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Noble Energy Inc. (NYSE:NBL)
Q2 2018 Earnings Conference Call
August 31, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to Noble Energy's second quarter 2018 earnings results webcast and conference call. Following today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your touchstone phone. To withdraw your question, please press * then 2. Please note that this event is being recorded. I would now like to turn the conference over to Brad Whitmarsh. Please go ahead.

Brad Whitmarsh -- Vice President of Investor Relations 

Thanks, Jenny and thank you all for joining us today. I hope you've had a chance to review the earnings release and supplement that we published this morning. The press release and slides are available on the investors page of our website and later today, we plan to file our 10Q with the SEC.

I want to remind everyone that today's discussion contains projections and forward-looking statements, as well as certain non-GAAP financial measures. You should read our full disclosures and latest news releases and SEC filings for a discussion of those items.

Following prepared remarks, we will hold a question and answer session and we'll try to wrap up within the hour. I would ask that analysts limit themselves to one primary question and one follow-up. Dave Stover, Chairman and CEO and Gary Willingham, EVP of Operations will start us off with some prepared remarks. With that, I'll turn the call to Dave.

David Stover -- Chairman, President, and Chief Executive Officer

Thanks, Brad and good morning, everyone. As we have transformed our company, we have focused on putting the company in the best position today to generate consistent and growing cashflows over time, a cashflow profile that is competitive across all investment sectors, not just E&P.

To that end, this past quarter, we delivered a number of key achievements that will drive increasing shareholder value. We redeployed proceeds from our Gulf of Mexico divestment and CNX Midstream units, as we continued our share buyback program, increased our dividend, and completed our debt reduction plan.

We will continue to prioritize the share repurchase program as we move forward. Operationally, we set production records, enhanced our exploration portfolio, and enhanced our onshore and offshore development programs, including key infrastructure additions and takeaway agreements.

We are taking advantage of our flexibility to adapt to changing conditions and our adjusting our Delaware and DJ programs to put them in an even stronger position to deliver our long-term objectives. In both of these key basins, we installed critical gathering infrastructure to achieve the long-term capital efficiency of these high quality contiguous acreage positions. We've also increased our exposure to higher price export and global markets, executing on our strategy to diversify end markets for our US on shore crude oil sales.

Offshore, the development of our world class Leviathan asset is rapidly moving forward. We have agreements for over 900 million cubic feet per day, including the natural gas contracts announced earlier this year. We continue to negotiate additional volumes that could quickly fill up the first phase. I'm also pleased that we are making excellent process for commercial agreements to deliver our gas from Tamar and Leviathan into Egypt to help supply the growing regional demand.

Another substantial second quarter accomplishment is the heads of agreement supporting development of natural gas from the Alen field, offshore Equitorial Guinea. This represents the first step toward regional gas monetization, utilizing the existing infrastructure in place at both the Alen field and the onshore LNG facilities. With linkage to global LNG markets and gross resources of 3 trillion cubic feet from our multiple discoveries in the immediate area, this represents a huge value opportunity for our shareholders.

As I mentioned earlier this year, our priority has been to continue to enhance our exploration portfolio. We've taken significant steps in that direction. Onshore US, we've been successful in capturing substantial resource potential. Offshore, we've signed an agreement to operate over 2 million growth acres in a new country. We will provide more information in the coming months as we build out our onshore position and receive necessary government approvals for our new offshore opportunity.

In looking at the global influences on commodities, it is clearly a dynamic environment. With our portfolio, we are in an advantaged position to capitalize, as long as we stay disciplined. And we do that by continually reviewing and adjusting specific activities to maximize value. Our plan is not to increase projected activity, but to continue to focus on cashflow growth and shareholder return objectives.

Near term, we're making some changes to capital allocation to optimize returns and cashflow growth. Given the industry pressures in the Permian due to widening basin differentials and service cost inflation, we plan to moderate our activity in the Delaware Basin. We will be reducing plan completions later this quarter and into 2019 to better align our activity with expected timing of pipeline additions. We will reallocate activity into our other offshore areas, primarily the DJ Basin.

The diversity of our US onshore portfolio provides a competitive advantage, enabling us to modify activity near-term while remaining committed to the objectives we outlined in our multi-year plan earlier this year. Our long-term focus can be summarized in the following five objectives -- driving peer-leading debt-adjusted cashflow growth, which we're on track to deliver through our unique combination of Eastern Med cashflows and onshore US growth.

A relentless focus on capital efficiency and corporate returns -- we are on pace to deliver double-digit corporate returns within two years; ensuring our incentive plans are aligned with shareholders, as we have demonstrated with the focus on cashflow, costs, and returns in our plan; maintaining robust financial strength, which is shown through the completion of our debt reduction plans already, and commitment to our stakeholders and the environment.

Pertaining to this objective, we recently published our seventh annual sustainability report on our website. This report highlights continued progress in safety, environmental, and corporate social responsibility. To strengthen our commitment to these values, the board EHS Committee charter was expanded and the committee was renamed. It is now known as the Safety, Sustainability, and Corporate Responsibility Committee.

These five long-term objectives remain fundamental to informing our decision-making process. Coupled with our high-quality asset base, proven execution capabilities and agility, I am confident that we will continue to deliver superior value to our shareholders.

Now, I'll turn the call over to Gary to review our operational execution and plans.

Gary W. Willingham -- Executive Vice President of Operations

Thanks, Dave. In the second quarter, our teams executed in line with our plans, with several significant operational achievements both onshore and offshore. Within our US onshore business, we delivered record oil volumes of 105,000 barrels per day, an increase of 22% from the second quarter of last year adjusted for transactions.

In the Delaware Basin, we doubled sales volumes over the last year to 44,000 barrels of oil a day equivalent, quite an accomplishment. We also progressed to midstream buildout in both the Mustang area of the DJ Basin and the Delaware Basin to support the multi-year growth from both of these areas.

Offshore Israel, we produced an all-time record gross sales volume, averaging over 1 Bcf a day for the quarter for the first time. We also progressed the Leviathan development and remain on track to deliver the substantial cashflow generation from this asset beginning late next year. This was certainly a strong way to finish the first half of 2018. I want to thank all of our dedicated employees who have helped us deliver our objectives safely and efficiently.

In the DJ Basin, strong well performance in the second quarter drove sales volumes of 121,000 barrels of oil equivalent per day, coming in above our expectations. A significant contributor to this were the Kona pads in Wells Ranch, which continue to outperform. On slide five, we provided an update on these seven wells. After 150 days online, the wells are flowing over 10,000 barrels a day equivalent of which 6,000 barrels a day is oil and have already cumed 1.3 million barrels of oil equivalent.

We're also progressing Mustang, our newest integrated development plan area. Recently, we brought on line our first 2018 wells in Mustang, which are located in the southern part of the IDP. These wells tie into our new modular facility design, which delivers spec oil to the pipeline without a centralized gathering facility. While still early, I'm encouraged by the strong tubing pressures which are exceeding recent wells with a similar GOR in Wells Ranch.

On the takeaway side, we have secured multiple outlets for Mustang across three gas processing providers, maximizing our flexibility and reducing potential impacts from bottlenecks, as shown on slide six. The significant in-basin gas processing expansions that we had been looking forward to are now under way. Mewbourne 3, also known as DCP Plant 10, recently started up and will provide 200 million cubic feet of data capacity. Additionally, DCP's Plant 11 is expected to be placed in service in the second quarter of '19, providing an additional 300 million a day between plant and bypass capacity.

Discovery Midstream is expected to bring on line a 200 million a day plant in the fourth quarter of this year, which will process some of our Mustang gas. In addition, we continue working other compression and offload options. Overall, we are well-positioned to benefit from gas processing expansions over the next few years, which provide support for our growth profile.

We had a busy quarter in the Delaware Basin with the completion of our fourth and fifth central gathering facilities, along with bringing on line 23 wells. I continue to be encouraged by the results we are seeing across our position. On slide eight, we highlight strong second quarter well results in the southern portion of our acreage. These wells are outperforming our initial completions in this area. In addition, the wells are flowing through our central gathering facilities, which has been a significant step in optimizing our development.

Another area I've been particularly excited about is the progress our marketing teams have made securing near-term flow assurance and long-term out of basin takeaway to the Gulf Coast with access to exports. This concludes the EPIC Firm transport agreement that will provide 100,000 barrels a day of gross oil takeaway to the Gulf Coast beginning in late 2019.

Our decision to moderate some of our completion activity in the near-term aligns with the timing of additional takeaway capacity later next year. This deferral of activity also provides the opportunity to transition our development utilizing the row concept slightly earlier than we'd originally planned.

Our row-style development mitigates the potential for interference that has been faced by multiple operators across multiple basins. We're well-positioned to execute this row-style development design in the Delaware just as we have in both the DJ Basin and the Eagle Ford. We remain advantaged by our contiguous acreage position and key Midstream infrastructure in the basin. Transitioning to row-style development now will contribute to efficiencies in the long-term.

The industry is seeing cost pressures given the higher price environment, particularly for drilling rigs, completion crews, steel, and other services. To help offset this, our teams continue to be focused on capital efficiency in our well designs. In the second quarter, we brought on line our first wells that utilize only 100 mesh sand and our first completion was 100% recycled-produced water. These wells are exhibiting strong early results.

In addition, we continue to drive efficiencies in the drilling side, cutting an average of two days per well in the first half of 2018 compared to 2017. Over this time period, our efficiency gains have increased our average drilling rate by 13%. In fact, in the second quarter, we achieved a record drilling time for a 7,500-foot lateral well of less than 16 days.

Moving over to the offshore, we continue to progress the leviathan development with the project currently nearly 60% complete. We finished our drilling program and are progressing the completions of the four wells that will deliver up to 1.2 Bcf a day. We've also installed all the large diameter flow lines, pipelines from the seal to the platform location and then from the platform to the onshore tie endpoints.

By year-end, we expect to finish the planned well completions, finalize fabrication of sub-sea equipment, and complete and sail the jacket from the US fabrication site. Overall, the project remains on track and on budget, with start up expected late next year.

Our operations in West Africa continue to produce reliably with strong run times and equally strong safety performance. Cumulative production from Alen now totals 35 million barrels and we've achieved over four years without a recordable safety incident. At Aseng, we've now produced more than 90 million barrels and the FPSO received SBM's consistent top operational performance award for the third year in a row.

In May, we announced we had executed a Heads of Agreement outlining the high-level commercial terms to process the Alen gas through the Alba plant and the EG LNG facility. This is certainly a significant milestone for our West Africa business, establishing the framework to monetize our gas in the global LNG market.

The Alen facility was initially designed to be a gas hub, making this project capital-efficient, requiring only minor modifications of the Alen platform and the construction of a 40-mile pipeline. Our teams have begun to prefeed and marketing activities and I would anticipate a project sanction early next year with first production approximately two years later.

Before turning the call over to Dave, I want to take a few minutes to discuss guidance for the rest of 2018. We've increased our full-year capital budget to $3 billion, slightly above our prior range, a portion of higher capital as a result of scope changes on some onshore facility projects that enhance reliability and take away optionality.

The remainder is due to cost inflation in the US onshore as a result of the higher commodity price environment. Given the temporary deferral of completions in the Permian mentioned earlier, we are planning to reallocate some 2018 and 2019 capital to the DJ Basin. This will provide additional DJ volumes in 2019, partially offsetting more moderate Permian growth.

We now expect our full-year 2018 sales volumes to trend toward the low-end of previously guided range. Eastern Mediterranean demand and West Africa production our outperforming. This partially offsets US onshore volumes which reflect higher declines in the Eagle Ford in the second half and the deferral of some Permian completion activity.

Overall, we remain on track to deliver 12% total company volume growth pro forma in 2018 compared to 2017. Sales volumes in the third quarter are expected to be between 335,000 and 345,000 barrels a day equivalent. Offshore, our West Africa volumes are anticipated to be lower in the third quarter compared to the second quarter due to lifting schedules and gas declines.

We anticipate strong US onshore oil growth of nearly 10,000 barrels a day from 2Q to 3Q with a further increase of approximately 5,000 barrels a day from 3Q to 4Q. This represents a 25% increase in full-year US onshore oil compared to 2017. We remain well-positioned for continued multi-year growth. Now, I'll turn the call back over to Dave.

David Stover -- Chairman, President, and Chief Executive Officer

Thanks, Gary. In summary, we will stay flexible and adjust to changing conditions, remain committed to our strategic objectives and continue to exercise discipline in our approach. 2018 is an exciting year of transition. With our onshore US growth and Leviathan start-up, 2019 will establish Noble Energy as an engine of accelerating cashflow and shareholder returns.

With that, Jenny, let's go ahead and open up the call for questions.

Questions and Answers:

Operator

Thank you. We'll now begin the question and answer session. To ask a question, you may press * then 1 on your touchstone phone and if you're using the speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we'll pause momentarily to assemble our roster.

The first question comes from Brian Singer of Goldman Sachs. Please go ahead, sir, your line is open.

Brian Singer -- Goldman Sachs -- Managing Director

Hi, good morning. I wanted to see if you could follow-up on some of the drivers of the CapEx changes here. You talked about scope changes and onshore [inaudible] projects enhancing reliability. Can you go into a little bit more of what you were seeing there, what caused the change and when we see the benefits from that? Then can you also talk a little bit about on the inflationary side where you're seeing that specifically?

Gary W. Willingham -- Executive Vice President of Operations

Sure, Brian. This is Gary. When you think about the onshore facility scope changes, there have been a number of things. I guess I'll highlight a couple of them. We mentioned in the prepared comments that we have takeaway options to three different gas processors in Mustangs in the DJ.

That's a bit different than how we've typically set up the DJ in the past. That obviously required a few more facility and pipeline dollars to give us that optionality. We think given our history in the DJ and history of constraints that we've experienced over the last few years, we think it's prudent to make sure we've got multiple ways to get gas out of that IDT. That's part of it.

I'd say in the Permian, a couple of examples there would be we've had some electrification projects going on in the Permian that would increase the reliability. I'm sure you heard from others that some of the supply of electricity is not reliable in the Delaware Basin. We've got some dollars going toward an electrification project that will help improve reliability there.

I think when you think about inflation, we've said all along that we expect to see about 10% to 15% inflation this year. We've built some of that into the budget, but we also assumed that given our track record and where we were in the development, especially in the Permian, that we'd be able to offset a large part of that with efficiencies.

I'd say we've continued to see quite a bit of efficiencies throughout the year, both in the Delaware and the DJ and we certainly have offset some of the inflation we've seen. But at the same time, we've definitely tended toward the high-end of that range and we've got a bit more coming in. When you think about the capital increase we've raised the range to, I'd say a third and a half of it is the facility scope changes and the rest is the inflation.

Brian Singer -- Goldman Sachs -- Managing Director

My follow-up is with regards to the Permian. As you defer completions there, when do you bring that backlog down? What would you need to see to allocate either more or less capital out of the Permian, into the Permian, and out of and into the DJ?

Gary W. Willingham -- Executive Vice President of Operations

As far as allocating more back into the Permian again, obviously it's going to be tied to that export capacity coming on. That's why we're shifting it out to give the system time to grow the capacity to be able to deliver the wells that we'd actually be drilling and completing. Assuming the projects stay on track, those capacity expansions stay on track and we would expect to start adding frack crews back into the Permian relatively early next year. I'm sorry, what was the first part of the question, Brian?

Brian Singer -- Goldman Sachs -- Managing Director

I think you got the first part, but what would you allocate more capital to the DJ as well?

Gary W. Willingham -- Executive Vice President of Operations

I think as we've mentioned, the activity that we're taking out of the Permian this year is going to the DJ. We're obviously ramped up in the Mustang IDP. Again, having those three gas outlets gives us the confidence that we'll be able to move the gas. The early results we're seeing on those Mustang wells are very encouraging. We're seeing tubing pressures that are significantly above similar GOR areas in Wells Ranch.

So, it's very early days. We just brought them on in the last few weeks, but everything we're seeing is very encouraging. The projects are there. The economics are certainly there in the DJ. We believe the takeaway constraints in the DJ on the processing side are finally being addressed. So, there's not a lack of opportunity in the DJ. It's going to go back to, again, the overall mix of the portfolio, the economics of the portfolio, and how much capital we're going to be deploying at any one time.

Brian Singer -- Goldman Sachs -- Managing Director

Thank you.

Operator

Our next question comes from Doug Leggate of Bank of America Merrill Lynch.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Thanks. Good morning, everybody. I hope you can hear me. It seems to be cutting in and out a little bit. Dave, I've got two questions, one onshore, one Israel, if I may. The first one is obviously your focus is on cashflow, but the lower ramp in the fourth quarter now, can you give us some color as to how that impacts the 2019 outlook, the $400,000.00 a day. I guess what I'm really trying to understand is whether having the activity in the DJ is enough to compensate with the slower growth in the Delaware while you go through that transition, obviously the timing of the rig. I've got a follow-up.

David Stover -- Chairman, President, and Chief Executive Officer

It's too early to update or change anything in 2019 and lay that out. We'll get into that as we move through the year and, as Gary said, finalize what our capital plans will be for '19. We are excited in the DJ about where we are, just to play off a little bit about what Gary said. What we've seen so far with Mustang, the timing of that, which was on purpose, setting the timing of that development up to coincide with the capacity increase up there. We'll see how that plays out the rest of this year with new facilities, new plants coming online.

I think the Discovery plant will be on line by the end of this year also. So, as we lay out our budget for the next year, we'll have a new facility coming on line there. Then we'll have a better position understanding as we see when we're timing to ramp up our completion activity in the Delaware also. Let's see how those play out a little bit through the second half of this year and then we'll be able to give more insight into '19.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Thank you. My follow-up is a little in the weeds. Regarding Egypt and the prospect to execute your Israeli [inaudible]. I want to be quite specific what I'm asking. Delek recently had a shareholder vote to acquire an interest in the East Med Gas Company. They're telling us that you will participate in that also. This could move very quickly and lead to a significant increase in production as early as next year. Can you just give us a general thought if that's realistic and how you see the whole process playing out?

David Stover -- Chairman, President, and Chief Executive Officer

Yeah. A couple things -- I appreciate you asking about that because I alluded to it in my comments. We're making excellent progress and very fast progress on solidifying some of this infrastructure into Egypt and the delivery into Egypt. I think that could come together really quick here, just as we've been talking about. I think it's a big step. What we continued to see is a pool in the region, actually in all three companies in the region, for additional gas demand. That's probably pulling harder and faster than I would have even projected a year ago on all cases.

I'm looking forward to be able to give you a lot more clarity on that if that comes together. I know Keith was just overseas here recently. He can expand on that a little bit. But especially on the comment on the regional demand and how hard they're pulling to get Leviathan gas as quick as they can.

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Maybe, Keith, as you answer, if I may, Delek is suggesting the market be up 50% on the back of this. So, if you can just frame whether that's realistic or not, I'd appreciate it. Thanks.

Keith Elliott -- Senior Vice President, Eastern Mediterranean Region.

Sure, Doug. First of all, to your question about Tamar, Tamar is essentially running at capacity right now. The demand growth we've seen in Israel from coal displacement, from the growth there and the electricity in demand, for us to go substantially higher on Tamar would require the expansion project. Saying that, certainly, there's capacity for gas to move into Egypt in the near term, primarily during the swing months.

The swing months haven't been as big a swing as they've been in past years, as we've seen the IEC displacing coal, but it does still exist, to a degree. I think to Dave's point, I was in Cairo earlier this week and the demand pool for the Mediterranean gas into that Egyptian market is very strong, both from the private sector and validated by the government there.

David Stover -- Chairman, President, and Chief Executive Officer

I think Doug, to add on Keith's point, what you're seeing is the potential for next year or very soon as some of this comes together is for Tamar to be essentially running full out most all the time. As we said, it's been doing that a large part already and it has an opportunity to solidify that almost year-round, coming up pretty soon.

The other part of it is I think you see an opportunity to essentially fill up the volume and contract for the full volume of phase one of Leviathan over the next year or so, when you just look at this regional demand. So, a lot of these things are really coming together nicely in that region. It gives a lot of excitement, enthusiasm, and momentum as we head into next year.

Operator

And we'll go to our next question from Charles Meade of Johnson Rice.

Charles Meade -- Johnson Rice -- Analyst

Good morning, Dave, to you and your team.

David Stover -- Chairman, President, and Chief Executive Officer

Good morning, Charles.

Charles Meade -- Johnson Rice -- Analyst

I wanted to go back to the DJ, you touched on it in both your prepared comments and some of this Q&A, and talk about what you guys are seeing in that Mustang IDP area. It sounds like you have seen some pleasant surprises, which is definitely a positive, but this isn't the first time you guys have drilled there. I'm wondering if you can go into a little more detail on what you're seeing and how it's different from what you guys have seen at Wells Ranch and touch on these different prop invests because you've have learned a lot at Wells Ranch.

Gary W. Willingham -- Executive Vice President of Operations

Yeah, Charles. This is Gary. It is a pretty exciting early result. First off, I'd say it's great. We expected it to be good. If you go back and look at what we rolled out back in February. We actually have a slightly higher tight curve in Mustang than we do in Wells Ranch. We expect performance to be strong there.

To your question, it's not the first time we've drilled in Mustang. That's absolutely true. I would say it's been a while and we haven't drilled that many horizontal wells in Mustang over the years and certainly the last ones that we did drill a few years ago did not have the benefit of our latest enhanced completion design.

So, with all that, we certainly had high hopes as to what we could bring to an area that was already a strong performer with the additional benefit of the advanced completion that we've been developing over the years in the Wells Ranch area. we're certainly seeing that in the early days of these first ten wells that we've brought on line. We've got a lot of wells still to bring on line, but I expect to see strong performance from those as well. It's an exciting area to be moving into.

Charles Meade -- Johnson Rice -- Analyst

Thanks for that, Gary. Just one quick follow-up -- the constraints, the process constraints in the DJ, in 2Q, did 2Q come in about like you thought it was going to in the DJ or were there any surprises as far as the volume?

Gary W. Willingham -- Executive Vice President of Operations

We were up slightly from what we expected. I would remind you that we had reduced our activity from historical levels in the DJ a while back knowing these processing constraints were going to be there, choosing to deploy capital where we could actually drill wells and bring them online. So, we did reduce our capital. We haven't had the level of activity that we have had historically. 2Q was a little bit better.

Now that Mewbourne 3 has starting up and is providing another 200 million a day of capacity to the basin, we expect to see the beginning of this growth curve that we've been waiting on as we've been waiting on the midstream constraints to be removed.

Charles Meade -- Johnson Rice -- Analyst

Thanks, Gary.

Operator

And next, we'll hear from Leo Mariani of NatAlliance Securities.

Leo Mariani -- NatAlliance Securities -- Analyst

Hey guys, I was hoping to drill a little bit further into the Permian here. Clearly, guys are pulling back activity. Is that going to be both drilling and frack-related? Do you really plant back on completions in the fourth tier? I'm trying to get a sense of how that impacts the production cap. Is Permian still going to be growing despite the activity pullback? Is it just growing at a lower rate?

Gary W. Willingham -- Executive Vice President of Operations

Yeah. Leo, this is Gary. Permian will still be growing. It will be growing at a lower rate here in the near-term given the deferral of completions while we're waiting for the export capacity to come up. When you look at it, the way we were thinking about it right now is we'd probably lay down two of our three frack crews late in the third quarter and assuming the capacity buildout continues as expected, we will start adding those back pretty early next year.

Right now, we're planning on maintaining the six rigs. We'll continue to take a look at that as we go through the year. Maintaining that level of drilling and building the inventory of completions and building the buffers that you need as far as the row-style development goes, we think maintaining the six rigs is the right way to go. That will result in a slight increase in duck inventory near-term until the completion crews come back. We've modeled it and looked at it economically. We believe that's the right thing to do.

Operator

Did you have anything further, Mr. Mariani? At this time, we will move to Michael Hall of Heikkinen Energy Advisors. Please go ahead, sir. Your line is open. If you're muted, please press your mute button so we can hear you. Mr. Hall, are you with us?

Brad Whitmarsh -- Vice President of Investor Relations 

Operator, let's go to the next question, please.

Operator

I'll just move to the next question, then. We'll hear from Irene Haas of Imperial Capital.

Irene Haas -- Imperial Capital -- Managing Director

Hey, good morning, everybody. My question has to do with the DJ Basin. It's very encouraging to see DCBs de-bottlenecking. Any thoughts on how you're going to handle the gas that comes along with the oil? Regionally speaking, do you have a feel for the regional gas price? Then secondarily, is ethane recovery working at this particular time? Are you guys seeing that? That's all I have.

Gary W. Willingham -- Executive Vice President of Operations

Yeah, Irene. It's certainly encouraging to see the capacity start to come up. There has been a little softness in CIG pricing here in the last couple of months and we're keeping an eye on that and evaluating options there, but we expect it to get better. When you look at ethane, actually, we're extracting ethane right now and we've got nice NGL volumes right now. That obviously does impact our average NGL realization, bringing it down a bit.

Then obviously our NGL realizations have been impacted in the DJ from what you've been seeing going on at Conway. About half our NGLs in the DJ go to Conway, about half to Bellevue. Conway is pressured right now for a number of reasons, increasing production in the Rockies and the midcontinent area, as well as some volumes coming in from the Marcellus until some of their pipeline issues back east get straightened out and then the purity takeaway from Conway is pretty well maxed out as well. There has been pressure on Conway and that's been flowing back into the DJ and pressuring our net effects there as well.

Irene Haas -- Imperial Capital -- Managing Director

Thank you.

Operator

And our next question comes from Gail Nicholson of KLR Group. Please go ahead, your line is open. Gail, if you're muted, press your mute function so we can hear you, please. I'm not sure if you're still on the line with us, Gail.

Brad Whitmarsh -- Vice President of Investor Relations 

Operator, you can just hand it back to me.

Operator

At this time, I will go ahead and hand the call back over to Brad Whitmarsh for any closing remarks.

Brad Whitmarsh -- Vice President of Investor Relations 

Sure. Thanks, everybody, for joining us. I know a couple of questions there at the end we didn't get to. It sounded like we had a bit of phone line issues. Give Megan and I a call. We're around today. I look forward to having conversations with you all and hope you have a great Friday. Thanks for joining us.

Operator

So, that does conclude our call. We would like to thank everyone for their participation. You may now disconnect.

Duration: 38 minutes

Call participants:

Brad Whitmarsh -- Vice President of Investor Relations 

David Stover -- Chairman, President, and Chief Executive Officer

Gary W. Willingham -- Executive Vice President of Operations

Keith Elliott -- Senior Vice President, Eastern Mediterranean Region.

Brian Singer -- Goldman Sachs -- Managing Director

Doug Leggate -- Bank of America Merrill Lynch -- Managing Director

Charles Meade -- Johnson Rice -- Analyst

Leo Mariani -- NatAlliance Securities -- Analyst

Irene Haas -- Imperial Capital -- Managing Director

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