Good day. Welcome to the fourth quarter 2018 ONEOK earnings call. Today's conference is being recorded. At this time, I would like to turn the conference over to Andrew Ziola, VP of Investor Relations and Corporate Affairs. Please go ahead, sir.
Thank you, Shelby. Welcome to ONEOK's fourth quarter and year-end 2018 earnings conference call. This call is being webcast live. A replay will be made available. 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 Act of 1933 and the Securities Exchange Act of 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?
Thanks, Andrew. Good morning. 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. On today's call, we will discuss ONEOK's fourth quarter and full-year financial and operational performance, our 2019 financial guidance and 2020 outlook, and provide an update on our more than $6 billion capital growth program. 2018 was an impressive year for ONEOK, both operationally and financially, as volumes across our assets and our earnings posted significant increases.
In our first full year of operation following the acquisition of ONEOK Partners, we announced more than $5.5 billion of new capital growth projects, experienced NGL and natural gas volume growth across our operations, and strengthened our already solid investment-grade balance sheet. Our long track record of earnings growth continues. ONEOK's operating income has increased nearly a billion dollars over the last five years, while adjusted EBITDA has also doubled over that five-year period and has increased 50% since 2015. 2018 was a year of growth and new project announcements, and 2019 will be a year where we rely on our ability to execute and position our business for continued earnings growth into 2020, and I'm confident that we will.
Over the next 12 to 24 months, our focus will be set on completing our projects on time and on budget, on protecting the safety of the hundreds of employees and contractors we have working on these assets, and on the safe and reliable operation of our existing assets. We continue to evaluate additional opportunistic projects that address customer needs and the increasing demand for NGLs and natural gas in the U.S. and abroad. One of these projects, which has received a lot of attention, is a potential NGL export facility. What I can say is that we're closer to a deal now than we've ever been, there are a number of details that still need to be worked out before we announce anything further.
We're optimistic about where we are in the process and believe this facility would be a great fee-driven addition to our already predominantly fee-based business model. Along with announcing 2019 guidance yesterday, we also provided an outlook for 2020 to help bridge the gap between what will be a heavy build year in 2019 and a large step-up in volumes and earnings expectations in 2020. We expect a greater than 20% increase in adjusted EBITDA in 2020 compared with 2019 expectations. More than $4.4 billion of capital growth projects expected to be completed in 2019 and in the first quarter of 2020 will provide a foundation for significant earnings growth in 2020 and beyond. We acknowledge that we have disclosed a fairly wide range for 2019 capital expenditures with our guidance based upon a $3.1 billion midpoint.
Given the volatility in commodity prices we experienced around year-end, our CapEx range demonstrates that we have the flexibility to make adjustments based on increases or decreases in producer activity. As the year progresses, we will likely tighten the range as appropriate. Walt will provide more detail in a moment. With that, I'll now turn the call over to Walt.
Thank you, Terry. ONEOK's 2018 operating income totaled $1.8 billion, a 32% increase year-over-year, and 2018 adjusted EBITDA totaled $2.45 billion, a 23% increase year-over-year. Strong natural gas and natural gas liquids volume performance helped us achieve 2018 net income, adjusted EBITDA, and distributable cash flow guidance, which were all increased twice during 2018 because of better-than-expected operating results. The natural gas liquids segment's 2018 adjusted EBITDA increased 25% compared with 2017. The natural gas gathering and processing and natural gas pipeline segments also saw impressive earnings increases of 22% and 8% respectively.
The natural gas Gathering and Processing and natural gas pipeline segments both exceeded 2018 adjusted EBITDA guidance, driven primarily by increased producer activity on our dedicated acreage and higher contracted transportation volumes on our natural gas pipelines. The natural gas liquids segment ended 2018 nearly 6% above original guidance expectations. The segment's fourth quarter 2018 earnings were impacted by lower optimization and marketing earnings as the average Conway-to-Mont Belvieu price differential decreased approximately $0.12 as compared with $0.24 in the third quarter. Additionally, due to maintenance at our Medford, Oklahoma fractionator, the segment had higher NGL inventories than expected at year-end 2018, which impacted fourth-quarter earnings by approximately $20 million. We expect to recognize the $20 million earnings benefit from the sale of this inventory in the first quarter of 2019. Strong business segment performance in 2018 set a solid foundation for 2019.
We announced 2019 guidance expectations with yesterday's earnings release, including our expectation for net income, adjusted EBITDA to increase approximately 10% and 6%, respectively, in 2019. We expect year-over-year earnings growth in all three of our business segments, with the natural gas liquids segment expected to be the largest contributor to that growth. We expect key drivers for 2019 to include our recently completed Sterling III and West Texas LPG pipeline expansion projects, the expected completion of the southern portion of Elk Creek Pipeline in the third quarter, additional third-party plant connections in our natural gas liquids segment, and increased volumes and a higher average fee rate in our Gathering and Processing segment. Kevin will provide more detail on our volume and operational outlook. Total distributable cash flow in 2018 was more than $1.8 billion, up more than 30% from 2017, with a healthy dividend coverage of nearly 1.4 times.
We generated nearly half a billion dollars of distributable cash flow in excessive dividends paid in 2018, a more than 70% increase compared with 2017. This is cash we reinvested in the business to fund our capital growth program. During 2018, our total debt increased only approximately $200 million, while we spent just over $2 billion on capital expenditures. At December 31, our debt to EBITDA on an annualized run rate basis was 3.75 times, and 3.83 times on a trailing 12-month basis. We saw a significant decrease in leverage from 2017 to 2018 and ended last year with an even stronger balance sheet than we had anticipated. We enter 2019 with total liquidity of $3.5 billion, including borrowing capacity of $2.5 billion available on our credit facility and $950 million available on our three-year unsecured term loan agreement.
This liquidity, plus strong anticipated distributable cash flows and excessive dividends, positions us well for completing the capital growth projects still ahead of us. Our capital spending is heavily weighted towards 2019 as the bulk of our largest projects are being placed in service this year and early in 2020. In 2019, we expect approximately $3.1 billion in growth capital expenditures, of which more than two-thirds is related to Elk Creek, Arbuckle II , MB-4, and Demicks Lake I . Another 10% is related to routine growth capital expenditures, which includes well connections and plant connections, and the remainder is related to spending on growth projects being put in service in 2020 and 2021, such as MB-5, the West Texas LPG expansion, and Demicks Lake II . With these announced projects, 2020 CapEx is expected to be significantly less than 2019.
As it relates to the range we provided, the low end reflects a sustained reduction in commodity prices that would drive significant slowing of producer activity, which we have not seen and do not expect to see based on our customer activity and announcements so far in 2019. The high end of the range reflects a significant increase in producer activity and related capital to address that growth. To reiterate, at current market conditions, we feel comfortable with the midpoint of our capital guidance range.
Having said all that, with our strong balance sheet, expected continued earnings growth and financial flexibility, we expect no equity financing needs in 2019 nor in 2020 based on our expected slate of growth projects and our rapid de-leveraging as these projects come online. During the fourth quarter, we paid a dividend of $0.855 per share, and in February, we paid a dividend of $0.86 per share or $3.44 per share on an annualized basis. As it relates to our expectations for the dividend growth rate going forward, I'll make a few comments. I want to point out that many positive things have happened to our earnings prospects since we initially guided to a 9%-11% annual dividend growth rate when we announced the acquisition of ONEOK Partners.
We are pleased to have the financial flexibility to return capital to shareholders at an attractive rate, fund our growth projects, and maintain a strong investment-grade balance sheet. We acknowledge that many investors and some research analysts have expressed the view that prudent capital allocation in the midstream space is more valued. Many investors do not require as high a dividend growth rate as they did in the past, and that alternative approaches to returning capital may be appropriate at some point in the future. We have received quite a bit of feedback on both sides of this issue.
Going forward, on a quarterly basis, our board will continue their practice to evaluate dividend growth and alternative ways to return capital to shareholders based on the strength of our business, the commodity price environment of our producer customers, the funding needs of our growth projects, investor sentiment, and our strategy to maintain a strong investment-grade balance sheet. We believe that investors continue to value our ability to return capital to shareholders while also funding our growth projects without expecting to issue equity to complete our announced capital projects. Before handing the call over to Kevin, I'll provide an update on the West Texas LPG rate case that was being reviewed by the Railroad Commission of Texas. In January, the case was settled with higher rates prospectively across the pipeline system. These rates are assumed within our guidance ranges.
As we said previously, the majority of new volume commitments on the system are being contracted at market-based negotiated rates, but we are pleased to have this matter resolved. I'll now turn the call over to Kevin for a closer look at our business segment performance.
Thank you, Walt. As both Terry and Walt said, in 2019, we continue to execute on our low multiple organic growth program that is providing needed infrastructure for our customers across our operating areas. As these projects are completed in the second half of 2019 and early in 2020, we expect to see volumes and EBITDA ramp quickly. I'll walk through each of our operating areas and highlight our expected growth drivers in 2019 and into next year. Starting with the Rockies region. We continue to see strong producer activity and efficiency improvements across the Williston Basin and Powder River Basin, which is driving associated natural gas and NGL growth. NGL volume gathered on the Bakken pipeline in 2018 increased 4% compared with 2017. Fourth quarter NGL volumes gathered averaged 148,000 barrels per day, a 7% increase compared with the third quarter 2018.
Growth has continued early in 2019, as we have gathered more than 165,000 barrels per day out of the Williston and Powder River Basins on numerous days, which includes railed volume. In the gathering and processing segment, Rocky Mountain Region natural gas volumes processed increased more than 14% in 2018 compared with 2017. Fourth quarter processed volume decreased slightly compared with the third quarter 2018 due to typical winter weather and maintenance, which were already factored into our expectations. So far in 2019, our Williston Basin processing plants are operating close to full capacity and averaged more than 1 billion cubic feet per day during January.
With more than 250 million cubic feet per day of natural gas currently being flared on our dedicated acreage in the Williston Basin, we expect our 200 million cubic feet per day Demicks Lake I natural gas processing plant to open full in the fourth quarter of 2019 and provide approximately 25,000 barrels per day of NGLs to the Elk Creek Pipeline. Demicks Lake II , also a 200 million cubic feet per day plant, is expected to be complete in the first quarter of 2020 and will provide additional capacity for natural gas and NGL volumes to ramp through 2020. There continues to be more than 60 rigs operating in the Williston Basin with approximately 25 rigs on our dedicated acreage. These rig counts have remained relatively consistent as crude prices have fluctuated in recent months.
We connected 610 wells in the Rocky Mountain region in 2018, exceeding our guidance of 550 wells, and expect to connect approximately 620 wells in 2019. We also continue to see solid rig activity in the Powder River Basin, where we have approximately 1 million acres dedicated to our natural gas liquids segment and 130,000 acres dedicated to our natural gas gathering and processing segment. There are more than 20 rigs on our dedicated NGL acreage in the Powder River Basin currently, and we continue to hear positive feedback from producers in the area. The southern portion of the Elk Creek Pipeline from the Powder River Basin to the Mid-Continent remains on track to be complete as early as the third quarter 2019, with the entire Elk Creek Pipeline expected to be fully in service in the fourth quarter of 2019.
We have clear line of sight to Elk Creek reaching its initial contracted capacity of approximately 100,000 barrels per day in the first quarter of 2020, generating its targeted adjusted EBITDA multiple of four to six times within the first few months of operation. We included a new slide in our earnings presentation yesterday that shows the various contributors to the expected volume ramp, which includes approximately 25,000 to 30,000 barrels of rail volume, approximately 25,000 barrels from Demicks Lake I , 10,000 to 15,000 barrels of Powder River volume, and approximately 25,000 to 30,000 barrels from third-party plants that are currently under construction or being expanded. The Powder River volume will be moved to the southern portion of Elk Creek once complete in the third quarter to make additional room for Williston Basin volume on the Bakken NGL Pipeline. Elk Creek volumes are expected to continue to increase throughout 2020.
Moving on to the Mid-Continent. 2018 NGL volumes gathered in the Mid-Continent increased 17% compared with 2017. NGL volumes gathered from the region decreased in the fourth quarter 2018 compared with the third quarter 2018 due to increased ethane rejection and approximately 20,000 barrels per day of NGLs from a third-party plant, which moved to a third-party NGL pipeline as expected, and as we had previously disclosed. We completed the 60,000 barrel per day expansion of our Sterling III NGL Pipeline in the fourth quarter, and expect raw feed volumes to ramp up over the next 12 months. Our NGL pipeline capacity between Conway and Mont Belvieu is approximately 90% utilized. Arbuckle II is under construction and on schedule for an expected completion in the first quarter of 2020.
Initial capacity on Arbuckle II is 400,000 barrels per day, but will be expanded to 500,000 barrels per day in the first quarter of 2021. We continue to expect that transportation capacity from Conway to Mont Belvieu will remain highly utilized due to growing NGL volumes, which we expect will keep spreads wider than normal until Arbuckle II is placed in service. In our gathering and processing segment, 2018 Mid-Continent natural gas volumes processed increased more than 18% compared with 2017, and increased 8% in the fourth quarter 2018 compared with the third quarter 2018, benefiting from the completion of several large well pads that we previously mentioned had been delayed from the third quarter to the fourth quarter. We connected 138 wells in the Mid-Continent in 2018.
During the fourth quarter, we completed the expansion of our Canadian Valley natural gas processing plant in the STACK, which brings our total Oklahoma processing capacity to approximately 1.1 billion cubic feet per day. In our natural gas pipeline segment, we recently completed expansions on our ONEOK Gas Transportation pipeline system, which support growth in the STACK and SCOOP. Expansions included 100 million cubic feet per day of westbound capacity and 100 million cubic feet per day of eastbound capacity, which are fully subscribed under firm transportation agreements. An additional 50 million cubic feet per day expansion of the eastbound capacity is expected to be complete this quarter. A quick update on our Permian Basin and Gulf Coast operations. NGL volumes gathered on our West Texas LPG system averaged 200,000 barrels per day in 2018, a 5% increase compared with 2017.
Since the first expansion of this system was fully placed in service in the fourth quarter, we have seen volumes ramp, reaching more than 250,000 barrels per day on several days in 2019. Our Mont Belvieu fractionators continue to operate highly utilized, and we remain on schedule to complete our 125,000 barrel per day MB-4 fractionator in the first quarter of 2020. We expect MB-4 to exit 2020 full, and for MB-5, which is also 125,000 barrels per day, to ramp up quickly once it's completed in the first quarter of 2021. ONEOK's total system-wide NGL fractionation capacity remains around 800,000 barrels per day, given our current product composition, and we're utilizing approximately 90% of our fractionation capacity.
We're currently undergoing de-bottlenecking projects that could add an additional 15,000 to 30,000 barrels per day of fractionation capacity in 2019. These projects are in addition to the 20,000 barrel per day expansion of our Bushton, Kansas fractionator that we discussed on our third quarter call. We continue to expect that these debottlenecking projects, our current available capacity, our storage assets, and a small amount of already contracted third-party offloads will provide sufficient capacity until MB-4 is complete. In our natural gas pipeline segment, we have completed capital growth projects in the Permian Basin that include a 300 million cubic feet per day expansion of our ONEOK WesTex Transmission pipeline system, and a project to make our Roadrunner Gas Transmission pipeline bi-directional. Before I turn the call back to Terry, let's discuss our 2019 volume guidance, which incorporates recently announced customer activity levels.
We expect our NGL throughput volume to be approximately 11% greater than 2018, driven by growth in all three of our operating regions. In our gathering and processing segment, we expect natural gas volumes processed to increase approximately 5% compared with 2018, primarily from growth in the Williston Basin. Additionally, with our Demicks Lake I plant coming online in the fourth quarter, we expect our 2019 exit rate for volumes processed in the Williston Basin to be approximately 20% higher than our current processed volume level. Our 2019 NGL volume guidance was provided yesterday using a new volume disclosure. The new metric is NGL raw feed throughput volume, and it represents all physical raw feed volume on which ONEOK charges a fee for transportation, fractionation, or a bundled fee for both services.
This is the volume metric that we use internally and we believe better represents the key drivers to our earnings. We have provided historical comparisons of the new metric and plan to provide actual gathered and fractionated volumes for a period of time for comparison purposes. Please reach out to our investor relations team if you have questions regarding the change. Terry, that concludes my remarks.
Thanks, Kevin. Good color on 2018 operations and drivers in 2019. As we sit today, ONEOK is in a great position with an extensive and integrated system of assets in some of the country's most productive basins. I truly believe that one of the reasons we've been successful over the years is because of our focus, meaning our focus on doing what we do well and doing what is best for our customers, investors, and for ONEOK in the long term. We have a large growth program in progress right now, but we're not growing just to grow. Getting bigger isn't the point. We're focused on our customers, and we're growing to meet their needs. We're focused on our investors and investing in attractive return projects. We're focused on our balance sheet and growing our strong asset positions.
We remain focused on growing the right way by being mindful of the environment and the safety of our 2,700 employees, contractors, and local communities. The hard work of our 2,700 employees and the support of our investors has enabled us to continue to grow our operations in a way that meets the needs of our customers, stakeholders, and investors. A big thank you to all of you for a successful 2018. Operator, we're now ready for questions.
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press *1 to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Michael Blum with Wells Fargo.
Hi, good morning, everybody.
Good morning, Mike.
Just a few quick questions. One, your comments on the dividend. I obviously understand you're not providing a new dividend growth rate, should we take this to mean that you're definitely signaling that you'll be lowering the growth rate going forward?
No, you should not. What we've done is we've just reminded you of the process that we've always used for making a determination on what we pay each quarter in terms of the dividend. The dividend growth guidance is still out there. We haven't changed it. We're just reminding you that given all the discussions that are out there in the marketplace today about this topic, we continue to employ the same process that we've used each and every quarter. Our board, if they decide to make a change, given all the facts and circumstances that we face today, then we'll let you know. Right now, the process that we use is still intact and still in place, and that guidance is still out there.
Okay, great. That's helpful. Thank you. I just wanted to ask you a question on leverage. Should we just think, given that you're not going to issue equity, should we expect that leverage will kind of flex higher into 2019 and then come back down in 2020 as more of the projects come into service and EBITDA ramps up? Is that the right way to think about it?
Yeah, that's right, Michael. I think what I would point out is that we're obviously entering the year at a very attractive spot to 3.75 times on a run rate basis. As we move through the year in CapEx, as we get to the back end of the year in the fourth quarter
leverage will peak up a little bit just as we're bringing those assets online and starting to cash flow in the fourth quarter and into the first quarter of 2020.
Okay, great. I just want to confirm for the 2019 CapEx range, is there any capital in that number for the potential LPG export dock?
No, there is not.
Great. That's all I have. Thank you.
You bet.
Our next question comes from Danilo Juvane with BMO Capital Markets.
Thanks. Good morning. My first question is for Kevin. I noticed that you didn't outline any frac volume guidance for the quarter year going forward. Do you see any visibility for an incremental frac going forward here, just given how significant and flush your NGL volumes are within your system?
Danilo, I'd go back to we feel confident. With the volume ramp we see as we look at our volumes going through 2019, when we look at the capacity we've got today, we look at the storage we've got, we look at the expansions or the debottlenecking projects that are underway. We have a good outlook and having enough capacity that will bridge us till MB-4 comes online in the first quarter of 2020.
Got it.
Does that answer your question?
No, it does. Thank you for that. As you're thinking about your CapEx, specifically the high end of that range, obviously you've said no equity for the plan year, but if you do hit that high end of the range, still no plans for equity?
No. If we hit the high end of the range, we will have seen a significant increase in producer activity, and be bringing on these assets with very significant cash flow when they come online. We're focused on the midpoint of our range, but we want to demonstrate that we have the flexibility to flex that depending on producer activity.
Thanks. Those are my questions.
Our next question comes from Chris Sighinolfi with Jefferies.
Hey, good morning, guys.
Morning.
Morning, Chris.
Terry, I just want to circle back real quickly on Michael's question just around dividend commentary. You guys had one of the more sort of heads up negotiation process with ONEOK Partners when you guys were doing the merger, and know that at that time, the 9%-11% growth rate through 2021 was sort of an important consideration for them. Clearly 2021 is also a year where everything we know that you're building will be online and sounds like from Kevin running pretty well, where leverage will come down. I guess were Walt's comments about the shareholder feedback and dividend versus other forms of shareholder return, is that to be interpreted as something that's actively discussed in the near term or more around periods beyond the 2021 negotiation with ONEOK Partners compensation committee?
I'll let Walt answer that question about his comments.
Sorry. Thanks.
I think that what I would tell you is that our board's practice has been to evaluate all of those options on a quarterly basis as we've moved forward here. We just wanted to acknowledge to the marketplace that we are hearing feedback from folks. That is being translated into the discussions with the board. It'll just be another factor that they factor in. They have always considered whether alternatives to dividend growth for other ways to give back capital to the shareholders. They'll continue to look at those opportunities going forward. At some point in the future, they may make some sense.
Okay. If I could, two questions then on CapEx or I guess cash flow. The 2018 growth CapEx, Walt, was just a bit light of what the midpoint of your 2018 guidance. Assuming that's timing. Just wanted to check on that. Related, you did have a working capital benefit last year that was not immaterial. I'm just wondering if we should assume anything for line items like that in 2019.
The CapEx is entirely timing. Nothing's changed whatsoever in our view of the scope of these projects. We're on budget and on time, as Kevin mentioned. It's just a function of timing. Timing is kind of how we factor through 2019 into 2020 as well. From the working capital standpoint, you've got significantly lower commodity prices at year-end 2018, about 25% lower than they were in 2017, which just gets reflected in both your accounts receivable and your account payable. We had about $50 million less in inventory at the end of the year. Nothing other than that that's really significant.
Okay, great. One final question, if I could, for Kevin, I think. Just on the NGL market dynamics, particularly in the Mid-Continent. Obviously you guys enjoyed a very strong spread environment in 2018. Forecast a nice scenario in 2019, although not as frothy. I guess two questions really about how Cheniere coming up and any available capacity that emerges on the MAPL system focuses in on what you're thinking in this guidance. Second to that, the Williams-Targa announcement on Bluestem and their comments about being able to move volumes off of a third-party system. I don't know whose third-party system that is. Could be yours. Just wondering how that factors on your market view.
Okay, Chris, I'm going to let Sheridan take that one.
Chris, this is Sheridan. I first talk about the spreads between Conway and Belvieu. We are projecting a more narrow spread in 2019 than we saw in 2018, and some of the factors are what you said with Cheniere coming on could have some downward or squeezing pressure between Conway and Belvieu. Depends on how much purity products they can move out of the Conway market into Belvieu. As we go forward past 2019, as we've said, Arbuckle II, when it comes online, it will open up a lot of purity capacity on our system, on the Sterling system, that presently is being used for raw feed, which we think will bring the spreads back into more of a, say, historical or normal level. A very narrow differential between the two markets.
Any additional capacity that's put in service in between Conway and Belvieu past Arbuckle II, we really think will have very limited impact on the spreads from where they are at that time. I would also say on this, you talked about a third-party pipeline. What I would say is we do not anticipate a material change in third-party volume that we currently fractionate in exchange in Mid-Continent that comes off of OPPL for many years in the future. I would also say that we do anticipate volume growth from Williams' acquisition of Discovery created a need for additional capacity on OPPL. In this regard, we were able to reach an agreement with Williams to accommodate this potential growth in terms that are favorable to us.
Also remember that we receive an immediate EBITDA uplift from both shipping our barrels on our own 100% owned pipeline and from the additional third-party volume shipped on OPPL. We are pleased that OPPL continue to serve both growth out of the DJ and provide ONEOK with incremental benefits.
Yeah, thanks a lot, guys.
Our next question comes from Jeremy Tonet with J.P. Morgan.
Hi, good morning. Just wanted to come back to the guidance here and the range that you provided for EBITDA for 2019. If you could build a bit more on what would be some of the drivers for the low end versus the high end there? When you look at the 2020 guide, kind of the 20%+, is there like a certain commodity price environment that's kind of baked in there or any other color that you could provide on that?
No, Jeremy, I think the key there is, as with any year, a lot of it will come down to just the actual volumes that are flowing. That will be predicated based on producer activity. This year is kind of interesting in that, especially in the back end, you look from a gathering and processing perspective with the flared gas backlog that provides us support, if you will, for that volume outlook in the Williston Basin. At the same time, we're bumping up against some capacity in both the G&P segment and in the NGL segment. Clearly spreads could have an impact as we move through the year that could move you up or down a little bit. By and large, we feel good about the midpoint of that guidance range, given the volumes that we have flowing today.
The line of sight we've got to growth coming out of the Permian on our West Texas expansion, growth coming out of the Mid-Continent on the Sterling III expansion, just the higher month-to-month volumes coming out of the Bakken.
That's helpful. Thanks. Going back to the CapEx range real quick here. Just wanted to confirm, you guys hadn't seen any kind of cost overruns here, as far as the range we're talking about, it's simply just a matter of timing between whether projects spending falls into 2019 or 2020, depending on the commodity price environment and how quickly producers want this infrastructure?
That's correct. All of our projects that we've announced are on schedule and on budget right now. It's purely the timing that we're talking about.
That's helpful. That's it for me. Thanks.
Our next question comes from Michael Lapides with Goldman Sachs.
Hey, guys. Two questions. One, can you just talk about some of the commentary or feedback you've gotten from your producer or shipper customers in the MidCon? Just kind of generically, what are they saying about the environment today, how they're thinking about the next 12-24 months production and volume wise, and kind of how that flows through to you guys.
We're going to let Chuck Kelley take that question.
Thank you, Michael. Good question. What we're seeing in the Mid-Continent STACK and SCOOP, primarily for this year and maybe into the early part of next year, a lot of these producers that we deal with, as you know, have alternatives in other basins. They completely believe in the STACK and SCOOP. The inventory is there. The rock is good. We're all firm believers in that. We're still seeing good activity year-over-year. We had a great 2018 over 2017. As we rode into 2019, we came in with a record volume platform for us. We still see 2% growth year-over-year. What we're seeing primarily in the STACK and SCOOP, we're seeing more activity in the SCOOP than the STACK. What you'll see from us this year, we're seeing some rig movements between us and other processors on dedicated acreage.
We'll still average in that 8 to 10 rig count for the year.
We feel very good about our position in the STACK and SCOOP from a G&P standpoint. We have, as you know, a little better than 300,000 acres. More importantly, our NGL position, and Sheridan can speak to that as to how many processing plants he's connected to and the growth that he is still seeing in the Mid-Continent.
Yeah.
Sheridan.
We're connected to over 90% of the plants in the Mid-Continent, of all the new plants we've contracted on a long-term basis, 10-15 years old, almost all the new plants that have come up in the last couple of years. As Chuck said, we continue to talk to those customers and see the producers behind them, a lot of them are very excited about the growth prospects they see, even though we've seen some producers back off a little bit. In our volume guidance that we provided for 2019, we've already incorporated all these conversations and everything we've had with our producers on the NGL side as well as with the G&P side.
Got it. One follow-up on CapEx. Just trying to think about it, you've got so many large projects underway, whether it's the fracs, whether it's Arbuckle, Demicks Lake. How should we think about, not just even 2020, but even kind of beyond that 2021 CapEx? Should we think that growth CapEx slows materially, which means maybe there's less growth in EBITDA from new projects coming online, but there's also a sizable pickup in free cash? Or is there another wave of kind of major sizable projects like in Arbuckle or others, and they simply haven't been announced yet?
Let me take the first part of that question, and then Kevin can follow up. If you just think back historically, we've had a number of these large organic growth programs over the past several years, and it seems like every time we talk about this very question, we answer this very question the same way, and we're going to probably answer it the same way again. We'll see this growth. What will happen is, based upon the visibility that we perhaps don't have looking two or three years down the road, we'll have the growth capital taper off. Okay? Kevin will tell you that yes, as we go into 2020 and 2021, our own internal forecasts are indicating less capital to be spent.
However, each and every time, as that visibility gets closer to us, we've been able to develop more projects and continue to keep the organic growth train going, if you will. Just historically, that's how it's happened, and I think it's very possible that there's opportunity out there we don't know about yet that will come. Kevin, anything to add to that?
Yes. Spot on. I think one of the ways to think about it is with these two, primarily the two big pipes, Arbuckle II and Elk Creek, we've more than doubled the backbone, if you will, of our NGL system from North Dakota to the Gulf Coast. As we move forward with the operating leverage we have on those pipes to continue to expand it through low-cost pump stations, that provides us the opportunity. Really future capital needs are things like maybe another processing plant in the Bakken, another fractionator in the Gulf Coast, which are in much smaller chunks than the large multi-billion dollar projects that we've got underway right now. I do think you're going to see that flange down over time. As Terry suggested, we'll continue to look for opportunities to generate nice returns on other projects as well.
Got it. Thank you, guys. Much appreciated.
Our next question comes from Jean Ann with Salisbury.
Hi. Good morning. I just wanted to follow up on Chris. Outside of the cuts across a number of plants which currently put their NGLs on ONEOK system. Do most of those plants even have the option?
Jean Ann, I couldn't understand a word you said. We've got a technical difficulty on your transmission for some reason.
Oh, no.
Did any of you all pick up?
Is this any better?
That's much better.
All right, great. I just wanted to follow up on Chris's question on Bluestem Pipeline. Outside of the OPPL volume, the Bluestem Pipeline Grand Prix number of Mid-Continent processing plants, which currently send their into the ONEOK system. Do most of those plants have the option?
I think your question, Jean Ann, was, do those plants have the option to switch? What I would tell you is, as I said in my statement, that all the plants we've contracted here lately are on 10 to 15 years. Our contract, the dedication those plants have to the ONEOK system are for many years to come. Those plants are already dedicated to us and will not come off.
They don't have the ability-
Yeah
to switch.
They don't have the ability to switch.
Thanks. Can you give a sense of the lift that you might have around the $0.10 per gallon Conway Mont Belvieu spread assumption in the event that it does change?
We have not hedged any of the $0.10 around that Conway to Mont Belvieu spread. It's difficult to get forward numbers on Conway, a lot of those products. At times we will forward sell a little bit where we store one month's product and ship it the following month, a little bit of it. It is very difficult to hedge the North-South.
Okay. Sorry about the echo.
On a long-term basis. Yeah, you just don't have the liquidity there.
Sure. Makes sense. Thank you.
Our next question comes from Dennis Coleman with Bank of America Merrill Lynch.
Hi. Yeah, good morning.
Good morning.
My question, I guess maybe to follow up a little bit on your discussion from the question with Michael. Should we think about sort of the next wave of projects as being tied to some of the discussion about crude oil pipeline takeaway out of the Bakken? As we see announcements there, potentially we could see you start to talk about your growth projects beyond 2020?
You get out long term, then maybe it would be. If you look over the next two or three years, we feel comfortable, and as we talk to our customers, that both crude and residue takeaway, there will be enough there to provide pretty significant growth over the next few years. I don't know that I would tie our next plant or additional capacity we may need in the Bakken over the next two or three years to a crude oil solution. You've got a couple open seasons out there that are being looked at. You've got some other expansion opportunities that I know people are floating around. Again, right now our producers feel pretty good about their crude takeaway.
Then you've always got crude by rail that can get you to the coast as a bridge, if you will, to get to a pipe if they need it.
Okay. Thanks for that. I guess my follow-up, can you just give a little bit of color about the de-bottlenecking projects that you talked about, the 15,000 a day-30,000 a day of frac capacity and what the nature of those projects are?
There's several items in those numbers that will span just from very low cost expansions and some different equipment that we could put in, some different controls we could put in that could squeak out at three or four different facilities, an extra 5,000 or 6,000 barrels a day.
Are these something that can happen in a month or two or second half of the year?
They'll range. Some of them may happen very quickly. Others may take a few months if we've got to order some vessels or equipment that might have a longer lead time to them.
Okay. That's it for me. Thanks.
We'll take our next question from Craig Shere with the Tuohy Brothers.
Good morning.
Good morning, Craig.
Picking up on Mike and Chris's questions on the dividend.
Can't hear you, Craig.
Craig. Breaking up.
Can you hear me now? Is this better?
That's better.
As CapEx drops materially by the second quarter 2020, wouldn't you envision capacity to both sustain up to low double-digit dividend growth and consider share buybacks? How do you think about fair value for the shares, given the really massive, very low-cost organic growth built in with completion of both of those very large NGL pipelines with massive upsizing?
Well, Craig, what I would tell you is that you're absolutely right that as we go into the back half of 2020 and into 2021, 2022, we expect to have very significant cash flow in excess of dividends. We basically have a 3-tier approach to thinking about that. Our first approach is to try to find very attractive growth projects that we can go ahead and build. Our second approach is to make sure that our balance sheet is as strong as we possibly can have it. Then after we've done those two, we surely will put the possibility of share buybacks in the mix and think about that. That'll be a discussion at the board level as we get out there a couple of years.
Do you have any thoughts on fair value? Obviously, the leverage from continuing to fill up Elk Creek and Arbuckle II is substantial as we look beyond 2020. One would assume that you could sustain above average growth rates.
Yeah. If you're asking me if I think our stock is underpriced, the answer is yes. I think we've got very significant growth ahead of us, and it really comes down to the cadence of which that growth will come on the pipes. I think the fact that we've been able to guide to achieving our 100,000 barrels a day in the first quarter of operation on Elk Creek, and the significant contracting that's gone above and beyond that initial 100,000 really leads to very attractive growth going forward.
That sounds good. My last question, I don't know who wants to take it, maybe Terry, you guys-Over a decade and a half, a dominant Bakken into Mont Belvieu position that no one else has. The Permian through Mont Belvieu to LPG export market is certainly comparatively more crowded. Certainly, there's a lot of synergies from moving into LPG exports, how do you think about the competitive landscape there?
Well, certainly it's significantly more competitive than our other areas. However, we've been a pretty effective competitor. When we linked the West Texas system with our infrastructure in the Gulf Coast, basically brought it into the ONEOK system proper, it changed the game for us, and we're seeing it in the volume performance, particularly in the Permian. The exports are a natural progression for us in the value chain. It's not something that we absolutely have to have, though we certainly believe that it's a strategic and important component for us that I think we'll do a great job at if and when we get a project put together. It certainly enhances our ability to market internationally for obvious reasons. I will tell you that we market internationally today, even though we don't operate a dock.
I think if we have a dock or an export terminal, it will certainly substantiate us as a true international player. All of that fits together well, and on top of that, it's a business that's a fee-based component, so it fits well contractually as well. There you go.
How would you compare the all-in costs of that potential announcement to, say, a new frac or a new processing train?
If you think about how we're approaching the project, and I could let Sheridan make a comment after me, but if you think about how we're approaching it, which is primarily with a joint venture partner. There'll be the export terminal itself. We'll have partial ownership in that. Also there's infrastructure that has to be built around the terminal, interconnection to storage facilities, connections to markets, and connections to our system proper. You're talking about a cost net to ONEOK, roughly in a half a billion-dollar range. From an order of magnitude of capital, that's what we're talking about.
Great. Thank you.
We'll take our next question from Alex Kania with Wolfe Research.
Thanks for taking my question. This is just more of a clarification question. For the 2019 outlook, are you baking in some consequences related to Cheniere coming into service this year? Or were you talking mainly about the 2020 impacts?
I think when we set out our guidance for what 2019 is going to be, we looked at what the Conway to Belvieu spread is in 2019, we did take into consideration that Cheniere could possibly create some more capacity for purity products between Conway and Belvieu, I think that's why you see that our number is a little bit lower than it was in 2018.
Okay, great. Thank you very much.
Our next question comes from Sunil Sibal with Seaport Global Securities.
Yeah. Hi, good morning, guys, and thanks for all the clarity on the call. Just wanted to go back to the balance sheet and leverage question a little bit. Seems like there is a potential for you to kind of expand the fairway for potential projects and CapEx. I was wondering, is there kind of a maximum leverage that you will look at when you think about that CapEx, especially considering that some of these projects will be longer lead items, longer lead projects?
Well, I'm not going to put a specific number out there. I think you can do the numbers based on the CapEx that we've put out and the significant cash flow growth that we expect to see this year and going into the coming years. We think we'll be in line with what the rating agencies have put out there publicly, and kind of the expectation in the marketplace. We'll definitely be moving above four times for a very short period of time as we get through the construction phase. As we come down into 2020, the significant incremental EBITDA and cash flow de-levers us very quickly then into 2021.
Okay. Four and maybe four and a half pipes kind of max out there, and then obviously 2020 cash flow growth will probably bring you down pretty quickly. Is that a right way to think about that?
I think you're in the ballpark, and you can do the math yourself, but I don't think you're too far off.
Okay. Got it. One last one for me. In terms of management's view on industry consolidation opportunities, especially what we've seen so far is probably more like project consolidation. Do you see opportunities for even corporate consolidations opening up in the current environment?
Still, I think, you're right. We have seen a lot of asset consolidation, and we've seen asset JVs too. I think you're going to see more of that. I think that the corporate consolidation is obviously other than some of the structural things we've seen over the course of the last year. I think from a straight-up corporate consolidation, we still have time yet before that starts to happen. Again, I think we're going to see it, but it's going to take some time.
Okay, got it. Thanks.
You bet. Thanks.
We have no more questions in the queue at this time. I would now like to turn the conference over to Andrew Ziola.
Well, thank you, everybody. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in early May. We'll provide details for the conference call at a later date. Thank you for joining us, and the IR team will be available throughout the afternoon. Have a good rest of your day.
This concludes today's call. Thank you for your participation.