ONEOK Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2022

There are 14 speakers on the call.

Operator

Good day, and welcome to the First Quarter 2022 ONEOK Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Andrew Ziola. Please go ahead, sir.

Speaker 1

Thank you, Paula, and welcome to ONEOK's Q1 2022 earnings call. We issued our earnings release and presentation after the markets closed yesterday And those materials are on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that might include ONEOK's expectations or predictions should be considered forward looking statements and are covered by the Safe Harbor provision of the Securities Acts of 19331934.

Speaker 2

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. Just a reminder for Q and A, we ask that you limit yourself to one question and one follow-up in order to fit in as many of you as we can. With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?

Speaker 2

Thanks, Andrew. Good morning, everyone, and thank you for joining us today. We appreciate your interest and investment in our company. On today's call is Walt Hults, Chief Financial Officer and Executive Vice President, Investor Relations and Corporate Development And Kevin Burdick, Executive Vice President and Chief Commercial Officer. Also available to answer your questions are Sheridan Swords, Senior Vice President of Natural Gas Liquids and Natural Gas Gathering and Processing and Chuck Kelley, Senior Vice President of Natural Gas Pipelines.

Speaker 2

Yesterday, we announced Q1 2022 results, which highlighted year over year natural gas and NGL volume growth. Earnings significantly increased year over year when adjusting for the favorable winter storm Yuri impact in the Q1 of 2021. Customer and producer conversations continue to point to additional activity through the remainder of the year, Supported by strong demand for U. S. Energy and commodity prices far exceeding basin breakeven economics.

Speaker 2

Our built in operating leverage and proven track record of discipline and intentional growth have positioned us well to support increasing Our systems have significant capacity to grow alongside the needs of our customers And because of our large infrastructure projects are complete, we now have opportunities for bolt on expansion projects With quicker in service dates, attractive returns and minimal capital requirements. Not only are we expecting strong activity going forward, but our position in the key U. S. Shale basins provides us a long runway to continue our efforts to help address increasing domestic and international energy demand. Current events continue to demonstrate the importance of natural gas and natural Gas Liquids and a long term energy transformation and highlight the critical role that ONEOK plays in providing essential energy products and Services.

Speaker 2

Before I hand the call over, I'd like to discuss the recent weather events that have impacted our Rocky Mountain region operations in April and into early May. First of all, I want to thank our employees in the area and those who supported from other locations to ensure that we were as prepared as possible for these 2 unprecedented winter events within a 2 week period. The severe April storms caused blizzard conditions, record setting snowfall, high winds and extensive power outages across North Dakota, Montana and South Dakota. A number of our employees staff facilities during these conditions to maintain the safe and reliable operations Many of these employees were also dealing with lost power and damage at their own homes. Widespread outages left many of our facilities without power for several days and a significant number of wells across the Williston Basin were shut in.

Speaker 2

Our primary focus has been on the safety of our employees, assets and the communities where we operate, as we continue to work through the full impact Due to the basin wide power outages, our April Rocky Mountain region volumes were reduced in both Our natural gas gathering and processing and natural gas liquids segments are approximately 20%. May volumes will continue to be impacted as downed power lines are replaced. Currently, our process volumes More than 1,100,000,000 cubic feet per day and our NGL volumes are more than 320,000 barrels per day and trending up As shut in wells are brought back online. The coordination during and since these weather events with our Customers, local agencies, communities and other operators in the area has been impressive. Once again highlighting the resiliency of our employees, assets And our customers, even with this late winter storm, we are affirming our financial guidance ranges and midpoints for both adjusted EBITDA and earnings per share.

Speaker 2

With that, I'll turn the call over to Walt for a discussion of our financial performance.

Speaker 3

Thank you, Pierce. ONEOK's Q1 2022 net income totaled $391,000,000 We are 0 point 8 $7 per share, a 24% increase compared with the Q1 2021 when excluding the benefit of Winter Storm Yuri. 1st quarter EBITDA adjusted EBITDA increased 11% year over year when excluding Winter Storm Yuri. We ended the Q1 with a higher inventory of unfractionated NGLs primarily due to timing and expect to recognize those earnings In the Q2 as our current inventory is fractionated and sold. Our net debt to EBITDA on an annualized run rate basis Remains below 4x and we continue to view 3.5x or lower as our long term aspirational leverage goal.

Speaker 3

In April, Moody's updated ONEOK's rating outlook to positive and affirmed our investment grade rating. ONEOK maintains investment grade ratings with Moody's, S and P and Fitch. As Pierce mentioned, the recent extreme April storms Strong volumes prior to weather impacts, strength in drilling activity, DUC completions through the remainder of the year And a positive outlook for NGL and natural gas demand this year points to a strong volume exit rate in 2022. I I now turn

Speaker 4

the call over to Kevin for a commercial update. Thank you, Walt. During the Q1, we saw double digit NGL volume growth across all our operating regions compared with the Q1 2021. And Rocky Mountain region natural gas processing volumes Increased 11% year over year. After reporting record Rocky Mountain region natural gas In NGL volumes in the Q4 2021, we saw volumes decrease sequentially in the Q1 2022, primarily due to normal seasonality across our operating areas.

Speaker 4

Through the 1st 4 months of the year, we've continued to see Encouraging activity from producers, and we expect these activity levels to trend higher through the remainder of the year. Let's take a closer look at our natural gas liquids segment. Total NGL raw feed throughput volumes increased 17% year over year, supported by increasing producer activity and increased ethane recovery. Rocky Mountain region NGL volumes increased 24% compared with the Q1 2021. In April, we reached peak volumes of more than 385,000 barrels per day from the region prior to the severe late season storms Pierce discussed earlier.

Speaker 4

Mid Continent NGL volumes increased 10% year over year As producers continue to increase activity in the Mid Continent, a large majority of those related NGLs are transported on our system. So far this year, NGL volumes from the region are trending slightly higher than we had originally planned. In the Permian Basin, NGL volumes increased 23% year over year due to strong producer activity levels, which feed our West Texas NGL pipeline. In the Gulf Coast, construction continues on our 125,000 barrel per day MB5 fractionator in Mont Belvieu, which we now Expect to be complete in the Q2 of 2023. MB5 will increase our total system wide fractionation capacity to more than 1,000,000 barrels per day.

Speaker 4

International LPG demand remains strong, And we continue to expect both domestic and international ethane demand to continue to increase throughout 2022. As natural gas prices have increased this year, ethane prices have kept pace, providing attractive ethane recovery economics In certain areas of

Speaker 1

our system,

Speaker 4

while 1st quarter ethane recovery is typically lighter due to natural gas heating demand and typical Winter weather impacts, we see strong ethane recovery opportunities for the remainder of the year. Moving on to the Natural Gas Gathering and Processing segment. In the Rocky Mountain region, 1st quarter processed volumes averaged 1,300,000,000 cubic feet per day, an 11% increase year over year. In April, Volumes reached a peak of more than 1,400,000,000 cubic feet per day prior to the storms. We connected more than 90 wells in the region in the Q1 compared with 38 connections in the Q1 2021 and are on pace to meet our guidance midpoint of 400 well connections in the region.

Speaker 4

There are currently 38 rigs And 12 completion crews operating in the basin with 17 rigs and approximately half of the completion crews on our dedicated acreage. This continues to be more than enough activity to grow gas production in the basin and on our acreage. Additionally, the basin wide DUC inventory remains at approximately 500 with half of those on our dedicated acreage. Recent reports from the North Dakota Pipeline Authority highlight the long runway of core drilling inventory remaining in the Williston Basin. Enhanced drilling and completion technologies are significantly increasing the basin's core acreage and further extending the decades Profitable drilling locations remaining in the region.

Speaker 4

The core acreage in the basin has expanded by an additional 3,000 square miles With more than 7,000 drilling locations added to inventory that are profitable at crude oil prices of $60 per barrel. In the Mid Continent region, we continue to see increased activity with 3 rigs now operating on our acreage and 45 rigs basin wide. We continue to expect increased natural gas processing volumes from the region compared with 2021 and expect the majority of rigs basin wide to drive additional NGLs to our system. In the Natural Gas Pipeline segment, strong first quarter results benefited from increased natural gas sales and higher seasonal volumes compared with the Q4 2021. We continue to see strong demand for natural gas storage services and are working to expand our facilities to meet this increasing demand.

Speaker 4

We recently completed a 1,100,000,000 cubic feet expansion of our Texas storage facilities and announced an open season to increase our storage capabilities in Oklahoma, enabling an additional 4,000,000,000 cubic feet of storage capacity to be contracted. This project is expected to be complete in early 2023. We also recently announced 2 open seasons for additional pipeline capacity to address increased demand. 1 on our West Tex pipeline system in the Permian Basin and 1 on our Viking pipeline in the upper Midwest. We continue to work with customers across our natural gas pipeline network to address their evolving transportation and storage needs as these key assets

Speaker 2

Thank you, Kevin and Walt. The overall dynamics in the midstream space and for ONEOK specifically remain positive. We increased activity, strengthened demand and available system operating leverage. The U. S.

Speaker 2

Energy industry is well positioned to be a significant source for domestic and global natural gas and NGL supply for the long term, With Midstream playing a vital role in the safe and responsible transportation of these vital energy resources. As we continue to help supply our country and the world with low cost energy, we are also looking to play an important role in the transformation to a lower carbon Through best management practices and collaboration with customers and service providers, we are addressing the growing need for energy products and services today, while also preparing for a long term energy future. It's this innovation, resiliency and dedication of our employees that Makes ONEOK a leader in our industry. With the positive momentum we're seeing in our business and the increasingly positive outlook for the remainder of the year, We're well positioned for yet another year of volume and earnings growth. With that, operator, we're now ready for questions.

Operator

Thank And first, we'll go to Jeremy Tonet with JPMorgan.

Speaker 5

Hi, this is Steve on for Jeremy. I guess I just wanted to start Obviously with the most topical one about weather. And in the release we talked about reaching 1,400,000 cubic feet per day in the Bakken. So I just wanted to see if that's is that an average or was that what you got to and just kind of how that's trending now with how things are there?

Speaker 4

This is Kevin. That reached volume that we said, that's not an average For April, that was just we wanted to provide a number out there that showed where we the gas that was available. So We were at 1.4 Bcf a day, on a few days there before the storms hit, which shows kind of where we were trending. In my remarks, I mentioned that we were at or I think, Piercimans, we are at 1.1 Bcf a day currently, and that's trending up as the wells are brought

Speaker 5

Got it. Thank you. And then next one, I guess, we'll go To the GORs, I just kind of want to get some feedback there on how you're seeing those trending as New wells get drilled, are they maintaining kind of that GOR level or are they becoming, I think more oil based at early stages and just how you're kind of seeing that go?

Speaker 4

Yeah. The GORs, when you look at trends over Obviously, they've been going up. I think the number is like 80% since 2016. But yes, you'll see some fluctuations, some minor fluctuations as new wells are brought on. The GORs do increase over time For individual wells, the GORs also are a little different across different parts of the basin from a regional perspective.

Speaker 4

But yes, you'll see some dynamics of that will bounce around month to month as new wells We're brought online and as drilling occurs in different parts of the play. But the general trend is it's going to continue to go up.

Speaker 5

Got it. Appreciate it. Thanks, guys. Sure.

Operator

Moving on, we'll go to Brian Reynolds with UBS.

Speaker 6

Hi, good morning everyone. Maybe just to start off on operations. I was wondering if you could talk a little bit more about the completion guidance for this year. We saw roughly 90 wells completed, which kind of indicates that roughly 25% of the well completions were done in 1Q per the guide. So typically knowing that most of the well completions for ONEOK are back half weighted just due to natural seasonality, I was curious if you could see some upside to that well completion number, Particularly as producers, specifically the privates, folks who take advantage of the current pricing and rigs start to materially come back into the basin over the balance of 'twenty two.

Speaker 7

Brian, this is Sheridan. And what I would say as we said in our remarks that we're staying at our previous guidance on well connects. But as you said, coming out of the Q1 with 90 well connects It's a really good start to this year.

Speaker 6

Fair enough. Maybe to pivot to just Future the natural gas segment really outperformed this quarter. I was curious if you could just talk about those future recontracting opportunities specifically around the Permian And around the West Tex system, just given Permian natgas tightness and whether there are opportunities to expand West Tex similar to what we saw ONEOK do in 2018?

Speaker 4

Chuck, you want to take that one?

Speaker 8

Sure, absolutely. Brian, this is Chuck. So As you said in 2018, we had an expansion we also re contracted. We're seeing right now similar opportunities for this year. We're currently working on an additional expansion opportunity beyond the open season that's listed on our website.

Speaker 8

I'll be moving Permian gas north as well like we did in 2018. So that's an incremental expansion. And then on recontracting, we see some really good recontracting opportunities this year, somewhere in the neighborhood of up to $200,000,000 a day on recontracting.

Speaker 6

Great. Appreciate all the color. Have a great day, everyone.

Speaker 9

Thank you. Thank you.

Operator

And next we'll go to Praneeth Satish with Wells Fargo.

Speaker 10

Thanks. Good morning. I think you mentioned that NGL volumes in the Bakken reached 385,000 barrels per day prior to the winter weather. So I mean that's an 88% utilization rate on your NGL pipe. So I guess my question is why aren't you moving forward with an Elk Creek expansion at this point?

Speaker 10

Are you waiting for utilization to get closer to 100% or waiting to see what happens with the gas pipe Just trying to get a better understanding of your thought process behind an expansion.

Speaker 7

Pernit, this is Sheridan. When we look at the expansion, we look out for it and see when we'll need it and when we need to start commissioning that expansion. And you got to think about that we have about 440,000 barrels a day today and at 385 that has quite a bit of incentivized ethane in it. So So we can kind of swing on that as well. So we continue to look through our gathering and processing what's going on in the basin when we need to And then when we need to expand the capital and right now we're sitting today, we think in the short term we have enough capacity on the system to handle what we need going forward, but We continue to evaluate that the opportunity to expand and make sure that we put ourselves in a position that when it is time to expand, we can expand it quickly.

Speaker 10

Got it. Thanks. And then I wanted to ask about the rate case on the Guardian pipeline. If you could just Ballpark the magnitude of the rate case and how you intend to proceed, would you expect to settle with shippers? I mean, I know you're probably limited in what you can say, but just any clarity would be helpful.

Speaker 10

Thanks.

Speaker 4

Joe, you want to take that one? Got a connection problem. But as we look at the rate case, yes, it's not going to be a big deal at all. When I say a big deal, it's not going to be material in the terms of where we're at from a rate and where we might go. Yes, those typically will evolve.

Speaker 4

We'll do our best to work with the shippers on the pipe And come up with a rate that we feel is appropriate and move forward. But it's not going to be meaningful to our overall EBITDA.

Speaker 10

Got it. Thanks.

Operator

And next we'll go to Colton Bean with Tudor, Pickering, Ring, Holt and

Speaker 9

Company. Good morning. So just

Speaker 11

to follow-up on Pierce and Kevin's comments, it sounded like 1.1b is a processing currently Versus the 3 20, so I think on the processing side, still down about 15% versus Q1, but actually up for NGL. 1, just wanted to clarify that that's what you mentioned in terms of incentivized ethane. And then 2, interested in your thoughts on whether we're seeing a more structural shift Or primarily due to pricing volatility over the last month or 2.

Speaker 4

Colton, when you say structural shift, I'm not sure I'm following that question On the pricing.

Speaker 11

Yes, Kevin, I think you mentioned that you see ethane opportunities over the balance of the year. So I I mean, it seems like that would imply that you are seeing a pull on ethane, but just wanted to get your thoughts on the market broadly.

Speaker 4

Okay. Go ahead, Shane.

Speaker 7

Colton, this is Sheridan. I think when we look at the ethane market, no doubt it's going to be ethane recovery rejection is going to be volatile Through this year in certain areas, but with the increase in domestic demand that's coming online And with the increase in international demand or export demand, we still see some growth in ethane demand or a pool coming in. And right now, ethane is the only Advantage crack in the petrochemicals right now. We are in the short term seeing a little bit of softness due to that we have some maintenance going on in the petrochemical And they are working through some of the logistic issues they have in the supply side getting out, but that seems to be as we talk to our customers is getting better. So as we see that, we that's what gives us confidence that we'll see good opportunities to bring more incentivized ethane out of the Bakken For the rest of the year.

Speaker 11

Yes, maybe a related question there. Sorry, go ahead.

Speaker 4

No, we didn't say anything. Go ahead.

Speaker 11

Yes, just on the optimization of marketing, it looks like that ticked higher here in Q1. I think historically you all have highlighted the Conway to Belvieu ethane spread as a key indicator of optimization opportunities. I guess, 1, is that still a good marker? And then 2, can you frame the opportunity that you're seeing if so?

Speaker 4

A lot of things that happened

Speaker 7

in the optimization of marketing between 4Q and 1Q, as you remember in 4Q we were down due to timing of inventory sales and we said we'd get that back in 2022, but we got it back in the Q1 21. And the reason we use ethane as the marker for the Conway to Belvieu spread for optimization is the fact that ethane is Product we have the most of, so that's volume in it. But volatility in that spread gives us a lot of opportunity, whether or not it's going to Bellevue or in favor of Conway With all products, so we were able to use that volatility to make our positions on Contracts to make money either way it's in favor of Conway or in favor of Bellevue. What we need is just some volatility between the two markets, not necessarily just wide markets to Bellevue.

Speaker 11

Okay. And I guess in terms of the spread that we've seen just over the course of Q2, I mean is that Maybe offer a little bit of upside relative to that 5% guidance contribution?

Speaker 7

Yes, we're seeing a little bit wider spread right now on the ethane side in Q2 And that's mainly right now due to the fact that we have some midcontinent petrochemical crackers that are on turnaround. We think that will be short lived through May, But it is giving us some upside in the Q2.

Speaker 11

Great. Appreciate the time.

Operator

And next we'll go to John McKay with Goldman Sachs.

Speaker 5

Hey, all. Thanks for the time. I just wanted to Kind of collect some of the comments you guys have had so far. Just thinking about the flat or unchanged guidance versus some of the weather impacts. I guess you've talked about Q1 well connects being a little bit better, Talked about MidCon maybe being a little bit better.

Speaker 5

But just can you kind of line up the moving pieces that get you to Kind of maintained guidance versus after the weather impacts, specifically is your kind of ethane recovery assumption actually better now than it was a few months ago? Thanks.

Speaker 4

Well, this is Kevin, John. I think you hit on a bunch of the key attributes we're looking through. One, yes, we've seen weather impact our Bakken volumes, but it hasn't changed the rest of the year outlook For our growth opportunities in the Bakken, both on the G and P side and the NGL side. So we see that as very positive. And we continue to see activity at or above levels than we were anticipating when we put out guidance.

Speaker 4

So we think there's going to be some offset there. Clearly, we've had ethane recovery opportunities both so far to date and as well as as we look through the remainder of year that we believe We're going to be strong. You mentioned we're seeing growth. There's been some very positive and favorable calls where other processors And producers in the Mid Continent about volumes growing there. So we think there's some upside there.

Speaker 4

And the Permian, Again, we're we can we haven't talked about it a lot on this call, but we've continued to get our fair share of the volume growth coming out of the Permian And like our position with both our West Texas LPG system as well as our West Texas pipe system we've talked about. So There's a lot of tailwinds for us in a lot of those other areas, including the optimization and marketing side we have in the NGL business. And we think those are absolutely going to offset any hurt we may have had with the severe weather impact in April.

Speaker 5

That's great. Thanks for pulling this together. Maybe just as a follow-up, you guys talked about kind of strong international demand for NGLs. Can you just remind us where you sit on the export idea and kind of what the latest might be?

Speaker 4

Well, we continue to work it. As we've said for a while, it's a piece of the business. We would love to Extend the value chain. We see that as a natural extension. It's a nice fee based business.

Speaker 4

But at the same time, we're working with a lot of Markets, and we're trying to get a deal done, that it would happen. But we're not going to step out and do something that's Going to earn a return that we're not used to. So we're going to be disciplined. We're going to be intentional about a dock

Operator

Next, we'll go to Chase Mulvehill with Bank of America.

Speaker 12

Hey, good morning. I guess a couple of questions and one kind of follow-up question, I guess maybe on ethane and On one of your competitors conference calls earlier this week, there was mention that the Permian is still Rejecting about 200,000 to 200,000 barrels a day of ethane. And obviously, if we hit some Bottleneck constraints with natural gas egress in the Permian, then you would look to recover that. So I guess maybe my question is, If this actually does happen and you start going to full ethane recovery mode in the Permian, what do you think that means for Ethane recovery in other basins, do you think that you have to have an offset there? And if so, kind of what basins do you think you'll see some of the offsets?

Speaker 7

Yes. I think all that 200 as I read that call too, all that 200 may not be Recoverable out there in the Permian. I can only speak to our system. Our system, we're fairly full on recovering Ethane on our system, but if you would see natural gas prices get depressed and if there's more ethane to be recovered out of the Permian, that will have a downward pressure On ethane as it relates to other basins and probably the 1st basin we would see come out of is probably our Mid Continent Basin. Well, we still have the opportunity to move that Mid Continent Basin in front of the Permian Basin by flexing our rates As we've done out of the Bakken, because we've always said the Bakken will at full rates will be out of will be in rejection for this year and for the future.

Speaker 7

I think it may have some impact on it, but I don't think it's going to have a major impact on what our forward what we're forward looking for ethane out of the Mid Continent.

Speaker 12

Okay. That's helpful. The other question is really just when we think about Bakken egress and kind of look at the situation over the 2 or 3 years. Do you see any egress bottlenecks whether it's for oil, NGLs or natural gas? And if so, which one do you think you hit first?

Speaker 4

Well, I think the basin is in really good shape. Oil is fine with energy transfer and DAPL's Expansion, they're in great shape. NGL, we've talked about that. We've got capacity currently and we have a quick low cost We could add another 100,000 barrels a day of NGL capacity. So we go to residue.

Speaker 4

There's still volume on Northern Border that Can be priced out or pushed out. Bakken Gas can displace gas coming from Canada. There's an open season out right now for $400,000,000 or $500,000,000 a day that Northern Border has out there on a bison reversal. And there's some other smaller expansions from a residue perspective that are out there being discussed, that could That will help out the basin from a residue takeaway. So all in all, we feel like the capacities that are out there and some of the expansions that are available Put the basin in really good shape from a takeaway perspective.

Speaker 12

Okay. Helpful answers. I appreciate it. I'll turn it back over.

Speaker 9

Thanks.

Operator

And moving on, we'll go to Sunil Sabal with Seaport Global Securities.

Speaker 9

Yes. Hi, good morning folks and thanks for all the clarity. I just wanted to start off with a couple of clarifications. If I heard correctly, I think you said April volumes reduced by 20% because of the weather events. So I just Wanted to clarify.

Speaker 9

Is that 20% based on the peak rates that you mentioned hitting in April? Or is it more related to Q1 averages?

Speaker 4

Yes, that would be roughly off the 1.4 Bcf a day.

Speaker 9

Got it. And then I think you mentioned also that you have runway to exceed the 400 well connects In that guide you to for Bakken. I was curious, is that The exit rate we are talking about or do you think that for the full year average or for the full year total you would probably exceed 400 well connects?

Speaker 4

Well, I think what Sheridan said was, we're still maintaining our guidance range, which the midpoint would be 400, But connecting more than 90 wells in the Q1 is an outstanding start to the year. So there's definitely we think there could be some upside there.

Speaker 9

Got it. And then one on CapEx trend. So it seems like you Expedited the start update on the MP5 a little bit and then you're also adding gas capacity. What does that mean for the total CapEx for full year? I saw that Q1 was a little bit higher.

Speaker 9

What was the pickup from Q4?

Speaker 4

Yes. We still feel good about our capital guidance range as well. As we think about as we looked at the Q1, we always have some seasonal kind of timing things of just routine growth type stuff. Again, we did not increase the cost at all for MB5 in accelerating that schedule. That was just Our ability we had some things go our way from a schedule perspective early in the project that allowed us to pull it forward.

Speaker 4

So the guidance range for capital is still in place.

Speaker 9

Got it. Thanks for the clarifications. Sorry, go ahead.

Operator

And our final question will come from Theresa Chen with Barclays.

Speaker 13

Hi, thanks for taking my questions. First, I just had a question for clarification around the different moving components of the average bundled rate for the Rocky Mountain NGL feet throughput. So if you did on an average basis, dollars 0.26 For the 3.14 for average of 1st quarter and hit 3.85 in April, what would be the analogous average bundled rate if there was a lot of incentive ethane attributed to that $385,000,000

Speaker 7

Theresa, this is Sheridan. I have no idea what it will be. It will be around the $0.26 The reason I say that is the accountants will work through it, and we have a lot of moving parts on that. But It's going to be 26% to 27% in that range is where I would say that it's going to come out to be.

Speaker 13

Got it. And to the earlier comment about your customers seeing some alleviation downstream on the petchem front, I'm just curious to hear how do you see the pace and path of supply chain bottles relieving out of the Gulf Coast to the extent that it can reduce some of the economic run cuts on ethane cracking and increased demand.

Speaker 7

Well, I can say is we've talked to our customers and seen what they're seeing in there and they said they have had some issues getting rid of the polyethylene pellets to get them Ordered out of there or actually getting from the petrochemical facilities to the dock. And they keep saying they're working through that and continue to improve that to be better. And they're optimistic that it's going to improve over time is kind of what we're hearing. Obviously, if there's a bottleneck there, you could see them Slow down their production to make sure they get rid of their products, but they seem to be more upbeat now than they have in the past.

Speaker 13

That's helpful. Thank you. And lastly, if I can just squeeze one more in. On the cost side, you've seen some good cost control in first quarter. Just wondering your outlook for costs for the year as far as potential inflationary pressures go?

Speaker 4

We've seen a little bit of the inflationary pressures. I would just remind everybody that we also have the escalators on our contracts that we think More than offset the cost increases we have seen. The Q1, if we look at op cost, the Q1 is usually Just a little bit light as you think about the rest of the year, but we still feel good. Again, all that's factored in as we talk about reaffirming our guidance. Inflationary pressures are included in that analysis.

Speaker 13

Thank you.

Speaker 9

You're welcome.

Operator

And now I'd like to turn it back to Mr. Ziola for any additional or closing comments.

Speaker 1

Our quiet period for the Q2 starts when we close our books in July and extends until we release earnings in early August. We'll provide details for that conference call at a later date. Thank you all for joining us and have a good day.

Operator

Thank you. And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.

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