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Edited Transcript of NBLX earnings conference call or presentation 3-Aug-18 3:00pm GMT

Q2 2018 Noble Midstream Partners LP Earnings Call

HOUSTON Aug 16, 2018 (Thomson StreetEvents) -- Edited Transcript of Noble Midstream Partners LP earnings conference call or presentation Friday, August 3, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John C. Nicholson

Noble Midstream Partners LP - COO of Noble Midstream GP LLC

* John F. Bookout

Noble Midstream Partners LP - CFO of Noble Midstream GP LLC

* Megan Elizabeth Repine

Noble Midstream Partners LP - Manager, IR

* Terry R. Gerhart

Noble Midstream Partners LP - CEO & Director of Noble Midstream GP LLC

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Conference Call Participants

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* Barrett Auten Blaschke

MUFG Securities Americas Inc., Research Division - Senior Analyst

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Dong Wang

Citigroup Inc, Research Division - Senior Associate

* Ethan Heyward Bellamy

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Georg Philip Venturatos

Johnson Rice & Company, L.L.C., Research Division - Associate Analyst

* Rahul Krotthapalli

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Good day, and welcome to the Noble Midstream Second Quarter 2018 Earnings Conference Call. (Operator Instructions) Please note this event is being recorded.

At this time, I would like to turn the conference over to Megan Repine. Please go ahead.

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Megan Elizabeth Repine, Noble Midstream Partners LP - Manager, IR [2]

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Thank you, Allison. Good morning, and thank you for joining the Noble Midstream Partners Second Quarter 2018 Earnings Call. With me today to review our results are Terry Gerhart, CEO; John Nicholson, COO; and John Bookout, CFO. Following our prepared remarks, we will open the call to questions from analysts.

This morning, we announced the second quarter 2018 results as well as third quarter and updated full year guidance. The press release and supplemental slides are on the Investors section of our website, noblemidstream.com. Upon filing later today, our 10-Q will be available on the same location.

As a reminder, today's discussion will contain forward-looking statements and certain non-GAAP financial measures. Please see our earnings release for our full disclosure on forward-looking statements and reconciliations to GAAP measures.

At this time, I'll turn the call over to Terry.

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Terry R. Gerhart, Noble Midstream Partners LP - CEO & Director of Noble Midstream GP LLC [3]

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Thanks, Megan, and thank you all for your interest in Noble Midstream. I'm glad to report another quarter of results that largely fell in line or ahead of our expectations. We've achieved several significant milestones so far in 2018, both operationally and financially. We have a lot to cover, including second quarter results as well as several new announcements in this morning's earnings release.

I will start with a few highlights for the quarter. Our teams completed 4 major projects in the second quarter. In the Delaware Basin, we completed 2 central facilities and gathering systems for Noble Energy and increased Advantage Pipeline throughput capacity by 30%. And in the DJ Basin, we completed a spec gathering system for our sponsor's Mustang area. Looking ahead, the backbone infrastructure we've put in place underpins our long-term growth forecast. In the second half of the year, our activity will be focused on capital-efficient well connects.

We reported record gross EBITDA for the quarter, driven by growth in our gathering business. Our net EBITDA was down compared to the first quarter, as expected. Our sponsor focused its completion activity in the Mustang area for this quarter, which drove a $10 million sequential decline in net freshwater contribution as the partnership owns just 25% of the Green River DevCo as opposed to 100% of the Colorado River DevCo.

Our business development team continued to build on early success, delivering a 5% increase in overall dedicated gathering acres in the DJ and Delaware basins to approximately 580,000 acres. We also announced an additional oil transportation dedication from Noble Energy today. And we declared a 4.7 distribution per unit increase compared to the first quarter and a 20% versus the second quarter of 2017, and maintained strong Bcf coverage at 1.8x.

I will now discuss the agreements reached with Noble Energy included in this morning's press release. More details are also found on Slide 6 of the supplemental pack.

We reached amended full-field commercial terms for the Mustang area in the Green River Development Company. The amended fees reflect a change in gathering system design from a central gathering facility to a spec gathering system, where less surface equipment is required. In addition, the freshwater delivery fee was adjusted for the use of enhanced completions, which consume significantly more water.

In conjunction with this, Noble Energy and the partnership reached 3 other agreements. First, Noble Energy provided a 3-year minimum freshwater volume commitment in Wells Ranch beginning in 2019 at 50,000 barrels of water per day and increasing to 60,000 barrels of water per day in 2020. Second, Noble Energy provided Noble Midstream an incremental dedication for oil transportation in the DJ Basin. Today, Noble Energy transports oil from the Wells Ranch CGF to Platteville from a third party pipeline. At expiration of this existing contract at year-end 2020, Noble Midstream will begin providing this additional oil transportation service for a term of 10 years. This is another example of expanding our midstream services around the Noble equity barrel.

In addition, the pipeline will have connectivity to our existing infrastructure and extend across acreage in our catchment area, further enhancing our competitive position in the basin as we look to win additional third party business. The ultimate design and project scope could take on a few different forms, and we will provide additional details on plans and capital as the opportunity approaches. We expect strong economics with a 1-year organic build multiple of less than 6x. And third, Noble Energy assigned Noble Midstream its option to acquire up to 15% ownership in the EPIC NGL pipeline, which will transport NGLs from the Delaware Basin to the Gulf Coast. Good progress has been made on this project, with construction of the pipeline's third and final phase currently underway. The pipeline operators' latest update indicates a second half 2019 in-service date. We will continue to monitor commercial developments through option expiration in early February next year as we evaluate whether the project will compete with our organic opportunities.

To summarize, we look forward to providing safe and reliable midstream services as Noble Energy progresses development from the 75,000 net acres at Mustang. We expect our development in this area to be highly competitive with returns we see elsewhere in our portfolio, even on a 1 rig, 1 crew program. We continue to believe our strong sponsor MLP relationship will provide differentiated avenues of growth and value.

I'll now turn the call over to John Nicholson for further details on our capital projects and operations. John?

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John C. Nicholson, Noble Midstream Partners LP - COO of Noble Midstream GP LLC [4]

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Thanks, Terry. Combined oil, gas and produced water gathering throughput was up 30% compared to the first quarter. Produced water volume growth led the way, up 84% on a sequential basis. This was driven by the uptick in new well activity from customers over the past few quarters. Oil and gas gathering daily throughput averaged 192,000 barrels of oil and gas equivalent in the quarter, with 145 wells being connected to our gathering systems. Black Diamond Gathering throughput is included in our results for the full quarter. Oil volumes were below guidance during the second quarter, primarily driven by lower-than-expected volumes at Laramie River and Blanco River.

Gross freshwater delivery volumes were down 5% from the first quarter but 23% above the high end of guidance, averaging 160,000 barrels of water per day in the second quarter. We continued to benefit from customer use of high intensity completions.

We delivered freshwater to 3 crews during the quarter, a similar level to the first quarter. As we discussed on our first quarter call, Noble Energy ran 2 crews in their Mustang area during the quarter, preparing for second half 2018 well connections.

Moving on to DevCo specific highlights, Colorado River continues to be a large contributor to our strong results and is the blueprint for the capital efficient nature of our business through time. Production was flat sequentially, with 11 well connections, down from 31 in the prior quarter.

Also in the DJ Basin, our gathering system in the Green River DevCo for Noble Energy's Mustang area was completed during the quarter, and we connected 5 initial wells. Today, 10 wells are online and we anticipate approximately 30 well connections in total this year.

Mustang covers 75,000 net acres and had similar geological characteristics as Wells Ranch, which should provide significant multiyear throughput growth for the partnership. Also unique, our system at Mustang will have the ability to deliver into 3 third party gas processing providers with 5 offload points.

To date, we've spent $113 million on infrastructure for 3 rows of development in the southern portion of the acreage. Completion of this backbone infrastructure over the past 12 months gave us greater visibility into our overall project capital as we set fees with Noble Energy. As such, we are confident in our ability to achieve our mid-teens stated growth -- returns objective.

With respect to our third party gathering business at Laramie River, oil and gas gathering volumes were up 31% compared to the first quarter of 2018. Results in this development company include our wholly-owned third party system as well as our 54% interest in Black Diamond Gathering, which contributed 58,000 barrels of oil per day of average throughput gross for the quarter.

The second quarter was a very difficult operating environment for some of our third party customers in the DJ Basin, with the lack of spare gas capacity driving elevated line pressures and causing several instances of intermittent production flows.

Black Diamond Gathering nominations are showing signs of a tailwind, coming in at 71,000 barrels of oil per day for August. This strategic positioning of the Black Diamond asset is materializing faster than anticipated. In May, we announced additional long-term dedications for the system, representing more than 200 wells across approximately 17,000 incremental acres. The dedications from -- come from an existing customer as well as a new customer. These agreements increase total acreage dedicated to the system by approximately 12%, and we continue to expect activity on this acreage will begin contributing later this year.

In the Delaware, we spent the last year building out central gathering facilities to support Noble Energy's development plan, and over the last 12 months, we've installed 210 miles of gathering lines. We completed our fourth and fifth planned facility during the quarter, bringing our total oil capacity to 90,000 barrels of oil per day and 115,000 barrels of oil equivalent per day. For produced water, combined capacity from the 5 CGFs totaled 240,000 barrels of water per day.

Our teams operated under a very tight schedule, bringing on 1 facility per month beginning in March through May. With the Delaware Basin, one of the most active oil plays in the U.S., and given its remote nature, this resulted in modest cost overruns compared to initial budget. Nevertheless, as capacity utilization increases and assuming historical margins, we believe this will drive attractive build multiples.

Average availability at the CGF inlet was 98% during the quarter.

On the Advantage Pipeline, second quarter oil throughput averaged 105,000 barrels per day, which is 3.5x greater than the time of acquisition and 62% above our acquisition case. August nominations are 105,000 barrels of oil per day. During the quarter, we also completed the pipeline capacity expansion, increasing throughput by over 30% to 200,000 barrels of oil per day to accommodate future growth.

Overall for the quarter, gross capital was in line with guidance and net capital was within $1 million of the high end of the range. We are raising our full year gross capital guidance to between $530 million and $550 million, while net capital is forecasted to be unchanged at $270 million to $285 million. This implies a 60% reduction in second half net capital compared to the first as our major projects for the year are complete.

On a gross basis, the midpoint is up to reflect higher spending levels in Blanco River and Green River, supporting Noble Energy's growth and development plans, somewhat offset by lower capital at Laramie River. Capital at Blanco and Laramie River also reflect incremental customer dedications announced back in May. We have adjusted the allocation of our capital between the development companies, which you can find on Slide 9.

To summarize, we have achieved several operational milestones during the quarter, delivering new facilities and systems to our customers. We have an exciting future ahead of us as we shift our focus to capital efficient well connections for the balance of the year as our growth projects start to contribute meaningfully to the partnership.

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

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [5]

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Thanks, John, and good morning. The business performed well in the second quarter relative to plan, and we continued our path of 20% distribution growth, reflecting our continued confidence in the business. After maintenance capital and interest, the partnership recorded $40 million of distributable cash flow in the quarter, resulting in coverage of 1.8x.

Gathering net EBITDA was up 13% sequentially, totaling $45 million. With the decline in freshwater segment Terry mentioned earlier, gathering EBITDA comprised 92% of EBITDA net to the partnership during the quarter. Coverage, excluding the freshwater segment, was a very healthy 1.6x.

Subsequent to the quarter, we secured a $500 million term loan facility, with funds used to repay outstanding borrowings on our revolving credit facility. The term loan is repayable at any time at no cost and has pricing inside of our existing facility. On a pro forma basis, our second quarter liquidity was $780 million, providing ample capacity to achieve our financial goals and objectives.

Looking ahead to the full year, we are increasing our freshwater delivery guidance by 19% and maintaining produced water guidance, reflecting strong year-to-date performance.

Water to oil ratios had been very close to forecast, providing a predictable and high-quality stream of gathering cash flows. Our freshwater guidance reflects delivery to 5 crews in the second half of the year, including 2 third party crews and 3 Noble crews.

We are lowering our combined oil and gas gathering throughput range to between 194,000 and 204,000 barrels of oil equivalent per day.

First, we've trued up our guidance for year-to-date performance in the DJ and Delaware basins, and in addition, our updated guidance reflects our sponsors' reduced activity in the Delaware Basin beginning in the -- late in the third quarter.

We are reiterating our expectation for Black Diamond Gathering volumes to exit the year at 80,000 to 90,000 barrels per day, which is up from our original acquisition case at 75,000 barrels a day. For Advantage, we are narrowing throughput guidance for the year to between 105,000 and 115,000 barrels of oil equivalent per day.

Overall, we should post significant growth in the second half of the year. From the first quarter to the fourth quarter of 2018, oil and gas gathering volumes are expected to grow 36% and produced water is expected to nearly triple, while freshwater volume should grow 31%. This translates into net EBITDA growth of approximately 13% second half over the first half.

Sources of operational upside to our guidance include DJ Basin processing capacity improvements, with the latest DCP plant startup this week as well as freshwater delivery, where we are forecasting modest growth despite a 60% increase in completion crews on dedicated acreage in the second half of the year.

We are delivering to 5 completion crews today and at the end of July, we set a daily record delivery of over 300,000 barrels of water per day to customers. This also provides significant additional gathering momentum into 2019.

Looking beyond this year, our distribution growth and financial outlook through 2022 is best-in-class. We continue to expect 20% annual distribution per unit growth, with coverage remaining above 1.3x.

This morning, our sponsor announced they will defer activity in the Delaware beginning in the third quarter and into 2019 until basin pipeline expansions are online. However, we expect a minimal impact to 2019 net EBITDA, given the lower Blanco River development company ownership of 40% and Noble Energy's expected reallocation of activity to the DJ Basin, where we generally have higher operating leverage to Noble activity.

In addition, Noble Midstream's business development success with third parties already announced in 2018 should contribute $8 million to $10 million in net EBITDA next year, that is likely unrecognized with the external community.

Turning to the balance sheet, we've had an active year with the Black Diamond Gathering acquisition and our organic capital program. However, we maintain a healthy balance sheet. Our leverage ratio was 2.7x during the quarter and on an organic basis, we expect to be less than 2.8x at year-end 2018. Additionally, we expect our high growth portfolio to drive leverage metrics down to sub 2x over our long term forecast period.

To conclude, we expect to have robust growth in the second half of this year and the latest customer activity schedules have further strengthened our outlook heading into 2019.

With that, I'll turn the call over for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today will come from Jeremy Tonet of JPMorgan.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [2]

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This is Rahul on for Jeremy. Just a couple of quick ones. In light of the potential growth CapEx you're deploying on a growth basis and also the more slightly tempered outlook for the later half of the year, can you provide any updated thoughts on how we are viewing the dropdown inventory today?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [3]

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Sorry, I didn't get the last part. Was that on the dropdown inventory?

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [4]

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Yes.

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [5]

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Yes, and I think it's a good question. The dropdown inventory, for at least the retained interest of our development companies, could be seen in the difference between gross and net EBITDA, and we've provided ranges for the third quarter and fourth quarter, and you could see that there's still a fairly significant amount of growth and a build in our dropdown inventory. I think we've always said that we've got a very robust dropdown inventory, both through the development company structure as well as retained assets that sit with our sponsor. I don't think the capital program this year and our adjustments to the outlook for the current year really changes our view on the strength of that inventory through time.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [6]

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Good. That's helpful. And then would you be able to provide some additional color on upside and if possible, quantify the benefit to NBLX from the new processing additions in the DJ? And is this captured in the $8 million to $10 million benefit in the 2019 numbers you guys noted in the slides?

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John C. Nicholson, Noble Midstream Partners LP - COO of Noble Midstream GP LLC [7]

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As John mentioned in his comments, we did not bake in any upside from line pressure reductions or throughput increases in the DJ from these plants coming online. So that is upside to our plan in the DJ. It's nice to see that, that plant came online, on schedule. In addition to that, obviously, next year, you have an additional DCP plant as well as some western plants and a new third party plant late this year. So we're very pleased with where third party processing capacity is in the basin and where it's headed.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [8]

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Got you. Just a follow-up to that, like, are there any updated thoughts on participating directly on the processing side of the business given the leverage NBL has in the DJ?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [9]

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Yes. It's John Bookout. I think in terms of participating with the plants that have been announced, that's not something that we're actively pursuing. As a reminder, we do have 2 processing plants to the Noble family up in the East Pony area which are managed by the Noble Midstream team. So we are a processor in the basin and would look to add to that if it made sense for both our sponsor and for NBLX, should the opportunity present itself.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [10]

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Got you. That's helpful. And then just on the last one, the commercial terms, which you guys announced today. Are there any latest thoughts on extending the minimum volume thresholds to other hydrocarbons in the area? And also, adding to that, any thoughts on, like, on assigning the crude NGL (inaudible) crude pipeline option to NBLX at some point in the future?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [11]

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Right, this is John Bookout again. I think the first part of that question is on volume commitments. I don't think we're actively looking at adding volume commitments to other areas at this time. Most of our development companies are high-growth in terms of oil, gas and produced water gathering, which we, going back to the IPO, said, rendered a volume commitment less effective. I think the freshwater, in VC in Wells Ranch, it was one that was on our list, and I think if you look at the second quarter results, you likely can see the benefit of that in terms of eliminating some of the choppiness of cash flows that you can see from DevCo mix. So we're very pleased with that announcement. But we are not actively looking at adding volume commitments across the portfolio. So no. I think the second question was on EPIC?

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [12]

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The crude pipe, yes.

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [13]

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The crude pipe. I think that's something that's still being worked within the Noble family. I think there's been some announcements out there in terms of that project getting commercial steam or success. Similar to the Y-Grade project, we're well positioned with our option periods, both Noble and Noble Midstream through February of next year. We're excited about both projects and we're excited to share more information, but we're going to continue to monitor the progress, both commercially and on the construction base of both projects, and we'll provide you an update in the future.

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Operator [14]

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Our next question will come from Georg Venturatos of Johnson Rice.

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Georg Philip Venturatos, Johnson Rice & Company, L.L.C., Research Division - Associate Analyst [15]

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Just while we're on the EPIC topic, just to clarify, on the 30% option that's still in NBL's hands, is the timeline for that decision in line with the Y-Grade mine? I'm just asking given potential timing of completion of these projects, given Y-Grade's now in phase 3.

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [16]

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Georg, it's John Bookout. I think it's a good question. I think the timing, we'd like to see as much of the execution in terms of executing those options, regardless of whether the option's at the Noble Midstream or Noble Energy, it was very purposely structured so that we could monitor that progress. And I think towards the end of the year, we'll be able to probably update you on some more details on what those projects look like in terms of capital and economics, and potentially, ultimately, where those options would land. But outside of that, I think probably limited to what we've said in the release in terms of the Y-Grade option being assigned to Noble Midstream.

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Georg Philip Venturatos, Johnson Rice & Company, L.L.C., Research Division - Associate Analyst [17]

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Got it. Okay. And just wanted to talk on the balance sheet. Congrats on the term loan, gives you a lot more flexibility here. Just wanted to get your thoughts on how this potentially, if at all, changes thoughts on sizing of drop potential or M&A activity looking forward, given the flexibility that you have. And then correct me if I'm wrong, I think the revolver's good through early 2023. So I just wanted to kind of get your sense of how you manage that term loan and think about potential sizing of activity moving forward, given you've got more flexibility.

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [18]

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Georg, it's John Bookout again. I'll try to hit all of those things. We're very pleased with the balance sheet and we're happy to announce the term loan. We looked at the facility in kind of the next couple of years and kind of crosschecked that with the pricing environment that we saw, and obviously, we're very pleased with pricing that on an interest cost basis inside of our facility and an all-in cost basis, in line with our facility and thought it was prudent to term out some of our revolver. I think, in terms of future steps, we really would like to hit the bond market at investment grade at some point in the future. We have engaged with the agencies but I think this is the right intermediate step for us in terms of the balance sheet. In terms of dropdowns, yes, I don't think that this financing was related to any kind of future dropdown targeting. It was, in a vacuum, the right thing to do for us given the price and given where our facility's at.

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Operator [19]

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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 [20]

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Just swinging back to EPIC for a minute. Can you give us any kind of updates on sort of where the commercial success of that is at this point? I mean, can you give us any kind of insight into what is contracted? And what percentages we're looking at?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [21]

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This is John Bookout. I think we're pretty limited to what we've put out there and what the EPIC Group has put out there. I think there's been a couple of announcements on both projects on the Y-Grade side with a kind of capacity arrangement with another midstream company. And then further commercial success announcement around another producer stepping into the consortium on the crude side. I think we remain very encouraged about both projects and they continue to make material incremental steps forward. But outside of that, going back to my earlier comments, we're excited to roll out a lot of information on this, at least on the Y-Grade project, in the coming quarters.

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Barrett Auten Blaschke, MUFG Securities Americas Inc., Research Division - Senior Analyst [22]

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Okay. That's fair. And then just from a cost of capital perspective, if we're looking at Noble versus a lot of its peers, you guys are trading at a bit a more of a premium yield. The equity market has been relatively closed for the midstream group but it seems like you guys could potentially go that direction if you wanted to. Is there any thought on that as far as the -- is it time to try to do an additional drop? Is it time to do anything as far as looking more aggressively at third party and take advantage of it while it's there?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [23]

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I don't know if we necessarily think about it as -- in terms of taking advantage of it while it's there. We will always look at opportunities externally that make sense and as we've said in the past, that's fairly limited to assets or acquisitions that we feel like we can do with more than anyone else or that's specific to our portfolio in and around Noble activity. That's our philosophy on M&A, it hasn't changed. In terms of dropdowns, our stance hasn't really changed since the last quarter. Where we'd like to see the market be constructive, we continue to monitor our dropdown inventory with our sponsor, every quarter as part of a process. But I hope it's clear that it's important in terms of it being a part of our long-term strategy, but it's not needed to achieve our growth objectives.

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Operator [24]

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Our next question will come from George Wang of Citi.

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Dong Wang, Citigroup Inc, Research Division - Senior Associate [25]

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Congrats on the strong quarter. Just want to home in on the Permian constraints, especially for your parent NBL, just some the pumping deferrals and reallocation from Delaware Basin. So I mean, you guys talk about like due to smaller EBITDA contribution to NBLX, the impact is limited. So I mean, does these constraints change your future CapEx allocation thought process? And does this sort of impact you guys' thinking of pursuing further future downstream opportunities in the Delaware Basin.

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John C. Nicholson, Noble Midstream Partners LP - COO of Noble Midstream GP LLC [26]

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George, this is John Nicholson. Good question. I think the activity shift is primarily driven by, as you mentioned, downstream constraints and some of the differentials that you see there. The nice thing about our portfolio and the way we're set up is we're relatively indifferent as to where that activity is between the DJ Basin and the Delaware Basin. We hold relatively similar DevCo interests outside of kind of the Wells Ranch, East Pony area, and Mustang and the Permian. And we're exposed to the same -- almost the same product lines. So we're relatively indifferent. So we don't see this changing our outlook for really the back half of the year or into 2019 and beyond. We don't think the activity will be gone for long. And then I think the latter part of your question was does it change capital allocation? It may adjust it slightly as to -- just on the well connects side but we've got the backbone infrastructure in place in both Mustang and the Permian, so it won't change things materially at all.

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Dong Wang, Citigroup Inc, Research Division - Senior Associate [27]

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Got you. And also in terms of kind of guidance forecasting especially the freshwater delivery availability, the actual results actually surpassed your guidance, Y-to-D. So based on more quarters of data point, are you guys getting more comfortable with the forecasting? Like, are you guys tweaking just based on latest data point?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [28]

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George, this is John Bookout. I think coming out of the second quarter, if you look at the net and gross, this is what we've been saying in terms of how we're going to always be conservative with this segment, given the nature of the cash flows. I think we've been pleased with our performance on freshwater in the first and second quarter, and we've provided some figures for Q3 and Q4, which are a bit higher than likely what was expected previously. We'd like to highlight that we're still conservative in our forecasting of that segment. It just reflects a higher number of completion crews that are operating on our dedications, 5 versus 3 previously. So as we mentioned in the prepared remarks, we feel like there is some upside there. But there's been no real changes to our methodology in terms of being conservative with forecasting that segment.

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Dong Wang, Citigroup Inc, Research Division - Senior Associate [29]

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Got you. My last question, just in terms of IDR, clearly, the industry prefer -- sort of an elimination, of this idea of burden. So I mean, for Noble Midstream, right now, still content then? I mean, based on my estimate, it may go to 20% next year then 30% kind of beyond decade. So I mean, any thoughts on kind of eventual -- this idea of burden on Noble Midstream? I mean, is Noble Midstream going to do something with the IDR just from a kind of position of strength in the future?

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John F. Bookout, Noble Midstream Partners LP - CFO of Noble Midstream GP LLC [30]

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John Bookout again. Obviously, appreciate the question. I think we've addressed this in the past and this stance hasn't really changed. I think we're well positioned in the life cycle, where the cost of capital near term and intermediate-term is not an issue for us whatsoever. I think we have the luxury of being able to be patient with our sponsor. And I think we've said in the past that there's a lot of activity in terms of simplifications and we're taking the time to be students of those that have already been announced and those that are likely forthcoming and address it before it becomes a problem, recognizing that it only becomes a problem if you let it become one.

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Operator [31]

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Ladies and gentlemen, this will conclude our question-and-answer session. At this time -- pardon me, we do have another question that has entered the queue. At this time, we will have Ethan Bellamy of Baird.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [32]

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John, could you give us an update on the Colorado political situation? Any thoughts on what might happen here?

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Terry R. Gerhart, Noble Midstream Partners LP - CEO & Director of Noble Midstream GP LLC [33]

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Yes, Ethan, this is Terry. I'll try to touch on that. As you're probably aware, all the signatures for the setback ballot initiatives as well as the others are due on the 6th, Monday. And we're hopeful that they're not going to have enough signatures to get it on the ballot, but in the chance that they were to make it, we have the measures in place to defeat it. We feel pretty comfortable with that. And I guess, the other things I'd say is that the candidates have been pretty vocal about not supporting the ballot initiative, the setback ballot initiative. And the other point I'd make on it is if this is a statutory ballot initiative, not a constitutional, which means that if it were to pass, just in that case, it could be changed later by the legislature. And if you look at the impacts that it would have on the state relative to the industry, the jobs, the taxes, it would be pretty detrimental. And then finally, I'd also say that there's a takings ballot initiative that has garnered over 200,000 signatures that's being promoted by the Farm Bureau. And it's going to be filed today from what I understand. And that's one that, if it was to pass, it would certainly be a detriment to the state if they have something like a setback initiative that would come into play. So all those together, I think, we're feeling pretty comfortable with where we're at in it. I know the industry and Noble, the whole Noble family has been working this pretty hard along with the rest of the industry.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [34]

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That's good to hear. One point of clarification on the 108, I think it's pretty clear that it would -- were it in place and were something to take away value from a producer or a royalty owner, that -- be due compensation. Do you think that applies to midstream as well?

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Terry R. Gerhart, Noble Midstream Partners LP - CEO & Director of Noble Midstream GP LLC [35]

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I don't know where that would fall in that place, Ethan. I just don't think it would get to the point where they would allow a setback in place with 108. If 108 passes and gets put into place and it is constitutional, I just have a hard time believing they would allow a setback initiative to move through.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [36]

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Yes, me too. I think it would bankrupt the State of Colorado. No, I'm highly focused on it. So we'll see.

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Operator [37]

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Our next question will come from Dennis Coleman of Bank of America Merrill Lynch.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [38]

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Just one from me. Just with the tail off in CapEx in the latter half of this year, I wonder if you'd -- any kind of guidance you can help us with in terms of how we should think about organic CapEx in 2019, 2020 and beyond.

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John C. Nicholson, Noble Midstream Partners LP - COO of Noble Midstream GP LLC [39]

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Sure. This is John Nicholson. I think in the past, we've -- it's a little early to obviously give 2019 CapEx, but if you think about things from a development company perspective, in all of our development companies where our customers are active, whether it's Laramie, Green River or Blanco, the backbone infrastructure as of today is complete. From here forward, we're looking at system expansions and facility expansions. So with that in mind, it's easy to draw a conclusion that CapEx should come down at a similar activity set next year.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [40]

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So second half run rate is the better way to think about it?

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John C. Nicholson, Noble Midstream Partners LP - COO of Noble Midstream GP LLC [41]

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I wouldn't take it that far, per se. Again, we'll give you more information when we guide early next year. But certainly down from 2018 levels.

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Operator [42]

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I'm showing no further questions at this time. So this will conclude our question-and-answer session. At this time, I'll turn the conference back over to Megan Repine for any closing remarks.

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Megan Elizabeth Repine, Noble Midstream Partners LP - Manager, IR [43]

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I'll be available for any follow-up questions you may have. Thanks for your interest and for your time this afternoon.

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Operator [44]

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