DCP Midstream's (DCP) CEO Wouter van Kempen on Q1 2020 Results - Earnings Call Transcript
DCP Midstream, LP (DCP) Q2 2020 Earnings Conference Call May 7, 2020 11:00 AM ET
Company Participants
Sarah Sandberg – Senior Director of Investor Relations
Wouter van Kempen – Chief Executive Officer
Sean O'Brien – Chief Financial Officer
Conference Call Participants
Gabe Moreen – Mizuho Securities
Spiro Dounis – Credit Suisse
James Kirby – J.P. Morgan
James Carreker – U.S. Capital Advisors
Shneur Gershuni – UBS
Jeremy Tonet – JPMorgan
James Carreker – U.S. Capital Advisors
Operator
Good morning, ladies and gentlemen, and welcome to the Q1 2020 DCP Midstream Earnings Conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Ms. Sarah Sandberg, Senior Director of Investor Relations. Please go ahead.
Sarah Sandberg
Thanks, Carol. Good morning, and welcome to the DCP Midstream first quarter 2020 earnings call. Today's call is being webcast, and I encourage those listening on the phone to view the supporting slides, which are available on our website at dcpmidstream.com.
Before we begin, I'd like to point out that our discussion today includes forward-looking statements. Actual results may differ due to certain risk factors that affect our business. Please review the second slide in the deck that describes our use of forward-looking statements. And for a complete listing of the risk factors, please refer to the partnership's latest SEC filings.
We will also use various non-GAAP measures, which are reconciled to the nearest GAAP measure and schedules in the appendix section of the slides. Wouter van Kempen, CEO; and Sean O'Brien, CFO, will be our speakers today. And after their remarks, we'll take your questions.
With that, I'll turn the call over to Wouter.
Wouter van Kempen
Thank you, Sarah, and good morning everyone. We appreciate you’re joining us and I hope you're all safe and well. Our thoughts are what everyone affected by the COVID-19 crisis. On today's call, we will discuss how we're managing through this extremely challenging environment for our industry, our first quarter results and our outlook for the remainder of this year. I want to first say thank you to team DCP. We're navigating through an extraordinary few months and we've remained healthy, safe, reliable and connected despite the incredible disruptions to daily life and stress to COVID-19 you have delivered one of our best quarters and have responded to this environment with agility, resilience and innovation. So thank you for everything that you've achieved during this exceptional time.
To our long-term investors, I want to also say thank you for your commitment to DCP. This environment is entirely unprecedented. And while we do not know how it will play out exactly, we are committed to transparency, operational fundamentals, safety, efficiency and long-term stability. Looking to Slide 4, our multi-year strategy to evolve the company has established a strong foundation for the challenges that we face today. Our company has evolved into a fully integrated midstream service provider, but at disciplined capital allocation strategy and an industry leading digital transformation. Today, our core values have guided our response to COVID-19. Our first priority is to ensure the health and safety of all of our stakeholders and to maintain safe and reliable operations.
Additionally, we have moved extremely fast to mitigate the effects of the current global demand destruction that is impacting our industry. We have optimized over $900 million of cash with a sole purpose of strengthening the balance sheet and our efforts have already paid off in the first four months of the year. We have adopted our strategy and narrowed our focus to ensure we're well positioned to emerge from this downturn stronger than ever. As I’ve said just mentioned ensuring our stakeholders are protected and supported has been essential to our COVID-19 response.
On Slide 5, you'll see the approach we've taken with our employees, our customers and communities over the past few months. We're currently executing our pandemic response plan to maintain increased communications and alignment while creating healthy and efficient work environments for all employees. To maintain safe, uninterrupted and quality customer service, we are relying on our ICC and are in extremely close communications with our customers to ensure operational and volumetric transparency and alignment. Finally, we know our communities need us now more than ever and we've upheld our approach to community outreach and investment.
On Slide 6, I want to highlight how the diversity of our company and our multi-year transformation has strengthened our stability and outlook. Our operations are positioned in the country's premier basins and our distribution of volumes protects us from potential single basin or customer impacts. Our broad and interconnected footprint also gives our marketing team the ability to manage through constraints and market dislocations.
Our cash flows have changed substantially over the past decade as we transitioned to a fully integrated company with a majority fee-based earnings platform providing increased stability within our cash flows. Additionally, our top 50 customers, who represent over 80% of revenue, are well-diversified. 74 of our top customers – 74% of our top customers are investment grade and within the producer segment, 73% are super majors with A ratings. Our contract structure contains adequate assurance provisions and we hold in net payable position with producers minimizing our credit exposure. Looking to our transformation, nothing is more critical than safe operations and the past two years have represented our best safety outcomes in the history of the company.
Next, our DCP 2.0 transformation effort allowed us to not only take cost out of the system early through automation and digitization, it has allowed us to better optimize cash flows and enhance flexibility and speed within the organization and perform operations completely remotely, including currently operating 20 gas processing plants from employees' homes, which truly gives us an advantage during stay at home orders. We've also made massive strides in our cost and capital allocation strategy both before and during this pandemic focusing on mitigating overbuilt through utilization of third-party offloads and strategic growth in low risk basins.
Starting in 2015, we began to strategically eliminate cost, which has recently been accelerated to make our cost structure as efficient as possible. Finally, our true strength lies on our people. And we've been focused on fostering a world-class culture to motivate, engage and retain our top talent, as these components that fortify our company and allow us to manage this downturn from a strong foundation.
Now turning to Slide 7, you'll see the strategic actions that we've taken. In early February as commodities began to decline, we established a cross functional task force to systematically identify cost and capital reductions throughout the company, which gave us a head start when the coronavirus later emerged as a global threat. Over the following two months, as WTI price has dropped substantially and demand collapsed, we announced over $900 million in optimized cash flow through a 50% reduction of the distribution, 70% reduction of our sustaining and growth capital, including the deferral for our option on the Sweeney Fractionators and over $90 million of cost reductions.
These actions not only positioned us well to manage through this downturn by increasing our liquidity, they also demonstrate the flexibility and speed of the DCP model. And though, we’d like to cover some very draconian assumptions should market conditions deteriorate beyond our current scenarios, we maintain optionality on several additional cash flow levers. These include our ability to utilize our integrated system to optimize producer netbacks. This helps to ensure that when customers make shut-in choices, DCP can offer competitive rates to keep flow – volume flowing on our system.
We were also considering consolidating assets or facilities, which would have associated cost reductions. In the further dampened environment, we would expect lower sustaining capital that well connect supply and lower costs as we further prioritize on maintenance spend. And additionally, we maintained $325 million of dry powder within our remaining distribution. And all despite these unparalleled dynamics, we remain very confident that the outcomes of the actions we've taken and those at our disposal will ensure long-term success.
Now to talk through our Q1 results, our outlook and financial position, I'll turn it over to Sean.
Sean O'Brien
Thanks, Wouter, and good morning. I'm going to send my thanks to our frontline healthcare workers and our operations employees and take this opportunity to thank our corporate employees, who despite working from their home offices, didn't miss a beat in getting our books closed, implementing in-depth scenario planning and supporting our business.
On Slide 8, you'll find our first quarter financial results, which demonstrate the strong earnings power of our assets and an outlook into the second quarter. In Q1, we generated adjusted EBITDA of $321 million and DCF of $220 million, resulting in leverage of just over four times. Our results were driven by our early proactive execution on costs and sustaining capital reductions, which resulted in the lowest quarterly cost outcome in the history of the company.
Results were also driven by strong margins in volumes from our logistics segment. NGL pipeline throughput was up 13% from the fourth quarter, partially driven by a full quarter of the Southern Hills extension. Additionally in our G&P segment, we had record volumes in the DJ Basin and strong volumes in the Delaware. Commodity prices were unfavorable, primarily driven by March declines and were partially offset by favorable hedges. Based on the unprecedented demand and price declines and other factors, we identified and recorded $807 million of total impairments for the first quarter.
Looking to the second quarter, volumes in April were generally in line with the strong volumes we saw in Q1 although the quarter is off to a good start and we will continue to benefit from the proactive cost and capital savings actions we took early in the year, we know that the remainder of the second quarter and the second half of the year will rely heavily on our volume output, which brings me to our next slide.
First, we have withdrawn our original 2020 comprehensive guidance given on February 12th due to significant and ongoing changes to the commodity and demand outlook for 2020. We're providing substantial guidance relevant to our outlook on capital costs, liquidity, volumes by segment and region and sensitivities. We've adjusted our sensitivities to reflect the impact of lower volumes. And in addition to the actions that are just discussed, we have modified our year-over-year outlook as follows.
We're now anticipating that each region will endure volume declines of around 10% to 15% with peak declines likely to occur in late Q2 and into Q3. North volumes will be flat as a result of the full year of the O’Connor 2 and the Latham 2 strategic offload. And I want to remind you that we have minimal margin and volume protections on our newest plants and the DJ. Permian volumes are projected to decline approximately 5% and the South is expected to decline approximately 15%. The Mid-Continent will experience the most severe volume declines, now estimated at 20%.
Looking to our Logistics segment, average NGL throughput will decline by about 10% to 15% on Sand and Southern Hills. On the gas side, our Gulf Coast Express and Cheyenne Connector investments are both fully subscribed and 100% take or pay. In anticipation of this reduced volume outlook over the past several weeks, our operations, commercial and finance teams have considered a wide variety of outlooks and options and have established detailed proactive plans for each region within our portfolio in response to the weakening supply view. Each plan takes triggers for actions based on volumes, operability and financial impact and includes potential plan consolidations, recalling offloads, ICC optimization and furloughs. These plans will be quickly rolled out on an as needed basis as volumes decline within our portfolio.
Slide 10 shows our current and expected year-end liquidity and details on our outstanding debt. Currently, we ended the quarter with approximately $600 million of liquidity and our $1.4 billion revolving credit facility is backed by our longstanding partnership with 16 leading global financial institutions, the majority of which we also share banking relationships with our owners. In December, we proactively extended the facility out for five years.
As we generate free cash flow, our cash position will grow throughout 2020 and we anticipate exiting the year with over $700 million of liquidity. Our next maturity is $500 million of senior notes due in late 2021 and we expect to have sufficient free cash flow to retire this debt without needing the access to capital markets.
Now, I'll turn it back over to Wouter.
Wouter van Kempen
Thank you, Sean. So, wrapping it up on slide 11. As we look through the rest of the year, we continued to prioritize the wellbeing of our people in our company. Our margins are majority fee-based and 37% of our total equity length is hedged for 2020. We've executed a disciplined capital allocation strategy focused on being supply long and capacity short. We're partnered with a well capitalized base of customers.
We stepped forward with a very strong Q1 and a solid start to Q2 as evidenced by April volume results and the outcomes from our meaningful reductions in capital and cost. Ultimately, you have always expected in seeing reliable strategic execution from DCP and we will continue a proven track record of effectively managing this cycle. So before we turn it over to the questions, we want to end our remarks the same way we started by thanking our employees. We've put forth an absolute tremendous effort to ensure the health and safety of our workforce and the quality of our operations during this crisis and we couldn't be more grateful. So thank you.
With that, I look forward to taking your questions and Carol, please kick it off.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Gabe Moreen [Mizuho Securities].
Gabe Moreen
Hey, good morning everyone. Hope everyone is well. All things considered appreciate that it's difficult to give either guidance in the current environment, but I just wanted to confirm something I heard you say about around pulling additional levers only if the environment deteriorates from what's laid out in your guidance today. Did I hear that correctly?
Wouter van Kempen
Yes. You heard that correctly. I think what you heard from us and seen from us, Gabe, is that we built a tremendous amount of levers in March already and then even before March and January and February, because obviously, the cost results and the capital results that you've seen in the first quarter, you can’t do that just in the last 10 days of the quarter. So, all of those were well on their way already. But yes, you're right on your points.
Gabe Moreen
Great. Thanks, Wouter. And then one of your peers this morning with earnings announced that they had bought back a decent amount of debt in the markets at a discount to a face value. Just wondering if that's a considerate – it's under consideration on your end considering the focus on de-levering and free cash flow use.
Sean O'Brien
Yes. Gave, we've actually – we've absolutely, this is Sean shown, we've looked at that. We've got the 2021 and there were some out years. In the short run, we've been focused on liquidity and ensuring that the company has liquidity. The 2021 is – as these markets show some inefficiencies and give you the ability to pull them back at a discount, we have looked at that that's something that we definitely keep on the plate. We haven't done it as of yet, but we are considering it, but remember liquidity short-term current is our primary focus.
Gabe Moreen
Thanks, Sean. And just to clarify there, there's nothing technical in your credit revolvers or discussions with the agencies that would prevent you from buying back debt in the market?
Sean O'Brien
No, there's – and I'm glad you brought that up Gabe. There's nothing that would prevent it. I will tell you, we've looked at this over the years obviously when you see disconnects in the markets, some of the - it always depends on the extent that you're pulling back. The RAs can tend to have some negative implications if you're going out and trying to take the majority of a maturity and I think the duration too. If you're taking a shorter-term maturity, it tends to be less of an issue with the RAs. If you're going out and say taking 25 or 29 and you're doing the majority of it, they can have some implications with the rating agencies that they don't like. But, you know, those are the things that we're considering.
Gabe Moreen
Thanks, Sean. And then last one for me is just in terms of the hedging strategy going forward and I guess maybe curious Wouter in terms of some of your macro thoughts in the whole maybe associated gas and impact on NGL debate. Just how you're approaching it considering forward curves for nat gas have moved up pretty considerably over the last couple of weeks. Just kick off there.
Sean O'Brien
I can start with hedging and I will let Wouter talk about the macro game. Obviously, we're – have significantly hedged this year in 2020. Our strategy has always been a multi-year. When I say multi, you know, we've gone out as far as three years on hedging. And I'll remind you one of the reasons we had such a strong Q1, the business has moved – continues to move in a significant way to fee. So between the fee movement in the downstream and the hedging strategy, it's proven to be quite a beneficial for the company. I will say, we have seen some opportunities. As you talk about the disconnects and the associated gas, and Wouter give you some color there, but gas has actually strengthened a little bit. We're seeing propane and ethane strengthened a little bit.
So the reason I bring that up that gives us the ability to get some hedges on obviously for the remainder of this year and next year. Last point, we're fairly well hedged on getting – gas in 2021. And again expect our fee percentage of this business to continue to grow. So the company is in pretty good shape. Hedging tragedy has been very beneficial for us.
Wouter van Kempen
Yes, maybe to add, Gabe, it's difficult to give macro thoughts when we’re in an environment where you continued to see daily changes and pretty rapid changes kind of just to the entire complex often in the supply and the demand side. But I think in general, like many others, we're fairly constructive on pricing a little bit further down the curve. Obviously not for 2020, but especially if you – kind of second half of 2021, 2022 were fairly constructive around what we are seeing on prices so I think Sean was pretty clear around what we're trying to do, unlike the volatility is still pretty unprecedented.
If you just look at like one component of the NGL sites, you look at ethane, you look at what happened in just the last seven to 10 days alone. There's probably a 250% move in just ethane. So with that, I think if there's some opportunities for some small products for us to kind of add to the hedge portfolio, we'll do it. But our duration is probably, we're not tremendously excited right now about locking in things like crude or other things or gas very far down the curve.
Gabe Moreen
Thanks Sean. Thanks Wouter.
Wouter van Kempen
Thank you, Gabe.
Operator
[Operator Instructions] Your next question comes from the line of Spiro Dounis with Credit Suisse.
Spiro Dounis
Hey, morning guys. Let's start off with some of the inputs around the volume outlook, if we could. Just wondering if you guys walk through maybe how you arrived at some of those levels and how much you've risked input from producers, specifically looking at your targeting. I think a 5% decline in the Permian year-over-year, which maybe doesn't appear conservative and not buying space, but I think that actually does imply a 20% exit rate decline. So I guess, am I thinking about that right? And once again just help us think about how you arrived at some of these inputs?
Sean O'Brien
Okay. Yes, I think you are thinking about right. Let's talk about how we arrived at it. You could assume, Spiro, in times like this. We're always communicating pretty heavily with our producers, through our commercial groups and our executives at that level. I can tell you, I'll give you an interesting data point. The CFOs of these company and myself have started significant conversations weekly in many cases. And I know Wouter has been talking to a lot of CEOs.
So in terms of the process, the communication has been stepped up, as you can imagine massively. We – I’d assume, in my remarks, we're running a significant amount of scenarios and that's where we're at right now. We're running all of these scenarios, significant inputs from producers. But as Wouter alluded to earlier, those change on a daily basis, but we're taking that input, applying it to what we see, and that's where the tough part comes.
I mean, we had a very good volume metric Q1, you listened to Wouter and my comments, April hung in there very well. So we're anticipating obviously with everything that's happening on the COVID demand side with what's happening on the supply side that we're going to see some declines and the numbers I gave are a representation of all those additional inputs, looking at real-time inputs. There was a period people said, hey, April is going to be tough. You've heard Wouter say April actually was pretty good.
And then he can give you some color from what he's hearing. Things continue to move out, but I think we wanted to do one give you some color that we do anticipate declines. Obviously, we've pulled all these levers and anticipation of a very difficult environment. And I think we wanted to give you the context of in the discussions and the economics that we hear from the producers, i.e. DJ economics are very strong still. Delaware economics are strong, Mid-Continent not as much, Eagle Ford kind of in the middle. That's why – all those inputs are what built my commentary on the call and what we are sort of guiding to you too right now.
Wouter van Kempen
Yes. And maybe – Spiro, this is Wouter, to add to a couple of things here is, it's also a very individual producer by producer, midstreamer by midstreamer kind of case. I give you – I can give you examples and I mentioned it a little bit in my prepared remarks where we have producers come to us and say, hey, we think we need to start shutting in a significant amount of volume. And we worked with that specific producer. And we're able to work with them based upon our integrated kind of service offering where we say, you know what, we can probably provide you a better net back if you kind of keep things flowing on our systems.
And the net result of that was that some significant volumes stayed on our system and we're taking off someone else's system. And it's things like that where you're trying to optimize a variety of things. The situation is continued to be a pretty, pretty, pretty kind of dynamic environment as we all know. On the one end, we don't know really what's going to happen from a demand point of view when things are starting to open up. Then we have the storage situation for producers that are trying to figure that up. If you were asking me in March, we probably would have expected some volumes to come off in April and they did all great volumes, sitting here today. Volumes are very solid. But we talk to producers and they're sitting and saying, hey, we're absolutely seeing things happening in May.
We're probably now seeing things happening a little bit more in June. So you have this continuing kind of eight week cycle that we're in where producers keep pushing this thing back a little bit. And obviously that is a really, really good thing for us. The longer you keep things on the system, the better it is. And the more likely that as a country and as a global economy, we're actually starting to go back to work, start to drive again, start to consume. And that would be very helpful. But continues to be a dynamic situation, obviously but it's – I think things are being managed quite nicely right now for us.
Spiro Dounis
Yes. I can appreciate that. Making predictions in this environment has been a humbling experience for all of us so could you guys give us an outlook there? Just switching to cost savings a bit encouraging to see that coming in so soon, certainly surprised us, can you just remind us again, how much of those cost savings are sustainable and not just the flows. As we're thinking about volumes kind of ending the year or declined into next year, will there be more opportunities for you guys to eliminate fixed costs by consolidating a lot of these operations?
Wouter van Kempen
Yes. So it doesn't surprise me that where we are on the cost basis. And I see that you'll recently, you guys don't have as much insight as we do, but that's why we tried to give you that Slide number 7 that's kind of spoke about what we were doing and how early this year where we doing it. I've seen – you've seen people that are announcing cost savings, but they're still hoping they're going to come in, in the next number of quarters. The amount of kind of cost savings and levers definitely pulled. You can obviously not do that in the second half of March.
So I think what you're seeing here is a very clear outcome of something that started very early in the quarter. And therefore starts to materialize nicely, it's executed, its stuff that you don't have to hope that people are going to actually execute it. This stuff you can take to the bank. And so in a world with a lot of uncertainties, you have a great certainty there around what we're doing with capital and what we're doing with costs. So we're marking all of those and I think that's continues to go nicely into the rest of the year.
I mentioned in my prepared remarks that we're absolutely looking at, hey, what can you do on a plant basis, field basis, what kind of consolidations can you do depending on what is happening to volumes. I can tell you that as myself show them the rest of the management team, we have more than a regular weekly meeting around this. So there are plants that are sitting on the desk ready to execute as soon as we see volumes starting to come off the system.
As far as we are today, we haven't really seen any of those but we have a lot of plants. So it is absolutely another thing that we're looking at. You've seen us do that year-over-year-over-year and we'll continue to do that.
Sean O'Brien
Spiro, just I'm going to add one. You asked about sustainability of the savings. There is a significant portion that are obviously reduction in forces and things of that nature carry on. I think one thing that's pretty interesting, we got on the cost savings early, you heard Wouter's comments and in terms of the level and resetting the company, I think we've got the company, we're going to structurally reset in a lot of ways that when the volumes come back, when commodity comes back, we're going to even be stronger than I'd anticipated.
And I'll give you one other interesting example and it's – there are very few positives coming out of the COVID experience, but obviously people were – everyone working sheltering in place, all the things we've been able to do around reducing travel, reducing certain costs. I believe in the long run, some of that is going to be sustainable.
We're going to do things differently even when we get back to normal. We've learned how to do things more efficiently. We don't need everyone in the office. It's pretty impressive. I would not have believed that we could have closed our books the way we did. I made some of those comments earlier. So I think from a sustainability perspective, I'm incredibly excited that some of the things that management team here has been able to deliver is going to bode very well and really sets up DCP when we come back into recovery.
Wouter van Kempen
Yes. And maybe one more thing to kind of add to it, around sustainability. Don't underestimate all the work that we've done around a digital transformation. And that digital transformation was all focused, not only at the corporate level, but at the plant level, on the field level of completely changing the way people work. And it has enabled us and gave us an opportunity to do some very, very significant things here around cost and thinks alike while having safe, reliable operations. So I think that digital transformation where we spent significant time, effort and dollars over the last number of years is something that has been very, very leveraging in this current environment.
Spiro Dounis
Appreciate the color. Thanks guys.
Operator
Your next question comes from the line of Jeremy Tonet with J.P. Morgan.
James Kirby
Hey, good morning. This is James on for Jeremy. Just wanted to follow up, maybe dig deeper from Spiro’s question as it pertains to the DJ. These guys seem pretty constructive at least through April on volumes there. And you mentioned the strong economics, but I guess, we're halfway through almost the second quarter. How are you seeing volumes there and particularly with the DJ, how are you seeing production? It seems like Southern Hills was kind of gaining momentum into 2Q here, but if you get any color you can add there.
Wouter van Kempen
Yes, I think so far things are doing quite nicely in the DJ Basin for us. So as Sean mentioned and we both kind of were talking through – absolutely do expect some things to get shut-in. But we are not seeing in any way, shape or form things like you're seeing in a place like the Bakken. I'm looking at our inlet flow rate right now. And it's very strong. So it continues to be very nicely sitting here right now, but at the same time, very, very dynamic situation. I do kind of want to remind you all steps that we have quite a lot of minimum volume commitments that producers have on our systems and minimum margins. And that will give us some protection we expect here in the coming months.
James Kirby
Got it. Thanks. And then just wanted to touch on, it seems like you guys are in a good spot in liquidity wise, but do you guys foresee any equity issuance this year?
Sean O'Brien
No, I think James, we've been – we haven’t issued equity in over five years. I think with – again, we've restructured really set the company up in a lot of ways. When you think about those, the $900 plus million of actions, many of them are, I'll use the word permanent, but there's obviously sustainable. It sets us up in a really good place at the end of the day really not to need to issue and utilize the equity markets and we weren't anticipating that anyway.
James Kirby
Got it. Thanks. That's all for me. Appreciate the color. Thank you.
Wouter van Kempen
Thank you.
Operator
Your next question comes from the line of James Carreker with U.S. Capital Advisors.
James Carreker
Hi, thanks. Good morning guys. Just wanted to get some color maybe on the decision to withdraw EBITDA guidance, you guys clearly spent some time thinking about the volume impact, commodity prices are volatile, but there is a market to look to. And then on top of that you guys talked about some of the MDCs and minimum margin items you have. So what are kind of the known unknowns that kind of gave you reservation and not putting an updated number out there?
Wouter van Kempen
Let me take that one, James. First and foremost, I think when people give guidance, you want to be reliable, you want to be accurate. But we have given you, we have not given you EBITDA, but we have given you volume guidance by segment, by region. We have given you cost detail, we've given you the capital guidance, we have given you liquidity, we have given you sensitivities. What are the unknowns? Price and duration and I think it is pretty dynamic right now.
It's like trying to solve a Rubik's cube blindfolded and you got no visibility. It's too complex and there's too much variability to luck out and get it right. Let's be very clear here, we're midstreamers. Midstreamers are sitting between energy production and energy consumption. I don't think anybody in the world has a good clear thought around energy consumption is going to look like in the second half of this year.
I think if you look at energy production and you look at the various producers and we have spoken about this every question as being around this, hey, what are we seeing? And things are changing for our industry almost hourly, daily, weekly basis. And we've continued to see things change here very rapidly, still day by day. So you sit here and say, then you think the commodity cycle over it.
I think I mentioned earlier, you've seen ethane kind of moved 200%, 250% within a matter of last two or three weeks. You've seen crude going from minus $35 a barrel or minus $37 to mid $20. So the amount of volatility that you have and then midstreamer saying, hey, even though we don't know what energy production is and we don't know what energy consumption is, but we have perfect clear guidance for you.
I think that if they does that, that is pretty hard. So again, we want to be reliable, we want to be accurate. That's why we've given you all those details. I can make an argument that in this call, we have probably given you more details than we normally give you during our earnings calls that we have with you. So for us that was important, when the dust settles unlike we're absolutely returning to guidance.
I think what really matters is what we're doing. Real cost savings. Those are showing up. We're not talking about them. They're showing up, you can take them to the bank. Real capital reductions, those are showing up. We are not finishing assets that the world doesn't have a need for, for years and years to come.
What we have done is we stopped whenever we could do and we retained $900 million of cash to go through the balance sheet to create liquidity and things alike, if they're covered their recoveries quick and we obviously hope for that. And who knows if it's going to be [indiscernible]. We don't know, but if the recovery is quick, we will set up really, really well as a company. And we'll absolutely go back to giving you clear EBITDA guidance. But under this situation with some of the massive unknowns that everybody is having, not only in our industry but every other industry globally. We felt it was prudent to not give you something that is going to be very difficult to be accurate.
James Carreker
No, I understand the difficulties, but it doesn't have to necessarily be one number. It could be a range. And then one reason I bring it up is because we've seen from some of your peers what we've found a fee-based rate, is fee but then commodity prices go down and all of a sudden that fee margin goes down as well. And so some of the relationships between price and volume change and so – sometimes a range of outcomes can be helpful or at least the assumptions behind it so I appreciate the uncertainty, but I just want to give you a sense for why I’m asking I certainly understand the difficulty in estimating…
Wouter van Kempen
No, James, I think it's a fair question. I think you've given everything that we've given you. I think you can do the math. You can do the math really, really well. Remember there's a liquidity number in there that should give you some pretty good indications of how would things about to start with the sensitivities and other things alike.
James Carreker
No. I mean, definitely and I was going to actually ask about that. Is there any in the year-end liquidity number, does that assume any type of asset sales or any other sort of one-time items that would be additive to liquidity? It's just…
Wouter van Kempen
No.
James Carreker
Okay.
Wouter van Kempen
Yes. We never do. I know there is other people who could asset sales and things like that in our guidance in our budgets, we never do that. So we always look at those markets as finicky, they may come in quickly, they may go away quickly. So we never put any of that into – that is just operational. If there are certain things around, hey, can you potentially sell an asset that is non-core like we did last year that would kind of be an over and above an extra money in the bank.
Sean O'Brien
Yes. I mean just to close out Wouter's comment, James, that's how you get to the high end of the range, right? But we've been focusing on 700 plus, that doesn't require any sales, but if you were to get to 1 billion, there are other levers that would get you there.
James Carreker
Got you. Understood. That's helpful. And if I could fit in one more, just can you remind us, I know you guys talked about high level of contracts on Gulf Coast Express, Cheyenne Connector, even Sand Hills, Southern Hills. But I think you guys alone are responsible for shipping a good portion of some of that capacity. Is there a situation in this declining production environment where you guys would see yourselves underwater to the commitments you have to some of – even some of your own partially and wholly owned pipelines?
Sean O'Brien
No, I think – I don't think that's the case. If you think about the company and our viewpoints, which have been very different than many others around – we've seen the over-capacity James, coming for awhile. We didn't feel overbuild capacity on our assets. We didn't put a bunch of assets in place that are going to now be the empty. I want you to make sure you understand, we have also used significant offload agreements. In other words, we've been utilizing other capacity over the last couple of years in a big way, both on the NGL pipelines and on the G&P side.
The reason I bring that up is obviously those are volumes that if we – in high volume periods we can push them off and pay a fee, in low volume periods, we can bring them back and help them to satisfy any T&Ds that we have. So I think, we are set up incredibly well to not have any issues with minimum volume or T&Ds that are on – that we're required to meet.
Wouter van Kempen
Yes. And maybe just to put one in perspective for you, I think Cheyenne connector, our minimum volumes on that is 300 – our commitment to that is $300 million a day. We’re flowing about a 1.2 billion, 1.2 bcf in a place like the DJ Basin. So I think that gives a lot of perspective.
James Carreker
That's helpful. Any quantification of how much you guys have, that you're currently offloading that could be pulled back either on the NGL pipe or the G&P side?
Wouter van Kempen
Again, I'm not going to give you details on where we are, but I can tell you we're offloading in a number of different places. We're all floating in the Delaware Basin, we’re all floating on some of the pipes, I think we're offloading, we have been offloading into DJ Basin as well.
Sean O'Brien
Correct.
James Carreker
That's helpful. That's all I have. Thank you for your time.
Sean O'Brien
Thanks, James.
Operator
[Operator Instructions] Your next question comes from the line of Shneur Gershuni with UBS.
Shneur Gershuni
Hey, good morning guys. Sorry, If I’ve – I’m going to ask questions that may have been asked previously, there are just so many calls today. I'm glad to hear that you're all safe, maybe to start off to just follow-up on a clarification on James's last question. Are you being offloaded onto at all from an NGL perspective that could be pulled back to other systems?
Sean O'Brien
Yes, we're offloading. So we have more volumes, so we have been utilizing on the NGL side Shneur offloads on other pipelines because that here's a reality, the capacity, you got overbuilt situation on the NGL side in certain areas and we've been able to utilize those offloads at very attractive rates because people are just trying to pull volumes on. So the point we were trying to make is if we had a T&D that we need to require, we can pull those volumes back onto pipelines – our pipelines or a pipeline that we would need to meet a T&D on.
So that's a phenomenal position to be in. You heard Wouter allude to earlier, Shneur, it's the same thing on the G&P side. Instead of building continuing the overbuild G&P assets, we have tried to keep our assets full and where we've had seen some growth, we've been able to use other people's capacity, Latham is a great example, and offload those volumes, so that again, if we need to bring volumes back in a period of decline to meet minimums, we have that ability.
Shneur Gershuni
Yes, Sean. Totally appreciate that and understood that. And it was clear before. I just want to ask a question, is anybody like an enterprise or target or somebody else, is anybody’s off loading onto your system that is at risk to be pulled back?
Wouter van Kempen
No. And if they are, it's very, very minimal – minimum volumes. I think a lot of it Shneur, now we’ve been talking about this for quite some time. We've been talking for quite some time about liking to be supplied lower in capacity short. And I think that strategy was a strategy that we were very counter too many who continued to say, hey, let's build more plants, let's build more pipelines and other stuff. So a lot of people have been more only, hey, let's build more or less build more, we have been very counter I think too many others in our strategy of saying, hey, this growth – supercycle of growth after 10 plus years need to change at some moment in fund. We obviously in no way shape or form expected a COVID-19 kind of situation to kind of force us into that.
But, in general, I think there were not too many people who were saying, hey, let's built less. A lot of people are building more and a lot of people are continuing to kind of fund new growth as we speak and new plants by plants and other things that we're probably not going to need for a long, long time.
Shneur Gershuni
That makes perfect sense. And your strategy I think has been a very sound one. And also the fact that you've went after costs and optimization early on has set DCP up well. I mean, the one area that's been an overhang even while things were good is always been the balance sheet and the distribution coverage ratio. And I realized that you have to solve the IDR issue as well too. But you have the double blocks, one event, which sort of gave you an opportunity to sort of attempt to right size that.
And you seized it and cut the distribution by 50%. I'm kind of curious why you wouldn't have gone further and take it temporarily down to say an 80%, 90% type of cut, because like in this environment, obviously nobody is placing much value on it and leverage seems to be where the key focus is and it's something that you can return as soon as volumes start to pick up. So I was kind of wondering if you could talk about the discussion at the Board level and with your large owners or shall we say about the distribution decision?
Sean O'Brien
I'll start and then Wouter can take you through maybe the breadth of the Board discussion Shneur. But if you think about all the models we ran, I mean, this is – I've been through a lot of downturns in my career. This is one I have never seen, so what the context I want to give you is when we did the action in March, which feels like years ago, and it really wasn't that long ago, we had already put in place a significant amount of self-help. We had already cut costs, we've cut some capital, we cut some – obviously sustaining capital was pulling back and with the 50%, we ran a bunch of scenarios and it worked, it was appropriate. What has happened since then has been off the charts, right? And we had another press release that came out after that around the reduction in force, another $50 million plus and look Shneur every week, Wouter and I are in meetings looking at, how do we continue to get more efficient with the company and what are the levers.
So I'll close out by saying if the time we felt we had a very sound case, we knew we had more dry powder, I hate to use that term, but we had more dry powder, if things continue to get worse and we want – we thought, let's take a balanced measure approach, I think that's what we did. And things have continued to get worse and we continue to pull more levers. But I believe that was the rationale that I know from an Executive Committee sitting here at DCP that we took. And Wouter can talk through the Board strategy, but that's how we felt as a company, we managing through this.
Wouter van Kempen
Yes. And I'm not going to talk through the Board strategy. I don't think that is – I think to kind of discuss here. But in the end I think Sean is very, very correct. What we wanted to do is balance the longstanding commitment that we have to investors that have been with us for a long, long time and then the long-term sustainability of the company. And we believe that what we did at that moment was the right thing to do under those circumstances, $900 million of cash that doesn't go to building new growth projects and other stuff, it went straight to the balance sheet and to liquidity, while at the same time maintaining significant dry powder that we have here till today, and continuing to do other things around optimizing the business, the systems and things like. I’m like if you delve back and you look at our numbers.
And again, we've given you a tremendous amount of details except for EBITDA, but, you can see clearly from our numbers that under the current scenarios we're free cash flow positive here in 2020, which I think is a great thing on our kind of a situation like this that probably nobody could have ever foreseen coming.
Shneur Gershuni
That makes sense. And one final question if I may, just operationally. Can you talk about what the underlying decline rates are for your existing footprint in the DJ? Just – I recognize that things are going to be weird with shut-ins and so forth when they materialize. But like just assuming that there's no drilling activity and there are new wells completed, what's the decline rate that we should be thinking about around your footprint? I
Wouter van Kempen
I think the decline rates are not dissimilar to other kind of place where it predominantly or just is all horizontal drilling without a tremendous inventory of old vertical wells that are declining as much. So whatever you kind of see and think through for a Delaware Basin and a DJ Basin is relatively similar, if nothing happens. But one offset to that is minimum volumes that we have on our system with our producers, the other offset is, some pretty significant inventory of docs that some of our key producers have here in the DJ Basin.
Shneur Gershuni
Okay. So you do have a significant inventory of docs, but it sounds like you're tilted more towards newer horizontal wells rather than legacy vintage vertical wells. Is that what I would characterize at?
Wouter van Kempen
There's still a lot of vintage vertical wells on the system here in Colorado and the DJ Basin at the same time from a volume metric point of view. It's obviously the newer wells that make up more of the system.
Shneur Gershuni
Perfect. Thank you very much. All right. I appreciate. Thank you. Appreciate the color and stay safe.
Sean O'Brien
Thanks, Shneur.
Operator
Your next question is a follow-up question from the line of Jeremy Tonet with JPMorgan.
Jeremy Tonet
Hey, thanks for taking the follow-up. Just wanted to circle back on just the cost reductions, I noticed in the PR you had $46 million realized this quarter. Maybe can you just talk about the components there and maybe how you're trending through 2Q so far?
Sean O'Brien
Yes, so obviously the cost side of the equation, significant amount of – it's spread out quite a bit through the corporate side of the equation, there is a significant amount of costs coming out of the businesses obviously in anticipation of what we're heading towards, Jeremy, you have some – we've talked a bunch about the benefits of all the investment we've made in technology over the last three years. We had pretty some high slated numbers to continue that program into 2020. But obviously with what's happened, we pulled back significantly on those.
One thing just as a clarifying item, the reduction in force, you're going to see more of that occurring throughout – that happened in April. So those costs are really not in the Q1 dollars. In terms of the trend, and then I guess the last thing we moved to earlier, you're just seeing a lot of reduction as the company sheltered in place, people work from home, people – overtime was pulled back, things like travel, things like T&E. Those types of things continue to decline in a big way. And again, areas that we think we're going to try and make sure we can hold on to some of that.
In terms of the trend that we're seeing so far in Q2, so far so good, so around – Wouter, – we've alluded to volumes and even on the cost side, and again, as you start to see the full benefits of some of the actions we took, I feel pretty good so far into the second quarter around the cost side of the equation as well. So plan is working and I think it's something that this company has shown an ability to go at it quick and definitely execute well around ensuring our costs are in line.
Jeremy Tonet
Got it. Thanks. I'll leave it there.
Operator
Your next question is a follow-up question from the line of James Carreker with U.S. Capital Advisors.
James Carreker
Hi. Thanks again guys. I was just wondering if you guys have any thoughts broadly as we see production shut-ins and what that does to ethane, particularly if a lot of these new crackers are still running relatively full. Do you see a situation in which less and less ethane gets rejected? Does that provide any upside to you guys, on the GMP side or on the pipeline side? And if it does, is some of that baked into your thought process for the rest of – for the balance of 2020?
Wouter van Kempen
Well, I kind of look at this as upside, so not baked in right now. I think you're absolutely right, I think I made some comment about – you’re seeing ethane move like 200% in just a matter of a couple of couple of days or so. There is a couple of things at work, one of them is obviously the demand side of the equation. The other thing is natgas. So not for us, having exposure to ethane from a commodity point of view, it would create some upside, and then secondarily from creating barrels for our pipeline system would be helpful as well. So we'd not look that as a good guy.
James Carreker
And any potential quantification of what I could do? I know it's hard.
Sean O'Brien
Yes. I think the way to think about James, we give you the – on the price side, you're going at it from two levels. From the price side, obviously we give a sensitivity. So ethane and we do it in the whole NGL barrel – NGL composite, I'm sorry, but there is some there, there is some upside, we have hedges in place this year, but we still have some open positions. So it could be significant, I would say, things came back strong, you're talking 10s of – 10 million plus. And then I think what you alluded to, we also talked about a decline of 10% to 15%, obviously the correlated decline on the pipelines is tied to the – what we think is going to happen on the gas side of the equation.
So if rejection starts to come off, and by the way rejection for Q1 was very similar to Q4, pretty close, it maybe a little bit lower, but in the 81, 82 remember last year we were only rejecting 40. So that would be some upside on the pipelines and that's not insignificant. So, good that we haven't baked it in for Wouter comments, but if things play out that way and that's the way it always plays out, in downturns, there were always some favorable correlated items they can come out, ethane maybe one of them that we may see and if that happens, it is not insignificant to the company's earnings.
James Carreker
Appreciate that. Thank you. That's all I had.
Sean O'Brien
Thanks James.
Wouter van Kempen
Thanks James.
Operator
And at this time, I would like to turn it back to the speakers for any further comments.
Sarah Sandberg
This is Sarah, thank you all for joining us today. If you have any questions or any follow-up, please don't hesitate to reach out. Have a good day and be well.
Operator
Ladies and gentlemen, thank you for participating. You may now disconnect.
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