CNX Midstream Partners LP (CNXM) Q2 2019 Earnings Call Transcript

CNXM earnings call for the period ending June 30, 2019.

Motley Fool Transcribers
Motley Fool Transcribers
Jul 30, 2019 at 3:23PM
Other
Logo of jester cap with thought bubble.

Image source: The Motley Fool.

CNX Midstream Partners LP (NYSE:CNXM)
Q2 2019 Earnings Call
Jul 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the CNX Midstream Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tyler Lewis, Vice president of Investor Relations. Please go ahead.

Tyler Lewis -- Vice president of Investor Relations.

Thank you, and Good morning, everybody. Welcome to CNX MidStream's second quarter conference call. We have in the room today, Nick DeIuliis, our Chairman and CEO; Chad Griffith, President and COO; and Don Rush, our Executive Vice President and Chief Financial Officer. Today, we'll be discussing our second quarter results and we have posted an updated slide presentation to our website.

As a reminder, any forward-looking statements we make or comments about future expectations are subject to business risks, which we have laid out for you in our press release today, as well as on our previous Securities and Exchange Commission filings. We'll begin our call today with prepared remarks by Nick, followed by Chad, and then we will open the call up for Q&A, where Don will participate as well.

With that, let me turn the call over to you, Nick.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Good morning, and thanks for joining us. Before Chad's commentary, I wanted to provide a quick summary of where we see ourselves today, and I'm going to do that by looking back at the three year projections we published in our March 2018 Analyst Day.

We see that taking a sum of 2018 through 2020, we're within 6% of EBITDA and 7% of capital expenditures when comparing to midpoint of that guidance that I just mentioned. This is despite relatively reduced upstream customer activity, which is resulting in lower well till counts, which in turn extends core inventory. So said differently, our sponsor was able to do a lot more with less, which resulted in comparable financial results for CNX Midstream while preserving drilling inventory for upcoming years.

And the types of things that drove that ability or that performance; they were the traditional drivers of greater returns in the E&P and midstream business, it's improved well profiles, EUR outperformance, the stack pay opportunities with the Utica and the Marcellus, and cycle time compression along with debottlenecking projects. We saw a great 2018 where we accelerated some activity. 2019's focus is around a substantial buildout of capital projects which are on track and we're reaching an inflection point in 2020 where the Company expects to generate a nice level of organic free cash.

This Company continues to execute and we are intent on doing what we say we're going to do. That's what you're seeing in our numbers again this quarter, as well as in our updated 2020 guidance. Our focus moving forward will be on operational execution and we look forward to providing more color as the quarters unfold.

So now I'm going to turn it over to Chad to go over an update for the quarter.

Chad A. Griffith -- President and Chief Operating Officer

Thanks Nick. The Company posted another strong quarter of results which are highlighted on Slide 3, of our slide deck. Average daily throughput excluding volumes under high-pressure short-haul agreements was 1,730 Bbtus per day in the quarter, up around 9% when compared to the first quarter of 2019. Net operating cost per unit declined 11% year-over-year, as we continued to benefit from efficiency initiatives, including our centralized control room and increased use of data analytics.

Our focus on costs have helped drive our adjusted EBITDA, which in the quarter was $59.3 million or $18 million higher than the second quarter of last year. Despite our leverage ratio remaining well within our targets and below the industry average, it ticked up slightly to 2.8 times compared to 2.7 times last quarter. We expect our leverage ratio to peak at the end of the year at around 3.2 times and then quickly come back down to around 2.8 times by the end of 2020.

Moving on to Slide 4, we have provided updated guidance for 2019 and 2020. We are reaffirming our 2019 guidance and we are providing an update to 2020, which is consistent with our main sponsor CNX, who provided updated guidance this morning. We expect throughput to increase approximately 19% in 2020 compared to 2019 based on the midpoint of the guidance ranges.

Also, we expect capital to decrease significantly to $80 million to $100 million, which is down from the $310 million to $330 million we expect to spend in 2019. As we have stated in previous quarters, we expect capital to decline substantially as we'll return to more run rate construction program toward the end of 2019 and into 2020 after completing the handful of projects and system expansions that I will touch on shortly.

The reduced capital in 2020 is helping to drive expected free cash flow next year to between $120 million to $140 million. Lastly, we are reaffirming our 15% annual distribution growth target. As a reminder, this second quarter was our 17th consecutive quarterly cash distribution increase at the targeted 15% annual growth rate.

Slide 5 is an update of our major 2019 capital projects. Our Dry Ridge facility is up and running, flowing just over a 100 million a day to Leach Express, which we expect to ramp up further in November, as we complete the installation of additional dehydration and compression there. At our Morris Station, we've just completed commissioning three new compressors for an incremental 7,500 horsepower with two more machines being installed and expected to be up and running later this year.

Our Buckland Station and Richhill pipelines are well under way and remain on budget and schedule. These projects will help optimize our system, enhance existing production on our system, and support continued drilling by CNX in their Southwest PA field.

Slide 6 is one that we have showed in the past. We've been getting some questions on the minimum well commitments, so we thought it might be helpful to provide the summary again. Per the amended gas gathering agreement, we have a total of 192 total well commitments, of which 180 are CNX's responsibility, with the remaining 12 going to HG. The easiest way to think about these commitments is there are roughly 40 wells per year. Separately, we have a minimum volume commitment and CNX's Shirley-Pennsboro field, which is approximately a 130 Bbtus a day for this year. That amount increases slightly over the coming years, but the commitment amounts to approximately one pad per year. CNX is currently producing above that minimum commitment.

And with that, I'm going to turn it back over to Tyler.

Tyler Lewis -- Vice president of Investor Relations.

Thanks, Chad, and operator, if you can open the line up for questions at this time, please.


Related Articles

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today will come from Jeremy Tonet of J.P. Morgan. Please go ahead.

Rahul Krotthapalli -- JP Morgan -- Analyst

Good morning, guys. This is Rahul on for Jeremy Tonet here. Just starting off with -- like, can you elaborate on how much of upside to minimum activity commitments have been incorporated in your 2020 guidance? Just curious and also if you can talk about the upside risk to this range?

Chad A. Griffith -- President and Chief Operating Officer

So the forecast that we've put out are largely based on -- they're synced up very well with what CNX has put out there. I think they are slightly above the minimum well commitment. And so I think that, if anything there are upsides to that case as we keep a close eye on the commodity markets moving forward to see what commodity prices do and then CNX will adjust their activity accordingly.

But I think for -- as far as CNX Midstream is concerned, I think that's largely upside potential for them. You know, when we reset the gathering agreements last year, we really wanted to target a minimum well commitment level and a minimum volume commitment that underpinned our distributions -- 15% distribution growth policy and we're right on track for that. And so I think if anything, stronger commodity markets next year will lead to increased activity from CNX and drive us further above that sort of minimum case.

Rahul Krotthapalli -- JP Morgan -- Analyst

Got you. So the MVCs, do they provide a floor for the 250 or is it much lower than that?

Chad A. Griffith -- President and Chief Operating Officer

We haven't articulated that exactly, but the range has that contemplated in it. If there would be -- in CNX's call earlier, they talked to potentially on how gas prices unfold over the next 18 months, shaping the production profile. I'll bet that is thought through as thinking through the 2020 guidance here at CNX Mainstream. So we've targeted, and historically we've shown bar charts on what -- if you did only the minimum, what would it look like? So I think that can provide a pretty good reference for you and you can kind of see where it would stack up closer to the bottom end of the range we're targeting in 2020.

Rahul Krotthapalli -- JP Morgan -- Analyst

Got you, that's helpful. And then, how should we think about capex into 2020 and beyond, given now have accelerated some of the part in second half of '19?

Chad A. Griffith -- President and Chief Operating Officer

Sure. So, really the big system overhaul that we kicked off really last year involved expanding and establishing a few -- so expanding a few brownfield compressor stations and then building a few greenfield compressor station along with laying a few major trunk lines. The majority of that work is wrapped up this fall with then -- after which we really move into a period where incremental compression is sourced [phonetic] by plug and play compressor installation or if we need additional dehydration capacity, it becomes plug and play dehy installation. If we need well connects, those are incremental well connects off of the trunk lines that we've established this year.

So, on a go forward basis, that's really why you see a much lower capital number moving into next year, because at that point, it just becomes well connects and incremental compression installs. And when we think about incremental compression installs, the way we restructured the gathering agreement is that that actually becomes an incremental revenue source because, you know, there's now an incremental fee associate with compression service underlying your agreement.

Rahul Krotthapalli -- JP Morgan -- Analyst

Got you, that's helpful color guys. And then, lastly, any thoughts you could share on winning the new third-party businesses going forward?

Chad A. Griffith -- President and Chief Operating Officer

Yes. So we actually had a -- we had a really good win in the quarter. It's relatively small from an EBITDA perspective. But the team was able to close a gathering agreement with a third party. We obviously keep our customer information very confidential, so I can't really disclose too many details. But it was definitely a win. We got a legitimate third party business coming and we expected to see the first volumes from that appear next year.

Rahul Krotthapalli -- JP Morgan -- Analyst

Got you. That's really helpful guys. Thanks for taking my questions. That's it from me.

Operator

Our next question will come from David Amos of Heikkinen Energy. Please go ahead.

David Amos -- Heikkinen Energy Advisors -- Analyst

Hey, good morning guys. I just wanted to think theoretically about the $80 million to $100 million spend in 2020 and what that meant for potential volume growth in 2021 and also, how sustainable that capex number would be going forward?

Chad A. Griffith -- President and Chief Operating Officer

So largely from, you know, like I already -- I answered the previous question, we made it a point to design a system and roll out a system through the end of '18 and 2019, that became very much a plug and play expansion system. So that's really how -- why you see such a dramatic drop off of capital spend. As we as we complete those projects this year, that was -- that was a big slug of capital upfront, but it was a step change in system design.

Moving forward, it really becomes incremental well-connects and incremental compressor and stalls. So that's really on a go forward basis, when you think about the core areas that are in CNXM's footprint. It really does become like very small capital spent to connect each incremental pad.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Which ticks and ties to that minimum activity and well commitments in the growth plan laid out that Chad talked to earlier. If there would be any additional assets being built or dropped into the MLP is where you would get a new capital spend, but for the current systems that are in there, it is just, and as Chad mentioned, the incremental plug and play capital added in an as needed basis.

Chad A. Griffith -- President and Chief Operating Officer

And I think if you guys tuned into the CNX call, it was highlighted there, they were able to hit some of their cost targets for Utica wells in the Southwest PA area. So to the extent that, you know, it's been -- it's been all good news for Southwest PA Utica, that's just more incremental activity on top of an existing gathering system that will lead to longer utilization of existing assets

David Amos -- Heikkinen Energy Advisors -- Analyst

Okay, I guess my question was really just as simple as, are you growing at that level in 2021 and beyond, throughput?

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

The actual growth to not growth will be determined on the upstream activity sets. So if you look at '21 and beyond, the capital program will allow it to grow, and then your ultimate [phonetic] activity sets of the minimum well or minimum activity commitments do grow the Company. That's how we've build on, in place. So this supports the minimum activity commitment level. And as long as the minimum activity commitments are hit, which right now today seem likely just due to the nature of them and the penalties that you would incur if you don't hit them, you would grow at these levels.

Chad A. Griffith -- President and Chief Operating Officer

And you know; now we've consolidated the midstream and upstream teams. We bought back GP last year and we're going to continue consolidating the teams together in-house that can continue to lead to better alignment between midstream and upstream. Now that we've got the major pieces built, those incremental well-connected can really be built on sort of just-in-time basis. And so the future capital spend is going to be much more closely connected to the -- what the upstream activity set looks like. So we're not going to have to spend a slug of money next year to support what CNX may or may not do in '21 and beyond. Those will be much more synched up and much more closer in time.

David Amos -- Heikkinen Energy Advisors -- Analyst

Okay, that's really helpful. Thank you, guys.

Operator

The next question will come from Ethan Bellamy of Baird. Please go ahead.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Gentlemen, good morning. Just got a few here. To start with, just to clarify on the guidance, that is total capex, not just growth capex, correct?

Chad A. Griffith -- President and Chief Operating Officer

Correct.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

And can you break out expectations on maintenance versus growth in that number?

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

It's detailed in the guidance tables.

Chad A. Griffith -- President and Chief Operating Officer

Yeah, in the guidance table, we do have a detail, but I think our maintenance capital, we laid out was around $25 million or so; $25 million to $30 million.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Per year?

Chad A. Griffith -- President and Chief Operating Officer

Yes. for 2020.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Okay, and is there any lumpiness in that number, any -- or we should we just pro rata that for the year?

Chad A. Griffith -- President and Chief Operating Officer

Yeah, it just changes as your volumes change. So for 2020, $25 million is a good number.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Got it. Moving to incentive distribution rights, any incremental thought there?

Chad A. Griffith -- President and Chief Operating Officer

Yeah, we get it. We get the question a lot and you know I think our answer remains the same, we continue to study what everyone else is doing. We continue to look at what the results of those transactions have been. We've not really seen any material improvements in a lot of our peer's equity position as a consequence of solving their IDRs or quote "solving their IDRs."

And so where we sit here and say, we don't -- we think we got time and we're not going to rush into something and try to make it make a quote "solution to IDRs" and then really not benefit anyone, whether -- you don't benefit CNX, don't benefit our unit holders. And so we're sort of -- are going to continue to focus on execution, continue to grow free cash flow, continue to grow distributable cash and sort of I guess -- I guess we're just -- we're going to continue to monitor and seeing -- and see how the situation evolves.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Yeah, the business model was built with them in mind, and obviously, we'll look to figure out a win-win solution and whenever one presents itself we'll make a move for both CNX and CNX Midstream, but the businesses is OK with them as is and we don't need the equity markets at the moment, so we're going to be patient and find a good solution.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Okay. With respect to the -- thank you for the narrow guidance on free cash flow in 2020, that's helpful. What are the biggest risks to hitting that number and what sort of contingency factor is in there?

Chad A. Griffith -- President and Chief Operating Officer

So we still -- you know, obviously there is multiple pieces that go into that. Revenues drive the topline, capital ends up going into that. So you know it's not entirely locked and loaded, but at this point in time, we know what CNX is doing. We know what direction they're heading. We have a good line of sight on what wells are currently drilling, what wells are currently completing. And those wells that they're currently active on, are predominately drilling the top line of CNXM for next year.

So then on, when you think about sort of cost, the team has been tremendously focused on costs. They're continuing to drive unit costs down through automation, through use of control rooms. I feel about -- I feel good about the direction costs are going that gets you to EBITDA. And when you start backing out our capital program, we've got a good view on what capital looks like next year. It's really just incremental well-connects and cleaning up a few of these compressor builds. So it's a small, more controllable sort of capital program. So I guess at the end of the day, we've got a good line of sight on the major drivers of that free cash flow for next year. And that's why we were able to give you a pretty tight range on that free cash flow number.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

And when you look, I mean, the wells have been performing. So the confidence in the volumes is there. CNX has best in class hedge book that 86% of their volumes are protected from commodity prices next year, so that's a big risk off the table. Then the minimum activity commitments and minimum well commitments really give you a pretty solid floor to build up on whenever you're looking at your 2020 projections.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Okay. No, it's helpful. In terms of the metrics that you're solving for in the business, what are the most important ones? And could you remind us, please, what your executive compensation targets are based on?

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Basically, when you look at compensation, there is two big drivers, one in the shorter term, which is looking at effectively a cash flow per share metric that is consolidated up through CNX, through the sponsor. So every incremental dollar of improvement that we can see with the CNX Midstream side of the business benefits not just the CNX Midstream team, but also the CNX Resources team. That's been a measure that we had used for a number of years on the upstream side and it's worked very well, so we like that.

That plays into obviously everything from capital to operating cost to throughput revenues and throughput volumes. Longer term, when you get higher up into the executive management ranks, the long term incentive plan is one that looks to -- at the end of the day, the long term share price performance, share price appreciation of CNX Resources, of which CNX Midstream is a crucial piece of the puzzle, whether it's some of the parts or whether it's just with respect to being able to have the upstream sponsor realize margins and cash margins and cash flow. So I think that those two metrics in the shorter term and in the longer term exceptionally goal align when it comes to finding ways to squeeze incremental efficiencies and higher rate of returns out of the Midstream business and the Midstream's execution.

And then, in terms of what we're solving for when -- on that part of your question, when you look at things like capital program on the midstream side and how we're going about our business, we basically solve and run the math of the risk adjusted rate of returns and we're looking at that from basically well-head all the way through to sales point, so Midstream is right smack in the middle of that, and that gets into a lot of the characteristics that Chad was speaking about on the prior questions about what the nature of the capital spend was through '18 and '19, setting this up for really multi-year longer term rate of returns on a risk adjusted basis that are quite attractive. And then looking at that incremental capital spend in the coming years, in '20 and beyond for sort of the just-in-time bolt-on capital opportunities.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Okay, that's helpful. And then lastly, if I can indulge just one more question, very big picture, the sentiment on Appalachia is pretty bad. I'm curious what you think about Northeast gas macro, how things are going to evolve and how you see CNXM fitting into that bigger picture over the next, say three years?

Chad A. Griffith -- President and Chief Operating Officer

Well I think -- so prior to my current roles or I guess still currently, I am also responsible for marketing our gas and sort of maintaining the macro view. So I keep a really close eye on what's happening out there. I think that the story for Appalachia is close -- is very related to what's going on nationally for natural gas. You've got a lot of gas coming out of the ground and -- but at the same time, we also have some incremental weather-normalized demand domestically through some incremental power gen demand. You've got increasing exports to Mexico. Hopefully they get sort of some of the political issues with some of their pipelines worked out and really begin taking more exports to Mexico.

And you've got increasing LNG offtake. So I think as far like domestic balance, we're certainly refilling storage at a healthy clip where I would expect just to get back to sort of like average levels as we enter into the winter season. And where we come out going into 2020 really depends on what winter does. A strong winter or a mild winter can be a big flip on what 2020 gas prices end up doing.

So that's sort of what's happening on a national picture, and so as when you relate that back to what's happening in Appalachia and what it means for CNXM and our peers, it really comes -- we've had improving differentials, we've had improving basis, we've had a number of expansion pipelines come online that's helped basis improve. Not all of those pipes are absolutely full. So that's kept bases down at that sort of variable cost level, which is sort of healthy and where it rationally should be and we sort of see us staying there on a go-forward basis.

What happens longer term for some of our peers and their ability to compete at sort of this this cap level is a -- I think a big question mark and something we're all keeping a close eye on. But I know CNX and CNX Midstream have set themselves up to succeed, really, regardless of what that cost us through their hedge book and through their focus on being the low cost producer in Appalachian.

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Thank you very much, I appreciate it.

Operator

[Operator Instructions] Our next question will come from Tim Howard of Stifel. Please go ahead.

Tim Howard -- Stifel -- Analyst

Hi, thanks for taking our question. I just want to follow up a question from the CNX call. Given the large scale buildout is close to complete at the Midstream side, just how does the relationship between CNX and the Midstream evolve? You know a number of peers have separated the midstream and upstream entities, so just wanted to get your view on that. And are you hearing any investor pushback from the CNX base on kind of realizing that sum-of-the-parts valuation?

Chad A. Griffith -- President and Chief Operating Officer

So we've dealt with Sum-of-the-parts valuation and we've sold businesses and we've created businesses. So we've done this over the dynamic, call it last five to 10 years at CONSOL, now CNX Resources, we're spending out our core business. So we've done these types of situations before. And I think, you know, we've spent a lot of time really harping on the strategic hand-in-glove relationship and the abilities and synergies you get from having an upstream and midstream company combined together.

Now we are working hard, and as Chad mentioned, to getting a third party -- to continue to work and get third parties. And you know we do believe to have separately stand-alone-type business models, which is a possibility. You need to have significant third party presence. So that's a platform that we're still working on the CNX Midstream standpoint. And in the meantime, CNX is just -- it owns a profitable, cash flow producing, highly valuable entity, that is also one of the main ingredients to getting its gas to market.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

And one of the other things just to consider is the corporate structures we've seen in the basin with midstream entities and peers versus, maybe in some instances, our prior upstream sponsors have evolved certainly from MLP C-crop spins, everything in between. But the one thing that hasn't changed is, for better for worse, is midstream entities are still tied strategically, financially and from a risk perspective to what was their prior upstream sponsors, but currently their largest customer.

So when you look at that from the position of CNX Midstream and CNX Resources, we had that assumption from day one, no matter what the corporate structure was going to be or what the overlapping ownership might be. And that's why things like the hedge book of the upstream sponsor is critically important to the performance and the viability and the risk profile of CNX Midstream. That's why the ability to capitalize a flexible midstream system on the CNX Midstream side is incredibly important to CNX Resources when it comes to its future capital deployment. And those things are going to -- the assumption is they're going to stick and they're going to remaining relevant whether we're MLP, whether we're something else, whether the ownership is currently cast as it is or whether the ownership ends up being something entirely different.

So I think as long as that is understood and we make decisions across those two companies that contemplate that and take advantage of that opportunity in front of us, we're in a position where we're able to, as Chad said, quarter after quarter after quarter grow distributions in a way where the coverage ratios look healthy and the balance sheet is in great shape.

Tim Howard -- Stifel -- Analyst

Got it, that's helpful. And then a follow up on that, where are you in the process of creating those kind of stand-alone functions for the midstream side? And I mean, you've done an excellent job with costs over the years. Are there any kind of higher costs associated with that as you fully get there?

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Yes. So that it's gone through a few evolutions going back into history, so at one point in time, upstream and midstream were together at CNX, then coupled with JVs we had at the time and spinning out not [Indecipherable], we separated them. As mentioned on the upstream call here earlier today, we are in the process of looking at places that it makes sense to combine some efforts and some initiatives across upstream and midstream. So as conditions change and activities change and focus changes, we try to keep that in mind and balance our decision making accordingly at both CNX and CNX Midstream.

Tim Howard -- Stifel -- Analyst

Got it. And then just pivoting to CNX potentially going flat production in 2020, how should we be thinking about distribution growth at CNXN and kind of where you target coverage at in that environment in 2021 and beyond?

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

So, we've talked a lot about the minimum well commitments and the minimum activity commitments and the minimum volume commitments, those are really built to kind of carry distribution growth through the plans that Chad laid out. So that is kind of the backstop as we think about it at CNX Midstream as CNX Resources kind of ebbs and flows as the commodity price dictates incremental activity. But the substantial hedge book and the commitments really helped to baseline a very healthy, achievable future.

Tim Howard -- Stifel -- Analyst

Okay, and I just thought, based on the minimum well commitments that 2021 coverage would be tighter than your historical kind of 1.4 times, and you're OK with that knowing that the commitments are there and it'll grow into 2022, I guess. Is that...

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Yeah, we looked -- I mean, as we've talked, we like several years of visibility. So what happens kind of quarter to quarter can or year-to-year, we like several years. So as we're looking forward into kind of the longer term several year picture is, where we either have comfort or not and the minimum well commitments, as we laid out and it's laid out in the presentations, gives us that that longer term clean line of sight comfort.

Tim Howard -- Stifel -- Analyst

Got it, thanks. And then two quick ones on the third party volumes, it seemed like the other volumes line, which is where third party is captured, increased pretty substantially quarter over quarter, but revenues were minimally changed, I guess. So that's kind of question one, what's driving that differential? And secondly, are third party volumes expected to roll over into 3Q or should we expect them to take higher given that agreement that was signed?

Chad A. Griffith -- President and Chief Operating Officer

So, I think what you're seeing in current year is you're seeing some volume increases associated with what -- we have a very short haul contract, that's like literally right down over the hill. So the gathering fee associated with that service is appropriately sized to a very, very short haul sort of agreement. So that's why you're seeing an increase in volumes and not such a significant increase in revenues associated with that.

And that was an agreement we signed I'm going to say, late last year that we stated seeing some of those volumes late last year and those have been slowly ramping up. And those will probably sort of -- those will fluctuate depending on -- there is sort of overflow from an adjacent system, and so those are going to be fluctuating. But really it's, like I said, the gathering fee associated with that is small because we're running very, very short haul service for that -- for that customer.

The new agreement we mentioned in the -- we mentioned earlier in response to one of the questions, that's full gathering, that's a good [Indecipherable], that's a new pad, it's several wells, but we won't begin seeing those volumes until middle of next year.

Tim Howard -- Stifel -- Analyst

Great, thanks for everything.

Operator

Ladies and gentlemen, this will conclude our question and answer session. At this time, I'd like to turn the conference back over to Tyler Lewis for any closing remarks.

Tyler Lewis -- Vice president of Investor Relations.

Great, thank you. And thank you, everyone, for joining us this morning. We look forward to speaking with you again next quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 33 minutes

Call participants:

Tyler Lewis -- Vice president of Investor Relations.

Nicholas J. DeIuliis -- Chairman and Chief Executive Officer

Chad A. Griffith -- President and Chief Operating Officer

Rahul Krotthapalli -- JP Morgan -- Analyst

David Amos -- Heikkinen Energy Advisors -- Analyst

Ethan Bellamy -- Robert W. Baird & Co. -- Analyst

Tim Howard -- Stifel -- Analyst

More CNXM analysis

All earnings call transcripts

AlphaStreet Logo