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ONEOK Inc
Earnings Call Analysis
Q3-2023 Analysis
ONEOK Inc
In the recent earnings call, ONEOK presented its third quarter 2023 results, which were fortified by the completion of a significant acquisition just over a month prior. The positive ramifications of this strategic expansion are becoming clear as the company explores potential synergies through combined commercial, operational, and engineering efforts. The acquisition not only bolsters ONEOK's scale and scope but is also anticipated to enhance fee-based earnings significantly. This is expected to fuel a robust end to 2023 and set a sturdy groundwork for 2024's performance.
ONEOK has raised its full-year 2023 financial guidance for the second time this year on a pre-acquisition basis, and introduced new consolidated guidance incorporating the Magellan acquisition's impact. This upward revision is attributed to strong volume performance across the company's systems and favorable market conditions which instill a deeper confidence in upcoming expectations. The pre-acquisition projection for 2023 now estimates a net income midpoint of $2.61 billion and an adjusted EBITDA midpoint of $4.8 billion. In addition, consolidated guidance projects a net income midpoint of $2.6 billion and an adjusted EBITDA midpoint of $5.1 billion, which include the recent acquisition earnings as well as certain transaction costs and adjustments for inventory valuation impacts.
ONEOK reported third quarter 2023 net income of $454 million, translating to $0.99 per share, and an 11% year-over-year increase in adjusted EBITDA to over $1 billion. Noteworthy are the $175 million in transaction costs alongside an approximate $40 million unfavorable impact in 2023 due to inventory valuation adjustments post-acquisition. A forward-looking stance predicts a net debt to adjusted EBITDA ratio of approximately 3.7x, excluding transaction costs, on an annualized run-rate basis for the fourth quarter.
The company witnessed an 11% growth in terms of third-quarter NGL volumes and has escalated its well connection guidance for 2023, intending to connect between 525 to 575 wells (up from the previous guidance of 475 to 525 wells). Such robust completion rates and operational activities underscore the company's prowess in production growth. On the capital expenditure front, ONEOK predicts spending of approximately $1.575 billion in 2023, excluding legacy Magellan CapEx, and maintains a strong financial outlook with the potential to surpass its previously estimated adjusted EBITDA of $6 billion in 2024.
In specific regional developments, like the Mid-Continent, process volumes have increased by 10% year-over-year, with expectations to achieve the upper end of the well connect guidance. The Natural Gas Pipelines segment performed strongly, driven in part by heightened demand due to extreme heat in Texas, and exhibits potential for expansion across Oklahoma and Texas underscored by the sustained demand for long-term storage capacity.
Post-acquisition, the enthusiasm and teamwork exhibited by the combined workforce of ONEOK and Magellan have been remarkable. As visits to field and office locations continue, the energized atmosphere and dedication to service remains evident. This synergy between legacy and new personnel is a testament to the company's commitment to delivering value to both customers and investors, promising a bright future for ONEOK.
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Good day, and welcome to the ONEOK Third Quarter 2023 Earnings Conference Call and Webcast. [Operator Instructions] Please note, today's event is being recorded.
I would now like to turn the conference over to Andrew Ziola. Vice President, Investor Relations. Please go ahead, sir.
Thank you, Rocco, and welcome to ONEOK's Third 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. [Operator Instructions]
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; Sheridan Swords, Executive Vice President, Commercial liquids and Natural Gas Gathering and Processing, which includes our commercial responsibility for our NGL business, refined products and crude businesses. Also available to answer your questions are Chuck Kelley, Senior Vice President, Commercial of Natural Gas Pipelines; and Kevin Burdick, who has assumed the newly created position of Executive Vice President, Chief Enterprise Services Officer, with responsibilities for cybersecurity, information technology, enterprise optimization, innovation and integration activities.
This position will be vital as we continue to integrate systems, technologies and workforces following the acquisition of Magellan. Kevin is uniquely qualified for his experience in integration processes, information technology, commercial and corporate operations to lead the company as we continue to identify, prioritize and realize the value of the synergies as one company.
We completed the acquisition just over a month ago. And since then, we've been fully focused on integration activities, maintaining the reliable and responsible operations our customers and stakeholders expect from us. And at the same time, exploring optimization and integrated opportunities by engaging the combined commercial, operational and engineering teams. What has become evident at this point, based on the number of commercial synergies and opportunities, is the importance of prioritization, the value of combining our companies, the potential commercial synergies and the opportunities going forward are significant. More to come on this in the coming months. But after September 25 and getting full access to both companies, I can say that the collaboration of our employees is already presenting additional possibilities.
ONEOK's increased scale, scope and diversified operations are already enabling us to create exceptional value for our stakeholders. We've added primarily fee-based earnings and expect a significant free cash flow through the new refined products and crude businesses and expected tax synergies, which combined with ONEOK's legacy operations is setting up a strong finish to 2023 and a solid foundation for 2024 performance.
Yesterday, we announced third quarter 2023 earnings and increased our full year 2023 financial guidance on a pre-acquisition basis for the second time this year. We also provided new consolidated guidance that includes the impact of the Magellan acquisition. Walt will provide more detail in our guidance a little bit later, which is underscored by our strong volumes across our systems, and favorable market conditions continuing to drive confidence in our expectations.
We saw double-digit growth in NGL and natural gas processing volumes in the third quarter and continue to see robust producer activity across our operations with North Dakota natural gas production reaching a new all-time high in August. The industry landscape is healthy, and now with a more diversified portfolio of assets, we are even better positioned to make the most of opportunities across our operations.
So with that, I'll turn the call over to Walt for the financial performance and a guidance update.
Thank you, Pierce. I'll start with a brief overview of our third quarter financial performance.
ONEOK's third quarter 2023 net income totaled $454 million or $0.99 per share. Third quarter adjusted EBITDA totaled more than $1 billion, an 11% increase year-over-year. Adjusted EBITDA would have exceeded $1.1 billion for the third quarter 2023, excluding $123 million of transaction costs, $35 million of third-party fractionation costs and partial earnings from the refined products and crude segment.
Refined Products and crude segment earnings totaled $40 million of adjusted EBITDA from the 6 days following the close of the Magellan acquisition, which includes a $9 million mark-to-market gain on commodity derivative positions settling in the fourth quarter 2023. It is worth noting, those 6 days of earnings aren't necessarily an indicator of full third quarter segment earnings in part due to the uptick in our seasonal butane blending business.
As of September 30, we had no borrowings outstanding under our $2.5 billion credit agreement and had more than $280 million of cash on hand. As we look ahead, we expect fourth quarter 2023 net debt to adjusted EBITDA, excluding transaction costs, to be approximately 3.7x on an annualized run rate basis.
Moving on to our increased guidance. On a preacquisition basis, we now expect 2023 net income midpoint of $2.61 billion and adjusted EBITDA midpoint of $4.8 billion, which is $125 million higher than our last guidance increase in August. These midpoints are specific to legacy ONEOK operations and exclude impacts from the Magellan acquisition in order to provide a more accurate comparison with our original 2023 guidance. Since that original guidance announcement in February, we've increased our adjusted EBITDA midpoint by $225 million.
Our higher guidance expectations are driven by volume strength across our operations, higher average fee rates, lower-than-expected third-party NGL fractionation costs and sustained strength in our natural gas pipeline segment.
Moving on to our newly announced 2023 consolidated financial guidance, which includes impacts from the Magellan acquisition. We expect a consolidated net income midpoint of $2.6 billion and adjusted EBITDA midpoint of $5.1 billion. Consolidated guidance includes earnings from the refined products in crude segment following the close of the acquisition on September 25 and also includes $175 million of transaction costs. Earnings assumptions for the refined products and crude segment also include an approximately $40 million unfavorable earnings impact in 2023 related to commodity inventory balances being valued higher at the time of the acquisition than pre-acquisition value. As these inventories are sold, we will recognize a smaller margin than would have been recognized at the pre-acquisition value of the inventory. An additional $10 million unfavorable impact is expected in 2024 related to the same inventory valuation adjustment.
The refined products in crude segment is expected to perform in line with its previously increased expectations, which reflects solid segment fundamentals despite the impact of the inventory valuation. We continue to expect total capital expenditures, including growth and maintenance capital and excluding legacy Magellan CapEx of approximately $1.575 billion in 2023. This includes assumptions for continued strong producer activity and initial activities related to the expansion of Elk Creek pipeline and fully looping the West Texas NGL pipeline.
As we look ahead, our financial outlook remains strong. When we announced the acquisition in May, we expected total combined adjusted EBITDA to approach $6 billion in 2024, supported by stable and growing volumes across our operations. As we stand today, our confidence in that outlook has only increased further, and we believe there is a potential to exceed those expectations.
I'll now turn the call over to Sheridan for a commercial update.
Thank you, Walt. Let's start with our natural gas liquids segment. Third quarter 2023 NGL volumes increased 11% year-over-year with all regions where ONEOK operates seeing increases compared with the third quarter 2022. Compared with the second quarter of 2023, both Rocky Mountain and Mid-Continent NGL raw feed throughput increased 5%, driven by continued strong production activity in these basins, resulting in higher propane plus volumes and slightly higher ethane recovery levels. Rocky Mountain region volumes averaged more than 400,000 barrels per day in September. The continued growth in volume from the Rocky Mountain region provides momentum into 2024 and further supports why we have started initial long lead time activities for an Elk Creek pipeline expansion.
We continue to maintain our ethane recovery assumptions for the remainder of the year. With the Permian in near full recovery, the Mid-Continent in partial recovery and opportunity to incent recovery in the Williston.
In the natural gas gathering and processing segment, third quarter processed volumes averaged more than 2.3 billion cubic feet per day, a 12% increase year-over-year. As Pierce mentioned, North Dakota gas volumes have reached record production levels of more than 3.3 billion cubic feet per day in August. Our Rocky Mountain region process volumes averaged more than 1.5 billion cubic feet per day during the third quarter and reached more than 1.6 Bcf per day in September. We've connected 450 wells in the region for the -- through the first 9 months of the year compared with approximately 245 connections during the same period last year, a more than 80% increase.
We've also increased our well connect guidance for 2023 due to the strong pace of completions and now expect to connect 525 to 575 wells compared with our previous guidance of 475 to 525 wells. Currently, there are approximately 37 rigs and approximately 15 completion crews operating in the basin with 20 rigs and approximately half of the completion crews on our dedicated acreage, which remains more than enough activity to grow production.
In the Mid-Continent region, third quarter process volumes increased 10% year-over-year and increased 3% compared with the second quarter of 2023. We continue to see producers focus on higher crude producing areas and currently have 3 rigs on our dedicated acreage in the region. We have connected 46 wells in the region through the first 9 months of the year compared with 40 in the same period last year. We expect to be at the high end of our Mid-Continent well connect guidance of 45 to 55 wells in 2023.
Moving on to the refined product and crude segment. We only have 6 days of operation from this new segment in the third quarter due to the timing of the acquisition closing, but the segment continues to perform in line with expectations that were already increased earlier this year. Healthy business fundamentals continue to drive consistent performance, and we're currently seeing strong seasonal butane blending margins. Looking ahead, we see a growing list of opportunities, which will continue to drive growth in this segment through synergies. The more time we spend with the assets and with the legacy Magellan employees, we're seeing even more opportunities.
In the Natural Gas Pipelines segment, strong year-to-date results continue to benefit from demand from natural gas storage and transportation services. And we saw increased demand for interruptible services during the third quarter as extreme heat in Texas drove increased electric generation demand and pricing. We're seeing opportunities for additional expansion in Oklahoma and Texas -- with additional storage expansion in Oklahoma and Texas and demand for long-term storage capacity remaining strong. We continue to work toward FID in the Saguaro Connector pipeline and expect to receive the presidential permit before the end of the fourth quarter. There has been significant interest from producers in the Permian Basin relative to shipping gas west to the potential LNG export facility and reported support from multi-large, well-known customers anchoring the export project.
Pierce, this concludes my remarks.
Thank you, Sheridan and Walt, for adding color to what was a very strong quarter. With only 2 months much left in 2023, there's still time for progress to be made and a lot to be excited about. Since closing, I've had the privilege of visiting many of our field and office locations, and we'll continue to visit additional sites. I'm energized by the enthusiasm and the collaboration that I've already seen between both the legacy ONEOK employees and the Magellan employees. I can say with certainty that we have an incredible teams in place. Thank you to all of our employees for what you're doing to continue our high level of service through safe and reliable operations. And thank you to our investors for your support and trust in our vision for the future of ONEOK. Our future is bright and the long-term value of bringing our companies together will play out in the years ahead.
With that, operator, we're now ready for questions.
[Operator Instructions] Today's first question comes from Brian Reynolds with UBS.
Maybe to start off on synergies. I know that you've only had 4 weeks into the pro forma ONEOK and the larger growth CapEx projects will likely take some time to commercialize and talk about. So curious if you can just talk about some of the smaller low-hanging fruit synergies that you've seen over the last few weeks, particularly around just commercial discussions around batching, blending and bundling. Have you seen some initial commercial success? And when can we see some realizations there?
So I'll start off, and then I'm going to kick it over to Kevin on this. I'm going to kind of start with part of your question is kind of what are you seeing immediately with some of the kind of the smaller things. As you know, after closing, we do have immediate synergies that have been realized basically from day 1, which are board costs, credit facility renewals, cyber insurance, audit fees and then the executive organizational design that was put in place. So all of those kind of things added up to some immediate savings that will be annualized primarily in next year.
I'm going to turn it over to Kevin to kind of talk a little bit more about the process, both on the small things and the large things.
Yes, Brian, as we think about kind of how we went through the process and how we're tracking, if you go back to really the announcement back in May, we immediately started kind of documenting all the synergy opportunities through the integration planning work we were doing. Once we got closed, then we had access to a lot more information, a lot more data. We continue to refine those estimates of existing opportunities, and we found new ones as well as the company has got to talk more closely.
At this point, we've got around 250 different opportunities that we've identified. And now we're going through and prioritizing those based on value, time to achieve, is there capital required, things like that, in many cases, like Pierce mentioned, some of it have been captured. Several others are being worked right now as we speak. And then others still, we've got teams in place that are identifying, developing plans to go capture.
I think the key is for each of these opportunities, we have owners identified that are held accountable for the results. And we've got tracking mechanisms in place that we're tracking status, what's been captured, how that relates to the forecast and our estimates as we go forward. So that's kind of a general kind of overview of the process as it relates to some of the commercial synergies you asked about, yes, some of those may be a little longer lead time. But Sheridan and his team, have teams in place that are working these high-priority items that are -- that have the opportunity to drive the most value.
And then I'll just kind of close the question with all this will be factored in as we think about our guidance and go out with '24 guidance probably in February of next year. This will all be factored in and will be included in that guidance as we move forward.
Great. Appreciate all that. Maybe to pivot just towards the forward growth CapEx outlook relative to the initial S-4, it seems like ONEOK has pulled forward some CapEx related to West Texas LPG and Elk Creek expansion. And it seems like Saguaro is trending towards more of a JV type relationship, which could defer capital further. So perhaps could you just update us on kind of a forward CapEx outlook maybe for '24 and beyond? Just given some of these recent trends? And does it imply that ONEOK could be trading closer to a 10% free cash flow yield if CapEx trends lower?
Well, Brian, we aren't going to give you 2024 CapEx guidance today. I think that all of the material projects have been disclosed at this point. And as we look towards 2024 and the opportunities that we have, we see quite a bit of opportunity without any significant material capital projects that we're ready to announce. So we think we're set up very well for 2024, but we'll give you the guidance in February to firm that number up.
And our next question today comes from Jeremy Tonet with JPMorgan.
Just maybe one to pick up on the last question a little bit and fully appreciate not giving '24 guidance today, but just trying to get a state of affairs as it stands right now. And I think I wanted to be kind of clear, I guess, on the guidance. And if I'm looking at this the right way, if what's implied for remainder of the year for fourth quarter, just over $1.4 billion, but then on a normalized basis, you back out most of that $50 million inventory adjustment and then there's a $40 million or so of transaction costs. So it seems like the run rate for the business might be close to $1.5 billion looking at 4Q. Now granted there's seasonality that can impact that at different points throughout the year, but then you also have $200 million of synergies from Magellan that should be realized and you have an increasing GOR and there's other projects set to come on over time in '24. I'm just wondering, moving pieces wise, is that encapsulate what we should be thinking about? Is that a good base to work off of? Or any other color on these pieces would be helpful.
Well, Jeremy, I think you've done a good job of summarizing some of the moving parts there. And those -- at this point, I would say, are all moving in a favorable direction. In my prepared remarks, I mentioned that on a run rate basis after you take out the merger expenses and the like, that we expect to be approximately at 3.7x debt to EBITDA in the fourth quarter, which is ahead of the expectations that we had when we announced the transaction. So that's obviously showing that we've got favorable free cash flow materializing, and that's going to give us even more flexibility as it relates to capital allocation as we go into 2024. And we'll update you all on that as we get into the 2024 season.
Got it. That's very helpful. And I guess I wouldn't be a Wall Street analyst, if I wasn't asking now that the ink is dry on the Magellan agreement, anything you can share on what you're working on now going forward?
Well, Jeremy, this is Pierce. We do the same thing we've always done, which is we continue to look at different things out there. And like Walt said, with the capital allocation strategy that we have, it's just a lot more flexible going forward post Magellan and especially with our debt-to-EBITDA metrics coming down quicker than what we expected. So it's probably about as much color as I can get right now.
Our next question today comes from Michael Blum with Wells Fargo.
I wanted to ask on the West Texas NGL pipeline expansion. In the slide, you mentioned optionality to use the legacy system for NGLs refined products or crude. I'm wondering if you could just expand on that? Is there any way to get a sense of how you think that will kind of split over time?
Michael, this is Sheridan. I think what we're talking about there is that, as we explained before, the legacy system that we bought from Chevron, we've been looping that system from West Texas all the way into the Fort Worth area where we tie into the Arbuckle II pipeline. When that loop is completed, which is in our West Texas project, we can segregate out the legacy system, the system we bought from Chevron and use it for a different product. And that is one of the things we're looking at in synergies, and we'll continue to evaluate as we go forward. But that gives us an opportunity to be able to move more product back into the Permian, whether that be refined products, where it gives us opportunity to move crude out of the Permian into the Gulf Coast or leave it in NGL service. That's probably more of a longer-term type synergy that we have right now as we continue to look at that. But we do think that is an opportunity going forward to be able to leverage our 3 liquid pipeline streams in that pipeline, what we use it for.
Okay. Got it. And then just one question on the Bakken. So it seems like the Bison Express pipeline project is moving ahead. So I wanted to just get your thoughts on that project. Does this reduce ethane recoveries volumes for you? Or ultimately should we think of this as sort of a tailwind because ultimately, it opens up the potential for more natural gas production in the basin, which obviously would lead to more associated NGL production?
Michael, I think what this project does is make sure that we have enough natural gas takeaway out of the basin, we wouldn't want that to be a constraint on the producers up there well, I do not think it has a big impact on our incentivized ethane program that we've had going on there because today, there's enough natural gas production coming out of the basin. So I think it's going to allow the producers to continue to grow and have a surety of natural gas takeaway without hurting our ethane recovery benefits that we have today.
And our next question today comes from Spiro Dounis with Citi.
First question just maybe on the export opportunity. I don't think that was a synergy necessarily when you announced the deal, but something you may've been better positioned to do post Magellan. Just curious where that stands now and then expanding into exports is kind of high on the priority list of things to do post close?
Spiro, this is Pierce. And I'll let Sheridan kind of fill in some of the details here. But we've said all along that what Magellan brings to us is the expertise to operate docs and to build docks and to just really understand the dynamics of marketing across docs. We don't expect to necessarily turn any of those docs into anything other than what they're currently doing. But we do believe that global demand will continue to grow both in crude and both in probably refined products and liquefied petroleum gas and propane. So we're going to continue to look at that. And as the market dictates and as we learn more, and if we get some customers that either on the producing side or the takeaway side that wants to take space across stock, then we're going to continue to look at that. So Sheridan, you got anything to add?
The only thing I would add to that, Pierce, is that with the addition of the Magellan employees, we have much more confidence in both our engineering and operation capability since that is what they bring to the table since they are already operating marine docs and built marine docks.
Got it. That's great color. Second question just going for the Bakken. I guess we're hearing increased talk of peers, maybe looking to develop LNG infrastructure in the region, too. You've obviously got a pretty good stronghold there. But just curious how you're assessing the risk of kind of new competition in the basin going forward?
What I -- this is Sheridan again. What I would say on competition coming in the basin is what we've said for many times is that on the G&P side, we have 60% of the market share, and that feeds our NGL pipeline. So we very -- feel very secure about that volume. And then on the third-party NGL customers, we have long-term contracts with them, and that also gives us a surety that we will be able to maintain our volume coming out of the Bakken and be able to capture the growth going forward.
And our next question today comes from Tristan Richardson with Scotiabank.
Appreciate the comments on what you're seeing so far early in the merger. Just curious, like we've replaced the concentric circle with a telescope, but in that telescope, you talked about mid- to high-single-digit dividend growth. Curious about capital allocation now that the merger is closed and thinking about balancing project opportunities with allocating free cash for repurchases and dividend growth to be competitive with peers.
Yes, well, Tristan, as I just mentioned, our debt metrics are coming in line even quicker than we had expected. We continue -- we think that direction will continue. And that's going to give us significantly greater flexibility as we move forward to think about capital allocation. It's going to give us plenty of capital to take advantage of high-return projects as they become available and think about ways of returning value to shareholders. And we're going to lay that out as we get into '24 as we see forward where our debt metrics are headed and we'll give you more clarity as we get into February.
Appreciate it, Walt. And then maybe, Sheridan, where do you see sort of this GOR theme, particularly in the Bakken going long term, particularly as producers consolidate -- operator consolidation drives producer efficiency, but just where -- what's the end game or in terms of where do we top out from a GOR perspective long term?
Tristan, that's a good question. And we've had that talk to our producers about that as well. And they don't know where the top end of it is. What we do know is as wells continue to age, the GOR continues to grow up -- grow. Now we do see some up and down in the GOR overall for the basin because as new rigs come on, depending on where they come on, they may have a starting point of a lower or higher GOR. So overall, it makes it move around. But every well up there as it continues to decline, the GORs continue to rise. And so that gives us a lot of confidence that even in a flat crude environment, which crude is growing right now, but in a flat crude environment, we are still going to see some pretty good growth in the gas volume in the basin.
And our next question today comes from Jean Salisbury with Bernstein.
You referenced contracting in the Permian on 9 plants to kind of underpin West Texas LPG and the looping. Can you give any more detail on the duration of those contracts even qualitatively? As I'm sure you're aware, we seem to be heading towards severe Permian NGL pipe overbuild in 2025. So having long-term contracts seems important.
I would say that we have long-term contracts. That's the people that we have contracted with both now and for the LPG expansion or the NGL expansion are long-term contracts. So we feel comfortable that we have the volume behind to be -- to have a very favorable return on that project and with a lot of upside as we continue to grow. We think it's a very cost-effective way to do it, that we can be able to compete going forward even as new pipelines come online.
That's helpful. And you may have said this before, but can you remind us roughly what portion of the liquids pipelines for the combined company do you think you can generally take the full PPI indexation on?
On the liquids pipelines, on the NGL pipeline, a lot of it is more driven by individual contracts as we do as not as much on the tariff itself. And then there's a larger portion of that on our new refined product system that contain that -- but about 70% of our tariffs on the refined product system are at market rate that we can move as we want to. And so 30% would be more on a FERC tariff rate.
And our next question today comes from Harry Mateer with Barclays.
Walt, you mentioned the 3.7x annualized run rate leverage number for 4Q ex transaction costs, I guess following up on Jeremy's question a bit. Just curious how much seasonality is in that number? And can you just confirm your goal still to bring leverage to the 3.5x level that you previously laid out? And it sounds like more quickly than you previously thought?
Well, Harry, we're pretty positive on '24 and where things are headed. So I think that we expect to continue to make progress on our leverage metrics as we go throughout 2024. We've said aspirationally all along, that 3.5% is a good spot to be. We don't care if we go below it a little bit. That's fine. If we've got significant earnings and it drives our debt-to-EBITDA below 3.5%, that's a good problem to have. So we're very pleased with the trajectory of that credit metric and have no reason to think it's going to change any direction.
Okay. And then my follow-up is when you think about that target, how do you go about the balance between EBITDA growth and debt reduction and maybe put differently, should we think about ONEOK being in the bond market refinancing? You have some small maturities next year. Do you think it's more likely that free cash flow will take care of that and maybe that puts ONEOK out of the bond market for a while as things currently stand?
Well, I'm not going to say we will or we won't be in the bond market, but I would just say that the last several majorities that we've had, we've called for cash. We're generating a lot of cash. So I think we've got the flexibility to manage our debt portfolio in a very comfortable manner. But we're going to keep our flexibility. If it makes sense for us to go to the credit markets for a reason, we may or may not do that. But you can see what we've done in the last several. And given the size, we're probably going to maintain that flexibility.
And our next question today comes from Neal Dingmann with Truist Securities.
My first question is just around the synergy ops that you talked about on Slide 8. Specifically, I don't know if you all could comment yet, maybe it's too early, but I'm just wondering if you could comment on how quickly you all are thinking about the potential for start realizing some of that batching upside, which looks quite interesting.
I mean, just in general, as we look at the synergies, obviously, they're going to -- there's going to be a variety of scenarios that play out. Some will get very quickly, potentially by the end of the year. There may be others that are going to take some capital and some effort to put things in the pipeline in the ground or other activities like that, that may that may span out of ways. So it will be a blend. But I think, again, the focus here is that our confidence level in achieving these things continues to grow as we get more information.
That makes sense. And then -- go ahead, I'm sorry.
Well, I said -- this is Pierce. What I am going to tell you is that to kind of tag it on to what Kevin is saying is that we are confident that these opportunities are there. It's just a matter of the timing of when they come in, and we'll let you know that as we give our guidance from year to year.
Okay. And then just -- you touched on this a little bit earlier, but my second question is just on Rocky and Mid-Con activity. It seemed like last quarter was solid. You talked about a number of connects there, especially in the Rocky. So I'm just wondering are you currently seeing sort of similar type activities? Just any color you could add there?
Neal, this is Sheridan. Yes, we still are seeing good activity in the Bakken. We've increased our well count activity, and that's to show you what we're seeing. And we think that's going to continue or know that's going to continue into 2024 in the Bakken. So we're very excited about that. And that's why we continue to continue moving on long lead time items with the Elk Creek expansion. And then the Mid-Continent, as we said multiple times, has really been surprising us to the upside that more producer activity out there especially with oil-driven rigs that is producing high GPM or high liquid content gas. That's really -- not only producing more gas in the region, but also more liquids for the NGL pipeline. So we continue to see growth being very -- we're very optimistic about growth going through the fourth quarter and into 2024.
And our next question today comes from Theresa Chen with Barclays.
I wanted to ask related to the line of commentary around the synergies. Can you just help us think about how much commercial synergies are in that $450 million to $470 million 2023 refined products and crude EBITDA guidance for the year. And specifically, are there incremental butane blending opportunities during this winter and 4Q outside of what MMP had locked in during this past summer? Just in light of still elevated octane spreads versus historical levels and your natural length in butane, coupled with your marketing and optimization capabilities?
Theresa, yes, we do think there's a little bit this quarter. As you said it, a lot of it has been locked down or been hedged, but we do have some above that, and we are seeing wider spreads at this time. So availability is there. And also with our position, legacy normal butane position. There's opportunity there, we'll have the butane available, and we can work a little bit on logistics cost. We think most of that's really going to come as we come into next year where we'll see a much bigger opportunity for synergies in the butane blending in the 2024 time frame.
And our next question today comes from Keith Stanley at Wolfe Research.
First, just a follow-up on West Texas LPG. It's a big step-up in capacity from 300 a day to 740. Do you see any strategic rationale to building or buying Permian plants to bolster your long-term NGL supply position? It would seem like you'd have a lot of synergies doing that and a lot of operating leverage as you fill the pipeline.
Keith, we continue to look at that, and we've looked at a lot of different opportunities out there. What I can tell you is just by us expanding, we started off at about 140,000 barrels a day. Now we're going up to 700,000 barrels a day. It has not been an impediment for us to be able to contract NGLs on that pipeline. But we will continue to look at as opportunities come if we need to get into the G&P space. And if it makes sense, we will get into it and do that. But so far, we've been able to contract and expand that pipeline without having a G&P presence. And a lot of that is, as you think about it, we have a very integrated value chain in touch. A lot of the producers out there in many different areas. So if we look holistically across our system, we can create and offer a very attractive program to them to incentivize barrels coming on to our West Texas system.
Keith, this is Pierce. I think this is the point in the call where I tell you that we're going to be intentional and disciplined about any future M&A opportunities.
Got it. Second question on SWRO, and sorry if I missed this, but -- can you say, are you in discussions or looking at working with potential partners on the project? Or do you think it's more likely you would move forward on that by yourself?
We're in a position right now where we're working towards FID and expecting the presidential permit here by the end of the year. And we'll lay out the full program if and when we get to that FID point in time.
And our next question comes from Sunil Sibal with Seaport Global Securities.
So my first question was related to the West Texas LPG and I apologize if I missed this, could you indicate what is that system running at right now? It seems like Q3, you had a little bit of a step down in volumes.
West Texas LPG throughput, yes, we can -- I'm sorry, as soon as your question about how -- what are our volumes looking at like on the West Texas throughput today?
Yes ballpark.
Yes, our volumes continue to -- we continue to grow that volume, especially as we bring some of these plants online. But right now, we're running about 430,000 barrels a day is coming through our whole Gulf Coast, Permian and Gulf Coast system on the LPG. And we have capacities when we get this completed, we'll be able to have capacity for over 740,000 barrels a day.
Okay. And then my second question was a little bit more broader. We've seen a number of E&P deals announced over the course of last few months. And I was curious if you had any dialogues with your E&P customers with regard to that? And how is that impacting your dialogue with the producer customers?
So I'll kind of take -- I think that's its a big picture question. First of all, I think with -- go all the way back to Oxy with what they did with Anadarko and then fast forward to what Exxon has done and the most recently, Chevron. We actually view that as very positive because most of those companies are kind of reinvesting in domestic production, very large companies. So we see that as a positive for domestic production here in the United States. So that's the first thing I'd say.
The second thing was as we do business with all of those people. And now that we are not only in gathering and processing, but in natural gas pipelines, in the NGL business, refined products and crude that goes into this bundling concept where when you have that as a producer, one of your areas, you've added different businesses going forward. We just feel like there's even going to be more opportunities to bundle different deals together to get more and more businesses with these larger companies.
And our next question today comes from Neil [indiscernible] with Bank of America.
So it seems like everything is going well, you're going to be below 4x leverage easily for 2024 and the $6 billion in guidance seems pretty conservative. How are you looking at shareholder returns right now? Is a repurchase program in 2024 on the table, just as we look for how to return cash to shareholders after this merger and when we can think about how we're going to do that?
Well, I would say, clearly, our financial flexibility is increasing. And all of the capital allocation tools that are available, are available to us and will be considered going forward. So plenty of flexibility and stay tuned.
Okay. Great. And then second question on building an LPG terminal on the Gulf Coast. Some of your peers have talked about how they initially priced at greenfield and now they will price everything at brownfield to try to combat new entrants. Does this make LPG exports or a new terminal kind of lower on the priority list than the batching, bundling, et cetera, when you consider the barriers to entry just with pricing for existing players that are -- that are in the space right now?
Neil, this is Sheridan. We still have aspirational to have LPG export terminal. We're not going to do a project that's uneconomical. But we do have 1 of -- or the only person that has the amount of volume at our disposal to be able to support a new dock, and we do have customers that are interested in seeing a new doc being built. So we think there's an opportunity there as well.
As it relates to how we prioritize that with our other opportunities, we're going to -- as Kevin said, we're going to look at things on capital. How quick that we can get it to market and how much money we're going to make on that to determine which projects we have our resources work on. But I don't think that the LPG export dock has moved down in the list from where it is before. We still are continuing to look at and still have conversations. But it is a much longer-term project than some of the other ones that we have in the synergy category.
And our final question today comes from Craig Shere with Tuohy Brothers.
Congratulations on the closing and quarter, and thanks for taking the question. Just one for me. And you kind of talked around this a little bit or kind of responded to some Q&A on it. But Pierce, you mentioned prioritizing incremental commercial opportunities identified post close at the start of this call. And I'm a little unclear, given all the commentary, if this is mostly about chopping wood and management bandwidth or despite better than expected deleveraging, are you starting to see more accretive capital deployment opportunities than you're prepared to pursue all at once?
Well what we are seeing is as we have put these two -- just as a reminder, prior to September 25, you are limited in how much discussion and how far you can go with some of these discussions both on -- with people, contracts, commercial opportunities. So what we're seeing is as we have gotten access to all the information, all the contracts and the people and our people are working together, we're just seeing more and more opportunities. And so we're going to we're going to prioritize that. It's hard to tell right now if we've overrun some of those kind of things, but that's something that we're -- we definitely have enough that we can prioritize the things that are going to make the highest impact in the shortest amount of time. So those are the ones that we're focusing on, and we're managing through the rest of it. But we're not going to lose an opportunity because we feel like we're -- we don't have resources, we'll get resources to deal with those.
Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Andrew Ziola for closing remarks.
All right. Thank you, everybody. Our quiet period for the fourth quarter starts when we close our books in January and extends until we release earnings in late February. We'll provide details for that conference call at a later date. Thank you for joining us, and have a good day.
Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.