Elvira Scotto

Elvira Scotto asked about growth trends in basins outside the Permian, their percentage of Archrock's fleet, and how they might evolve with increased LNG export capacity, including potential impacts on pricing and costs. She also inquired about the potential for future asset sales across Archrock's portfolio and how current Cat engine lead times compare to previous quarters.

Answer

President and CEO Brad Childers noted that 60% of growth remains tied to the Permian, with incremental growth in Haynesville, Rockies, and Marcellus. He expects LNG expansion to be primarily supported by Haynesville, Permian, and Eagle Ford. Mr. Childers stated that asset sales are a consistent part of the business, averaging over $95 million annually in the past five years, with a range of $40 million to $90 million. He also recalled that Cat engine lead times were around 42 weeks six months ago, increasing to the current 60 weeks.

Elvira Scotto asked about growth trends in basins other than the Permian, particularly how they are evolving with increased LNG export capacity and potential impacts on pricing, costs, or economic dynamics. She also inquired about the potential for future asset sales across Archrock's portfolio and how the 60-week lead time for CAT engines compares to three or six months prior.

Answer

Brad Childers (President and CEO) stated that 60% of Archrock's growth remains tied to the Permian, but incremental growth is seen in the Haynesville, Rockies, and Marcellus, which are being reactivated. He expects LNG expansion to be primarily supported by the Haynesville, Permian, and Eagle Ford, with the Northeast seeing growth for data center demand. Childers noted that high utilization means other plays must compete with Permian returns to attract CapEx. Regarding asset sales, he indicated an average of over $95 million annually over the past five years, with a range of $40 million to $90 million, as a prudent approach to keeping the fleet fresh. He recalled CAT engine lead times were around 42 weeks six months prior, now at 60 weeks.

Elvira Scotto from RBC Capital Markets asked about the impact of recent US-EU trade discussions on LNG demand and what factors could accelerate the construction timeline for the CP2 project.

Answer

CEO Michael Sabel described current LNG demand as 'fantastic' and the 'best we've seen in ten years,' which supports the company's expansion plans to exceed 100 MTPA around 2030. For CP2 acceleration, he highlighted key advantages: being 98% engineered at FID, extensive pre-FID procurement with two trains already built, and the team's deep experience, with CP2's first trains being the 55th and 56th the company has commissioned.

Elvira Scotto of RBC Capital Markets asked how recent US-EU trade discussions have impacted LNG demand and how Venture Global is positioned to capitalize on it. She also inquired about the key factors that could potentially accelerate the construction timeline for CP2.

Answer

CEO Michael Sabel described demand as "fantastic," the best in a decade, and expressed optimism this will support contracting for future phases, enabling their goal of over 100 MTPA by 2030. To accelerate CP2, he cited being 98% engineered at FID, massive pre-FID procurement (with two trains already built), and the team's extensive experience (CP2's first trains are the 55th and 56th for the company), allowing for rapid on-site assembly once foundations are ready.

Elvira Scotto questioned the potential for cost increases at the CP2 project, particularly around labor, and inquired about the competitive environment for offtake rates and fees.

Answer

CEO Mike Sabel acknowledged the challenging inflationary environment but emphasized Venture Global's strong position due to its factory-based manufacturing model, which reduces on-site labor needs. He stated that while the ability to raise contract prices is currently limited, the market allows for execution at very profitable levels, and any macro cost challenges represent an opportunity to gain a competitive advantage.

Elvira Scotto from RBC Capital Markets asked for details on the expected ramp-up of the North Loving II plant, given the strategic shift away from pre-securing full offload capacity. She also inquired about capital allocation priorities between organic growth and bolt-on acquisitions, particularly for future growth in New Mexico.

Answer

SVP of Commercial, Jonathon VandenBrand, stated that with North Loving I at full capacity and strong underlying contracts, WES expects significant volumes for North Loving II on day one. President and CEO Oscar Brown added that M&A must compete with high-return organic projects, making the company selective. He sees significant organic opportunity in New Mexico but remains open to bolt-ons that meet their strict criteria.

Elvira Scotto of RBC Capital Markets asked for details on where the company is seeing the greatest increase in demand for its compression services, particularly regarding incremental demand from natural gas-producing basins.

Answer

President & CEO Clint Green responded that RFQs (requests for quotes) have notably increased in dry gas basins, while demand in the Permian remains strong. He added that the company is seeing an increase in bid rates for both large station projects and smaller horsepower units in gassier areas, indicating broad-based demand growth.

Elvira Scotto inquired about which oil and gas producing basins are showing the greatest increase in demand for compression services, with a specific interest in incremental demand from natural gas-focused regions.

Answer

President and CEO Clint Green responded that requests for quotes (RFQs) have notably increased in dry gas basins, while demand in the Permian has remained stable. He mentioned that producers are gaining confidence for 2026, with contract awards expected between September and November. Green also highlighted a rise in bid activity for both large compression stations and smaller horsepower units in gassier areas.

Elvira Scotto of RBC Capital Markets requested elaboration on recent trends in the Marine Transportation segment, the timeline for achieving leverage targets, the balance between shareholder returns and deleveraging, and confidence in hitting the low end of 2025 EBITDA guidance.

Answer

CEO Grant Sims explained that while the inland marine market was 'sloppy' in Q2, it has improved, with utilization over 98%. The bluewater market has seen some temporary softness due to equipment relocation to the Gulf Coast, but fundamentals remain strong with 97% utilization. On leverage, he reiterated a focus on debt reduction but suggested a modest distribution increase could be considered for Q4 2025. Regarding guidance, Sims expressed confidence in hitting the low end but noted it's still early in the ramp-up of the new offshore fields.

Elvira Scotto of RBC Capital Markets requested more detail on the confidence in resolving offshore producer issues, the crude price point that might impact producer activity, the target leverage ratio for distribution growth, and the day rates needed to spur new marine vessel construction.

Answer

CEO Grant Sims expressed confidence in the Q2/Q3 resolution timeline, citing public statements from operators like Murphy who have rigs on location performing workovers. He stated that producer activity is unlikely to be affected by lower prices due to high fixed costs. Sims reiterated a long-term target leverage ratio of around 4x before more meaningful distribution growth and noted that marine day rates would likely need to rise 30-40% to incentivize new builds.

Elvira Scotto of RBC Capital Markets questioned the confidence in avoiding future offshore operational issues and asked when to expect less volatility. She also requested details on the production challenges at the Westvaco soda ash facility and the timeline for remediation efforts.

Answer

CEO Grant Sims characterized the offshore problems as a highly unusual 'calamitous coincident of things,' suggesting a normalized quarterly margin of $90M-$95M before new projects come online. At the Westvaco facility, he cited issues like conveyor belt failures and mine shaft structural problems. Sims emphasized that the company is 'sprinting' to implement process changes and cost reductions by year-end to 'hit the ground running in 2025'.