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Edited Transcript of ENBL earnings conference call or presentation 6-Nov-19 3:00pm GMT

Q3 2019 Enable Midstream Partners LP Earnings Call

Oklahoma City Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Enable Midstream Partners LP earnings conference call or presentation Wednesday, November 6, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John Paul Laws

Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC

* Matt Beasley

Enable Midstream Partners, LP - Senior Director, Financial Planning & Analysis and IR

* Rodney J. Sailor

Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC

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Conference Call Participants

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* Alexis Stephen Kania

Wolfe Research, LLC - SVP

* Christopher Paul Tillett

Barclays Bank PLC, Research Division - Research Analyst

* Colton Westbrooke Bean

Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research

* Danilo Marcelo Juvane

BMO Capital Markets Equity Research - Analyst

* Gabriel Philip Moreen

BofA Merrill Lynch, Research Division - Former MD

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Ned Antonov Baramov

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Ross Payne

Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst

* Shneur Z. Gershuni

UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst

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Presentation

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Operator [1]

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Good morning and welcome to the Enable Midstream Partners Third Quarter 2019 Earnings Conference Call and Webcast. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Enable's Senior Director of Investor Relations, Matt Beasley. Please go ahead.

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Matt Beasley, Enable Midstream Partners, LP - Senior Director, Financial Planning & Analysis and IR [2]

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Thank you, and good morning, everyone. Presenting on this morning's call are Rod Sailor, our President and CEO; and John Laws, our Chief Financial Officer. We also have other members of the management team in the room today to answer your questions.

Earlier this morning, we issued our earnings press release and filed our Form 10-Q with the SEC. Our earnings press release, Form 10-Q filing and the presentation that accompanies this call are all available in the Investor Relations section of our website. We will also be posting a replay of today's call to the website.

Today's discussion will include forward-looking statements within the meaning of the securities laws. Actual results could differ materially from our projections, and a discussion of factors that could cause actual results to differ from projections can be found in our SEC filings. We will also be referencing non-GAAP financial measures on today's call, which we have reconciled to the nearest GAAP measures in the appendix to today's presentation. We invite you to review the disclaimers in this presentation for both forward-looking statements and non-GAAP financial measures.

With that, we'll get started, and I will turn the call over to Rod Sailor.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [3]

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Thanks, Matt. Good morning, and thank you for joining us for today's call. Enable's third quarter results reflect another quarter of strong cash flow generation as we achieved a distribution coverage ratio of 1.4 times, funding a significant portion of our expansion capital spending for the quarter.

We also achieved another quarter of growth in our crude gathering business as we reported record crude and condensate gathered volumes driven by last year's Velocity acquisition and continued volume growth in the Williston Basin.

On the transportation side, we are very pleased with the progress we have made in rate case settlement discussions with key MRT customers and I will provide more details on MRT later in the call.

In addition, we contracted or extended over 575,000 dekatherms per day of transportation capacity during the quarter and recently signed a precedent agreement for the MASS natural gas transportation project.

Turning to our gathering and processing highlights on the next slide, producers remain active around Enable's gathering footprint with 31 rigs currently drilling wells expected to be connected to Enable's gathering system. Our market share in the Anadarko Basin remains solid with 44% of all active rigs in the SCOOP and STACK plays drilling wells expected to be connected to Enable's gathering system.

While the Anadarko Basin faces some challenged sentiment, we are partnered with the best operators in the core areas of the SCOOP and STACK that continue to allocate significant capital to the plays and deliver favorable results. With our Anadarko Basin crude gathering assets and producers' continued focus on crude directed drilling, we expect to gather crude oil and condensate from approximately 90% of the active rigs on our footprint in the SCOOP play.

Furthermore, we believe that we will continue to see momentum from these areas, as evidenced by September volumes for crude and condensate gathered volumes that were approximately 12% higher than the average volumes for the quarter. Even with the continued focus on crude directed drilling, we have seen sound natural gas well results from which our systems will benefit as demonstrated by Anadarko natural gas gathered volumes for the month of September that were approximately 4% higher than the average volumes for the quarter.

In addition, Enable recently connected multi-well pads in the SCOOP play with total volumes of over 180 MMcf per day and multi-well pads in the STACK play with total volumes of over 90 MMcf per day.

In the Ark-La-Tex Basin, as a result of significant producer activity and strong well results in the Haynesville, volumes were nearly 90% of total MVC threshold levels during the final contract year for the MVC portion of contracts expiring in the third quarter of 2019. These contracts represented approximately half of the gross margin recognized for minimum volume commitment contracts in the Ark-La-Tex in 2018.

The other large Haynesville contracts with MVCs will remain in effect until the second quarter of 2020. The acreage dedication on these contracts remains for five years following the completion of the MVCs.

In the Williston Basin, Enable saw record crude oil gathered volumes during the quarter driven by continued drilling activity by XTO. Duct counts remain high as a result of natural gas infrastructure constraints that we expect to be alleviated in 2020.

The next slide covers some recent transportation and storage highlights. As I mentioned in my opening remarks, we contracted or extended over 575,000 dekatherms per day during the third quarter, including EGT contracting with Rockcliff Energy for 250,000 dekatherms per day of firm transportation service on EGT's line CP and MRT contracting with affiliates of Spire for 150,000 dekatherms per day of firm transportation service.

We also continued to evaluate our asset base for optimization opportunities and we recently agreed to sell Enable's undivided 1/12 ownership interest in the Bistineau natural gas storage facility in Louisiana for approximately $19 million. We believe the sale of this facility will allow Enable to continue to meet our contracted service levels while improving our capital efficiency.

On the EGT system, EGT and CenterPoint Energy Resources Corporation, or CERC, have agreed to re-contracting terms for a substantial portion of EGT's capacity. Contracts that when executed will extend the contract life of Enable's largest pipeline asset, EGT, with its largest customer, CERC, for nine years for the majority of the renewed capacity, beginning April 1, 2021. EGT is targeting executing the applicable pipeline contracts by first quarter of 2020.

As mentioned earlier, Enable announced today the MASS natural gas transportation project, a project that leverages Enable's existing infrastructure to address natural gas takeaway limitations by connecting Anadarko production to delivery points with access to growing demand centers in the Southeast and Gulf Coast markets. This capital efficient project is the result of a successful open season on EGT and is underpinned by a five-year 100,000 dekatherms per day precedent agreement.

MRT achieved a significant milestone this week when it filed proposals with the FERC to settle rate cases with customers holding 97% of the firm subscribed transportation capacity on the MRT system. In addition to the proposed rate settlements, most of these customers agreed to extend capacity commitments on MRT through 2024.

A new rate case was filed last week that was driven by the need to establish new maximum recourse rates for the non-settling parties, which are comprised of the remaining 3% of the firm subscribed transportation capacity on MRT. We are pleased that we have been able to reach agreement with so many of our customers and we believe we have made significant progress towards fulfilling our objective of recovering our costs and earning a return on our historical investments in MRT.

Additionally, we continue to progress our Gulf Run pipeline project, which is backed by cornerstone shipper Golden Pass LNG. This project will provide Gulf Coast access to some of the most prolific natural gas producing regions in the US and we expect it to be placed into service by late 2022, subject to FERC approval. Enable remains on track to file a formal certificate application for the project in early 2020.

Enable is focused on contracting capacity to extend the average contract lives of our pipelines and all the new contracts and projects discussed today will add meaningful contract duration to our assets.

The next slide demonstrates the strength of our transportation and storage business. We have a footprint that covers key production and demand markets and our diverse high-quality customer base includes many investment grade customers. With five major projects placed into service since 2015 and 2 additional projects underway, Enable has achieved 2.4 Bcf per day of market solutions for customers and built on the segment's significant firm fee based margins.

As I close my remarks, I just want to reiterate how pleased I am with the direction of the company, including our continued commercial execution. Even with the challenges of the current market environment we expect 2020 to be another strong year of execution for Enable and we remain committed to cost discipline and efficient capital deployment.

With that, I will now turn the call over to John to further discuss our third quarter operational and financial results and our 2020 outlook.

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [4]

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Thank you, Rod, and good morning, everyone. I will now cover a few of our key operational and financial metrics for the quarter. As always, you can find a more detailed and comprehensive overview of our financial and operational results in our third quarter earnings release and in our 10-Q, both of which were issued earlier this morning.

Turning to the operational performance overview slide, natural gas volumes were down 3% compared to the third quarter of 2018, which was primarily a result of lower gathered volumes in the Arkoma and Anadarko Basins. Natural gas processed volumes remained relatively flat compared to the third quarter of 2018, driven by lower processed volumes in the Anadarko Basin, partially offset by higher processed volumes in the Ark-La-Tex Basin.

The substantial increase in our crude oil and condensate gathered volumes for the third quarter compared to the same period a year ago was primarily driven by our Anadarko Basin crude and condensate gathering system acquisition, as well as a 30% increase in oil gathered volumes in the Williston Basin as a result of continued drilling activity by XTO.

In our Transportation and Storage segment, an 11% increase in our transported volumes over the prior year was a result of new contracted capacity on EGT, including volumes from EGT's case project.

Moving to our financial results on the next slide, our adjusted EBITDA decreased by 2% for the third quarter of 2019 when compared to 2018. The lower adjusted EBITDA was driven by higher O&M and G&A, which more than offset the higher gross margin after adjusting for noncash items, which was driven by higher crude oil and condensate and produced water volumes increased natural gas gathering fees and an increase in realized gains on natural gas, condensate and NGL derivatives.

Distributable cash flow, when compared to prior year, decreased by 8% for the third quarter of 2019. The decrease was primarily driven by lower adjusted EBITDA and higher adjusted interest expense associated with higher outstanding debt balances and higher interest rates. The decrease in our net income measures for the third quarter of 2019 compared to 2018 was primarily driven by higher O&M expenses, higher depreciation and amortization expense and higher interest expense. The higher depreciation and amortization expense was primarily driven by the Velocity acquisition, additional assets placed in service, and the results of a 2019 depreciation study.

The decrease was partially offset by higher gross margin, which includes the effect of realized and unrealized gains and losses on our derivative activity. Enable's gross margin for the third quarter of 2019 included a $8 million gain on derivative activity compared to a $24 million loss on derivative activity for the third quarter of 2018.

After considering the distributions declared, Enable generated substantial distribution coverage of 1.4 times for the quarter, which funded nearly 90% of our third quarter expansion capital while maintaining our strong balance sheet with significant liquidity and a debt to EBITDA metric of less than 4 times.

In addition, I'd like to highlight the $550 million senior notes offering we completed during the third quarter. We opportunistically issued the notes at a coupon of 4.15% and used the proceeds to pre-fund a first quarter 2020 debt maturity, reduce the balance of our term loan and repay borrowings under our commercial paper program.

Before I move on to our 2020 outlook, I would like to share our view for the remainder of the year. We anticipate that we will achieve the upper half of our previously issued ranges for adjusted EBITDA and distributable cash flow. And we expect that we will be at the lower end of our ranges for net income attributable to common units and expansion capital.

As I mentioned on our last call, we expect net income to be at the lower end of the range as a result of gains on 2019 commodity hedges that were recognized in the fourth quarter of 2018 because the partnership does not apply hedge accounting on these derivatives.

For previously issued 2019 guidance and associated non-GAAP reconciliations please refer to Enable's third quarter 2018 earnings press release and presentation.

Turning to 2020, as a result of our expectations for continued producer activity in the SCOOP and Haynesville plays, we expect our 2020 natural gas gathered volumes to be between 4.5 and 5.1 TBtu per day and we expect our 2020 natural gas processed volumes to be between 2.2 and 2.8 TBtu per day with the continued focus on crude directed drilling in the Anadarko Basin and with anticipated continued activity on our Williston Basin crude gathering systems, we expect our crude oil and condensate throughput volumes to be between 140,000 and 170,000 barrels per day in 2020. We also expect our 2020 interstate firm contracted capacity to be between 5.7 and 6.1 BCf per day.

Regarding expansion capital for 2020, we estimate the capital expenditures in the gathering and processing segment to be between $120 million and $180 million. The capital will primarily support natural gas gathering systems in the SCOOP, STACK and Haynesville plays and crude and condensate gathering expansions in the Anadarko and Williston Basins.

As a reminder, and as we have demonstrated in years past, Enable has the ability to optimize gathering and compression infrastructure expenditures in accordance with producer activity levels.

As it relates to the transportation and storage segment, we estimate 2020 expansion capital expenditures to be between $40 million and $60 million related primarily to the MASS and Gulf Run projects. We expect our net income attributable to common units to be between $385 million and $445 million in 2020. Additionally, we expect our adjusted EBITDA to be between $1.05 billion and $1.15 billion while we expect to generate between $720 million and $800 million of distributable cash flow.

From a leverage standpoint, we continue to target a total debt to adjusted EBITDA multiple of approximately 4 times, while our coverage is expected to be approximately 1.3 times for the year. This coverage is expected to fund a significant portion of our expansion capital program.

Turning to our key takeaways on the next slide, as we look to 2020, Enable remains laser focused on aligning operating expenses and capital expenditures with the business environment and activity levels around our footprint. Enable's 2020 expansion capital outlook represents a significant reduction from 2019 levels and we continue to drive down our O&M and G&A expenses as a percentage of gross margin. Enable will continue to focus on operational excellence, including executing on our announced growth projects, Gulf Run and MASS, on time and within budget. Our 2020 financial outlook is underpinned by a gross margin profile that is expected to be approximately 91% fee based or hedged.

This concludes my remarks and I will now open up the call for your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Shneur Gershuni of UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [2]

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Just wanted to start off a little bit here just sort of on how we think about returning capital to shareholders kind of on a more holistic basis. Has there been any discussions with the general partner and the board around the fact that your yield is at 12.5% at this point right now? You're covering your distribution, you're able to fund I think you said 90% of your expansion capital. The typical target is 50%. Is there a possibility to be able to use that towards buying back some of the units that are outstanding until you get to a point where you're not tagged as just being a pure play SCOOP and STACK? Just trying to understand if that discussion has happened and what can be done about it.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [3]

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I think as you know we're very focused on balance sheet strength. We're very focused on coverage as it relates to our turn of capital via a buyback. If we had some excess cash flow or some free cash flow, that would be an item that we would clearly be looking at as where's the best place to spend that dollar? I think at our current anticipated leverage levels, first and foremost we're working on trying to get our capital spending down to a level where we can sustain that to our coverage. And then what we'd start looking at are there better ways to deploy that capital?

As we said on the last call, we're very focused on our unit price, on our yield. We don't think it represents the performance of the business and are continuing to evaluate ideas and levers that we should be pulling to help improve our current unit price and yield.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [4]

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Maybe switching gears a little bit here, I was just wondering if you can share with us the sensitivity around CLR? Obviously you've clearly indicated and differentiated yourself for being in the core of the core. But if in a draconian scenario, if CLR had stopped drilling completely, do you know what the average decline rate would be kind of for a year out or 2 years out?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [5]

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Yes, that's not a number that we've spent a lot of time talking about publicly. It also depends on where that slowdown might be, whether it's SCOOP, STACK or elsewhere. What I would say is we have a very good relationship with Continental, continue to -- I think they are a premier operator in the SCOOP and STACK plays, have core acreage and as you probably heard on their call, continuing to put a lot of capital in what they call the South Division or into Oklahoma.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [6]

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One final question. Can you talk about any counterparty risk that you have maybe in the Haynesville or across your customer base? Is there anything that we should be keeping an eye on at this date right now?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [7]

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This is John. We keep an eye on all of our customers, certainly one that we got a lot of questions about last year was Chesapeake and had expected some of those with respect to some of what's come out over the last day or so and last year they were in our top 10. Over time they've come out of that top 10 significantly as they've sold some acreage that's on us and we've had contracts on the transportation side, either roll or set to roll here in the near future. So our exposure there has been minimized drastically.

And then I would also say that we don't have any particular customer that we're aware of that is in a similar position to what's been talked about there or otherwise on any other more precarious footing than that, but again that we're aware of. And when we look back to the last cycle that we went through, I don't think the fact pattern for Enable is that we did not suffer any real meaningful losses or have any meaningful exposures through that cycle, which we think is more harsh than what we're experiencing today.

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Operator [8]

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The next question is from Colton Bean of Tudor, Pickering, Holt.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [9]

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So maybe just to ask the first question with a slightly different angle. Looking at the guide for next year it looks like you're expecting about $175 million of retained cash and the capital program's coming in at $200 million. So with EBITDA moving modestly lower next year, can you just speak to the levers that are available to you to manage leverage if upstream pressure continues beyond 2020?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [10]

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I sure can. I think we demonstrated, I think it was in 2017, we've got significant scale in the Anadarko. We have the ability to really move a lot of capital around. Again, some of it is dependent on where our producer customers are drilling. In times like this, they typically aren't stretching out too far from kind of the core areas where we have a lot of assets. We have historically been able to be very efficient with our capital deployment in times like this. And so we have a lot of operating leverage built in to our business, we have a lot of ability to minimize capital spend in this kind of price environment.

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Colton Westbrooke Bean, Tudor, Pickering, Holt & Co. Securities, Inc., Research Division - Director of Midstream Research [11]

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And then just turning to the volume guidance, so Ark-La-Tex's trajectory looks fairly positive moving into 2020. This is with 2 of your largest counterparties in the Haynesville being private. Can you offer a bit more context in how comfortable you feel with the outlook just considering what you know today about hedge positions and any impact to borrowing capacity there?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [12]

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Yes, one of the issues, since they are private, we really can't talk about what we're hearing from them per se, but again, we've spoken with those customers recently and again, they continue to point towards some drilling, as we put in our forecast, although we always risk adjust our producer numbers. But again, I would say that we continue to be surprised to the upside on the development coming out of the Haynesville. The operators on our system are very good operators, they're very efficient with their capital and are typically are pretty aggressive with their hedge levels.

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Operator [13]

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The next question is from Jeremy Tonet of JP Morgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [14]

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This is Rahul on for Jeremy. Appreciate the color on the G&P business earlier on the call. I just wanted to touch base on the CapEx side of the things here. Could you please elaborate on the drivers behind the wide CapEx range? I think it's mostly on the G&P side. Is it just the well connects? Or is there any other itemized project that you have in your plan? And also just wanted to clarify if the MASS project building CapEx contribution is occurred in 2020 or in any portion of it?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [15]

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I'll address CapEx questions here I think in inverse order. So on our transportation and storage range, you're right, it's fairly tight. And yes, capital for the MASS project is included.

With respect to the G&P range, it is wider and I think as you observed, and as Rod mentioned here, we've got a fair amount of ability to adjust our capital to the activity levels that we see. So there certainly may be opportunities for us to ratchet up or ratchet down that capital with activity and again we try to accommodate a little bit of a wider range because generally in any given year we may have capital for the current year that would be in contemplation of subsequent year volumes. So to the extent we have some things that we're working on out into the future, in to 2021 that may require capital in 2020, those are some of the things that we generally like to provide for when we think about a range so that we're not too tight or otherwise excluding things that we ought to be.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [16]

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And I think you might have asked is there any contribution from MASS in 2020 and the answer to that is that will come on in 2021.

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [17]

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That's right, but all the capital that (inaudible).

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [18]

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All the capital (inaudible) into 2020, yes.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [19]

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Just to follow-up there on the G&P side, can you provide some color on the sensitivity between the Midcon and the Bakken CapEx just to see like which one could be the more valuable part in this range?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [20]

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I think generally when we think about it, most of our capital over the last couple of years has been aimed at our biggest basin, which has been the Anadarko, and I wouldn't expect it to be different, although we're not going to provide specific breakout by basin. But generally our capital here in these activity driven environments are going to be generally tied to type [of the largest]. Just largest basin first, then we'll have a little bit of spend in the Williston as well. And certainly the Haynesville.

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Operator [21]

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The next question is from Gabe Moreen of Mizuho.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [22]

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Just had a couple questions around can you maybe speak to what rig count level is embedded within your guidance for 2020? Increasing, decreasing, staying about the same?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [23]

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Gabe, thank you for the question. I think as we think about rig count in general, in light of the efficiencies that we've observed in the Anadarko and, as Rod mentioned, with some of the operators that we've seen in the Haynesville, it's not always the best indicator sort of on a one-for-one basis as it once was, say in 2017 or even 2018 when we were first rolling out or talking more and more about the number of rigs that were active on our system. So we've seen some enhancement in the efficiencies. I also think it's fair to say from where we are today we've seen some pullback from the second quarter into the third quarter and we would expect some level of increased rig activity relative to where we're at, at this particular moment through the year to reach the metrics that we've put out.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [24]

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Maybe if I could follow-up on that, and you mentioned I think some of the ducts in the Williston potentially kind of just waiting on completion. Any other basins where I think ducts and drawing down ducts will influence your volume outlook?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [25]

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Not necessarily, although the duct inventory has grown in the Anadarko as well. There are abilities or opportunities for frac and completion crews to be added that could enhance volumes on our system without necessarily needing the rigs.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [26]

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And then shifting gears to the transportation and storage segment on the rate case settlement. At this point, in terms of the new rates, are those reflected in your guidance? Is there any chance you might have to update your guidance as that rate case gets finalized?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [27]

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I think what we've contemplated in guidance is certainly our expectations for where we believe the rate case will settle out. As we mentioned, we've got settlement contracts for roughly 97% of the firm contract demand capacity that's on the system today. So we're not necessarily expecting a meaningful change to our guidance as a result of where we would anticipate reaching a settlement ultimately.

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Gabriel Philip Moreen, BofA Merrill Lynch, Research Division - Former MD [28]

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And then last one if I could, just around hedging, clearly you're a lot more open in 2020 on commodity prices. Just the strategy going forward on hedging, are you just -- is it your own viewpoint that NGLs are in a trough and only upside from here and how you go about hedging? Be open to exposure for the rest of 2020?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [29]

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Yes, I think our approach to hedging will be similar on a go-forward basis to what it has been. Your observation is correct. At this point in time this year looking forward we are less hedged than we were at this particular point in time last year. I think part of that is we tend to see and observe for less liquid commodities that the forward curve tends to not show you the same type of value, even given where we're trading today at relatively low levels.

And so we're not really prognosticators on the commodity and we don't think about our hedging program in that way. But at the same time, for the less liquid commodities, we also typically don't go out and hedge those particular items that far out into the future when we're seeing heavily backward aided values that we think are just nearly a reflection, or more of a reflection on the liquidity of the commodity as opposed to where it's trading today and where it's expected to trade.

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Operator [30]

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The next question is from Michael Lapides of Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [31]

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Easy question for you. The owner of Golden Pass made a filing at the FERC where they potentially pushed out the in service date to beyond 2025. How does that impact the pipeline project you're doing that would connect to Golden Pass?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [32]

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Thanks for the question. Golden Pass has actually worked to try to clarify that their schedule is the same, but that was more of a regulatory filing to preserve some optionality. That said, we're still on track, we've said that we expect Gulf Run to be in service late 2022 and again, we start getting paid on the later of January 1, 2023 or our in service date. And so right now it really hasn't changed our thinking about that and conversations with Golden Pass clarified that really they haven't changed anything internally as they think about their construction.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [33]

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And then on the amount of capacity -- somebody asked a question about the rate case and I'll ask as well. Do you see this on kind of a weighted average sense per MMBtu or MMcf as kind of leaving you flat overall within the transportation and storage systems? Or likely a decline, given the rate case settlements?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [34]

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Actually we anticipate earning higher revenue on the settled numbers, openly that the numbers to be settled. Again, as John mentioned, we've got the proposed settlement contracts in front of the FERC now and those should be finalized here shortly, so we really can't comment much on that. But we're very happy with where we came out on our MRT rate case and as we have said. So I believe in my transcript and also in our earnings release, our goal was to recover our costs, even though we were experiencing turn back, recover our costs and earn a return on our investment there. And I believe we have and will accomplish that.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [35]

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One last one, and this is just nuts and bolts. In the quarter, at the transportation and storage segment, O&M of $57 million was a pretty big step up sequentially in year-over-year. Is there anything unusual in that or should we assume that kind of as a going forward run rate?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [36]

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We had some one time charges that hit us in the third quarter there and we wouldn't -- $4 million and we wouldn't anticipate seeing that going forward.

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Operator [37]

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The next question is from Ross Payne of Wells Fargo Securities.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [38]

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You've kind of alluded to this a little bit earlier, but with rig counts coming down rather notably Q2 to Q3, can you give us some guidance on where you expect rig counts on your acreage to look like for 2020?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [39]

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I think as John mentioned we think that we may see a -- or anticipating a slide uptick in rig count in 2020. Again, it kind of depends on exactly where our producers, what areas they are targeting. We're pretty confident around the well count that we anticipate seeing as we sit here today. Clearly producers are still going through their 2020 budgeting program, so we're always a little cautious about what we say as it relates to that and frankly what we put into guidance. But again, I think we feel good about the guidance that we put out in 2020 and that we'll see the activity that is necessary to achieve that.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [40]

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So basically the sequential decrease that we just saw is more natural gas focused rigs and we're kind of starting to get into the heart of the oil base rigs to show stability. Is that the repeat?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [41]

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Yes, that's a good repeat, especially as it relates to the Anadarko where we've said we anticipated a move out of the STACK, targeting more oilier areas in the SCOOP and that's exactly what we're seeing. If there's any upside to our guidance in 2020, it's would we see more activity in the STACK from maybe some higher gas prices. But again, that would be some upside to what we've put out.

But really what we're seeing is producers targeting the more oilier areas consistently and as I think we said in our earnings transcript, about 90% of the wells we're seeing in the Anadarko we're gathering crude off those. So you're absolutely correct. We're seeing a transition into more oilier areas and we're able now to accomplish that -- or to capture that.

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [42]

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Yes and Ross, just so we don't leave it unsaid, but implicit in Rod's comments and yours is as we see additional focus on the oil directed areas of the SCOOP, it's also pad driven development. So these larger units are generally more efficient in that way as it relates directly to reducing rig count.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [43]

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And it can also lead to lower capital spending on our side.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [44]

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And last from me, natural gas prices are on the rise here, as is the forward strip. At what level do you think natural gas producers start to add rigs from current levels, if you foresee that at all?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [45]

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Again, hard for us to say exactly on that. We do know that many of our producers, especially on the private side, get very aggressive around -- we see spikes in that gas, they try to hedge some of that in. but I really can't speak to what level we would expect to see an increased activity. Frankly there's a lot of up and down, depending on where they decide to allocate capital, depending on their footprint.

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Operator [46]

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The next question is from Alex Kania of Wolf Research.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [47]

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Just a couple of questions. First is just thinking kind of high level about guidance relative to overall volumes. Just trying to think about the kind of primary drivers that kind of a kind of decent tick up in volumes overall, but kind of slight decline in EBITDA. Is that a function of commodity prices? Is there kind of an assumption of some MVC revenue rolling off in the back half of 2020?

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John Paul Laws, Enable Midstream Partners, LP - Executive VP, CFO & Treasurer of Enable GP LLC [48]

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This is John. Yes, you'll see a little bit of both of those things impacting where we're at on the G&P side. I think also on the transportation and storage side on some of the interstate pipelines, primarily on BP. We've got some contracts that we'll roll in 2020 as well. So I think as you look at total EBITDA it's going to be a mix of each of those 3 items. We'll have a little bit of reduced commodity, all else being equal when you look at our guidance for 2020 relative to the realized prices to date in 2019 and what's expected for the fourth quarter, that will impact some of our commodity exposed volumes.

Then as we mentioned, while we did have one of the 2 large Haynesville MVC contracts expire -- the MVC portion expire this year we'll have another one, the second piece of that expire next year. That said we were about 97% of the shortfall amount when it rolled in the third quarter, so we're in a very good position there, but as we're expecting into 2020, as you can see, we've got higher volume in there so we don't necessarily expect a big drop off from the MVC differences in 2020 in the Haynesville. And then lastly, as I mentioned, the transportation and storage contract roles would be the third element.

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Alexis Stephen Kania, Wolfe Research, LLC - SVP [49]

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And then just I guess turning back to Gulf Run, I'm just trying to think about what the decision process here is about trying to finalize, I guess, scope as if you were kind of waiting for maybe a little bit more clarity on either some other projects down on the coast in terms of demand, either LNG or something else. How does that kind of play into when you have to make a filing with FERC to kind of get the process underway? I'm just wondering how easy it is to kind of update it based on scope if you're able to find kind of a sizeable increase in volumes there ultimately.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [50]

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We'd have some flexibility to update scope on that. But primarily there is continuing to be a lot of development around that area and so why we were targeting kind of the first quarter of 2020 to nail down the scope is really because we continue to be pretty active out there talking to folks about ways to increase the size of that pipeline.

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Operator [51]

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The next question is from Christopher Tillett of Barclays.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [52]

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Just wondering if maybe you could provide any insight on, I guess in looking at your guidance for next year, provide any insight on the extent to which you have sort of de-risked or risk adjusted what producers are telling you? We're still pretty early in kind of the guidance cycle here and so just wondering as results come in, maybe worse or better than what we expect how we should think about the flow through to you all.

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [53]

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Now I'll start and if John wants to add something he can jump in. We get producer forecasts, we look at them. When we feel it's necessary we'll risk adjust those down. Sometimes we've even risk adjusted those up. I think the one thing that again, we kind of -- we'd caution on right now is when you're in this kind of price environment, your producers haven't yet made their final decisions around capital in 2020. And so I think we had to give that serious consideration before we put out our 2020 guidance. And historically we've always done guidance at this time. We discussed whether it would make sense to maybe wait, but we felt to be consistent because we do have confidence.

And as we've seen some of the smaller producers lay down rigs and were more focused on the better capitalized players. Again, they are more certain with their 2020 plans and we factored all of that in when we put our guidance forward and we've got a range there and as we sit here today we feel like it will come somewhere within that range both volumetrically and financially.

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Operator [54]

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The next question is from Ned Baramov of Wells Fargo.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [55]

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You mentioned the definitive agreement to sell an ownership interest in a gas storage facility, so thinking about future potential asset optimization initiatives, what is the approximate range of EBITDA generated by non-core assets that could be monetized over time?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [56]

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I would say probably not going to guide to any kind of EBITDA around that, but we are always looking at assets that we think do not make sense for us to own. Sometimes they are very small, but I would say annually there is some amount of assets that we make some decisions on. Now the Bistineau storage was one where again, we could serve our customers more efficiently and not own that asset. And again, we can redeploy that capital. But we’ll always look at ways to optimize around our assets and in times like this, when we're under cost pressures because of reduced activity, we're even more aggressive with how we think about rationalization of assets.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [57]

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And then on your Haynesville MVCs, now that one part of the contract has expired and I presume it's strictly volumetric at this point, is there a change in the gathering fee that the customer is paying relative to the fee paid under the MVC contract?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [58]

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No, those contracts extend for another five years past the Haynesville contracts. They extend another five years past the time the MVCs are no longer valid.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [59]

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And then last one for me, on the new MASS project, could you maybe talk about the expected return? And then it seems that it leverages existing infrastructure yet the in service date is a year and a half away. So maybe can you walk through some of the longer dated items that need to get done before the project is commissioned?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [60]

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Yes, I would say it's probably less than 18 months. We would expect it to be in service back half of next year. You're absolutely correct, it does -- we're able to leverage significant pipeline infrastructure that we have in Oklahoma, Arkansas and Louisiana. It is a higher return than we would normally see on the transportation contract and again, we think that transport's going to be very valuable as producers continue -- or when we see some uptick in gas prices and producers start to further develop the STACK.

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Operator [61]

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The next question is from Danilo Juvane of BMO Capital Markets.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [62]

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Most of my questions have been asked and answered but I did have a couple of follow-ups. Firstly, on Gulf Run, realize we're still trying to get the project scope down, but any updates on what the ultimate CapEx could be there?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [63]

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Nothing that we -- it's still within the range that we put out originally.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [64]

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And to be precise, that range was around $500 million?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [65]

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That's correct.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [66]

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And secondly, I think in your prepared remarks you made mention of natural gas takeaway out of the Williston. Can you please expand on what that potential project can be?

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [67]

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I think the commentary there was really more around the delay in bringing on new natural gas infrastructure. This is a comment that we've had in the past around why the rate of growth for us, we've got just crude there, we don't handle any of the natural gas infrastructure for our customers, while the rate of crude growth had slowed relative to what we had initially guided to in 2019. And so we've seen the slowdown or the lack of natural gas infrastructure impede the rate of growth for us on our systems, they only expect that to abate with some of those third parties bringing on additional processing facilities and other infrastructure. But that was really more the commentary there, not around a particular project for us.

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Operator [68]

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

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Rodney J. Sailor, Enable Midstream Partners, LP - President, CEO & Director of Enable GP LLC [69]

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Well thank you very much, and in closing I want to recognize all of our employees for their hard work and dedication. And I'd like to thank everybody on the call for your interest in Enable. And I would ask everybody to have a safe day. Thank you.

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Operator [70]

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