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Williams Companies Inc (NYSE:WMB)
Q2 2019 Earnings Call
Aug 1, 2019, 9:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to The Williams Companies Second Quarter 2019 Earnings Conference Call. [Operator Instructions]. At this time for opening remarks and introductions, I would like to turn the call over to Mr. John Porter, Head of Investor Relations. Please go ahead.

John Porter -- Head of Investor Relations

Thanks, Patrick. Good morning and thank you for your interest in The Williams Companies. Yesterday afternoon, we released our earnings press release and the presentation that, our President and CEO, Alan Armstrong will speak to momentarily. Joining us today is our Chief Operating Officer Micheal Dunn, our CFO John Chandler and our Senior Vice President of Corporate Strategic Development Chad Zamarin .In our presentation materials you will find an important disclaimer related to forward-looking statements. This disclaimer is important and integral to all of our remarks. And you should review it. Also included in our presentation materials are non-GAAP measures that we reconciled to Generally Accepted Accounting Principles and these reconciliation schedules appear at the back of today's presentation materials.

And so with that, I'll turn it over to Alan Armstrong.

Alan S. Armstrong -- President and Chief Executive Officer

Great. Well, good morning everyone. Thanks, John. And thanks for everybody joining us, you know it's a busy time right now, as we discuss the second quarter financial performance and the key investor focus areas we are going to hit as we have in the past, some of the areas that we've -- questions we've been hearing from our investor base. So let's move right into the presentation to take a look at our Second Quarter 2019 results. Here on slide two, we provided a clear view of our year-over-year financial performance, as you can see, we continue to enjoy very healthy growth in all of our key measures.

In general, all the metrics, we want to go up went up by double digits. And those , we've been working to reduce went down.

So this growth continues to reflect very little direct commodity exposures, we reminded you, in fact year-to-date our 2019 gross margin is 98% fee-based versus only 2% coming from direct commodity margins. And I'll remind you with that is a very predictable set of cash flows, making this the 14th quarter in a row that we have been in line or are been at least in line with Street consensus and our own guidance.

So let's take it from the top with our GAAP cash flow from operations, which increased 20% for the quarter and 16% year-to-date. Our business continues to demonstrate significant free cash flow and as you can see our CFFO exceeded capex by over $360 million and $625 million for the quarter and year-to-date periods.

On the next line, we show 12% and 9% growth for adjusted EBITDA, which is impressive in the face of significant asset sales affecting the period, and I'll have more to say about what drove the adjusted EBITDA performance here in next couple of slides.

And you can see our continued strong growth in adjusted EPS metrics posting excellent 53% and 33% increases. Our EPS continues to be burdened with substantial non-cash charges and I encourage you to take a look at Slide 12 in the appendix to appreciate the true power of our cash flows underlying these earnings.

Our Bcf was up about 36% and 21% with strong growth in the per share calculation and the related dividend coverage ratio moving up above 1.8 with the second quarter being boosted by a cash tax item that we disclosed. We're making great progress on bringing leverage down. Our original guidance was to finish the year at less than 4.75 and we currently sit at 4.43 and we'll discuss our revised leverage guidance in a moment.

And finally crisp execution on our projects continues keeping our capital spending in line with our expectations. So, really nice improvement in our various earnings and cash flow metrics despite the impact of significant asset sales.

As we move on here to slide three, for the quarter. Adjusted EBITDA increased just over 12% or 14% if you adjust for the bigger transactions that affect the year-over-year comparison. On the left side of the slide in gray, you can see an unfavorable $37 million comparability adjustment which includes removing the adjusted EBITDA from the various asset sale transactions completed during the last 12 months and then taking out the $11 million favorable item reflecting the addition of the incremental 38% UEOM ownership interest.

The normalizing for those items you see adjusted EBITDA growing about 14%. Now moving over to look at the financial performance of the continuing business, similar to the first quarter of this year. Atlantic-Gulf led the increase with a 23% increase in adjusted EBITDA driven by top line Transco revenue growth from new expansion projects including Atlantic Sunrise and the Gulf Connector. Next up looking at the Northeast G&P area, we had a 20% increase in year-over-year adjusted EBITDA driven by 17% higher gathering volumes and higher gathering fees associated with expansion projects. Volume increases were led by the Susquehanna Supply Hub area which grew about 23%. But we also saw double-digit growth rate in all of our other operated Northeast franchise, except the smaller Laurel Mountain JV that we have with Chevron probably one of the more impactful changes that we had there was the Utica volumes up about 15%.

And so, as we mentioned in the past the Encino transaction out there has really been important to us to see the volumes and the Utica really start to turnaround from what previously had been declines to now very healthy end clients. So, overall, we continue to very nice start to the year in the Northeast.

And finally, we have the West, which is pretty flat to the prior year were a sharp drop in NGL margins was offset by nice growth in fee-based, service revenues.

So, and we're excited to see as well in new plant at Fort Lupton quickly fill up this quarter in the DJ Basin, as we exceed -- we've now exceeded about 200 million a day of new inlet volumes coming into that plant. So, as we told you that just started up right around the end of the first quarter and end of the second quarter and that new train there has already filled up, so a great growth going on there in the DJ Basin.

Moving onto slide four and looking at the year-over-year results, pretty similar story year-to-date as you heard for the second quarter once again, on the left side of the slide in gray. You can see that the unfavorable $78 million comparability adjustment from the various asset sale transactions. And then a $13 million favorable item reflecting the pickup of the incremental 38% UEOM, interest again. And so normalizing for those items you see adjusted EBITDA growing about 13%, for the first six months comparison. Year-to-date, we see Atlantic-Gulf up 21% and the Northeast up 20% driven by the same factors that we just discussed on the previous slide, namely Transco revenue growth and strong broad based volume growth across the Northeast.

The West is down about 3% on this comparison reflecting much lower NGL margins and the effect of severe winter weather this year on volumes in 1Q of '19. All in all, very happy with our second quarter performance which track well with our overall business plan from last fall despite the declines we've seen in natural gas and NGL pricing. And we are very well positioned to continue this growth here in the last half of the year.

Next, so to visit a few of the key investor focus areas, and before I dig into that the items on slide, I just want to remind you of a few things, first of all, we just recently announced a reorganization and some other cost reduction initiatives that we have going on at the company right now. As you may have noted from our recent 8-K. After more than 30 years of service. Jim Scheel will be leaving the company in December of this year and we're taking the opportunity to further reduce our operating areas to two, one focus primarily on our FERC-regulated gas pipeline business led by Scott Hallam and the other focused on our non-regulated business being led by Walter Bennett, who leads our West gathering business today. I have more to say in recognition of the fine work, Jim has done for Williams on the third quarter call. But for now, I'll just say the reorganization to two operating areas represents another step toward becoming further simplified and centralized as we seek to be the very best operator in the natural gas infrastructure business. So these moves are basically taking advantage of the scale that we have in these very similar businesses and continuing to drive common processes and common systems across our operations.

But we will continue to provide supplemental disclosures to assist in the modeling of our non-regulated business, they don't worry about losing any of the transparencies -- transparency that we provide today. Our supplemental disclosures will provide at least as much visibility as you have today and we'll continue to highlight the Northeast volume and EBITDA growth that continues to occur.

Beyond the consolidation of the operating areas, we have also initiated a voluntary separation program and are looking at other cost reduction opportunities given the $5 plus billion of asset sales that we've had over the last three years, and really narrowing our focus down to the natural gas infrastructure space is allowing us to take full advantage of the scale and I can tell you the entire management team is very focused on us being, having the very best operating margin ratio in the business. And so we continue to push hard on that, as a team and we really believe given the scale that we have, we ought to be the very best in the industry on this measure.

And these efforts are taking us closer and closer to that point. So let's look now at the first item, we'll be discussing which is our financial guidance and progress on deleveraging. First off, we are reaffirming our current financial guidance for 2019 and now guiding to a further improvement in our year-end 2019 leverage target. You can find the various elements of our 2019 financial guidance in the appendix of this presentation. Additionally, we are also affirming our longer-term EBITDA growth rate of 5% to 7% per year.

Turning now to our leverage, we achieved the debt to adjusted EBITDA ratio of 4.43 at the end of the second quarter and we now expect our year-end 2019 debt to adjusted EBITDA to be less than 4.5. As you recall, our original guidance was to be less than 4.75 for the same period. The effects of our transactions along with our recently lower capital expenditure forecast has allowed us to significantly improve our 2019 debt to adjusted EBITDA expectation for 2019.

There is no change to our long-term target of the 4.2, that we plan to hit by the end of 2021 and we continue to evaluate transactions that could potentially allow us to reach the 4.2 times at a faster rate. As an affirmation that we are making the right moves on the leverage front, we recently saw some favorable rating agency actions where S&P improved its outlook to a BBB flat stable rating and Fitch put us on rating watch positive.

Shifting now to discuss the expected growth in our Northeast G&P business we'd like to first emphasize that we still believe in the strong natural gas demand growth fundamentals that underpin our strategy. We have seen continued delays in the start-up of nearly all of the LNG terminals that were planned to come online in the first half of '19, but that just means we're going to see an even stronger pool on natural gas in the back half of this year. It really is easy to see that the natural gas demand growth outlook remains very strong, driven by LNG export growth continued, power generation and major industrial investments that continue to come online, trying to take advantage of low cost US natural gas and US low cost NGL prices.

Confidence in low-cost US natural gas reserves will continue to drive strong natural gas demand growth over the long term. And as a result, we believe that there will have to be a call on natural gas focused supply areas given the continuous growth in natural gas demand and the stronger than ever capital disciplined being demonstrated by the producer community. Our near-term, we continue to see commodity price headwinds for our producer customers in the area and we believe that producers are responding appropriately to the current market conditions. Continuing to plan around or hoped for a higher price would -- prices would only exacerbate the linked and supply and we are also very focused on closely matching our capital programs with these latest forecast. Our Northeast growth capital for 2020 probably ends up being about half of what it was in '19, due to this reduced --

so to us filling that capital as well as the synergies that we are realizing from the UEOM transaction.

While also making significant near-term reductions in '19, as we continue to respond to the producers disciplined approach. So with that being said, let's take a closer look at our current expectations for the Northeast G&P business through 2020, built on the back of our most recent producer customer feedback. Starting with 2019, you can see that we are currently forecasting gathering volume growth of about 13%, which should result in adjusted EBITDA growth of 19% for a total of about 1.3 billion [Phonetic]. Year-to-date, we've generated about 16% gathering volume growth, but we do expect that overall annual growth to moderate in the fourth quarter, mostly just since because our fourth quarter comparison will be up against volumes that grew rapidly after Atlantic Sunrise came on in the fourth quarter of '18. Looking forward, our 2020 very latest forecast shows about a 5.5% gathering volume growth over 2019 generating about 11% adjusted EBITDA growth to get to about $1.45 billion.

I might just note that we had always expected a slowing in the growth rate for 2020 versus '19 with respect to our prior 10% to 15% gathering volume CAGAR. It seems that folks may be missed the front end impact that was present in the CAGAR and instead that we were assuming more of an annual or equal annual growth rate. That was never the case and the unequal growth rates across the 2018 to 2021 timeframe were indicated, given the strong growth that we have been expecting and we are seeing in 2019. Beyond 2020, we do see an opportunity for a stronger growth rate to resume in 2021, but that of course will be dependent on a better balance in the natural gas market. I'd also just mention that as we think about the Northeast pricing environment, it's important to remember that even at today's pricing environment producer netbacks are still better than they were in the '15 and '16 timeframe when production was constrained in -- and commodity prices were more a function of the basis differential Than the Henry Hub prices, since then incremental gas takeaway capacity has come online improving realized prices in the region and the producers have become significantly more efficient and disciplined with their capital during this timeframe. So overall, we are encouraged to see the level of EBITDA growth. Our Northeast G&P business can continue to generate even in the weak natural gas price environment we're currently experiencing, and we remain very focused on cost reduction and capital discipline as we await long-term fundamentals to balance .

Now let's move on to to discuss our Transco growth projects. First, let me give a quick update on the Transco rate case, although not a lot of new information to pass along here. As our confidential settlement process continues. We've now had five conferences and we continue to work the issues like ROE with our customers. Last quarter, we stated that the settlement negotiations were likely to continue for many months but they have done that and resolution could extend into next year.

We are cautiously optimistic that a settlement can ultimately be reached without the need for litigation and the settlement would include the $1.2 billion emissions reduction tracker that will allow Transco to significantly reduce emissions from our existing compression fleet along the Eastern seaboard.

And as always, I'll remind you that we don't have any upside from the rate case reflected in our financial guidance. So let's touch on the status of Transco's major growth projects starting with the Northeast Supply Enhancement project.This quarter we quickly reapplied for the 401 water quality certification in New York and New Jersey and promptly received notice of complete application from New York and New Jersey has indicated that our application is administratively complete.

These are very important milestones in the refiling of this and taking on some of the technical issues that were raised by both of those states.

Obtaining both of these 401 certifications is essential to begin construction this fall in order to meet the project in service date. The enhancement of the existing infrastructure is critical in connecting much needed natural gas supplies to folks in New York and while improving the Airshed and system reliability in New York and New Jersey.

In May, our customer National Grid had to announce that they will not be able to process new gas service request in its service area in Brooklyn, Queens and Long Island. This means they will not provide any additional connections for -- Norphlet [Phonetic] service until there is certainty that the [Indecipherable] project can move ahead.

Local commercial, residential and political support for the project is strong as the need for gas on both an economic and environmental improvement basis is clear and compelling.

We fully expect a positive decision will come in time for us to maintain our in-service date just ahead of the 2021 winter peaks .

Next I want to touch on a couple of key Bert milestones that were recently for a couple of our Transco projects. We recently applied for a FERC certificate for our Leidy South project. As a reminder Leidy South is a proposed and 580 million cubic feet per day expansion of Williams existing Pennsylvania infrastructure that will further connect Appalachian gas with growing demand centers along the Atlantic seaboard in time for the '21-'22 heating season. Also our FERC certificate for Southeastern Trail project is pending approval in the Southeastern Trail project is a 295 million cubic feet per day expansion of the Transco pipeline system designed to provide additional pipeline capacity to serve growing markets in the Mid-Atlantic and Southeastern states by November of 2020.

And additionally, we received permission in June to place a portion of the Rivervale South to market project into early service. This project is Transco expansion of 190 million cubic feet per day. The service additional customers in New Jersey in New York City. Facilities required to provide 140 million cubic feet per day have already been completed and the remaining facilities are ahead of schedule targeting the September in-service date two months ahead of schedule .

Also our most recently announced Transco project Regional Energy Access included it's open season and our team is finalizing negotiations with this customer base. So all in all, continued tremendous amount of activity on Transco both in terms of completing existing projects that we've got under way like Hillabee Phase 2, which is also ahead of schedule and a long list of projects that we have in the permitting phase.

So lots of great effort going on by our engineering and construction teams but with both the permitting and the construction and continued great performance on the capital execution efforts here .

And lastly, let's move on to the deepwater Gulf of Mexico, where we're seeing a pickup in activity and significant new discoveries in and around our assets that has us positioned for significant free cash flow growth for years to come.

Beginning in the third quarter of '19, you'll start seeing contributions from our Norphlet deepwater gathering system investment. Norphlet delivers gas into Williams Transco system located on one of our Gulf of Mexico platforms and from there the gas will be transported to our recently expanded Mobile Bay processing facility. First gas production on the system began in late June and we acquired $200 million Norphlet pipeline in early July.

The Norphlet deepwater gas gathering system is extremely well positioned for even more growth than the existing Appomattox system with approximately 50% of the pipelines contractual capacity remaining available for future produced tie-ins of existing discoveries in that area. Today. So our discovery system is also seeing new volumes from the Hadrian North and Buckskin tie-backs, which achieved first productions on our systems and during the second quarter the Hadrian North and Buckskin liquids-rich production flows to our discovery system be the Keathley Canyon Connector and ultimately to our Larose processing plant in our Paradis fractionator. These tie back opportunities are high return projects and our example many more to come in the deepwater.

Looking-forward, we are very active right now discussing multiple tie back prospects around Devils Tower. Our deepwater platform where production could begin as early as 2021 and on the -- near Blind Faith we continue to be excited about Chevron and Total Ballymore dedication to us where first production could be seen as early as 2023. And then the very active Western Gulf facility planning for shales' well prospect is on a fast track and we could see FID for our system expansions here in the fourth quarter of this year.

So we continue to see opportunities for significant incremental cash flow in the 2022-2023 timeframe from our deepwater operations. And we are really excited about the very substantial growth that we're seeing both on acreage that's already dedicated to us and as well new acreage that we're very confident that we're going to be able to pick up given our expenses network.

So with that we will transition to our Q&A session. Thank you again for your time today. We're pleased to share with your -- very strong second quarter performance and continued focus on deleveraging and the progress we've made on our many growth opportunities. And so with that, operator will turn it over to you.

Questions and Answers:

Operator

Perfect. If you'd like to ask a question [Operator Instructions] . We will take our first question from Spiro Dounis with Credit Suisse. Please go ahead .

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good morning everyone. First question just around the financial guidance and being able to reiterate the 5% to 7% long-term growth. I think we are a little surprised there just given the slight haircut on the Northeast volume outlook and Alan totally understand your point on the expected slowdown in embedded in the 10% to 15% CAGAR but just still seems like something is in there may be offsetting some of that.

So maybe just walk us through some of the drivers and how you're able to maintain the 5% to 10% and if you're able to maybe even pull forward some demand driven projects as an offset?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, thanks, Spiro. Well, I would just say know obviously when we laid that out, we were , that 5% to 7%.

We were counting on a certain level of returns from our projects.

And I would just say that some of those things have gone better than that. So in other words, we've had quite a bit of improvement, if you think about it. Since we laid out that 5% to 7%. We've had quite a bit improvements in areas like the Utica, within CNO [Phonetic] , in the UEOM transaction that gives us some synergies and ability to keep our costs even more under control there in the Northeast.

So we've actually, we said that 5% to 7% some time ago and just like in any big company like Williams. There has been some things that go down a little bit, but there is also things that go up and of course, and we're continuing to put pressure on our cost as we talked about. So I would say we are being agile and responsive to those changes and we're also picking up advantages like Bluestem like you might have noticed our Conway, NGL and frac business was up pretty significantly this quarter, which was on the backs of us building up for some of those Bluestem volumes and so we're continuing to take advantage, where the opportunities exist and those tend to offset things where things change a little bit to the negative, just the benefit of having a big portfolio.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. That's helpful and then just on the faster-than-expected deleveraging, obviously the asset monetizations played a big part in that, and it sounds like you expect that to continue, but I guess if you just look at some of the announcements made by some your E&P customers in the Northeast recently, just curious if you've seen any shift there a reduction in appetite there from potential buyers and JV partners. Are they still going like they want to invest more?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, I would just say with that has not slowed down a bit, I think the distinction out there this becoming more clear to us is that there -- the interest rates are so low out there and and so much available to that money up against these very certain cash flows and very predictable cash flows that we have. And so as long as you have the predictability of those cash flows that kind of low cost money is going to be available and we continue to be impressed by that in terms of various transactions that we're involved in, but it's clear to us that that's people just arbing out these very low interest rates against these very, very predictable cash flows, and I think we're going to continue to see that with lower interest rates.

Spiro Dounis -- Credit Suisse -- Analyst

Got it, that's also helpful last quick housekeeping one. We've got a few inbounds on this lately but just with respect to Chesapeake and the Haynesville contracts, you've got there. Could you just remind us again when those contracts roll and what your appetite is at all just renegotiated anything here?

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Hi Spiro, this is Michael Dunn. Those contracts are dedicated to us, and we -- I don't have the exact timeframe on when your language about when they might roll. But all that acreage is dedicated to us and we are continuing to work with Chesapeake there and they've been active in there and we've been bringing on additional production from them. But we've also been very successful in capturing other business in the Haynesville, besides Chesapeake that is coming into our systems there. So volume in the Haynesville is up for us and we're pretty pleased with what we're seeing there right now.

Alan S. Armstrong -- President and Chief Executive Officer

I would just say there in the Haynesville, when we renegotiated that several years ago there we did extend the life of that contract, and I believe that contract extends out into the 2030s, so that was one of the benefits we got out of that transaction when we renegotiated that a couple of years ago. So, and the Eagle Ford is the similar long-term time frame, so there is not any reups coming in either of those areas.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. I appreciate all that color. Thanks guys.

Operator

We'll take our next question from Gabriel Moreen of Mizuho. Please go ahead.

Gabriel Moreen -- Mizuho -- Analyst

Hey, good morning everyone. I was wondering if you can talk a little bit overall, about the ability to flex capex higher or lower in response to the natural gas pricing environment. You gave a preliminary outlook for capex guidance for 2020. Do you expect gas prices go maybe sub $2, is there even more ability to flex that downward? Maybe you can speak to that or is that kind of 50% reduction, sort of where it goes regardless of the environment?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, Gabe good question. Yeah, I would just say there are the capital that we have out there today is backed by rate increases or MVCs and so if there was further pullback that occurred -- we today, I would just say that a lot of that capital that we're talking about really wouldn't move all that much unless there was some kind of renegotiation, because most of it's underpinned by obligations on the other side. So I really wouldn't expect it to move too much, I would tell you that the outside of the Northeast, obviously these demand pull projects which will be the bulk of our capital in 2020 of course just in further improved by low gas prices. So I don't really see any change there, and then we've still got capital going into the DJ Basin and the Wamsutter area and those are mostly getting driven off of oil prices. So I don't see much change going on there. And of course the deepwater is such a long-term play and then really get driven by shifts -- short-term shifts in commodity prices.

Gabriel Moreen -- Mizuho -- Analyst

Thanks, Alan. And I guess as a related follow-up, I was wondering if you can comment a little bit on the headlines that have crossed on the Blue Racer system over the last couple of weeks. And I think related to that, there was a fairly substantial Marcellus gathering transaction that happened about a month ago. And I think Williams had ownership in a couple of those systems, was there an opportunity to maybe piggyback on that transaction. And can you maybe speak to that as well?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, no, the answer is -- we always answer the simple part of that first and then I'll turn it over to our General Counsel, and turn to more complex question you started with. On the Pennant investment that we have it with Rivers Midstream up there that is really small interest and there's not really any opportunity there for, so there's really nothing on that front. We do think there is some good consolidation opportunity up there that we think will likely come our way. even with that asset, we think there's some good opportunity around the liquids that come off of that plant that do come over to UEOM. But again, I'd just say we were impressed with another high multiple being paid in the space out there and I think we continue to see that and so we continue to see our businesses mark well below that, those kind of multiples that are being paid. So we were impressed by it and we are obviously we're paying close attention to that I'm going to have Lane Wilson, our General Counsel respond to the Blue Racer request.

T. Lane Wilson -- Senior Vice President and General Counsel

Hey, Gabe. I assume you're talking about the news lately regarding the litigation in Delaware. I think about all we want to say there is that we are cooperating and supportive of the efforts to IPO the Blue Racer business that said, there are a number of right around the structure and scope, certain filings that we have related to that IPO effort and the litigation is really just an effort on our part to protect those rights. Beyond that, I think we just want to wait for the quarter [Technical Issues] dissipate probably occur sometime in August.

Gabriel Moreen -- Mizuho -- Analyst

Thanks, Lane. I'll let that rest, And last one for me is -- it seems like a little bit of pushing out to the right on timing on some of the Rocky's processing expansions. I think, Alan, you mentioned oil -- being a function of oil prices, it seems like the processing picture is pretty dynamic out there in the DJ. Can you maybe speak to that and the timing going on there?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, we're really pretty encouraged by the continued steady growth rate that we're working with on producers out there. We did push out our Keenesburg II plant and our Milton train we did push those out in our schedule, but we are really impressed with the growth that we're seeing out there and the fact that we've already filled up -- just here in one quarter we filled up that one new train replacement service, first part of April. And so we're really pleased with the way that's going. Actually I would tell you, one of the risks. I didn't like about that basin was the peaky nature of the production growth, and so that flattening out a little bit with the same amount of reserves you back. We actually picked up a very large dedication in East really -- from extraction since we did that deal earlier. And so we continue to build dedicated acreage behind the system and a little slower growth rate, with less capital going in wouldn't hurt my feelings at all in terms of the long-term return on capital that we would see out of that area.

So overall, despite all the regulatory concern, which is not to be dismissed. We actually think the basin is doing very well and the producers are doing a nice job of following through on the permits and a lot of which were already grandfathered in the area. So I would be contrarian perhaps, but I am pretty have a pretty positive perspective about the DJ and the actions going on out there right now.

Gabriel Moreen -- Mizuho -- Analyst

Great. Thanks Alan.

Operator

[Operator Instructions] We'll take our next question from Chris Sighinolfi with Jefferies. Please go ahead.

Chris Sighinolfi -- Jefferies -- Analyst

Hey, good morning Alan and thanks for all the active [Speech Overlap] announcements, it's really helpful. I did want to follow up on a couple of areas. The leverage guidance change last night I noticed obviously it came down a touch without any subsequent change in EBITDA.

Our capex ranges so I'm just wondering is that is that sort of a feeling that you're going to be at the higher end of the EBITDA range or the lower end of the capex range for both or is it some other cash flow item like a working capital change or something like that we should pay attention to?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, great question and very fair one. I would just say that on the capex side, we're probably coming in toward the lower end of that range. On the capex guidance so that's a piece of it and as well I would just say we've got more confidence around the way the quarter has gone. And one thing, pretty interesting, if you think about it. We always show our capex and that's a gross capex number.

And so when we for instance, the JV we have now with CPP that's our growth gross capex that's embedded there as that is our growth, but our capital burden obviously is less with CPP picking up some of that capital [Indecipherable] so that actually helps that as well, a little bit .

Chris Sighinolfi -- Jefferies -- Analyst

Okay. No, I think maybe I had not quite paid attention to that latter part. So I appreciate that. Also pivoting a little bit. Wanted to follow up on Spiro's earlier question that you're gathering contracts perhaps frame it more broadly than he did as you had referenced you renegotiate some agreements in select areas and with select counterparties in the 2015- 2016 time frame .

I think and often instances you received an upfront cash payment and then subsequently lowered the rate to spur activity and preserve. I think in total year NPV. I'm just wondering, given the pullback now and the intense focus on producer activities if you're having similar conversations with anybody anywhere?

Alan S. Armstrong -- President and Chief Executive Officer

And No, not that I'm aware of. Chris, I am and I don't see anything out there right now. There is certainly a lot of desire as we always have, there's always desires with our producers to further streamline and align our interest out there.

And so there is certainly on that but I don't know of anything where there'd be an upfront payment kind of situation out there. And really, the only thing, you know, as we had that really was the was The Barnett that Total is now the operator on. And so we're constantly working with Total in alignment and especially in a low gas price environment we work closely with them on reducing costs between the two of us out there very healthy relationship in a very positive one with Total there in The Barnett.

Chris Sighinolfi -- Jefferies -- Analyst

Okay, great. And then final question from me, Alan. It's -- we've obviously paid attention to what you guys are seeking in Texas, with the EXCO situation, it feels like ours -- he is going to make a decision here next week and I'm just curious, if I could get a little bit more color from you on maybe the background there and if that's a situation that might be replicated elsewhere. If you have a producer that's flaring on a system that already exists. And how that maybe dovetail into some of your ESG efforts ?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah. Yeah, great question when -- and it truly is one of those things where it just doesn't, frankly, from our perspective, make a lot of sense, but it is very complex background that was originally that that acreage was dedicated under the Chesapeake agreement .Chesapeake sold their mineral interest to EXCO, but didn't move the dedication and so though the cost of that, those assets remains in that cost of service calculation under the Chesapeake agreement.

And so just because they sold it didn't mean it change the nature of that. The gas was physically connected to our system and had previously flowed and so this isn't a situation where we're saying, hey, our pipelines -- sitting out there and we could connect it to you, it literally is connected and so given that this is a sour gas and therefore puts off lot of H2S, has what H2S component in it and would put off SO2 and, but we think there's a lot of good reasons to be making sure that that's going on.

I will say that our team has worked in a very positive manner out there with EXCO despite the conflict. We've been working with them in a positive way to try to contain the gas and be buying the gas from them. And so we are working on continuing to improve that relationship and be constructive as we always would. So I do think we're going to wind up at a constructive place on that, but it is a complex issue, because that actually was is under an old Chesapeake agreement and the cost of those facilities that we installed we're under that cost of service agreement.

So it's not as far as -- I'm going to take that one. But we are, I would say our move out there was just one of protecting our rights and the the contract for the Chesapeake acreage out there prohibits flaring. So you shouldn't assume that this gets extended to further actions in the area because it specifically prohibits that. So I don't really see any follow-on from this.

Chris Sighinolfi -- Jefferies -- Analyst

Okay. Well, thanks again for the time. And congrats on the steady execution and certainly not been lost on us.

Alan S. Armstrong -- President and Chief Executive Officer

Thank you very much Chris.

Operator

We'll take our next question from Jeremy Tonet with JP Morgan. Please go ahead.

Jeremy Tonet -- JP Morgan -- Analyst

Hi, good morning. Wanted to pick up on the balance sheet situation here. It seems like you guys have been quite busy has been noted on the call with asset sales and strategic JVs really accelerating the deleveraging process here. I was just wondering if you could expand a bit more on how you see leverage kind of progressing here. I mean if you're bringing in 2020 capex coming down as you noted, I want to see the potential to continue to maybe the best assets in the West that don't have that are not contiguous and can have value chain integration and possibly the ability of moving forward, hitting that four to leverage target if things come together there?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, Jeremy. Good question. I would just say, we're always looking at that and I would say another driver for that, which is more value than just deleveraging because I think we're on a very clear path in our mind to get there anyway. And so we feel pretty confident. Just on the natural path. We're on to getting there. However, given the value spread between what the private space is willing to pay for these cash flow, these is very certain cash flows versus what the public equity is valuing that -- It just continues to provide an opportunity for us to gain value for our shareholders.

And so I would say, even if it wasn't for that, for the deleveraging benefit that comes from that we would be looking at those kind of opportunities anyway just because we don't feel like our gathering and processing assets are valued appropriately. In fact I would question where we are today, I would question if our pipeline assets are being valued appropriately. So we'll continue to take advantage of that spread and of course it does have the benefit, continue to delever pretty rapidly as well.

Jeremy Tonet -- JP Morgan -- Analyst

That's helpful, thanks . Just turning over to Regional Energy here. I appreciate that you're at a kind of commercially sensitive point in the development, but just wondering if you could expand a bit more. As far as kind of a shipper interest and how you see that progressing?

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Yeah, Micheal Dunn here. We had a lot of interest in that project . We are working through the scenarios of delivery points and supply points and we're optimistic that will ultimately have a very nice project there.

There were several paths that were available there shippers submitting under the open season and we're just evaluating the submissions that we received and configuring various scenarios to ultimately make a great project for Transco and our customers there.

Jeremy Tonet -- JP Morgan -- Analyst

That's helpful. That's it from me. Thanks.

Alan S. Armstrong -- President and Chief Executive Officer

Thanks, Jeremy.

Operator

We'll take our next question from Shneur Gershuni with UBS. Please go ahead.

Shneur Gershuni -- UBS -- Analyst

Hi , good morning guys. Maybe just start off on the Northeast guidance, just to come back to it a little bit here. There sort of a delta in the CAGAR between the volumetric growth rate versus EBITDA growth rate, and I think my understanding is that it's a function of timing. with respect to the contracts and the contract structure and so forth in a hypothetical scenario we are 2021, let's say was zero growth. Would there still be some EBITDA carryover that would roll into 2021 in a scenario of a zero ... growth?

Alan S. Armstrong -- President and Chief Executive Officer

Shneur, I don't know that we have evaluated that I would tell you we run a pretty precise model that gets us to that, but I don't know for certain, so I don't want to speak out of school on that. We have confidence in model we have, but I don't want to get out on a limb without the benefit of the detailed model behind me on that answer, so and I'm not saying it doesn't, I'm just saying I'm not certain as we sit here.

Shneur Gershuni -- UBS -- Analyst

Okay, that makes sense. And then secondly on the Northeast, if I read your tone correctly it sort of sounds like you're trying to shift toward a harvesting cash flows from the Northeast and kind of adjusting time kind of capex approach, is that in fact correct? And as you sort of think about projects new tooling [Phonetic], where do you expect to spend the majority of your capex, kind of on a go-forward basis?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, I would say I think we've always been on a just-in-time mode there in the Northeast for many years now and making sure that we're staying aligned with the customers and producers up there that are coming to us, wanting additional capacity and will still continue to do that, we're finishing up some pretty significant projects this year with the TXP 2 installation at Oak Grove that now online as well as our checkmark pipeline our Monarch pipeline, which is an NGL pipeline that goes to our Harris and fractionation complex. So we've got a lot of capital that we are deploying this year that will be rapidly filling so I guess in future years I would say we're going to be very responsive to the customers there. We are still talking to them about expansions and so we're not just in harvest mode, but we are still continuing in each one of those franchises, talk to the customers about expansions and things they want to do up there and Seno [Phonetic] has been very active on the Cardinal and Flint systems and evaluating their new acreage there that they bought from Chesapeake and we're excited to work with them on that as well. So I think we've got a lot of opportunities there to continue to look for expansions and it's certainly going to be dependent upon price with many of those producers up there, very, very keen on watching the price and what they can achieve their netback.

Shneur Gershuni -- UBS -- Analyst

Great. And maybe one final question and I'm really not sure how much you can say about the pending rate case, but is -- sort of think about the lands click -- in the landscape out there, it's increasingly getting extremely difficult to build Greenfield projects and I am sure you're aware of everything that's going on and so forth. And so I'm sort of thinking about in outcome where your customers or intervenors are pushing for let's say a lower ROE authorization, wouldn't that disincentivize you to build any further? I mean they can't force you to actually expand Transco. And does that factor into the process of the negotiations about coming to a win-win scenario, because it's difficult to build and at the same time you have a system in place, but if the in-force a low return on you then you have no incentive to actually build. Just wondering if you can sort of comment about that and whether that's something that comes into the discussion part?

Alan S. Armstrong -- President and Chief Executive Officer

I would just say, it's pretty complex issue, but maybe to bring it home to something pretty simple, the emissions reduction program that we have, which is a $1.2 billion program that benefits everybody and including directly, our customers in those areas because we reduce emissions in the areas, which allows for further expansions businesses in the area by reducing emissions and so for their power plants, for instance. So there's a lot of positives that come out of emissions reduction project and obviously a lot of those customers have been making those similar investments in methane, leak prevention and so forth, so they spend a lot of money on their systems under their PUCs to reduce greenhouse gas emissions. And I think everybody is in favor of us doing that.

Getting a low return up against our portfolio of other opportunities doesn't really get us very far on that, because we need to have economic incentive to make those investments. And so -- and to your point, we have these other items, and really where that comes together is up against project expansions.

And so if we have high return opportunities for expansion projects, because things are so difficult to build that is going to get the money up against a lower ROE and so said another way because somebody can't force us to build that those lower ROEs, we will have negotiated rates that generally get us to a higher rate, but that of course then just puts pressure on the capital allocation process on opportunities for those kind of investment. And as well, things like cyber security and everything else that we need to invest on. So we've got to make sure for the health of this industry, we've got to make sure that those ROEs are in line with the investment opportunities across the space and if we don't -- we're not really -- the FERC really is veering away from its responsibility to make sure that those returns are attractive enough to incent investment in this space.

And so, that's certainly a key issue as we go into those negotiations.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

I think it's clear to say as part of the discussion and negotiation the difficulty with building new pipe risk that pipeline companies Bayer, they'll build these new assets certainly goes into the reality that this isn't a super low return environment. I mean we need an appropriate return to go along with the risk some of the timing delays and other things that go into construction pipelines today. So that's certainly part of the ROE [Phonetic].

Shneur Gershuni -- UBS -- Analyst

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

Operator

We'll take our next question from Christine Cho with Barclays. Please go ahead.

Christine Cho -- Barclays -- Analyst

Good morning. [Speech Overlap] The lower Northeast guidance, isn't that surprising Just given recent commentary out of the Northeast producers, but can you talk about how you came to the lowering of your guidance. Some of your producers have publicly talked down numbers but others less so. So can you just help me reconcile how much of it is your own estimates on what you think producers are going to do and how much of it is what producers told you that they're going to do?

Alan S. Armstrong -- President and Chief Executive Officer

There is certainly small pieces in there, but I would tell you the vast majority of our information is directly in line with detailed work that we do with our producers. They can't surprise us in want production brought online. We have to plan well in advance with them. And so, while there may be little pieces here and there, it's pretty detailed and we keep that model up to date with the very latest work that we're doing with producer. So, Mike, I don't know if you'd add anything to that. Yeah,

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

Yeah, Christine, we do detailed analysis with each one of our producer, some of the producers, we meet with weekly to plan our projects and plan activities associated with there well connected are coming online or their future expansion opportunities. So we have a very robust planning process with nearly every one of our producers up there and that's what we desire with every one of them and we strive for.

So we do a lot of work with them in order to make sure that we're not getting out in front of them, but we're also meeting their needs and we worked really hard to scale back a lot of our capital investment immediately with the producers when they told us that they were scaling back some of their -- there turn in lines for their wells, so we were able to very quickly take a lot of capital out of our Northeast investments that we had planned for. Therefore, we're heading toward the lower end of our growth, capital guidance just because of that activity downturn.

Christine Cho -- Barclays -- Analyst

Okay, helpful. Thank you. And then given the changes at EQT and other customer, can you just remind us how your contract with them work? IF there are volume commitments or acreage dedications? And if you could confirm the tenor left on that contract? And whether or not you expect those changes that customer to be an opportunity or more neutral?

Alan S. Armstrong -- President and Chief Executive Officer

Well, I would just say that the contracts are long-term in nature and they do come with an NBC, NSA, NBC that his that ramps up over time. So we do have that I'm not going to get into a whole lot more detail beyond that and I would also just add that a lot of the acreage that they are, that the new management group is very focused on is in the West Virginia area where we have a lot of the existing infrastructure in the area. So we're encouraged to be working with them, we've got a lot to offer them. But our existing contracts are NBC based and they are long term.

Christine Cho -- Barclays -- Analyst

Okay. And then last one from me, can you just walk us through when do you need all your approvals by for the Northeast Supply Enhancement project in order to hit the winter 2020-2021 on in-service date?

Alan S. Armstrong -- President and Chief Executive Officer

Christine. Thanks for the question. We are working through the 401 Certification with both New York and New Jersey right now, we would hope to have those in hand this summer in order for us to be able to then achieve the 404 permit from the Corps of Engineers. And then we intend to start construction this fall on the project. Primarily the compressor station construction would occur first that is the, really the long lead pacing item here, and with all the environmental windows that are associated with the offshore construction we slotted that construction in for next summer.

So the real pacing item here is the compressor station. That would be on the critical path, because it's a longer duration construction. So we would expect to have in hand a 401 certifications in the summer and then certainly after that the all four permit would have a very small public comment period that would open up and we would have that all four permit so that we could go to the FERC and then ask for a notice to proceed and then began construction in the fall.

Christine Cho -- Barclays -- Analyst

Great, thank you so much for the color.

Operator

We'll take our next question from didn't sorry Danilo Juvane with BMO Capital. Please go ahead. Hello, your line is open.

Danilo Juvane -- BMO Capital -- Analyst

Good morning. Thank you for squeezing me in. I wanted to start with the Northeast, and thank you for providing guidance for for the segment for next year. To the extent that you have provided this information? Beyond 2020, how should we think about volumetric sensitivity as it relates to EBITDA for instance for 8% change in the growth rate.

What does that translate to from an EBITDA standpoint or both?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, I think obviously it's dependent on what the growth is not perfectly linear obviously, but I would just say, the ability to continue to have a higher EBITDA growth rate then volume growth rate will continue just because our cost structure is more and more efficient. Our unit costs continues to lower over time. And so as volumes go so that relationship. There's not really any reason that that would stop for us. Some of the pretty significant increase that we've got here in the front end is based on some higher rates associated with the capital we placed and so we're you wouldn't see a continuing increase to that rate.

But the basic fundamental piece of lower unit cost with higher volume will continue to benefit that relationship.

Danilo Juvane -- BMO Capital -- Analyst

Thanks for that Alan. Second one from me, the long-term 5% to 7% target growth, right? To the extent that there may be ongoing issues with me -- I mean, how and we still sort of hit that growth rate going forward, how should we think about that?

Alan S. Armstrong -- President and Chief Executive Officer

I'm sorry, I didn't quite understand which growth that you're talking about 5% to 7% .

Danilo Juvane -- BMO Capital -- Analyst

Correct. The 5% to 7%. If there are any additional delays in easy for from a timing standpoint. Is that something that's still kind of is intact, going forward?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, we've got, I would just say a lot of other variables to consider other than just Natchez. Natchez is a very attractive project for us, but there are a number of other things, but I would certainly say that we are confident right now in Natchez occurring in that is included, as we think about that 5% to 7% growth rate out there right now that is included in that, but as we mentioned, we have a lot of other things that are variables in that as well and we tend to find a way to offset if we did have a negative surprise on that of some time, but I would just tell you, we as a team, are very confident right now in that going ahead just because we know how critical it is to that area that it does go ahead .

Danilo Juvane -- BMO Capital -- Analyst

Thank you. Those are my questions.

Alan S. Armstrong -- President and Chief Executive Officer

Thanks.

Operator

We'll take our next question from Jean Ann Salisbury with Bernstein. Please go ahead.

Jean Ann Salisbury -- Bernstein -- Analyst

Good morning. Over the past year you gained gathering market share in the Northeast driven by Atlantic Sunrise and your 2020, 5.5% growth number. Can you, do you know if you're kind of expecting to gain market share or is that the same rate that you would expect the basin to growth, and you're just in line with that?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, we're not counting on any new customers out there in that number. So that's just off our existing base of customers if that's your question. Obviously different producers have different mode is and different activities that go on out there. So it's not perfectly ratable across the space, obviously. So I don't really know what the the broad base you know estimation is, but I can tell you that's just from our existing customer base that we have out there in terms of our growth rate .

Jean Ann Salisbury -- Bernstein -- Analyst

Okay that makes sense. And then just as a quick follow-up I think in 2020, there are some Gulf of Mexico, MVC related to Gunflint and can you just give any range that you have of the [Indecipherable] decline that might be associated with that?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, yeah I don't, we don't have any MVCs out there. In aggregate, and we do have, we do have some deferred revenue step downs that occur and we had some fixed payments that actually declined. So all that in the tune 75 million roughly in that range of step down between 2019 and 2020.

Jean Ann Salisbury -- Bernstein -- Analyst

Okay, perfect. Thank you so much. [Speech Overlap]That's all from me.

Operator

Thank you. We'll take our next question from Becca Followill with US Capital Advisors . Please go ahead.

Becca Followill -- US Capital Advisors -- Analyst

Good morning, guys. [Speech Overlap] Following up on that. The Northeast gathering. So if I'm looking at page ten with your growth projects is it fair to say that when you referenced the MVCs that you have in this gathering that the Susquehanna gathering for '19 and '20 and in the Bradford gathering those are going forward regardless that those have MVCs associated with them?

Alan S. Armstrong -- President and Chief Executive Officer

Well, just to be clear, the most of the Susquehanna gathering doesn't have MVCs it has higher gathering rate. So the gathering rates applied across all of the volumes not across. There is not MVCs to be clear in Susquehanna. Bradford on the other hand is a cost of service agreement.

So that is dependent on the capital being placed and once the capital is requested then that goes into the rate of return calculation. So it's say another way, it's not volume, sensitive once the capital has been put in place.

Becca Followill -- US Capital Advisors -- Analyst

So with the pullback in producer activity these projects are still going forward.?

Alan S. Armstrong -- President and Chief Executive Officer

Yes.

Becca Followill -- US Capital Advisors -- Analyst

Okay, no change at this point. And then on, on the Gulf of Mexico. Can you quantify on the Norphlet pipeline that you acquired. And then the incremental discovery volumes from Hadrian North and Buckskin tie-backs. What kind of EBITDA those contribute?

Alan S. Armstrong -- President and Chief Executive Officer

I don't believe we've provided that detail. I think we have said that the Norphlet was a five to six multiple project for us, so you can do the math on that $200 million and that is just against the base field out there. So there are some other nice discoveries in the area that we are very well serve very well positioned to serve, but that isn't going to come on for the next -- in the next couple of years, so it will be beyond that period.

Becca Followill -- US Capital Advisors -- Analyst

And then finally, you talked about we possibly Bean [Phonetic] FID . At the end of this year, but on the page ten it shows that as a 2022 plus. So is that if it's FID. This year, is it still 2022 plus?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah, just to be clear, my comment was our [Phonetic] infrastructure. So our system. I'm not speaking for the producers on that. But given our work with the producer.

We would be looking to FID our work and our expansion associated. And so the dedication is already there and so we would be taking action on our part based on the dedication. So just to be clear on that. So yeah, we're not going to get ahead of Shell and Chevron on their timing on the project out there, but I would tell you it is on a very fast-track within both shops.

Becca Followill -- US Capital Advisors -- Analyst

But I would still be 2022 plus per Page 10?

Alan S. Armstrong -- President and Chief Executive Officer

Yeah.

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

EBITDA and so on.

Alan S. Armstrong -- President and Chief Executive Officer

. Yes. [Speech Overlap]. That page is intended to represent when we believe the project really will come into full service. Yeah.

Becca Followill -- US Capital Advisors -- Analyst

Okay, got you.

Alan S. Armstrong -- President and Chief Executive Officer

But we've got a lot of work to do out there and so RFID [Phonetic] is necessary to make sure that we're not on the critical path.

Becca Followill -- US Capital Advisors -- Analyst

Got you. Thank you.

Operator

That concludes today's question-and-answer session. Mr Armstrong, at this time, I will turn the conference back to you for your closing remarks.

Alan S. Armstrong -- President and Chief Executive Officer

Okay, great, thank you for all the good questions. We're excited to continue to report on the breadth, overall breadth of our business and the growth going on really in ... all areas of across Transco, across Northeast, the deepwater and and excited to see the DJ start contributing as well. We appreciate all the interest and the continued support for the company. Thank you.

Operator

[Operator Closing Remarks]

Duration: 67 minutes

Call participants:

John Porter -- Head of Investor Relations

Alan S. Armstrong -- President and Chief Executive Officer

Micheal G. Dunn -- Executive Vice President and Chief Operating Officer

T. Lane Wilson -- Senior Vice President and General Counsel

Spiro Dounis -- Credit Suisse -- Analyst

Gabriel Moreen -- Mizuho -- Analyst

Chris Sighinolfi -- Jefferies -- Analyst

Jeremy Tonet -- JP Morgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Christine Cho -- Barclays -- Analyst

Danilo Juvane -- BMO Capital -- Analyst

Jean Ann Salisbury -- Bernstein -- Analyst

Becca Followill -- US Capital Advisors -- Analyst

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