energetic with a sense of urgency, creating opportunities for us to look at, and GIP can be extremely helpful in that.

You referenced the Board.

GIP has had a significant presence on our Board for the last year.

So we don't expect change there.

I will comment that we're really excited to bring Tom Horton on the Board.

Tom brings a depth of experience that is second to none in both his executive experience and his Board experience.

We highlighted the fact that he's on the GE Board and the Walmart Board today.

In fact, he's the Lead Director on both of those Boards.

So what an opportunity it is for us to bring somebody like Tom on the Board, and we're excited to work with him.

And just to sort of expand on kind of what you just laid out there because it was very 30,000-foot level.

But I mean are we going to try and get out of being in so many different business lines?

Are you going to try and retrench to being #1 or 2 in a basin that you're in as opposed to just sort of finding more projects to add on and they may have great returns and so forth, but to have something that cohesively makes sense as to how it's laid out, not just getting the employees to work better with customers -- with your customers, which obviously, makes sense, but something where we could sort of see a cohesive strategy and something where you have a dominant position rather than a follow-on position and you're just chasing returns?

Yes.

So Shneur, I think I would differ really in your thoughts about us being in a lot of different places but not having the size and scale.

In fact, we're in 4 places.

You know we have a leading position in the STACK, the best acreage, the best system build-out with 1.2 Bcf of capacity there.

We have a strategic position in the Permian, both in the Midland and the Delaware Basins.

Our intent is to continue to grow that to scale, and we're on path to do that today.

We think there's going to be opportunities in the coming days to continue to step out there and to create, really, a great position across the Permian, and that's a place that we want to be.

Thirdly, the Louisiana position is only second to one.

So we have the second largest position in Louisiana overall and, we think, tremendous opportunities to continue to grow that business.

So those 3 areas all are large, stable places that you want to be.

The fourth area for us is North Texas.

And as you know, it's a mature cash flow -- cash-flowing asset that we believe supplies the cash that we need in order to continue to invest.

So we like where we are from an asset standpoint.

And the things that we're going to do are going to be what we've always done.

We're going to exploit those assets as well as look more aggressively at expanding beyond those areas with step-out opportunities.

So lastly, I'll just say that I think to be successful in this business, you have to have capabilities across the value chain.

And so 4 basins doing everything across the value chain is where we need to be.

And when you look at our assets, I think you see that.

The franchise position that we have in Louisiana -- I'm sorry, in Oklahoma, the franchise position we have in Louisiana and the strategic position with great opportunity to grow in the Permian.

The Exxon project is a great example of what we've been able to do there.

We started 4 years ago with no assets in the Delaware Basin.

Today, we're well on our way to creating a leading position in the Delaware, and we're committed to doing that going forward.

Okay.

Just shifting gears a little bit here.

Your growth guidance for the distribution now is up to 5%.

With yield approaching 15%, your coverage is kind of 1.2%, you're covering 1/4 of your CapEx budget this year with excess cash flow.

Does it not make more sense to just keep it flat, pay down debt, build cash levels, build coverage levels or possibly buy back units at this point right now versus putting through any increase at all?

I mean how do we manage the desires of the various unitholders that you have?

Yes.

Shneur, it's Eric.

Thanks for the question, and good to speak with you.

First, I'd like to -- let me just say, we believe the business clearly supports up to a 5% growth rate.

That being said, your comments are well made, and we certainly see and hear the market and what it is signaling about growth, which is why we lowered the range.

And I think if you think about what up to 5% and what that range means, gives us the flexibility on a go-forward basis to think about reallocating cash either back into the business or to return to shareholders or pay down debt, which I think you'll see us continue to actively evaluate.

But I think that your comments are exactly partial to part of what we were thinking through as we decided to adjust the range to up to 5%.

Great.

And 1 final question, your guidance that's been adjusted for today.

Is your fourth quarter exit rate going to be lower than where you are today as you think across the business?

Or do you think it's going to be at level?

Yes.

Shneur, it's Eric.

I think, look, we're -- we generally don't give quarterly guidance, but what I will say is we've done a bottoms-up approach to come up with our -- as we always do, to come up with our guidance, and this is as up-to-date as it gets in our view of what's -- what the future holds, and we feel great about the momentum going into the second half and carrying that forward going forward.

The next question comes from TJ Schultz of RBC Capital Markets.

I think just first, you mentioned the priority from a financial perspective to find more full-time-type projects.

If you could just kind of discuss across your footprint where you see the best opportunities to increase some of the smaller-scale projects.

And then just a follow-up on the dialogue about GIP.

As you talk about the potential for their support on some of the larger projects, is this something that's just opportunistic and will be evaluated as projects arise?

Or is anything more structured in place at this point with GIP to commit on financing for some larger-scale projects?

Yes.

TJ, it's Ben Lamb.

Let me take the first part of your question, and then I'll let Barry address the part about GIP.

When you look at the opportunity set, it really is in every one of the 4 areas.

And in particular, I'd guide you to look in the operations report.

There's a bit of a project roster in there that shows a series of projects that aggregate $350 million to $400 million of capital at 4 to 5x kinds of EBITDA multiples.

And it really is across the entire business.

And so some recent examples of that in the Permian are the riptide expansion, which is an extremely efficient way to create some capacity to capture a medium-term processing opportunity.

In North Texas, last quarter, we announced a small acquisition of a competitor system that we've been able to fully integrate, shut down many of the assets that we bought, reduce cost and, therefore, earn a return very quickly.

In Louisiana, it's a rich opportunity set around our existing pipeline network, no better example than the precedent agreement that we just signed with Venture Global.

And I could go on and on, but in the interest of time, I'll stop with those 3 examples.

Yes, TJ.

And thank you for your question around GIP.

It just gives me a great opportunity to highlight the fact that GIP made over a $3 billion investment in this business just a year ago.

They did that with the intent to use this platform for growth.

And we think that, that is something that will be extremely valuable to us.

They're active in the market.

They've got a great history of not only helping midstream companies grow, as you know, with their history with access and others, but they've also done that across different industries.

And the way that they approach that is with a very economic, value-creating approach to not only look at what they're acquiring, but look at ways it can be enhanced.

And that's consistent with what we've always done, and we'll do even more working with them.

So we're really just getting integrated.

As you know, we've done a lot of internal work over the last year.

The things that we've done, going through the ownership change, going through the simplification process and organizational restructuring that really had us inward-focused.

Now we're looking externally.

Now we're working with GIP and other strategic partners.

And we're going to take advantage of the relationships that we have to unlock the opportunities to create value across this asset base.

So we're excited about that, and I think GIP is all in.

Okay.

In Oklahoma, I understand that you've kind of fine-tuned expectations for 2019 at this point.

Just as we think about the trajectory into 2020, when would you expect to kind of get better line of sight there?

Understanding from Devon's report that they're going through an evaluation to bring in potentially a partner in the STACK.

Just any kind of color on the medium-term view there.

Yes.

TJ, this is Ben.

Happy to talk about momentum in the STACK.

If you look across the diverse producer base that we have there, including Devon, including Encana, including Marathon and 10 or more others, I think a theme that you see is they are very pleased with the operational momentum that they have.

They're happy with the results.

They're happy with the efficiency that they're getting.

It's what you hear from Encana, is they're proud that they've shaved about $1.5 million off of the average well cost since the Newfield acquisition.

The headwind is the commodity price environment because the Anadarko is a combination play.

And so it's not just a crude price but also the natural gas and the NGL price that play into the producers' economics.

And so the answer to your question is, as 2019 goes on and our producer community goes through their budgeting process, they and we together will have greater line of sight on what the growth rate in Oklahoma in 2020 is going to look like.

And I think what you're seeing in Devon's materials that you referenced is an interest in maintaining that operational momentum and being able to continue to see better well results, but to do so in a way that competes with some of the oilier plays in their portfolio, and that's something that we know they are very focused on doing in the near term.

The next question comes from Jeremy Tonet from JPMorgan.

Just want to start off with the CapEx side of the question here.

In looking at the PR, it seems like, as you've noted, this moderated activity driving the EBITDA change, but just wondering what you see that drove the 2019 CapEx higher.

And I think as you look forward to 2020, you noted that CapEx would be expected to be half of what it is '19, unless new projects come together.

Just wondering if that rate -- if that represents kind of a good proxy run rate for the opportunity set that you see your platform developing in the year-in, year-out basis.

Or how should we think about that?

Yes.

Jeremy, thanks for the question.

I'd like to first address your comment about 2019.

We've seen a strong reduction in the Oklahoma well connects and gathering that reflects the moderated activity.

The reason why the overall guidance hasn't changed is that we announced our plant coming that we're building in the Permian to service the Exxon relationship that Barry referenced earlier, which we're very excited about.

So we feel like we've done a good job of managing moderation in producer activity in 1 region while continuing to reinvest in the growth in another region, which nets out to about the same numbers.

In terms of going forward, we generally aren't in the habit of publishing shadow backlog.

We put out our CapEx guidance with respect to projects that we have line of sight to or that we're currently executing on, and that's what's represented by our current 2020 number.

I would say that, certainly, we have an active organization and, as Barry referenced in his remarks, an energized organization that is out looking for new opportunities, but consistent with what we've done over the last couple of years, will certainly be bringing those to the market and keeping you informed of those as they change, so you have an idea of what it is that we're spending our capital on.

So what's in that number today is, again, line of sight.

But I would expect that our team is out working on new projects all the time.

That's helpful.

And just want to turn to the term loan facility with White Star there.

I guess I'm a bit unfamiliar with this type of relationship.

Is this common?

Do you have this type of structure with other producer customers?

Jeremy, this is Ben.

Let me talk about the business side of it, and then if we need to go on the financials, I'll pass to Eric.

The answer is no.

It's a very unusual relationship.

And the history was, this was a customer who had a minimum volume commitment that we inherited in an acquisition.

And we realized months ago that they were in a position where they may be in some financial distress.

And so rather than just sitting by idly, we approached them and agreed to convert the MVC into a secured second-lien term loan.

So that if they got to the point where bankruptcy was the only option, we would have a security interest in the assets, and we would have a seat at the table in court.

And that's exactly what's happened, not what we wanted to happen, but that's what's happened.

And so I view it as a case in which we were very proactive to get in front of a problem and put ourselves in the best position that we could be in.

Now at this point, we've completely written off that term loan receivable.

And in the fullness of time, perhaps we'll see a recovery through the bankruptcy process, perhaps we won't.

But at this point, it's fully written off and any recovery we see would be upside from here.

And mechanically, it would have been, again, about $20 million to $21 million of adjusted EBITDA this year and about $10 million in each of the next 2 years.

But other than that, that's the -- as Ben said, this is a very unique arrangement.

The next question comes from Dennis Coleman of Bank of America.

Maybe just 1 little detail on the -- just prior topic that Jeremy asked about.

So the White Star transaction was secured.

It was secured by producing assets?

Is that?

Yes.

I mean it's a second-lien term loan.

So we're behind the banks, but otherwise, secured by the business.

And they're Oklahoma-producing asset?

Correct.

That's right.

It's in the Battle Ridge system in Oklahoma, in the Mississippian play.

Okay, okay.

I guess if I could just pick up on the GIP relationship a little bit.

You have a slide, Slide 8, I guess, in your ops report where you show a growth wedge that is pretty large relative to the bars.

And so I guess I want to explore a little bit how you're thinking about these larger projects.

When you first announced the GIP relationship, there were lots of questions about whether existing GIP assets might be combined with EnLink.

I guess more broadly, where are the large-scale projects that you're looking at?

Is it primarily M&A?

Is it a new build?

Is it assets that exist within GIP already?

Yes.

Dennis, this is Barry.

And let me, first of all, say that we won't comment on any specifics in terms of what those growth opportunities might be.

What I will say is that the assets that we have and the asset of a team that understands what it means to go find opportunities, to vet those opportunities, we fully expect to be -- to result in opportunities for significant growth beyond what we would say is that lower bar of organic bolt-on-type growth.

And so, again, GIP invested into this platform with an intent to use it to grow the business, not in a small way, but to be a big player in this business.

We have the same mindset, and that's what we intend to do.

We're going to be more active, we're going to be more external, and we're going to be very focused on how we can continue to push this business forward.

Okay.

I guess just one more for me, if I can.

On the Venture Global announcement, it sounds very attractive returns but relatively small dollars, and it seems the project has an FID.

So I'm having a little -- I guess I'm wondering what exactly is the project that it would be $20 million next year for a project that is years in the future?

Yes.

Dennis, it's Ben.

Let me clarify a couple of things.

First, service, what is the project?

The answer is, the project would be a firm transportation agreement where we would transport gas with Venture Global as the shipper on an EnLink pipeline.

In terms of the FID, if you follow the LNG world, the Venture Global guys are further along than anyone else in this next wave of projects.

They've secured all of their equity financing.

They announced, I think, about 2 weeks ago that the lead rangers on their project loan had all made commitments and that they're in the process of doing the full syndication.

And so while the FID has not been reached yet, it's our expectation that, that is weeks away, not months or quarters away.

And then service could start next year -- partial service could start next year, but we really see it as being a 2021 event when we would be in full service and realizing that 1 to 2x EBITDA multiple against the capital investment.

The next question comes from Praneeth Satish of Wells Fargo.

I just -- first, just wanted to clarify or confirm for the Venture Global project.

Will you spend the $20 million of capital before they achieve FID or first wait for them to achieve FID?

We will wait for them to achieve FID.

Okay.

And then just broadly on the credit quality of your STACK customers, I mean, are there any other customers that, I guess, are closer or near financial duress at this point?

No, there's really nothing else.

And I'll broaden it and say beyond just the STACK.

There's really nothing else in our portfolio that is similar to the White Star situation.

So when you kind of go around the horn, in Oklahoma, the big producers are Devon, Encana, Marathon.

In the Permian, the big producers are Concho, Diamondback, ExxonMobil, Cimarex.

In Louisiana, some of our big product purchasers are Dow Chemical, Williams.

We have a very high-quality customer base.

Unfortunately, in the case of White Star, we had an issue we had to work through, and we put ourselves in the best position that we could to do that, and we are where we are today.

The next question comes from Spiro Dounis of Crédit Suisse.

So I want to follow up on Venture Global, if we could.

I imagine that Calcasieu is probably going to be considerably more gas than maybe what this project seems to intimate.

But just curious if there's more opportunities to expand on this deal.

And then also, I believe they're commercializing another site in Plaquemines.

Any opportunities for you there as well?

Yes.

Spiro, great question.

And the answer is yes, yes and yes.

Yes to; is there an opportunity to do more with them at Calcasieu Pass.

That answer is yes.

Now they have a portfolio of firm transportation that includes not only us but 2 other pipelines as well.

But we think there may be an opportunity to provide more gas at Calcasieu as their needs evolve.

Secondly, you're right.

They are working hard on a project at Plaquemines, and there is an opportunity to do business with them there.

That will, of course, be a competitive opportunity but one that we will be -- certainly be pursuing.

But let me step back and say, I view this as a down payment on all the things we are going to do in Louisiana in the coming years.

This is a first step to have firm service for an LNG export customer.

I don't think it's the last one that you will see us do, whether the next one is with Venture Global or with others.

And it's certainly not the last thing you're going to see us do with the extensive pipeline system that we have in Louisiana.

And of course, we've talked with you before about all the opportunities around their NGL business and in other places.

Got it.

That's very helpful.

Second one, just going back to GIP and participation going forward.

And maybe if I could just get you to fine-tune it a little bit.

I know you're not giving specific guidance on what kind of projects you could pursue together, but you did at least define it as large scale, specifically.

And I guess just to tell us, maybe interpret what that means.

Is large scale a processing plant?

Are we talking about something larger than that?

Yes.

So I think the things you've seen us do in the past, which is really across the full value chain, from a gathering and processing standpoint, step-outs from what we're currently doing, even in the basins that we're in.

Also, we certainly will look at other basins, although I will say that there aren't many other places you'd want to be than where we are in our 3 primary supply areas.

Secondly, we will look downstream.

We believe that there are opportunities off of our Louisiana position to go further downstream.

And some of the experiences that we have as a company as well as the experience that GIP brings to the table with the financial capability that they would bring to the table gives us the opportunity to look at those with a realistic opportunity of completing and successfully executing on those projects.

So full value chain, primarily focused on our existing basins, but we certainly will look outside those basins as well.

Most of what I just described is from an organic standpoint.

We do believe that we're in an evolving environment in terms of M&A opportunities.

And we will see some opportunities that will make sense in time.

Understood.

Appreciate that color.

Last one for me.

Just with the Board change and the addition of Tom Horton, I agree that it's a great addition.

But can't help but notice just with his pedigree, he seems to have a lot of experience in transforming companies, and that's gone generally pretty well.

Just curious how much of that was a factor behind his addition.

Or am I reading into that too much?

Yes.

I do think it's reading too much into it.

He's a new addition to the GIP partnership and a great addition.

And so we're very fortunate that they feel like that this is the best place to put him today when they look across their portfolio at the companies that will benefit from having his expertise.

But I wouldn't read anything into that other than he's a great resource.

We're excited to have him, and he'll fit in really well.

The next question comes from Chris Sighinolfi of Jefferies.

Barry, I was hoping I could circle back on Shneur's question just regarding changes that we could expect to see following Mike's departure.

I think asking or maybe framing Shneur's question a bit differently and focusing on outputs as opposed to inputs.

I guess what are the value metrics that you and the Board would want us to focus most closely on to gauge the success of the new strategy?

Is it better EPS growth?

Is it sustainably lower leverage?

Is it improvement in your ROIC averages?

I guess like in the review, you and Board date of Mike's 18 months performance as CEO, what value metrics were viewed to be most problematic?

And what should we pay attention to, to gauge the success going forward of the new strategy?

Yes.

Chris, great question.

And let me tell you that -- I'll just really start with the endpoint that you said.

This is not about what we didn't do.

It's about the opportunity of what we have to do in the environment that has evolved and exist today.

So we think there's going to be terrific opportunities to be more externally focused, to have more energy focused on the opportunities that will evolve.

And anybody that's in the business would tell you that in the last just recent days, weeks, months, we've seen a shift in the thoughts around what it takes to grow.

And clearly, in a more competitive environment, you've got to have all of the things that are required, all of the capabilities, the right assets.

You've got to have the team that is energized and focused.

You've got to have the financial capability that we believe GIP brings to it.

And then I'd say, most importantly, you've got to have the relationships that we have that will lead to the opportunities.

So there's really nothing magic about what we're going to do different, except that we're going to do it with an intent to create value and with an intensity that I believe will result in realization of unlocking those opportunities and the value that can be created from that.

So yes, I mean I think it's all of the above.

We are very focused on value creation and -- which really gets to the returns that we've got to see across our project.

And how you get that done in this environment is really more about what you do once you complete a project or an acquisition, then really the terms of the transaction itself.

And so a long time ago, I learned that the last 20% of effort creates all the results.

And what we've got to do is get back to getting the last 20% of effort from all of our people in the last 20% of the benefit from all of the partners that we have across the business, including GIP.

Okay.

I guess maybe dovetailing on that then.

And I don't know if this is for you, Barry, or for Eric.

I also want to follow back up on distribution growth.

I guess to ask, you have clearly a stakeholder in GIP, and then you have a very large public group.

And I'm just curious, does GIP see distribution growth as the best path to drive equity value?

And I ask because you guys moderated the growth rate, but some of your peers have moderated more than you have or just sees growth altogether and are prioritizing lower leverage or other metrics that I think they've identified to be more important to answering that equity value story.

So I'm just curious, any conversation you guys have had on that front?

Anything you can share about the strategy with regard to that?

Yes.

Chris, this is Barry.

Let me start and I'll hand off to Eric.

What I want to emphasize is that GIP looks at our world from a shareholder's perspective, first, because they are the largest shareholder, but also because of the responsibility they have on the Board.

And all of our Board members are independent directors, and we as a management team, we're all shareholders.

And so when we think about the decisions we make as far as how we allocate capital, what we do with the distribution, there is no singular focus, and we have a terrific balance of thought across that.

And Eric, I'll let you add anything specific around.

Yes.

I think the only thing I would add specifically, Chris, is that you'll note, up to 5% what that range includes, but also that as we think about some of the comments you made about others in the industry, and I think they're very alluded to this, this industry has evolved and is evolving rapidly.

And so we are doing our part in trying to understand where the right place is to be, and you'll see us continue to develop that as we go forward.

But some of this, we want to make sure that we're being thoughtful about the business and the long-term strategy as opposed to necessarily overreacting 1 way or the other to anything that might be temporal.

But I would say it's something we're very focused on at the Board level, broadly, not just the GIP members of the Board, and that we think about and which is why we made the adjustment that we did.

Okay.

And I guess on that growth in the future, on that point, Eric, would you still, you think, look to do a cadence of quarterly increases?

Or we've also seen some that used to do it that way and migrate to an annual payment.

It's just a curiosity question as to, at this point, what you guys are thinking.

Yes.

I know it's interesting, right, because I think we saw this week somebody come out with the onetime growth pop.

And that sort -- that's one of those new items, right, in the industry.

And I think we'll -- we haven't, frankly, really dug into that concept as part of it, but I'm sure that will be in the mix.

Okay.

And 1 operational question for Ben.

Thunderbird volumes, I think you noted in July about 100,000 barrels a day about -- or, yes, about half -- or, sorry, 100 million cubic feet a day, about half of that plant being utilized.

I know when you bring up capacity, sometimes, it's more efficient to pivot existing volumes to that as well as accommodate growth.

And so I'm just curious, can you characterize what's flowing through there?

How much of that sort of spurred new development versus was an efficiency shift from other plants?

Yes, yes.

Chris, you're exactly right.

There's 2 pieces there.

I mean I think the easiest way to think about it was in the first quarter, from a processing perspective in Central Oklahoma, we were pretty much full.

And so if you look at the 1.232 billion BTUs a day, I think I have my units off there.

1,232,000 MMBtus a day in Q1 increased by 60,000 to 70,000 MMBtus a day in Q2.

That is the new gas.

And then the rest of it is, as you say, it's a system optimization that we do every day in looking at the residue and the NGL markets to ensure that all the MMBtus are flowing to the most profitable place on the system.

We are coming up to the end, and we'll take 1 more call, and we apologize to those questions in the queue.

We can't get to you today.

So that question will come from Ethan Bellamy of Baird.

Barry, if commodity prices stay where they are or deteriorated over the next year, would you anticipate any other customer solvency issues like White Star?

And are there any other customers on, let's call it, CreditWatch negative right now?

Yes.

Ethan, first of all, let me comment on all of the projections that we've given you.

As you can imagine, with everything that we're communicating to you today, we started from a bottoms-up standpoint.

And this is our most realistic and with a conservative event view as to what we're looking at going forward.

So let me just say that from a broad standpoint.

As it relates to the credit risks that we may have in the business, I think Ben responded to that earlier.

Ben, if you want to summarize again?

Yes.

As you look across where our big customers are, it's a very much a blue-chip group of customers, mostly investment-grade, and the ones who aren't are generally close to investment grade.

The White Star situation was unique in the portfolio, and we don't have anything today to suggest that we have anything like another one of those situations on the horizon.

Okay.

That's helpful.

And then kind of 1 bigger picture question, Barry.

The 10-K says you're 57, which I'm told is the new 40.

How long would you expect your tenure to last here?

Yes.

Ethan, great.

I'm glad you pointed that out.

57 is young.

I've got a lot of energy, I've got a little more energy than I might have had 2 years ago because of a little bit of a step back that I had.

Look, I'm all in.

There's never been a time limit discussed as it relates to the opportunity that I'm stepping into.

It's all about a job to be done and an opportunity to go take advantage of.

There's no one who has more invested as a percentage of their portfolio or as a percentage of their heart than I am in the business of EnLink.

So I'm excited about the opportunity and thankful for the days of working with Mike.

And again, just really looking forward and excited about what we're going to do together.

So thank you, Ethan.

I appreciate that.

This concludes our question-and-answer session.

I would like to turn the conference back over to Barry Davis for any closing remarks.

Thank you.

In closing, we delivered solid results in the first half of this year.

For the remainder of the year and going forward, we'll be focused on unlocking value across our business and investing in future growth, enabled by our deep customer relationships, strong financial profile and strategic partner with GIP.

I'm very proud of the entire EnLink team, who has remained focused on providing solutions for our customers every day, enhancing our business, maintaining safety and reliability, limiting our impact on the environment and creating value for our investors.

As always, we appreciate your continued interest and investment in EnLink, and we look forward to updating you with our third quarter results in November.

Have a great day.

The conference has now concluded.

Thank you for attending today's presentation.

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