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DCP Midstream LP (NYSE:DCP)
Q3 2018 Earnings Conference Call
November 6, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, please remain on your lines. The third quarter 2018 DCP Midstream earnings conference call will begin momentarily. Once again, the third quarter 2018 DCP Midstream earnings conference call will begin momentarily. Please remain on your lines. Thank you.

Good day, ladies and gentlemen. And welcome to the third quarter 2018 DCP Midstream earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. And instructions will be given at that time. If anyone should require assistance during the conference, you may press * then 0 on your touchtone telephone. As a reminder, this call may be recorded. It is now my pleasure to introduce VP Investor Relations, Ms. Irene Lofland. Please go ahead.

Irene Lofland -- Vice President-Investor Relations

Thank you, Andrew. Good morning everyone and welcome to the DCP Midstream third quarter 2018 earnings call. Today's call is being webcast, and the supporting slides can be accessed under the Investor section of our website at dcpmidstream.com. Before we begin, I'd like to point out that our discussion today includes forward-looking statements. Actual results may differ due to certain risk factors that affect our business.

Please review the second slide in the deck that describes our use of forward-looking statements. And for a complete listing of risk factors, please refer to the partnership's latest SEC filings. We will also use various non-GAAP measures which are reconciled to the nearest GAAP measures and schedules in the appendix section of the slide. Wouter van Kempen, CEO and Sean O'Brien, CFO, will be our speakers today. And after their remarks, we'll be happy to take your questions. With that, I'll turn the call over to Wouter.

Wouter van Kempen -- Chief Executive Officer

Thank you, Irene. Good morning, everyone. Appreciate you joining us. On today's call, we will discuss our strong third-quarter results, outline the progress on our outstanding growth projects, address the political environment in Colorado, provide a brief outlook for 2019 and highlight the competitive advantage of our diversified business model and our transformational journey. Beginning with our financial results, we had a tremendous quarter, resulting in adjusted EBITDA of $309 million and $209 million of distributable cash flow, totaling $546 million of DCF year-to-date. We delivered a distribution coverage ratio of 1.35 times for the third quarter while maintaining a solid leverage ratio of 3.6 times as of September 30th. As an outcome of our dedicated focus of optimizing our fully integrated portfolio, and as demonstrated by these outstanding results, we expect to exceed our guidance for both 2018 adjusted EBITDA and DCF.

Our strong earnings are underpinned by increasing volumes across our entire footprint, as we saw an approximately 35% increase in NGL's throughput volumes year-over-year and a roughly 10% increase in our gathering and processing volumes. To capitalize on the current production resurgence, DCP is executing a focused multi-year, multi-basin, multi-segment growth strategy that is mindful of the systemic overbuild our industry has created in past cycles. We will cover these projects in detail later in the call. But as you can see, we are expanding our NGL takeaway capacity, supply, and market connectivity on both Sand Hills and Southern Hills as we work toward planned expansions and innovative optimization strategies stemming from DCP 2.0. We're also building out substantial capacity within our G&P segment, as we successfully operate new Mewbourn 3 plan, quickly progress on the construction of O'Connor 2, and prudently advance our Bighorn facility in Colorado.

Ultimately, we delivered very strong third quarter results while successfully executing a long-term capital allocation strategy to ensure we continue to achieve our vision of DCP 2020. On the next slide, I cannot overstate just how significantly our company has transformed over the past number of years. We have strategically expanded and integrated our diversified asset portfolio to drive strong earnings, ensure long-term stability in any environment, and meet our customers' needs across the full value chain of Midstream services. Additionally, we maintain a leading position in the industry's overall technological revolution. We have embarked on a remarkable digital transformation via DCP 2.0 that continues to drive margins, is optimizing operations, and is further elevating our company's long-term competitive advantage. As illustrated by these two maps, the DCP of 2010 is a far cry from the powerhouse company our employees have built over the last eight years.

And moving to slide six, I want to update you on our continued success in the strategic execution of our growth projects with a focus on capital discipline and strong returns. We continue to realize the vision of leveraging our comprehensive value chain to meet the needs of our customers while maximizing returns and unitholder value. Looking at the logistics and marketing side of the house, we're experiencing record throughput in some of our largest pipelines, including Sand Hills, Southern Hills, and Front Range. At the end of the third quarter, Sand Hills reached record throughput at a 99% utilization rate, driving strong margins in our logistics segment. Sand Hills also underwent an incremental capacity expansion to 440,000 barrels per day by the end of the third quarter and is expected to reach 485,000 barrels per day within the next two months, providing a clear line of sight to continued future margin growth.

And thanks to our innovative DCP 2.0 efforts, by the end of the third quarter, our team replicated the success of the Sand Hills optimization by increasing Southern Hills capacity from 175,000 barrels per day to over 190,000 barrels per day. Like the sand hills effort, this 15,000-plus barrel per day capacity growth required very little capital to produce very significant future cash flows. Looking to the second half of next year, the future expansion of Southern Hills into the DJ Basin via White Cliffs will add 90,000 barrels per day of NGL takeaway for our Colorado customers. The additional growth project announced on previous calls including Gulf Coast Express, the Sweeny Fractionators, expansion of the Front Range and Texas Express pipelines, and the Cheyenne Connector are all progressing well and are within their established timelines.

Looking at our growth within the G&B segment, Mewbourn 3, which was brought online ahead of all announced and accelerated timelines on August 1st of this year was safely built and put in service within just nine months of breaking ground. Additionally, Mewbourn 3 has had an extremely successful and efficient commissioning in volume ramp-up variant to quickly meet the needs of our customers. The plant was processing 100 million cubic feet per day within a week and reached its full 200 million cubic feet per day capacity about a month after its in-service date. Line pressures in the basins have notably decreased. And we're now processing approximately one billion cubic feet of gas per day in Colorado. Also, we're currently progressing well in the construction of O'Connor 2, our upcoming 300 million cubic feet per day facility. And as we look to our 12th plant in the basin, the Big Horn facility, we're prudently awaiting an FID pending the results of today's election which brings me to the next slide.

As you all know, Proposition 112 in Colorado is a top priority issue for many, including DCP. And on slide seven, we have provided a simplified summary of our scenario planning. For increased setbacks, Proposition 112 would effectively prohibit future energy production on a substantial amount of state and private lands. We stand by the integrity and safety of our operations and have been proud to join Colorado's industry and our state's top leaders from every political background in a remarkable effort to defeat this draconian ballot measure. We're optimistic that Coloradans will defeat Proposition 112. So, let's look at the potential outcomes of today's vote. Should Proposition 112 fail, DCP maintains a strong outlook in the DJ Basin, underwent by strong customer relationships and a deep bench of tremendous growth project, like O'Connor 2 and Big Horn as well as multiple residue gas and NGL pipeline expansions.

I firmly believe that some of the best metro resources in this country are under our feet here in Colorado. And the DJ Basin has an incredibly bright future. But I wanna be clear. We will not breathe a sigh of relief and assume business as usual should the voters defeat this proposition. We are committed to working with all policymakers, regulators, communities, and other stakeholders to develop a sustainable solution that allows for responsible energy development while ensuring our neighbors are confident in our safety and environmental processes. On the other hand, as a company, we can successfully manage through the passage of Proposition 112. Our strategy to evolve from a company almost exclusively focused on GMB to a well-diversified full-service midstream provider across a wide geographic footprint has served us well in many ways. And today's vote is no exception.

It is important to note that while the DJ Basin is a very successful component of our G&P portfolio, the vast majority of our business will remain unaffected by the potential impact of Proposition 112. Additionally, should it pass, we anticipate our system in the DJ Basin would continue to be at full capacity for multiple years ahead due to the existing inventory of permanent and drilled and uncompleted wells. Lastly, as part of our comprehensive strategy, should Proposition 112 pass, we will reevaluate and likely defer the investment decision for the Big Horn facility and refocus on our portfolio of growth opportunities in other basins. In either case, two things are apparent. First, we are well-diversified and exceptionally positioned to successfully operate a portfolio of assets in the country's top-tier basins for decades to come, no matter the outcome of this election. Second, industry's up-leads have demonstrated astounding courage, passion, and commitment to responsible energy development in Colorado.

And I wanna sincerely thank our employees, those of our peers, and many, many other industries for their dedication and efforts during this election season. With that, I'll turn it over to Sean to take you through our financial results.

Sean O'Brien -- Chief Financial Officer

Thanks, Wouter. And good morning. Today, I'm very excited to talk through our exceptional third quarter results and the significant progress we're making on our financial goals. Slide eight highlights our strong execution, delivering Q3 DCF of $209 million and adjusted EBITDA of $309 million. In Q3, our broad asset base was hitting on all cylinders with excellent performance across both of our business segments and throughout all of our geographic regions. Shifting to our business segments, we had a mammoth quarter for our logistics and marketing business which resulted in a $47 million margin increase over last year. Our NGL buy-in growth drove record pipeline capacity utilization and earnings across our asset base. On the G&B side, Mewbourn 3's accelerated completion and expedited volume ramp drove increased cash flows.

The Midcontinent and Eagle Ford continued this year's trend of higher volumes as a result of our commitment to improve reliability and efficiencies, delivering increased margin growth over last year. Strong G&P margins across our footprint more than offset the expected lower cash flows from our discovered JV. Q3's solid performance is a great example of how we're delivering on our commitment to meet our customers' need as quickly as possible as we bring substantial projects online ahead of expected timelines, including the Samuels expansion and the Mewbourn 3 facility. As I guided earlier in the year, costs were higher in Q3 as we bring on new assets ahead of budgeted schedules, continue to advance our DCP 2.0 transformation and step up our targeted efforts, focused on improving reliability across our footprint. It's important to note that a portion of our costs are driving immediate increased margins in cashflows, evidenced by our strong results throughout this year.

We expect this cost-trend to continue into 2019 as we continue to invest and drive margins. Overall, price was favorable, driven by higher crude and NGL pricing, partially offset by lower gas pricing. As you low, Nimex gas prices are down slightly year-over-year. However, due to widening basis differentials in many of the regions where we sell our gas, our realized gas prices were down more than Nimex compared to the prior year. Similarly, the Mont Belvieu-based industry barrel is up significantly. And while we sell the majority of our NGL to Mont Belvieu and benefited from this increase, a portion of our NGLs are sold at Conway where pricing has been relatively flat. Looking forward to Q4, we're expecting DCF to be lower than Q3 as we anticipate some timing differences to materialize via higher maintenance capital, lower distributions from our JVs, as well as increased ethane rejection and continued wide basis differentials for gas and the Conway NGL prices.

Additionally, in Q4, we expect to see continued strong DJ results supported by a full quarter of Mewbourn 3 and increased pipeline volumes across our logistics segment. We've also updated our 2018 growth capital guidance from $750 to $825 to $900 million, primarily due to timing of our capital spend, including the acceleration of our O'Connor 2 facility and multiple downstream projects focused on addressing infrastructure concerns for our customers. And finally, as Wouter mentioned earlier, driven by our strong results year-to-date, we anticipate that we will exceed the high end of our 2018 adjusted EBITDA and DCF guidance ranges. Now, moving to slide nine, I'll highlight the substantial progress we've made on our financial position as we continue to produce strong results, prefund a portion of our growth, and improve our balance sheet.

Our third quarter financial metrics were significantly ahead of all of our targets with a bank leverage ratio of 3.6 times and an exceptional distribution coverage of 1.35 times, demonstrating our consistent ability to deliver on our financial priorities. We continue to maintain ample liquidity with over $1.2 billion available on our bank facility coupled with the addition of our $200 million accounts receivable securitization program. Additionally, we continue to proactively manage our growth program, as evidenced by our recent $110 million retail preferred equity rates. We're strengthening our coverage ratio, delivering 1.3 times in Q3 which is helping us partially self-fund a portion of our growth projects. All-in-all, we continue to enhance our financial position and deliver metrics stronger than the goals we established at the beginning of this year. And with that, I'll turn it over to Wouter to give a brief outlook on 2019.

Wouter van Kempen -- Chief Executive Officer

Thanks, Sean. Looking ahead to 2019, through our dedicated focus on operational excellence and executing a strong capital allocation strategy, we expect to generate increased cashflows across our portfolio. The industry is roaring back from the downturn. And demand for new infrastructure across the country is rapidly increasing while existing systems have reached record utilization. DCP is well-positioned to thrive long-term in this dynamic environment with a world-class lineup of growth projects that we're already executing to meet the needs of our customers and increase margins year-over-year. In 2019, on top of a full-year of cash flows from Mewbourn 3 and the additional expansion of Sand Hills, we will be bringing five substantial projects online, from O'Connor 2 on the gathering and processing side to multiple projects within our NGL and gas takeaway portfolio.

In the short-term, as timelines vary on growth projects within different segments of the industry's value chain, temporary constraints have and will emerge. The industry's current constraints and pipeline fractionation capacity has led to widening basin differentials, increased ethane rejection, and unusually high fractionation fees. For DCP specifically, we will plan to give full 2019 guidance on our next call in February. But I wanna give a little color in advance. Though we anticipate that current constraints could dampen short-term volume and margin growth, we continue to see the long-term upside as we expect high capacity utilization for our current and upcoming logistics projects. Altogether, we look forward to a very solid 2019 for DCP as we bring a tremendous amount of growth in line, utilize our fully integrated and balanced portfolio to strategically navigate a dynamic industry environment, and continue to invest in our culture of operational excellence.

In closing, on slide 11, our team delivered outstanding third quarter results while successfully executing a long-term capital allocation strategy focused on disciplined growth and increased cash flows. As an outcome of our dedicated focus on optimizing our portfolio, we exceeded our distribution coverage target and expect to exceed the high end of our EBITDA and DCF guidance ranges for the full year. Our proactive approach to diversifying and balancing our asset base continues to not only produce strong financial results and better customer service but has mitigated risk in challenging pricing, infrastructure, and political environments. Ultimately, throughout our tremendous footprint, our commitment to safety, operational excellence, and long-term sustainable growth will continue to drive strong customer relationships and outstanding unitholder value. Thank you. We're happy to take your questions now. Andrew, please open the lines.

Questions and Answers:

Operator

Certainly. Ladies and gentlemen, if you have a question at this time, please press * then 1 on your touchtone telephone. And if your question has been answered or you wish to remove yourself from the queue, please press the # key. Once again, if you have a question at this time, please press * then 1. Our first question comes from the line of Spiro Dounis with Credit Suisse. Your line is now open.

Spiro Dounis -- Credit Suisse -- Analyst

Hey. Good morning, everyone. Just wanna start off maybe on the decision to delay FID on Big Horn. Seems to make a lot of sense. Obviously, Colorado's gonna be impactful here. But I think we heard from a lot of your peers last week. And maybe didn't sound like their guidance or outlook, at least for 2019, was really gonna change much. And so, there seems to be a bit of a disparity there. And so, just curious. It seems like you guys are making this decision maybe conservative. But just curious why you think your peers aren't making the same decisions.

Wouter van Kempen -- Chief Executive Officer

Well, I cannot really talk about what our peers are exactly talking about or what the customers are talking about. I'm not gonna specifically address those. But O'Connor 2 is coming online. So, if you're thinking about what is happening in 2019 and what the plans for people are in 2019, obviously, our acceleration and expansion of the O'Connor 2 plant coming online in the second quarter of 2019 is gonna absolutely help significantly with processing needs in the DJ Basin. So, overall, when you look at that, I think that is a very good outcome and the right thing to do. As it pertains to what we're doing with Big Horn, I don't think you would want us to FID a plant of this size and of this magnitude and then, in light of what we're seeing potentially happening here in Colorado. I mentioned on the call, I'm very confident in the fact that Proposition 112 will not pass.

And we dedicated a pretty significant portion of this call and my prepared remarks giving you scenario planning around what is happening of 112 passes or if 112 fails. And I really think from that point of view, we probably have provided all of information that we can give to you at this very stage. It's an interesting day. It's an exciting day. Election day is always an exciting day. I said earlier I'm very confident that 112 will be defeated by Coloradans at the ballot box. But obviously, we're gonna be excited to start watching the news at 7:00 tonight when the polls close.

Spiro Dounis -- Credit Suisse -- Analyst

Yeah. I think we're all pretty excited about having this get past us here. You mentioned accelerating O'Connor 2, at least on the spending side. But I think the timeline, at least from last quarter, is still about the same for 2Q19. Just curious if you have an ability to beat that timeline. It seems like your MP peers -- you just mentioned it -- are pretty eager to see that bottleneck removed. You beat deadlines in the past. Do you think there's some upside there?

Wouter van Kempen -- Chief Executive Officer

We accelerated fairly significantly on the last go around. And these are large facilities. This is large, very complex facility. It takes hundreds and hundreds and hundreds of people working throughout a long time period to get these plants online. We brought Mewbourn online probably within nine months or so which was very, very quick, probably one of the fastest processing plants that has been built in this country. We're obviously trying to replicate that with O'Connor 2 again. But the Q2 is really taking in consideration that we would replicate that time period. I think, Spiro, the other thing that people got to think through, this is a much broader issue. People focus on processing capacity. But I can tell you if the DJ Basin would have a BCF of processing capacity sitting idle today and would be brought online tomorrow in some way, shape, or form, I don't think that overall production out of the basin would grow very substantially. Let's go through the different things that we're dealing with.

And this is all about what we're seeing in the industry as a whole, not only in the DJ Basin. We've seen it in the Permian, in the midcontinent. Everywhere in this country, we're seeing five bottlenecks because the country is full. Look at the DJ Basin, specifically. We are continued to wait on an expansion of CIG's residue gas outlet. That one has been delayed a couple of times. So, gas outlets and residue gas outlets are very, very tight in the DJ Basin. We are addressing that with our Cheyenne Connector project that is coming online to make sure we bring an extra $600 million a day of gas residue takeaway out of the basin. If you look at NGL pipelines, Front Range is very, very full. That's why we're expanding Front Range and Texas Express and why we're also doing additional NGL outlet into the basin via extending Southern Hills via White Cliffs. So, that's the second piece that we're taking care of. But even if all of those would be in place today, we all know that fractionation capacity has tremendously died at the US Gulf Coast.

So, even if there would be plenty of processing capacity, gas takeaway capacity, NGL takeaway capacity, crude takeaway capacity, you're still dealing with the fact that fractionation capacity is also tremendously tight in the country. We're addressing that together with Philips 66. We're very excited to partner with Philips 66 in their project to build new fractionation at the US Gulf Coast. But all of those pieces need to work for this industry to work as a whole. This is not just about processing. If you think about as a whole, producers have been able to ramp up very, very quickly past our '15-'16 downturn. As midstreamers and an industry as a whole, we've been trying to keep base. But all of our timelines are very, very different than a producer timeline. The great thing about the Shale Revolution is that producers can flex their production capacity very, very quickly. They can ramp it up very quickly. But building long-haul pipelines, fractionators, gas processing plants takes much, much more time.

And we're seeing that right now where we have a period of time where midstream capacity for an industry and the whole is pretty tight and producers can move quicker. There's a good thing to this as well. When you're in a place like this, it means you have very high utilization on your assets. And that's what you're seeing in our numbers today. There's a reason why our marketing and logistics business is doing so great, why you're seeing growth in the gathering and the processing side of the house, why we're beating overall DCF numbers to the street by close to 25% because the assets are running really well. And they're pretty full. So, there's always a bright side to the problem.

Spiro Dounis -- Credit Suisse -- Analyst

Yeah. No. I appreciate all that color. Thanks, Wouter.

Operator

Thank you. And our next question comes from the line of Shneur Gershuni with UBS. Your line is now open.

Shneur Gershuni -- UBS -- Analyst

Morning, guys. Just a quick question on the Colorado aspect here, or the DJ aspect. And I realize you covered a lot in the slides and the color that you've given. Just one extra data point I was wondering if you could share. What is your thought of the decline rate in the basin if there's no further drilling activity, let's say three years down the line once all the permits have been exhausted?

Wouter van Kempen -- Chief Executive Officer

I'm not gonna speculate on that, Shneur. There is way, way, way too much wood to be chopped between here and then to go through that. I said I'm very comfortable with everything that's been permanent that everything that is drilled and uncompleted -- most importantly, I'm very confident that we will defeat this at the ballot box. So, I think it's way too early to start speculating what would happen in three years if -- I think it's too early for that, Shneur.

Shneur Gershuni -- UBS -- Analyst

Okay. No. Fair enough. And can't blame me for trying to ask the question.

Wouter van Kempen -- Chief Executive Officer

I can't blame you either.

Shneur Gershuni -- UBS -- Analyst

But just a couple of quick follow-ups. With the coverage that you just posted in excess of 1.3 times, does this reopen the discussion about converting the IDRs to units as a phase simplification?

Wouter van Kempen -- Chief Executive Officer

Well, let me take that. I think obviously, this was a really, really good quarter. And at the same time, Sean also guided to, "Hey, what do we see in the fourth quarter?" So, we're not looking at a fourth quarter that has the same type of coverage. But all in all, this is absolutely going the right direction which is a great thing. What we have been working on for years is having a capital allocation strategy that is smart, where we don't go over our skis, where we don't overbuild, where equity needs are very manageable. We haven't been in the equity markets for multiple years. I think early 2015 was the last time we were in the common equity markets. Sean and team have done a remarkable job of prefunding when there's opportunities to go into the market, do some deals, do some preferred deals, make sure that we're ahead of our funding needs versus the growth that we're seeing. We're bringing growth online just in time, as needed, filling it up really quickly which obviously helps everything. It helps coverage.

It helps just our results, as you're seeing this quarter. It helps from a balance sheet point of view and our metrics that are really pointing into the right direction. All of that, what it gives us is great optionality. But it also gives us is an option to self-fund. And we have great growth projects that are coming online as we continue to be able to bring online to address all these industry needs that we all are talking about and seeing every single day. Self-funding some of those growth projects I think is tremendously important because in the long run, that really, really helps the unitholder. In the end, we have multiple jobs. Our job is to make sure that in the long-run, we manage this company the right way for the unitholders, for the shareholders, for all of our stakeholders. That also means returning capital to the unitholders. That means over time, maybe you have an opportunity to raise your distributions and also have some opportunity to address IDRs and gives you more flexibility around IDRs.

My comments around IDRs are the same as I've made in public many times before. It's really not a matter of, "Hey, are you gonna do this?" but, "When is the right time to do this?" Obviously, having stronger coverage gives you more flexibility. So, we'll continue to look at it. And we'll do this when it's the right time for us.

Shneur Gershuni -- UBS -- Analyst

Okay. Thank you for the color there. Just one final question. I was looking at one of your slides. And you talk about your hedge position for '18 and '19 and so forth. And obviously, you've got plenty of upside from an NGL perspective for 2019. But when I think about all the capital that you're currently spending, you've -- in the slide, it mentions that you've got 60% of your 2018 gross margins are being fee-based. Once all the capital's deployed, how does the business look at that point? Are we gonna be in a position where 70% is fee-based? Or is it gonna be even higher? I was just wondering if you can give us some color about what the company looks like when you're done.

Sean O'Brien -- Chief Financial Officer

I think, Shneur, the progress to get to the 60% has been huge in the last eight or nine years. The company, at one point, if you go back, was closer to 10% to 20%. So, kudos to the company. We've really changed it around, adding the full value chain. In terms of where it's gonna go over the next few years, obviously, we'll give guidance on our next call around what '19 looks like. But clearly, if you look at where we're spending money, where we're deploying money, where we're seeing really strong margin growth evidenced by Q3, the NGL and the logistics side of the equation's growing quite a bit. So, I can tell you directionally, I would expect that to grow. Does it get to 70% directionally? I think we're gonna move it. It's getting harder to move because the company's becoming larger. And obviously, early on, it was easier to move. But we are definitely moving it in the right side, in the right direction. And we'll continue to see that 60% grow as we move forward.

Shneur Gershuni -- UBS -- Analyst

Perfect. Thank you very much, guys. Really appreciate the color.

Operator

Thank you. And our next question comes from the line of Elvira Scotto with RBC Capital Markets. Your line is now open.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey. Good morning, everyone. Can you provide a little more detail on that increase in growth CapEx guidance in 2018? How much of that is an acceleration of O'Connor 2 spend versus incremental CapEx?

Sean O'Brien -- Chief Financial Officer

Most of it, Elvira, is accelerations. In my written comments, I mentioned O'Connor 2 because that is one of the larger items. Wouter talked a lot about this constrained environment. So, our goal was to get as much infrastructure up and running as fast as we can. So, O'Connor 2's one great example of that. But we're trying to accelerate some of these NGL -- SoHi, White Cliffs, those types of things, the Sand Hills expansion, as we go through the rest of this year, and those types of things, as well as some of the stuff that we're doing just tied to the Permian Basin as well or the SCOOP/STACK. So, across our asset base. So, I think all of it is really an acceleration. Not a lot of incremental. We dealt with the incremental before when we gave guidance to the high end. We referenced White Cliffs and some of the new projects. What you're seeing now is just us moving as fast as we can to help deal with the constraint environment.

Elvira Scotto -- RBC Capital Markets -- Analyst

Got it. So, then can you talk a little bit more about some of these constraints that you mentioned that may dampen short-term growth? Is that mostly on tight fractionation capacity causing more ethane rejection? And can you just elaborate a little more on that?

Wouter van Kempen -- Chief Executive Officer

Yeah, Elvira. It's Wouter. You're absolutely right. It's around five fractionation capacity where it's predominantly. So, you will be in a place where as an industry, you're rejecting much more ethane in this current environment than you would do normally. If you look at where frac spreads are, in this current environment, you would try to extract all the ethane that you can because it's absolutely economically the right thing to do. But you're seeing, as a whole, the industry rejecting more and more. And you see that in our numbers as well. So, that is one thing that you see a direct impact. And the indirect impact of that can be that potentially, you have a little less volumes on some of your pipelines versus if you have full ethane recovery. I think for us, as a whole, we are very confident around 2019. We're confident that we will sell very nice growth.

But you are in a constrained environment. So, we'll probably have a little less growth than you would see in a completely fully unconstrained environment. And some of that is probably gonna push into 2020. I don't think that's, per se, a bad thing. And we continue to see very, very high utilization rates. I think the most important thing in this environment for us is that we are very confident that we will keep our customers' product flowing. We have a very large balance of frac capacity that we own, about 155,000 barrels a day. We are one of the largest buyers of frac capacity. We have a lot of levers to manage through this environment. And we were in a constrained environment before during Harvey. If you go back a year from today, we were sitting on our earnings call discussing Hurricane Harvey which was a very constrained NGL environment.

And our marketing and commercial people were able to keep things moving very, very nicely. So, we also, via our system that we have with Sand and Southern Hills and open access pipelines, we can reach every frac out there. We have access to every Mont Belvieu frac, every Conway frac, Bush and Sweeny. And obviously, we're excited about what we're doing with Philips 66 and partaking in that project when additional fractionation space comes online.

Sean O'Brien -- Chief Financial Officer

Yeah. I think the other thing, Elvira, as we look at Q4 in 2019 -- I think you were alluding to it -- are these constraints are driving, obviously, some basis prices to be down considerably. I referenced some of the gas areas where we sell our gas as well below the Nimex. And then I referenced more specifically Conway. Belvieu NGLs have been relatively strong. But because of the constraints, you're seeing Conway there. So, these are reasons why, as I guided to Q4 and as we talk about next year, just wanna make sure people are not taking Q3, adding all the new growth and just timesing it by four as they look at '19.

To Wouter's point, we feel really good about '19. But obviously, the environment is getting more complex until some of these constraints are alleviated and dealt with. The good news is, as he alluded to when these constraints are dealt with, all this capital that we have coming online that Wouter touched on is gonna become full very, very quickly. And I think that'll play out very well for the long-term.

Elvira Scotto -- RBC Capital Markets -- Analyst

No, that's helpful. Just a follow-up here on the frac capacity. So, do you have all the frac capacity available to service your customers under contract? Or are you out there in the spot market?

Wouter van Kempen -- Chief Executive Officer

We are one of the largest buyers if not the largest buyers on fractionation services. So, we always have rolling portfolios that we have. We do fractionation deals many, many times. We have long-term deals. We have short-term deals. We're trying month by month to match up our producer's production volumes with fractionation downstream at the US Gulf Coast or at Mont Belvieu. I am very confident that we can keep all of our customers' products flowing here in 2018 and in 2019. And I mentioned earlier, a good thing that we have so much connectivity. So, if we were even in today's market, we're seeing opportunistically, short-term deals come by that are very attractive to us. And then we'll execute on those. So, I'm very confident that we will keep all of our customers' product flowing in 2018 and 2019.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thanks. And then just a couple of quick questions on the G&P side. What drove the sequential volume decline in the midcontinent? And which rate we expect going forward?

Sean O'Brien -- Chief Financial Officer

Yeah. So, for the midcontinent, we saw sequentially, volumes were declining a little bit. We had some maintenance that we were doing in the midcontinent. It was up year-over-year. And then I think, Elvira, as you think about going forward in the midcontinent -- and I may have alluded to it -- I think we're looking at it being relatively flat. And what that is is that's growth in some areas like the SCOOP/STACK offset by -- there's some areas in the western midcontinent that we're still seeing base declines. And we've been in that mode for a while. So, I see that area moving forward as more of a flat type of trend in the midcontinent. But no big worries about the slight decline sequentially.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thanks. And then just the last one for me, again, on the G&P side. You had that nice sequential increase in the south. Can you talk a little bit more about the activity that you're seeing in the Eagle Ford and how we should think about that going forward?

Wouter van Kempen -- Chief Executive Officer

Well, broadly, I've been talking about this for a number of quarters that I expected the Eagle Ford to come back because of some of the tightness that we saw in the Permian. You've seen people move rigs from the Permian to places like the Eagle Ford, to places like the DJ Basin. And so, I think it is playing out as we expected. Team is doing a good job there. And we're pretty confident around the volumes that we're seeing here right now and continue to see.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thank you very much.

Operator

Thank you. And our next question comes from the line of Jerren Holder with Goldman Sachs. Your line is now open.

Jerren Holder -- Goldman Sachs -- Analyst

Thanks. Good morning. Wouter, was hoping you can give us some of your views about NGL pricing. How do you see things shaking out over the next several months or so?

Wouter van Kempen -- Chief Executive Officer

That's an interesting question. We spent a lot of time looking at NGL prices. And I think we've been on a pretty wild rollercoaster ride here where we expected things to behave like they did actually in the third quarter with all the tightness that you saw NGL prices go up. And then here, in October, we've been trading down -- I think it's probably around 20%-25% -- on NGL prices without seemingly seeing passive differences in the supply/demand side the house. So, I think it's pretty interesting. Here, Jerren is the way I look at this. We tend to not forecast short-term prices. I think in the long-run, you're gonna be always wrong when you try to do that game. So, I think we're gonna continue to see some pretty significant volatility. Ethane may have an opportunity to go up again. But I think that is not attractive for most in the industry because if we're in a place where we're gonna continue to reject more ethane as an industry, you're not really capturing a lot of that.

Jerren Holder -- Goldman Sachs -- Analyst

And to follow-up on the increased ethane rejection point, what is driving that? And where is that happening and why, just given that these constraints, obviously, are still here?

Wouter van Kempen -- Chief Executive Officer

Well, it's happening everywhere, Jerren. The good things about our pipes -- we have a very large fleet of processing plants ourselves. So, we optimize those every single day, every hour of every day making sure that we get the most out of those processing plants. So, we look at it and think, "Okay. What do you do from an ethane point of view?" And then you gotta look at downstream. Is the infrastructure available? Are pipelines available? Is fractionation available? And both of those pipelines are getting tight. Pipeline space and fractionation capacity is pretty much gone. So, that means that you have to go into rejecting more ethane to optimize whatever fractionation space there is out there in the market. So, that's the real reason why you're seeing it. It's not because of economic reasons. Economically, everybody would extract as much ethane as you can with today's prices. But it is really because of what we're seeing downstream and the bottlenecks we're seeing downstream.

Jerren Holder -- Goldman Sachs -- Analyst

Thanks. And last one for me. The Southern Hills expansion. Can you provide a little bit more color about what you guys mean around innovative optimization? And is there any potential for any other expansions on your other assets?

Wouter van Kempen -- Chief Executive Officer

Yeah. So, what I'm referring to there is if you go back to my script on the earnings calls for the second quarter and the first quarter, we assisted -- or our teams used some technology around dynamic set points between all the different pump stations. So, instead of having set points that are sending set at binary levels, changing based upon the product flow, ambient temperatures, other things that happen in the pipeline, we are changing all the set points on a continuous basis between all of the different pump stations that we have, really optimizing the flow and the capacity of the pipeline.

We did that on Sand Hills earlier in the year and created some very significant capacity. The team replicated that now by doing it on Southern Hills, creating another 15,000 barrels a day of capacity without spending basically any money. And the money was very diminimus in the scheme of things around what capacity you create here. So, great job by the team. Great example of what we're doing around technology and DCP 2.0 because this is something that I wouldn't have seen probably two years ago.

Jerren Holder -- Goldman Sachs -- Analyst

Any other assets maybe that we can see this technology be applied to?

Wouter van Kempen -- Chief Executive Officer

Well, we did Sand and Southern Hills. And those are the big guys, obviously. And last quarter, actually, someone asked me and said, "Can you do this on Southern Hills?" And we were right in the middle of thinking through that. And obviously, the team was able to do it. There's probably some opportunities on some of the smaller pipes. It really depends on -- pipes need to be full. You need to have a number of different pump stations, so you can optimize things. But obviously, if we can replicate it somewhere else, we're gonna do that.

Jerren Holder -- Goldman Sachs -- Analyst

Okay. Great. Thank you.

Operator

Thank you. And our next question comes from the line of Dennis Coleman with Bank of America Merrill Lynch. Your line is now open.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Yeah. Great. Thanks for taking my questions. Wouter, you've said a number of times how you feel quite confident about how the vote will proceed today. I wonder if you might just expand on that just a little bit about why you've come to that conclusion. The polls, depending on which one you see, are seemingly a bit inconclusive. But clearly, you have a quite strong view. And I think that it would be worth hearing some of the details behind that.

Wouter van Kempen -- Chief Executive Officer

I would say industry broadly, here in the state of Colorado, spent a lot of efforts to make sure that we get to an outcome that is a positive outcome for the state of Colorado. Assume that we spent a lot of time thinking through and polling ourselves, doing different things ourselves. We've been pretty quiet around that. We've seen a number of different polls and people doing that. We've spent a lot of time polling as an industry, broadly, not just the oil and gas industry but as an industry, broadly. And given all the things that we're seeing, we're confident in the outcome of the results tonight.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. And then just a follow-up. And you did talk about it in your slide that even if it doesn't pass, you do anticipate adjusting perhaps how you operate in the state. And I guess there's this concept of the social license that you may want to avoid the same kind of thing two years from now. What kind of things might you be thinking about there more specifically?

Wouter van Kempen -- Chief Executive Officer

So, we're already doing a lot of that. So, Dennis, think about what we're doing on Big Horn. We bought a square mile. And we're gonna set this plant far away from any homes, from any people in a square mile so that there is no noise, there's no intrusion to people living nearby. And We're gonna spend a bunch of extra money to do that. But we think that it's the right thing to do. That is the right thing to deal with your neighbors. You will never see us build a gas processing plant near residential areas. We don't think that makes sense. We're different than many other operators from that point of view. We're in this for the long run. We're in here to do this for another 10, 20, 30 years.

And that's why we're spending money today to put potential new facilities in places that are away from people. So, that is one thing how we're doing this. Secondly, I think, as an industry, we're very committed to getting to a place where industry and the citizens of the state of Colorado live side by side. We operate safely. We operate in a way that all of us can coexist. And we think we'll probably have to come to some type of agreement with our regulators to see how we do that. And I think that is what the next two years is gonna be all about.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. That's helpful. One more, but maybe this is Sean. On CapEx, you talked about the acceleration of CapEx. And that's obviously into 2018 now. Should we assume that it's just moving capital from one period to the other? It's not increased expense or anything that impacts returns in any way?

Sean O'Brien -- Chief Financial Officer

No. Yes. That's correct. It's just moving. Returns still look very good. And obviously, we're earlier than on schedule potentially. So, that raises the returns as well.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Okay. That's it for me. Thanks very much.

Operator

Thank you. And our next question comes from the line of Jeremy Tonet with JPMorgan. Your line is now open.

Jeremy Tonet -- JPMorgan -- Analyst

Good morning. You touched a lot about the downstream constraints in the industry. But just wanted to go back to in the basin a little bit more here. And the DJ producers, on their calls, are really talking about a tick up in line pressure here. And just wondering what this could mean for you guys as far as new opportunities for additional compression, debottlenecking, or bypass maybe, quicker solution things that could help with alleviating some of the line pressure issues.

Wouter van Kempen -- Chief Executive Officer

I think you've seen a number of producers talk about how line pressures have come down. There are some people who have seen some more stable line pressures. Obviously, it depends on where you are in the system. This is a very, very large system. We process well over a BCF of gas in the DJ Basin. So, you can't just look at -- it's a one trick pony. We continue to do anything and everything to make sure that we can alleviate bottlenecks where they are. Some of the bottlenecks are just a bit more broad. And what I said earlier, new processing capacity, more compression is not gonna solve those bottlenecks. I can have all the processing capacity I want in the DJ Basin. If we cannot fractionate it anywhere in this country, which fractionation capacity is not available, then it doesn't do you any good. So, we talk a lot about this with producers. And I know producers tend to focus a bit on processing capacity. It is much more than that. It is residue gas takeaway. It's crude takeaway. It's NGL takeaway. It's fractionation being available.

And it's export markets being available. If any single one of those does not work or has a bottleneck, all of the other ones don't work either. So, we're working on every single one of those. If you go back, Jeremy, to our Q1 earnings call, we laid out a plan that will take care of the DJ Basin well into the next decade by alleviating issues around residue takeaway, NGL takeaway, fractionation, processing, etc. So, unfortunately, this is not a, "Hey, let's try to fix this overnight." This is a structural difference between producers and midstreamers. Producers can bring a well online really quickly, in a matter of weeks and months. Midstreamers, at times, take a year to get a permit. For us to get a permit and go through the FERC to make sure that we can build a Cheyenne Connector and take new residue takeaway, it's over a year just to get through the FERC before we try to build something. So, we're seeing that not only in the DJ Basin.

You're seeing this in the Permian. And you've seen this in the Permian for the last two or three quarters. You're seeing it in the midcontinent. You're seeing it everywhere in the country right now. Hey, we have had great, great success in the Shale Revolution. And the producers have great success. And now, the midstream industry as a whole needs to make sure, "How do we keep up?" And at the same time, you also want the midstream industry not to overbuild. I spoke about that in my earlier remarks, that we're very, very conscious about not overbuilding. And I think the industry as a whole has shown great discipline in this current cycle about not overbuilding.

Jeremy Tonet -- JPMorgan -- Analyst

Understood. Just a couple of quick housekeeping items. Did you list what the C2 rejection you're seeing on the system was this quarter? Understood that there's downstream fractionation things you're trying to optimize there. But just wondering where C2 stood in rejection. And then also, as far as natgas marketing and L&M this quarter, how much was it this quarter? Or how much did it increase year-over-year?

Sean O'Brien -- Chief Financial Officer

So, the first question, you're asking about rejection. I don't know that it was in our written remarks. But we saw around 50 a day. Just to give you a comparison, I think that was around 35 in Q2. So, that's up a bit. In terms of the natgas side of the equation, the biggest earnings that we saw in our marketing side of the equation outside of the pipelines that we talked about earlier was the Guadalupe asset. Because of the basis spreads, it had a really strong quarter. I think it was up something like $5-$6 million off of sequential quarter. And I think it was up $9 million versus last year. So, that was a big driver in the marketing business was the Guadalupe asset.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful. Thanks. And just the last one here, circling back to the IDRs. If you guys don't really need equity out there, common equity, and there's not a lot of distribution growth on the horizon, is there really much of an incentive to pay a big premium to take out the IDRs here? Or how do you think about that granted you're not there yet, but it's something that it seems like you're thinking about?

Wouter van Kempen -- Chief Executive Officer

Yeah. And I'm not gonna comment on potentially what a deal would look like and what the terms are. I think that I said that that's way too early. And when we're ready to do something, you will see what it looks like. And hey, in the end, I think as a company between ourselves, between the owners of the GP, we have always done what is right for the unitholders in the long-term. So, I'm sure we will do exactly the same this time if we decide to do something with the IDRs.

Jeremy Tonet -- JPMorgan -- Analyst

That's all for me. Thank you for taking my questions.

Irene Lofland -- Vice President-Investor Relations

And we're gonna stay on the line for a few minutes past 9:00 and try to get through a few more questions. So, our request is if analysts could limit to two questions each, just so we can get through a few more, that'd be great.

Operator

And our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Michael Blum -- Wells Fargo -- Analyst

Thanks. Good morning, everyone. Just a couple of quick questions. One on Southern Hills. So, if I'm looking at these numbers right, you're running at, this past quarter, 85% utilization. If I adjust for the increase, the 15,000 a day, that's 78% utilization. But I guess I'm trying to figure out how will you accommodate the volumes from the White Cliffs expansion?

Wouter van Kempen -- Chief Executive Officer

Around Southern Hills?

Michael Blum -- Wells Fargo -- Analyst

Yes.

Wouter van Kempen -- Chief Executive Officer

Yeah. Assume that we spent quite some time thinking through what we can do there. There may be temporary volumes that we have. Someone asked earlier the question about, "Hey, are you benefiting from some of this tightness?" And some other companies are benefiting from that. We're benefiting from that by having increased volumes on Southern Hills. So, we are matching the profile of Southern Hills very closely to what we expect will happen if and when or when White Cliffs comes online to make sure that we have capacity in the Southern Hills pipeline and have downstream capacity as well. I'm comfortable that we will have volumes available.

Michael Blum -- Wells Fargo -- Analyst

Okay. So, another way to ask that is is there a potential to further expand Southern Hills? Or is this pretty much as --

Wouter van Kempen -- Chief Executive Officer

No. There is an opportunity to further expand Southern Hills. I believe I made comments about that actually during the last earnings call. And we can expand it probably to roughly 230,000 barrels a day.

Operator

Thank you. And our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open.

Chris Sighinolfi -- Jefferies -- Analyst

Hey, guys. Happy election day. Sean, I just wanted to start quickly. The CapEx bump. Wonder if you could just refresh us on your financing outlook. You guys have done quite a bit on the preferred market, both in the institutional arm and through the retail side. And I'm just wondering if that remains your preferred route for 2019 financing or if other tools are becoming more attractive. Any thoughts on that would be appreciated.

Sean O'Brien -- Chief Financial Officer

Yeah. I think the preferred -- the market's been there. We've utilized it quite a bit, Chris. We just got $110 million prefunding out there on the retail side. So, that was very opportunistic. Very pleased with how that deal went. So, we'll continue to look at that market. I'll remind you, a lot of folks have a basket of how much they can do. We have still quite a bit left on that basket, $650-plus on that side of the equation. So, the flipside, I think, to think through is that we continue with a coverage ratio of 1.35 and the strength of our coverage ratio, we're continuing to be able to self-fund a portion of the growth capital that we have in front of us. So, I'm excited about that, excited about the cash flow that we're generating. And I think as you think going forward into next year -- obviously, we're not giving guidance.

But we do have a lot of capital coming online, a lot of growth coming online for some very strong cash flow projects. I think the trends of self-funding, looking at the prep market, advantageously looking at the debt markets will continue. And then lastly, we've got an awful lot of liquidity, as I mentioned. We still have $1.2 billion. We've got that AR securitization. So, I feel like we're in really, really good shape to handle the levels of growth that are coming toward us.

Chris Sighinolfi -- Jefferies -- Analyst

Great. Thanks for that. If I could switch gears for my second follow-up, I think you've been in a ratable winddown in your committed NGL sales to Philips 66 for a couple years. And if my memory's correct, that arrangement is set to fully expire in January. So, realize your full guidance for '19 will come with your fourth quarter results. And you've also got other commitments that you've noted tethered to the Sweeny frac build in 2020. But I'm just wondering if you or Sean could walk us through any preliminary expectations, with regard to the NGL side of your business, what the contract role means.

Wouter van Kempen -- Chief Executive Officer

Yeah. Well, two things. First of all, I gotta thank you for the pop culture challenge you gave me last night --

[Crosstalk]

Wouter van Kempen -- Chief Executive Officer

I definitely had to dig a little deep in my iTunes bank to get that one figured out. But more importantly, I said earlier, Chris, I'm very confident that we can have all of the product flowing that our producers bring to us. And so, that is really what it is. I'm not gonna talk individually about one contract that we have. And we have contracts with every fractionation service provider out there, be it in Bushed and Sweeny, Conway, Belvieu. We have them all. We buy from everyone. And we own a large fractionation portfolio. And we're very confident that we will make sure that we have all of the volumes for our producers flowing in 2019.

Operator

Thank you. And our next question comes from the line of David Amoss with Heikkinen Energy. Your line is now open.

David Amoss -- Heikkinen Energy -- Analyst

Morning, guys. Thanks for taking the questions. I'm just thinking about the O'Connor plant ramping up and some of the things that you've said so far on downstream takeaway and fractionation. Is there any risk to the volume ramp that O'Connor specifically -- as you think about the 2Q19 start-up -- that you could foresee on the downstream side?

Wouter van Kempen -- Chief Executive Officer

We are trying to match everything together where we can So, things are gonna be tight in the lower 48 I think for the next number of quarters for everyone. It may take 12 months. It may take 18 months of tightness that we're seeing in the market as a whole. But we're doing a multitude of things to make sure that we have takeaway, be it gas, be it residue gas, be it NGL, fractionation capacity. And again, I'm very confident that when we bring that O'Connor 2 plant online that we will be able to process the volumes for our customers.

David Amoss -- Heikkinen Energy -- Analyst

Okay. Thanks. And then just thinking about the 4Q18 CapEx again and the wide delta, the $75 million dollar swing there. Is any portion of that delta dependent on 112 passing or failing? And what I mean is could you potentially further accelerate things like O'Connor 2 if 112 does pass or other projects like that? Is there any swing around the vote today?

Sean O'Brien -- Chief Financial Officer

So, two things. There's no swing around O'Connor 2. We feel really good about that volume ramp-up. It's not really tied to 112. We've got great contracts behind O'Connor 1, too. If there was a swing, it would be the Big Horn plant. But we had very little capital, just some early permitting and things of that nature that we spent some money on. So, whether it passes or not, Big Horn and 112 are not gonna change the outlook that I gave on the capital.

Operator

Thank you. And our next question comes from the line of Chris Tillett with Barclays. Your line is now open.

Chris Tillett -- Barclays -- Analyst

Hi, guys. Good morning. Just quickly for me, on the JV distribution, noticed those had a tick-up quarter-over-quarter. And there was a bullet on one of your slides about you expect that to decline in the fourth quarter. So, maybe can you just elaborate a little bit on what's going on there and the ratability of the level of distributions going forward?

Sean O'Brien -- Chief Financial Officer

Yeah. So, I think the guidance we gave was $60 to $70 million for the year. So, I'm not changing that annual guidance. What happened is in Q2 -- Q2 is a relatively low quarter on the cash distribution. So, we made up for that in Q3. And therefore, I think Q4 will be a little bit lower. There's nothing going on that's real driven by the business. It just gets to some of the cash flows and the working capital. So, nothing to be alarmed about. Q3 just turned out to be a really strong quarter. I think Q4 will dampen, but we'll be right where we thought we'd be, $60 to $70 for the full year.

Chris Tillett -- Barclays -- Analyst

Okay. Thanks. Makes sense. Just wanted to make sure I understood. And then on the CapEx outlook, sounds like you're moving some maybe planned '19 spend into 2018, related to O'Connor. So, as we look forward into next year, should we think about maybe that level of CapEx coming down year-over-year? Or how should we be thinking about that going forward?

Sean O'Brien -- Chief Financial Officer

Well, we haven't given guidance yet. But as you think about '19 versus '18, a couple things. You still have some spend. We won't get all of O'Connor spent this year. So, you still have some spend on O'Connor, still, some of that White Cliffs, that SoHi expansion. The big ones to think about, obviously, are the Gulf Coast Express, Cheyenne Connector. Wouter talked about once we get past the FERC, you'll see some capital there. So, we'll give more guidance, more detail here on our next call. But the way I would I think about it is we still have a pretty good, solid program of capital staring at us in '19. And these are all some really, really strong projects.

Operator

Thank you. And our next question comes from the line of Selman Akyol with Stifel. Your line is now open.

Selman Akyol -- Stifel -- Analyst

Thank you. A couple quick ones for me. I know you said in terms of 112, that if it were defeated, it wouldn't be business as usual. You'd be looking for a more sustainable solution, longer-term. So, my question relates to Big Horn and FID. So, if it gets defeated, should we expect that to go to FID pretty quickly? Or would you be looking for more direction, more outcome on what that sustainable solution is before proceeding with Big Horn?

Wouter van Kempen -- Chief Executive Officer

I think we are doing everything from our side to make sure that we can FID Big Horn. But we're gonna look through this election, see what happens, and decide after that. So, I don't think you're gonna see us FID things in the next couple of weeks or so. It may take longer. But what I can tell you, that behind the scenes, we will continue to do anything and everything in our power to make sure that we can get through the timeline that we've originally laid out which is the first half of 2020.

Selman Akyol -- Stifel -- Analyst

Okay. And then just a little bit different. On the accounts receivable securitization facility, I presume a lower cost of capital. But was it more opportunistic than it came up? It's got a one-year life. Do you expect to extend it? Would you expect to increase it if you could? Could you just talk a little bit about why that?

Sean O'Brien -- Chief Financial Officer

A lot of questions there. It was more economical, about 75 BIPS cheaper than our facility. So, that's a no-brainer. The one-year, it's just set up as a one-year extension. We do anticipate continuing to extend it. And in terms of how it showed up, obviously, we've got really good relationships with our banks. We had a couple banks in particular that really specialized in those products. And they really saw us as a potential customer. So, we're pleased to have it. It adds liquidity. It adds cheaper liquidity. And I believe we'll continue to extend that on an annual basis.

Operator

Thank you. And that concludes today's question and answer session. So, with that, I would like to turn the call back over to VP, Investor Relations, Irene Lofland for closing remarks.

Irene Lofland -- Vice President-Investor Relations

Thanks, Andrew. Thanks, everyone for joining us today. Please feel free to give me a call if you have any follow-up questions. Have a great day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, have a wonderful day.

Duration: 70 minutes

Call participants:

Irene Lofland -- Vice President-Investor Relations

Wouter van Kempen -- Chief Executive Officer

Sean O'Brien -- Chief Financial Officer

Spiro Dounis -- Credit Suisse -- Analyst

Shneur Gershuni -- UBS -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Jerren Holder -- Goldman Sachs -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Chris Sighinolfi -- Jefferies -- Analyst

David Amoss -- Heikkinen Energy -- Analyst

Chris Tillett -- Barclays -- Analyst

Selman Akyol -- Stifel -- Analyst

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