Enterprise Products Partners - Q2 2023
August 1, 2023
Transcript
Operator (participant)
Good day. Thank you for standing by. Welcome to the Enterprise Products Partners L.P. Q2 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during this session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To remove yourself from the queue, please press star 11 again. Please be advised that this conference is being recorded. I would now like to hand the conference over to Randy Burkhalter, Vice President of Investor Relations. Please go ahead.
Randy Burkhalter (VP of Investor Relations)
Thank you, Norma, good morning, everyone, and welcome to the Enterprise Products conference call today to discuss Q2 earnings. Our speakers today will be Co-Chief Executive Officers of Enterprise's General Partner, Jim Teague and Randy Fowler. Other members of our senior management team are also in attendance for the call. During this call, we will make forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, based on the beliefs of the company, as well as assumptions made by and information currently available to Enterprise's management team. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.
Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements that may, made during the call today. With that, I'll turn it over to Jim.
Jim Teague (Co-CEO)
Thank you, Randy. Today, we reported adjusted EBITDA $2.2 billion for the Q2 of 2023, compared to $2.4 billion for the Q2 of 2022 and $2.3 billion for the first quarter of 2023. We generated $1.7 billion of DCF, providing 1.6x coverage. Enterprise retained $639 million of DCF in the Q2, and we've retained $1.5 billion year to date. We had resilient financial results, despite the impact of lower prices for crude, natural gas, NGLs, and petrochemicals. Our profits were negatively impacted by weaker processing margins for the first part of the year. Our petrochemical service segment it continued to perform in spite of the low price and lower margin environment.
During the quarter, we established six operational records, including our natural gas pipeline volumes, NGL fractionation volumes, and 11.9 million barrels of oil equivalent of total pipeline volumes. We're also extremely proud of the fact that with the increase in our distribution last quarter, we crossed the threshold of 25 consecutive years of distribution growth, literally unheard of in the midstream industry. This is truly an exceptional milestone across all industries, and most importantly, a real tribute to the core principles laid out from our very beginnings that Randa continues to prioritize today. Moving to growth capital, we started the Q2 with $6.1 billion of major growth projects under construction. We have since completed construction on four major growth projects that will provide new sources of cash, and we have an additional $4.1 billion, is that right? Under construction.
Completed major projects during the Q2 in early July include a 400 million cubic foot a day expansion of the Haynesville extension of the Acadian Gas Pipeline System, which is sold out. Our Poseidon cryogenic natural gas processing plant, which is our sixth processing plant in the Midland Basin, which is sold out. Our nineteenth NGL Fractionator, which is sold out, and our PDH 2 plant in Chambers County, which is sold out and ramping up currently between 65% and 70% and climbing. The three remaining natural gas processing plants we have under construction in the Permian Basin will go into service in late 2023 and early 2024, one in Midland and one in Delaware. The first phase of the Texas Western Products System will be put into service in December.
When we complete the next three Permian plants, we'll have 16 processing plants in the Permian, with the capability to process 3.8 Bcf a day of natural gas and extract more than 520,000 barrels a day of NGLs, all destined for additional value-added services in our Gulf Coast NGL systems. Meanwhile, downstream of the Permian, we have major expansions underway for ethane, ethylene, polymer-grade propane, propylene, and LPG, expanding and upgrading our export capacity at the ship channel at Morgan's Point and at Beaumont. Our new export projects are designed with an emphasis on flexibility and reliability, centered around a highly integrated footprint with multi-product capabilities. Even as the world works its way through a significant petrochemical downturn, U.S. NGLs and olefins continue to get a lot of attention from petrochemicals focused on feedstock diversity and advantage prices.
In addition to multiple long-term export contracts we recently signed, we are also in discussions with counterparties from several countries for substantial amounts of additional Natural Gas Liquids and olefin exports. This level of customer interest is what supports further expansion of our export capabilities. A wide gas to crude spread gives the petrochemical industry a feedstock advantage that is proving both durable and permanent. As Randy's heard me say 1 million times, I grew up in that business, and I've lived through more than a few cycles. Only the strong prosper through times like these, and U.S. NGL feedstocks, sourced from shale oil and gas, are again proving their growing importance. The durability of U.S. shales is evident in ever-increasing U.S. exports of crude, natural gas, Natural Gas Liquids, and in exports of petrochemicals in various forms.
In July, Enterprise crude oil exports will exceed a record 30 million barrels. Oil and gas has faced commodity price headwinds, especially compared to the premiums of last year, when crude averaged over $100 a barrel during the first 6 months of 2022. We see no reason that crude should have been trading at the low levels of the last few months. In early June, OPEC+ announced they were extending their reductions into 2024. On top of that, the Saudis announced that they would unilaterally cut an additional 1.1 million barrels a day of production in July and August, with the option to extend these cuts as needed. Meanwhile, waterborne data confirms that Russia's exports are coming down.
Inventories of crude and refined products, both in the U.S. and globally, remain very low, while OPEC+ continues to demonstrate they are committed to price stability. Even though industrial demand continues to lag, consumer demand is strong, especially in developed nations. Crude oil supply-demand fundamentals continue to indicate that we're in store for much tighter balances for the remainder of the year and in 2024. With that, I'll turn it over to Randy.
Randy Fowler (Co-CEO)
Thank you, Jim, good morning, everyone. Starting with the income statement, net income attributable to common unit holders for the Q2 of 2023 was $1.3 billion or $0.57 per common unit on a fully diluted basis. This compares to $1.4 billion or $0.64 per common unit for the Q2 of last year. Adjusted cash flow from operations, or we call it Adjusted CFFO, which is cash flow from operating activities before changes in working capital, was $1.9 billion for the Q2 of this year, compared to $2.1 billion for the Q2 of 2022. As Jim mentioned, 2023 marks our 25th consecutive year of distribution growth.
We declared a distribution of $0.50 per common unit for the Q2 of 2023, which is a 5%-5.3% increase over the distribution declared for the Q2 of last year, and a 2% increase over the distribution that we declared last quarter. This distribution will be paid August 14th to common holders of record as of close of business, July 31st. In the Q2, we purchased 2.9 million common units for the quarter, at a total cost of $75 million. For the first half of the year, unit purchases totaled approximately 3.6 million common units for a total purchase price of approximately $92 million. Inclusive of these purchases, we have now utilized 41% of the authorized $2 billion buyback program.
In addition, our distribution reinvestment plan and our employee unit purchase plan purchased approximately 2 million common units on the open market for a total purchase price of approximately $51 million. That was also during the Q2. For the 12 months ending June 30, 2023, Enterprise paid out approximately $4.2 billion in distributions to limited partners. These distributions, combined with $307 million in buybacks for this period, result in Enterprise having a payout ratio of adjusted cash flow from operations at 57% and a ratio of payout for adjusted free cash flow of 86%. Total capital investments in the Q2 of 2023 were $784 million, which included $683 million for growth capital projects and $101 million of sustaining capital expenditures.
As Jim noted, we have $4.1 billion of major growth projects under construction, $1.1 billion of which are expected to begin service in the remainder of 2023. We continue to expect our growth capital expenditures for 2023 will be in the range of $2.4 billion-$2.8 billion, depending on any incremental system expansions and timing. We continue to expect sustaining capital expenditures for 2023 will be approximately $400 million. Turning to capitalization, our total debt principal outstanding was approximately $28.9 billion as of June 30. Assuming the final maturity date for our hybrids, the weighted average life of our debt portfolio was 20 years.
Our weighted average cost of debt is 4.6%, and at June 30, approximately 97% of our debt was fixed rate. Our consolidated liquidity at quarter end was approximately $4 billion, and that includes both availability under our credit facilities and unrestricted cash. For the 12 months ended June 30, 2023, our adjusted EBITDA was $9.1 billion. This compares to $8.8 billion for the trailing 12 months ending June 30, 2022. We ended the quarter with a consolidated leverage ratio of 3.0 times on a net basis, after adjusting debt for the partial equity treatment of our hybrid debt and reduced by the partnership's unrestricted cash on hand. As a reminder, our leverage target remains, 3 times ±0.25.
If you would, point, 2.75-3.25 times, so we're right in the middle of that range. With that, Randy, I think we can open it up for questions.
Randy Burkhalter (VP of Investor Relations)
Okay, thank you, Randy. Norma, we're ready to open it up to questions from our listeners.
Operator (participant)
Yes.
Randy Burkhalter (VP of Investor Relations)
And I would like to remind our listeners to restrict your questions, please, to the one question and one follow-up question. Then you go ahead and take it from there, Norma.
Operator (participant)
Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. Please wait for your name to be announced. Again, we ask that you limit yourself questions to one with one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question comes from the line of Theresa Chen with Barclays. Your line is now open.
Theresa Chen (Managing Director and Senior Equity Analyst)
Hi, I'd love to get your sense on the third quarter outlook and beyond, just given the recent action we saw in NGL pricing and ethylene in particular. Would you be able to comment on this? What do you expect pricing to do as the quarter progresses, and how does this fit with your ability to earn outsized margins along your integrated NGL value chain, as well as potentially achieve the $9.3 billion run rate basis?
Jim Teague (Co-CEO)
Yeah, this is Jim. I think we feel, feel pretty constructed on the second half of the year. If we look at our processing margins, Natalie, they're, they're better than they've been moving up.
Theresa Chen (Managing Director and Senior Equity Analyst)
That's right.
Jim Teague (Co-CEO)
Okay. In terms of outsized, spreads, my experience is you can't predict them, but they're always there. I think we might see more opportunity in the second half than we have seen in the first half.
Theresa Chen (Managing Director and Senior Equity Analyst)
Thank you. Then on the petchem front, can you just comment on what you're seeing as far as demand goes, and the ramp-up of PDH utilization and/or, the underutilization on the ethylene production side?
Jim Teague (Co-CEO)
Chris, you got it? Of course, Chris.
Chris D'Anna (SVP, Petrochemicals)
Yeah, Theresa, this is, this is Chris D'Anna. On the, on the petchem side, overall demand, you know, non-durables, we're seeing, we're seeing healthy exports, whether it's in the form of pellets or whether it's in the form of, of ethylene across our dock, which, which remains full. On the, on the durable side, we've seen numbers increasing over the last four months, but it really hasn't translated to higher overall demand. As we talk to customers, you know, what, what originally was gonna be a strong second half is probably pushed out maybe six months or so. Then on the, on the MTBE side, you know, it's really a business that's driven by normal RBOB and octane. That remains strong. There was a lot in your question. PDH, it's, it's ramping up.
As it ramps up, we're, we're sold out all the way up to, to the maximum, nameplate, and so we'll continue to see that, that perform.
Theresa Chen (Managing Director and Senior Equity Analyst)
Thank you.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Tristan Richardson with Scotiabank. Your line is now open.
Tristan Richardson (Vice President and Equity Research Analyst)
Hey, good morning, guys. Just curious, Jim, you mentioned discussions with new international customers that, you know, maybe you haven't had relationships with before in the past. Should we think of these incremental customers as largely around filling export expansions currently underway? Would these potential relationships be for further expansion to your export capacity down the road?
Jim Teague (Co-CEO)
We signed that contract, Tug, yesterday. Okay, you about ready to execute it? The one that we're gonna execute, I think we've. We had one large one. I think it was 200,000 barrels a day that we executed recently, and we're in discussions with at least two more, Tug? Four more. Our guys are headed to Asia for an extended trip here not too long. I, I, I guess it's both what we've built and what we expect to sign.
Tristan Richardson (Vice President and Equity Research Analyst)
Okay, helpful. Thanks, Jim. Then maybe, Randy, just curious, as, as we've now seen PDH come online and, and, and Frac 12 commission, as well as, a processing plant, you know, I know it's too early to talk about 2024 capital, but just thinking about, you know, the potential for, this elevated spend for, for these large and critical projects, kind of, coming to a conclusion in 2023, such that 2024 could be lower than 2023?
Randy Burkhalter (VP of Investor Relations)
Yeah, Tristan, on that, I, you know, certainly getting PDH 2 completed, that was a big capital project. When we come in and see the opportunities just in and around our system, I think, frankly, we're gonna be in that $2 billion-$2.5 billion range for the next two to three years. Some of that, you know, I'll have to say that $2 billion to $2.5 billion, really, is still excluding SPOT, which is still going through the licensing process. Tell you what, we're just seeing a lot of good activity, a lot of good growth opportunities across the system.
Tristan Richardson (Vice President and Equity Research Analyst)
Appreciate it. Thank you, guys, very much.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Spiro Dounis with Citi. Your line is now open.
Spiro Dounis (Director and Senior Equity Analyst)
Thanks, operator. Morning, everybody. I actually want to go back to that a little bit, if we could, just on capital allocation. I guess on my math, I think you still have you guys generating about 10%-15% of operating cash flow. That's sort of unspoken for over the next few years, even with SPOT in there as well. Just curious to get your latest thoughts on preferred ways to allocate that capital, given your leverage levels are really already at sector lows.
Randy Burkhalter (VP of Investor Relations)
Yes, Spiro, I think it comes back to really what you've seen out of us the last two or three years, is sort of all, all the above. You know, certainly in the last year, year and a half, we've picked back up on the cadence of our distribution growth. I, you know, we're and again, that seems like the most direct way to return capital to our partners, is through distribution bumps. You know, I, I think we'll, you know, continue to come in and sort of use all the above.
Spiro Dounis (Director and Senior Equity Analyst)
Yes, fair enough. second question on Chinook, and Jim, I'll preface this question with, I know you're going to expand Chinook at some point, but I also know you've talked about short-term bridging solutions to get there. Just curious if you guys have any updated thoughts on that?
Jim Teague (Co-CEO)
Yeah, I got a lot of thoughts on that, Spiro. I was in a 2 hour, I was in a 2-hour meeting yesterday with Brent and Justin. You can imagine what it's like spending 2 hours with Brent and Justin, looking at all of our option, all of our options. Our options could be, we'll add another line called what are we calling that, Bahia?
Bahia.
We could partially loop Chinook and take Terminal out of NGL service. The bottom line is, we have to have more takeaway out of the Permian. You know, I guess I've got to have another two or three hours with Justin and Brent, we'll come up with a solution.
Spiro Dounis (Director and Senior Equity Analyst)
Sounds good. Appreciate the color, guys. Thanks again.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Jeremy Tonet with J.P. Morgan Securities. Your line is now open.
Jeremy Tonet (Managing Director and Senior Equity Analyst)
Hi, good morning.
Jim Teague (Co-CEO)
Good morning.
Jeremy Tonet (Managing Director and Senior Equity Analyst)
Just wanted to start off with, some of the NGL dynamics, as you talked about before. I think you mentioned, how ethane prices have been volatile as of late, and just wondering if you see that as kind of, logistics constraints, given heat in Texas or otherwise, and I guess future outlook for, you know, ethane and propane prices at this point, given the volatility that we've seen recently?
Jim Teague (Co-CEO)
Brent?
Brent Secrest (Chief Commercial Officer)
On, on ethane, I think what you saw last month is when nominations were due for ethane recoveries, the forward curve probably said not to recover, so you saw a bunch of ethane get rejected in the Permian Basin. You couple that with some operational issues on various plants across the entire basin. There was probably some frack rates that were lower than normal, and that made ethane very, very tight. I think if you look out forward, I think some of that volatility is gonna suppress, and I think we get back to probably more of a normal type ratio between ethane and natural gas. There was a culmination of factors that caused that.
Jim Teague (Co-CEO)
Hey, Graham, turn on your mic. We always talk, you know, we worry about plants going down in the winter. What's 103 temperature, then?
Graham Bacon (COO)
Certainly, there's some challenges with that. I wouldn't say it's been a material impact on our operating rates. We generally design for those conditions.
Jim Teague (Co-CEO)
What about others?
Graham Bacon (COO)
I can't speak for others.
Jim Teague (Co-CEO)
Well, I'm trying to get you to.
Just real quick on propane. When you look at just overall global demand, I think we've had four PDH plants come up in China so far this year. There's 11 other PDH plants scheduled to come online for the balance of this year.
Graham Bacon (COO)
Which propane is that all in?
Jim Teague (Co-CEO)
I mean, if you say 100% capacity factor, that's another 250,000 barrels a day. Those plants aren't running at those higher rates, but call it 65%-70%. It'll certainly put another bid under propane, just no matter how fast production comes online.
Jeremy Tonet (Managing Director and Senior Equity Analyst)
Got it. That's
Jim Teague (Co-CEO)
I would hope that we've seen the bottom on propane. That's my hope.
Graham Bacon (COO)
If not, we'll still price to export, right?
Jim Teague (Co-CEO)
That's right.
Jeremy Tonet (Managing Director and Senior Equity Analyst)
Got it. That's helpful. Thanks. Just, as we look going forward here, we keep seeing Enterprise's leverage dipping down and below three. Just wondering if that trend continues, what should we expect at that point? Leverage just continues to decline, or I think $2 billion-$2.5 billion of CapEx next year, could that increase, or just any other thoughts in general on capital allocation?
Graham Bacon (COO)
Yeah, Jeremy, you know, again, we're sort of in the middle of our range at 3.0 times. You know, and I, I think, again, the, the team is really bringing in some, some good commercial opportunities. We think growth CapEx would be $2 billion-$2.5 billion. Again, as I mentioned earlier, that is without SPOT. So, you know, I, I think we would just like to develop, let see it develop. You know, as far as returning capital, you know, we like I said, we picked up the pace on distribution growth, still doing some buybacks. Balance sheet is in great shape. Jeremy, I, I guess just staying in a position that, you know, a lot of opportunities come along, and we just want to be, in, in a good position to execute on them.
Jeremy Tonet (Managing Director and Senior Equity Analyst)
Got it. That's helpful. Thank you.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Jeananne Salisbury with Bernstein. Your line is now open.
Jean Ann Salisbury (Senior Financial Analyst)
Hi, good morning. Has the scope changed a bit for the Beaumont export terminal? It looks like from the slides you're adding propane exports there.
Jim Teague (Co-CEO)
You're pretty observant, Jeananne. Go ahead, Tug.
Tug Hanley (SVP)
All right. Yeah, the scope has changed on that. We previously announced a 120,000 barrel a day ethane train at Beaumont. Now what we're doing is we're proceeding with that train in addition to a 180,000 barrel a day ethane train that can also do up to 360,000 barrels a day of propane. We're not adding any additional ethane-only capacity. We're adding what we like to call flex capacity. We're doing that in lieu of our Re-Frac 4 expansion. We're opting for a much smaller capital project at our ship channel facility to increase our butane loading rates and allow for fully refrigerated PGP.
Jim Teague (Co-CEO)
Jeananne, well, in my script, I said multi-product and flexibility. Tug can go to somebody and say: "Look, you can take 3 tanks of ethane and 1 tank of ethylene, or, you can take 3 tanks of ethane and 1 tank of propane, or vice versa." We're trying to fix it where those things will all be, always be full, but not necessarily of the same product.
Tug Hanley (SVP)
Butane, propylene, ethane, ethylene, you name it.
Jean Ann Salisbury (Senior Financial Analyst)
Interesting. Thank you. Is the Acadian expansion running full already? Maybe more broadly, in your opinion, is Haynesville just completely full on gas takeaway now until as new pipes come on?
Natalie Gayden (SVP)
Hey, Jean Ann, this is Natalie. Haynesville, for us, our Acadian extension is full. Gas continues to produce even on our gathering systems, we're getting more and more gas every day.
Jean Ann Salisbury (Senior Financial Analyst)
Great. Thanks. That's all for me.
Operator (participant)
Our next question comes from the line of Colton Bean with TPH & Co.. Your line is now open.
Colton Bean (Managing Director and Global Energy Infrastructure Equity Research Analyst)
Morning. Just shifting back to the backlog, on the expected 2024 growth capital range, Randy, I think you outlined the $2 billion-$2.5 billion. Currently, improved projects look to be closer to $1.4 billion. Can you just characterize the type of projects that you're expecting to reach FID on, and the hurdles you would need to clear to move those projects into the official backlog?
Jim Teague (Co-CEO)
Yeah, Colt. Brent, you want to take some of this? Because you're on the front line of it.
Brent Secrest (Chief Commercial Officer)
Yeah, I mean, I, just to generalize this, Colton, I think everything's going to be centered around the Permian Basin. Whether that's an NGL pipe solution, whether that's processing plants, or whether that's an additional fractionator, it's going to be all centered around Permian production growth.
Colton Bean (Managing Director and Global Energy Infrastructure Equity Research Analyst)
Got it. effectively, all kind of NGL supply chain. Makes sense. on the operations side, it looks like Midland processing earnings were relatively flat Q on Q, despite the lower NGL pricing. have we, have we effectively reached fee floors for the acquired system at this point?
Jim Teague (Co-CEO)
Yes.
Colton Bean (Managing Director and Global Energy Infrastructure Equity Research Analyst)
Perfect. Thank you.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.
Keith Stanley (Senior Equity Research Analyst)
Hi, good morning. Wanted to start on, on SPOT. Just any update on commercial momentum and remaining permitting process, and how soon you could conceivably get to an FID on that project?
Jim Teague (Co-CEO)
We, I think we should have our license to construct, Graham, in September, October.
Graham Bacon (COO)
Yeah, that's, that's where it's trending right now. Everything's going well, right now in the licensing stage, and we're expecting it in the next-- within the next few months.
Jim Teague (Co-CEO)
In terms of, I mean, we're traveling the world on SPOT. We have a laser focus on getting customers on SPOT, and I think we will, and I believe we'll end up building it.
Keith Stanley (Senior Equity Research Analyst)
Okay. That could be by next year even, to be starting construction on that, do you think?
Jim Teague (Co-CEO)
Well, if Tug and Brent would get off their rear end and get to Asia and see everybody, we'd probably it'd probably be sooner rather than later. We we're gonna commercialize this thing, and we've got meetings. Brent and I are going to Europe later this month, Brent?
Brent Secrest (Chief Commercial Officer)
September.
Jim Teague (Co-CEO)
In September, the focus is on SPOT, where we, we're pulling out all, things to get it done.
Keith Stanley (Senior Equity Research Analyst)
Okay. Thank, thanks for that. The second question is just on, on the year overall. The, the project $9.3 billion target for EBITDA, you did $4.5 billion in the first half, but as you pointed out a lot, you've, you have a lot of major projects starting up. Commodities are improving. Just any updated thoughts on how you're feeling on that target, things that need to go right, areas where you may have cushion, et cetera?
Jim Teague (Co-CEO)
You know, I say this every time, that's not guidance, but it's a goal, and we reward all of our employees if we hit that goal. Somebody asked on one earnings call, have we ever had a goal that we didn't meet? We're bound and determined that our employees are gonna be rewarded by meeting 9.3 goal. What's gonna help us, I think, is if you talk to Tony, I mean, crude prices, I don't know what they're doing today, Tony, but they've been up $10 in the last, what?
Tony Anthony (Director of Technology and Data Solutions)
30 days.
Jim Teague (Co-CEO)
30 days. You know, the balances are tight. All of our plants are full. The key. Graham knows this, I think the key is keep the plants running because we will capitalize on any volatility.
Keith Stanley (Senior Equity Research Analyst)
Thank you.
Speaker 22
Thank you. One moment for our next question, please. Our next question comes from the line of Brian Reynolds with UBS. Your line is now open.
Brian Reynolds (Research Analyst)
Hi, good morning, everyone. Talk on the crude business, it seems to be finding its footing in terms of margin opportunity for the first time since COVID. Curious if you could just, you know, opine on whether you're seeing incremental barrels and opportunity come back to Houston as Corpus remains full, and if we continue to see green shoots into the back half of 2023. Thanks.
Jim Teague (Co-CEO)
Thank you. My script, what I said is we, we set a record for loading crude onto ships in the month of.
Tony Anthony (Director of Technology and Data Solutions)
July.
Jim Teague (Co-CEO)
July. Thank you, Tony. Yeah, well, Brent, I think you're seeing barrels move on in toward Houston.
Brent Secrest (Chief Commercial Officer)
Yeah, I mean, I think.
Jim Teague (Co-CEO)
Brent, before you answer that, but also talk about our quality improvements across the system.
Brent Secrest (Chief Commercial Officer)
I think fundamentally, we believe in Tony's production numbers as we go forward. We do think that the Corpus pipelines are full. We think what we've done, what we've done on our system as it relates to quality, has brought more interest. I do think when we speak to our customers, they want a bigger and bigger position in Houston. I think over time, and the other, the other piece on this is not all pipelines are created equal. There's other pipelines that go to Houston or go to Beaumont that are more challenged than our integrated crude pipelines. I think we're gonna be the beneficiary of this volume going forward.
Jim Teague (Co-CEO)
HOU.
Brent Secrest (Chief Commercial Officer)
HOU helps.
Jim Teague (Co-CEO)
Dated Brent, speak to that.
Brent Secrest (Chief Commercial Officer)
Yeah, I mean, just the HOU being able to deliver in Dated Brent, what we've done on our system, you're seeing the open interest on that contract continue to go up. We've set records in the last couple of weeks on daily traded volume. I think ICE had a press release recently, and went through some of those details, but all this just put together, lends itself to more interest in trying to get to Houston on our pipelines.
Jim Teague (Co-CEO)
I'm not supposed to ask questions. I will anyway. Where's Jay? How many of your cargoes have met Dated Brent specs?
Jay Zhen (Accounting Manager)
Yeah, since we implemented the new quality specification mimicking the Platts spec, every one of our export cargoes have met that specification since we adopted it in May.
Brian Reynolds (Research Analyst)
Great. Thanks for all the color. Maybe to just touch a little bit on M&A. You know, commentary coming out of the Analyst Day made it seem, seemed like it was coming or attractive for Enterprise. With nothing, you know, year to date, and, you know, EPD continuing to maintain its high bar for returns, just kind of curious if you could just give us a forward-looking update on potential M&A appetite or whether other uses of capital could impact the use of M&A going forward. Thanks.
Jim Teague (Co-CEO)
One of the things about building plants is you could build them where you want them, and that's what I love about building all these plants in the Permian, and we're probably not through building a fractionator where you want it. That's my color. Randy is the one you should ask.
Randy Burkhalter (VP of Investor Relations)
Yeah, it makes me want to go back and reread our transcripts from the Analyst Day. I didn't know we were that bullish on M&A. Yeah, you know, again, we'll take a look at opportunities that come up. We're, we're on, we're on every, every banker's Rolodex, so we get an opportunity to take a look and, and, you know, but I can't say that we're predisposed to come in and jump on M&A. If it makes sense, a good return on capital and it, you know, if it fits the system, dovetails in. I think that's one discipline that we've had over the years. It's not building a collection of assets, but coming in and actually ties in and bolts onto our system and provides downstream or upstream opportunities. You know, we'll continue to look at that.
Brian Reynolds (Research Analyst)
All makes sense. Appreciate the color. Thanks.
Speaker 22
One moment for our next question, please. Our next question comes from the line of Michael Blum with Wells Fargo. Your line is now open.
Michael Blum (Managing Director and Senior Equity Analyst)
Thank you. Good morning, everyone. I wanted to go back to, I think in the opening comments you, you touched on this a little bit, but I wanted to ask just specifically how you're seeing China demand right now as it relates to NGLs and where you think that's headed.
Brent Secrest (Chief Commercial Officer)
Yeah, Michael, this is Brent. If you look at. Let's take LPGs first, that came from our terminal. In first quarter, that number was 24% of our volumes went to China. Q2, we averaged 38%. When we go back and talk about those PDH plants, I think that's some effect right there. Then when you go to ethane, first quarter was about 33%, Q2, 26% went to China. With what Tug's been doing on ethane contracts, I think you'll see that number go up of what's going to China.
Michael Blum (Managing Director and Senior Equity Analyst)
Okay, got it. Just have, like, a broad question on drilling activity. Are there, are there any regions you'd highlight where you're just seeing a change in either rig activity or, or messaging from producers, either, either up or down?
Tony Anthony (Director of Technology and Data Solutions)
Yeah, this is Tony, Michael. You know, we're in the middle of earnings season and producers are reporting, but if you look at, you know, think Exxon, think Chevron, Diamondback reported today, everybody is, is saying the same thing. They continue to see drilling and completion efficiencies, and not by a little. They are seeing cost mitigation in some in, in predicting, depending on where they are in the value chain, some amount of even deflation on costs, so better returns. When you look at the, the longer laterals are key to what they're doing, cube development. I mean, the producer continues to get even more and more efficient. So, you know, we, we look at it all the time. We talk about it. We talk about it with each of our producers.
It's been difficult to look at the EIA numbers and try to figure out what production is doing, but I can tell you that we're on target per our own numbers to be in the 500,000-700,000 barrel a day range increase year end to year end. I mean, watch what the producers are saying on, on, during the Q2. No one has a bad story. Everybody is very, very upbeat. On top of that, I guess last but not least, our own calculation are DUCs, or they continue to grow. Not only are things going well for them, but they're building significant amount of, of headroom.
Michael Blum (Managing Director and Senior Equity Analyst)
What about Haynesville?
Tony Anthony (Director of Technology and Data Solutions)
Haynesville rigs, you know, let's look at completions there. Completions, frac crews in the Haynesville went from, call it, 15 to 18, down at a point to 7. They're back up to around 14 today. If you look at the forward curve, the forward curve says Haynesville drillers should keep drilling, that they have value there. The world is now watching it as that variable basin in the United States for natural gas production. It could go, I'm just gonna use some generic numbers, it can go up 2 Bcf or it can go down 2 Bcf. That's a 4 Bcf swing over in about an 18-month period. That's what you've seen through the cycles in Haynesville.
Michael Blum (Managing Director and Senior Equity Analyst)
Perfect. Thank you.
Operator (participant)
Thank you. One moment for our next question, please. Our next question comes from the line of Neal Dingmann with Truist Securities. Your line is now open.
Neal Dingmann (Managing Director)
Good morning, all. Thanks for the time. My first question is on Permian processing margins, given Waha pricing. I'm just wondering, how do you see the margins going forward, including the impact from your fee floors?
Jim Teague (Co-CEO)
I think they will be better in the second half. It worked great in the first half. Is that, is that fair?
Brent Secrest (Chief Commercial Officer)
It's fair. I think the trend, if you model out the forward curve, you know, which is a good thing, on the % that hits the floor, it gets, it gets a lot less.
Neal Dingmann (Managing Director)
Okay, thanks, Brent. Then, second, just on the marine exports of the LPG and ethane. I think you all previously mentioned strong demand. You know, Jim, I think you even mentioned, I think it was around 240,000 barrels a day of new contracts. Is this still expectations or are you seeing, you know, kind of production continue to grow in this area?
Michael Blum (Managing Director and Senior Equity Analyst)
I think, you know, if you look at what we're doing, it kind of tells you what we believe. What we're doing is expanding our ability to export across the hydrocarbons chain. Yeah, we, you know, we believe Tony... If Tony's wrong, hell, I'll be somebody's house boy, I guess, because that's what we're doing.
Neal Dingmann (Managing Director)
Thank you, all.
Operator (participant)
Thank you. one moment for our next question. Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.
Neel Mitra (Senior Energy and Power Analyst)
Hi, thanks for taking my question. I wanted to ask your exposure to spot ethane prices. Were you able to, to sell spot ethane out of maybe some of your purity storage in Mont Belvieu to downstream players and, and benefit from that? Conversely, did you have any downstream obligations like, you know, possibly being short on Morgan's Point because of outages? Just wanted to see how that would kind of play out for, for 3Q now that we have a, a full month of prices over $0.30 a gallon.
Michael Blum (Managing Director and Senior Equity Analyst)
You know, one of the most valuable assets we have is our storage. Yes, we were able to take advantage of the volatility on ethane. No, we were of no issues with being short at Morgan's Point or anywhere else.
Neel Mitra (Senior Energy and Power Analyst)
Great. Second question. You know, we started the year off in the first quarter with, with very high LPG exports, and I know we're seasonally weaker in the Q2. When does that seasonality start to pick up so that it's a benefit again for the second half of the year?
Michael Blum (Managing Director and Senior Equity Analyst)
Brent, let's let Tug take it, but I, I mean, I mean, I mean, what's our export volume?
Tug Hanley (SVP)
Yeah, we're, we're, we're gonna be a little, little bit soft in the month of August.
Michael Blum (Managing Director and Senior Equity Analyst)
What do you call soft? 18 million barrels?
Tug Hanley (SVP)
Yeah, right around there.
Michael Blum (Managing Director and Senior Equity Analyst)
I don't call that soft.
Tug Hanley (SVP)
Around September, I mean, we're, we're fully booked up. Then I'll just, just note as well that we are seeing dock margins increase, specifically in the month of August and September forward.
Neel Mitra (Senior Energy and Power Analyst)
Okay. Thank you.
Operator (participant)
Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Randy Burkhalter for closing remarks.
Randy Burkhalter (VP of Investor Relations)
Thank you, Norma. I think that covers it pretty well. I don't have any closing remarks. I'd just like to thank everybody for joining us today and for our call, and have a good day. Goodbye now.
Operator (participant)
This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.