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ONEOK Inc (New) (NYSE:OKE)
Q3 2019 Earnings Call
Oct 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Third Quarter 2019 ONEOK Earnings Call. [Operator Instructions]

At this time, I would like to turn the conference over to Andrew Ziola. Please go ahead, sir.

Andrew J. Ziola -- Vice President of Investor Relations and Corporate Affairs

Thank you, Travis. And welcome everyone to ONEOK's Third Quarter Earnings Conference Call. This call is being webcast live, and a replay will be made available. After our prepared remarks, we'll be available to take your questions.

A reminder that statements made during this call that might include ONEOK's expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

Our first speaker this morning is Terry Spencer, President and Chief Executive Officer. Terry?

Terry K. Spencer -- President and Chief Executive Officer

Thanks, Andrew. Good morning, and thank you all for joining us today. As always, we appreciate your continued interest and investment in ONEOK.

Joining me on today's call is Walt Hulse, Chief Financial Officer, Executive Vice President, Strategic Planning and Corporate Affairs; and Kevin Burdick, Executive Vice President and Chief Operating Officer. Also available to answer your questions are Sheridan Swords, Senior Vice President, Natural Gas Liquids and Chuck Kelley, Senior Vice President, Natural Gas.

Yesterday, we announced third quarter earnings results and updated our 2019 financial guidance expectations. The first nine months have set us up well for another year of companywide earnings growth in 2019 and have laid the foundation for continued growth next year. We also reiterated our outlook for greater than 20% earnings growth in 2020.

We provided updated timing on several of our capital growth projects, including our Demicks Lake I natural gas processing plant in North Dakota, which was completed earlier this month, and our Demicks Lake II plant, which we expect to complete in January 2020. The northern section of our Elk Creek NGL pipeline is expected to begin line fill activities in November, and we'll provide meaningful volume and earnings growth as we exit the year.

Between now and the end of the first quarter of 2020, we expect to fully complete five growth projects that will add more than 700,000 barrels per day of NGL transportation capacity, 125,000 barrels per day of fractionation capacity, and an additional 400 million cubic feet of natural gas processing capacity, including Demicks Lake plants. This critical natural gas and NGL infrastructure, including assets to help significantly reduce natural gas flaring in the Williston Basin. We'll provide immediate earnings and volume uplift in 2020, and stable fee-based growth for years to come.

With that, I will turn the call over to Walt for comments on our third quarter results.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Thank you, Terry. ONEOK's third quarter 2019 net income totaled $309 million or $0.74 per share and third quarter adjusted EBITDA totaled $650 million, year-to-date net income and adjusted EBITDA increased 11% and 5% respectively, compared with the same period last year.

Distributable cash flow through the first nine months of the year was $1.5 billion, up 13%, compared with 2018 with a healthy year-to-date dividend coverage of 1.42 times. We have also generated nearly $450 million of distributable cash flow in excess of dividends paid through the first nine months of this year.

During the third quarter, we paid a dividend of $0.89 per share and last week we announced the dividend increase to $0.915 or $3.66 per share on an annualized basis. The dividend is payable on November 14th to shareholders of record on November 4th. This latest increase results in a 9% increase in 2019 dividends paid, compared with 2018 in line with our previously stated guidance. In August, we completed a $2 billion senior note offering providing increased liquidity and balance sheet flexibility.

In addition to funding capital expenditures proceeds from the offering also were used to proactively manage upcoming debt maturities, including repaying $250 million of our $1.5 billion term loan due 2021, and redeeming $300 million of senior notes that were due March 2020. At September 30, net debt-to-EBITDA, on an annualized run rate basis was 4.5 times. We continue to expect to be at 4 times debt-to-EBITDA run rate in the fourth quarter of 2020 or the first quarter of 2021. With deleveraging continuing in the quarters to follow that.

We ended the third quarter with the full $2.5 billion available on our credit facility and more than $670 million of cash. With yesterday's earnings announcement, we narrowed our 2019 financial guidance ranges. The midpoint of our net income guidance increased to $1.28 billion and our adjusted EBITDA midpoint remain unchanged at $2.6 billion. The natural gas gathering and processing and natural gas pipeline segments are trending toward the high end of the previously announced financial guidance ranges, each with the ability to exceed the high end of that range.

Our performance in these segments reflect stronger-than-expected volume growth in the Williston Basin and STACK and SCOOP areas in the gathering and processing segment and higher firm transportation capacity contracted on expansion projects in the natural gas pipeline segment.

Our natural gas liquids segment is trending toward the low end of its previously announced financial guidance range, primarily due to lower optimization and marketing earnings from narrower than expected pricing spreads between Conway and Mont Belvieu. And due to the impact of increased ethane rejection on our system. Despite a vastly different commodity price environment and spreads that were one-third is large as a year ago, our base business grew, compared with a strong quarter last year. As we mentioned in prior quarters, we expect earnings from this -- for this segment to be heavily weighted toward the back half of the year.

The Williston Basin continues to be a primary contributor to ONEOK's growth, underscored by the fact that volume growth in the region is at higher margins relative to our other regions. We've also updated our 2019 growth capital guidance range to $3.5 billion to $3.7 billion, consistent with my remarks last quarter, reflecting the accelerated timing on several of our capital growth projects. The early in-service on these projects also accelerate their associated EBITDA contributions and further underscores our confidence in our earnings growth and deleveraging next year.

As Terry already mentioned, we continue to expect adjusted EBITDA growth of greater than 20% in 2020, compared with our 2019 guidance midpoint and the emphasis remains on greater than 20%.

I'll now turn the call over to Kevin for a closer look at each of our business segments.

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Thank you, Walt. We continue to see strong producer activity across our operations with NGL and natural gas volumes through the first nine months of the year already surpassing full-year 2018 volumes. Overall, our projects remain on time and on budget, positioning us well for continued growth as volumes on these projects ramp up over the next several months.

Let's take a closer look at our operating regions starting with the Rockies. Producer activity remained strong in both the Williston and Powder River basins, North Dakota saw record natural gas production again in August of more than 3 billion cubic feet per day and the basin wide rig count remains at approximately 60. As Terry mentioned, our 200 million cubic feet per day Demicks Lake I natural gas processing plant is now in service and we expect it to ramp quickly to full capacity, once the entire Elk Creek Pipeline is in service.

With natural gas flaring of more than 550 million cubic feet per day in the basin and more than $300 million of that on ONEOK's dedicated acreage, the volume growth is immediately available to capture. We also expect to complete our 200 million cubic feet per day Demicks Lake II plant in January of 2020, which will help further alleviate flaring in the basin.

Third quarter natural gas volumes processed in the Rocky Mountain region were nearly 1.1 billion cubic feet per day, an increase of 7% year-over-year and 2%, compared with the second quarter of 2019. This puts us on track in 2019 for the higher end of our volume guidance range. We now expect to connect between 525 wells and 550 wells in the Rocky Mountain region this year, compared with our prior well connect guidance of 620 wells.

Better than expected well performance and higher gas to oil ratios have contributed to the growth even with producers temporarily delaying completions to avoid additional flaring, due to lack of processing capacity and NGL takeaway. This has translated into a rising drilled, but uncompleted well count, which has reached approximately 1,000 basin wide with more than 400 on our acreage. We expect producers to begin working this inventory off, once Elk Creek, an additional processing capacity come online providing further support for our expected growth in 2020.

NGL raw feed throughput volumes in the Rocky Mountain region increased approximately 7%, compared with the second quarter 2019, due primarily to the southern section of our Elk Creek pipeline coming online in July. In addition to our Demicks Lake I plant, more than 300 million cubic feet per day of third-party processing capacity was recently completed with an additional 750 million cubic feet per day of capacity expected to be completed in the Rockies region by the first quarter of 2020.

At full capacity these plants are capable of producing a total of approximately 160,000 barrels per day of propane plus when full. We are already seeing additional NGL volumes from the region in October, with throughput averaging more than 190,000 barrels per day, which includes the already full a 140,000 barrel per day Bakken NGL Pipeline. Line fill activities on the northern section of Elk Creek are expected to begin in November and volumes will continue to ramp up through the remainder of the year, including approximately 25,000 barrels per day, currently being railed that will transition to the pipeline and reduce our rail cost.

We expect to exit 2019 with more than 215,000 barrels a day of raw feed throughput for the region and reach more than 240,000 barrels per day in the first quarter of 2020. As a reminder, each 25,000 barrels per day of incremental volume results in nearly $100 million of adjusted EBITDA. We also continue to see increased producer activity in the Powder River Basin, as production results remained strong and some rigs have relocated there from other basins, benefiting both our natural gas gathering and processing and natural gas liquids segments.

Moving on to the Mid-Continent. Natural gas volumes processed increased 8% year-over-year and are tracking above the midpoint of our guidance expectations. Total NGL raw feed throughput in the Mid-Continent region decreased, compared with last quarter, due to higher Mid-Continent ethane rejection, specifically during July and August. We had approximately 50,000 fewer barrels per day of ethane on our system in the third quarter of 2019 then the second quarter 2019, but saw an increase of approximately 30,000 barrels per day of propane plus volumes in the region, which demonstrates strong core supply growth.

We've seen ethane on our system increase in the fourth quarter, but continue to expect fluctuation through the remainder of the year. As we near the start up of new petrochemical facilities on the Gulf Coast. Through the first nine months of the year we've connected 98 wells to our natural gas gathering and processing system and connected five new third-party processing plants to our natural gas liquids system in the Mid-Continent.

Two previously connected third-party plants on our system have also been expanded in the region. NGL volumes from these new connections and expansions in addition to growing Rockies volumes will drive the volume growth on our Arbuckle II Pipeline, which remains on schedule for completion in the first quarter of 2020. We continue to stay in contact with our customers in the region about their plans and forecast, and this information has been incorporated into our growth outlook for 2020.

Now taking a closer look at our Permian Basin and Gulf Coast operations. NGL raw feed throughput volumes in this region increased 26% year-over-year and the average fee rate increased by approximately $0.015, compared with the second quarter 2019. This was driven primarily by a ramp in volumes on completed West Texas LPG expansion projects and the replacement of lower rate legacy volumes on the system with market based transportation and fractionation rates. We expect average rates to continue to increase, as our 80,000 barrel per day expansion and 40,000 barrel per day expansion are completed in the first quarter of 2020 and the first quarter of 2021 respectively.

Systemwide NGL fractionation capacity remains highly utilized. Phase 1 one of our MB-4 fractionator, which will provide approximately 75,000 barrels per day of capacity is expected to be completed by the end of the year. Phase 2 of the project, which will add the remaining 50,000 barrels per day of capacity remains on schedule for completion in the first quarter of 2020. MB-5 remains on track for completion in the first quarter of 2021.

Terry, that concludes my remarks.

Terry K. Spencer -- President and Chief Executive Officer

Thank you, Kevin. Our operating performance, systemwide volume strength and execution of our capital growth program with a very strong balance sheet has clearly exceeded many expectations. But while the operational and earnings growth is important, the way in which we operate conduct our sales and business and construct our projects is equally important, and it is the importance that we place on safe, sustainable and responsible operations that is the foundation for all of the successes we've discussed today.

You can find more detailed information related to our environmental, social and governance focus priorities and programs in our most recent corporate sustainability report, which can be found on our website. The report is our 11th Annual ESG report and with each version of this report we have prioritized increasing disclosures, content and relevance for ONEOK's many stakeholders. I encourage you to review the report on our website. We continue to focus on improvements in these areas and welcome your feedback to help us do so, because our goal is to build and grow a business that is profitable, safe and environmentally responsible for the long-term.

Thank you to all our dedicated employees for your hard work and contributions this quarter. We're only a couple of months away from closing out another year of companywide growth and we're about to enter an exciting year of new asset operations and additional project completions.

With that, operator, we're now ready for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] First question comes from Jeremy Tonet, JP Morgan.

Jeremy Tonet -- JP Morgan -- Analyst

Good morning.

Terry K. Spencer -- President and Chief Executive Officer

Good morning, Jeremy.

Jeremy Tonet -- JP Morgan -- Analyst

Just wanted to start off with the project ramps you have a lot of moving pieces here, a lot of projects coming online over the next couple of quarters. And you talked on it in your remarks, but just with Demicks Lake I and II. How should we think about those plants ramping up, especially because you need Elk Creek online to kind of perform the way you want to perform there? Just how should we expect EBITDA to ramp up over the next few quarters with all these different projects coming online?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Jeremy, this is Kevin. And then I'll let others jump in. But clearly Elk Creek is kind of the key project that we need to get done. The basin is short NGL takeaway capacity right now, but as Elk Creek comes in service, then all of the processing plants up there, not just Demicks Lake I, but you've got some third-party processing plants that are up now and you've got another one that's going to come online in the fourth quarter. All those plants will be able to ramp and clearly there is substantial flaring behind not just our system, but other companies systems as well. So you would expect it's going to ramp very quickly from the flared gas inventory.

Then as you move through 2020 -- early 2020 and the flares get put out, you still see the strength in rigs we're seeing up there. And you've also got growth coming out of the Powder as well. So you'll see an immediate step-up as we put out the flares and then you'll continue to see a ramp, given the rig counts and the activity levels we're seeing.

Jeremy Tonet -- JP Morgan -- Analyst

That's very helpful. Thanks. And just turning to capex, you guys have a very deep portfolio of projects and seems like it's kind of peaking right about now. Just wondering what -- how you guys think about the balance of capital with great opportunities versus capital discipline that the market seems to be focused on? How do you see capital trending next year, any color or thoughts you could provide there?

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Jeremy, this is Walt. We've got several projects that we've already announced which include Demicks Lake II, MB-5, Elk Creek II in West Texas expansion. All of those will be completed throughout the course of 2020. So you can kind of do the math on what we've already got ticked off. So we'll see a meaningful step down in our capex next year from what we have in 2019. Going forward, we think the vast majority of everything that we see on the horizon has been announced, there will be other growth opportunities that will come, but remember, we've built the backbone of the system here with these two pipes. So we have significant operating leverage going forward.

So if we had another processing plant or something along those lines. Order of magnitude is significantly less as we go forward, and then also, I would point out that anything that we would announce in the coming quarters would really get spent over a couple of years, so our 2020 capex at this point is something that you can get a pretty good look at just based on what we've announced today.

Jeremy Tonet -- JP Morgan -- Analyst

That's helpful. That's it for me. Thanks. Sorry?

Operator

Okay, our next question comes from Shneur Gershuni, UBS.

Shneur Gershuni -- UBS -- Analyst

Good morning.

Terry K. Spencer -- President and Chief Executive Officer

Good morning.

Shneur Gershuni -- UBS -- Analyst

I'm wondering, if we can sort of talk about a couple of things here. Just -- and you sort of mentioned in your prepared remarks about the reduction and expectation for Bakken well connects for this year. But it was interesting your comment seem to indicate that it's a function of the infrastructure delays, which in theory would imply a higher inventory for next year. But at the same time, you also noted that the liquid component is higher, so your volume expectations are unchanged. So when I think about next year, does it not mean that you have a potential for -- an even higher inventory of connections and with the higher cuts that you're seeing is coming from the liquids side that you would think that 2020 could even better than what you had originally visioned for 2020 or might not thinking about that correctly?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

This is Kevin. I mean, yes, I think that conceptually, you're on the right path. We were able to through fewer producers were, I mean, clearly they were butting up against some flaring constraints, right? With -- because the basin with short processing capacity and takeaway, NGL takeaway was full. So rather than going ahead and completing those wells, no one they're going to flare, they backed off, and that's been going on for several months. So, yes, that dock increase was the result of that. And yes, that gives us some tailwinds as we move into 2020.

And then on the other side of that, they just producers continue to deliver strong results, which even though we connected fewer wells and we had anticipated, we were still able to get more toward the higher end of our volume guidance.

Shneur Gershuni -- UBS -- Analyst

Would you --

Terry K. Spencer -- President and Chief Executive Officer

Kevin, it's fair to say that producers have consistently exceeded our expectations, particularly in Williston. I think there we've benefited from their own capital discipline, and certainly finding ways to enhance the productivity of the wells, the gas, oil ratios have been a big deal for us up there, which in turn has increased the amount of liquids that would be available to our plan. So I think just all in all the backdrop is the producers have really have done a super job not only delivering on what we expect them to deliver, but exceeding those expectations?

Shneur Gershuni -- UBS -- Analyst

All right, great. And then just two quick follow-ups. One, just a clarification, you talked about more ethane recovery in 4Q '19. Is that a function of the fact that you -- that there is a challenge to takeaway gas out of the basin right now, and you just need to make more room on the gas line, so it makes more sense to recover the ethane? Is that kind of the reason or is there something different?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

Yes, this is Sheridan Swords. I think you're right, and you really need to look at the gas issue especially in the Permian and in the Mid-Continent and when the Permian gas goes really low, you see a lot more ethane want to come out of the Permian Basin versus the Mid-Con and we saw that in the third quarter. But now the gas prices during this first part of fourth quarter have moved up in the Permian, a little bit and gas prices in Mid-Continent moved down which allows more ethane to come out of the Mid-Continent. So you really need to look at the gas price, because the TNF out of the Mid-Continent and the TNF out of the Permian are fairly close together, so it's not on that side of it.

Shneur Gershuni -- UBS -- Analyst

Okay, great. And one final question, in your conversation with Jeremy about capex, and we talked about it being materially lower in 2020 versus 2019. So there should be some sort of a free cash flow in version. And I would expect there'd be an improvement in leverage. Like, when is the right time for us to start discussing return of capital options for the free cash flow where you look at options like buybacks? Do you change the dividend policy, I'm just kind of curious kind of what your thoughts are, once the free cash flow starts to materialize next year?

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Sure. We've said that we would get to 4 times debt-to-EBITDA by Q4 of 2020 or Q1 of 2021, we expect to continue to delever after that and we'll proceed down through into that 3.5 range, which is kind of aspirationally where we'd like to be. So we still have some time, we're going to, that's going to take through 2021 maybe in the 2022. So we're going to continue that delevering, as our primary focus. And then going forward, we always are on the hunt for good growth opportunities and to the extent that the commercial team find those growth opportunities, we're going to pursue those, but keeping that leverage in that on a going forward basis in and around that 3.5 times.

Terry K. Spencer -- President and Chief Executive Officer

The only thing I would add to Walt's comments are that the priority continues to be fund those -- these attractive growth projects and we continue to have a runway of growth in front of us, albeit, we don't have any of those great big infrastructure projects or background projects like Walt mentioned earlier, but the priority we'll continue to be around these great return organic projects. And then certainly, we think about as we -- if and as we have cash available, certainly retire debt. And then share backs could come in these equation, but I don't see it, but it's certainly something that we think about, if we get to a point where we're running out of growth projects and we're forced to look at other ways to invest our capital certainly share buybacks or something that we would consider.

Shneur Gershuni -- UBS -- Analyst

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

Terry K. Spencer -- President and Chief Executive Officer

You bet.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Thank you.

Operator

Our next question comes from Christine Cho, Barclays.

Christine Cho -- Barclays -- Analyst

Hi, everyone.

Terry K. Spencer -- President and Chief Executive Officer

Hey, Christine.

Christine Cho -- Barclays -- Analyst

[Technical Issues] if I'm to back out the Rockies volumes that are feeding into the Arbuckle II contracted capacity. I still estimate that over 100,000 barrels per day is supposed to come from Mid-Continent. And I know the outlook for 2020 and at least more than 20% growth over 2019 is driven primarily by Bakken. But how should we risk the need for Mid-Con volumes to show up to hit numbers? Do you need it to be flat at a minimum? Or can it sustain a decline and we can still hit those numbers?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

I mean, Christine, this is Kevin. Just looking, kind of, holistically at the Mid-Con clearly there has been some pullback recently by producers, we've factored all that in, we're probably thinking of the Mid-Continent in a flat to slightly declining type of environment as we factor in that to our 2020 growth outlook. So we don't need significant or really any growth coming out of the STACK and SCOOP to meet the growth outlook we provided for 2020.

Christine Cho -- Barclays -- Analyst

Okay, that's helpful. And then moving over to capex, you guys are very transparent and providing the capex for each of the individual projects, but how should we think about the range of annual spending, you guys do on ancillary capex that is included in the project capex that you've disclosed or maintenance capex. So like well connects, I don't know maybe adding a compression -- a compressor or pump something like that here?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

You know, just looking at, kind of, what we would consider, kind of, that routine, growth routine capex that we're going to see on a year-in, year-out basis, it's probably in the $400 million or $500 million range. You throw some processing plants like Walt alluded to earlier on top of that it raises up a little bit. But that's kind of the range, just for that normal blocking and tackling type growth that we'd see.

Christine Cho -- Barclays -- Analyst

Okay.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Kevin, the only thing -- Christine, hang on a second, the only thing I would add to that is well connects makes up a bulk of that --

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

And routine growth right? Yes, OK.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Absolutely, yes. Just connect and well.

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

And then probably plant connections and then other miscellaneous gathering infrastructure both on the gathering processing side as well as liquid side, right?

Christine Cho -- Barclays -- Analyst

Okay. Thank you.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Thank you.

Operator

Our next question comes from Tristan Richardson, SunTrust.

Tristan Richardson -- SunTrust -- Analyst

Good morning, guys. Appreciate the commentary on direction of 2020 capital deployment, but just thinking about the flexibility you have for some of your longer-dated projects that 2021 timeframe, that MB-5, Arbuckle expansion etc. Talking about just your ability to flex the timing of those either based on volume trajectory or producer plans, etc?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

As we -- I guess, as we think about the big one there would be MB-5. With the volumes, we have coming and have line of sight to for MB-4 you're going to fill it up extremely quickly, so any growth at all, MB-5 is going to continue on. So I mean, could you do something if something went south in a hurry, potentially so, but again we don't see that again just with the line of sight, we've got to volumes that are going to hit us in the next few months here.

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Yes. Obviously, from the well connect and that sort of routine, if we saw a significant downturn in producer activity. We have some flexibility on our -- but we don't see it as it relates to MB-5 and Arbuckle II will be done in the first quarter of 2020.

Tristan Richardson -- SunTrust -- Analyst

Thank you, guys. And then just one small follow-up, just can you talk about the performance of the joint ventures, and why you saw the cash distributions from joint ventures expected to be much higher this year than you previously thought. Is that one-time event or is there just general outperformance on Northern Border or OPPL's old direction there?

Terry K. Spencer -- President and Chief Executive Officer

Yes, we've pretty robust discussion about this on our Q2 call. We had a one-time, kind of, catch-up $50 million distribution at our Northern Border and expect it to go back to its normal course in the quarters going forward that's in line with where it's been. So that was the only one, other than that the joint ventures are all performing very well.

Tristan Richardson -- SunTrust -- Analyst

All right. Thank you guys very much.

Terry K. Spencer -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Michael Blum, Wells Fargo.

Michael Blum -- Wells Fargo Securities -- Analyst

Great. Good morning, everyone.

Terry K. Spencer -- President and Chief Executive Officer

Good morning, Blum.

Michael Blum -- Wells Fargo Securities -- Analyst

Can you just give us an update on where the -- where things stand in terms of the potential expansion of Northern Border? And then, kind of, related to that, what's the timing for when you would need to see a new gas pipeline of capacity out of the Bakken before you would need to start effectively, I would call it force recovering ethane, because a BTU limits?

Charles M. Kelley -- Senior Vice President, Natural Gas

Michael, this is Chuck. As far as Northern Border expansion or any other residue takeaway out of the basin. We're actively working with parties on these residue projects frankly we're under non-disclosure agreements. But suffice it to say that there will be expansion opportunities out of there, and we realize that those takeaways needed to take care of our customers. So, we will definitely be part of that solution. As far as your second question on BTUs, BTU changes, could you please repeat your second question for me?

Michael Blum -- Wells Fargo Securities -- Analyst

Yes, just one question about timing like when do you have to have new gas pipeline capacity to avoid basically reaching the limit and having to extract ethane?

Charles M. Kelley -- Senior Vice President, Natural Gas

Okay, those are really kind of two questions; one, is on the BTU limits on Northern Border. Northern Border is currently in discussion with customers and point operators about a potential BTU change in their tariff. And that would be forthcoming, we would believe in 2020 and anything beyond that will defer to our TransCanada operator on the asset.

However, as far as more ethane recovery being necessary, it really comes down to how quickly the Bakken continues to grow and we have line of sight in 2020, it's kind of real quickly with these gas plants coming on. So as we continue to displace Canadian volumes that BTU will rise and obviously, the way to mitigate that is to recover more ethane. So I think 2020, you will see more ethane recovery. I can't give you a number on that. Longer term, we will need some residue takeaway relief. And I think that's more in the '22 timeframe.

Michael Blum -- Wells Fargo Securities -- Analyst

Great. Thank you very much.

Charles M. Kelley -- Senior Vice President, Natural Gas

You're welcome.

Operator

Our next question comes from Spiro Dounis, Credit Suisse.

Spiro Dounis -- Credit Suisse -- Analyst

Hey. Good morning, everyone. First question on the Mid-Con, just wonder if you could talk a little bit more about your ability to connect more third-party plants. It looks like you guys connected a few more this quarter and maybe seems to be a bit of a step-up. So, just curious, if there is an enhanced push to do more of that maybe as a way to kind of bridge you through next year, and alleviate some of that pressure, we're expecting to come from some of the rig count reduction?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

Yes, this is Sheridan. We don't really have that many more plants in the Mid-Continent to connect. We've kind of connect all the ones that are out there, we saw a big push in 2019. A lot of those plants, we've seen some increase in production from those plants and we expect to kind of stay at that level through next year, the level we're at today on a C3 plus basis. So, and I think right now there is plenty of capacity out there what's to process the gas that's there.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. And second question, just with respect to the narrow bands for 2019 guidance and imagine you have considerable visibility at this point. So just curious what could maybe flex full-year EBITDA results from here toward the high or low end of that range?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

It's primarily going to be really just the specific timing of these projects and we look at the biggest levers we have, that would be number one. We've talked about spreads it can fluctuate up and down that could be a little bit of a driver, but we've got pretty good line of sight at this point to where we're going to end the year.

Spiro Dounis -- Credit Suisse -- Analyst

Understood. Thanks, it really helped. I'm sorry.

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

No just to -- Walt jumped in, weather is always, it could be a factor, if you get earlier or know weather that could be an impact as well.

Spiro Dounis -- Credit Suisse -- Analyst

Okay, that's helpful. Appreciate the color. Thanks guys.

Operator

Our next question comes from Jean Ann Salisbury, Bernstein.

Jean Ann Salisbury -- Bernstein -- Analyst

Hi, good morning. As you referenced a lot of Bakken processing capacity starting up in theory enough to eliminate flaring. Can you share what your estimates for flaring levels once there is enough processing in Elk Creek or like down to the 12%, say target something much lower or possibly something a little higher?

Terry K. Spencer -- President and Chief Executive Officer

Jean Ann, the way I would answer that is, if you go back to few years or actually just with probably 12 to 18 months ago. The basin was down into for several months down into single-digit. So easily, I think with this processing capacity, once everybody, once we get Elk Creek up and once everybody gets, kind of, everything debottlenecked, I think you're going to see flaring get back down below the state targets or above the state targets for capture. I think that's going to -- that will happen.

Jean Ann Salisbury -- Bernstein -- Analyst

Okay, that's helpful. And then can you just -- around your connects flexibility, you have to move volumes between the existing Bakken NGL pipeline and Elk Creek once it starts up?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

This is Sheridan. We'll operate those systems, kind of, in tandem to make sure that we optimize, variable costs, optimized going into OPPL and going on Elk Creek Pipeline. So we have a lot of flexibility to move product back and forth between the two pipelines to maximize capacity.

Jean Ann Salisbury -- Bernstein -- Analyst

Okay, thanks. That's all from me.

Operator

Your next question comes from Michael Lapides, Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hey guys, thanks for taking my question. I won't even get into the upcoming LSU game here. But real quickly figured and one you all would like that. Real quick good items; one, I assume there is -- should we think about, and I know 2021 is a long way off in the world can change seven times between now and then. But I assume there's still a pretty decent step up in '21 off of 2020. You've talked about 2020 EBITDA being up 20% plus, but is there still another pretty decent size step up coming in 2021, that's first question.

Second question, you guys have talked about a desire to -- want to have export capacity. Just given all that's going on in the world, ethane prices down a lot more, China trade war still going on. How are you thinking about that opportunity and where that fits in the landscape of things you're targeting that do over the next year or two?

Terry K. Spencer -- President and Chief Executive Officer

So Michael, first of all, I'll take LSU and 14 points. And then the next question is yes, as we think about 2021 double-digit growth is certainly in the cards and how this business is continuing to be set up and we still got obviously organic growth projects that will be coming on through '20 and critical projects in 2021. So we're still set up nicely there. I think as far as the export dock project goes still a project we're very interested in doing. We continue to work it pretty hard. If the economics make sense, we'll certainly do a project, but if they don't make sense, I think we're in good shape with our business in terms of clearing barrels, we have arrangements in place that gives us some certainty that -- of course over the next handful of years we can clear barrels. So we're not really concerned there, I think, the export dock is a great complement to our fee-based activities. So we're going to continue to work it and when we get to a point where we can announce it certainly we'll let you all know.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thanks guys. Much appreciated.

Terry K. Spencer -- President and Chief Executive Officer

Thanks, Mike.

Operator

The next question comes from Elvira Scotto, RBC Capital Markets.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey, good morning everyone, thanks for the commentary around the 2020 EBITDA growth, and it sounds like the confidence level and hitting that greater than 20% growth is pretty high, especially given the comments that you made about your view on the Mid-Con, but if I can ask the question another way, what would have to happen for you to walk back that outlook?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Elvira, this is Kevin. And I'll start again we -- the thing we have stressed for the last several months. We continue to focus on this is with the flared gas in the Bakken, we've got incredible line of sight to these volumes, a similar situation occurred back in the '16, '15 or '16 timeframe where we saw the flared gas, we had projects and we immediately captured it and turned it into EBITDA. So with the flaring that's occurring in the basin, with the dock count that's out there, with the productivity and the returns, the producers are seeing we've just got a lot of confidence if that's going to be the substantial driver to that growth in 2020. And that's not even getting into the growth we're seeing out of the Permian, the Powder and other places. So we just have a confidence because we have that line of sight, we can reach out and touch these volumes.

Terry K. Spencer -- President and Chief Executive Officer

Kevin, probably the only thing else I'd add to that is we don't have a whole lot in here baked in for ethane recovery. So with the ore spreads, so we're at seasonally low spreads with -- you're typically low this time of the year. Ethane economics are marginal for recovery, if those things turn, there is actually more upside probably did this number than downside.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. And just very quickly though, how does commodity or crude oil price factor into this view. I mean, are you looking at anything as long as we're about $50 or do you think even you get to somewhere below $50 you're still fine with this outlook?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Well, we go back to when rigs really came back to the Bakken, they really start coming back in earnest it at around $45 per barrel from the conversations we have with our customers most are planning for a $50 environment more from a cash flow perspective, but the improvements they've seen in the productivity of the wells. Again, the returns on the well aren't be challenged, it's solely just living within their cash flow, which has been the consistent theme we've gotten from our customers. So I think easily, if you stay north of $50 probably even if you go down to the $45 range, you're still -- this things good to go.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. That's perfect. Thanks on that. And then just one quick follow-up on the capital allocation discussion. Where does M&A fit in all of this, I mean, are you guys are you open to looking at various assets or are you kind of set on just your organic growth and M&A just has to be super compelling?

Terry K. Spencer -- President and Chief Executive Officer

You just answered it, we're focused on the organic growth and M&A has to uber compelling and most likely, it would be smaller bolt-on types of acquisitions.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great, thank you very much.

Terry K. Spencer -- President and Chief Executive Officer

You bet.

Operator

Our next question comes from Derek Walker, Bank of America Securities.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Hey, good morning guys. [Indecipherable] on the call today. Just had a quick clarification, I think you said in your formal remarks, but I just want to make sure I heard it right. I think believe in the Rockies the NGL volumes were expected to be 240 in 1Q '20. Is that assuming 140 for Bakken NGL and then 100 on Elk Creek that seems no rail, is that correct for the 25, that rail that you're seeing today that should you just transfer over to the pipe that I'm hearing it?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

This is Sheridan. Yes, you are correct, and we're starting to transition to -- away from specifically talking about what's on Elk Creek to what's coming out of both the Rockies region, which is Williston and Powder River Basin. Because of the flexibility we have between moving between pipes. So that 240 is basically over 100,000 barrels a day increase from where we were when we just had the Bakken pipeline coming in. So that's the new plants that we talked about coming online, rail coming off and then ramp up on to those volumes and actually we said we think will be above 240 coming out of the first quarter.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Got it. That's helpful. And then, maybe I'll just get one in on ESG, I mean, you guys announced in September that you got added to the Dow Jones Sustainability Index. Can you just talk a little bit about some of your ESG Initiatives and have you any conversation specifically with investors around that, and they focused on any particular metrics?

Terry K. Spencer -- President and Chief Executive Officer

Well, there are always focused on getting more information and certainly probably what we've done, where we've made incredible progress is certainly in the disclosure of our emissions and various environmental impact data, that has -- we had a lot of discussion, obviously from a governance perspective, I think, we've been lauded for the -- for our efficiency from a governance standpoint. When you really think about our broad thoughts around reducing our impact to the environment, that's certainly an area where I think it's resonated with investors.

I think the fact that we've done this now for 11 years in a row and at this -- and this work product continues to improve each and every year. I think certainly that has resonated with investors as well. So disclosure, disclosure, disclosure and as we continue to move forward, we will continue to disclose more information and certainly around emissions targets and that type of outlook will certainly something that's top of mind and that will hopefully be in a position where we can do and provide those types of disclosures in the not too distant future.

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Excellent. Thanks guys. That's it from me.

Terry K. Spencer -- President and Chief Executive Officer

You bet. Thank you.

Operator

Our next question comes from Craig Shere, Tuohy Brothers.

Craig Shere -- Tuohy Brothers -- Analyst

Good morning.

Terry K. Spencer -- President and Chief Executive Officer

Hi, Craig.

Craig Shere -- Tuohy Brothers -- Analyst

Terry when you highlighted ethane was only further upside as a catalyst over and above the 20% year-over-year 2020 EBITDA growth guidance. But then you all comment of that 2021 is prime for another year of double-digit growth. When we're looking out two years like that. Are we kind of taking it some of the ethane eventually? Or does that kind of remain an opportunity?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Yes. No we're really, over the course of the next handful of years not expecting or at least we've not got in our base forecast internally much ethane baked into it. At least for the next two or three years.

Craig Shere -- Tuohy Brothers -- Analyst

And what kind of market dynamics do you expect would be necessary to kind of, it start to realize -- I mean, would be ethane exports or what do we really need to start to get more value there?

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Well, obviously we've got more petrochemical facilities coming on domestically. And then you've got additional petrochemical facilities coming on internationally. So I think the continued development of international exports, whether that's at the Gulf Coast or in the Northeast, I think continues to be key drivers. And obviously ethane economics and dependent upon net gas to -- where net gases and if net gas and we continue to have some sort of a conservative view on that gas going forward. I think if you see net gas remain relatively weak. The likelihood if you're recovering significantly more ethane certainly improves. But as we think ethane economics are so volatile that we've really -- we felt it appropriate not to bake a whole lot in -- into our internal forecasts. Sheridan you've got anything add to that?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

Well, that continue to say what's going to drive ethane. Also, as we talked earlier about the relative gas price in the Mid-Continent versus the Permian to see which one moves ahead of the other one to pull the ethane out for the demand that is there.

Craig Shere -- Tuohy Brothers -- Analyst

Sure. Are you still considering ethane when you're looking at these export project opportunities?

Terry K. Spencer -- President and Chief Executive Officer

Absolutely.

Craig Shere -- Tuohy Brothers -- Analyst

And I presume that if you did that, it would be something kind of semi long-term contracted and take out some of that volatile in and out of economics. So you'd have somewhat certainty about pulling through the system?

Terry K. Spencer -- President and Chief Executive Officer

That's correct. I mean, the way we're thinking about it is the contracts that you would enter into with respect to ethane on the sales standpoint, which certainly underwrite the dock a fee-based type arrangement, if you will, or perhaps the sale with a fee-based component built into it.

Craig Shere -- Tuohy Brothers -- Analyst

Great, thank you.

Terry K. Spencer -- President and Chief Executive Officer

The macro ethane economics are going to be what they're going to be, broadly speaking. But as we think about the dock, if the dock and as it relates to ethane fee-based, it's a fee-based business.

Craig Shere -- Tuohy Brothers -- Analyst

Great. Thanks for the color.

Terry K. Spencer -- President and Chief Executive Officer

Great.

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

Thank you.

Operator

Our next question comes from Alex Kania, Wolfe Research.

Alex Kania -- Wolfe Research -- Analyst

Hey, good morning. Just thinking a little bit more about the prospects for ethane recovery in the Bakken just next year either for price reasons or I guess physical constraint reasons, just with respect to Northern Border. How do we really think about those ethane volumes getting handle. Does that -- do you think of that is like incremental to what is it being contracted on Elk Creek and further south already? Or does it -- could it cover like existing contracted volume levels that you've kind of our established right now, just again, kind of, it sounds like you've suggested it was incremental, but I just wanted to confirm?

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

This is Sheridan, when we look at and is quoted volumes coming out of the Rockies. We do not consider ethane in any of those volumes. It's all C3 plus, so any ethane that we would get, due to be enforced out because of constraints or the very unlikely that it becomes economical will be upside to our volume numbers that we've given.

Alex Kania -- Wolfe Research -- Analyst

Great, thank you.

Operator

Okay. Our final question comes from Sunil Sibal, Seaport Global Securities.

Sunil Sibal -- Seaport Global Securities -- Analyst

Hi, good morning, guys and thanks for all the color on the call. I just wanted to understand a little bit about the balance sheet management. So it seems like you will hit the forex, kind of, leverage metrics in early 2021. I was kind of curious how should we think about that on a more kind of longer-term basis. Do you want to be closer to forex or should we be thinking more like between 3 or 3.5 excess longer-term target?

Terry K. Spencer -- President and Chief Executive Officer

Well, we expect to continue to the left to delever past to 4 times and aspirationally we like to be around that 3.5 that gives us a lot of borrowing flexibility going forward for these smaller type of capex that would come out in the future. So we use 3.5 is an aspirational target and just think about going forward.

Sunil Sibal -- Seaport Global Securities -- Analyst

Okay, got it. And then just one clarity on the capex side, so obviously you guys have given a pretty good kind of breakdown of capex for various projects. When I bake all that into my numbers etc, it seems like you will be in a pretty good spot to get 35% to 40% reduction in capex in 2020 versus where you've end up in 2019. I was just curious, is that number seems reasonable or if I may be off somewhere?

Terry K. Spencer -- President and Chief Executive Officer

No we're not going to guide to our 2020 capex. But I think you can just take the projects we put in service and kind of subtract out what we still have to do and build up to a pretty good number. So the base will come up with your expectation is readily available, we'll leave that to you.

Sunil Sibal -- Seaport Global Securities -- Analyst

Okay, got it. Thanks guys.

Terry K. Spencer -- President and Chief Executive Officer

Thank you.

Operator

Okay. At this time, I would like to turn call back over to Andrew Ziola.

Andrew J. Ziola -- Vice President of Investor Relations and Corporate Affairs

All right. Thank you, Charles -- excuse me, our quiet period for the fourth quarter starts when we close our books in early January and extends until we release earnings in late February. We'll provide details for that conference call at a later date. Thank you for joining us this morning and the IR team will be available throughout the day. Have a good week.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Andrew J. Ziola -- Vice President of Investor Relations and Corporate Affairs

Terry K. Spencer -- President and Chief Executive Officer

Walter S. Hulse -- Chief Financial Officer, Treasurer, Executive Vice President, Strategic Planning, Corporate Affairs

Kevin L. Burdick -- Executive Vice President and Chief Operating Officer

Sheridan C. Swords -- Senior Vice President, Natural Gas Liquids

Charles M. Kelley -- Senior Vice President, Natural Gas

Jeremy Tonet -- JP Morgan -- Analyst

Shneur Gershuni -- UBS -- Analyst

Christine Cho -- Barclays -- Analyst

Tristan Richardson -- SunTrust -- Analyst

Michael Blum -- Wells Fargo Securities -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Jean Ann Salisbury -- Bernstein -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Derek Walker -- Bank of America Merrill Lynch -- Analyst

Craig Shere -- Tuohy Brothers -- Analyst

Alex Kania -- Wolfe Research -- Analyst

Sunil Sibal -- Seaport Global Securities -- Analyst

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