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Edited Transcript of OKE earnings conference call or presentation 31-Jul-19 3:00pm GMT

Q2 2019 ONEOK Inc Earnings Call

TULSA Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of ONEOK Inc earnings conference call or presentation Wednesday, July 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew J. Ziola

ONEOK, Inc. - VP of IR & Corporate Affairs

* Charles M. Kelley

ONEOK, Inc. - SVP of Natural Gas

* Kevin L. Burdick

ONEOK, Inc. - Executive VP & COO

* Sheridan C. Swords

ONEOK, Inc. - SVP of Natural Gas Liquids

* Terry K. Spencer

ONEOK, Inc. - President, CEO & Director

* Walter S. Hulse

ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs

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Conference Call Participants

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* Christine Cho

Barclays Bank PLC, Research Division - Director & Equity Research Analyst

* Christopher Paul Sighinolfi

Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships

* Craig Kenneth Shere

Tuohy Brothers Investment Research, Inc. - Director of Research

* Danilo Marcelo Juvane

BMO Capital Markets Equity Research - Analyst

* Dennis Paul Coleman

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

* Ethan Heyward Bellamy

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

* James Randal Weston

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Jean Ann Salisbury

Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Michael Jacob Blum

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Shneur Z. Gershuni

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

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Sunil K. Sibal

Seaport Global Securities LLC, Research Division - MD

* Tristan James Richardson

SunTrust Robinson Humphrey, Inc., Research Division - VP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for your patience in holding. (Operator Instructions) It is now my pleasure to turn this conference over to Andrew Ziola. You may begin.

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Andrew J. Ziola, ONEOK, Inc. - VP of IR & Corporate Affairs [2]

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Thank you, Chantelle, and welcome to ONEOK's second quarter earnings conference call. This call is being webcast live, and a replay will be made available. After our prepared remarks, we will be available to take your questions.

A reminder that statements made during this call that might include ONEOK's expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

Our first speaker this morning is Terry Spencer, President and Chief Executive Officer. Terry?

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Terry K. Spencer, ONEOK, Inc. - President, CEO & Director [3]

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Thanks, Andrew. Good morning, and thank you all for joining us today. As always, we appreciate your continued interest and investment in ONEOK.

Joining me on today's call is Walt Hulse, Chief Financial Officer, Executive Vice President, Strategic Planning and Corporate Affairs; and Kevin Burdick, Executive Vice President and Chief Operating Officer. Also available to answer your questions are Sheridan Swords, Senior Vice President, Natural Gas Liquids; and Chuck Kelley, Senior Vice President, Natural Gas.

It's an exciting time for ONEOK as we begin placing some of the largest capital growth projects in our history into service. Our projects remain on or ahead of schedule and on budget. The southern section of Elk Creek pipeline began flowing NGLs on July 15 from the Rockies region into the Mid-Continent with the northern section still on target to be completed in the fourth quarter.

Last week, we announced additional low-cost expansion projects across our system, which continue to demonstrate ONEOK's ability to incrementally grow with our customers. These projects will help address NGL transportation and fractionation needs of producers and will further address flaring in North Dakota with added natural gas processing capacity.

All our projects including these recent expansions are built to meet the needs of our customers and are backed by long-term contracts. We continue to see strong producer activity levels across the basins where we operate with NGL and natural gas volume growth that is in line with our expectations so far this year.

Now more than halfway through the year, our confidence in our 2019 financial expectations and 2020 earnings outlook have strengthened significantly. With our projects remaining on or ahead of schedule, we expect accelerated earnings growth leading into 2020 and beyond and additional cash flow to reinvest in our business, reduce leverage and continue to return value to shareholders.

With that, I will turn the call over to Walt for comments on our second quarter results.

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [4]

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Thank you, Terry. Our second quarter 2019 net income totaled $312 million or $0.75 per share, an 11% increase year-over-year. And second quarter adjusted EBITDA totaled $632 million, a 5% increase year-over-year. Distributable cash flow in the second quarter 2019 was $540 million, up 19% from the second quarter 2018, with a healthy dividend coverage of 1.51x. We also generated more than $180 million of distributable cash flow in excess of dividends paid in the second quarter 2019.

During the second quarter, we paid a dividend of $0.865 per share, and last week, we announced a dividend increase to $0.89 per share or $3.56 per share on an annualized basis. This increase further underscores our confidence in the increasing cash flow we expect to generate from projects we have recently completed or will complete in the coming months. The dividend is payable on August 14 to shareholders of record on August 6.

Our June 30 net debt-to-EBITDA on a trailing 12-month basis was 4.2x. With the earnings expected from these projects, we expect to be at 4x debt-to-EBITDA run rate in the fourth quarter of 2020 or first quarter of 2021 with deleveraging continuing in the quarters to follow. Our liquidity remained strong as we ended the second quarter with a full $2.5 billion available on our credit facility and more than $270 million of cash on hand.

We announced additional natural gas and NGL expansion projects last week where we expect to provide attractive returns for minimal capital invested. We do not expect these projects to impact our 2019 growth capital guidance range of $2.5 billion to $3.7 billion, as most of the spending will happen in 2020 and 2021. Because of the accelerated timing on some of our projects, we anticipate ending the year towards the higher end of our capital guidance range. As spending on our large pipeline projects winds down early next year, we expect capital expenditures in 2020 to be lower than 2019.

Producer activity, project timing and additional committed volumes on our system all add up to an impressive backdrop for ONEOK's growth. As we sit today, we are even more confident in our outlook that our 2020 adjusted EBITDA will increase greater than 20% with an emphasis on the greater than when compared with our 2019 guidance midpoint.

I'll now turn the call over to Kevin for a closer look at our operating performance.

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [5]

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Thank you, Walt. We continue to see strong producer activity across our operations driving increases in both NGL and natural gas volumes in the second quarter. Total NGL raw feed throughput volume increased nearly 110,000 barrels per day or 11% year-over-year and increased 80,000 barrels per day or 8% compared with the first quarter 2019.

Natural gas volumes processed increased more than 150 million cubic feet per day or 9% year-over-year and increased more than 80 million cubic feet per day or 4% compared with the first quarter 2019.

Let's take a closer look at our volume growth and project timing in each of the basins where we operate. Starting with the Rockies region. Producer results remained strong in Williston and Powder River Basins. North Dakota natural gas production is more than 2.8 billion cubic feet per day and there continues to be around 60 rigs operating, more than 500 million cubic feet per day of natural gas being flared and nearly 1,000 drilled but uncompleted wells in inventory. All of these factors provide an inventory of growth for our natural gas liquids and natural gas segments.

As Terry mentioned, we completed the southern section of Elk Creek pipeline from the Powder River Basin to the Mid-Continent and it is currently flowing more than 30,000 barrels per day of NGLs. With the southern section in service, we have moved volumes previously railed on to our pipelines, eliminating higher rail transportation cost. This has also freed up rail capacity, which can be used to address continued NGL growth in the Williston Basin until Elk Creek is fully in service in the fourth quarter.

As further growth is expected, we will add pumps on Elk Creek as needed to increase capacity. These projects are low cost and can be completed incrementally to address additional volume growth, including the need for potential ethane recovery.

Approximately 850 million cubic feet per day of new natural gas processing capacity is coming online basin-wide between now and the end of the first quarter 2020, which translates to approximately 110,000 barrels per day of propane plus NGL production when these plants are full. With all of the NGLs from those plants dedicated to ONEOK and more than 30,000 barrels per day already flowing on the pipeline, we remain confident that throughput on Elk Creek will reach approximately 100,000 barrels per day in the first quarter of 2020.

ONEOK has now announced a total of 600 million cubic feet per day of additional natural gas processing capacity in the Williston Basin, expected to come online between now and early 2021. Our latest announcement was the 200 million cubic feet per day expansion of our Bear Creek plant in Dunn County, an area that has recently experienced some of the highest production increases in North Dakota and has a decades' long runway of well inventory yet to be drilled. We expect volumes on the Bear Creek expansion to ramp up over a 12- to 24-month period once in service. This expansion also increases our NGL volumes contracted from natural gas processing plants in the Rocky Mountain region from 200,000 barrels per day to 225,000 barrels per day.

Our Demicks Lake I plant remains on schedule to open full in the fourth quarter 2019 in conjunction with the completion of the northern section of Elk Creek. Demicks Lake II is expected to be complete early in the first quarter 2020.

Moving on to the Mid-Continent. Producer activity in the region remains in line with our expectations for the year. In the second quarter, we saw increases in both NGL Rocky throughput volumes and natural gas volumes processed in the Mid-Continent compared with the first quarter 2019. Large well pad completions early in the quarter drove the increase in natural gas volumes processed and 2 new third-party plant connections contributed to the increase in NGL volumes.

Arbuckle II is on schedule for completion in the first quarter of 2020 and its contracted capacity now totals 375,000 barrels per day compared with 350,000 previously.

Last week, we announced NGL fractionation facility expansions totaling 65,000 barrels per day in the Mid-Continent. These projects will increase our propane-plus fractionation capacity to help address the heavier NGL barrels from the Williston Basin. 15,000 barrels per day of capacity is expected to be completed in the third quarter 2020 with the remaining 50,000 barrels per day completed in the first quarter of 2021. These types of projects can be efficiently completed at costs substantially lower than new construction.

Recently completed expansion projects in our natural gas pipelines segment continued to drive higher firm capacity contracted in the second quarter compared with both second quarter 2018 and the first quarter 2019. These projects increase the capacities of our Mid-Continent and Permian Basin pipeline systems and will continue to provide increased firm transportation earnings going forward.

Now let's take a look at our Permian Basin and Gulf Coast operations. NGL raw feed throughput volumes in this region increased 20% compared with the first quarter 2019 primarily driven by volume growth on our West Texas LPG pipeline. We continue to expect our average fee rate in this region to trend higher in future quarters as legacy volumes roll off West Texas LPG and are replaced with market-based transportation and fractionation volumes and as expansion of the system come online, which are contracted at market rates. The 80,000 barrel per day expansion of West Texas LPG remains on track to be completed in the first quarter of 2020, with volumes ramping up quickly after it is placed in service.

And last week, we announced a third expansion, which will add 40,000 barrels per day of capacity to the system. The expansion is supported by long-term dedicated NGL production from processing plants in the Permian Basin and is expected to be completed in the first quarter 2021.

Our NGL fractionation capacity given current product composition is approximately 820,000 barrels per day and was approximately 90% utilized in the second quarter. We now expect to complete our 125,000 barrel per day MB-4 fractionator in phases. Phase 1 will provide approximately 75,000 barrels per day of capacity and is expected to be available in the fourth quarter of this year, earlier than originally planned. Phase 2 will consist of the remaining 50,000 barrels per day and is expected to be completed in the first quarter of 2020 as originally announced. MB-5 remains on track for completion in the first quarter 2021.

Terry, that concludes my remarks

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Terry K. Spencer, ONEOK, Inc. - President, CEO & Director [6]

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Thank you, Kevin. And the progress on our capital growth projects this year is setting us up well for a significant volume and earnings uplift in 2020. As Walt emphasized, we're even more confident in our 2020 adjusted EBITDA growth outlook of greater than 20% compared with our 2019 guidance midpoint. The impressive production results across our operations highlight the widespread quality of our operating basins and well-capitalized and experienced producers operating there. The volume growth we discussed today has high visibility. Both NGL and natural gas volumes are ready and waiting for processing and transportation now.

Producers are looking to ONEOK to provide the critical infrastructure they need to connect their products with demand markets, and we're well equipped and ready to grow our operations efficiently in order to do so. I'd like to recognize our large project teams and operations personnel located both at our headquarters and at our various field locations for their hard work to keep our growth projects on time and on budget, and specifically, to those working on our Elk Creek pipeline who are able to place the southern section in service early, benefiting many of our customers.

Thank you to all our employees for your dedication, to our customers and dedication to ONEOK. Your continued focus on safe and responsible operations has led to our continued reliability and operational success.

With that operator, we are now ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Danilo Juvane, BMO Capital.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [2]

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You mentioned in the press release having significant upside in the second half of the year from the early start of Elk Creek and other projects as well. Where do you see your 2019 EBITDA number was adding relative to the midpoint? And to the extent that you reside higher to the midpoint, do you still see a 20% growth rate between 2020 and 2019?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [3]

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Well, Danilo, we haven't changed any of our guidance and don't expect to do that today on this call. Obviously, as we get through the year, we'll continue to evaluate whether we're going to adjust that. Right now, we're giving that outlook on 2020 off of the midpoint to let people have a basis on which to think about it.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [4]

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DCF was pretty strong during the quarter and it looked like it potentially came from Northern Border. Anything going on there?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [5]

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Nothing really out of the ordinary. Northern Border made an off-cycle distribution in addition to our normal quarterly distribution in the second quarter, but nothing out of the ordinary course of business.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [6]

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So we shouldn't expect that to continue going forward?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [7]

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I'm sorry? Is that...

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [8]

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We shouldn't expect any more off-cycle distributions for the year -- for the balance of the year?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [9]

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No. It's a distribution in excess of earnings for the quarter and that catches us up. So distributions going forward will track with earnings as they have in the past.

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Danilo Marcelo Juvane, BMO Capital Markets Equity Research - Analyst [10]

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Got you. Last question for me. To the extent that you continue to see strong production out of the Bakken for liquids, any thoughts on a potential residue gas takeaway solution?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [11]

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I think -- I mean clearly, there -- it's something we're looking at. We're paying attention to. And when you look at the capacity that's getting ready to come online across the basin and we do believe we can continue to -- in the basin, we'll continue to displace gas coming from Canada. But absolutely, there are conversations going on, a variety of different outlets, and we're participating in all those conversations.

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Operator [12]

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Our next question will come from Chris Sighinolfi, Jefferies.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [13]

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Nice continued execution. Well, I just want to circle back on that question Danilo had asked about Northern Border. Just -- just for my own verification to understand, I guess what's the mechanism for that as cash build at the JV and then you and your partner make a decision to pay that out on a periodic basis?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [14]

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Yes. To an extent that over time, we make a regularly -- a regular quarterly distribution and to the extent that the management committee believes that there is a capacity to do more than that, we have the ability to do it on a onetime basis and that's what happened here.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [15]

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And as it pertains to DCF guidance and things of that nature, this was anticipated to fall this year, is that also correct?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [16]

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Well, I think it's hard to say that as we -- the plans to do this kind of develops throughout the course of the year. So I think on a going-forward basis, we would expect distributions more in line with where they had been on a quarter-by-quarter basis.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [17]

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Okay. All right. Great. And then if I could switch and just Kevin, I wanted to touch base, you guys have done a really nice job continuing to contract up Arbuckle II. Seemingly, every quarter, we get another 20,000 or 25,000 barrels a day of commitments there. And I just wanted to better understand or just, I guess, review and remind myself as to where the volume slate now for that pipeline will be sourced, I guess, between what's fed to it from Elk creek, what comes from the Mid-Con plants and then what comes from third parties? Is there a rough rule of thumb at this point given all the incremental contract adds you've had?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [18]

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Well, I mean, it varies as we contract new plants. Obviously, if you're getting a plant in the Mid-Continent, a new contracted plant, that's going to be tied directly to Arbuckle II. As we get into new Bakken plant, if those barrels are -- all go -- go all the way to Belvieu, then that will be included in both Elk Creek and Arbuckle II. So that's how we break it down. I mean, Sheridan, do you have any other thoughts on just, in general, how...

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [19]

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Well, I think that's right. So definitely, you can see that on a very macro sense, that the difference between what we've contracted for Arbuckle II and what we've contracted for Elk Creek, that difference is definitely coming out of the Mid-Continent.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [20]

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Okay. And is it fair then if I look at just the [table] that you guys have long provided that looks at bundled rates on your NGL raw feeds service. If I -- like I guess what I wanted to be careful of doing is making sure I'm giving you enough credit and appropriate credit for each of these 2 assets, but not double counting volume that's moving out of Elk Creek that then subsequently moves down Arbuckle II. And so is it fair to just credit the Elk Creek volume with a bundled rate on the Bakken portion and then the incremental volume that I would see above that give that Mid-Continent rate? Is that a fair way of rule of thumb to think about it or would you advice me to think something different?

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Terry K. Spencer, ONEOK, Inc. - President, CEO & Director [21]

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No. I think that's a fair way to think about it.

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Operator [22]

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Our next question will come from Tristan Richardson, SunTrust.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [23]

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Just on the expansion project for Mid-Con frac capacity. You talked about that in prepared comments, just about the heavier barrel. Is this purely really just optionality for you guys and the customer? Or just kind of curious could you talk about sort of the need for new capacity there relative to what the projects you've going on at Belvieu?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [24]

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I think it just came down -- a lot of it just came down to -- we had the ability as our teams looked at how we provide more fractionation capacity that, that was a low-cost option for us and would drive the best return. With our other pipes, clearly, we'll have the ability to move those purity products down to Belvieu once our Arbuckle II is up. So we do get that optionality, but it really came down to where we look at -- where we could provide the lowest cost most efficient frac capacity.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [25]

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Great. And then just a follow-up on -- appreciate your commentary on directionally what 2020 CapEx might stack up relative to the 2019 range. Should we think about that as just sort of on the projects you have sanctioned today? Or does that contemplate other projects that you might be looking at that haven't necessarily been greenlit yet?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [26]

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No. I think that our expectation given everything that we see going forward, both what we've been able to announce and we're thinking we'll have lower CapEx in 2020 than it will be in 2019.

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Operator [27]

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Our next question will come from Christine Cho, Barclays.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [28]

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Great quarter. What is the financial benefit going to be when rail and third-party frac costs roll off? I'm assuming it's all off by first quarter next year when all your assets are online, but could you provide the cadence of the roll-off between now and then as well?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [29]

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Well, I guess what we've talked about previously, the way to think about that is the barrels that have already rolled off rail, I think we said we save about $0.20 per gallon of transportation cost. And so as we put more barrels on rail through the rest of this year, then the next step will be when the full pipeline is in place and all those rail barrels move to the pipe, then you will see another uplift at that point along with other volumes coming from processing plants when the flare start getting put out when the processing capacity comes online. Did that answer your question, Christine?

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [30]

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Yes. I guess -- okay, but you've moved 30,000 barrels per day off right now with the southern portion coming on, but you're still continuing to rail. So I guess, and I'm guessing the rail is still going to increase throughout the end of this year. So at what point does that be? Like how much are you railing today? And how much do you expect to rail at the peak between now and year-end?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [31]

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Well, the rail volume -- when we brought on the southern section, the rail volume at that point in time went to nearly 0. So we pulled pretty much everything down. And then that rail volume, you have plants coming online between now and when Elk Creek comes in, gets in service, so we will use rail. It will start building back up as volumes from those plants start coming online. So it will build back up and then once the full pipeline is in place, all of it will obviously move back over to the pipe.

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [32]

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Christine, this is Sheridan. We think by the time we bring Elk Creek back on -- when we get the northern section of Elk Creek completed, we will be railing upwards of 30,000 barrels a day again.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [33]

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Okay. Super helpful. And then your contracted levels on Elk Creek is approaching capacity. Can you remind us how long it would take to expand the pipeline if you decide to do so and also discuss at what point you would do that just given this probably will cost and your numbers assume minimal ethane extraction and I'm not sure at what point that might change?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [34]

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We look at it continually. Clearly, those projects aren't 2-year projects, like building the pipe. They're measured in terms of months, not years. And we also have the ability to do things like ordering pumps and lot of the long lead time -- long lead equipment and other engineering things, we can go ahead and do to prepare for that, so that it drives the time required to get that done to again just a matter of months.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [35]

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Okay. And then one last one from me. There was an increase in Bakken processing volumes, but your NGL pipeline volumes remained flat. What was the reason for that?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [36]

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We just drove -- our ethane rejection just continued to drive deeper and deeper. So to get more throughput through the plants and remain, the pipe that NGL takeaway was at capacity, so we were able to through our plants drive deeper rejection and run more inlet, but not produce as much liquids.

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Christine Cho, Barclays Bank PLC, Research Division - Director & Equity Research Analyst [37]

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So you were doing max rails for the quarter 2 then?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [38]

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I mean towards the end, yes, that we were pretty much at max rail.

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Operator [39]

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Our next question will come from Michael Blum, Wells Fargo.

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Michael Jacob Blum, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [40]

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Can you just comment a little bit -- obviously, NGL prices have been pretty volatile. I was curious for your latest views on how you see things trending for the rest of the year and into 2020. And then kind of related to that, if you have any different or updated views on how the Conway-Belvieu spread is going to trend here for the rest of the year?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [41]

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Michael, this is Sheridan. I think as we look at the overall price, if you keep crude at the level it is today, you will see a little uptick in prices. Obviously, we're seeing more export capacity for propane to come online, which should create more demand and you're seeing more crackers come online. That you should see some uptick in absolute price here through the end of the year and into 2020. Not a huge spike, but I think you will see some strength.

On the Conway-to-Belvieu spread, right now, we think that where it is today is where it's going to be or in this range through the third quarter and start into the fourth quarter. Then you will get into some seasonality issues that probably will bring that spread in a little tighter than it is today. Then, of course, as we've said before, once we bring Arbuckle II online, that spread will go back to more what we've seen historically, which is much narrower than we have today.

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Michael Jacob Blum, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [42]

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Okay. Great. Appreciate that. And then just this recent slate of projects that you just announced. So we just think of the returns on those projects, would you consider those to be kind of within the normal course of your typical return profile? Or those will be better because some of them are kind of bolt-on in nature? How do we think about that?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [43]

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Yes, I think -- Michael, it's Kevin. I think the plant projects are going to be in our kind of our standard 4 to 6x, but some of the other just expansions and frac expansions that we've talked about could be done at lower cost and new construction are going to be better than that.

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Operator [44]

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Our next question will come from Jeremy Tonet, JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [45]

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Appreciate that you guys are not updating guidance at this point, but just curious within the G&P in the gas pipeline segment, it seems like you guys are trending quite strong versus the ranges that you put out there. Is there anything in the back half of the year that could kind of temper this trajectory, or is kind of like the high end or above the high end seems like could be possible for those segments?

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [46]

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Jeremy, this is Chuck. We can talk first about G&P. I think we could trend higher. It's going to come down to one, our pipeline infrastructure, some of our field facilities come on, so it's a matter of timing as we get towards the end of the year. And as you think about our gas pipe business, we've seen very good demand for our -- not only interruptible volumes but our balancing services and short-term storage services, which are kind of driving some incremental earnings that we hadn't necessarily planned on. So both of those segments are doing very well right now. Demand is up, and we're just taking care of customers at this point.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [47]

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Great. That's helpful. And then thinking about the balance sheet here, it seems like, I think, before leverage is going to peak, I think at the beginning of 2020 with all the projects coming online, you've added some more to the backlog there and -- or you've FID-ed some more, brought into what you're going to do and just wondering how you see leverage, I guess, moving across 2020? Is that still the same peak? Or any color that you could provide on how that all comes together?

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Terry K. Spencer, ONEOK, Inc. - President, CEO & Director [48]

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Well, Jeremy, our heaviest spending is definitely in the third and fourth quarter of '19. So when you've entered that first quarter, we've said that with Elk Creek coming on in the fourth quarter and the volumetric guidance that we've put out there as it relates to our expectations of how quickly Elk Creek is going to build its volume around that 100,000 barrels, we're going to see a significant uplift in our EBITDA in the first quarter of 2020 and throughout 2020 and that's going to delever us right from the get-go in 2020. So as we cross over the year, that will be our peak. The projects that we've announced to date will be towards the back end of 2020 and into 2021 from a CapEx spend and we'll already be well down our road to delevering. And in my prepared remarks, I gave you some thoughts on where we might end the year. So we're kind of seeing the same trajectory and still looking for some significant delevering going forward.

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Operator [49]

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

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [50]

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One from me with regard to the fracs. Just I'm a little interested in sort of this staging of bringing on frac forward, if I understand it right. Can you just talk about really sort of how -- the concept of how you bring on a frac in stages, so -- and maybe if you could just talk a little bit about how that's happening?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [51]

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Yes, Dennis, it's Kevin. Well, in this case, with our complex down there, we had some spare capacity for what I'd call it kind of utilities, some refrigeration, some heaters, it's our typically long lead equipment -- long lead time type equipment items. And so we're able to leverage some existing spare capacity we have to bring up the frac in kind of a partial mode. And then as we've installed the rest of that equipment, that's what it'll get it up to full capacity in '20.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [52]

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Okay. So the vessel itself is there and just -- so I guess, the follow-on question is if you're using up that capacity, would -- should we expect that to be a model for frac 5 as well?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [53]

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We'll evaluate it. We may not have the same type of spare utilities, if you will, for frac 5, but that's something -- obviously, we'll take a look at a variety of different things to do, but I wouldn't expect that to happen for the MB-5.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [54]

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Okay. And then -- I'm sorry about this, but just to go back to this Northern Border distribution, Danilo and Chris both had on it, but this onetime payment, we should not -- that wasn't included in the guidance, correct? And so we should just use the guidance and sort of use this onetime payment and think of it that way. So if we add that in, we should think about the guidance, you're going to be above the guidance?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [55]

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It's fair to say that, that was not included in the original guidance.

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Operator [56]

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Our next question will come from Spiro Dounis, Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [57]

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Just maybe going back to the 20% growth expectation for next year, not sure we've seen you guys highlight that in a while or maybe not since the original guidance was provided. So getting a sense of that, I mean you're getting pretty confident in that figure. So curious how you're thinking about some of the underlying assumptions to get there, maybe just around commodity, differentials and some of the base business growth? You made some comments earlier just around the differential outlook, but if you can just expand there in the context of that 20% growth next year.

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [58]

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Yes, this is Kevin. I mean I think, obviously, the huge driver there is the backlog of flared gas and the inventory we talked about up in the Bakken. When you think about -- if you just kind of put the math to the 100,000 barrels a day that we expect on Elk Creek by the first quarter and you put that out over the course of the year and then you've got a full Demicks Lake I plant running full for the entire year, you got Demicks II ramping up. And then you've got growth on either Permian or Mid-Continent as well. But when you just go back to the 500 million cubic feet a day that's flaring in the Bakken across the basin and the processing capacity that's coming online between now and the first quarter, that just generates a significant amount of NGLs, which is the primary driver for the '20 number.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [59]

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Got it. And so if I'm hearing that right, it sounds like there's no real major call being made here on big volume growth outside of that or any sort of commodity or differential move. Is that fair?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [60]

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Yes. That's fair. In fact, we've been talking very openly, as Sheridan mentioned, with Arbuckle II, we expect spreads to come back in much narrower than they are today and that is included in that -- that assumption is included in that 20% -- greater than 20%.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [61]

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Got it. Got it. Okay. Appreciate that. And maybe just more broadly on how you're thinking about your Mid-Con footprint longer term. Clear to see that most of your growth is really focused outside that area. And I guess, lately, producer commentary there has been somewhat lukewarm. So just curious what sort of optionality do you have around that footprint to maybe offset some potential volume headwinds sort of past 2019? Or if you think that's even fair to be cautious on the Mid-Con at this point?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [62]

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I think just in general, the Mid-Continent, like we remarked in our prepared remarks, the volumes have been in line with our expectations. Yes, there may have been a couple of producers that you've seen some things written that were off a little bit, but then you've been -- we've had some that have outperformed our expectations. And I think one of the things we continue to remind people is we kind of have our own expectations given the footprint and the size of our system both in the G&P and the NGL side. So as we set our forecasts out there, we're factoring in all that information. So we feel good about it, and we do expect growth out of the Mid-Continent as we move forward. I mean...

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [63]

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What I'll say is that we're still planning on hooking up another 2 more plants in the Mid-Continent in the second half of this year. So we're still seeing some need for capacity.

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [64]

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And what I would add from one of G&P standpoint would be, I think, our well connect guidance that we gave were trending -- is that we're going to exceed, and I think we probably will this year.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [65]

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Got it. I appreciate that. Just last one last quick one, if I could and sorry if you guys touched on it. Just around LPG exports, obviously there've been considerable amount of new capacity announcements made recently. I imagine that factors into your market outlook. So just how are you thinking about that now?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [66]

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I think when we think about LPG exports, we're going to continue to engage the market to understand what the market is and what's going on there. But what we're not going to do is go out there and do an uneconomic project or just build something to say we have an export terminal. So we're continuing to use our capital discipline as we evaluate that. But we'll always be involved in engaging the market on exports. And when we get to the time that we see that we have an economic project that we want to go forward, then we will go forward at that time.

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Operator [67]

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Our next question will come from JR Weston, Raymond James.

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James Randal Weston, Raymond James & Associates, Inc., Research Division - Senior Research Associate [68]

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Just wanted to ask real quick on Bakken G&P volumes. So far this year, kind of rolls into the guidance, it looks like you're good tracking pretty well. But it looks like you've got almost 60% of the well connects still expected in the second half of the year. So just kind of curious if there are other moving pieces in that guidance or if it seems like maybe you're tracking above expectations there?

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [69]

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Well, I think, we did lag early in the Q1 due to weather and there was, let's face it, not only cold, but there was a lot of snow, so it's difficult to get out there and connect wells. Second quarter, we obviously strengthened and connected quite a few. I think the remainder of the year, we'll get our guidance on our well connects and some of that is just waiting on some capacities at certain compressor stations. So I think we're in good shape to hit our guidance numbers for the year on our well connects and volume guidance.

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Operator [70]

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Our next question will come from Shneur Gershuni, UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [71]

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Maybe just a couple of quick follow-ups here. You -- just with respect to the guidance, you sort of maintaining this 20%, but in your prepared remarks, you kind of emphasized greater than 20% was the comment. Until a few days ago, ethane has been under severe pressure, and if I remember correctly, you had a big ethane rejection reversal tailwind in the last 2 years. Your guidance when you originally set it out in saying the plus 20%, did that include some reversal of the ethane rejection? And is that being offset by some better Elk Creek expectations? Just kind of wondering what the moving parts have been, positive and negative, from the time you set it versus where you sit today.

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [72]

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What I would say when we look at the NGL volume growth in 2019, that has exceeded our expectations. Part of that is we probably have not seen quite as much ethane come out of rejection as we thought, but we're seeing more ethane on our system than we thought from the growth in other area. So we are seeing that offset a little bit, but I think the big thing is we are seeing more volume growth than we thought we would see at this time.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [73]

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Okay. And then secondly, with respect to announcing a third plant in the Williston, I was just wondering what your flexibility was around the spend in the in-service date? When I sort of look at the flaring numbers that you have out there in your slides for 300 MMcf a day on your acreage, I sort of look at 2 plants -- it sort of looks like it would take care of the flaring plus some growth. We've recently seen a big dip in Williston rig count. If that's not just moving around and that trend continues, do you have some flexibility around the spend to sort of push out the in-service date of this third plant?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [74]

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Well, Shneur, this is Kevin. I mean, yes, technically, you would have that flexibility, but we see nothing right now that would cause us to do that. In fact, it's just the opposite. Our customers are -- they need more capacity in this Dunn County area, the results they've seen and these are some large, well-capitalized producers with large acreage blocks. They wanted to drill this area out and the plants full and the only reason they're not deploying more capital down there right now is because of capacity. So we clearly see this as a growth area for us, and we started off looking at a smaller expansion and the more color we got from producers about their immediate plans, we continue to push it up and decided to put a 200 million a day expansion in.

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Operator [75]

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Our next question will come from Jean Salisbury, Bernstein.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [76]

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Could you give us an estimate of how much ethane is being projected into Northern Border today? And what's the maximum you think it can handle?

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [77]

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Yes. This is Chuck. Today, there's roughly about 150,000 barrels a day of ethane going into Northern Border. We actually looked at this just the other day and the North Dakota Pipeline Authority has some information out at their website about it. With forecasts over time depending on the mix between Bakken gas and Canadian gas filling that pipe, you could see it as much as 180,000 to 200,000 barrels of ethane.

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Jean Ann Salisbury, Sanford C. Bernstein & Co., LLC., Research Division - Senior Analyst [78]

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Great. That's really helpful. And then obviously, there's a lot of crude pipelines that are running open seasons out of the Bakken. Just as a general question, do you usually find the E&Ps when they sign up for crude takeaway tend to pair it with other takeaway, like, for example, if they find a new 10-year contract for crude, would you expect them to be looking for NGL takeaway to match with that?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [79]

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Typically, we don't see that. Where we see people come up and need NGL takeaway capacity is when you're looking at building a new plant. So when they build the new plants, when they will secure the NGL takeaway capacity for that complete new plant and then they'll grow into it as they -- on the crude -- on that side of it. So just because they sign up for a long crude term deal it doesn't necessarily mean they're going to sign up for NGLs and vice versa. But you really got to look at when you start seeing more plants being announced, they're either going to sign up for NGLs or have already signed up for the NGL takeaway.

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Operator [80]

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Our next question will come from Ethan Bellamy, Baird.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [81]

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There's some concern by investors that the Bakken may decline in the next 3 to 5 years. What's your expectation for North Dakota volumes on your acreage longer term?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [82]

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We -- again, Ethan, this is Kevin. We continue to see growth. When you just look at the track record of -- even with rigs in that 55 to 60 range for the basin, we have seen significant gas production growth. And just remember that gas production is growing at a faster clip than crude production because of the GOR and the increases there. So there is a lot of positives about gas production if you look at some of the forecasts out there. We believe there's definitely growth beyond that horizon you mentioned.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [83]

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Okay. That's a good segue to my next question...

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [84]

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Well beyond that.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [85]

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Sorry, go ahead.

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [86]

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No, I just said well beyond that.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [87]

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Okay. I was just going to ask, it looks like we might need a new gas export pipe to handle that volume. Do you agree with that? And is that a project you're vetting?

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Kevin L. Burdick, ONEOK, Inc. - Executive VP & COO [88]

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Yes. I think we definitely agree with that. And again, as we discussed earlier, there are a variety of projects being discussed in different avenues to get more residue out, but clearly, if we stay on a growth trend, you were -- the basin is going to need some additional takeaway capacity over the next 2, 3, 4 years.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [89]

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Okay. Moving down south, how have -- how has the decline in NGL prices impacted, if at all, the rates and negotiations with customers for that capacity?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [90]

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It has not impacted them at all. We go in and reprice our services off of alternatives, also what the marketplace is. And remember that NGLs are a byproduct, it needs to be taken away in areas people if they can't get the capacity, they're flaring, what they say. So the absolute price of the NGLs is not having an impact on what we can charge for our services.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [91]

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And market is still fairly tight?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [92]

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Markets -- fractionation capacity is still pretty tight. There's lot coming on. And pipeline capacity obviously is tight because we're building new ones as we come on as well. So yes, the market is still fairly tight in all areas.

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Ethan Heyward Bellamy, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [93]

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Okay. And then last question. There are a lot of assets on the market, and even a few whole partnership, what's your appetite for M&A here?

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Terry K. Spencer, ONEOK, Inc. - President, CEO & Director [94]

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Ethan, this is Terry. Not very high, candidly, when you look at the gross slate of opportunities that we have going forward. When you think about it from an accretion standpoint, we're talking dollars a share and additional earnings to come to the company over the next several years. We can't really get that from strategic M&A. Now there may be some assets from time to time that we could buy with cash that could make some sense, but right now, we really don't see anything out there that's that compelling or valuations, in particular, that make sense, particularly when you think about the alternative we have to invest organically.

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Operator [95]

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Our next question will come from Craig Shere, Tuohy Brothers.

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Craig Kenneth Shere, Tuohy Brothers Investment Research, Inc. - Director of Research [96]

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Congratulations on another great quarter. On the G&P unit fee-based margins, that looked to be a record in the second quarter. Is that sustainable? And what's driving that?

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [97]

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Craig, this is Chuck. We guided to $0.90 to $0.95. We're at $0.93 today. Obviously, with more Bakken gas coming on, it's higher margin relative to our Mid-Con business, so that's part of the driver. In addition to that, you get in the contract mix, different producers we've different fees. And so is it sustainable? I think we're solid in that range.

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Craig Kenneth Shere, Tuohy Brothers Investment Research, Inc. - Director of Research [98]

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Okay. Great. And I just want to understand all the system integration gives and takes as it relates to Arbuckle II and possible kind of modularity of your system, if I can describe it that way. Currently, you're coming on at 400,000 and then you have an increase to 500,000 a day. You're contacted 375,000, but if you switch to Sterling III purity product, any excess light grade that hasn't been fractionated would have to go to Arbuckle II and then you may wind up putting all the growth that you're seeing in West Texas LPG into the southern leg of Arbuckle II. So I'm just trying to think through how quickly the entire system can fill up.

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [99]

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Well, that is a good question. And we continue to look at how fast can it fill up and we're, as we said, we can add pumps fairly quickly as we go forward, but you are right. We -- if I go back to the original start of your question, the modularity and the optionality we have through our system gives us a lot of flexibility. And the first one is that actually Sterling III is on raw feed today. We will take all Sterling III's raw feed, put it on Arbuckle and open that up for purities. That's why we believe the spreads between Conway and Belvieu will come together. And then we will take -- hopefully very quickly, we will take Arbuckle up to 1 million barrels if all the capacity comes online as we think it's going to come online, we see it to the future. But we still think above -- the pumps and to go to 1 million barrels, we still have some headroom to breach that 1 million barrels, that we've not contracted for today, but we should be in the upper end of Arbuckle II, and full pipelines are a good thing. And if we need to build another pipeline because we see that kind of volume come out, we'll build another pipeline.

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Craig Kenneth Shere, Tuohy Brothers Investment Research, Inc. - Director of Research [100]

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So Sheridan, a couple of questions. The northern section of Arbuckle II isn't the same capacity as the southern section, right? So if you do take West Texas volumes and go to 1 million barrels, but you can't in the northern section, right?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [101]

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The northern section can do 600,000 barrels and the southern section can do 1 million barrels. So that leaves -- West Texas pipeline is going to come in right where Arbuckle II transitions from a 24-inch or 600,000 barrels to a 30-inch or 1 million barrels. So that leaves 400,000 barrels a day that's open for West Texas to fill. That does not impact the volume coming down from the north. And that's how the system was designed. That was our plan in the beginning. So you could -- we're anticipating we could see upwards of 400,000 barrels come off West Texas and go on to Arbuckle II.

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Craig Kenneth Shere, Tuohy Brothers Investment Research, Inc. - Director of Research [102]

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And then if I understand that, that would free the southern section of West Texas for potential crude service?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [103]

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That's correct. Or as we continue to get to 400,000 barrels a day on West Texas, we are going to have to have a complete new line out of the Permian to Arbuckle II, which would free up West Texas from the Permian, the legacy West Texas system from the Permian to the Gulf Coast to use for some other service, which would include crude.

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Craig Kenneth Shere, Tuohy Brothers Investment Research, Inc. - Director of Research [104]

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I see. And moving to light grade from Sterling III to West -- I'm sorry to Arbuckle II, that's got nothing to do with 375,000 a day of contract. The 375,000 is all incremental to what you have today, right, and then moving capacity over to take advantage of the purity product is just extra?

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Sheridan C. Swords, ONEOK, Inc. - SVP of Natural Gas Liquids [105]

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That is correct. The 375,000 does not include the volume that's moving on Sterling III today.

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Operator [106]

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Our next question will come from Sunil Sibal, Seaport Global securities.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [107]

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Just one quick question on the G&P segment. Obviously, the results were fairly strong, and I noticed that your OpEx in that segment actually fell sequentially as well as versus last year despite a decent pickup in volumes. I'm just curious, is there anything going on there? Or I know sometimes commodity prices, especially the gas prices kind of impact that OpEx still. So I just was trying to get a little bit clarity on that.

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [108]

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This is Chuck. No, the -- sequentially, we're about $6 million lower and it was pretty much due to timing between the quarters. So if you average those 2 quarters together, run rate might be a little bit higher as we progress towards Demicks I and II bringing on more employees and more fuel costs. But it's pretty much -- those are good numbers for the year.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [109]

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Okay. And gas is more like a pass-through cost, so that natural gas prices don't really impact that number, correct?

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Charles M. Kelley, ONEOK, Inc. - SVP of Natural Gas [110]

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No, it does not impact that number.

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Sunil K. Sibal, Seaport Global Securities LLC, Research Division - MD [111]

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Okay. And then just trying to understand a little bit better on the LPG export side of things. From what I've been hearing, obviously there have been a number of dog expansions coming online, which seems like maybe some constraints in moving those LPG volumes to the end customers ultimately. I was curious if you have a view on that and also if there's some way that when you're talking to customers on the LPG side, so in some way, for you guys taken -- get an opportunity out of that?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [112]

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I mean, again, as Sheridan kind of alluded to on the dog question, yes, there have been announcements out there. There's more capacity that's going to be announced. We do see some of the short-term rates, our sport rates have been pushed down, but like Sheridan mentioned, I think the key is as we talk to customers, we're looking longer term, we're looking for rates that are going to economically justify a project and that's the way we'll approach it.

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Operator [113]

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Our last question will come from Michael Lapides, Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [114]

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How you guys are thinking about what a 2021 step-up looks like versus 2020? I mean you've got a lot projects that come online in '20 and trying to think about how much of that 20% plus captures that for 2020 versus what drives the '21 step-up.

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [115]

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Well, Michael, I think that we're definitely not going to give you 2021 guidance, and we're stepping out a little further than we usually do to give it in outlook in 2020. So you're going to have to do your own work here. But if you just take the capital that we're investing and recognize that we're in the same multiple in some of these incremental projects, we're even at better multiples, 2021 is looking pretty good too.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [116]

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Got it. Do you still assume 4 to 6x multiple on most of these projects? Or do you think some can even be better than that once you get them at full run rate?

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Walter S. Hulse, ONEOK, Inc. - CFO, Treasurer and Executive VP of Strategic Planning & Corporate Affairs [117]

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Well, I think the frac is a perfect example of adding capacity at about half the price of build is definitely better than a 4 to 6 multiple.

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Operator [118]

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Speakers, at this time, we have no further questions in the queue.

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Andrew J. Ziola, ONEOK, Inc. - VP of IR & Corporate Affairs [119]

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All right. Well, thank you, everyone. Our quiet period for the third quarter starts when we close our books in early October and extends until we release earnings in late October. We'll provide details for that conference call at a later date. Thank you for joining us. And the IR team will be available throughout the day for your questions. Have a good week.

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Operator [120]

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Thank you very much. Ladies and gentlemen, at this time, this now concludes our conference. You may disconnect your phone lines, and have a great rest of the week. Thank you.