Edited Transcript of CNNX earnings conference call or presentation 30-Oct-18 3:00pm GMT

Thomson Reuters StreetEvents - finance.yahoo.com Posted 6 years ago
. Rush, CNX Midstream Partners LP - CFO & Director of CNX Midstream GP LLC [24]" data-reactid="188">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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Great. Thanks, Allison. Thank you to everyone who joined us this morning. We look forward to speaking with you again next quarter.

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Operator [47]

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