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EnLink Midstream Partners, LP (NYSE:ENLK) (NYSE:ENLC)
Q3 2018 Earnings Conference Call
November 7, 2018, 8:00 a.m. CT

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the EnLink Midstream Third Quarter 2018 Earnings Call. Should you need assistance during today's conference, you may signal a conference specialist by pressing the * key followed by 0. Please note that all participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your telephone keypad. To withdraw from the question queue, you may press * then 2. Please note that this event is being recorded today, Wednesday, November 7, 2018 at 9:00 a.m. Eastern time.

I would now like to turn the meeting over to Kate Walsh, Vice President of Investor Relations. Please go ahead, ma'am.

Kate Walsh -- Vice President, Investor Relations & Tax

Thank you, and good morning, everyone. Thank you for joining us today to discuss EnLink Midstream's third quarter of 2018 earnings. Participating on the call today are Barry Davis, Executive Chairman; Mike Garberding, President and Chief Executive Officer; Eric Batchelder, Executive Vice President and Chief Financial Officer; and Ben Lamb, Executive Vice President and Chief Operating Officer.

To accompany today's call, we have posted our third quarter of 2018 earnings press release and operations report to the Investor Relations portion of our website. Shortly after today's call, we will also make available a webcast replay on our website.

I will remind you that statements made during this conference call about the future, including our expectations or predictions, should be considered forward-looking statements within the meanings of the federal securities laws. Actual results may differ materially from what is described in these forward-looking statements. Forward-looking statements speak only as of the date of this call, and we undertake no obligation to update or revise any forward-looking statements. Additional information on factors that could cause actual results to differ from what is described in the forward-looking statements is available in the earnings press release and the operations report accompanying this call, located at enlink.com and in our SEC filings.

This call also includes certain non-GAAP financial measures. Definitions of these measures, as well as reconciliations of comparable GAAP measures, are available in our earnings press release and operations report on enlink.com. We encourage you to review the cautionary statements and other disclosures made in our earnings press release and our SEC filings, including those under the heading Risk Factors.

The structure of the call will be to start with prepared remarks by Barry, Mike, and Eric, and then leave the reminder of the call open for a question-and-answer period.

With that, I would now like to turn the call over to Barry Davis.

Barry E. Davis -- Executive Chairman

Thank you, Kate, and good morning, everyone. Thank you all for joining us to discuss our third quarter results, our NGL expansion updates, and our vision forward. As you saw in the press release and operations report we issued yesterday, we achieved another incredibly strong quarter of operational and financial results.

We achieved over 20% growth year-over-year in adjusted EBITDA, continuing our strong adjusted EBITDA growth since EnLink's inception. Our successful track record of significantly growing adjusted EBITDA is a result of intentionally positioning the business in high growth supply and demand regions, and purposefully executing on strategic acquisitions and organic growth projects. While EBITDA growth is good news, the even better news is that growth is translating directly to value that benefits all of our stakeholders. We've achieved over 20% growth in distributable cash flow per unit.

Specifically related to our third quarter results, I am thrilled with the outperformance as we exceeded expectations. We're up year-over-year in segment profit in all four of our operational segments, and we had a standout quarter for our Crude & Condensate segment. Additionally, we continue to execute on high returning projects in high growth areas.

Yesterday, we announced from very exciting expansions to our Gulf Coast NGL platform. We are expanding our capacity to fractionate raw make NGL barrels by 30,000-35,000 barrels per day with the expectation of that capacity being operational and fully utilized within a matter of months.

When you take a look at 2018 as a whole, we've been overperforming all year. When we issued guidance back in February, we knew we would have a strong year. But it has exceeded our expectations. When you look at the original range we set for adjusted EBITDA, the bottom of that range was $950 million. And today, we expect to be at the high end of the guidance range we increased during the second quarter, which is $1.050 billion. That's a $100 million increase from the low end of our original expected range to where we expect to exit 2018. Incredible.

I love what our team is accomplishing today, and I am equally excited about the long-term outlook for EnLink. In yesterday's press release and operations report, we enhanced visibility into the growth we expect on multiple fronts and reiterated our growth expectations for distributable cash flow per unit.

As we announced with our simplification transaction on October 22nd, we expect DCF per unit to have a 10% or greater compounded annual growth rate from 2019-2021. When I sit back and think about what that means for EnLink and our stakeholders, I think it means a lot. And it's important for everyone to understand. By growing distributable cash flow per unit by 10% or more each year, we are significantly strengthening our balance sheet and we are increasing our power to further enhance long-term distribution growth.

At the end of the day, our strong financial outlook gives clarity around and visibility into our commitment to sustainably create and return value to all of our stakeholders over the long-term. With that, I'll turn it over to Mike.

Michael J. Garberding -- President and Chief Executive Officer

Thanks, Barry, and good morning, everyone. As Barry said, we have had a tremendous quarter and a tremendous year thus far. We have delivered more than 30% growth year-over-year in total segment profit and more than 20% growth in adjusted EBITDA for ENLK year-over-year. We've also delivered 20% DCF per unit growth for ENLK when you compare third quarter of 2018 to the third quarter of 2017.

Compared to this time last year, volumes in Oklahoma, Louisiana, and Crude & Condensate have all grown by double digits. This is driven by the 520 wells we have connected to our asset platform during the first 10 months of the year, with 80 more wells expected by year end. The producer activity we're experiencing in our footprint gives us confidence in achieving the high end of our 2018 additional EBITDA guidance range, and gives us confidence increasing our DCF and distribution coverage ranges.

We are also confident in 2019 growth. In Oklahoma, we expect roughly the same number of wells to be connected in 2019 as in 2018. In fact, as we look at the actual schedules provided by our most active producers in Oklahoma, we see about the same number of wells being connected in the first half of 2019 as we saw in the first half of 2018. Overall, we continue to expand and deepen relationships with our partners and customers.

We are also executing on our expansion of our strategic NGL position in Louisiana. We announced two projects which represent the first step in expanding our Gulf Coast NGL network. First, EnLink announced Cajun Sibon III, a project that will expand our takeaway capacity from the Mont Belvieu NGL hub to our fractionation facilities in Louisiana.

Second, we announced the completion of an expansion project of our fractionation capacity in Louisiana. The two projects combine to unlock the ability to fractionate between 30,000-35,000 barrels per day of incremental NGLs once Cajun Sibon III is operational, which is expected during the second quarter of 2019.

The volumes produced from our core positions in Oklahoma, North Texas, and the Permian Basin have given us a great opportunity to expand our NGL footprint due to the increased number of barrels coming out of those basins. We are also evaluating the next leg of our NGL expansion, which could include building a new fractionation facility in Louisiana or participating in a joint venture facility in Texas.

In Louisiana, we are looking at converting existing gas pipelines in the NGL service to feed a new large-scale fractionation complex. We believe we have a strategic advantage to execute a project like this given our growing NGL supply position and franchise position in the heart of the Louisiana demand market. I am very excited about the growth we are legging into in Louisiana. Our announcements yesterday are just the start of what we want to accomplish.

I also think it's important to give an update on our Crude & Condensate segment. As Barry said, Crude & Condensate had a stand-out quarter. At the beginning of 2018, we had one crude oil gathering system in the Midland Basin. Today, we have four crude oil gathering systems flowing volumes, all located in some of the best supply basins in the United States. Our Black Coyote, Redbud, and Chickadee systems are fully operational now with our Avenger system flowing initial volumes and expected to be in full service during the first quarter of 2019.

We have made considerable investments in our crude gathering systems this year, and we've done that in a way that we can accommodate the significant volume growth we expect in 2019 and beyond without requiring a large amount of additional capital. The scalability of our crude systems means that one of our fastest growing businesses is also one that is very capital efficient.

Shifting topics now, I want to take some time to discuss our broader multiyear financial outlook and how we are thinking about the longer-term outlook metrics we've provided in connection with our simplification announcement. We are focused on creating stakeholder value. This can be seen through current and projected DCF per unit growth. As part of this quarterly discussion, we gave a look forward into our pro forma ENLC business outlook and we like what we see. And we're starting all of this from a position of strength given our execution in 2018.

Most importantly, this growth is being executed in a capital efficient manner with further upside through execution on our seven growth strategies. A great example of this is our first strategic Gulf Coast NGL expansion with more to come. Our growth in our core business gave us the opportunity for the NGL expansion, however the tightness of the current fractionation market provided some near-term headwinds until we can get Cajun Sibon III up and running. This was the main driver behind a $25 million change to 2019 guidance we discussed earlier. The Cajun Sibon III projects were also included in this guidance for 2019, but also provide great long-term capital efficient growth for the business.

Overall, we love how the business is performing, how our team is focused on executing on our seven growth strategies, and how our long-term business outlook is focused on creating strong stakeholder value.

With that, I'll turn it over to Eric to provide an update on our financial highlights.

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Thank you, Mike, and good morning, everyone. As Barry and Mike have highlighted, EnLink delivered strong results for both the third quarter and 2018 year-to-date. I'll start with ENLC, which reported solid quarterly results of $58 million of cash available for distribution, representing 6% growth from where we were this time last year. We continue to increase distributions as planned and are on track to raise distributions by 5% during 2018 as compared to 2017.

From an ENLK perspective, we achieved adjusted EBITDA next to ENLK of $267 million for this quarter, which represents 23% growth from the third quarter of 2017. The double-digit growth was the result of year-over-year segment profit growth in all of our regions, with Oklahoma up by 35% and Crude & Condensate up over 130% from this time last year. This quarter's results exceeded expectations, even with the inclusion of a one-time charge of $5 million related to a company realignment initiative we completed during the quarter.

From a cash flow perspective, ENLK's distributable cash flow was up an impressive 25% from the third quarter of 2017. DCF growth is exceeding our expectations this year and, as a result, we have increased our DCF guidance range to $700-730 million. In conjunction with the DCF guidance range, we also increased our distribution coverage guidance range by 5% at the midpoint to a range of 1.15-1.2 times. Strengthening our distribution coverage ratio has been a key financial priority for us and we are very pleased with the progress we're making this year. A stronger distribution coverage ratio points to a stronger balance sheet, which gives us the flexibility to self-fund an increasing amount of our growth capital expenditures and allows us to navigate volatility well.

From a leverage perspective, We ended the quarter in a solid position with debt to adjusted EBITDA of 3.85 times as calculated per our credit facility. We also raised very little equity via our aftermarket program during the quarter, with equity raises totaling around $46 million for the ear.

We continue to maintain a flexible liquidity position and exited the quarter with ENLK revolver liquidity of approximately $725 million. We often get asked about our annual growth capital expenditures. Generally speaking, we expect our growth capital expenditures for the next three years in aggregate to be around $1.2-1.5 billion. This year, we expect to fund the majority of the equity portion of our growth capital expenditures with excess cash from the business, and we expect to target that same funding model going forward.

When we announced our simplification transaction on October 22, I spent some time discussing our four key financial tenants going forward. First, we are committed to growing distributions responsibly and sustainably, and have outlined our expectations to grow distributions annually by 5% or greater. Second, we are focused on self-funding more of our growth capital expenditures and are forecasting that we'll have cumulative retained cash flow in excess of $700 million over the next three years, which gives us greater flexibility to execute our growth plan on our own financing terms.

Third, we are targeting a long-term distribution coverage ratio of 1.3-1.5 times. And fourth, we are targeting a long-term leverage ratio of 3.5-4 times, as calculated under the terms of our credit facility.

Finally, I'd like to take a moment to address our inclusion in certain market indexes. We have discussed this topic at length with a variety of advisors and out expectation is that pro forma ENLC will be eligible for inclusion in all of the indexes in which we are included today. Our pro forma entity is set up to give the market visibility into our future financial state of sustainable distribution growth, significant reinvestment of excess cash flow, strong distribution coverage, and responsible leverage levels. We are building a sustainable balance sheet for years to come.

EnLink is focused on capitalizing on the large, very attractive growth opportunities in front of us, and I am specifically focused on making sure we have the balance sheet in place to create value for all of our stakeholders. And with that, I'll turn it back to Mike.

Michael J. Garberding -- President and Chief Executive Officer

Thanks, Eric. At the end of the day, execution is the key to our continued success. And it is at the very core of what we wake up thinking about. Or producer customers rely on us to keep building their connections to demand markets and to keep flowing the product to market. Our downstream customers rely on us to keep providing the critical supply needed to feed their facilities. EnLink builds and operates essential midstream managing infrastructure for our customers and that is what you can count on us continuing to do with excellence.

...

With that, you may open the call up for questions.

Questions and Answers:

Operator

Thank you, Mr. Garberding. We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed, you may withdraw from the queue by pressing * then 2. Again, it is *1 to ask a question. Your first question will be from Jeremy Tonet of JP Morgan. Please go ahead.

Rahul Krotthapalli -- JPMorgan Chase & Co. -- Analyst

Good morning, guys. This is Rahul on for Jeremy. Thanks for taking my question here. The first one, starting off on the stack side with Devon, the reason the rates aren't loading well connects in 2019 in the stack, and also new field going to the acquisitions. Can you provide some more color on the outputs on Kager and what you ordered in the segment? And also, how should we think about the rest here on all the assumptions behind improved well production baked in here?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, hey, Rahul. It's Ben Lamb. Big picture on the stack, you're right. What we saw most recently here was a big vote of confidence coming out of Encana through the Newfield acquisition, which is essentially a stack acquisition. And they recognized there that they're dealing with one of the very best plays in North America, and a play that still has a great deal of running room. In terms of our confidence around the Kager, when we look into 2019 one thing that informs our confidence is we have been in discussions, as we always are, with our producer customers about their plans for 2019. And while we don't have schedules for every single customer going through 12/31 of 2019, when we look at what we do have and what we observe our customers doing, we see roughly the same number of well connects in 2019 as we've experienced in 2018. And, of course, I think the growth we've experienced in 2018 really speaks for itself.

As far as well performance, we do not bake into our projections any assumptions around increased productivity. That's just not part of how we forecast. We do take into consideration the industry's recent learnings around well spacing and we think that we'll see an average development of six wells or so per section for the Meramec specifically. Some places it maybe four; some places it may be eight. Some operators, like Newfield, are looking at codeveloping the Woodford and Osage; some operators are not. But in the aggregate, that's roughly our expectation.

Michael J. Garberding -- President and Chief Executive Officer

Hey, Rahul, this is Mike. Also, I think it's important to note that we have a great diversity of producer customers in Oklahoma too. We did highlight that in the ops report. So again, it's looking to all of those different customers. I think we have over 16 customers drill wells on us this year that have really driven that growth Ben's talking about.

Rahul Krotthapalli -- JPMorgan Chase & Co. -- Analyst

Got it. That's helpful, guys. Thank you. Ben, can you provide some dialogue behind the Crude & Condensate three or four targets again mentioned here. And also, of the $1.2-1.5 billion CapEx spend, what's the planned allocation for this segment and will the growth be entirely off the crude gather systems until later expansions here?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, hey, Rahul. I'll start and then Eric may want to add on. In terms of the guidance there on the Kager for the crude segment, it really is driven by our confidence in the resource that's being developed behind those systems. So, in the prepared remarks you heard that over the course of the year we've brought online three systems, two of those in the stack and one of those in the Delaware. And we've seen fantastic growth in on our greater Chickadee system in the Midland Basin. I believe year-over-year it's up north of 60%.

So, a tremendous amount of growth this year, and that also comes with a fair bit of investment. The segment capital for this year is the range of $115-150 million, and that is to really lay the backbones for the Avenger, the Redbud, and the Black Coyote systems. Growth going forward will be very capital efficient because so much of the base system has been constructed over 2018 and into early 2019. So, actually, it's rather little capital looking forward in 2019 through 2021 as part of the range of $1.2-1.5 billion that Eric provided. And I think we'll give you some additional guidance around that for 2019 at the time that we provide you full 2019 guidance.

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Yeah, Rahul, the only thing I would add to that is, as Ben alluded to, the CapEx -- we get this question a lot, which is why we thought it would be helpful to be transparent and just give some of our perspective on it. And those numbers that I quoted include the large projects that Ben pointed out. It also includes a lot of our -- what we consider this quick-to-cash capital in terms of hooking up new wells, compression, etc. -- all of the work we do on a day in day out basis to serve our customers. And to the extent that we have bigger projects down the line, as we have in the past, we'll provide more information. But the numbers that I've provided include everything that has been announced to date on the large project side, and then has our day-to-day CapEx that we consider vital to serving our customers.

Michael J. Garberding -- President and Chief Executive Officer

Hey, Rahul, when you put all that together, I think the point you ought to take away, ultimately, is the efficiency with the growth of the business. We highlighted with the simplification announcement just the DCF per unit growth over that three-year period. And this is what's driving it. And you can see it ultimately as far as the capital efficiency build in our core basins and the confidence we feel around that.

Rahul Krotthapalli -- JPMorgan Chase & Co. -- Analyst

Good. I appreciate the color, guys. And then this final one on -- can you give some color on how you plan to approach the second phase of the NGL platform buildout you mentioned in the ops report? What would help you make the decision between building the fracs in Louisiana, what is the JV in Texas, or any color you can provide there?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, Rahul, it's Ben again. As a follow-up to the Cajun Sibon III announcement, our focus now shifts to what the next frac solution for us is going to be. And, as we outlined in the ops report, there's really three possibilities there. One of them is a large-scale fractionator in Louisiana that would be effectively a Brownfield development around our own assets and would likely involve repurposing some gas pipelines to move the Y-grade over into Louisiana. Another possibility is a joint venture in Texas, most likely around Mont Belvieu. And then, a third possibility that is always out there, is that we get a very attractive third-party solution, much like we did on the transportation of our Oklahoma NGLs, that might be superior to either of those capital projects.

So, that's what we're working for now. And to answer you question about what does it take to get to that decision, it really is just time to do a full evaluation of the options that are available to us and the market for each of those decisions, to determine what's most economic for the company.

Rahul Krotthapalli -- JPMorgan Chase & Co. -- Analyst

Good. That's it for me, guys. Thanks for taking my questions.

Operator

The next question will be from TJ Schultz of RBC Capital Markets. Please go ahead.

TJ Schultz -- RBC Capital Markets, LLC -- Analyst

Hey, good morning. First, just to clarify, the infill spacing learning curve that Devon discussed with its operational report this quarter, was that already contemplated in the 2019 EBITDA guidance that you all gave recently?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Hey, good morning, TJ. It's Ben. Yes, it is. We obviously are in constant contact with all of our customers, Devon, of course, being no exception. And so, while this is being announced by Devon today, it's knowledge that we've had now for some time. And so, it is fully incorporated in our 2019 expectations.

Michael J. Garberding -- President and Chief Executive Officer

And, I think -- TJ, this is Mike -- one important point to make ultimately is that you can look at the three-year Kager on Oklahoma and feel very good about the growth projections from that solid base. But, specific to 2019, the thing we talked about was really the headwinds and the frac market. And there ultimately is a cost for us to get to the Cajun Sibon III expansion. And so, when we talked about the guidance change of $25 million, that was the large driver to that. But that large driver gave us not only the opportunity for Cajun Sibon III but is giving us that next opportunity for that next leg of Louisiana or Mont Belvieu growth. And so, we feel very, very good about the long-term growth of the business. There were some headwinds in 2019 related to that, but Oklahoma was fully factored into those numbers.

TJ Schultz -- RBC Capital Markets, LLC -- Analyst

Okay. Understood. And then, stack versus scoop -- are you seeing any customer or rigs shift from the stack to the scoop, or to the merge?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

TJ, it's Ben. We really have not. There was one operator who made that shift earlier in the year, but that's an operator that we don't do very much business with. The operators who are big on our system are still very focused on the stack. Now, I'll take the opportunity, though, to make a couple of points. One of those is that, as they transition into full field development mode, the development becomes much more efficient. And so, in order to deliver the same number of wells next year as we've seen this year -- which is roughly our expectation -- we won't need to see as many rigs working on the acreage. We'll be more focused on well count than we are on rig count.

And the second point I'd make is, you touched on the merge. And I'll just take a minute to recognize what a bright spot the merge has been for us, not just this year but really the last couple of years. And we have seen a little bit of acceleration on our merge position. That's an area that, because the producers are smaller companies and, in some cases, are not public, it doesn't get as much airtime as the stack does. But it's a great resource. We've seen great results and we have a couple of very active producers in that area.

TJ Schultz -- RBC Capital Markets, LLC -- Analyst

Okay. Understood. Just lastly, following up on the NGL next phase, does any part of that next NGL solution consider a larger expansion of Cajun Sibon, or is that cost prohibitive compared to potential options to build legs or JV in Texas or contract otherwise?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, certainly a larger expansion of Cajun Sibon is on the table. And the form that that would most likely take would be a conversion of some existing gas pipelines in the NGL service. So, it would effectively be a second NGL pipeline into Louisiana. That's what would be needed to move the Y-grade associated with a large-scale Louisiana frac. So, really, the question is, is that a better solution, or is a better solution to JV with someone in Belvieu, or is a better solution to contract with someone who will provide the service even more cheaply than we can provide it to ourselves?

TJ Schultz -- RBC Capital Markets, LLC -- Analyst

Okay. Understood. Thank you.

Operator

And as a reminder, if you would like to ask a question, please press * then 1. The next question will be from Spiro Dounis of Credit Suisse. Please go ahead.

Spiro M. Dounis -- Credit Suisse Group -- Analyst

Hey. Good morning, everyone. I just wanted to start off on the strength in Louisiana gas. It seems like a real step change there this quarter and I think you alluded to some stronger industrial demand and LNG demand as the driver. Just curious if -- is that a structural shift that you're starting to see now, or is there any seasonality in there?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Hey, Spiro, it's Ben. I wouldn't describe it as a structural shift. I would describe it as continued very strong performance from that business in a market that has been strong and I think will continue getting stronger. But, I don't think that there's any one strong structural shift that you can point to. There is a little bit of seasonality from a margin perspective in that business that really is related to the power load that you see in the summer. That lasted maybe a couple weeks longer than it usually does this year, so we had a modest benefit from that. But really, the results that you're seeing, both from volume perspective and from an NOI perspective, those are reflective of the base strength of the market.

Spiro M. Dounis -- Credit Suisse Group -- Analyst

Got it.

Michael J. Garberding -- President and Chief Executive Officer

Hey, Spiro, this is Mike. When you think about it, too, that's the starting point. We talked about the multicommodity opportunity we have in Louisiana. Ben alluded to what we're doing on NGLs. We equally have the opportunity on gas and what we're seeing about that longer-term growth in gas demand down on the southwestern side for LNG. So, that will be a little bit longer term in nature, when you see that coming. But we are as well positioned as anyone to continue to take advantage of that. And that would be that next big leg of growth on the gas side.

Spiro M. Dounis -- Credit Suisse Group -- Analyst

Got it. That's helpful. And then, just in terms of -- I think you guys hit the road at the announcement of the merger or the rollup. I was wondering if you could share some feedback you'd received specifically around the potential for new investors to come in now that IDRs are gone. I think that was a sticking point for some.

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Yeah, I mean, I think -- Spiro, it's Eric. It's a good question. I mean, I think we've gotten some feedback that it's a more attractive security. I think, when we think about the simplification as a whole, it sets us up in a great position from a financial perspective and really helps us to support the business and the great growth that we see coming ahead of us. I think 18 has been a terrific year, as you've heard, and the simplification will set us up from a balance sheet perspective to really execute on the opportunities we have in front of us. And really, that's where it starts in terms of attracting investors is a good story and a strong balance sheet. And then, structurally having the LLC structure with the 1099, we think, makes it a good opportunity for others to come in.

Spiro M. Dounis -- Credit Suisse Group -- Analyst

Appreciate the color. Thanks, guys.

Operator

The next question will be from Shneur Gershuni of UBS. Please go ahead.

Shneur Gershuni -- UBS Securities LLC -- Analyst

Hi. Good morning, guys. I was just wondering if I can follow-up on some of the NGL plan expansions and so forth. One of your peers -- or, I guess, partner actually -- talked about last week about being able to spend low amounts of capital and being able to significantly increase the size of their ability to frac and so forth. And you've clearly demonstrated that as well. How many other instances do you think -- or possibilities -- are there out there for you to do more of the same thing? Can you synthetically create an entire frac if you're able to turn some screws on all your facilities?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, hey, Shneur. It's Ben. So, you're right. Effectively, what we've announced today is a 30,000-35,000-barrel fractionator for the equivalent of $50-60 million. And not only that, but the fasted solution in the market in the second quarter of next year versus time to new build obviously being significantly longer than that.

In terms of screws that we have left to turn, I don't think we're going to find another 30,000-35,000 barrels. I think that, once we get Cajun Sibon III on line and flowing, I imagine that our engineering folks and operations folks will find ways to move a few incremental barrels as they learn the capabilities of the system. We've shown our ability to do that over and over again, to overdeliver on our own expectations. But I don't think we're going to discover another fractionator that comes almost for free like this one does. I think the next leg of growth will be along the lines that we discussed earlier in the call.

Shneur Gershuni -- UBS Securities LLC -- Analyst

Okay. And as a follow-up, you game a lot of color on Oklahoma in terms of where you see opportunities and so forth. Can you talk about the trend on rigs specifically on your acreage dedications? Have they been going up or are they the same? Have they been going down? And what are your producer customers talking about over the next six-nine months?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, Shneur. It's Ben again. Happy to talk a bit about that. In terms of the rig trend over the course of the year, it's been fairly steady. Our expectation is that we will see fewer rigs operating in the play on our acreage next year, but we expect they will drill approximately the same number of wells. And that's not based on magical thinking by us. It's based on communications from our producer customers that we're having all the time. And where we sit right now, we see about the same number of wells in 2019 as we expect to connect in 2018. But we think that they will require fewer rigs to do that.

And a side impact of that is that the growth will be lumpy. We've talked about that in the past, that you should expect to see lumpy growth in Oklahoma because the timing of some of the big projects being turned inline can move between quarters and create non-ratable growth. And you saw that in this quarter. And I would say that's going to be the new normal. We'll have some quarters of outsized growth like we did in the second quarter of this year, and we'll have some quarters of less growth like we saw in the third quarter of this year.

Shneur Gershuni -- UBS Securities LLC -- Analyst

So, when I think about a flat well connection on a year-over-year basis, and I also think about the treadmill that's created because of natural decline rates and so forth, what is your confidence that your net net volume is going to grow year-over-year? Is that enough or are the showings on the wells better? What gives us confidence that it will actually grow and be able to offset what should be a natural decline rate?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, so Shneur, to talk through that a little bit -- to answer the question head-on, extremely confident that we'll have year-over-year growth. As far as how you get there in pieces, if you look at the growth this year with the wells we've connected year-over-year, we're at 42%. If you go back two years, we're up 112%. So, next year I don't expect we'll be up 42% again because of exactly what you're saying. You have a bigger system. It takes more wells to continue the same percentage rate of growth. So, it won't be 42%. But if you think about the guidance -- the segment profit guidance that might talk about the 10% Kager 2018-2021, that gives you some idea of how we see growth happening on the system. And then, specifically, for 2019 volumes, when we give you full guidance for 2019, we'll make some communication around that in particular.

Shneur Gershuni -- UBS Securities LLC -- Analyst

Okay. And one final question. When can we expect to see the S-4 filings?

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Hey, Shneur, it's Eric. We are working on that as hard as we can and we expect to get that out very soon. Obviously, that's something that we recognize is very important and we're spending a lot of time to get that out as soon as possible.

Shneur Gershuni -- UBS Securities LLC -- Analyst

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

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

As a reminder, if you would like to ask a question, please press * then 1. Your next question will be from Colin Crosby of U.S. Capital Advisors. Please go ahead.

Colin Crosby -- U.S. Capital Advisors LLC -- Analyst

Hey, good morning, guys. One more question on the expanded frac capacity. So, once you complete the NGL pipe expansion, it can go ahead and start filling up that expanded capacity -- how much time do you think that buys you before you start running into the same issues again that were the driver behind the reduced guidance?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, hi, Colin. It's Ben again. It fairly well takes care of our need for next year, and that's actually perfect in light of the decision that we're going to need to make around the next leg of frac capacity. We want to see some length in our position because it's link in the position that gives us the ability to make that next leg of growth. So, it takes pretty well care of 2019 and then we'll be looking for new solutions to begin in 2020. That might be a solution that bridges us to a frac coming online that we would be constructing, or it might be a contractual arrangement for the long-term with a third party, just like we outlined earlier in the call.

Michael J. Garberding -- President and Chief Executive Officer

And, Colin, this is Mike. I mean, if you think about it from an industry standpoint, that is the key year. And you think about what's happening ultimately in Mont Belvieu and what growth we see, '19 for us is that key year to bridge through, which Cajun Sibon III does for us.

Colin Crosby -- U.S. Capital Advisors LLC -- Analyst

Okay. Thanks, guys.

Operator

And the next question will be from Dennis Coleman of Merrill Lynch. Please go ahead.

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

Good morning, everyone. Just one more on the announcements for today, if you would. So, the capacity -- is it contracted now or will it be contracted? And as you think about the alternatives going forward, will those also be underpinned by some kind of contracts with customers?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, so the capacity will be contracted at the point where the fractionator comes into service. As far as the next leg of expansion, yes, we certainly will look to have a threshold level of commercial support before we would proceed with the next expansion. That may or may not be subscriptions for 100% of the fractionator capacity. We probably don't need to get quite that far. But we would certainly want to have a level of commercial support that we feel ensures that we will have a successful and economic project. And that will be some of the work that we are doing as we progress toward making that next decision.

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

Okay. Thanks, Ben. And what about infrastructure to move the barrels away -- or downstream to customers -- the purity products? Are there opportunities there?

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Yeah, that's a great question. Even just with the Cajun Sibon III expansion, it will create some incremental benefit to some of our existing downstream infrastructure. For example, our extension pipeline that move some of the purity products that are created by the Cajun Sibon system today. Certainly a frac expansion in Louisiana could come with some additional downstream opportunity on the purity side. And I don't want to get too deeply into what those could look like, but it could be some additional infrastructure investment. It could also be some expansion of our export capability. And I think we've noted in the materials that we've passed two million barrels, so far, exported this year out of Louisiana.

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

Okay, and just one last follow-up there. In terms of just the more immediate expansion, is that baked into the economics that you're talking about today? The two to three times --

Michael J. Garberding -- President and Chief Executive Officer

[Crosstalk] Yeah, this is Mike. It's all baked into everything we've laid out. And it -- just think about it, just to make sure people understand with regard to the fractionator, the $10 million for the increase in fractionation capacity has already been spent. And the $50 million related to the Cajun Sibon III pipeline increase is already in the numbers that we laid out.

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

Got it. Okay. Thanks very much.

Operator

And, ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back over to Mike Garberding for any closing remarks.

Michael J. Garberding -- President and Chief Executive Officer

Thank you, Denise, for facilitating our call this morning. And for everyone on the call today, thank you for your participation and for your support. We look forward to updating you on our fourth quarter call and full-year 2018 results in February.

...

Operator

Thank you, sir. Ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.

Duration: 44 minutes

Call participants:

Kate Walsh -- Vice President, Investor Relations & Tax

Barry E. Davis -- Executive Chairman

Michael J. Garberding -- President and Chief Executive Officer

Eric D. Batchelder -- Executive Vice President & Chief Financial Officer

Benjamin D. Lamb -- Executive Vice President & Chief Operating Officer

Spiro M. Dounis -- Credit Suisse Group -- Analyst

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

Colin Crosby -- U.S. Capital Advisors LLC -- Analyst

Shneur Gershuni -- UBS Securities LLC -- Analyst

TJ Schultz -- RBC Capital Markets, LLC -- Analyst

Rahul Krotthapalli -- JPMorgan Chase & Co. -- Analyst

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