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Antero Midstream Partners LP (AM) Q1 2019 Earnings Call Transcript

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Antero Midstream Partners LP  (NYSE: AM)
Q1 2019 Earnings Call
May. 02, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Antero Midstream First Quarter 2019 Earnings Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Michael Kennedy, Chief Financial Officer for Antero Midstream. Thank you, Mr. Kennedy. You may begin.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you for joining us for Antero Midstream's first quarter 2019 investor conference call. We'll spend a few minutes going through the financial and operating highlights, and then, we'll open it up for Q&A. I would also like to direct you to the homepage of our website at, www.anteromidstream.com, where we've provided a separate earnings call presentation that will be reviewed during today's call.

Before we start our comments, I'd first like to remind you that during this call, Antero management will make forward-looking statements. Such statements are based on our current judgments regarding factors that will impact the future performance of Antero Resources and Antero Midstream and they're subject to a number of risks and uncertainties, many of which are beyond Antero's control. Actual outcomes and results could materially differ from what is expressed, implied or forecast in such statements.

Today's call may also contain certain non-GAAP financial measures. Please refer to our earnings press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures.

Joining me on the call today are Paul Rady, Chairman and CEO of Antero Resources and Antero Midstream; and Glen Warren, President and CFO of Antero Resources and President of Antero Midstream.

With that, I'll turn the call over to Paul.

Paul M. Rady -- Chairman and CEO

Thanks, Mike. I'll begin my comments with a brief discussion on AR, that's Antero Resources, on slide number three, titled Strong Sponsor with Scale. First and foremost, Antero Resources exited the first quarter of 2019 in the strongest financial and operational position since its inception. From a balance sheet and liquidity perspective, AR's leverage was 2.1 times and it had essentially an undrawn revolving credit facility, resulting in $1.8 billion of available liquidity. In addition, AR's borrowing base was reaffirmed at $4.5 billion, illustrating the deep inventory and economic reserves at AR.

As depicted on the left hand side of the page, AR's leverage profile has significantly improved over the last five years, declining from almost 4 times net debt to adjusted EBITDAX to almost 2 times. AR's operational success and balance sheet strength has positioned it to continue developing its low cost resource base and achieve scale, which is critical in the E&P business. As shown on the right hand side of the page, AR is now the largest NGL producer in the US and is also the fourth largest natural gas producer in the US.

Now, let's move on to slide number four, titled AR's Firm Transportation Portfolio is a Strategic Advantage, to discuss Antero's diversified natural gas and NGL firm transportation portfolio, which has allowed AR to continue its sustainable and disciplined growth. Natural gas firm transportation continues to be an asset for AR, as it has allowed AR to avoid frequent Northeast basis volatility, minimize exposure to future long-haul pipeline delays and cost overruns and achieve consistent realized pricing, ultimately benefiting AM. Importantly, all of AR's firm transportation is now in service including Mountaineer XPress and Gulf Xpress for natural gas and Mariner East 2 for propane and butane.

Slide number five, illustrates the impact of Mariner East 2, which allows AR to access premium priced international LPG markets. As a reminder, AR is the anchor shipper on Mariner East 2, with approximately one-third of the current capacity. Specifically, AR has 50,000 barrels a day of combined propane and butane capacity, with additional expansion rates and has the ability to sell approximately 50% of its NGL production into premium international markets, once ME2 came online.

This resulted in AR's NGL price realizations increasing from 52% of WTI before ME2 was placed online to 61% of WTI after it was placed online. For those that were able to listen to the AR earning, we discussed the dislocation of NGL prices relative to WTI prices during the quarter, which resulted in lowering AR's NGL pricing guidance on a relative basis to WTI. However, and more importantly, AR actually increased it's C3+NGL pricing guidance on an absolute pricing basis by approximately $4 per barrel due to the strength in international NGL and crude markets.

Before moving on to AM, I'd like to also point out that the entire midstream infrastructure chain of gathering, processing, fractionation, transportation, terminaling and export capacity is all on line in the Northeast, insulating AR from temporary infrastructure and pricing dislocations observed along the Gulf Coast in the first quarter.

Transitioning to AM and its investment in NGLs, let's turn to slide number six titled, Acquisition of Hopedale 4 Fractionation Capacity. During the first quarter, AM acquired a one-third interest in the Hopedale Number 4 fractionator through its 50/50 joint venture with MPLX. The acquisition doubles the JV's fractionation capacity from 20,000 barrels a day to 40,000 barrels a day. This investment further strengthens AM's downstream ownership and complements the JV's 1.0 BCF a day of processing capacity, which was 99% utilized during the first quarter. In addition, the AM-MPLX JV will have the option to acquire an additional one-third interest in the Hopedale 5 fractionator, which has a total capacity of 80,000 barrels a day and is scheduled to be placed online at the end of 2019.

High utilization rates and our visible organic growth strategy integrated with AR's operations are the cornerstone of our ability to generate attractive mid-to-high teens returns on our invested capital. Mike will go into specifics on our financial policy, but we believe that one of the best ways to create shareholder value is to retain excess cash flow and invest it organically, particularly when we can generate such attractive rates of return.

Our approach to balancing the return of capital to shareholders and retaining cash flow to increase DCF coverage and also to delever the balance sheet ensures that we do not miss out on attractive organic third-party growth opportunities that meet our rate of return thresholds.

In summary, we remain excited for AM as it completed its transition to a best-in-class C Corp with the closing of the midstream simplification transaction. The new structure is designed to attract a broader investor base, including equity index and C Corp investors, which we have yet to benefit from due to the recent closing of the transaction.

With that, I'll turn the call over to Mike.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you, Paul. I'll begin my comments by highlighting the recently announced AM cash dividend of $0.3025 per share, a 180% increase year-over-year for former AMGP shareholders and a 47% increase year-over-year for our Antero Midstream Partners unitholders. The dividend at AM was the 17th consecutive distribution increase since the IPO of Antero Midstream Partners. We are very proud of this achievement and the ability to deliver dividend accretion to both AM and a AMGP shareholders as a result of the simplification transaction.

As depicted on slide number seven, we are on track to achieve our 2019 full year dividend of $1.24 per share, which represents approximately a 10% yield on today's share price.

Now, let's move on to the first quarter operational results beginning with slide number eight titled, High Growth Year-over-Year Midstream Throughput, starting in the top left portion of the page, low pressure gathering volumes were 2.6 BCF a day in the first quarter, which represents a 40% increase from the prior year quarter.

Compression volumes during the quarter averaged 2.3 BCF per day, a 60% increase compared to the prior year quarter. Compression capacity was 85% utilized during the first quarter. Joint venture gross processing volumes averaged nearly 1 BCF a day and 92% increase compared to the prior year quarter. Joint venture gross fractionation volumes averaged 22,000 barrels per day, a 267% increase over the prior year quarter.

Fractionation volumes during the quarter include one month of contribution from the Hopedale 4 acquisition and average fractionation capacity during the quarter was 83% utilized. Freshwater delivery volumes averaged 153,000 barrels per day, a 31% decrease over the prior year quarter. The decline was driven by a reduction in completion activities at AR as expected.

Moving on to financial results, which are presented on a pro forma basis as if the simplification transaction closed on January 1st, 2018, adjusted EBITDA for the first quarter was $202 million, a 26% increase compared to the prior year quarter. The increase in adjusted EBITDA was primarily driven by increased throughput volumes. Distributable cash flow for the first quarter was $166 million, resulting in a DCF coverage ratio of 1.1 times.

Antero Midstream's first quarter results place us on track to achieve our previously communicated 2019 dividend guidance of $1.23 to $1.25 per share, with 1.1 to 1.2 times DCF coverage.

During the first quarter Antero Midstream invested $184 million in gathering, compression, water infrastructure and the processing and fractionation JV. Gathering, compression and water infrastructure, capital investments totaled $93 million and investments in the JV totaled $91 million. While we expect gathering and freshwater capital to increase modestly in the future quarters throughout 2019, we are currently trending toward the bottom end of our capital budget range.

Our ability to defer capital to adjust to adjust to changes in AR's development plan further illustrates the benefits of Antero's integrated model. AM's $91 million investment in the JV during the quarter included the acquisition of the one-third interest in Hopedale 4. The Hopedale acquisition was included in our 2019 capital budget and we expect our run rate in the JV to normalize over the remainder of the year to total $200 million as previously communicated.

Moving onto the balance sheet and liquidity, as of March 31st, 2019, Antero Midstream had $1.1 billion drawn on its $2 billion revolving credit facility, resulting in $900 million in liquidity. Importantly, AM's net debt-to-LTM EBITDA was 3.1 times even after paying out approximately $600 million for the cash consideration and the simplification transaction.

I'll finish my comments on AM with our financial policy and outlook for the next few years on slide number nine titled, Antero Midstream Financial Policy. Management and the newly formed AM Board following the closing of the simplification transaction constructed a financial policy ultimately designed to maximize shareholder value.

First and foremost, the policy is designed to maintain a strong balance sheet, with leverage in the low 3 times net debt to EBITDA range or below. While we acknowledge that our leverage profile is well below the C Corp infrastructure peer average of over 4 times, we believe that a strong balance sheet provides the flexibility to further invest in organic project opportunities or other accretive transactions. The recently closed simplification transaction is a perfect example of having the ability to flex the balance sheet to provide accretion to both our former AM and AMGP stakeholders.

In addition, the financial policy targets an increasing DCF coverage ratio to 1.3 times or higher over the long term in order to maintain balance sheet strength. This results in capital that will be returned to shareholders through a combination of growing dividends per share and potential opportunistic share repurchases.

Paul mentioned it in his comments, but we believe a flexible policy that balances efficient capital deployment toward attractive rate of return projects and returning capital to shareholders in a optimal way to maximize shareholder value. For 2020 specifically, we are targeting high single digit return of capital growth to shareholders as compared to 2019 and a DCF coverage ratio of around 1.2 times. After that, the Board will continue to evaluate future return of capital growth with the objective of growing the dividend at a pace that's sustainable and derisk while utilizing opportunistic share repurchase to take advantage of market pricing dislocations.

Based on AM's previously disclosed 18% DCF CAGR outlook corresponding to a $50 oil and $2.85 gas price outlook for AR, AM expects to reach its leverage and DCF coverage targets by year end 2021. Any increases in DCF growth above those levels will be evaluated by management and the Board for further deleveraging DCF coverage increases and return of capital to shareholders.

Based on current commodity prices, AR is trending toward the 10% annual production growth outlook, as strength in NGL prices, particularly internationally, has offset current natural gas price weakness to levels below AR's $2.85 gas price outlook. As a reminder, this 10% annual production growth outlook at AR translates to the 18% DCF CAGR I previously mentioned.

Antero's unique balance of natural gas and liquids production with exposure to international markets further highlights the benefits of a diverse portfolio, ultimately allowing for sustainable long-term growth that benefits AM.

With that, operator, we're ready to take questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Spiro Dounis with Credit Suisse. Please proceed with your question.

Spiro Dounis -- Credit Suisse -- Analyst

Hey. Good afternoon. Just want to start with M&A first. You mentioned third-party growth opportunities and you put that together with this new flex that you've got in the balance sheet with the higher leverage target. So, just curious outside of a potential stake in ME2, maybe if that's on the table or additional investments in the JV, what else would be on your radar from an M&A perspective?

Paul M. Rady -- Chairman and CEO

Well, we don't really want to comment on specifics there, but we keep our eyes on everything. You saw the Eureka Hunter Pipeline trade just recently. You have seen several pieces of activity out there and we certainly keep our head up and there are other opportunities for us in assets that we actually contribute to. So, I will just leave it at that.

Spiro Dounis -- Credit Suisse -- Analyst

Fair enough. Second question just around the new policy between dividend and buyback and thinking about how you're going to decide sort of which one to lean on more? And tying it to AR -- you mentioned the financial policy, tying it to AR's development plan, which makes sense from an operational perspective, but is there a financial aspect too? And here is what I mean by that is, as AR does partly rely on dividends coming up from you, and so would your decision on whether or not to pay the dividend or do buyback depend a little bit on AR's liquidity position or free cash flow position?

Paul M. Rady -- Chairman and CEO

Well from AR's perspective no, not at all. Not a factor.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Right. Not a factor to AR, because it's not terribly material to AR. For AM, we'll just evaluate it each quarter, looking at where we trade and the valuation around our shares versus increasing the dividend.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. And just last quick one on that. So I know this obviously kicks in in 2020, just curious if there's any interest in starting buybacks earlier maybe in '19 just given where the units are trading?

Paul M. Rady -- Chairman and CEO

Yeah. There would be interest that's something we're gonna evaluate throughout the year.

Spiro Dounis -- Credit Suisse -- Analyst

Great. That's it from me. Thank you guys.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Tim Howard from Stifel. Please proceed with your question.

Tim Howard -- Stifel -- Analyst

Hi. Thanks for taking my question. Just following up on the M&A question, is the preferred method through the JV or is that entire midstream kind of on its own?

Paul M. Rady -- Chairman and CEO

Could be either?

Tim Howard -- Stifel -- Analyst

Okay. And then just trying to understand like the (inaudible) buyback better. Is that an investor preference or are you getting a big push back from your investment community that, hey, buyback is a preferred method versus distribution growth? just wanted to understand your investor base there.

Paul M. Rady -- Chairman and CEO

Yeah. No we're not hearing any feedback about that. We did go out on the road before the simplification vote and heard from a lot of different investors and their preference was obviously to have a dividend that was seen as sustainable and for that to happen you need have a strong balance sheet and increasing coverage and that's how we selected kind of that 1.3 times. And then they also commented on when you look at your yields trading at double digit yields, you're really not getting paid for that growth, so why not allocate some of that growth for increasing the balance sheet coverage and also look at buying back some shares.

Tim Howard -- Stifel -- Analyst

Got it. And then as it relates to AM getting into the indexes or indices, I guess, what -- is it just timing until they kind of review given AM's simplified now or what else is required?

Paul M. Rady -- Chairman and CEO

We did a thorough analysis and the majority of the index funds wait obviously after the close and then looking at those various indices, that looked like they did a lot of their rebalancing in May and June of each year so, we expect some indices buying this month and next.

Tim Howard -- Stifel -- Analyst

Got it. And then, just finally on the water treatment facility, could you just give us an update overall -- I saw the 40,000 barrels per day is expected throughout the remainder of the year. Is that kind of the upper end of available capacity or is that just the available volumes that you anticipate and then just thoughts on third party business as well?

Paul M. Rady -- Chairman and CEO

Yes. We've been -- as we continue to improve on the operational and mechanical efficiencies at Clearwater, we're now testing up into the low to mid, 50,000 barrels a day and just perfecting all of the processes there. I think the 40,000, yes, those are based on available water flow back and produced water on the Antero front. We are talking with third parties and they are weighing the costs of hauling their water to Ohio for injection versus bringing it to Clearwater. So there is an opportunity there since there is a lot of water being produced in the Marcellus overall and in our general neighborhood on the west side of the play, in Northern West Virginia, the Pan Handle as well as Southwest PA. Those are all territory for possible third party volumes coming to Clearwater when we have spare capacity. So -- but just moving through and perfecting the operations at the plant right now, but do think we might have available capacity of 10,000 barrels to 15,000 barrels a day of third party if we decide to contract it.

Tim Howard -- Stifel -- Analyst

That's helpful. And then one of your peers is getting into water in a major way. Is that impacting Antero's water strategy at all?

Paul M. Rady -- Chairman and CEO

No. Not at all. No. Whatsoever.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

I don't think so. I think, they may be following down the road we've gone. Certainly, the first step of having freshwater and buried pipe from reliable sources and then as to whether they do local polishing or they do more full blown recycling of the water remains to be seen.

Tim Howard -- Stifel -- Analyst

Thanks a lot.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Ned Baramov with Wells Fargo. Please proceed with your question. Ned Baramov, your line is live.

Ned Baramov -- Wells Fargo -- Analyst

Hello. Can you hear me now?

Operator

Yes, we can.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

We can.

Ned Baramov -- Wells Fargo -- Analyst

Hi. Thanks for taking the question and sorry about this. So on your new financial policy, does this allow for potential changes to your CapEx backlog through 2020, which I believe is currently $2 billion in favor of share repurchases?

Paul M. Rady -- Chairman and CEO

No. I think the backlog you referenced I believe is through 2023, that $2 billion. No, the first priority is obviously to invest in these organic capital projects. We have mid teens rate of return on that. So those are obviously very attractive to us and highly visible around the AR's current development plan, which is a 10% growth case. So no, that's the first priority. When we're talking about the financial policy, we're talking about amounts -- about that.

Ned Baramov -- Wells Fargo -- Analyst

Sure. And you mentioned some of the buybacks maybe initiated as early as this year. The question is, when do you think you're going to have a Board authorization for share repurchases in place?

Paul M. Rady -- Chairman and CEO

It's something we are evaluating right now. We don't have a timeframe on that, but with the current valuation and with newly formed Board, it will be a topic this year.

Ned Baramov -- Wells Fargo -- Analyst

Got it. And then one last one if I may. Have you discussed the new financial policy with the rating agencies and if yes, could you share some of the feedback you've received on the share buyback plans?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Yeah. We have and they're actually very favorable toward it. It result in a lot more retained cash flow for Antero Midstream and so it's very credit positive. Obviously, building coverage and lowering leverage is something that they view very favorably.

Ned Baramov -- Wells Fargo -- Analyst

Thanks, Mike.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of Gregg Brody with Bank of America Merrill Lynch. Please proceed with your question.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Hi, guys.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Hi, Gregg.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Just a follow up on the indices question something you said, I think you are -- your leverage target went up I thought as a part of this announcement. Did I miss what you said that the agencies viewed the -- I thought you said the (inaudible) agencies?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

No, they do view favorably. Before the leverage targets obviously there is a GP and an IDR portion of that structure, and so that was not cash flow, that was retained by Antero Midstream. Our leverage right now is a bit higher, but we have a much more retained cash flow going forward than the prior structure.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

So as it, by their metrics they view you as less levered?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

They do.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

They do. Okay. All right. So that sounds like the original question doesn't sound like this has change there -- this definitely won't hurt there view?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

No.

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

All right. Thank you guys. Thanks for the time.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Yes. Thanks, Gregg.

Operator

Our next question is a follow-up question from the line of Spiro Dounis. Please proceed with your question.

Spiro Dounis -- Credit Suisse -- Analyst

Hi, guys. Thanks for getting me back on. Two quick follow-ups. First one, I think, AR is sort of leaning toward the lower end of its 2019 CapEx guidance. So, just curious any potential impact on 2020 as you see it with respect to, I guess, mostly in the processing plants? I think you had talked about maybe two plants per year coming online. Just curious, if there's any impact there?

Paul M. Rady -- Chairman and CEO

Well, first off the lower capital doesn't necessarily translate to lower production. So, that's my key message. So, we're seeing efficiencies and ways to reduce capital, increase cycle time for rigs and crews. So, no impact on the production outlook or there or the use of water for that matter.

So as to plants, we are still on that pace of at least a couple of plants a year.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Okay. Appreciate the clarification on that. And then just one again on one of your peers saying, one that I think Tim was referring to, also talking about negotiating rates lower with its E&P sponsor in exchange for may be additional cash flow streams and extending the contract. Sounds like a very specific circumstance but just curious, if that's something that's on your radar as it relates to AR?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Yeah. That is a specific circumstance and there's no discussion along those lines here. Of course, you've got two public companies and they would have to be a lengthy negotiation to make any changes there and it would have to be essentially revenue neutral for AM, if something like that were to transpire, but there's nothing going on in that realm.

Paul M. Rady -- Chairman and CEO

And our analysis continues to be that our midstream to upstream rates are still very competitive and very much at the market. People sometimes make the -- have the miss-impression -- remember our rates are generally on a MCF basis and now, our residue gas alone is quite high, raw gas is up into 1,300 BTU range. So when you adjust for BTU, we're right in the middle of almost all of the things we've seen done in the area.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Understood. Thanks again guys.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Thanks. Our next question is a follow-up question from the line of Ned Baramov with Wells Fargo. Please proceed with your question.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Hi, Ned.

Ned Baramov -- Wells Fargo -- Analyst

Hi again guys. Just one follow up on your dividend growth. So starting in 2020, do you still expect quarterly increases or does your new policy envision one annual increase in the first quarter of the year?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

No, we envision quarterly increases.

Ned Baramov -- Wells Fargo -- Analyst

Okay. And one more with respect to your private equity backers I guess. Could you talk about their plans with respect to AM shares?

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

We're not aware of any plans relative to the AM shares at this point, no.

Ned Baramov -- Wells Fargo -- Analyst

Okay. Great. That's that's all I had. Thanks again.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Ethan Bellamy with Robert W Baird. Please proceed with your question.

Ethan Bellamy -- Robert W Baird -- Analyst

Hi, gentlemen. Big picture on the AR call you talked about the expectation that there would be some more consolidation in Appalachia. Do you think that's true on the Midstream side as well? And then sort of related but different, are you guys still focused solely on Appalachia or would you look outside the Basin for other opportunities?

Paul M. Rady -- Chairman and CEO

Yeah. So first part of the question consolidation continues. I think we saw an announcement on the so called Stonewall gathering projects, Stonewall AGS where DTE picked up an additional interest there, just announced I think this morning. But consolidation does continue. There's interest of consolidating, there's a number of midstream assets out there. Our focus is -- although we are quite aware and study the plays going out in the US, the big seven or eight plays, both liquids and dry gas and have a pretty good handle on that, but our focus is on Appalachia that's certainly lowest risk. What we know the best where we can capitalize on our knowledge, our operational efficiencies, our FTE and so on. So I don't think you'll see stepping foot in other basins that we do study them.

Ethan Bellamy -- Robert W Baird -- Analyst

Thank you Paul. And then just one more question. There was an article recently talking about the lack of regulatory oversight on water pipelines. Anything in that arena we need to be concerned about?

Paul M. Rady -- Chairman and CEO

No, I don't think I saw that article, but nothing on our end. All of our water pipes are in very good shape and very solid and young assets and they still perform very well.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

And keep in mind just a reminder. Ethan, you probably know this, but what our water pipelines are strictly for fresh water. We don't have any pipelines for produced water.

Ethan Bellamy -- Robert W Baird -- Analyst

Got it. Thank you, gentlemen.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you, Ethan.

Operator

Our next question comes from the line of David Amos with Heineken Energy Advisors (ph). Please proceed with your question.

David Amos -- Heineken Energy Advisors -- Analyst

Hey guys. Just a quick thinking about the Clearwater facility. Do you think there's any potential remedy where hypothetically you could recoup some of the lost revenue from the operational issues that you've seen since that facility came online?

Paul M. Rady -- Chairman and CEO

Yes. Certainly, the residue salt is something that we are perfecting. There is a market for the higher quality salt that could be in the black. The brine -- the salt brines that are used by oil and gas industry, we're selling some of that and there is opportunity for more. So you can make up some ground in the lost revenue.

David Amos -- Heineken Energy Advisors -- Analyst

Thanks, Paul. I was actually asking about the time period from when the facility first came online till today?

Paul M. Rady -- Chairman and CEO

You're probably asking about with Veolia and I'll just say there are internal contractual remedies as well as external.

David Amos -- Heineken Energy Advisors -- Analyst

Okay. Great. Thank you.

Operator

There are no further questions in the queue. I'd like to hand the call back to Mr. Kennedy for closing comments.

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Thank you for joining us on our conference call today. If you have any further questions, please feel free to contact us. Thanks again.

Operator

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.

Duration: 33 minutes

Call participants:

Michael N. Kennedy -- Senior Vice President-Finance and Chief Financial Officer

Paul M. Rady -- Chairman and CEO

Spiro Dounis -- Credit Suisse -- Analyst

Tim Howard -- Stifel -- Analyst

Ned Baramov -- Wells Fargo -- Analyst

Gregg Brody -- Bank of America Merrill Lynch -- Analyst

Ethan Bellamy -- Robert W Baird -- Analyst

David Amos -- Heineken Energy Advisors -- Analyst

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