Energy Transfer LP (ET) Q3 2018 Earnings Report, Transcript and Summary

Good day, and welcome to Enable Midstream Partners Third Quarter 2018 Earnings Conference Call and Webcast. All participants will be in a listen-mode, [Operator Instructions] Please note that this event this being recorded. I would now like to turn the conference over to Enable's Senior Director of Investor Relations, Mr. Matt Beasley. Please go ahead, sir.

Thank you, and good morning, everyone. Presenting on this morning's call are Rod Sailor, our President and CEO; and John Laws, our Chief Financial Officer. We also have other members of the management team in the room today to answer your questions. Earlier this morning, we issued our earnings press release and filed our Form 10-Q with the SEC. Our earnings press release, Form 10-Q filing and the presentation that accompanies this call are all available in the Investor Relations section of our website. We will also be posting a replay of today's call to the website. Today's discussion will include forward-looking statements within the meaning of the securities laws. Actual results could differ materially from our projections and a discussion of factors that could cause actual results to differ from projections can be found in our SEC filings. We will also be referencing non-GAAP financial measures on today's call, which we have reconciled to the nearest GAAP measures in the appendix to today's presentation. We invite you to review the disclaimers in this presentation for both forward-looking statements and non-GAAP financial measures. With that, we'll get started, and I will turn the call over to Rod Sailor.

Thanks, Matt. Good morning, and thank you for joining us on today's call.The third quarter of 2018 was another great quarter performance for Enable, both operationally and strategically. Operationally, the partnership achieved record natural gas gathered and processed volumes, natural gas liquids production and crude oil gathered volumes during the quarter, driven by continued producer activity and strong well results. These increased volumes contributed to higher total revenues, gross margin, net income, adjusted EBITDA and DCF for the third quarter compared to the third quarter of 2017. On the strategic front, we are excited to share that we closed on the previously announced Velocity acquisition on November 1, adding crude oil and condensate gathering and transportation infrastructure to Enable's market-leading midstream platform in the Anadarko Basin. This acquisition continues Enable's strategy of extending our reach across the midstream value chain and better positions us to offer complete wellhead to market solutions for our customers. Velocity, together with new contractual commitments in the Williston Basin from ExxonMobil's XTO Energy subsidiary, substantially increases the scale of our crude assets, providing fee-based growth as producers continue to target crude oil production. I will cover both of these expansions later in the call. Turning to the next slide. We continue to see strong rig activity. At our last count, there were 47 rigs drilling wells expected to be connected to Enable's gathering systems, including rigs dedicated to the Velocity system. In the Anadarko Basin, there are currently 38 rigs running with 10 rigs in the STACK, 25 rigs in the SCOOP and 3 rigs in the Granite Wash. Sustained producer activity and strong well results drove record natural gas gathered and processed volumes for the quarter. Enable has seen a 40% increase in natural gas gathered volumes since the first quarter of 2017 and a 34% increase in natural gas processed volumes over the same period.With our market-leading Gathering and Processing infrastructure, we are uniquely positioned to serve the significant production growth we are seeing. Due to our integrated systems, which provide us the ability to optimize our assets, Enable has also benefited during the quarter from improved commodity pricing, including increased differentials between NGL prices at Conway, Kansas and now at Belvieu, Texas. Last week, we connected the Align Midstream assets that we purchased last year to Enable's Waskom Plant, enabling further optimization of our midstream platform in the Ark-La-Tex Basin. Turning to the next slide. Anadarko Basin rig activity remained strong. Where we saw producers favor the STACK over the SCOOP in 2016 and 2017, we now see producers focus on the oilier parts of the SCOOP, which offer production profiles with higher percentages of crude versus the STACK. With our significant infrastructure advantage, we believe that we're one of the few midstream service providers with the ability to capture activity movement within the basin, once again, highlighting the value of our extensive Anadarko header system. This trend, proximity to our system and the ability to enhance our services with current and prospective customers, we're drivers of our Velocity acquisition. As you can see from the map, Velocity's assets fit perfectly with our existing system footprint and are right in the heart of the current drilling activity in the SCOOP. With Velocity, we now serve the highest value portion of the production stream and add to our fee-based revenues as producers target the higher crude content areas of the SCOOP play. This acquisition expands our existing relationships with Continental resources and Marathon Oil and provides a significant opportunity for new business from a number of undedicated operators that are active near the system. The Velocity system is uniquely positioned to offer customers the ability to secure premium pricing with segregated and batch streams that can float either cushing via planes, basin, pipeline or the Wynnewood, Oklahoma-based refinery, which provides substantial base-load demand. The system is backed by large area dedications and long-term fee-based contracts with over 2 million acres dedicated from shippers. In the Williston Basin, we are further expanding our existing crude oil and water gathering systems to support volumes from over 90,000 gross acres dedicated by XTO Energy in North Dakota's Dunn and McKenzie Counties under long termed, fee-based arrangements. We plan to add up to 72,000 barrels per day of crude gathering design capacity, which will increase Enable's Williston Basin crude gathering capacity to approximately 130,000 barrels per day. We have begun constructing assets for this expansion and will start connecting volumes in the first half of 2019. We expect the Velocity and Williston Basin crude business expansions to generate a 2019 total capital invested through adjusted EBITDA multiple of approximately 13x, working down to an 8x multiple by 2020. These expansions are expected to be accretive to distributable cash flow per unit starting in 2019. We are also pleased to announce in the third quarter, our Gulf Run Pipeline project. This project is designed to move up to 2.75 Bcf per day of abundant U.S. natural gas supplies from 2 liquid hubs, to growing liquefied natural gas export markets on the Gulf Coast. Building on our goal of continued capital efficiency, we will utilize our existing EGT transportation infrastructure, including adding bidirectional capabilities to Line CP, to provide access to some of the most prolific natural gas-producing regions in the U.S. The project is backed by a precedent agreement with a cornerstone shipper for 1.1 Bcf per day of capacity and we recently closed on an open season that received significant interest from prospective shippers. Total interest from the cornerstone shipper and the open season now exceeds the project's 2.75 Bcf per day design capacity.We are currently in negotiations for additional binding commitments but we're prepared to move forward with this project with only the cornerstone shipper commitment. Turning to our Transportation and Storage segment on the next slide. So far in 2018, we have contracted or extended over 1.5 million dekatherms per day of capacity and producers continue to request solutions to get Anadarko Basin gas production to market.With Gulf Run further extending our reach to the Gulf and the flexibility of a bidirectional Line CP, we believe we may see additional opportunities for enhanced utilization and expansion of our existing pipelines in the future. EGT's case project was placed into full 205,000 dekatherms per day service on October 1. The project is another great customer solution providing new deal with access to multiple premium natural gas markets.The Muskogee project, a 228,000 dekatherms per day firm transportation agreement, servicing Oklahoma Gas and Electric Company's Muskogee Power Plant, is expected to be in service by the end of 2018. Finally, I briefly want to mention a couple of regulatory updates on the next slide. MRT made a compliance filing in its rate case on August 30 to reflect, among other things, the elimination of an income tax allowance, with rates to take effect January 1, 2019, subject to refund. When coupled with a corresponding removal of ADIT, MRT'S cost of service increased by approximately $3 million over its June 29 filing. On October 11, EGT filed form 501-G, a onetime report required by the FERC. The form showed the removal of income tax allowance and corresponding ADIT using year-end 2017 data and assumption required by the form. We also filed an addendum, which used more current data and included adjustments to the assumptions. With the submission of the 501-G, EGT indicated that it does not believe that a review of its rates is warranted at this time. As I close my remarks, I just want to reiterate how excited I am about the direction of the company. Quarter after quarter, our results demonstrate the value of our interconnected systems, the strength of our plays in which we operate and the premium market access we offer our customers. We continued to build on our market-leading position with the Velocity acquisition, Williston Basin expansion and Gulf Run Pipeline project. And we look forward to another strong year of execution in 2019. With that, I will now turn the call over to John to further discuss our third quarter operational and financial results and our outlook for 2019.

Thank you, Rod, and good morning, everyone. I will now cover a few of our key operational and financial metrics for the quarter. As always, you can find a more detailed and comprehensive overview of our financial and operational results in our third quarter earnings release and in our 10-Q, both of which were released earlier this morning. Turning to our operational performance slide. Customer activity and well results in the Anadarko and Ark-La-Tex Basins continue to drive volume growth in our Gathering and Processing segment. As you can see, we had a 31% increase in total natural gas gathered volumes and a 32% increase in total natural gas processed volumes in the third quarter of 2018 compared to the prior year. We also saw increases in our crude oil gathered volumes for the third quarter of 2018 compared to the same period a year ago, primarily driven by several multi-well pads coming online on our Williston Basin gathering systems. As Rod mentioned, we set the records for natural gas gathering, natural gas processing, NGL production and crude oil gathered volumes for the quarter. The increase in NGL production was the result of both higher natural gas processed volumes and higher plant recoveries of ethane. In our Transportation and storage segment. The increase in our transported volumes was a result of increased usage from power and LDC customers. Moving to our financial results on the next slide. Our adjusted EBITDA increased by $51 million to $301 million for the third quarter of 2018. The higher adjusted EBITDA was driven by higher gross margin after adjusting for noncash items due to higher natural gas gathered and processed volumes and higher crude oil volumes as discussed on the previously slide, higher NGL prices and higher Transportation and storage system management activities. The increase in gross margin was partially offset by higher O&M and G&A expenses, associated with increased activity on our Ark-La-Tex assets, additional assets in service and an increase in equipment rental expenses. Distributable cash flow increased by $33 million to $220 million in the third quarter of 2018 due to higher adjusted EBITDA, partially offset by higher adjusted interest expense associated with higher outstanding debt balance and higher interest rates along with higher maintenance capital expenditures. Our net income measures increased by $25 million in the third quarter of 2018 compared to the third quarter of 2017. After considering the distributions declared, Enable generated an impressive distribution coverage ratio of 1.6x for the third quarter of 2018. We remain committed to maintaining our investment-grade metrics, which are supported by the continued volumetric growth in our Gathering and Processing business and from firm, fee-based and minimum volume commitment contracts in both of our business segments. To that end, we ended the quarter with a total debt to adjusted EBITDA metric of approximately 3.7x and significant liquidity under our revolver. Lastly, before I move on to the 2019 outlook, I would like to share our view for the remainder of the year. We anticipate that we will be at or above the upper end of our previously issued outlook ranges for adjusted EBITDA and distributable cash flow. We expect that we will be at the upper end of the range or our previously issued 2018 outlook for net income attributable to common unit and at or above our previously issued expansion capital outlook when excluding the Velocity acquisition. For previously issued 2018 outlook and associated non-GAAP reconciliations, please refer to Enable's first quarter 2018 earnings press release and presentation. Turning ahead to 2019. I'll start with the outlook of our key operational metrics. As a result of our expectations for continued producer activity in the STACK, SCOOP, Haynesville and Cotton Valley plays, we expect our 2019 natural gas gathered volumes to be between 4.3 and 4.9 TBtu per day and our 2019 natural gas processed volumes to be between 2.3 and 2.8 TBtu per day. With our new crude and condensate gathering system in the Anadarko and the expansion of our Williston Basin system, we expect our crude oil and condensate throughput volumes to be between 150,000 and 180,000 barrels per day in 2019. We also expect our 2019 interstate firm contracted capacity to be between 5.6 and 6.0 Bcf per day. Regarding expansion capital for 2019. We estimate the capital expenditures in the Gathering and processing segment to be between $290 million and $370 million, which will be driven by natural gas gathering system build-out in the Anadarko and Ark-La-Tex basins, further build-out of Velocity and our Williston Basin expansion project. As a reminder, and as we have demonstrated in years past, Enable has the ability to optimize gathering and compression infrastructure expenditures in accordance with producer activity levels. As it relates to the Transportation and Storage segment, we estimate 2019 expansion capital expenditures to be between $35 million and $55 million. The segment's expansion capital outlook includes approximately $30 million of capital associated with the Gulf Run project. When considering gathered volume growth, the Velocity acquisition, the Williston Basin expansion and full year impacts of the CaSE and Muskogee projects, we expect our net income attributable to common units to be between $435 million and $505 million in 2019. Additionally, we expect our adjusted EBITDA to be between $1.09 billion and $1.18 billion. We expect to generate between $740 million and $810 million of distributable cash flow. Our 2019 financial outlook is underpinned by a gross margin profile that is expected to be approximately 91% fee-based or hedged and our commodity price sensitivities are shown in the appendix. From a leverage standpoint, we continue to target a total debt to adjusted EBITDA multiple of approximately 4x. While our coverage is expected to be in the range of 1.3 to 1.45x. This coverage is expected to fund a significant portion of our expansion capital program. As distribution coverage continues to increase, we will evaluate future distribution increases in light of our capital spending plans, capital market conditions and business performance. Moving to my final slide. Our Velocity, Williston Basin and Gulf Run announcements build on our strong commercial momentum and leverage our existing footprint. Our assets continue to drive strong financial performance and we are well positioned for a great finish to 2018. As we look to 2019, we will remain focused on leveraging our existing assets and deploying capital efficiently. With that, we'll now open up the call for your questions.

[Operator Instructions] And our first question comes from TJ Schultz with RBC Capital Markets. Please go ahead, with your question.

Hey guys, good morning. Just first for Velocity. Clearly, it improves your position just with the full suite of services. Were there opportunities you were losing before but are now better positioned on both the crude and G&P side from some of these undedicated operators? And have you assumed you'd get some of these dedications in either the 2019 outlook or the multiple improvement?

Yes. No, TJ, thanks for the question. No, I wouldn't say we felt like we were losing any opportunities to date. But again, we continue in this price environment. You see our customers and some other producers in the area targeting the more oilier areas of the SCOOP as we kind of said in our remarks. And I really felt that to be able to capture the crude portion of that business, again, I don't think anybody is better, in fact, nobody is better prepared in the SCOOP to capture gas opportunities than Enable, but this really put us in a position where we had the infrastructure, customers that we know, opportunities with other customers that we currently don't serve. So I think it provides us with that suite of services that we've been talking about for a while, that we wanted to transport our crude knowledge out of the Williston and down into the Anadarko and by having this asset, it allowed us to do it. And again, I think we felt very strongly that this is the right acquisition in the right location to enhance our, what we believe is a market-leading position in the Anadarko.

Specifically, on those, the opportunities you mentioned with customers that you don't serve. Just how quickly or confidence level on getting some of those dedications?

Yes. And again, not a lot of that new business is baked into the 2019 guidance, but look, we've got the infrastructure, we've got the relationships, we've got the track record of operational capabilities. So I feel pretty confident that we'll win our fair share or more than our fair share of those opportunities. Again, you're either going to truck it or you're going to have to put it on infrastructure with it. We are now the company that has the oil infrastructure in the SCOOP. And again, it lays right on top of our header system. So again, I think if, once again, it just feels on an incredibly unique position that Enable has in the SCOOP and the STACK plays.

Okay, makes sense. Just moving to the Ark-La-Tex. First, with the Align connected into Waskom. Can you just expand on the optimization benefits that provides? And then for that region, just in general, rig activity, down a little. You're I think, a little over a year out from MVCs rolling off that you can provide any expectations for cash flow impact on roll-off of those MVCs?

Yes. No, good question. Yes, no, by connecting the Align assets up into Waskom, again, that allows us, we've got some great liquids customers coming out of our Waskom facility. This allows us to move some additional molecules up there and capture some margin on the NGL side. And again, one of the things that we've always felt strongly about was the ability to hopefully service those customers with some additional volumes. As it relates to the MVCs, again, as we've said on prior calls, we've got kind of 2 primary systems in the gathering systems in Ark-La-Tex region. One of those systems is above the MVCs, kind of what we're seeing now are producers growing to, trying to target some of the areas of the other system. So again, we continue to believe we'll see gas growth in there until we fully get above the MVCs on both of those systems. Might not see a significant move in margin. I think the good news is we really, really don't see that we're going to have any kind of degradation from our gross margin related to the MVCs as those producers continue to target growing their production above those levels. Did that capture your question?

Yes, no. That's fair. Just last one real quick on Gulf Run. How long is build time on that? I'm just trying to get a sense of near-term things to watch with the, FID for the shipper and further process to kind of track to the -- in-service on your current time line?

Well, I believe we talked about in-service of 2023 is kind of what we've targeted. Could it come on -- 2020 -- in the 2022, fully in service by 2023. And so could we accelerate that a little bit? Yes, a little bit, but we think that's a reasonable build time. So completion in 2022 and fully operational in '23.

Okay, thank you.

Your near-term milestone TJ, will be the FIDs in our profile, which really kicks off at that time.

Okay, understood. Thanks.

The next question comes from Jeremy Tonet with JP Morgan. Please go ahead, with your question.

Just wanted to pick up with Velocity here and just want to dive in a little bit more there. In the -- midstream space has been -- other midstream players have talked about acquisitions in big compression the multiples overtime. That hasn't always turned out for some of your peers. Just wondering if you could extend a bit more -- the multiple compression at 10x, a couple of years that I was here. What gives you the confidence level of that? How much is kind of baked in with existing contracts? Or how much is new third party business? Or could you extend a bit more than that?

Yes. No, a lot of that compression is based on the existing customer profile. Again, as you can imagine, we are very active in the STACK and the SCOOP. We have a lot of information around production growth on the gas side. As we said, both I think our -- first question and also kind of our remarks on slides, the trends that we have seen, again, with the higher crude and gas around $3 or under $3, we're really seeing producers targeting more oilier areas of the SCOOP. And so that is -- that's a trend that we've been -- we've seen and believe that we'll see more of in 2019 and beyond. That gives us a lot of confidence in and around our ability to work that multiple down. There are a significant number of undedicated customers. The Velocity system can provide some premium pricing to the Wynnewood refinery. So potentially, ability to even some expansions around that refinery. So we feel very good that there's going to be a lot of volumes flow on but that's just from customers that are already dedicated to that system. And ultimately though -- but again, the upside to our analysis around that acquisition and our ability to also attract the -- some new customers on it. So again, I think we can't talk about what our producers are going to do and further going to drill and what their future outlooks look like, but we could get a lot of information and feel very strongly that we're going to see volume growth, significant volume growth on that system.

Jeremy, we'll try to point you to a couple of customer names, which I think you'll find are incredibly active in the SCOOP area in Continental and Marathon, we've not been permitted to share the entire list of customers that are in that area, but there are others that are active there today. That also pointing volumes to the system and as Rod mentioned in his opening remarks on the call, one of the things that's incredibly attractive about this asset, which is similar to the same thesis that we tried to bring to bear with all of our assets is providing attractive markets for the commodity. And I think it could be underappreciated, but just so it's not pointed out. Having a direct connection to a refinery in basin provides a real premium market access point for the refiner. And that demand-pull in this pipeline is incredibly attractive. As we think about what drives volumes to this platform, and how we think about it on a go-forward basis.

That's helpful.

Yes, again, just to add. I mean, this when you step out from a new basin perspective. I mean, I think we have better intelligence than anybody in the Anadarko on where producers are going with their drilling plans. So again, this was an area that we know very well and we used that knowledge when we made this acquisition.

Great. And then just want to go back to Gulf Run, a little bit here as well. And you touched on a bit here, but wondering if you might be able to provide more examples as far as the upstream integration benefits that you guys could see. I mean, you have a lot feel on the ground in that area. And where do you see that gas being sourced from? There's a lot of touch points there, but could this be SCOOP/STACK pool or how do you see that playing out?

Yes, that's great question. I think, one of the benefits that we were able to break the barrier with the foundation shipper on that was the fact that, again, we'll build a piece of pie off of our Line CP, which has access to Carthage and Perryville. We think that we'll see a lot of gas getting landed at both of those places. We'll make Line CP bidirectional. So one of the, I think one of the selling points on our Gulf Run project was the fact that they're going to be able to ultimately source gas from a multitude of basins, including the STACK and the SCOOP, the Northeast. There is an incredible amount of activity. You've seen it on our system with volume growth in the Haynesville, our Ark-La-Tex region. So the customers on the Gulf Run system are going to be able to have probably as diverse a selection of basins to source gas from than other opportunities. I know from other opportunities that they looked at. So again, we can provide, I think, and again that was one of the reasons, I think the foundation customer liked our proposal and selected us with our ability to source gas from multiple areas. Anything else?

That's it for me.

And our next question comes from Tim Howard with Stifel. Please go ahead with your question.

Back to Velocity, could you provide how much incremental capital is required to build-out that system?

We've not provided that directly. The good news is, I'm happy to share that the incremental capital there is not material as it relates to developing that system as we got it detected. Most of it's going to be incremental well connect-type capital. A lot of these volumes get brought to this system via truck and truck rack and then we'll kind of have to well -- and that's again, where we see some real opportunity for synergy just in our operations. We're already going to these wellheads in a number of cases and instances and so we're able to do that attractively, but it's not a number that we've broken out specifically, but it's also not a material portion of this guidance for 2019.

Yes. While you didn't specifically asked the question, I just would add that we've got significant infrastructure in the SCOOP. And in fact, a lot of the STACK gas that we were gathering and processing, we're actually moving on our header system, south, down towards our -- some of our SCOOP facilities. It's the great thing about the Super-Header in the Anadarko, we can move gas up and down that system wherever we have capacity. And as you know, we announced the -- our completed Wildcat as we began to move it down into Texas. But -- so we are well positioned to, once again, capture opportunities with capital that -- we've already got a lot of capital in place. And again, we continue to build an operational leverage story that we talked about for the last couple of years now that we've invested a lot in that region and we think, again, as John mentioned, we're already going to go to a number of these wells. So it's just a matter of incrementally getting the crude piece built. We've already invested a lot of capacity on the gas -- or just a lot of -- invested for a lot of capacity on the gas side. So again, I think as we see the migration of oil activity down into the SCOOP, nobody's better prepared to capture those opportunities than us.

That's very helpful. And then shifting to the Bakken, I think that the release, if I didn't -- subject to drilling activity, I was just wondering what's your -- guys' base case as you get into -- I saw the volumes for 2019 and into 2020. And then additionally, where are these incremental volumes headed? Do you have pipeline capacity lined up? Or do you think rail will have to be an option just kind of generally what you're seeing up in the Bakken?

Yes, I'll start that and then we'll kick it over to Craig here, he's our Chief Commercial Officer. But again, it is largely an acreage dedication. So the -- we anticipate a lot of activity on that. We mentioned that there's some wells awaiting completion proximity to that system that we expect to start to come on. But Craig, I don't know if you want to add something.

Yes, on the downstream takeaway capacity, I guess, that was what's referring to our customer, XTO, has lined up downstream takeaway capacity. So some of the concerns you're seeing on the basis differential playing out in the Bakken, not impacting us nor our customer drilling plans for the region.

Got it. And then just 2 more quick ones, if I can. Focusing on a volume guidance in the Anadarko. It seems like 3Q volumes are kind of at the midpoint of 2019. I was just wondering what's driving this? And then also are there any additional thoughts or progress on the Wildhorse Processing Plant?

Yes, one of the things we said in our opening remarks was that as we see some of this activity shift that some of the wells that are being drilled have a higher crude oil content. So what we are expecting gas volume growth, may not be as robust as some of the activity that we have seen this year in the STACK -- STACK, right? John, you want to...

No. I think, what the -- clearly, to date, the volumes have been driven by the rig activity and the rig activity has continued to be strong through the year, particularly in the SCOOP and in the STACK, collectively. As Rod mentioned, we're beginning to see a little bit of a transition from the STACK to the SCOOP, which is an oilier area of the play. So there's, with these more heavier crude cut wells, we tend to see a little bit of a lower gas IP. But again, I think overall, we're still expecting to be within guidance and see some growth.

Got it. Then last one. Is the wildcat expansion, is that kind of fully ramped up or should we expect volumes to increase, kind of, through 2019?

Wildcat is fully up to, we're please, we open, yes, it's full.

And the next question comes from Ned Baramov with Wells Fargo. Please go ahead with your question.

Do you expect further improvements in the overall return profile of Velocity in the Bakken expansion after 2020?

Yes. I think there is certainly that ability there. We've not guided beyond 2019, but if you look at these areas, the drilling inventory that's there, it gets down. So to your assumptions are on activity levels. And based on what we're saying and the things that we're looking at, we don't necessarily see any reason for activity to slow at this time. So there's certainly substantial inventory in the ground that's available to be brought to bear. And with the new system, for example, in the Bakken, if you're talking about something that could be up to a 72,000 barrel a day expansion. You ramped into that overtime, that can take more than 2 years. But, given that we've got a lot of existing infrastructure there, these incremental investments are typically highly accretive, particularly after you build the infrastructure and are working into the capacity.

Sure. And then maybe, can you talk about some of the details around the contract for both assets for Velocity and the Bakken expansion, specifically if there is any commodity price-sensitive aspects of your agreement?

Generally, no. They're typically filed as acreage dedications in both instances. There's not any minimum volume commitment features, but they are also predominantly fee-based.

Okay, got it. And then switching gears a little bit to your Align Midstream acquisition from roughly a year ago. I believe at the time you had a target of achieving 7x, a 7x multiple by 2020. Just curious where returns are a year after the close of this transaction.

Yes, I'd say, sitting where we sit here today, we've probably seen, particularly with respect to that area, a little bit more drilling on the dry side than the rich side. And so some of the richer gas that would be brought on and some of the things that would compel the economics that would be stronger to us around optimizing with Waskom. So we've not yet seen some of the growth here in the near term. We've got some, had some producers, acreage change hands and we've -- we expect to see additional growth there, but it's probably a little bit slower than what we had initially anticipated, but you see compression there still overtime. Craig, would you offer anything?

Yes, I think on that, we have gotten to the line in service, as Rod mentioned. And that provides a lot of synergies on the NGL side because we do have rack space, which is becoming an issue in the market. So we have rack space that we're taking advantage of, that we've been able to get that going, which kind of helps us on the -- reducing our multiple. And we are seeing a lot of activity in the East Texas area, on the drilling side, as John said, somehow he's focused on Haynesville. But now that we've gotten those plants interconnected, regardless of the area, where they drill in East Texas, we're able to wield gas back and forth between the plants. So we're starting to see those synergies start to ramp-up as we've gotten that line in service.

Okay, that's great. And then a quick question on Gulf Run pipeline. I guess, could you provide the 2 book ends of the capital program. The low end being just capital to construct capacity for the anchor shipper? And then obviously, the high end being the full capacity of 2.75 Bcf per day?

Yes. We really haven't yet given out that guidance on on the upper end, and I think we need to get through our open season and see where we come out on that before we want to guide anything higher than what we've previously discussed.

Yes. Look, and Ned, in case you didn't see it, we did include, in the open season, a reference about $550 million for the scope that we had disclosed previously.

Okay, that's helpful. And may be last question for me. The obligatory update on the IDRs and whether there's any updates from Centerpoint?

Well, again, we're not in the splits as we sit here today. So that's not an issue that we have to deal with. I think we've been pretty open, then again, we continue to have dialogue and our cost of capital is [indiscernible] to our sponsors and to the extent that we feel like we need to do something to address that. I'm confident that sponsors will be supportive of the steps that we may have to take in the future. But right now, no update on that. Yes, we would -- we feel like we would need to talk about.

[Operator Instructions] And our next question comes from Alex Kania with Wolfe Research.

Just a question on thoughts around distribution growth. So it sounds like you just want to see how that industrial cash and coverage works out into next year. I just was wondering if there's, maybe, a sense that you need to wait kind of a full year to get towards the end of next year? Or do you think there may be kind of want to decide to make a decision on that sooner? Just kind of any other, question -- just on how that evolves.

Yes. No, I appreciate the question. I mean, that's something we evaluate every quarter looking at our capital needs and again, as coverage continues to build and we continue to see the operational performance that we have seen. I think, again, it continues to bring us closer to positive developments around that. But again, I think we'll get into 2019 and evaluate that more further as we firm up our operational outlook.

And this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sailor for any closing remarks.

Well, thank you all for joining us on our call to get today. Again, we're very excited about our performance in the third quarter and more importantly, with the opportunities that we're seeing across our system, not only with the areas that we're already in and the capacity that we already have, but more importantly with the potential to expand our transportation system, integrating in the Velocity acquisition and expanding our presence in the Williston. So thank you very much, and again, in closing, I just want to recognize all of our employees for their hard work and dedication. Again, thank you all for your interest on the call. Everybody, have a safe day. Thank you.

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