Oneok Inc (OKE) — Q1 2024 Earnings Call Transcript

Thank you, Megan, and welcome to ONEOK's first quarter 2024 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, the Chief Financial Officer, Treasurer and Executive Vice President, Investor Relations and Corporate Development; and Sheridan Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing. Also available to answer your questions are Chuck Kelley, Senior Vice President of Natural Gas Pipelines; and Kevin Burdick, our Executive Vice President and Chief Enterprise Services Officer. Yesterday, we announced first quarter 2024 earnings and increased our full year 2024 financial guidance. Solid results during the first quarter were supported by higher year-over-year volumes in the Rocky Mountain region and contributions from the Refined Products and Crude segment. The efforts of our employees were highlighted once again as we were able to effectively manage through the winter weather during the quarter. Heating degree days were actually higher than normal in January, but it was the temporary acute cold and excessive wind that caused a deviation from normal operations. Volumes have rebounded across our systems, and we are continuing to see volume trends higher, providing additional confidence in our expectations for the remainder of the year. Our increase to 2024 financial guidance was driven by two primary key factors: first, favorable industrial fundamentals across our systems, specifically supply and demand, that are contributing to volume growth and providing significant momentum for the remainder of 2024 and into 2025. Second, the continued confidence in our ability to realize meaningful commercial and cost synergies. We remain focused on the integration efforts following the acquisition of Magellan last year, and our management team has spent the past several months meeting with employees and visiting assets across all of our operations. Our employees see the value of our combined businesses and are excited about the opportunities ahead. Through collaboration between business segments and the innovation of our employees, we are on pace to exceed our 2024 synergy goals, while most importantly, putting safety first. We also see growth across our systems from producer productivity, favorable commodity prices, and continued demand for our products and services, or as we previously mentioned, favorable industrial fundamentals. One potential significant source of future natural gas demand is expected to come from an increase in power generation required to serve AI-driven data centers. ONEOK, like other natural gas pipeline operators, will play a role here. We have already had conversations with several of our large electric power generation customers and power developers, who anticipate the need for additional natural gas transportation to address this future AI data center-related power demand. As the need for future power generation increases, domestic natural gas demand is projected to rise. This will affect the entire midstream value chain, and ONEOK is positioned to play a meaningful role. Today, we serve numerous natural gas-fired power plants across our system, and many of those customers are looking to expand, some related to AI and others to address general power demand. We also continue to see supportive demand and fundamentals for the NGLs and refined products across our system. Ethane remains a highly preferred feedstock for the petrochemical facilities, NGL export strengths continue, and seasonal refined product demand for travel and agriculture is picking up. We remain focused on expanding and extending our systems in ways that align with our customers and the market's needs. ONEOK, now larger in scale, will continue to support our efforts to help address domestic and international energy demand, contribute to the energy security of our nation, and maintain our critical role in the long-term energy transformation. With that, I'll turn the call over to Walt.

Thank you, Pierce. As Pierce mentioned, we increased our 2024 financial guidance expectations. We increased our 2024 net income midpoint to $2.88 billion and increased our adjusted EBITDA midpoint by $75 million to $6.175 billion. This new guidance also raises the low end of our original range, reflecting the strong fundamentals across our businesses. We remain confident in our synergy expectations. Our updated guidance still assumes we will meet or exceed our midpoint of $175 million in cost and commercial synergies in 2024. We continue to expect that additional annual synergies will meet or exceed $125 million in 2025. Additionally, our total 2024 capital expenditure guidance remains unchanged at $1.75 billion to $1.95 billion. Now for a brief overview of our first quarter financial performance. ONEOK's first quarter 2024 net income totaled $639 million or $1.09 per share, and adjusted EBITDA for the period totaled $1.44 billion. Results were driven primarily by higher NGL and natural gas processing volumes in the Rocky Mountain region, increased transportation services in the natural gas pipeline segment, and contributions from the refined products and crude segment. We saw higher consolidated operating costs in the quarter, primarily related to the timing of planned maintenance turnarounds, higher property insurance premiums, and operational growth. Of note, this was the first quarter the refined products and crude segment was allocated its full share of corporate costs. Therefore, compared with the fourth quarter of 2023, we saw an increase in operating costs for that segment and a decrease in operating costs for the other business segments as they received a lower allocation of corporate costs. As of March 31, we had no borrowings outstanding under our $2.5 billion credit agreement and our run rate net debt-to-EBITDA ratio was 3.8x. As it relates to capital allocation, we remain focused on delivering long-term value for our stakeholders through a balanced combination of high-return capital projects, dividend growth, debt reduction, and share repurchases. As previously discussed, we continue to see share repurchases as an important part of our capital allocation strategy and remain committed to utilizing our $2 billion share repurchase program over the next four years. We have significantly deleveraged our business in recent years, while still completing high-return capital growth projects and successfully closing a transformational acquisition. We are well positioned to continue returning value to investors through a strategic and balanced capital allocation approach. I'll now turn the call over to Sheridan for a commercial update.

Thank you, Walt. Beginning with the natural gas liquids segment. First quarter NGL volumes increased 12% in the Rocky Mountain region year-over-year, including the effect of the mid-January winter weather. Volumes fully recovered in February and have been continuing to accelerate. April volumes averaged more than 400,000 barrels a day from the region, driven by record propane plus volumes on our system and modest ethane recovery levels. The Elk Creek pipeline expansion remains on track for an early first quarter 2025 completion, increasing ONEOK's total NGL capacity from the basin to 575,000 barrels per day, enabling continued volume growth and providing needed NGL takeaway capacity. Mid-Continent region NGL volumes reflect the effects of first quarter winter weather in a full quarter without the low-margin volumes from the contract expiring in November of 2023. We expect to continue replacing the expired contracts volume with barrels at market-based rates ramping through 2024. Y-grade gas to crude ratios remain, making ethane the most preferred feedstock of the petrochemical industry, and ethane exports remain highly utilized. These dynamics could provide tailwinds for ethane recovery throughout the remainder of the year. Our current guidance includes modest incentivized ethane recovery in the Rocky Mountain region. Moving on to the Refined Products and Crude segment. We continue to see healthy business fundamentals and consistent performance. First quarter refined product volumes increased compared to the first quarter of 2023. From a liquids blending perspective, volume and margins were in line with our expectations for the quarter. With gasoline and diesel demand typically lower in the first quarter, we expect volumes to ramp in the coming months as we see a pull from agriculture activity and summer driving demand. Refined product volumes will also benefit from our pipeline expansion to El Paso, which is now fully complete. The majority of the 30,000 barrels per day expansion is contracted under firm long-term agreements. Moving on to the Natural Gas Gathering and Processing segment. Rocky Mountain region processing volumes increased 9% year-over-year, including the effect of winter weather during the quarter. By the end of January, volumes had recovered to levels achieved prior to the extreme cold. Since then, our process volumes have continued to increase, averaging nearly 1.6 Bcf per day in April. There are currently 38 rigs in the Williston Basin with 20 on our dedicated acreage. We expect additional rigs to return as we are now into spring and for the trend of drilling longer laterals to continue. Stable rig activity and longer laterals, coupled with continued strength in our gas-to-oil ratios and additional producer efficiencies, provide a compelling backdrop for significant Rocky Mountain region volume growth in 2024. In the Mid-Continent region, we are currently seeing more than 40 rigs in Oklahoma with six operating on our acreage. With current gas prices, we expect producers to continue concentrating activity in the oilier and NGL-rich areas in the region. In the Natural Gas Pipelines segment, we benefited from higher equity natural gas sales and increased firm and interruptible transportation in the first quarter. Natural gas storage continues to be in high demand. Our current expansion projects, including reactivating 3 Bcf of previously idled storage in Texas and further expanding our injection capabilities in Oklahoma, are enabling us to market an additional 4 Bcf of working capacity. The Texas project will be fully in service in the third quarter of 2024, and the Oklahoma expansion will be completed in the second quarter of 2025. Both projects have firm contracts extending beyond 2030. Pierce, that concludes my remarks.

Thank you, Walt and Sheridan. As you have heard, strength across our businesses is indicating a solid 2024 and already providing momentum into 2025. Before we take questions, I want to once again acknowledge our employees for your continued dedication and exceptional performance in the first quarter. Specifically, I'd like to recognize those of you who responded to the winter weather across our operations in January and our employees in Texas and Oklahoma, who were personally affected by the Texas Panhandle Smokehouse Creek fire in late February and early March. Our focus on reliable and responsible operations and on supporting our communities is particularly highlighted during events like these. I'm proud to work with individuals and teams who demonstrate a service mentality by being ready and willing to rise to the challenge. We're looking forward to the rest of 2024 and beyond. And with that, operator, we are now ready for questions.

Just want to start off with the guidance increase, if I could. I want to dig into the component pieces there. When you're talking about volumes, it seemed like they rebounded stronger. Just wondering if you could break down where across the system that is, if that's really the Bakken or other parts of the portfolio, you're seeing better-than-expected strength. And at the same time, you talked about the synergy realization maybe being better than expected or more confidence. Just wondering if you could dig into a little bit more detail on what the component drivers to that are as well?

Jeremy, this is Sheridan Swords. The first thing we think about volume across our system is a lot of it is coming out of Bakken. We're seeing strong volume as we come out of winter and with the rigs that we have running, we see that increasing strongly throughout the year. So that gives us a lot of confidence on our volume expectation trends, and we'll be more on the higher end of that. We also, in our refined product segment, are seeing good volume into the El Paso market as our expansion was completed and came online. And for May, that expansion is already on allocation. So we feel that complete expansion and continue to see that go through the remainder of the year. So those are two areas where we're really seeing volume increase. As we think about synergies, synergies we've got in this company together and people working together, we are finding more and more synergies out there that we can execute on, and we will continue to see that growth through the remainder of the year, which gives us even more momentum as we move into the 2025 timeline. The other thing that we have going on is in the first quarter, we also had two large planned turnarounds, one in the refined products crude segment at our Corpus Christi terminal and the other one in our NGL segment at the MB-1 fractionator. This was a one-time event that really pushed up our operating costs in the first quarter that we won't see for the remainder of the year. So those are a lot of the things that give us confidence on raising our guidance.

Got it. That's helpful there. And then pivoting in your remarks, I think you touched on the potential for data centers to be a tailwind for the business over time, and just want to unpack that a little bit more. Do you see that as kind of a general thing that helps natural gas demand overall, or do you see the potential, I guess, for data centers materializing proximate to your footprint where in Oklahoma, West Texas, what have you, where there could be more, I guess, direct opportunities?

So Jeremy, this is Pierce. I think it's kind of all of the above. If you go back the last 20 years, electrical generation load between devices that were added versus the efficiencies that we got from LED lights and those kinds of things have pretty much offset one another. So it's been really flat for the last 20 years. For the first time in a couple of decades, we're seeing a lot of momentum for needing more energy for these data centers. A natural quick solution to that is natural gas. So we do see that, that's going to increase natural demand here specifically over the next half-decade and probably even more. When you look at it, it's yet to be seen which area is actually developed more, which means that you put a data center next to where electricity is already there, and they've got enough capacity to generate the load, or you switch over to putting a data center close to, say, a pipeline where you can generate the electricity from a natural gas-fired generation facility, located right beside the AI data center. So it's yet to be seen exactly how that comes. We've seen some interest in different areas of our system. It's something that we're going to continue to focus on and to see just what the pace of that is going to be. But I think it's kind of all of the above.

That's helpful. So on that last point, you're in current conversations with potential customers that could be proximate to your assets, I just want to make sure I have that right.

Yes, we are. And whether or not it's proximate to our assets, we serve quite a few utilities. So we've had a lot of calls from utilities as well. It's yet to be seen exactly what kind of infrastructure is going to be needed in both cases.

I wanted to go back to the synergies quickly, if we could. Sheridan, it sounds like in some of your comments there, you're saying you're sort of finding even more as time goes by. I was wondering if you could tie that back to your prior targets when you talked about $400 million of synergies with upside to $800 million. I think a lot of that was sort of probability-weighted. So I'm curious, are you sort of getting closer to that $800 million number? If you could maybe just provide some examples of where you've been most surprised?

Yes, Spiro, we are getting more confident in moving up the ladder as we see more opportunities come out. We're kind of seeing it all across parts of our business. We're seeing it from how we optimize our storage, we’re combining the two assets to make logistics savings better, and we’re seeing it as we tie the systems together, how we can demand pull NGLs in the refined products. So we're seeing it across all aspects of our business that we've talked about.

Great. That's helpful color. Oh, sorry.

Spiro, this is Kevin. I would like to add that as we explore all the opportunities Sheridan mentioned, we are also continuously identifying chances for cost reductions in G&A. When we gather all these insights, we prioritize them by evaluating their value, timing, and costs, then assign people to them. I believe that our internal transparency and accountability strengthen our confidence in what we are analyzing, and as a result, those numbers keep improving. I want to emphasize that we get what we measure, and we are actively measuring our synergies.

Got it. Got it. Helpful. Second question, maybe just turning to CapEx, maybe for you, Walt. Some of your peers have started to provide this sort of normalized CapEx figure that allows them to keep growing with the basin. I guess I'm just curious maybe how we should think about that for ONEOK, especially as we head into 2025 in the first quarter, you've got three major projects coming online. It would seem like that CapEx is coming down. So just curious how you guys think about what normal looks like on the CapEx side?

Spiro, I'm not going to go down the 2025 guidance route yet. But I think it's fair to say you've identified directly that we've got three decent-sized projects that will all roll off early in 2025. So as we look at CapEx going forward, we have much more manageable, lower capital, very high return opportunities that are presenting themselves. So I think it's fair to say that we would see that trend down. And if you were to look longer term for a kind of sustainable CapEx level, it probably is lower than where we are for 2024.

Maybe just a minor one on the guidance increase. Should we think of the small Saddlehorn acquisition as part of that increase in expectations for the year? And if so, maybe kind of what proportion of the guidance increase could we attribute to the acquisition?

Yes, we did put a little bit of the Saddlehorn increase into our guidance, that was part of it. But it's a small portion. You could see we probably increased and that we’ll get from Saddlehorn by about one-third.

We've known that was coming for a bit of time. So it's not like that was the primary driver of the expansion. It's really seeing strength across our entire business. And of course, a little more from Saddlehorn doesn't hurt.

Helpful context. We appreciate it. And then maybe just more of a housekeeping one. How should we think about maybe the corporate cost allocation? You guys noted a $33 million change within refined products crude. Should we think of all of that as attributable to moving the corporate costs around? Or maybe is there a way to think about for the full year '24, what percent of total corporate costs gets allocated to the segment just as we think about refined products and crude modeling?

I would look over a couple of quarters to see a trend there as we do that. This was the first quarter that we allocated corporate costs to that. So surely, we took a look at it, but there could be some other corporate costs in the first quarter that might skew a little bit. So I would look over the next couple of quarters to get a trend, but it will proportionately carry its fair share based on EBITDA contribution.

I wanted to go back to the AI data center discussion a little bit. When you look at your gas pipeline network, how much room is there to expand capacity via compression versus having to actually build new pipe? And then if you were to increase gas pipeline capacity to serve higher power load growth, are there any upstream benefits that you'd also see?

Michael, this is Chuck. As far as capacity adds that we could look at along our footprint. As Pierce mentioned a couple of times here today, we are in conversations with existing customers on our pipes connected to a little more than, I think the number is 40 gas-fired generation facilities today. We're working on about 15 potential projects on our systems today. Not all of those will come to fruition, but the conversations are ongoing and of the 15, we're seeing probably three or four of those folks saying the demand is derived from the data center. So we are looking at several projects that would add looping as well as some compression depending on where we are on which of our systems, whether it's the interstate, up in the upper Midwest in Oklahoma, not necessarily looping but rather some compression projects. So it's kind of an all of the above capacity additions. And I don't recall the second part of your question.

The second part was about any upstream benefits.

So Michael, what I would say there is it's a longer answer here. But you came at it from the question of what's the capacity of an existing line, and you put more demand on it, and what does that look like? I'll just paint a scenario, which don't take anything from my comments that we're far along in this. But if you were to put a data center in North Dakota, it's a cold weather area. It's very advantageous for data centers, and you connected it, say, to the tailgate of one of the plants. Then you're taking load 24 hours a day, and that's loaded; it frees up transportation of gas that goes elsewhere out of that basin. We do have space to do that, but that's one way to kind of temper down maybe a future expansion out of the North Dakota area on the transmission lines, whether or not that be WBI, whether or not that be Northern Border, or actually some other generated facility for natural gas electric power generation. So that's just one example of the way I could see that. It's kind of a long way of answering your question, but that's what I would see a benefit to the gathering and processing business.

Okay. Perfect. And just wanted to go back on Saddlehorn for a second. I realize it's a small acquisition in the grand scheme of things, but I wonder if you can just talk in terms of strategic rationale for that asset to why you want to own more of it? And just also from a capital allocation perspective, and why that makes sense?

Michael, this is Sheridan. The first thing on why we want to own it. We operate that pipeline. It's coming out of an area that we see growth in crude. In fact, the last couple of months, Saddlehorn has been fully allocated. And the third is, as this was instigated by a party that has a lot of connectivity up in the area, and they're seeing a benefit as well, which gives us more confidence that this is a good asset to own more of.

In terms of the synergy outlook, just near term, looking at the upcoming maintenance in Wink to Webster, is there a room from a crude oil marketing activity perspective across your assets for additional synergies to capture what would likely be a temporary and volatile backdrop and using the excess capacity you have on a BridgeTex or maybe Longhorn to small extent? I realize that this does not neatly fit within your four categories of synergy buckets, but given that you are a significant market of commodities in general, could this be a source of additional upside?

Yes, we do see opportunity in marketing crude oil to bring more volume to our system. Specifically, as we look ahead to the next couple of months, with the differential widening, we're noticing an increase in volume coming to BridgeTex. This volume is significantly higher, which boosts our confidence that it will continue and supports our decision to raise our guidance moving forward. While we haven't yet taken into account upcoming maintenance on certain pipelines, this situation further reinforces our belief that we will see strong volumes of crude from the Permian on our system. Marketing will contribute to this, though that impact will likely be more noticeable later in the year.

Got it. And going back to the AI theme, this has come up so much in recent weeks and months, but related to natural gas transmission and storage assets. I'm just wondering if you have any early indications or thoughts on just quantitatively what this could mean as far as the size of the EBITDA opportunity for ONEOK?

Well, first of all, I think you've got to look at the size that we currently are making $6.175 billion in EBITDA. I think you've got to look to see what kind of pace it's at. I think it's really just too early to tell.

I just wanted to understand a little bit about the growth prospects. When you think about beyond the projects, which are going to be completed in the first half of 2025, I was curious how you would put your growth opportunity beyond that in the four business buckets that you have. And then on the same line, how have your hurdle rates changed, if any, in the current environment versus the environment we had a couple of years back in terms of interest rates, et cetera?

This is Sheridan again. On growth projects, we are continuing to, on the synergy side, see low capital/high multiple-type growth projects that we are baking in as we continue to go forward. They're coming all the time. We get more and more of them, but they're factored into our overall capital plan already. We continue to get more excited about that growth as we see different growth projects as it relates to synergies and bringing them together.

Okay.

I think as you were asking, I think what you're asking about the interest rates. We aren't a company that relies heavily on short-term debt. All of our debt has been termed out. We have cash called the last three bonds that we had matured. And we've said that we expect that this will probably be the case later this year that we would go down that path. Occasionally, we're in and out of the CP market to cover month-to-month type of things. But our business is generating cash flow to be self-contained, and so we don't see any real impact from higher rates going forward.

Okay. Understood. And then one kind of operational one for me. It seems like in Permian, NGL volumes were a little bit weak sequentially. And I was curious about the weather issues there. And then in terms of expansion, if you could update us on the contracting there?

Yes, the sequential decrease in the Permian is really due to weather. We had the impact of weather out there. One thing we noticed in the Permian is they aren't as used to weather, and any time they get any kind of weather, it takes them a little bit more to get back up and running. We saw some weather impact the first quarter, and it was a big reason for the volume decrease. As we think about contracting going forward on our West Texas pipeline expansion, it is going as we had planned. We continue to contract more volume on that. We are right where we think we need to be as we continue to go forward. We are going to continue to leverage that into the future for more plant connects and to feed our transportation and fractionation business. As we have said earlier, we already have contracted two plants that will be coming on this year. We have another one that is expanding. Recently, we've actually signed up some more people as well to bring more volume onto the system. So like I said, we are very comfortable where we are with the contracting on that system today. The expansion is on time, on budget, and coming up in the first quarter of 2025.

I had a couple of questions on the guidance increase. So first, it seemed like the fee rate was $1.21 an Mcf, which was a little bit higher than the high end of the range of $1.15 to $1.20, which is the guidance. Is that something that we should roll forward? Or is that something that occurred with maybe some weather in the first quarter? And then second on that part, should we expect kind of a linear increase in volumes in the Bakken? Or should we expect another weather downturn in the fourth quarter in terms of your budgeting?

Neil, this is Sheridan. The first thing on your increase on the earnings on the fee rate. A lot of that is driven by our inflationary escalators that are coming in and to a lesser extent, volume coming from certain customers that may have a different fee structure in there. And yes, we do think that will continue going forward, that fee rate. On the volume cadence coming out of the Bakken, it can be a little bit lumpy as we bring on compressor units and everything else. Sometimes we'll have some big volume coming in. We always budget for winter weather in the fourth and first quarter. As you saw in '23, the fourth quarter did not have any weather, and all the weather showed up in the first quarter. But we spread it out over the two quarters in a budgeting standpoint, but we know it doesn't all show up evenly across those quarters. It usually concentrates in one quarter or the other.

Got it. And then I wanted to clarify on the AI theme. I know this is still very early innings. But I'm curious, I wanted to follow back up on kind of the opportunity you see there in North Dakota with the advantageous weather temperatures, et cetera. Are you seeing opportunities from the wellhead to move lines to CCGTs, or more so from CCGTs to data centers? And is this geographically concentrated with your opportunities within your NGL footprint in the Bakken? Or are you seeing things outside of the Bakken and perhaps the Permian and Mid-Con as well?

Well, first of all, you're not going to take it out of the wellhead because the gallons per thousand of liquids associated with that gas is just too high to tie it in back there. So you're going to need to get downstream of a plant. I would also tell you that that's a theoretical scenario at this point, and that's something that we'll be exploring in the future with multiple different players. It could happen in any one of our basins. It's just that it's a little more advantageous where you can locate one of these things where you get some really good, lower natural gas prices and you have a lot of natural gas supply. The weather actually is colder, leading to more heating degree days. So therefore, it lessens the cooling load that you're meeting on these AI facilities. So the thing I would probably say again about AI, more to come. We'll have more updates on these in the coming quarters. But again, I don't think it's necessarily going to be material in the short term.

First, just a follow-up to Neil's question, but on the Rocky's NGL bundled rate, that was up nicely to $0.30 in Q1. What drove that higher? And is that a good run rate for the balance of the year?

What drove that, Keith, is less incentivized ethane that came out, so that rate is going to depend a lot on how much incentivized ethane we come out. As obviously, we're bringing that out at a lower rate. But that $0.28 to $0.30 is going to be maybe even a little higher than that, depending if we get volume continue to ramp up and manage capacity on Elk Creek through backing out of ethane for C3+, you could see it go a little bit higher there, but it's going to be in that range.

Great. Second question just on going back to Saddlehorn, but are you optimistic that you could find other bolt-on type opportunities like that over the course of the next year, or was that more of a one-off with Western's process? I noticed you didn't list acquisitions as part of the capital allocation priorities in your remarks?

So this is Pierce. What I would tell you is we're always looking for opportunities to expand our footprint out there. That's one of the things that we look at. As far as M&A goes, we continue to be focused and actually very pleased with the integration as it relates to Magellan. So at this time, our organization's primary focus is on the integration of what we just acquired last year. I'd say that future M&A will be the same as it always has been here at ONEOK. We're going to be intentional and disciplined about what we look at.

Good morning. Thanks for the time. My first question, just looking at your NGL throughput on the raw volumes there. I'm just wondering, it looks like the range is a little wider in this run. Could you discuss some drivers behind that and how this is shaping up sort of year-to-date so far?

Neil, could you repeat that question one more time?

I'm looking specifically at Slide 8 regarding NGL throughput volumes and considering the expectations for 2024. The range isn't too wide, but I'm curious about what might lead to higher outcomes and how this looks year-to-date.

One of the key factors affecting our raw NGL volumes is ethane recovery. While the Rockies are expected to be in rejection, we see opportunities to encourage recovery. We plan to manage our pipeline capacity at Elk Creek until we can expand to the higher end of its capacity. In the Mid-Continent region, we will experience variations in ethane recovery. As long as the price spreads remain favorable, we anticipate an increase in ethane output throughout the year, which will boost our raw feed throughput. From the Permian, we will continue to achieve full ethane recovery. Ethane recovery is the most critical factor for us. We also notice positive volume trends in the Bakken and a good number of rigs operating in the Mid-Continent, particularly in high GPM regions. We are cautiously optimistic about significant growth in these areas as we progress through the year. Overall, we believe these factors could help push our volumes towards the higher end, with ethane recovery being the primary driver in 2024.

Very helpful. I have a second question regarding your natural gas pipeline earnings. I'm curious if the recent sequential increase was influenced by the higher natural gas sales volumes that were previously held in inventory. Do you expect to see potential upside from these additional volumes in inventory continuing? Is there more to come, or how should we consider other volumes related to that?

Yes, Neil, this is Chuck. Seasonality, obviously, the prices are higher in Q1. So when we set up our portfolio each calendar year, we look at our portfolio of equity gas and choose where we're going to sell that and optimize our value there. So that was part of our plan going into Q1. Obviously, you've seen gas prices fall here in Q2, so you've got seasonality at work. Throughout the summer, we see electric generation pick up, and we'll see prices spike, we may sell into some of that. And then again, we may still into be seasonal back to the winter months next year.

Sheridan, back to that Williston NGL bundled rate and the issue of incentivized ethane recovery. Are you seeing the spread of ethane discounts required to incentivize recovery less than historical to the degree that we ramp up ethane? Do you see that having relative to history less of an impact?

What I can say right now is that in the incentivized ethane we've achieved so far this year, it has been at or slightly above what we've experienced as a historical run rate. A lot depends not only on the price of ethane, which has good demand on the Gulf Coast, but also on the price of natural gas in the Bakken. It's important to consider the spread between the two. However, we have been very pleased with our success in incentivizing ethane.

Got you. And just to finish off, do you see prospects for ethane being tailwinds year-over-year even into 2025? And separately around the Conway to Mont Belvieu basis spreads, that seems to have contracted last couple of quarters. Do you see that stuck in the doldrums for a while?

I think as we go into next year, we're continuing to have the ability to recover more ethane as production continues to grow in all basins. We're kind of waiting for the incremental ethane exports coming online that we'll see some coming online next year and '25. With this crude-to-gas ratio that you're seeing on a global scale, it puts the United States petrochemical ethane crackers at a huge advantage that we're going to see them continue to try to run as hard as possible. I think you'll see the strength continue to run harder, and you'll see a little bit more ethane coming out due to more production. We still, as we get going on how we set up our system, see that the Bakken is going to be an area where we will be able to incentivize ethane at a nice rate to bring it into the stack, wherever that stack is, even if we have more volume coming out of the Mid-Continent or the Permian, we still think we can fit the Bakken in there at a nice rate.

All right. Well, thank you, everyone. Our quiet period for the second quarter 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 again, and have a great day.