Image source: The Motley Fool.
Enterprise Products Partners LPÂ (EPD 0.56%)
Q4Â 2019 Earnings Call
Jan 30, 2020, 10:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Enterprise Products Partners LP Earnings Conference Call. [Operator Instructions]
I would now like to hand the conference over to your speaker today, Randy Burkhalter, Vice President of Investor Relations. Thank you. Please go ahead, sir.
Randy Burkhalter -- Vice President of Investor Relations
Okay. Thank you, Dillane. Good morning, everyone, and welcome to the Enterprise Products Partners conference call to discuss fourth quarter 2019 earnings. Our speakers today will be Jim Teague and Randy Fowler, Chief Executive officers of our Enterprise's general partner. Other members of our senior management team are also in attendance for the call today. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. Based on the beliefs of the company as well as assumptions made by and information currently available to Enterprise's management team.
Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call.
And so with that, I'll turn it over to Jim.
A. J. Teague -- Director and Co-Chief Executive Officer
Yes. Thank you, Randy. Frankie Valli and The Four Seasons, back in the day had a song Oh What a Night. To paraphrase, where 2019 is concerned, oh, what a year. Enterprise reported record net income of -- for the full year of 2019 of $4.6 billion or $2.09 a unit. That's a 10% increase from 2018. DCF increased 11% to a record $6.6 billion and provided 1.7x coverage. We retained $2.7 billion of DCF at a 24% increase compared to 2018. The record cash flow we generated in 2019 allowed us to increase the distribution paid to our partners for the 21st consecutive year, while self-funding the equity portion of our growth capital investments. We again completed 2019 with a lot of financial flexibility and a very strong balance sheet. In addition to the financial highlights, we ended the decade with record performance in 2019 with all of our business segments reporting increased results, including 28 operating and financial records.
We set 13 operational records, including almost two million barrels per day of marine terminal export volumes, 6.7 million barrels a day of liquid transportation volumes and 10.4 million of barrels of oil equivalent per day total system transportation volumes. During 2019, Enterprise completed construction and began service on approximately $5.4 billion of capital projects, including $2.5 billion that were completed in the fourth quarter. In addition, we have another $7.7 billion of projects under way. Substantially all of 2019's major projects were completed on time and on budget. In addition, we're in discussions with potential JV partners and projects that beat our downstream value chain. I'd like to give a shout out to operations for successfully commissioning five new -- major new assets from late September to the end of the fourth quarter. LPG export expansion, iBDH, Mentone gas processing plant, our Panola Bulldog gas processing plant and Phase one of our ethylene export terminal. Frankly, we should have built the Panola Bulldog plant five years ago, my bad. But we finally did build it. It's full, and it's beating our Panola Pipeline and our Mont Belvieu complex. What we didn't have five years ago was as complete and large gathering system as we have today. Supporting that project -- that gas plant is a gathering system that goes from Northwest Louisiana to the deep east Texas.
Our ethylene export project was not a project I embraced in the beginning. Bringing in Navigators, our joint venture partner, got me over the hump. But I think Chris D'Anna and his team, along with a Navigator team went on a mission to prove me wrong. They are on the verge of executing that contract that will result in a sign being hung on that terminal that says sold out. Mentone is our latest addition to our Permian processing system. Mentone is fully contracted with one of the largest producers in the Delaware Basin. A few words about gas gathering and processing. There are essentially two types of gathering and processing contracts that we enter into. The first is demand fee or said another way, tech or pay contracts where a producer commits to a volume at a fee that is paid whether the volume is -- there is delivered or not. The second type is an acreage dedication. And that's where producer dedicates everything he produces from a defined acreage up to a set maximum daily quantity, and that -- our MDQ. And that's the amount that we have to provide services for. If the producer does not meet that maximum daily quantity threshold, then we have the right to reduce the MDQ and sell that capacity to another producer. In many cases, even though the MDQ is reduced, their acreage dedication remains the same.
We've had some underperformance at our Orla complex and consequently, have reduced the MDQ of at least one producer. Natalie Gayden and Lowell Moore's team have successfully backfilled that capacity with a long-term $300 million a day take-or-pay contract with a large investment-grade producer. These type of clawback options allow us to maximize the use of our capacity, and in this case, defer capital as much as two years. Our iBDH start-up in December -- started up in December. As a result, our base plant and our high purity isobutylene plants are running at capacity. And our anchored customers' are taking their contracted volume. Because there's a ramp for our anchor customer, we have spot volumes to sell. I was somewhat concerned about placing those volumes. But again, Chris and his team proved me wrong. As there's been a healthy appetite from the refining industry. Our LPG export expansion was up and running throughout the third quarter. We have contracted that terminal to a targeted level and through efficient scheduling and been able to increase our dock utilization to share in a wider spread internationally. Now the first half of next year, we expect to have four crude oil pipelines out of the Permian.
One of these pipelines, M2E three is a 36-inch pipeline we are building that upon completion of construction will be jointly owned by M2E three and Wink to Webster. We will own as an undivided joint interest, 29% of Wink to Webster. The project should be -- complete our ECHO terminal by August and to Webster by the end of the year. I don't expect more than 200,000 to 300,000 barrels a day to flow until the Webster leg is complete. If you think about it in those four pipelines, with just our contracted volume and a 0 terminal value, they will deliver a mid-teen IRR to Enterprise. Our upsides are the additional fees we collect for storage and for exports and any marketing activities. PDH two is under way to construction. We have a high quality petrochemical customer as the anchor. Are in -- and are in negotiations for the remaining capacity and potentially a joint venture partner. We are one of the largest producers of PGP in the world, and it's a world that is short PD -- PGP. Once PDH two is up, we will produce more than 11 billion pounds a year of propylene. So 2019 was a record year, and I want you to know that Enterprise we celebrated for about 1.5 hour before turning our attention to 2020. The new year poses new challenges and headwinds.
Those headwinds are primarily spreads from Waha to the Gulf Coast in natural gas, Mid-Continent to Mont Belvieu in liquids and Midland to Houston in crude. While there were spreads, they're not as robust as they were last year. That said, we expect spreads to the water to grow in LPG, in crude oil and in petrochemicals. And we have assets that we put into service in 2019 that will have a full year of earnings. While our folks have forecast that the spreads we had in 2019 on the assets that produce those spreads could be down $500 million. I look at our footprint, and I see other opportunities. Backwardation, contango, cross product, as I said, to the water on all hydrocarbons. We have RGP to PGP. We have normal butane to isobutane and we have product upgrades, and the list goes on. I've been here a long time, and when I look at our system, I see a system that in my 20 years, has always delivered above our contracted fees. It's never the same asset, it is the same integrated system.
So I expect 2020 to be a strong year. It's hard to set new records every year. But with our people and our footprint, I'd be real careful betting against us. And now I'm going to look at Chris Wade and let him shudder as I've got unscripted comments to make. We issued a press release this morning that we were going to a co-CEO structure with Randy sharing this title with me. Frankly, all we're doing is formalizing how we've always run the company. Randy and I will be a -- will remain a part of the office of the Chairman with Randa and Hank Bachmann, and we will also stay on the Board. Randy and I don't compete with each other, we complement each other. We're truly a team, and we've been together for over 20 years. So we are friends, and we respect what each other brings to the table. The other announcements we made today are senior management team that is accomplished with complementary skills, and they truly work as a team. Brent Secrest, our Chief Commercial Officer, has one of the best value minds I've ever seen. And he's so damn tall, he has a presence. Graham Bacon, our Chief Operating Officer, is on top of operations and engineering such that we sleep well at night.
Daniel Boss has some commercial time. He ran our regulated businesses. That makes him one of the more well-rounded people we've ever had to run our accounting group and other responsibilities he's taking on. He also had the initiative, even though it wasn't required, to get his CPA once he took that job. Chris Nelly has a style that is disarming and a work ethic second to none. Bob Sanders, well, Bob is 40 years with us, and he's our go to guys. He knows where every piece of steel is. Not mentioned was Tony Chovanec, who has built so much credibility that everyone wants his group's forecast. Then we have Penny, and we have John Jordan. Now let me tell you what this is not. Enterprise has never been a job for me. It's a calling. This is not a transition to Jim's retirement. As far as I'm concerned, I'm not going anywhere. And as good as I feel and as excited as I am about our future, I'm really not convinced that my runway isn't as long as Randy's. Be that as it may, there's no one I'd rather share this title with than a friend, Randy Fowler.
And with that, I'll turn it over to our co-CEO, Randy Fowler.
W. Randall Fowler -- Director, President and Chief Financial Officer
Thank you, Jim, and good morning, everyone. Let me start with some of the income statement items for the fourth quarter. Net income attributable to limited partners for the fourth quarter of 2019 was $1.1 billion or $0.50 per unit on a fully diluted basis. Net income for the fourth quarter of 2019 included a noncash impairment and related charges of approximately $82 million. This is primarily related to our investment in the Centennial liquids pipeline that we co-own with Marathon. The fourth quarter of 2019 also included noncash mark-to-market losses of $25 million. Together, these noncash charges were approximately $0.05 on a fully diluted unit. Net income for 2018 included noncash impairment and related charges of approximately $29 million and a noncash mark-to-market gain of $237 million or a combined $0.10 per fully diluted unit. Excluding these noncash items, EPU for the fourth quarter of 2019 increased by 13% compared to the same period in 2018. Moving on to cash flows. Cash flows from operations was $1.7 billion for the fourth quarter of 2019, versus $1.9 billion for the fourth quarter 2018.
Excluding changes in working capital accounts, cash flow from operations for the fourth quarter of 2019 was 11% higher than the fourth quarter of 2018. Free cash flow, which we define as -- we use the Bloomberg definition, cash flow from operations minus the investing activities and then we add back joint venture contributions or contributions from joint venture partners was $2.5 billion for the full year 2019, which was 24% higher than free cash flow for 2018. We define payout ratio as the sum of cash dividends, distributions and buybacks as a percent of cash flow from operations. Our payout ratio was approximately 58% for the fourth quarter of 2019 and 59% for the full year 2019. For context on how we compare to the broader equity markets, I'll refer to page five of the supplemental slides that we posted. Based on the information available to us for the nine months of 2019, Enterprises' 59% payout ratio is the fourth highest compared to the median payout ratios for the S&P 500 and 10 of its industry sectors. We exclude its financial sector due to its volatility and outliers. In terms of distributions and dividends, only Enterprise ranked in the top 15 percentile of all S&P 500s for a percent of cash flow returned to equity investors.
In terms of total payout ratio, Enterprise ranked in the 41st percentile of all S&P 500 companies. Our total capital investments for the fourth quarter of 2019 were $1.2 billion, including $1.1 billion of growth capital investments and $93 million of sustaining capital expenditures. Total investments for 2019 were $4.7 billion, which includes $4.3 billion of growth capital investments, which is reduced to $3.7 billion after subtracting contributions from our JV partners. Sustaining capex for 2019 was $325 million. For 2020, we currently expect our growth capital expenditures will be in the range of $3 billion to $4 billion and sustaining capital expenditures will be approximately $400 million. For 2021, we currently expect growth capital expenditures will be in the range of $2 billion to $3 billion. One of our most important goals is -- continues to be capital discipline. And I'll also add that the lower capex in 2021 that we currently see would lead to higher free cash flow, which would provide the potential for us to consider larger buybacks. In terms of capitalization, our consolidated liquidity was $4.9 billion at December 31, 2019, which included available borrowing capacity under our credit facilities and unrestricted cash of about $300 million. Adjusted EBITDA for the trailing 12 months ended December 31, 2019, was $8.1 billion, and our consolidated leverage was 3.25x after adjusting debt for the partial equity credit that we received for the hybrid debt securities by the rating agencies and also reduced by unrestricted cash. If we normalize adjusted EBITDA for $500 million of spread opportunities in 2019, we believe were wider than normal.
We estimate that our leverage ratio would have been 3.5x for 2019, which is at the midpoint of our range for our targeted leverage. On January 6, we priced an aggregate $3 billion of senior unsecured notes, comprised of $1 billion of 10-year notes at a 2.8% coupon, $1 billion of 31-year notes at 3.7% and $1 billion of 40-year notes at 3.95%. We'd like to say thank you for -- to the strong support from our fixed income investors. After adjusting for the proceeds from our $3 billion notes offering and the maturity of $500 million of five 1/4% notes tomorrow, our total debt principal outstanding would be approximately $30 billion. Assuming the first call date of the hybrids, the average maturity of our debt portfolio was 16.3 years. Assuming the final maturity date of the hybrids, the average life of our debt portfolio is 20.4 years. Our effective average cost of debt is 4.5%. When looking at our capital need needs for 2020, we have $1.5 billion of total debt maturing, including the $500 million that matures tomorrow. That leaves the remaining $1.5 billion of proceeds from the debt offering available to fund approximately 50% of our $3 billion to $4 billion of growth capital expenditures for 2020.
Moving on to distribution payments and the distribution reinvestment plan. Our distribution declared, with respect to the fourth quarter of 2019, is $0.445 per unit and will be paid February 12. This distribution represents a 2.3% increase when compared to the same quarter of 2018. As mentioned in the press release this morning, based on current expectations, we plan to recommend to our Board to continue our quarter of $0.01 per unit per quarter increase to our quarterly distribution rate for 2020. This would result in aggregate distributions declared, with respect to 2020, of $1 -- $1.805 per unit that compares to $1.765 per unit for 2019. We also intend to use approximately 2% of our 2020 cash flow from operations to buy back our common units during 2020. Using 2019 as a base, these proposed distribution increases and the unit buybacks would result in about a 5.6% increase in the amount of capital that we're returning to limited partners in 2020 compared to 2019, of which, 60% of this increase is through buybacks. If we are successful in retaining our spread income in 2020 at 2019 levels and if free cash flow is higher, we -- one of the things that we can also consider is, again, the potential for higher buybacks.
Beginning with our August 2019 distribution payment, the delivery of common units under the dividend distribution reinvestment plan and our employee unit purchase program are satisfied through open market purchases instead of issuance of common units. Affiliates of our general partner purchased approximately 2.2 million units in the open market for $58 million in December. In total, during the fourth quarter, between open market purchases by the distribution reinvestment plan, our employee plan and affiliates of our general partner, approximately $95 million or 3.6 million EPD units were purchased in the open market. Affiliates of our general partner have also expressed their intention to continue buying EPD units in the open market in 2020 on a opportunistic basis. The last thing I'll cover today is the liquidity option agreement related to our acquisition of Oiltanking Partners in 2014. This agreement was filed with the SEC on August 1, 2014, and I will refer you to that document for more detail. Marquard & Bahls who, I'll call M&B, owned its interest in Oiltanking through a U.S. corporation, named Oiltanking Holdings, which I will call OTA. OTA owns 50 -- owns the 54.8 million EPD units that were issued as consideration in the transaction. By our estimates, OTA currently has a deferred tax liability of approximately $500 million associated with those units. Under the terms of the liquidity option agreement, M&B has the option to put 100% of the common stock of OTA to Enterprise within a 90-day period commencing February 1, 2020.
We fully expect M&B to exercise its option. It is Enterprises' option to purchase the commons stock of OTA with any combination of EPD common units or cash. The price of the EPD units is based on the 10-day VWAP immediately prior to the exercise date. With regard to the effect on EPD's unit count upon completion of the transaction, OTA would be consolidated into EPD and the EPD units owned by OTA would be treated as treasury units with any cash payments between EPD and OTA eliminated in consolidation. For illustrative purposes, if OTA still owns 54.8 million EPD units and if Enterprise settled the acquisition of the common stock of OTA by issuing 54.8 million EPD units, it would not have any impact to our current outstanding unit count, given the offsetting nature of the new units issued to M&B with a 54.8 million EPD treasury units held by OTA. Currently, we have not made a decision regarding how we will settle the purchase of OTA common stock if and when it's put to us under the liquidity option agreement. We will need to see what the 10-day VWAP is at the time of the exercise. Frankly, a price based on a 10-day VWAP without a discount may not provide a great deal of incentive for a large cash component. Finally, since 2014, we have been accruing a liquidity option liability. The primary purpose of accruing this liability was to estimate OTA's deferred tax liability that we might assume. At December 31, 2019, the liquidity option liability accrued on EPD's balance sheet was approximately $510 million. At the closing of the acquisition of OTA common stock, we would eliminate the liquidity option liability on EPD's balance sheet and replace it with the OTA deferred tax liability.
Any difference between the two would be a noncash adjustment recorded to the income statement. Generally, OTA's deferred tax liability would continue to be deferred and not be triggered unless we sold the EPD common units owned by OTA. And we have no plans to do that. Once the transaction is completed, we currently estimate the cash income to taxes incurred at OTA related to the taxable income allocated to 54.8 million EPD units owned by OTA will range from $0 to $20 million per year. And we believe in 2020, it would be $0.
With that, Randy, I think we're ready to open it up for questions.
Randy Burkhalter -- Vice President of Investor Relations
Okay Dillane. We're ready to take questions from our audience.
Questions and Answers:
Operator
[Operator Instructions] I show our first question comes from Shneur Gershuni from UBS. Please go ahead.
Shneur Gershuni -- UBS -- Analyst
Hi, good morning, everyone. I was going to say congratulations on the promotions, but I'm going to say congratulations on answering the calling. Just two quick questions here. I'm going to avoid the Oiltanking question, I'll leave that for later. But I was wondering if we can start off with the crude segment. Obviously, this segment has been one of the beneficiaries of tight spreads, you sort of talked about the leverage ratio being 3.25 versus 3.50 if you exit out. With the capacity coming online, some of the frothy the opportunity to come out, can we view the new view 4Q or the 4Q result as kind of the new run rate level from there to build organic growth? Or said differently, is the unit margin run rate in 4Q kind of what we should be thinking on the go-forward basis?
A. J. Teague -- Director and Co-Chief Executive Officer
It's Jim. As a matter of fact, we signed the contract last night with a pretty big producer. That'll grant 65,000, 75,000 barrels a day with an associated dog deal. So we've got some pretty good -- pretty strong contracts to support those pipes.
Shneur Gershuni -- UBS -- Analyst
Okay. That makes total sense. And then maybe if we can just shift over to the LPG export side. I was wondering if you can talk about the status of the contracting-type market at this point right now. Are you able to use the strength of the market to put in place contract terms that are even longer in nature than typical and at higher rate than typical? Like if you can sort of talk about what it would be like to negotiate a 3-year contract today versus, let's say, a year ago, what it would be like to contract a 3-year type contract? Would it be at a higher rate? And would it be now for four years or even five years? So just wondering if you can sort of talk about how it's changed the dynamic of contract.
A. J. Teague -- Director and Co-Chief Executive Officer
We -- we're fully contracted for next year. By definition and by design, we chose to shorter terms, because the fees were lower. We had a targeted level. We chose to lease some available for spot which, frankly, was a good thing. And we think as time goes on and volumes grow, having a 1- to 2-year contracts at the fees we were getting is a smart thing because we think those spreads will widen over time as volumes grow. Brent?
Brent B. Secrest -- Enterprise Products Partners
Yes, I mean, I think the fees that we have out there right now and the fees that we're talking with the customers, the fact of the matter is those fees will work for us. And why they work for us is because we have expansions in brownfield projects that, frankly, are at very attractive returns for what we invested over the last, call it, decades. So there's -- the opportunities for Enterprise to participate is we're going to contract such that we're comfortable operationally that we can satisfy all the contracts or customers. And if Graham and his team exceed those expectations, and that creates opportunities in the spot basis. In terms of doing two year, three or 4-year type contracts, the fact of matter is the levels that we're doing them right now, I think our customers, both domestically and internationally, and frankly, Enterprise are very happy with those numbers.
Shneur Gershuni -- UBS -- Analyst
All right, that that that does it for me, congratulations.
Operator
Our next question comes from Colton Bean from Tudor, Pickering, Holt. Please go ahead.
Colton Bean -- Tudor, Pickering, Holt -- Analyst
Morning. Just wanted to follow-up on the discussion of buybacks. I think you mentioned if cash flow from ops comes in stronger than 2019 and you see upside there that could result in a higher buyback level. Are you still thinking about that as 2% of the incremental cash flow? Or would it basically be anything over and above 2019?
W. Randall Fowler -- Director, President and Chief Financial Officer
Okay. Colton, I'm sorry, the volume was really low. Could you repeat your question?
Colton Bean -- Tudor, Pickering, Holt -- Analyst
Yes, sorry about that. Just trying to understand on the discussion around buybacks. I think you mentioned that you're at -- currently thinking about 2% of cash flow from operations and if you come in higher than that number, particularly higher than you were at in 2019, you could see the buyback number move higher. Are you still thinking it would be 2% in aggregate? Or are -- basically anything over and above 2019 might be directed toward buybacks?
W. Randall Fowler -- Director, President and Chief Financial Officer
I think going into 2020, our thought is that we'd use approximately 2% of the cash flow from operations. And some of that is, as Jim mentioned, we forecasted some of those spread opportunities not continuing into 2020. If we saw some of those opportunities continue into 2020, then that's what would give us potential to come in and think about doing additional buyback.
Colton Bean -- Tudor, Pickering, Holt -- Analyst
Okay. And so the right way to interpret that is if you had, say, all $500 million should back up, it would be 2% of the $500 million?
W. Randall Fowler -- Director, President and Chief Financial Officer
Call that, I don't know if we would be that -- I don't know if we would come in and be that limited on it.
Colton Bean -- Tudor, Pickering, Holt -- Analyst
Understood. Yes. And just to follow-up on Shneur's questions around LPG. Thinking a little bit more short term in nature here. I think you all have highlighted the gross capacity versus kind of a typical operating rate. Is there any opportunities you all see maybe in Q1, Q2 here to get that operating rate closer to gross capacity?
Brent B. Secrest -- Enterprise Products Partners
I mean, I don't -- this is Brent. I mean, there's -- I feel better about it in 2Q, and I feel better about it in 3Q. I mean there's things that we can't control, whether it's something that happens in channel or fog or things of that nature that -- frankly, first quarter, it's a little tough, but how -- I mean, look, it's never going to be 100%, ship's got to move, it just -- I mean it's just not the most efficient movement. But in terms of trying to get above 70, 75 to the 80 type number, there's things that we can do that we have control over.
You guys will hear us talk about using some of our off-site crude terminals to enhance that. It's about trying to optimize around the channel so that we can move vessels between docks. So I think, typically, as things come up, Enterprise gets better and better, and we start moving more and more volume. I'm just trying to set your expectations of what you can see. I think if we're doing somewhere, Graham, in probably the 80% type number. That's a pretty good operational mode for us.
Graham W. Bacon -- Executive Vice President and Chief Operating Officer
We look for that type of facility, but we continue to challenge ourselves to get that last increment out every day. And you can see the results over time.
A. J. Teague -- Director and Co-Chief Executive Officer
Yes, I'll jump in. I don't think anybody has the utilization rate we have. I spent a lot of time at another company and another career, and we never came close to the utilization rate that we have at Enterprise. We focus on keeping that refrigeration unit running all the time, and I forget, Bob, what is our utilization on that refrigeration unit. Do you have any idea?
Brent B. Secrest -- Enterprise Products Partners
I don't have it off the top of my head completely, but it's going to be in the upper 80s.
A. J. Teague -- Director and Co-Chief Executive Officer
And we use our layberths. We make sure that we got ships sitting there. And Justin has come up with some creative contracting ideas that work effectively for us.
Operator
Thank you. Our next question comes from Spiro Dounis from Credit Suisse. please go ahead.
Spiro Dounis -- Credit Suisse -- Analyst
Hey, morning, everyone Maybe just starting off with the capex guidance for '21, that $2 billion to $3 billion range. Could you guys give us a sense of what ultimately is going to drive you to the high or low end of that range? And it looks like spot is not included in that overall backlog. Is that the main driver? And how should we think about the impact that could have in '21?
W. Randall Fowler -- Director, President and Chief Financial Officer
Yes. You're correct that the offshore terminal is not included in that. The -- that's still in the application phase and the approval phase with Myriad And frankly, we don't look for -- the earliest that, that project could be approved by Myriad is probably the second half of this year. We have -- and then on spot, I could -- I still think we could be in the range of $2 billion to $3 billion in 2021, even with spot because I think we've also had some discussions as far as with joint venture partners around spot. So I think we would still be in that $2 billion to $3 billion even with spot included in that number.
A. J. Teague -- Director and Co-Chief Executive Officer
And with spot -- I think, in order to get people on spot, I think we're going to -- they're going to want equity, Brent. And we're not driven to own 100% of spot. If you think about it, our value lies upstream of spot, a lot of our value. And it wouldn't bother me for us not to own more than 40% of spot in the final analysis.
Spiro Dounis -- Credit Suisse -- Analyst
Got it. That's very helpful. And then just on Wink to Webster, can you maybe provide a little bit more color on why you decided to move forward under the UJI structure? And any more specifics on the mechanics basically have this tied into your current system? And just lastly on that, any sort of capital avoidance you can sort of expect as a result of this?
A. J. Teague -- Director and Co-Chief Executive Officer
Well, it's a pipe and a pipe. So we do our own scheduling. We -- there's no -- the other partners have no idea who's barrels are on that pipe. So other than turning valves, we operate the thing just like we do our other pipelines. And it's -- when you look at it on a per barrel basis, it's pretty cheap pipeline. Brent?
Brent B. Secrest -- Enterprise Products Partners
Yes, the only thing I'd add on that is when it's undivided joint interest or pipe within a pipe and if you look at how Enterprise optimizes assets, I mean, it's just a lot easier for us to optimize something that is a 100% owned by Enterprise. So that was the thought behind it. It's a very competitive rate. Obviously, there's economies of scale when you're building a pipe that big. And then when you're building a pipe that big and just have Enterprise to deal with in terms of how we go about our daily business, that's why it makes sense for us.
Spiro Dounis -- Credit Suisse -- Analyst
Got it. Appreciate Keller Thanks, everyone.
Operator
Thank you. Our next question comes from Tristan Richardson from SunTrust. Please go ahead.
Tristan Richardson -- SunTrust -- Analyst
Hey, good morning guys. Appreciate the context and perspective on slide five as it relates to payout. As it relates to returning cash in the way you've formally defined the target for repurchases this morning. Can you share your thoughts on defining this repurchase target on a regular basis, whether it be annually or otherwise?
Michael C. Hanley -- Senior Vice President
Well, Tristan, we're -- to a degree -- we're entering into a new phase to a degree. And with, again, in 2020, we've got -- we have the $3 billion to $4 billion of growth capex. The -- and when we come in and look at 2021 at $2 billion to $3 billion, given that our leverage is in the middle of our target range. And if we come in -- and again, the organic projects that we have, we like.
We're going to be very capital disciplined in here. But we're entering in a phase that if we -- if our leverage is where -- if we're comfortable with it being, and we continue to see the business perform on the way it does, growth capex in that $2 billion to $3 billion range, not only will we have free cash flow as we define it, but then we will also have additional cash flow just when you come in -- and even after you subtract dividends. So we really enter into a whole new period of flexibility and where we'll -- if we have the potential, if we don't see compelling organic opportunities, then in the balance sheet is where we like it. I think that comes back to that you're looking to come in and return more capital to partners.
Tristan Richardson -- SunTrust -- Analyst
Helpful. And then just a follow-up question, just on Shin Oak, I may have missed in the prepared comments, but can you talk about volumes sequentially in the quarter? And how we should think about kind of general trajectory there?
A. J. Teague -- Director and Co-Chief Executive Officer
Tug, do you want to take it, and then I'll jump in.
Michael C. Hanley -- Senior Vice President
Yes, sure. This is Tug Hanley. With respect to Shin Oak, it's part of our entire system in the Permian. It integrates with our MAPL system, our -- some of the pipelines, our Chaparral pipeline. So there's some seasonality associated with the volumes, for example, Conway to Mont Belvieu could impact flows on Shin Oak. With that said, Mentone's online, we're seeing higher volumes. Presently, we're seeing around 300,000 barrels a day. And we've also been successful in getting some additional contracts recently. And we're in discussions with multiple parties right now on even more contracts. So we're going to keep driving forward and get it full.
A. J. Teague -- Director and Co-Chief Executive Officer
How much you're flowing on Shin Oak?
Michael C. Hanley -- Senior Vice President
300 a day.
A. J. Teague -- Director and Co-Chief Executive Officer
Okay. So we're pulling 300 a day, and that's without Alpine High, doing what we expected it to do. And I spoke in my script about some underperformance in Orla. We have backfilled that, as I said in my script, the best supply you can have are full processing plants, and we're going to have full processing plants on a go-forward basis. In addition, Tug's in some negotiations with people to get third-party movements on that pipe.
Tristan Richardson -- SunTrust -- Analyst
Thank you guys very much.
Operator
Thank you. Our next question comes from Jean Ann Salisbury from Bernstein. Please go ahead.
Jean Ann Salisbury -- Bernstein -- Analyst
Good morning, Just one for me. A lot of frac capacity is coming online in the first half of this year. Can you just give us the latest of what you're seeing? If there's been pressure on recontracting rates because of that?
A. J. Teague -- Director and Co-Chief Executive Officer
Zac do you want to -- you're going to freeze up or you want to take it?
Zachary S. Strait -- Vice President of Unregulated NGL Commercial
So far, there's been still a good appetite when we go and look at all of our contracts. One or -- we don't have a whole lot of contracts rolling off for a good period of time. But even when we would go in and talk to producers, I think the market is normalized. I think we were in a bit of an abnormal market for 2018 and 2019. The market is normalized on contract rates, normalizing on term, but we still see how the appetite for producers to take out -- for ex this.
A. J. Teague -- Director and Co-Chief Executive Officer
You full?
Zachary S. Strait -- Vice President of Unregulated NGL Commercial
We are more than full.
A. J. Teague -- Director and Co-Chief Executive Officer
So you're overflown in Louisiana?
Zachary S. Strait -- Vice President of Unregulated NGL Commercial
Overflowing Louisiana. Overflow into storage. Every frac in our portfolio is full.
A. J. Teague -- Director and Co-Chief Executive Officer
We're not too concerned at this point.
Jean Ann Salisbury -- Bernstein -- Analyst
Well, let me thank you.
Operator
Thank you. Our next question comes from Christine Cho from Barclays. Please go ahead.
Christine Cho -- Barclays -- Analyst
Good morning.I'd like to extend my congrats to everyone on their new positions. Starting with capex opportunities post 2021, where do you see the opportunities for spending being? Just as an industry, we seem like we're going to be well capacitized on fractionation and LPG export front. For the next couple of years, after fourth quarter of this year, especially if production continues to slow, and we seem to be overcapacitized on Permian prudent NGL pipes So beyond the spot projects, are the opportunities just more bolt on? Or does it increasingly become more petchem oriented?
A. J. Teague -- Director and Co-Chief Executive Officer
We think petchem is a bolt-on, Christine. But in terms of slowing production. What Tony tells us is, what is it? 500,000 to 750,000 barrels a day of growth of crude in 2020. Growth will -- is obviously slowing, but production is not slowing. And when we take a long-term look, currently, let's say, after 2025, we expect production to continue to go, particularly in the Permian Basin. It is the standout in the United States.
W. Randall Fowler -- Director, President and Chief Financial Officer
I'm having a hard time with 500,000 to 750,000 barrels a day, been slow growth, frankly. But in terms of where we go from here, we like primary petrochemicals. So PDH 2, we like. We got one heck of an anchor customer. We like creating a petrochemical midstream service business, meaning storage and pipelines in both ethylene and propylene. We like our export position. We think that grows, and we're doing things, as you know, to expand that. So I mean that's what I see us doing. I don't see any big acquisitions or anything like that, unless some hellacious deal comes along. But I see us continuing to go downstream. And we're using that as leverage to do more upstream.
Christine Cho -- Barclays -- Analyst
Okay, helpful. And then I know there were a lot of questions on the LPG exports, but I actually have a question on the ethane exports and demand out there. We don't seem to get that much variability in the ethane export volumes even when ethane prices moved pretty low. So is it fair to say that the markets abroad are absorbing as much ethane as possible? And if we're to see an increase here, more facilities that can take ethane as a feedstock needs to be built?
A. J. Teague -- Director and Co-Chief Executive Officer
Yes, I think it's fair to say that it's a point-to-point commodity. And what people have to spend to receive it is not small dollars, to ship it is not small dollars. So I think it evolves. We said when we put that project in that this was not going to be like LPG. It's going to be a point-to-point milk run type of the deal. And that's what it is in order to grow that. And we have a lot of people talking to us, but they've got to spend money to be able to receive it.
Christine Cho -- Barclays -- Analyst
In that context, do you think that like just given all the dynamics that LPG exports being pretty constrained that like ethane could go methane negative this year?
A. J. Teague -- Director and Co-Chief Executive Officer
Well, if it does, we're going to make a lot of money. But I don't think so, personally.
Christine Cho -- Barclays -- Analyst
Thanks, personally. Okay, great. Thank you.
Operator
Thank you. Our next question comes from Jeremy Tonet from JP morgan. please go ahead.
Charlie W Barber -- JPmorgan -- Analyst
Yeah. Good morning. This is Charlie [Phonetic]. First question, just on project timing. I noticed Frac X and XI slipped a bit, also didn't see ATEX expansion anymore. Just wanted your thoughts there?
A. J. Teague -- Director and Co-Chief Executive Officer
Justin? Or Zac?
Zachary S. Strait -- Vice President of Unregulated NGL Commercial
We did see them slip slightly. I think we had a pretty aggressive schedule to start with. But from an impact to Enterprise, we're still taking all the products that was contracted for X and XI. We've got best-in-class storage facility. And so those -- all that white grade is going there and our producers don't even know. So once they get up, we'll frac it all out of storage.
Charlie W Barber -- JPmorgan -- Analyst
And ATEX?
Michael C. Hanley -- Senior Vice President
Yes, we're still move -- this is Tug. We're still moving forward. The ATEX expansion's going to be sometime in 2022, early 2022.
Charlie W Barber -- JPmorgan -- Analyst
Okay. And then just on buybacks. When thinking about the 2%, is this before after working capital changes? Just thinking about newer projects coming into service net impacting operating accounts.
W. Randall Fowler -- Director, President and Chief Financial Officer
When we think about it. And when you look at sort of -- when we take it in context, as far as when we compare to the other S&P sectors, it is the GAAP term, cash flow from operations. And so it is after working capital changes, but working capital changes can be quite positive, too.
Charlie W Barber -- JPmorgan -- Analyst
Okay, great. And then sorry, one last one, and I know you guys get the question a lot. Just your thoughts on C Corp. conversion, just given kind of the price reaction we saw last December after the conference and the commentary there.
W. Randall Fowler -- Director, President and Chief Financial Officer
Yes, really no updated thoughts around that at this point in time, something that we continue to look at, but really no update on the thoughts.
Charlie W Barber -- JPmorgan -- Analyst
Okay, thank you.
Operator
Thank you. Our next question comes from Pearce Hammond from Simmons Energy. Please go ahead.
Pearce Hammond -- Simmons Energy -- Analyst
Thanks for taking my questions.My first question is, you've discussed the possibility of redirecting Midland-to-ECHO two back to NGL service. And just curious what the latest was on that.
A. J. Teague -- Director and Co-Chief Executive Officer
The latest is it's staying in crude service for the foreseeable future, but we have the option to always -- it's kind of a neat option. We can take it out of crude service from putting in NGL service, and then we can take it out of NGL service and put it back in grid service. That's called an option isn't it, Brent?
Brent B. Secrest -- Enterprise Products Partners
Might call it.
Pearce Hammond -- Simmons Energy -- Analyst
Great. And then as a follow-up, one theme during the Q4 earnings season thus far has been weakness in the global chemical sector. And just curious if you're experiencing that in your petrochemical segment and what your outlook is for the segment for 2020?
Randy Burkhalter -- Vice President of Investor Relations
Where's Chris?
F. Christopher D'Anna -- Senior Vice President
This is Chris D'Anna. Overall, our demand still remains fairly strong. We've seen some weakness at the end of fourth quarter in our export volumes to Europe, but that demand is picking back up again.
Pearce Hammond -- Simmons Energy -- Analyst
Great. Well, thank you.
Operator
Thank you. Our next question comes from Keith Stanley from Wolfe Research. Please go ahead.
Keith Stanley -- Wolfe Research -- Analyst
Hi, good morning. First, just wanted to revisit the sources and uses of cash for 2020. So you mentioned the $3 billion debt offering, $1.5 billion of maturities and then you said the remaining $1.5 billion could fund about 50% of growth capex, give or take. It seemed like -- I think 2019, you did at least $2.5 billion of DCF above the distribution. So it just -- it seems like you're going to have excess cash on the balance sheet above what's needed to fund capex this year. So can you just talk about how you would look to deploy that? Do you wait and see how capex shakes out? Would you pay down debt? Or just how you're thinking about that?
W. Randall Fowler -- Director, President and Chief Financial Officer
Keith, right now, we're just seeing how the year progresses. But again, we've got $3 billion to $4 billion of growth capex. And even if you come in and you say we're at the midpoint of that range of $3.5 billion of growth capex, you divide that -- multiply that by 50%, that's $1.75 billion. So that would totally consume the remaining proceeds from the debt deal than we would be coming in and using either -- again, cash flow from operations or borrowings under our credit facility to come in and fund the reminder.
Keith Stanley -- Wolfe Research -- Analyst
Okay. I was -- it just seems like cash flow from operations and the remaining portion of the debt funding is going to be more than you need for capex in 2020. Is that how you see it looking out right now?
W. Randall Fowler -- Director, President and Chief Financial Officer
Yes. Keith, we're getting early into the year. Yes, we may exceed that. I mean, some -- that's one of the reasons we're talking about coming in and using 2% of the cash flow from operations for a buyback.
Keith Stanley -- Wolfe Research -- Analyst
Okay, great. And then apologies for this. I'm not sure I'm fully understanding the Midland-ECHO 3. So Jim, I think you said it wouldn't run more 200,000 to 300,000 a day before Wink to Webster starts up. So I just want to clarify, ME three is still a separate pipeline or expansion projects for you that's distinct from Wink to Webster at this point?
A. J. Teague -- Director and Co-Chief Executive Officer
M-to-E three is a part of Wink to Webster as an undivided joint interest. So it's a pipe in a pipe.
Keith Stanley -- Wolfe Research -- Analyst
Okay. So there's no incremental capacity that you guys are separately adding in 2020. It's just you are now partners on Wink to Webster?
A. J. Teague -- Director and Co-Chief Executive Officer
That's exactly right.
Keith Stanley -- Wolfe Research -- Analyst
Great. Thank you very much.
Operator
Thank you. Our next question comes from Ujjwal Pradhan from Bank of America. Please go ahead.
Ujjwal Pradhan -- Bank of America -- Analyst
Good morning, everyone. Thanks for taking my question. Two quick ones. First, just wanted a bit more clarity on the buyback guidance today. Should we consider the guidance as more of a programmatic perhaps on a quarterly basis? Or will it be opportunistic like last year?
W. Randall Fowler -- Director, President and Chief Financial Officer
Again, I mean, what we're intending to do this year is intending to use 2% of cash flow from operations to come in and do buybacks. Now we'll do that opportunistically during the year. So I don't know if you want to say we're going to be opportunistically programmatic or programmatically opportunistic. That's what we're intending to do.
Ujjwal Pradhan -- Bank of America -- Analyst
Got it. Got it. And another quick one. I remember last year when we had the constraint in the Permian and you were moving quite a bit of spot volumes. I think you mentioned the cost of using DRA were as high as $2 per barrel. Has that abated now that there's bit more capacity moving those valves in the Permian?
A. J. Teague -- Director and Co-Chief Executive Officer
I think we're still using some DRA, Brent -- Graham.
Brent B. Secrest -- Enterprise Products Partners
We're still using it. We've learned to optimize it. And our -- we can get that incremental. That last -- that $2 was the last incremental barrel, and we watched that very closely, and we've done some things.
A. J. Teague -- Director and Co-Chief Executive Officer
We're not doing $2 a barrel.
Brent B. Secrest -- Enterprise Products Partners
We're not doing $2 a barrel.
A. J. Teague -- Director and Co-Chief Executive Officer
I think one of the things about that -- and Brent can jump in. We're going to have four pipelines out of there. When we optimize those four pipelines, we're probably moving 1.3 million, 1.4 million barrels a day, Brent.
Brent B. Secrest -- Enterprise Products Partners
Yes.
A. J. Teague -- Director and Co-Chief Executive Officer
And that's optimizing it. So you're getting the lowest cost possible, but if you -- if the spreads there, we can probably take that to 1.8 million barrels a day at a cost using DRA.
Brent B. Secrest -- Enterprise Products Partners
That assumes seminal in service, but you guys -- just like everybody else, I mean, we have our cost of what the next tranche is.
Ujjwal Pradhan -- Bank of America -- Analyst
Got it. Thanks. That helps.
Operator
Thank you.Our next question comes from Michael Lapides from Goldman Sachs. please go ahead.
Michael Lapides -- Goldman Sachs -- Analyst
Hey, guys, thanks for taking my question. Congrats everybody on executive announcements. I hate to ask this one because it's obviously very unfortunate and very scary globally. But are you seeing, in January, at all an impact in the export markets yet for either crude or NGLs, given what's going on in China and how it's impacting the business and how it's impacting demand in China? Can you just kind of talk about what you've seen over the last couple of weeks and how you think about the range of impacts on -- including on your guidance levels for -- in your outlook levels for how you're thinking about 2020?
Brent B. Secrest -- Enterprise Products Partners
Yes, this is Brent. So the quick answer is, we haven't seen an impact in terms of volumes. We haven't seen an impact in terms of fees at the dock. And whether it's freight, rates or whether it's this. I mean, there's things that happen. And I think that what you'll see in our system, it's no different when we pick out tranches to move from Midland to Houston. The people that are the most cost efficient are going to move the volumes. And so the people who are the least cost efficient, start turning off or start decreasing volumes and will look at different markets and look at different operators and look at different lack of integration of one owner. And my guess is those are the ones who are probably going to experience that sort of situation first. And the ones that are most cost efficient will continue to move the volumes.
Michael Lapides -- Goldman Sachs -- Analyst
Got it. One quick follow-up. In the quarter, you talked about Midland-to-ECHO one a little bit in the release. Can you just give a little more detail in terms of kind of what's happening on the pricing of tariffs side there relative to either the prior quarter or prior year?
Brent B. Secrest -- Enterprise Products Partners
I mean it's -- this is Brent again. I mean, in terms of tariff -- I mean, it's not a whole lot different than the last question. I mean the volumes don't change. I mean, that pipeline's been full every single day. In terms of how the economics work on that, my personal opinion, I think ship owners win because things get less efficient from a shipping perspective. But ultimately, it's consumers or the producers of the product that ultimately bear that cost.
Michael Lapides -- Goldman Sachs -- Analyst
Got it? Thanks, guys. Much appreciated.
Operator
Thank you. Our last question comes from Danilo Juvane from BMO Capital Markets. Please go ahead.
Danilo Juvane -- BMO Capital Markets -- Analyst
Good morning. Thank you for squeezing me and One question of clarity here. How are you guys thinking about the buyback relative to the 2% of CFFO? If you take out the Oiltanking units in cash versus equity, does that change that calculus for you?
Brent B. Secrest -- Enterprise Products Partners
Yes. I mean, in our mind, that would be the plan. I mean, you could come in and say that's a plan on some of the buyback against the OTA. In our mind, to the extent that we use cash consideration on the OTA transaction, that essentially would be a buyback.
Danilo Juvane -- BMO Capital Markets -- Analyst
That's it for me. Thank you.
Operator
Thank you. This call is available for replay starting today, the 30th at 1:00 p.m. through February six at 11:59 p.m. To access the replay, you will need to dial one (800) 585-8367 and enter the replay code 9596106.
A. J. Teague -- Director and Co-Chief Executive Officer
Thank you. We'd like to thank everyone for joining us today, and that ends the call. Have a good day.
Operator
[Operator Closing Remarks]
Duration: 64 minutes
Call participants:
Randy Burkhalter -- Vice President of Investor Relations
A. J. Teague -- Director and Co-Chief Executive Officer
W. Randall Fowler -- Director, President and Chief Financial Officer
Brent B. Secrest -- Enterprise Products Partners
Graham W. Bacon -- Executive Vice President and Chief Operating Officer
Michael C. Hanley -- Senior Vice President
Zachary S. Strait -- Vice President of Unregulated NGL Commercial
F. Christopher D'Anna -- Senior Vice President
Shneur Gershuni -- UBS -- Analyst
Colton Bean -- Tudor, Pickering, Holt -- Analyst
Spiro Dounis -- Credit Suisse -- Analyst
Tristan Richardson -- SunTrust -- Analyst
Jean Ann Salisbury -- Bernstein -- Analyst
Christine Cho -- Barclays -- Analyst
Charlie W Barber -- JPmorgan -- Analyst
Pearce Hammond -- Simmons Energy -- Analyst
Keith Stanley -- Wolfe Research -- Analyst
Ujjwal Pradhan -- Bank of America -- Analyst
Michael Lapides -- Goldman Sachs -- Analyst
Danilo Juvane -- BMO Capital Markets -- Analyst
