Oneok Inc (OKE) — Q2 2023 Earnings Call Transcript

Thank you, MJ, and welcome to ONEOK's Second Quarter 2023 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 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?

Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today's call is Walt Hulse, Chief Financial Officer; and Executive Vice President, Investor Relations and Corporate Development; and Kevin Burdick, the Executive Vice President and Chief Commercial Officer. Also available to answer your questions are Sheridan Swords, our Senior Vice President, Natural Gas Liquids and Natural Gas Gathering and Processing; and Chuck Kelley, Senior Vice President, Natural Gas Pipelines. Yesterday, we announced second quarter 2023 earnings and increased our full year 2023 financial guidance. Strength in volumes across our operations, particularly in the Rocky Mountain region and Permian Basin, resulted in higher second quarter results and positive momentum entering the second half of 2023. We continue working toward a successful closing of our pending merger transaction with Magellan while remaining focused on the growth of our legacy assets. Initial activities have begun on two NGL pipeline expansion projects. The growth we are seeing across our existing operations is driving the need for these economically attractive projects. Walt and Kevin will talk more about the early work that we are doing on the Elk Creek and West Texas natural gas liquids toplines. Regarding our pending acquisition of Magellan Midstream. We've recently accomplished two critical milestones toward completing the transaction, including the expiration of the HSR waiting period in June and the filing of the definitive proxy materials with the SEC in July. Proxy mailings are already hitting investors' mailboxes. As we look ahead to the shareholder and unitholder votes on September 21, we're confident that the investors of both companies will see the compelling long-term value proposition this transaction brings with immediate financial benefits and incremental growth through the combination of these two companies. Today, we will walk you through both the macro and micro takeaways of our synergy assumptions. I will cover the macro, and Kevin will go into more detail with the macro explanations. On Slide 6 in our earnings presentation, which was provided yesterday with our news release, you will see a summary of how we've organized the synergy opportunities we've identified to date and have targeted to realize as a combined company. You can see we have categorized these commercial opportunities into four categories and have provided a breakdown for both the assumed scenario in our proxy and for the incremental potential near-term commercial opportunities. So now I'd like to cover the macro takeaways from Page 6 previously referenced. First, combined, these companies will have opportunities that were not possible as stand-alone companies. Second, batching and blending are done by both companies today. Therefore, these operational techniques are well understood by both companies. They are not new. But the difference is with these assets under one company's direction, batching and blending value can be realized on a larger scale. Third, with the exception of bundling, the three remaining commercial categories are within 100% of our control. This means that we make the decision to pursue opportunities if they make commercial and economic sense instead of relying on factors outside of our control. Fourth, as we integrate the two employee bases post close, we can focus on widespread collaboration and believe that we will find even more opportunities not identified to date. And finally, there is significant potential value in the near term, the next one to four years, above our assumed case in the proxy. ONEOK has proven our commercial creativity over the course of our company's transformative history, and together with Magellan's team, we believe our companies have many opportunities to continue improving the services that we offer to our customers and returning value to our investors. With that, I'll turn the call over to Walt Hulse, for the discussion of our recent financial performance and guidance increase.

Thank you, Pierce. With yesterday's earnings announcement, we increased our 2023 financial guidance expectations. We now expect a 2023 net income midpoint of $2.49 billion and an adjusted EBITDA midpoint of $4.675 billion, a $100 million increase from our original adjusted EBITDA midpoint provided in February. These midpoints are ONEOK specific and exclude the impact of the pending merger with Magellan and any future merger-related costs in order to be an apples-to-apples comparison with our original guidance provided in February. Higher guidance expectations were driven by volume growth, volume strength across our operations, higher average fee rates, and lower-than-expected third-party NGL fractionation costs. In the second quarter, we recorded $31 million of third-party fractionation costs compared with $46 million in the first quarter. We expect approximately $30 million of third-party fractionation costs per quarter to be a good run rate for the remainder of the year as MB-5 is fully operational. Strong producer activity and a constructive volume outlook also drove the increase in our capital expenditure guidance. We now expect total capital expenditures, including growth and maintenance capital, of approximately $1.575 billion in 2023. Initial activities, including the purchase of long lead time components related to the expansion of Elk Creek pipeline and the decision to complete the full looping of the West Texas NGL pipeline are included in our updated guidance. Now, a brief overview of our second quarter financial performance. ONEOK's second quarter 2023 net income totaled $468 million or $1.04 per share. Second quarter adjusted EBITDA totaled $971 million, a 10% increase year-over-year. If you exclude merger-related and third-party fractionation costs, second quarter adjusted EBITDA increased nearly 15% and would exceed $1 billion. In June 2023, we redeemed $500 million of our 7.5% senior notes due September 2023 with cash on hand. Our net debt to EBITDA remains well below our long-term target of 3.5x, and we had more than $100 million of cash and equivalents as of June 30. Early in the second quarter, Moody's upgraded ONEOK's credit rating to Baa2 from Baa3. As it relates to our pending acquisition of Magellan, I'd note all three rating agencies, Moody's, S&P, and Fitch, reaffirmed our investment-grade credit ratings pro forma for the acquisition showing a recognition of increased scale, earnings diversity, and growth opportunities that this acquisition provides. As it relates to merger transaction financing, we expect to complete a notes offering prior to the close of the transaction. We are monitoring the markets and will be opportunistic in our timing of that offering. I now turn the call over to Kevin for a commercial update.

Thanks, Walt. Let's start with our Natural Gas Liquids segment. Second quarter 2023 NGL volumes increased 11% year-over-year and compared with the first quarter 2023. Higher volumes were driven by increased producer activity, particularly in the Rocky Mountain region and Permian Basin. Both regions saw double-digit volume increases year-over-year and compared with the first quarter 2023. Permian Basin volumes saw the largest increase, up 26% year-over-year, driven by continued growth from existing plants and volume from a new plant connection in the first quarter of 2023. Volumes in the Rocky Mountain region increased 17% compared with the first quarter of 2023 and 14% compared with the same period last year driven by increased propane plus volume and slightly higher incentivized ethane. Mid-Continent region volumes increased 8% compared with the first quarter of 2023, partially driven by increased ethane recovery. While we've seen ethane prices decrease recently from July highs, they remain at a level driving recovery in most basins. We think the recent volatility in ethane pricing is the market responding to some short-term dynamics along with the general tightening in the overall supply and demand balance. Given these market conditions, we remain confident in our ethane recovery assumptions included in our updated guidance. The Permian in near full recovery, the Mid-Continent in partial recovery and opportunities to incent recovery in the Williston. As Walt mentioned, we've begun initial work, including purchasing long lead time components for two NGL pipeline expansion projects. Activities are underway to complete the looping of West Texas NGL pipeline, which will more than double ONEOK's NGL capacity out of the Permian Basin. The full loop is expected to be in service in the first quarter of 2025, which aligns with our customers' needs. We also are taking steps towards expanding the Elk Creek pipeline to 400,000 barrels per day to provide capacity for growing volumes in the Williston. In the natural gas gathering and processing segment, second quarter processed volumes averaged nearly 2.2 billion cubic feet per day, a 16% increase year-over-year. In the Rocky Mountain region, processed volumes averaged nearly 1.5 billion cubic feet per day during the second quarter and have averaged more than 1.5 bcf per day in the month of July. We've connected more than 280 wells in the region through the first half of the year compared with approximately 160 connections in the first half of 2022, a 75% increase. As we sit today, we're on pace to reach the high end of our 475 to 525 well-connect guidance range for the year. Currently, there are approximately 35 rigs and 20 completion crews operating in the basin with 19 rigs and approximately half of the completion crews on our dedicated acreage which remains more than enough activity to grow production on our acreage. In the Mid-Continent region, second quarter processed volumes increased 12% year-over-year and decreased slightly compared with the first quarter of 2023, primarily due to the timing of new pads coming online. We've seen some recent decreases in STACK and SCOOP activity in the past few months but continue to see increased activity in Western Oklahoma as producers are focusing on higher crude producing areas. We currently have nine rigs on our dedicated acreage in the Mid-Continent and have connected 23 wells in the region through the first half of the year. In the natural gas pipeline segment, strong year-to-date results continue to benefit from demand for natural gas storage and transportation services, and we now expect the segment to exceed the high end of its original earnings guidance range. We recently completed an expansion of our natural gas storage capabilities in Oklahoma, allowing us to utilize and subscribe an additional 4 billion cubic feet of our existing capacity. We have subscribed 100% of this incremental capacity through 2027 and 90% through 2029. We continue to evaluate the Saguaro connector pipeline, a potential intrastate pipeline project that would provide natural gas transportation to the U.S. and Mexico border for ultimate delivery to an export facility on the West Coast of Mexico. There continue to be positive developments related to the potential LNG export project with support from multiple large, well-known customers anchoring the project. We expect to make a final investment decision on the ONEOK pipeline later this year. Now I want to end where Pierce left off with a micro look at the Magellan transaction synergies. I will discuss how we define each category, an example of the opportunity, the sensitivities and comments on the overall risk weighting. The dollar ranges between our assumed case and the near-term potential are shown on Page 6 of our investor presentation for all four categories. Liquids pipelines provide opportunities to move natural gas liquids and refined products through the same product pipelines. Both companies refer to this as batching. This operational technique utilizes available capacity and combined connectivity to ship a refined product or natural gas liquid to a demand center to capture a higher value. An annualized average of 100,000 barrels per day in any combination of refined products or NGLs at $0.07 per gallon would result in more than $100 million annually. The ability to mix products to obtain a higher value is called blending. The combined assets will increase unleaded butane blending as well as other incremental blending opportunities, increasing an additional 25,000 barrels per day annually at a $0.20 per gallon uplift on any given slate of products or NGLs would result in approximately $75 million annually. As volumes grow or contracts expire, a wider variety of services can be combined or bundled to offer greater value to customers. This focuses on optimizing system utilization and connectivity to and from key customers and market centers. This is the one category where time and decisions, primarily by customers, will jointly be needed to realize this synergy. Picking up an incremental 25,000 barrels per day at $0.10 per gallon would provide approximately $40 million a year. Additional opportunities that can be realized within the one to four-year time frame include incremental refined product, NGL, and crude oil storage and optimization activities. We also see value and opportunities to leverage Magellan's proven marine export expertise. We have consistently said that acquisitions of this size often result in a 25% reduction in G&A cost, which, in this case, would be $200 million. However, we have assumed only $100 million in both the assumed case and the near-term potential case. It's also important to point out when the transaction was announced, we significantly risk-weighted our financial assumptions to come up with our total assumed $200 million of synergies. This should highlight the level of conservatism we've applied to our expectations and also the potential upside to our assumptions, which we think could drive synergies to more than $400 million. As we've said previously, we have a high level of confidence in achieving the assumed $200 million of near-term synergies. For obvious commercial reasons, we're not going to provide specific project level details at this time. However, we have provided realistic potential outcomes by categories. We believe our ability to batch and blend products on our combined pipeline systems as well as bundled services to increase value for customers will provide significant synergy opportunities over the next one to four years. Pierce, that concludes my remarks.

Thank you, Kevin, and thank you, Walt. We've had a strong first half of the year with a promising second half still ahead of us. We continue to focus on the fundamentals of our business that have gotten us where we are today. These fundamentals include customer service, reliability, innovation, and, most importantly, a focus on operating safely and responsibly. We have a long and successful track record of growing and transforming our business while innovating for future opportunities but even through change and advancements over our more than 100-year history, ONEOK employees have been consistent in their dedication to doing things the right way. In the coming weeks, we'll be publishing our 15th Annual Sustainability Report. I'd encourage you to review the report and see our many updates related to our environmental, safety and health performance, related targets, employee initiatives, and examples of how we're economically participating in the future of energy transformation. We're proud to share our efforts and accomplishments, but we also know we can't stop there. As our company continues on our journey of growth, change and progress, we remain committed to operating responsibly and sustainably. As we look forward to increasing our operations, workforce and expertise through the merger of Magellan. We're also excited to join two companies with proud histories with a more promising future combined. I want to thank all the employees from both companies that are working on integration plans while continuing to run daily operations. We look forward to building on all that both companies have accomplished, creating a larger, more diversified company with a shared commitment to safety and stakeholder value. With that, operator, we're now ready for questions.

I appreciate the prepared remarks and slide details around the commercial synergy opportunities. I was curious if we could just talk about if we should view the upside opportunity of synergies to be around $800 million versus the original $200 million that you talked about when the deal was announced? And then second, are there any assumptions around growth synergies on Slide 6, just given the larger integrated framework that you'll have? And if not, how should we think about the size and scope of those opportunities?

This is Pierce. Brian. I will begin with some comments, and then I will let Kevin add his thoughts. The $800 million represents a comprehensive list of opportunities we have, which is quite extensive regarding potential based on various volume, pricing, and timing assumptions. You start by creating your list and then assess the risks to determine what is realistically achievable. In any transaction, it's essential to generate the most thorough list you can, knowing that not everything will come to fruition. We are quite comfortable with an estimate in the range of $200 million to $400 million. We wanted to provide additional context to illustrate how we evaluated the risks behind that estimate.

Great, I appreciate that. As a follow-up, can you discuss the size and scope of the potential growth synergy opportunities, especially in downstream?

Brian, it's Kevin. We've shared as much information as we can at this point. For competitive reasons, we prefer not to go into details right now. Many of these opportunities will require little capital, while some might need a bit more, but we will address those specifics as we finalize our plans.

The only thing I'd add is that there isn't a single large opportunity in any of those areas that's driving it; rather, there are multiple opportunities.

Fair enough. I understand it's early to discuss the final structure of the company after the merger, but I’m curious about the leverage for a larger integrated company. We've observed NGL peers leveraging up to 3x, and some recent spin-off announcements suggest that 5x may be the appropriate target. As a combined entity, what do you believe is the ideal leverage target for ONEOK and Magellan?

Well, we definitely haven't changed our view on where we want to be from a long-term standpoint. We've heard out there that 3.5x, we thought was a good benchmark for us. We are going to trend that direction pretty quickly with this transaction. And as we said in the past, we have no issue if we trend a little bit lower than that 3.5x. But we think that puts us in a good position to take advantage of opportunities as they come down the road over time.

I would like to begin by discussing the fundamental aspects of the business. Given your recent results and the raised guidance for 2023, could you provide more insight into the operational momentum currently in the business? How do you see that evolving into 2024, to the extent you can share? Additionally, regarding the figures mentioned in the prospectus, understanding that these aren't considered guidance, could you offer any perspective on how you anticipate the results might align with those numbers?

Jeremy, it's Kevin. I think it's shaping up very well. The activity levels we're seeing across our footprint really in all three of the major areas. And even a little activity in the Powder, but primarily the Bakken and the Permian announcing or talking about these expansion projects that we're pushing forward to me signals that volume's coming and the activity levels we're seeing right now in the Williston and the Permian would absolutely dictate that we would be continuing to grow as we move through '24.

Jeremy, I want to provide some context regarding the numbers mentioned in the proxy. Those figures were created in September 2022 for our board meeting in November when we approved the 2023 plan. The focus was primarily on the numbers for 2023. However, as we've mentioned in our discussions, and as you may recall from the proxy dating back to September 2022, we used the same figures for our board that we utilized in our planning process. These were not meant to be a forward-looking projection for future years but rather a solid representation of 2023. As we identify more business opportunities, we will offer guidance for 2024 and beyond in February and in future updates.

Got it. Maybe one more question. Can you provide details on what inputs were used in the 2024 numbers, such as the Bakken rig count or others? How do these trends compare to what you observed at that time?

Like I said, I think that you should think about those numbers with the primary focus on 2023 to try to look forward 15 months and give a rig count is something that we don't typically try to do. We usually freshen that up and the team is actively thinking about that as we head into the fall for 2024.

Got it. Just real quick last one, if I could. If you could provide updated thoughts on the West Texas LPG loop and Elk Creek, what type of project economics you see for those investments?

Jeremy, this is Sheridan. I'll begin with the West Texas loop we are completing. We are finalizing the loop we started in 2018, which has a low cost per barrel of capacity. Once completed, the pipeline capacity coming out of the Permian will exceed 700,000 barrels. We have contracts in place that will yield a good return on this project, and there is still significant capacity available for future contracts. We are very enthusiastic about this project, which we expect to offer a strong return at a low multiple. Regarding the Elk Creek, we continue to see growth in volume, especially from our G&P operations where we hold a majority market share at 60%, along with volumes from already contracted third parties. We recognize the need to expand this pipeline to avoid capacity issues in the future. With the margins we anticipate and the adjustments we are making, including adding pumps to our pipeline, this too will be a high-return, low-multiple project. We are excited to continue progressing and ensuring we are not caught short on volume coming out of the Bakken.

First, I'd like to get a little bit more detail on the batching opportunities. Do you have examples of which types do you see the most upside for batching? And are you already seeing commercial interest in this? And just what underlies that $0.07 per gallon estimate?

I think we, this is Sheridan again. I'll give you one example of what we can do as a batching opportunity is obviously with our Sterling pipeline that runs in between the Gulf Coast and the Mid-Continent region. We can put refined products on that to move refined products in between those two locations on the safe pipeline as we are moving NGLs on that pipeline as well. So that's an example of an area where we could be moving back and forth between two areas on refined products on the NGL pipeline. That's an example of batching.

And what underlies the $0.07 estimate for the illustrative estimate?

The reason we use the $0.07 estimate is that it reflects the overall tariff we observe in the refined products pipeline between those two areas. We anticipate some potential upside as market conditions evolve. We chose this figure because it is a recognized number in the market, and it represents our current observation.

Got it. And on the blending piece, within this example, are you looking to blend 25,000 barrels per day of incremental butane into the gasoline pool or expand margins by $0.20 for 25,000 barrels per day?

We see many opportunities in both areas. We're trying to provide you with an understanding of the potential impact and give you an idea of our direction. There is potential for increased margins as well as increased volume. We're aiming to clarify the impact and some sensitivities related to it. This is how we arrived at the figures we shared with you.

I want to go back to the proxy again for a minute specifically on the CapEx in the proxy for 2023, it's higher than your revised CapEx guidance here this morning. So I'm wondering if you could just explain the variance there? And then does that imply that '23 CapEx could go higher if you FID more projects for the balance of the year?

Michael, if you consider the timing of our previous discussions, we initially planned for the Saguaro pipeline to progress further back in September of last year. Now, we expect to reach the final investment decision between now and the end of the year. This adjusted timing had an impact on our analysis, which previously assumed the Saguaro pipeline would be fully incorporated. As a result, some projects may be delayed, and we may explore other opportunities. We continuously reevaluate our capital in relation to commercial chances, and the figure we shared today represents our expectations for 2023.

Okay. Perfect. And then I just wanted to ask on the Elk Creek expansion, I'm assuming that this will be brought on in phases. So is that correct? And anything you can provide in terms of a timeline for when you'll be adding capacity? And then what is the cost of the project?

Michael, it's Kevin. Regarding the timing, we won’t be caught off guard. We are ensuring that we have the necessary capacity for our customers as we continue our work. As for the costs, consistent with the NGL expansion, we have decided to outline the expected impact for 2023 as we progress towards 2024, and those figures will be factored into our overall numbers.

Maybe just to follow up on some of these questions and starting with CapEx. It sounds like these pipeline expansions are going to be pretty capital efficient. But maybe you could just give us a general sense of the trajectory on CapEx going into '24 on a stand-alone basis. Obviously, Mont Belvieu 5 dropping off you still have Mont Belvieu 6, you've added these pipeline expansions. And so directionally, without Saguaro, let's say, it doesn't seem like it's trending in any particular direction versus '23.

This is Kevin. We're not ready to provide guidance for 2024 yet, but if you consider the projects and the activity levels we're experiencing, things should remain relatively stable regarding routine operations. Unless we announce any larger projects, it should fall within that context. As Walt mentioned, we are always on the lookout for new projects, evaluating various options, and some may advance to execution while others may not, making it difficult to predict. Aside from Saguaro, we aren’t seeing anything else; it's primarily related to pipeline expansion.

Got it. And second question actually is on Saguaro. I know you're still working towards an FID there. But I guess I'm just curious if you've seen any incremental interest beyond the LNG project downstream of that pipeline? And if you're also sort of feeling any interest from potential JV partners yet?

Our current focus on Saguaro is, as mentioned earlier, there have been some positive developments, which is encouraging. However, our main priority is to secure the presidential permit and adhere to our timelines while continuously refining our estimates, specifically for the U.S. portion of the pipeline.

Kevin, you talked a little bit about the volatility we saw in June and July around ethane. But can you talk about maybe the dynamic you're seeing in the north obviously, with a tighter market at Belvieu with relief on the way and then obviously, weather's impact there. Were we able to see some incentivized ethane come in, into June? And then just curious maybe what you're seeing in the third quarter?

I'll start. Overall, the environment does fluctuate. That's why we mention that there will be opportunities to incentivize ethane. You need to consider the situation with gas prices in Canada and what's happening with Belvieu ethane. We've had those opportunities, though it has shifted. We're not going to share specific volumes, but it remains a chance for us. Sheridan, do you have anything to add?

One thing I would add is that we experienced a significant increase in ethane prices, which has since decreased but remains higher than in early June. This situation has enabled full ethane recovery for the Mid-Continent during the latter part of June, July, and into August.

As we look ahead, it's important to consider that, as Kevin mentioned, most of our focus is on expanding our existing systems through build-outs and add-ons. Currently, we do not have any major projects on the horizon, aside from the previously discussed potential of the Saguaro pipeline and its long lead times. In this environment, it's crucial to remain proactive. We are evaluating how we can address the needs of our customers with all of our projects going forward, which reflects the reality we face today.

Kevin, can you give a little bit more detail on why the gas pipeline segment is doing so much better than guidance? It seems like a lot of it is from renegotiating storage up to higher rates. So if you can give any kind of direction on how much of your storage capacity has been renegotiated up to the current rates already? And how much might be yet to come, that would be helpful as well.

Jean, really, it's just segment hitting on all cylinders. There's a variety of things. I mean, absolutely, after Uri, the increase in storage, both from an amount of storage contracted up and the rates we were getting that was a benefit. The segment has seen an opportunity, again, through its retained fuel and some gas sales to be opportunistic there. That's been strong. And with some market dynamics and how they've handled here recently parking loans and so forth has been a little bit of a benefit to us. So really, the segments just performed outstanding, and we continue to find other projects as well. We're not done as it relates to looking at other storage opportunities, expansion opportunities, whether it be in Texas or Oklahoma. So again, segment is just doing a great job capturing the market opportunities that are provided.

Great. And one more for you, if I can. It seems like Bakken volumes are outpacing your expectations a bit. If you can just kind of say whether that's primarily been a function of more oil growth overall, higher GOR than you forecast or more ethane recovery than you forecast or just all three, that would be helpful.

When we consider gas production, it may not lead to as much ethane recovery, but the activity levels and productivity we are observing are influenced by both factors. Producers are continually enhancing their drilling and completion techniques, and in some areas, the length of laterals has increased. All these elements contribute to our strong position as we move out of Q2 and into the future. We definitely see strength and believe we are in an excellent position.

I noticed on the G&P side, you hit kind of the top end of your rate at $1.20 Mcf. I was wondering kind of the factors behind that, whether it was inflation, more wells driven towards the Bakken? And then how any commodity sensitivity would play into that and if that rate is sustainable going forward?

Neil, this is Sheridan. A significant portion of the increase in rates can be attributed to inflationary factors. The impact varies depending on the mix of contracts that are coming in. We have renegotiated several contracts, and as we continue to improve those agreements moving forward, one of the most significant factors appears to be the influence of inflationary escalators.

Okay. And then just a general question on the commercial synergies with batching, blending, bundling. How much of these synergies are kind of spread based and opportunistic versus finding new demand centers where kind of serving demand on a baseload basis.

Neil, this is Kevin. I'll take it. We're not going to go into specific project details, but Sheridan mentioned earlier that the opportunities will include both volumetric aspects and rate considerations. If we can identify opportunities for higher rates, that’s excellent. If it’s focused on volume, that’s also beneficial. That’s our overall perspective.

First, just a quick follow-up on the blending synergies, the $70 million to $195 million. Is that predominantly butane blending? Or are there other types of product blending activities you see with the merger? I asked just because Magellan's business today is about $150 million a year on butane blending. So the synergy number is just pretty large.

We see opportunities in butane blending, as well as in other types of blending with different NGLs into various products. We believe we can expand that and achieve the butane blending currently being done at a lower cost.

Got it. And second question, just want to better understand the components of Saguaro. So it seems like Mexico Pacific's made really good progress with the trains being fully commercialized the first two anyway. Can you give an update on where you see things for the connecting pipeline in Mexico? I just have not heard as much about that. Is your understanding there's a lot that needs to be done on that to move forward? Or that's progressing well as well and consistent with your timeline?

Well, again, this is Kevin. Keith, I will stick to the remarks I made earlier. We have seen some positive developments, as you mentioned. However, our primary focus is on the U.S. side to ensure that we align with the overall timing and needs of the projects. So right now, our emphasis is really on the U.S. side.

This is Jake Nivasch speaking for Neal. I have one question. Returning to the topic of synergies and looking at the bundling aspect, I understand this isn't entirely up to you, but I wanted to know if we should expect the synergies or potential synergy opportunities you mentioned to be evenly distributed over the one- to four-year timeframe, or if they might come in bursts. I'm just trying to understand the situation better.

Yes, there are some near-term opportunities, but it will be a bit uneven. As mentioned, much will depend on when contracts come up, and as we observe how these two assets operate together, having multiple interactions with the same customer will create opportunities. We will see some positive momentum initially, and then as contracts expire, the progress will vary throughout the four-year period.

You add existing asset and commodity optimization synergies, I just want to dig in a little different manner, more into Brian's question on combined growth project opportunities. I understand you don't want to get into commercially sensitive areas maybe relating to crude transport, exports, and all kinds of other things. But would it surprise you to see the combined business perhaps produce $2 billion to $3 billion more aggregate incremental growth project opportunities at your normal historical 4x to 6x build multiple by late decade?

I believe it's important to note that many of these opportunities are incremental based on our current assets or those of Magellan. Generally, we anticipate very low investment required for substantial returns. There's not a significant amount of capital needed to achieve these outcomes. We will continue to assess and identify additional growth opportunities as they arise. However, we foresee ourselves operating at the lower end of the 4x to 6x multiple, if not achieving even better results.

Got you. And one other follow-up, maybe this is a bit ambitious since you have to finish the merger, but once that is complete, do you plan to report on commercial synergies regularly?

This is Pierce. We are currently determining how we will report all these segments. Once that decision is made, we will move forward. We are reporting by segment in line with how we present our business. We will provide as much detail as possible without jeopardizing our competitive advantage.

Thanks for all the details on the MMD transactions synergies. I was just curious, so it seems like where things stand now with regard to this transaction, there are some aspects of the transaction, which are beyond OK's control. So I was kind of curious if this weren't to go per the plan, what are some of the other levers that OK could pull to accelerate growth in the forward years?

Well, I think the way I'd answer that question is that both companies right now, we're focused on the vote. Magellan is focused on their vote and ONEOK, we're focused on our vote. We believe that the Magellan unitholders and the ONEOK shareholders are going to see the value in this deal, the combined companies. And I think we're scratching the surface there because when we get these two companies combined, I think and get our employees collaborating together, I'm very confident in the innovation of both companies is going to turn out to be something that people are going to really be proud that they voted yes for this deal.

I'm glad you asked that question. We are simply renewing the ATM plan that we have maintained for about seven or eight years. We haven't used it in the last five years and do not expect to use it in the future. However, we believe it's a useful liquidity tool to keep on hand, but we do not anticipate utilizing the ATM going forward.

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