Good afternoon. My name is Natalia and I will be your conference operator today. At this time, I would like to welcome everyone to the Altus Midstream Second Quarter 2019 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I will now turn the call over to Mr. Patrick Cassidy, Director of Investor Relations. You may begin, sir.

Good afternoon and thank you for joining on Altus Midstream Company’s Second Quarter 2019 Financial and Operational Results Conference Call. We will begin the call with an overview by Altus Midstream’s CEO and President, Clay Bretches; and Ben Rodgers, CFO, will summarize our second quarter financial performance and provide an update to 2019 activities. Our prepared remarks will be approximately 15 minutes in length, with the remainder of the call allotted for Q&A. Remarks during the call may also refer to the Altus Midstream Investor Presentation, which can be found on our Investor Relations website at altusmidstream.com/investors. On today’s conference call, we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the news release issued yesterday. Finally, I’d like to remind everyone that today’s discussions will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss today. A full disclaimer is located with the Investor Presentation on our website. With that, I will turn the call over to Clay.

Thank you and good afternoon. Today, we are going to review Altus Midstream’s key accomplishments since our last call, provide an update on the company’s operational and financial performance, and highlight selected activities underway to achieve future objectives as we pursue our goal of becoming the premier midstream company in the industry. During the second quarter, Altus achieved a number of significant accomplishments. We brought our first cryogenic processing plant online, closed on our preferred equity financing and revolver amendment and exercised our option for the Permian Highway Pipeline. In addition, in July, we brought our second cryogenic processing plant online and exercised our Shin Oak Natural Gas Liquid Pipeline option. We are executing on the plan set out at the beginning of this year, building a foundation for future growth. As noted in our first quarter earnings call, beginning in April, Apache deferred a portion of its gas volumes at Alpine High, due to price weakness. Much of the previously curtailed rich gas was brought online with the two new cryogenic processing plants. Inasmuch, we are working with Apache on the potential for some continued rich-gas curtailments in the third quarter. With the startup of Gulf Coast Express around the end of the third quarter, we expect all of both the rich gas and lean gas to be flowing into the system uncurtailed. We continue to monitor the operating performance both at Alpine High and on our JV pipeline projects that begin service this quarter. Ben will address our full-year guidance in his remarks. Since the beginning of the year, we have worked closely with our sponsor, Apache Corporation, to maintain our focus on building and operating infrastructure that adds value to production from Alpine High, and delivers gathering and processing services timely and efficiently. We continue to look…

Thank you, Clay. As noted in the press release issued yesterday, Altus reported a second quarter net loss, including non-controlling interest, of $5.5 million. On a non-GAAP basis, adjusted EBITDA was approximately $4.1 million on revenues of $24.1 million. Gathering and processing volumes for the period averaged 363 million cubic feet per day. Approximately 65% of second quarter volumes were rich gas. Volumes declined approximately 36% from the preceding quarter, as Apache deferred production beginning in April in response to price weakness at the Waha Hub. The impact of lower volumes was partially offset by cost savings resulting from the company’s disciplined cost management during this period of temporary lower throughput. Capital investments in midstream infrastructure during the quarter were $417 million. This includes $320 million for the JV pipelines, which comprises the exercises of the Permian Highway natural gas pipeline option in May, continued capital calls for our ownership in GCX and EPIC, and $97 million for gathering and processing infrastructure. Our capital program in 2019 remains focused on the exercise of our long-haul JV pipeline options. Approximately 75% of our growth capital investments in 2019 and 2020 is related to our JV pipeline projects. In addition to the Permian Highway pipeline, we announced yesterday that we exercised and closed our option in Enterprise’s Shin Oak NGL line. As a result, we now hold equity interests in four premier long-haul Permian takeaway pipeline projects, with the option to acquire a 50% equity interest in the Salt Creek NGL Line. These are highly economic projects that diversify Altus’s asset base. In order to fund 2019 through 2020 growth capital needs, of which the exercise of Shin Oak and Permian Highway options comprised a significant portion, we issued $625 million of preferred equity in a private placement and expanded our initial…

[Operator Instructions] Your first question is from the line of Spiro Dounis with Credit Suisse.

Hey, good afternoon, guys. Maybe just starting with the outlook if we could. It’s encouraging to see that Apache’s production exit run rate is still kind of more or less intact as we get to the end of the year here. But, I guess, as we think about next year with all 3 cryos on, Shin Oak online, GCX online, is it fair to say that there may be any temporary deferral in 2020, wouldn’t necessarily mean a decline for Altus, but maybe more of a cap on growth while volumes are curtailed? And, I guess, the point being, I guess, Apache’s netbacks are going to be vastly improved with all those pipelines online. And so, it would seem like the fourth quarter run rate should at least create a volume floor. Is that fair?

Yeah, so, Spiro, Clay Bretches here. And I think one of the things you really need to take a look at is the GX, the Gulf Coast Express Pipeline coming online. And that’s really going to improve the netbacks for Apache, not to mention that the NGLs are coming in full stream. And we’re looking at 100% recovery. One of the great things about this technology that we’re using, this SRX technology, is even if we were to go into ethane rejection, we’ll still be seeing maximum recoveries, even on propane – clearly butane’s plus, but your propane would be at 100% even if you were to go into something as low as 10% on your ethane recovery. So we think that’s going to allow for much better economics for Apache in the field and any other customers that we may be able to pick up in that area. But as far as a cap-on growth, I think we need to really be thinking about, we are thinking about this as a team, is we’re looking for other commercial activity in the area. In and around that Southern Delaware Basin area of operation, we see other producers, we see other third-party midstream companies that we can do business with. Clearly, want to expand not only in the number of customers that we have, Apache’s a great base customer but there are other customers out there, but we also look at other commodities. And so, we’re looking at water opportunities. We’re looking at oil opportunities, nothing that we’re ready to announce right now. But as far as a cap-on growth, we don’t believe that there’s a cap-on growth. We believe that what we have, and having the steel in the ground, and boots on the ground, and a real operating center down there just allows us to grow and that that’s the nucleus for that growth. We think there’s a lot of upside in the area.

Okay. That’s interesting. That’s great color. Second question maybe just with respect to the CapEx guidance range, could you just maybe walk us through some of the variables that get you to the high- and the low-end of the range?

Hey, Spiro, it’s Ben Rodgers. Sure. So, we tightened it from – it was $100 million and now it’s $50 million. I think the number one driver that could swing the $50 million range we have now is any acceleration or it could be a deceleration, but we would expect an acceleration on any capital investments on PHP.

Okay. Got it. That’s clear. Last quick one, I mean, just a point of clarification. Ben, I think you mentioned with cryo-4, I guess, potentially being delayed and potentially selling some of the equipment there for, one, I think you said $40 to $50 million; and then, two, is that a decision that’s already been made or are you saying that’s sort of an option you guys have right now?

It is an option. There are some – we’ve mentioned this before. As we look at the mechanical refrigeration units, recall that those really come as a kit with two primary components, the actual processing piece of it and then the compression. And we have plenty of needs in the field for the compression. And so, we would be selling the processing piece of that. And we’re in discussions for those right now. We just don’t have anything to talk about as well as some of the other spare inventory that we have. And so, we’re in discussions with other folks about buying that inventory. Just don’t have anything to print yet on that.

Understood.

And on capital savings for that fourth cryo, we’ve talked about that before as well. It kind of spanned over 2020 into 2021. It takes approximately five quarters from kind of the go-button to get that cryo operational. And so, if there were a need to defer that outside of our guidance period, that would be upside to our guidance right now. And the $150 million to $200 million is the cost of the train, as well as cost of further compression and gathering associated with a fourth cryo.

Got it. Perfect. Appreciate the color. Thanks, guys.

Thank you.

[Operator Instructions] Your next question is from the line of James Carreker with U.S. Capital Advisors.

Hi, thanks for the questions. Would it be possible to quantify exactly what type of activity levels you need to see from Apache in 2020 to hit the previously disclosed 2020 EBITDA guidance?

Hey, James. It’s a good question. It’s really going to be dynamic. Apache has not put out production estimates for 2020 with any of their assets, including Alpine High. And so, right now, we’re in close discussions with them and believe that there’s a need for the third cryo that’s coming on. And when we have more information, we’ll be able to disclose that. But, right now, we’re just now getting into the planning process for 2020.

No, I understand. I guess, I understand that the projections for Apache aren’t out. But, I guess, what would you need in order to hit your guidance in terms of either well connects or rig activities? I mean, that should be fairly independent from what they actually do, right?

Well, I mean, it is. But, again, we can’t front-run what their plans are. We may have assumptions on our side. And, like I said, there is a – we expect that there’s a need for the third cryo, hence the reason that we are finishing the construction and plan for that to be online this year. But we’ve not talked about rig rates – I’m sorry, we’ve not talked about rig count and activity before. And it’s not really our place to estimate what that is. We’ve got – I still think that we’ll have the land within the expected ranges for our JV pipes next year. It’s a very large portion of our EBITDA. And through the end of 2019, we’ll have the right amount of EBITDA from the cryos and the JV pipes to exit the initial period. So we will have plenty of liquidity to enter into 2020 and as we plan for how full or less so the cryos are would impact other opportunities that we look at.

Okay, thanks.

There are no further questions. Are there any closing remarks?

No, no closing remarks. I just want to say thank you, everyone, and have a great day.

This concludes today’s earnings call. Thank you for your participation. You may now disconnect.