The following discussion and analysis should be read in conjunction with our unaudited Consolidated Financial Statements and the Notes to Consolidated Financial Statements in this Quarterly Report, as well as our Annual Report.
RECENT DEVELOPMENTS
Please refer to the "Financial Results and Operating Information" and "Liquidity and Capital Resources" sections of Management's Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report for additional information.
Market Conditions - Late in the first quarter 2020, the energy industry
experienced historic events that led to a simultaneous demand and supply shock.
The
We continue to monitor producers' drilling, completion and production plans and are evaluating the impact on our future volume expectations. The energy industry has historically experienced down cycles from disruptive events, and as a result, we have previously positioned ourselves to minimize exposure to direct commodity price volatility. Each of our three segment's earnings are primarily fee-based, and we expect our consolidated earnings to be more than 90% fee-based in 2020. While our Natural Gas Gathering and Processing segment's earnings are primarily fee-based, we have direct commodity price exposure related primarily to POP with fee contracts. Under certain POP with fee contracts, our contractual fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds. In addition, although our Natural Gas Gathering and Processing and Natural Gas Liquids segments generate primarily fee-based earnings, those segments' results of operations are exposed to volumetric risk as a result of production curtailments, reduced drilling and completion activity, declining well productivity, severe weather disruptions, operational outages and ethane demand. Our Natural Gas Pipelines segment is not exposed to significant volumetric risk due to nearly all of our capacity being subscribed under long-term firm contracts.
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In continued response to COVID-19, we remain committed to managing the impact of
the pandemic on our employees and the communities where we operate. As always,
we remain focused on operating our assets safely, reliably and in an
environmentally responsible manner. We are taking actions to continue safe
operations, protect our workforce and implement appropriate cost reduction
measures. We meaningfully reduced our operating expenses in the first half of
2020, compared with the same period in 2019, primarily as a result of reduced
discretionary expenses. In the first quarter 2020, we reduced our planned 2020
capital-growth expenditures by approximately
In the first quarter 2020, due to the commodity price and market environment, we
experienced a significant decline in our share price and market capitalization,
and performed a Step 1 analysis to test our goodwill for impairment and
evaluated certain long-lived asset groups and equity investments for impairment.
As a result, we incurred
See Part I, Item 3, Quantitative and Qualitative Disclosures About Market Risk, in this Quarterly Report for more information on our exposure to market risk.
Natural Gas - In our Natural Gas Gathering and Processing segment, gathered and
processed volumes decreased in the first half of 2020, compared with the same
period in 2019, due primarily to production curtailments from many of our crude
oil and natural gas producers. The low commodity price environment continues to
create challenges for producers, and we expect decreased drilling and completion
activities and some sustained production curtailments for the remainder of 2020,
compared with 2019. In
Production growth may be impacted by the current litigation challenging the
continued operation of the Dakota Access Pipeline (DAPL), which transports crude
oil from the
NGLs - In our Natural Gas Liquids segment, we are the largest NGL takeaway
provider in the
The low commodity price environment continues to create challenges for producers
across our system, and production curtailments and decreased drilling and
completion activity could continue for the remainder of 2020, compared with
2019. However, production volumes in
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second half of 2019. During the first half of 2020, we completed construction of
both our Arbuckle II pipeline as well as our MB-4 fractionator, which has a
capacity of 125 MBbl/d and is fully contracted. While production growth may be
impacted by the current litigation challenging DAPL, we expect limited near-term
impact due to alternative available crude pipeline capacity and existing rail
infrastructure for our producers out of the
Growth Projects - We operate an integrated, reliable and diversified network of
natural gas gathering, processing, fractionation, storage and transportation
assets connecting NGL supply in the
Approximate Project Scope Costs (a) Completion Natural Gas Gathering and Processing (In millions) Demicks Lake I 200 MMcf/d processing plant and$400 Completed plant and related related gathering infrastructure in October 2019 infrastructure the core of the Williston Basin Supported by acreage dedications with long-term primarily fee-based contracts Demicks Lake II 200 MMcf/d processing plant and$410 Completed plant and related related gathering infrastructure in January 2020 infrastructure the core of the Williston Basin Supported by acreage dedications with long-term primarily fee-based contracts Bear Creek plant 200 MMcf/d processing plant$405 Paused (b) expansion and expansion and related gathering related infrastructure in the Williston infrastructure Basin Supported by acreage dedications with long-term primarily fee-based contracts
(a) - Excludes capitalized interest/AFUDC. (b) - In the first quarter 2020, we paused the majority of construction activities on this project and do not expect to complete construction by the original target completion date.
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Table of Contents Approximate Project Scope Costs (a) Completion Natural Gas Liquids Elk Creek pipeline 900-mile NGL pipeline from the$1,400 Completed and related Williston Basin to the Mid-Continent December 2019 infrastructure region, with capacity of up to 240 MBbl/d, and related infrastructure Anchored by long-term contracts Expansion capability up to 400 MBbl/d with additional pump facilities Arbuckle II 530-mile NGL pipeline from the STACK$1,360 Completed pipeline and area to Mont Belvieu, Texas, and March 2020 related related infrastructure infrastructure Supported by long-term contracts Expansion capability up to 1 MMBbl/d MB-4 fractionator 125 MBbl/d NGL fractionator in Mont$575 Completed and related Belvieu, Texas, and related March 2020 (b) infrastructure infrastructure, which includes additional NGL storage in Mont Belvieu Fully contracted with long-term contracts
West Texas LPG Increasing mainline capacity by 80
June 2020 (c) and Arbuckle II facilities and pipeline looping connection Connecting West Texas LPG pipeline system to the Arbuckle II pipeline Supported by long-term dedicated production from six third-party processing plants expected to produce up to 60 MBbl/d Bakken NGL pipeline 75-mile NGL pipeline in the$100 September 2020 extension Williston Basin connecting to a third-party processing plant Supported by a long-term contract with a minimum volume commitment Arbuckle II Provide additional takeaway capacity$240 First Quarter 2021 extension project in the STACK area and additional gathering Allow increasing volumes on the Elk infrastructure Creek pipeline access to fractionation capacity at Mont Belvieu, Texas
Arbuckle II Increasing mainline capacity with
Increases capacity to 500 MBbl/d MB-5 fractionator 125 MBbl/d NGL fractionator in Mont$750 Paused (d) and related Belvieu, Texas, and related infrastructure infrastructure, which includes additional NGL storage in Mont Belvieu Fully contracted with long-term contracts
West Texas LPG Increasing mainline capacity by 40
Supported by long-term dedicated production from third-party processing plants expected to produce up to 45 MBbl/d
Mid-Continent 65 MBbl/d of expansions at our
(a) - Excludes capitalized interest/AFUDC. (b) - We completed 75 MBbl/d inDecember 2019 and completed the remaining 50 MBbl/d inMarch 2020 . (c) - We completed expansions to increase mainline capacity by approximately 45 MBbl/d in the first quarter 2020 and completed the remaining portion of this project in the second quarter 2020, which was delayed due to weather. (d) - Given the current environment, we paused the majority of construction activities on these projects and do not expect to complete construction by the original target completion dates.
Ethane Production - Ethane volumes under long-term contracts delivered to our NGL system in the second quarter 2020 averaged 365 MBbl/d, compared with 400 MBbl/d in the second quarter 2019, due primarily to changes in ethane extraction economics, and we expect to see volatility of ethane production into 2021.
Debt Issuances and Repayments - In
In
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portion of the proceeds were used to pay all outstanding amounts under our commercial paper program. The remainder was used for general corporate purposes, which included repayment of existing indebtedness and funding capital expenditures.
During the three and six months ended
Equity Issuances - In
Dividends - In
Impairments - In the first quarter 2020, we evaluated our goodwill, certain long-lived asset groups and equity investments for impairment. Based on the results, we recorded the following impairment charges:
Natural Gas Gathering and Processing - In the first quarter 2020, we recorded
Natural Gas Liquids - In the first quarter 2020, we recorded
For additional information on our impairment charges, see Note A of the Notes to Consolidated Financial Statements in this Quarterly Report.
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