KNTK - NASDAQ

Hello, everyone. And thank you for joining the Kinetik Second Quarter 2022 Results Call. My name is Darius, and I'll be moderating the call today [Operator Instructions]. 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 Web site 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 from time to time various pages of the presentation. So just for those of you following along or have not had the opportunity to do so, just go on 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 next year. Last week, Enterprise announced the Shin Oak NGL pipeline 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 inbounds 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 improves 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 to 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 JV 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 represents 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. Relating to 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 this 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 chems, 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 does 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 this 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 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 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 have been focused on executing upon 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 $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?

[Operator Instructions] 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 the 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 and join the queue there.

Yes, I read with great interest Mackie's quote from last week, Anyone that can say cryo is going to build -- is building one. And then when you add up all of the cryo announcements we have seen over this reporting cycle for earnings, it's quite stunning, many of which obviously late 2023, early 2024. Do we see the need? No. We still obviously have operating leverage to sell. And I think the way where our emphasis has been is about selling what we have today because it's available today. It's interesting that when you start talking to producers and start talking to them about selling space in 2024 and you look at how quickly the landscape has changed over the last 18 months, that's a lifetime. In fact, I'm not sure how many lifetimes result in 18 months. And so therefore, I think what we're seeing is we're seeing a much more the here, the now, we need it, we need it, we need it conversation, which obviously plays to what we have as an asset and a strength. We are continuing to evaluate what we can do with the BCP facilities and trying to squeak out every bit of available capacity, adding residue compression, really looking at debottlenecking projects, expanding stabilizer capacity on the front end of those. So we're focused on that. We're also, I think, spending a whole lot more time on really thinking about our front end aiming treating, what we can do as far as H2S and CO2, the percentage we can take, the gas quality spec range that, that then opens up, because we do see, obviously, a fair amount of variance, particularly as we move up in the basin, up north, sort of Loving County north to the state line and obviously even as you go into New Mexico. So I think we're, look, evaluating everything right now. You mentioned M&A. Yes, we look at things. We haven't really seen anything that we think meets our sort of cost and financial discipline, nothing that we think actually adds to the scale of our overall system. Connectivity to our system is key. And for us, while I've got Tyler and Kris here, I mean, they've been going, I would say, good Aussie term, full bore, on just keeping up with all the customer dialog as it relates to new deals, new acreage positions, expansions on acreage swaps and other things. So I think we feel like we've -- we're supposed to be executing. We'll worry about expansions at the right time. We won't lose sight of it, but it's not something we have to worry about, we think, from here on out through the end of this year.

And then maybe if I could follow up with another two. One would be just -- you've got the Shin Oak expansion now, you're also seeing a lot of new frac capacity being announced on the Gulf Coast. Is there any thought to parling some of the volumes that you've got on the NGL side to try to go further downstream, and maybe partner in some of these frac expansions and would not do anything for you commercially?

Well, it's obviously more fee-for-service. The short answer is we've been very open and transparent around a desire to expand. Obviously, it would be fair to presume a conversation with -- certainly with Enterprise as they think about their expansion. And particularly as it dovetails with the expansion on Shin Oak, it may be ideally suited to thinking about a joint ownership of a frac. Yes, we've seen a lot of frac capacity. We've obviously also seen a lot of, in recent times, an increase in frac rates because of the Conway incident. We've seen actually almost a doubling of spot frac. So anyone that doesn't have firms frac deals is feeling it right now. It just shows you how tight the overall infrastructure space is, periods will [start]. You have one unexpected event happen and the consequential impact is quite amazing. So yes, we're going to think about the frac. Maybe we'll do it in conjunction with what we try to -- what the overall expansion here on Shin Oak. That's a conversation to happen with our partners at Enterprise, and we'll obviously update people when we've got something to communicate.

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.

I think as we -- we had a Board meeting yesterday. I think we're very focused on -- as it relates to through this year end on the residue side, it's interesting. Obviously, we saw last week the announcement of the return to service in October. We announced expectation of return of service for Freeport in October. That somewhat surprised the market and obviously, we saw a reaction. But obviously, we saw the reaction when the fire happened at Freeport how quickly that gas price fell off. We have a very healthy debate in the boardroom around crude oil prices because we think the financials in the physical market are somewhat dislocated. And obviously, it will be interesting 60 days from now as we start to get into October and particularly the beginning of the heating season, particularly for the early heating season happens in Europe ahead of the US and just how that changes the dynamics. I think we are definitely -- we are actively looking at what we're going to do. We will make sure that we lock in what we see to be sort of the risk components at pricing that we think -- obviously, we think represents, makes sense and creates not only a strong base and foundation of support for our stakeholders, but also the right risk reward balance.

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 '22. 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?

So I'll have Trevor go through the various -- the components because we try to break it down for you. But let's just give you the macro. When we said volume under performance, we had a couple of -- we only have a handful or so of POP contracts. And we had a couple of those where we either had maintenance/workovers going on, which obviously impacted volumes. So the underperformance is not that the POP contracts didn't work as designed. The expectation on the timing with respect to those maintenance or workovers, just given the scarce nature of labor right now, you take it when you can to basically get a workover rig accrue. You just do it. And that was a little -- that was ahead of what we anticipated. So we weren't expecting it in June. That just meant volumes were softer. Volumes for those contracts were lower. Therefore, ergo, our -- the value of our POP was less. The higher T&F, interestingly enough, we've all anticipated. I would say, look, even if you asked transfer Targa, Enterprise, maybe [One Oak] and DCP, we all anticipated probably double digit, sort of 9% kind of range for increases just with the inflation escalation, but you had some that went even higher. And so that obviously erodes some of the value depending upon the particular contract and the particular NGL service provider. So I think those things were just like even the level of the escalation surprises in one or two instances, they're in excess of what we were anticipating because we saw no respite in inflation. As we went through the second quarter, it just seemed to get worse and worse, and worse, and worse. And obviously, the only relief valve ironically was this morning, when we see certainly back at CPI with 8.5% print. You want to talk about the puts and takes?

I'd say the $25 million of commodity price outperformance that you see on Page 8, when you take just the full year strip -- or actuals today and full year strip on the commodity prices and what we had laid out back in February, I think you'd calibrate around to somewhere close between $35 million and $40 million increase versus our prior 2022 guide. And as Jamie had mentioned, some of that is impacted by the escalated transportation rates on our liquid side. And then also as Jamie had mentioned, there are several contracts really pertaining to it -- I mean you can look back at some of the press releases for our customers. A lot of this really is pushing out of a few projects, not many, pads that were expected to come online that are either coming online several months later or into 2023. And that is also from the result of more corporate transformation type mergers or acquisitions that have just taken longer or unexpected changes in the drill schedule. And so when you think about it on a calendar year basis in 2022, having less contribution from some of those pads really does make an impact and just it reduced our torque from the commodity price upside.

Neel, what was interesting, obviously, May, June, and we got Matt here and Tyler, is I would say it's been -- I don't know quite whether they've done the record books yet. But it has been and whilst we all know, it gets damn hot in West Texas. It's been one of the hottest on record, particularly early on in the summer.

And you just don't see respite to much later in the evening. So every piece of equipment that we run have 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 impacts obviously not just us but our producers. And so what we oftentimes find is you have a major storm event, obviously, we've got a relatively large expense on our system. We can knock out several producers. It can take -- by the time they basically get back online and get things back and running, you might be looking at a seven day window. If a month is 30 days, that's almost 25% of your month is impacted by one particular weather related event. So you just got to -- obviously, we factor that in as how we risk and forecast, but these are things that obviously affect overall volumes and trying to make sure that we can achieve the best we can.

And I guess the question I had in there also was now that you have the super system interconnect done, Shin Oak go straight in the 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 Lone Star commitment. We have a target around precommitment region of commitment. We respect each one of those commitments in the context of the intent and the contracts that support those actual downstream dedications. What is interesting is all the activity, the nine new contracts that we signed already this year, we got the ability to have those go and be processed at Shin Oak -- at Diamond Cryo, and therefore, go into Shin Oak. And so we make sure that we're meeting all the commitments. Yes, we're going to see more volumes. The volumes, I think, you're looking for, Neel, you're going to start to see in the fourth quarter. We're already moving 280 or so, above the 260, inlet that we see with Apache right now. So you're looking at over 500 going into Diamond. The commercial team has been in a healthy debate with Matt and the ops team about getting that expansion on as quickly as possible, because you've got all these -- you got all the fourth quarter happening and you've got these two new large projects coming on. And we need to make sure that we've got space and obviously 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 dialog 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 is, 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 things. Yes, obviously, it will -- depending upon the length of the time of the outage and the potential for restoration, it will obviously may impact a permanent investment decision. With the expansion like of Shin Oak, which has now been announced, when you've got to add 275,000 barrels a day, said another way, that's just under [two cryes] at 150,000 barrels. So that's a lot, that's a lot. I mean things were already tight, whether it's Lone Star, whether it's Transfer, whether it's Targa or Enterprise, everything was pretty tight. And we've got the other element, which is we have rising gas volumes. We've already seen well over 1 Bcf a day. We're going to be hitting 16 Bs by the end of this year out of the Permian. You've got two choices, it's either going to be in the stream as ethane or it's going to be residue. And so that further complicates the picture. I do think there will be some activity. I just think, look, the good news, I think from sort of a common sense approach is, you've got three or four very large players, and I think they'll be very sensible about their decisions about when they do think something from an investment standpoint.

[Operator Instructions] 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.