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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [4]
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Okay. Understood. And I guess, just moving to some of the sponsor-driven growth opportunities. If it gets still up to around $200 million in EBITDA by 2020, what is the most, I guess, mature asset there that you would consider as a drop candidate? Is that changing as you are doing more in the dry Utica? And just how are you thinking about drop-downs now given your MLP growth plan doesn't need them to drive that distribution growth?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [5]
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Yes. So pretty much we're viewing on the same way we always have, trying to find ways to kind of structure things to be win-win between CNX and CNX Midstream. And then whenever we do find that magic recipe or ingredient, we move forward to go ahead and execute it once we do see it. If you look at the assets that exist at CNX, they're at various stage of maturity. You have some that are already built. You have some that are greenfield that haven't been built yet. So there's a mix of assets at CNX at different phases of their life cycle. And how those or if those ultimately end up in the MLP will be a matter of finding those right commercial agreements and right times that truly are benefits for both companies in order to do so. So we keep our eye on it. We're constantly working and looking. And like I said, I think we've proven with our track record that once we figure out something that we want to do, we move quickly to get it done.
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Torrey Joseph Schultz, RBC Capital Markets, LLC, Research Division - Analyst [6]
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Okay. Understood. Just lastly, on the third-party business kind of described as a top priority, just any color on early successes there. And do you have any longer-term goals on the mix of third-party business that you can expand on?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [7]
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Sure. So we've mentioned last quarter a 20-inch high-pressure line that was included as part of the drop or as part of the HG package that happened at the end of Q2. Some of the early third-party business we brought on in Q3 was associated with that asset. It was basically an existing asset that has the capacity, and we found some other third-party volumes that was looking for a place to go. And we were able to provide that service for that customer. And so that's an easy win, and we're targeting a lot of additional opportunities like that. We're -- it's really low-hanging fruit. We've got existing pipes on the ground. We've got available capacity. Other producers in the area or other shippers in the area have some tightness or constraints in their system, and we're working with those folks to find ways to debottleneck their production and using our assets and really generating more revenue off existing assets. So those are really the kind of projects we really like. And then the sort of the second bucket of projects are going to be really step-out greenfield areas where third-party opportunities are really synergistic with CNX gases plants and where they expect to go in the near future. And I think there's a lot of opportunities there as well.
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Operator [8]
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Our next question will come from Jeremy Tonet of JPMorgan.
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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [9]
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I know that you said that for the 2019 look, you're really going to give more details in January here. But just want to -- with the EBITDA guidance being lifted for '18, just wanted to see, is that more kind of earnings from '19 kind of getting pulled forward on stronger activity? Or in the PR, you talk about it being kind of also lower OpEx? And if it's lower OpEx, does that kind of mean EBITDA could be higher in the future than what you guys have anticipated if these costs savings are durable? Or how should we think about that?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [10]
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Yes. So we did not update or increase any throughput guidance. So our throughput guidance for 2018 has remained the same. And as we've seen kind of year-over-year, quarter-over-quarter, the cost side of the equation continues to improve and get better. And it's really looking for efficiencies and better ways to do things that's helping drive further cost performance.
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [11]
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Yes, I can maybe provide a little additional color on the cost savings. This is really where the synergy of being single sponsored and restructuring the GGAs earlier this year that's really given CNX Midstream a lot longer amount of sight on what future business is and what future volumes are expected to be. And it's allowed us to sort of optimize the workforce a little bit better, which has helped drive that cost down. And similarly, our data-driven approach where we've got a state-of-the-art gas control room really allows us to optimize the workforce we do have to make sure that they're going where they need. And we're actually optimizing and utilizing that workforce as best as possible.
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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [12]
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Great. So would it be fair to say kind of O&M as you see it now versus where you saw it at the beginning of the year and when you put out the multiyear budget, it's trending better now than what you expected in the past?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [13]
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Well, I don't think we're going to update guidance necessarily on that, but it seems like things are heading in the right direction just because of the synergies we talked about.
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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [14]
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That's helpful. And then just wanted to dial in a little bit more on Shirley-Pennsboro. And if you could just update us there as far as how results are tracking versus initial expectations and kind of the multiple compression that you're expecting there with the drop before.
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [15]
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So the -- so CNX gas are on their first new path post-drop earlier this quarter, I believe, earlier in Q3. The volumes are there. Really, where we're seeing a lot of the upside is we brought the stabilization facility -- the condensate handling stabilization facility, on 3 months earlier than expected. That's a new revenue stream for the Shirley-Pennsboro assets. Its facilities we were able to build as part of the drop package, and we got the commitment to use those facilities. And we're able to build those facilities. And now it's a really nice revenue stream for CNX Midstream and -- on a go forward basis. And the point is, I mean, it came online 3 months earlier than expected.
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Operator [16]
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Our next question will come from Ethan Bellamy of Baird.
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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [17]
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How high would you take leverage to facilitate CapEx or drop-downs?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [18]
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Yes. So we've talked to having sort of 3x leverage is our ceiling as we think about it here at the midstream level. That being said, we've been pretty consistent saying that if we have future line of sight of an opportunity to make use of our balance sheet and capital structure with future line of sight to get back below that 3x with high level of confidence, we're okay crossing over that threshold as long as we feel confident that there's line of sight to get back below it. So that's kind of the balancing act we look at here at the MLP.
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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]
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Okay. And just to be clear, is the guidance you laid out inclusive or exclusive of drop-downs?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [20]
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So there's no drop-downs in the guidance. I mean, any new (inaudible) it has the Shirley-Pennsboro one that we did and that's it.
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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]
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Okay. And assuming that you would do an accretive drop-down, how would you handle that? Would you blend that in and have excess DCF coverage going forward? Would you step up the distribution commensurate with the accretion? How would you handle that? And then secondly, what's teed up in the near term for drop-downs, if anything?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [22]
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Yes. So the inventory's the same inventory that we laid out at our Analyst Day back in March. I think whenever you look at how you structure drop-down and what you do, if any, accretion that shows up is a function of whether or not you do the drop-down? So it's almost a little bit counterintuitive. But because we don't need all of them because there's so many options and ways to do them, it sits a little bit unique in the structure that you'd want to do, to do it, to have it make sense. So it's part of the balancing act as we look to, should we do it, and when do we do it, how we do it, is what we do with the excess cash flows that are created by it. So it's all part of what we're looking at as we're trying to sort through the right approach to really create the kind of win-win transactions between CNX and CNXM.
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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [23]
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And do you need to complete the drop-down before you think about purging the IDRs? And how much time are you, if any, spending on some sort of simplification IDR elimination transaction?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [24]
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Yes. It's definitely something we're monitoring. There's a lot of activity in the market around that topic. We've gotten to see some precedent transactions and what's been working, what hasn't. As far as sequencing an order, there's nothing set in stone. We look at this kind of with a blank sheet of paper. So it is something we're spending time on. Fortunately, we're still relatively young, and the total IDR take isn't cost prohibitive at the moment. So we do have time to figure this out, how to do it and what makes most sense for CNX and CNXM. That being said, we're not waiting around at something that we're always looking at trying to find something that makes sense, and if we do find that, we'll work to get it done quickly as we've shown the ability to execute once we did figure out what we wanted to do.
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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]
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Okay. And then lastly, how would you describe the third-party A&D environment? Are bankers showing up to your door with reasonably priced assets? Or is everything still pretty pricey based on the amount of private equity money in the system?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [26]
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Yes. I mean, we've certainly seen a few books. I mean, it's something -- we're not going to turn a blind eye to it. We keep our eyes open. We look at the opportunities, and we assess them as they come in. And ultimately, we'll look at packages that do make sense, but nothing yet.
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [27]
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And a lot of just the internal opportunities we have to generate returns on our capital are pretty significant. So it competes against what we have to spend our money internally.
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Operator [28]
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Our next question will come from Tim Howard of Stifel.
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Timothy D. Howard, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [29]
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Just circling back on the expenses in the quarter, I want to make sure there's no like onetime benefits, reducing expenses. And then lastly, just kind of how to think about operating expenses. As we get into the winter season, I think they typically ramp up some. And is that still a fair expectation?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [30]
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Yes. Yes, to answer your question, there's no reason to not expect seasonality in those OpEx costs. But I do want to reinforce the fact that there's some like sort of systemic changes that have happened, the benefit of getting back to a single sponsor and having that synergy with the single sponsor and having the line of sight that the gathering agreement provides us that has allowed us to optimize the workforce a little bit better. And you're seeing that sort of translate through some of the cost savings. And then also by, like I said earlier, the control room we have allows us to sort of -- we've got a centralized dispatch. We've got a state-of-the-art control center. We can see where the problems are. We can send the workforce where it needs to be. It's a very cool tool. It allows us to optimize that cost.
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Operator [31]
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Our next question will come from Chris Tillett of Barclays.
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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [32]
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Just to circle back quickly on the CapEx raise, is there any way you might be able to break down for us how much of that was related to some of the pricing pressures you mentioned that you're seeing versus just a pure shift in capital into '18 from '19?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [33]
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It's -- the capital budget, it's a bucket of stuff. There's lots of wins in there. It's a lot of acceleration. It's a lot of upsizing. At the same time, we've been able to optimize some build-out in later years. And so like on a project basis, even though that we've accelerated a little bit, the project as a whole is still on pace. And really, we look at -- CNX gas is outperforming on their wells, they're asking us as our #1 shipper to build things bigger and faster, and we've got the balance sheet and the team that's able to actually execute and go out and actually do build things quicker and faster. And I know there's a lot of other pipeline companies that would love to have that same ability. So they're asking for bigger and faster, and we're able to get it done. Like I said earlier, we're -- we've been able to mitigate most of the contractor inflation. Having this long pipeline of projects, this multiyear pipeline of projects, has allowed us to sort of work with the service providers and say, "Look, you can jump ship and go to these other projects, and it's a flash in the pan. And you might be able to get a little bit of premium on this immediate project. Or you can stick with us, and now you've got multiyears of projects ahead of you." And so we've -- our contractors have been receptive to that, and that's really helped us mitigate some of those costs.
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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [34]
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Okay, that's great. And then, you also touched on this a little bit already, but I guess, given that Noble is now out of their position, how do you think about funding potential drop-down particularly in light of what hasn't necessarily been the most forgiving equity market?
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [35]
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Yes. No. Definitely, we're in again. That's eyes wide open while we built the company and the balance sheet the way we have and why we've really taken the need to access equity markets off the table. And we have the ability to execute our plan without any of these drops. And if you refer back to Analyst Day and different information, the funding levels of debt versus equity in order to do things changed dramatically out into the future potentially. So it's a constant mix of blend. As times change, we change. But we're eyes wide open on equity and how to do or what not to do. So it's just part of the variables that we're using to sort through the drop inventory that we have and how, when and what structure to do them in.
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Operator [36]
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(Operator Instructions) Our next question will come from Barrett Blaschke of MUFG Securities.
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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [37]
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I appreciate the color you've given so far on the third-party volumes. But could you give us kind of -- is there a target level that you're shooting for over the long term? Is it getting close to 50-50? Or what's the ultimate goal there?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [38]
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If we -- obviously, a 50-50 mix would be great. I think we don't have a firm target set in stone. We really assess every opportunity as it comes. And we're going to try to grow that third-party business as much as we can. Like I said earlier, a lot of it's driven off of using existing infrastructure where we have space and it's next to other producers that are looking for capacity. Those are easy. But a lot of the future stuff that's further down the pipe is -- it's a little bit more greenfield. It's stuff that's going to be synergistic with CNX gas. And we'll just have to see how that plays out over the next several years.
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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [39]
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Okay. And I think I know the answer to this next one, but how do you view contract quality on -- and sort of your contract targets for when you're working with third party? Do you -- are you looking for something very similar to what you already have?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [40]
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Well, that's -- it's going to vary based on the situation. There's a lot of different ways to structure a gathering agreement from a commercial perspective, and we're really open to all of them, right? So a lot of it comes down to how much capital is involved, how much risk's involved. And so it's a multitude of factors that go into it, and then we shape the commercial terms accordingly.
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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [41]
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But am I correct in assuming that you're going to try to stick to the 100% fee-based structure?
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [42]
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Oh, yes.
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Donald W. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [43]
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Yes. I think that's -- I mean..
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Chad A. Griffith, CNX Midstream Partners LP - President of CNX Midstream GP LLC [44]
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I don't foresee anything different from that, but that's pretty standard.
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Operator [45]
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Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to Tyler Lewis for any closing remarks.
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Tyler Lewis, CNX Midstream Partners LP - VP – IR [46]
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