ONEOK - Q2 2024
August 6, 2024
Transcript
Operator (participant)
Welcome to the ONEOK second quarter 2024 earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touchtone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Andrew Ziola, Vice President of Investor Relations. Please go ahead.
Andrew Ziola (Head of Investor Relations)
Thank you, Dave, and good morning, and welcome to ONEOK's second quarter 2024 earnings call. We issued our earnings release and presentation after the markets closed yesterday, and those materials are on our website. After our prepared remarks, management will be available to take your questions. Statements made during this call that might include ONEOK's expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provision of the Securities Acts of 1933 and 1934. Actual results could differ materially from those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Just a reminder for Q&A, we ask that you limit yourself to one question and a follow-up to fit in as many of you as we can.
With that, I'll turn the call over to Pierce Norton, President and Chief Executive Officer. Pierce?
Pierce H. Norton II (President and CEO)
Thanks, Andrew. Good morning, everyone, and thank you for joining us. On today's call is Walt Hulse, the Chief Financial Officer, Treasurer, and Executive Vice President, Investor Relations and Corporate Development, and Sheridan Swords, Executive Vice President, Commercial Liquids and Natural Gas Gathering and Processing. Also available to answer your questions today are Chuck Kelley, our Senior Vice President of Natural Gas Pipelines, and Kevin Burdick, who's the Executive Vice President and Chief Enterprise Services Officer. Yesterday, we announced the second quarter 2024 earnings and affirmed our full year 2024 financial guidance. Well, record Rocky Mountain region volumes, continued progress on acquisition-related synergies, and solid demand on our products and services drove our strong second quarter performance and provide momentum into the second half of 2024.
Increasing volumes across our gathering and processing and natural gas liquid segments, and the demand for our natural gas pipeline services, combined with the strategic opportunities in our refined products and crude oil segments, continue to provide confidence in our long-term growth and highly attractive returns across our business. We continue to identify opportunities to expand and to extend our systems, with recent announcements tied specifically to the commercial opportunities and synergy-driven growth in our natural gas, liquids, and refined products and crude segments. In June, we completed our acquisition of a system of NGL pipelines from Easton Energy. This acquisition was unique in that it made sense for ONEOK even before the acquisition of Magellan, because of the ability to capture value downstream of our Mont Belvieu fractionation assets. Now, add in the legacy Magellan assets, and the value creation and return potential is even greater.
In addition to the acquisitions, we continue to see substantial organic growth opportunities. In July, we announced the expansion of our refined products pipeline to the greater Denver area. This project will provide additional needed capacity for various transportation fuels, including aviation and sustainable aviation fuel, to support increasing demand from the significant future expansion of the Denver International Airport. Also in July, we received our first shipment of sustainable aviation fuel at our Galena Park Marine Terminal in Houston, facilitating growth with sustainable fuels in this market. These opportunities are all in addition to our previously announced NGL-related growth projects, including our MB-6 fractionation and expansions of our Elk Creek and West Texas NGL pipelines. Sheridan will provide a more detailed explanation of those projects and timing and more to that shortly.
Long-term volume commitments, strong operating performance, and a proven track record of supporting our customers with reliable capacity gives us the confidence in our future growth, and we remain committed to investing alongside our customers. Less than a year after the Magellan acquisition, we're already seeing significant synergies and discovering new growth opportunities that wouldn't have been possible for either company on its own. Our integrated assets are proving their value, and our potential for additional growth remains. With that, I'll turn the call over to Walt.
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Thank you, Pierce. ONEOK's second quarter 2024 net income totaled $780 million, or $1.33 per share, representing an earnings per share increase of 28% compared with the second quarter of 2023, and a 22% compared with the prior quarter. Second quarter Adjusted EBITDA totaled $1.6 billion. Results were driven primarily by higher NGL and natural gas processing volumes in the Rocky Mountain region, increased transportation services in the natural gas pipeline segments, and contributions from the refined products and crude segment. The sale of non-strategic gathering and processing assets in Kansas contributed to a pre-tax net benefit of approximately $50 million during the quarter.
We expect the full year net benefit from the sale to be approximately $40 million when considering the earnings the assets would have provided through the remainder of the year. As Pierce mentioned, we affirmed our 2024 financial guidance after increasing it with our first quarter earnings announcement. That increased guidance range included an expected Adjusted EBITDA midpoint of $6.175 billion, with the high end at $6.325 billion. We continue to expect to meet or exceed our midpoint of $175 million in cost and commercial synergies in 2024, and expect additional annual synergies to meet or exceed $125 million in 2025. As of June 30, we had no borrowings outstanding under our $2.5 billion credit agreement.
During the quarter, we extended the maturity of our revolving credit facility to June 2028. In addition, our run rate net debt to EBITDA ratio was 3.36 times at the end of the second quarter, in line with our long-term leverage target of 3.5 times. We have an approximately $480 million maturity due in September, which we expect to pay with cash, strengthening our balance sheet even further. This will position us well to continue returning value to our investors through a strategic and balanced capital allocation approach. Our approach remains, and all of the above strategy, utilizing a combination of high return capital projects, dividend growth, debt reduction, and share repurchases. I'll now turn the call over to Sheridan for a commercial update.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Thank you, Walt. Beginning with the natural gas liquid segment. Volume growth from the Rocky Mountain and Mid-Continent region of 17% and 16% respectively, compared with the first quarter of 2024, drove higher earnings in the second quarter. Rocky Mountain region growth was primarily from increased propane plus volume, with higher incentivized ethane also contributing. The Mid-Continent saw more ethane recovery compared with the first quarter, as well as contributions from overall NGL growth sequentially. In the Permian Basin, we had higher volumes committed short term in the second quarter of 2023 and the first quarter of 2024 than in the second quarter of 2024. We've since recontracted much of that capacity with volumes committed for longer terms. We continue to see opportunities to recover ethane across our system.
Favorable ethane economics will continue to depend on natural gas values and ethane demand at petrochemical facilities. Dynamics through the remainder of the year could provide a tailwind to our modest ethane recovery assumptions and guidance. We've made significant construction progress on our capital growth projects and now expect the West Texas NGL Pipeline expansion and our MB-6 fractionator to be in service by the end of 2024. Our previous in-service estimates were the first quarter of 2025 for both projects. On the West Texas NGL expansion, the full pipeline looping, providing a capacity of 500,000 barrels per day, is expected by year-end, with a few remaining pump stations to be completed to get to the full capacity of 740,000 barrels per day. The Elk Creek Pipeline expansion remains on track for the first quarter of 2025 completion.
Additionally, today, with our expanding need for fractionation capacity, we are announcing a project to rebuild our 210,000 barrels per day NGL fractionator in Medford, Oklahoma. The project is expected to cost approximately $385 million and be completed in two phases, with the first expected to be completed in the fourth quarter of 2026 and the second phase in the first quarter of 2027. Rebuilding at Medford provides a number of strategic benefits. It is the lowest cost per barrel expansion option for ONEOK to help address the expected increase in NGL production. Its location in the Mid-Continent will further increase the reliability and resiliency of ONEOK's fractionation capabilities and will allow our integrated system to accommodate volume growth from the Permian, Bakken, and Mid-Continent.
The Medford fractionator will also produce additional butane and natural gasoline for incremental refined products and diluent blending opportunities in the Mid-Continent. As Pierce mentioned, we recently completed a strategic acquisition of NGL assets from Easton Energy in the Houston area. These assets will provide connectivity between our NGL and refined product systems and with key customers in the area. The acquisition came with associated earnings from existing volumes, and we expect to fill the additional capacity of this system, providing a very attractive return on the project through committed volumes we control. In addition to tariff earnings on the system, we also expect the acquisition to accelerate our commercial synergy opportunities, primarily related to blending.... The close proximity of our NGL and refined products terminals to major refiners in the Houston area, and now improved connectivity, presents considerable opportunities to capture value downstream of our fractionation assets.
We expect to complete connections from the legacy Houston asset to our Houston-based assets beginning in mid-2025 through the year-end 2025. Moving on to the refined products and crude segment. Gasoline and jet demand were strong in the second quarter, supported by the beginning of a robust summer travel season. As it relates to marketing and optimization, we were able to optimize our assets through forward sales to capture higher margins on our liquids blending activity. As Pierce mentioned, we recently announced the expansion of a refined products pipeline system from Kansas to the greater Denver area, including an additional direct connection with the Denver International Airport. Total system capacity will increase by 35,000 barrels per day, with low-cost expansion opportunities available as demand continues to grow in these markets. Following a successful open season, the additional capacity is fully subscribed.
The project is expected to cost approximately $480 million and be completed in mid-2026. Moving on to the natural gas gathering and processing segment. Rocky Mountain region processing volumes increased 10% year-over-year, averaging a record of more than 1.6 BCF per day during the quarter. There are currently 40 rigs in the Williston Basin, with more than 20 on our dedicated acreage. As we look to the remainder of the year, we are reaffirming our volume guidance due to the benefits we're seeing from the drilling of longer laterals and higher well performance on traditional laterals, without the need for as many well connects. In the Mid-Continent region, we are currently seeing 35 rigs in Oklahoma, with 6 operating on our acreage.
With current commodity prices, we expect producers to continue concentrating activity in the oilier and NGL-rich regions, areas in the region, and as natural gas prices strengthen towards the remainder of the year, we could see rig activity increase in the gassier regions. In the natural gas pipeline segment, we benefited from higher firm and interrupted transportation rates in the second quarter. The demand for natural gas storage remains high. Progress continues to be made on our current expansion projects in Texas and Oklahoma, which both have firm contracts extending beyond 2030. In the second quarter, we completed 2 BCF of the Texas project and expect the remaining 1 BCF to be in service next month. Our Oklahoma project is expected to be completed in the second quarter of 2025. Pierce, that concludes my remarks.
Pierce H. Norton II (President and CEO)
Thank you, Sheridan and Walt, for those updates. Before we conclude, I'd like to express my deep appreciation to our Houston-based employees for their incredible dedication through Hurricane Beryl and its aftermath. Despite challenging weather conditions and persistent power outages, they remain committed to ensuring the safe and reliable operations of our assets in the area. Many also faced impacts to their own homes, yet they continued to demonstrate resilience and professionalism. So I wanna thank you personally for your dedication and the efforts that you showed during this aftermath of this event. ONEOK employees have consistently demonstrated dedication to responsible operations and doing things the right way. As our business has grown, we have continued our commitment to our company-wide sustainability program and practices.
This dedication has been recognized with the MSCI AAA rating and being named as one of America's Greatest Workplaces in 2024 by Newsweek. As we close our prepared remarks, we published our sixteenth Corporate Sustainability Report last week, outlining our safety, environmental, and governance programs. This report details our efforts and progress in these crucial areas as we continue to deliver the energy the world needs while innovating for the future. Operator, we're now ready for questions.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Spiro Dounis with Citi. Please go ahead.
Spiro Dounis (Director)
Thanks, operator. Morning, team. First one, maybe just to, to start with the guidance. Walt, if you just go back over some of your comments and guide for the year, you maintained the range, but, but I think in some of your comments there, you seem to mainly make reference to the midpoint and high end. Then if I combine that with Sheridan's comments around ethane being a tailwind in the back half of the year, seems to suggest, like, coming in below the midpoint is, excuse me, getting a little bit more remote here. So one, am I kind of reading through some of those comments correctly? And as you think about that second half of the year, what needs to go right here to kind of beat the midpoint?
Pierce H. Norton II (President and CEO)
Spiro, this is Pierce. You know, Walt mentioned in his, in his comments that we did raise guidance in the first quarter. ... during that analyst call. Personally, I like, the team likes where we are and where we're trending to, and it does give us a lot of confidence in the back half of the year. So we're gonna take a look at this guidance again, as we come to you guys with some additional information in the third quarter. So that's the way I'd answer your question.
Spiro Dounis (Director)
No problem. We'll be patient on that one. Second one, maybe just going to Double H. You know, of course, one of your peers has announced a conversion to an NGL pipeline up in the Bakken, where you've sort of enjoyed a lot of the market share there. So curious how you're assessing the risk to your Bakken position at this point, and is there a scenario where you actually see some of these volumes flow on OPPL and maybe into a T-Frac?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, sure, with this chart, and what I would say is we were aware this pipeline was being considered as an alternative for NGL takeaway out of the region and don't expect a material impact on our business. We have long-term contracts in the basin with a very small amount of NGLs in the Williston area up for contract renewal in the next 5 years. The average life on our contracts in the Williston Basin today is over 9 years. We think we provide a superior service, both with dual pipeline offerings, redundancy and reliability to our customers, and a seamless service from the Bakken to market centers in Conway and Mont Belvieu on one system, with the overall best value through our integrated system. As we talk about, volumes moving on—could volumes move on OPPL?
Currently, today, OPPL is on, is full and on allocation. We control over 70% of that allocation, and I think if you think about volume coming onto OPPL, people must be assuming that when we complete the Elk Creek Pipeline, we will move volume off of OPPL, and that is not a foregone conclusion.
Spiro Dounis (Director)
Got it. Appreciate all the color there. Thank you, gentlemen.
Operator (participant)
The next question comes from Jeremy Tonet with J.P. Morgan. Please go ahead.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Hi, this is, Jeremy Tonet with J.P. Morgan. Good morning.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Morning. Good morning.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Just wanted to pick up with synergies, if I could. Following the Easton acquisition, wondering if you could provide a bit more color on what you see this unlocking, specifically for your platform, especially post Magellan acquisition. Just wondering if you could provide a bit more color on what could be accomplished.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Sure, Jeremy, this is Sheridan. Then you go back to the Easton acquisition. We had our eyes on the Easton acquisition for a period of time because we saw that as a way to continue to move our product downstream of our frac directly through pipelines to end users. In fact, a lot of the product today that's on Easton comes from our fractionation complex in Mont Belvieu. But with the Magellan acquisition came up, what we saw was an opportunity to buy Easton to create a more capital efficient and faster way to connect our NGL and refined product systems, thus accelerating our commercial synergies through this acquisition, instead of doing new builds, which would take longer. So really, we're gonna capture the synergies that we thought before. We're just gonna capture it at a lower capital cost and faster.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Got it. That's very helpful there. Thank you. And then just moving along, I guess, with producer activity, you know, as you, as you see it right now, I wonder if you could provide a bit more color on how things are shaking out, particularly, given, you know, Bakken well connects, year to date versus your guide. Just wondering, any thoughts you could share there?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, I would just say that on the volume side, we still are reaffirmed our guidance on volume. What we are seeing is, as we have talked earlier about longer laterals, and so the wells are producing more efficient, and so we see that we don't need as many well connects to reach our volume guidance that we have in there, and that's been a pleasant surprise this year. We knew we'd see some of it, but it's even more a pleasant surprise. So even you see that our well connects seem to be a little bit down, we're still very confident in our volumes the remainder of this year and going into 2025.
Jeremy Tonet (Executive Director and Senior Equity Research Analyst)
Got it. That's very helpful. I'll leave it there. Thanks.
Operator (participant)
The next question comes from Theresa Chen with Barclays. Please go ahead.
Theresa Chen (Managing Director of Midstream and Refining Equity Research)
Morning. I'd love to get your thoughts on the strength in the refined products and crude segment. Just put some takes on what's driving that. Is it, you know, largely seasonal? Are you realizing the synergies ahead of schedule? And as we look to the second half of the year and kind of, you know, touching on the broader discussion of where you're gonna land within your guidance. Within this segment, as we see downtime in the Chicago area and the product margins, as well as regional product spreads spike as a result, would it reasonable to think that that would increase your earnings in this segment above what you typically budget year in, year out?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Theresa, this is Sheridan. I think if you start off really, it's kind of all the above. We are seeing our synergy capture coming in very nicely and very strong, and, and that will accelerate through the remainder of the year. So we are very confident, as we said, that we will be at the cost and commercial synergies at or above the $175 million that we have outlined. We are, we are seeing a little bit of seasonality, a little bit more volume in the summer months. But as you remember, as we get into the back half of the third quarter, we'll - our blending activity will ramp up, so we will see a growth in that time as well.
The issues we have in Chicago are creating a little bit of tailwinds for us right now, but we always anticipate we will see some of refinery turnarounds throughout the year. So we feel very comfortable where we are sitting at today on both our synergies and where the refined product crude segment's gonna end the year at.
Theresa Chen (Managing Director of Midstream and Refining Equity Research)
That's helpful. Thank you. And then on your expansion project into Denver, can you help us think through the economics related to that expansion? And if there are additional opportunities as you assess the landscape, you know, within the segment, to expand your infrastructure based on committed volumes to additional inland premium markets?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, I would say, Theresa, on the expansion, this is a 5x multiple project on 35,000 barrels a day. Obviously, we laid a 16-inch... We're laying a 16-inch line into Denver, and that's why we say we have very cheap expansion capability on that pipeline as we anticipate volume to continue to grow. And if volume continue-- I mean, if demand continues to grow and we need more volume on that pipeline system, we will go out for a subsequent open season.
Theresa Chen (Managing Director of Midstream and Refining Equity Research)
Thank you.
Operator (participant)
The next question comes from Tristan Richardson with Scotiabank. Please go ahead.
Tristan Richardson (Managing Director)
Hey, good morning, guys. Could you talk a little bit about ethane across the basin? Seemingly pretty strong recovery in the MidCon and in the Rockies. But is this, is ethane trending better than maybe you were thinking at the beginning of the year? And then just how you see the second half looking.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Tristan, Sheridan. Ethane, is gonna be volatile. It's gonna be up and down, as we said. It's gonna be dependent on, natural gas, prices. That's why we've always put just a very modest amount of ethane recovery into our, guidance as we look forward. Right now, we are seeing the Permian is in full recovery. The, Mid-Continent at this time is in rejection. We do have already locked in some incentivized ethane, through the third quarter and into the fourth quarter. So we see that going, and we'll just have to watch and see how the ethane market evolves as it changes. We do see that the petrochemicals are having a very wide spread between ethane and ethylene. It's very wide right now, so they're wanting to run at, high utilization rates.
We anticipate that we will see some recovery in the ethane markets as we finish the remainder of the year.
Tristan Richardson (Managing Director)
Appreciate it, Sheridan. And then, maybe, Walt, curious, you know, you haven't offered anything on 2025 CapEx yet, but just given that you've pulled some projects forward, and you've said in the past, you, you really expect a downtrend in 2025 versus 2024 CapEx, you, curious if, if we should see that maybe amplified with some of the projects pulled forward into 2024?
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Well, Tristan, we were, you know, we were gonna be finishing up those projects in 2025. So clearly, the capital that was associated with the tag end of those projects is gonna move forward into 2024, and that'll be a positive for our CapEx. In 2025, you know, we've added the Denver project, spread over a couple of years, that isn't really a material increase to our capital. So I think the trends we've talked about in the past continue to be true. And we're, you know, getting to that point where we're gonna enjoy the operating leverage we have built into our system. And, you know, as we fill that demand, we're gonna see that drop to the bottom line.
Tristan Richardson (Managing Director)
I appreciate it, Walt. Thank you guys very much.
Operator (participant)
Next question comes from Keith Stanley with Wolfe Research. Please go ahead.
Keith Stanley (Equity Research Analyst of Midstream and Natural Gas)
Hi, good morning. Several of your producer customers in the Bakken have announced mergers, Conoco, Marathon, Devon, and Grayson Mill. Any thoughts on what you think that could mean for Bakken production and your business over time?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Keith, this is Sheridan. One thing I'd tell you is all those producers, all those on both sides of the acquisition up in the Bakken, we have very good relationships with them, not only in the Bakken, but also in other areas as well. And we think that they will... As we've talked to them a little bit, we think that it's not gonna have an immediate impact on what's going on up there. They're gonna continue their cadence they do as drilling. There may be even some upsizing to the right to-- as they go to the more better areas or more in the core areas and drill those a little bit faster.
So we are feeling very good about the consolidation that's happened up there going into the hands of strength, and they will wanna be producing up there for the long period of time.
Keith Stanley (Equity Research Analyst of Midstream and Natural Gas)
Great, thanks. And I wanted to follow up just on the Denver project. So, I mean, the whole Magellan business has historically been viewed as a lower growth, kind of high return on capital business, but the Denver project's pretty material, when you think about it. Are there other material opportunities across refined products besides Denver, that you could pursue other areas of the system that are getting tight on capacity or seeing more of a demand deflection?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
... Absolutely. We continue to look for those areas as well. We think there's some other opportunities. One is we continue to think El Paso showed some strength as well, as we have completed our expansion into El Paso, and it is running full. We've actually had an open season on a little smaller expansion on there that was fully subscribed, so we're already seeing a little bit more growth in that area, and we're encouraged about that continuing to grow. And then our teams are continuing to look for different areas, synergies or growth that we can expand our system as well. So we are excited about the growth in the refined product and system that we think we will see it at a higher rate than has been typically seen in that business.
Keith Stanley (Equity Research Analyst of Midstream and Natural Gas)
Thank you.
Operator (participant)
The next question comes from Michael Blum with Wells Fargo. Please go ahead.
Michael Blum (Managing Director)
Thanks. Good morning, everyone. Wondering if you have any updates on potential AI data center-related projects in the gas pipeline segment?
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Good morning, Michael. This is Chuck. Yeah, since we last spoke last quarter, as I mentioned then, we had about 15 projects, potential projects across our footprint. Of those, there were three that specifically stated AI. Since then, we've our number's up about to 17 on the potential power plants, and of which five are AI AI demand, specifically. Approximately across our footprint, these five are right in the neighborhood of a BCF per day. So again, early stages, but more to come.
Michael Blum (Managing Director)
Okay, got it. Thanks for that. And then just was looking for an update on Saguaro, any recent conversations and what's kind of the latest thinking there on timing of FID, if that's gonna happen? Thanks.
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Yeah, I would just remind everyone, you know, this, this really is a commercially strong project with world-class customers, and it makes great commercial sense. I mean, you've got Permian supplies, LNG demand pools, competitively advantaged to the Asian markets. So MPL is working on their project financing to make their final investment decision. And at this time, we are not anticipating material capital spend on our behalf here in 2024.
Operator (participant)
The next question comes from Manav Gupta with UBS. Please go ahead.
Manav Gupta (Senior Equity Analyst)
Good morning, guys. My first question is, can you—you talked a little bit about ethane. Can you also talk about, you know, any butane blending opportunities in your system at this point of time?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Yeah, Manav, this is Sheridan, and we—I mean, obviously, we have opportunities as we continue to integrate the refined products and NGL systems together, that we have the opportunity to take our butane and put it into our refined products instead of having to buy it from a third party. So just from a sourcing and logistics savings, we're seeing that opportunity. And also, we continue to find ways to blend more butane into our refined products across our system by more automation and understanding, directing volumes through our system. So we are very pleased with where we're sitting on our blending strategy at this time. And obviously, we have found some projects to that take some capital that will be more into next year.
We'll see Easton being one of them, but we'll see greater blending opportunities next year as we put some of these capital projects, small capital projects into service.
Manav Gupta (Senior Equity Analyst)
Perfect. My quick follow-up is, you kind of mentioned earlier, hinted to it, that 2025 CapEx obviously now would be lower than 2024. So your growth projects are kicking in and the CapEx is lower, so, the free cash flow next year would be higher? I'm just trying to understand if there is a preliminary plan and how should we think about those uses of that extra cash that is going to come out in 2025.
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Well, as we stated before, back in January, the board did give us an authorization to buy up to $2 billion worth of stock. You know, we remain committed to our level of capital allocation. Our first goal is always to find high growth projects that are extremely accretive to our shareholders. Then we want to maintain that balance sheet. You know, we've clearly demonstrated that we have a very strong dividend that we've maintained through some very difficult times over time and continued to grow. And then if we have excess cash, you know, that does provide the opportunity for stock repurchases. We fully expect to complete that $2 billion program over the time program that we had announced.
And we haven't bought any to date, as we mentioned on the first quarter call, because we do have this maturity coming up in September, that we were gonna focus our free cash flow on, through that. And we will just allocate as appropriate as we get out in the coming quarters.
Manav Gupta (Senior Equity Analyst)
Thank you so much.
Operator (participant)
The next question comes from Neal Dingman with Truist. Please go ahead.
Neal Dingman (Managing Director of Energy Research)
Hey, good morning, guys. Just wanted to approach the data center question from a different angle, not, not really on new projects, and, and this might be early, but has the downward market activity in the last month changed the conversation side of this at all? I would assume they're not changing their, you know, demand forecast in real time, but have there been any maybe pauses in conversations, or do some parties want to take a step back, or is everything kind of steady as she goes?
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
... I'm sorry, Neel, could you repeat the first part of that question? You said something about the past month.
Neal Dingman (Managing Director of Energy Research)
Yeah, just the downward activity in the market over the past month. Has that impacted the conversations at all, or is everyone still looking so long term that, you know, maybe downward activity over the last month is just kind of a blip?
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
No. As a matter of fact, it hasn't impacted the discussions at all. As a matter of fact, we see even more activity here this month and then in the next several months. So, you know, the markets are looking long term and, you know, when you're looking at having to add facilities to serve these markets, that takes time. That's understood both by the power generators and the commissions that they answer to. So, no impacts at this time.
Neal Dingman (Managing Director of Energy Research)
That's helpful. Thank you. And then the second one, on slide 10, you do a really good job of showing Williston Basin GORs and kind of how flaring has tailed off, and maybe that relationship is, you know, related. But do you see that continuing? Is this more of an inventory just drifting with a higher GOR, or is there any other - have it kind of plateaued on that trend?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, I would say on the GOR question, we know that as wells age, the GOR goes up. So a little bit, the movement in the GOR we see is more based on drilling activity, as if you drill in an area that starts at a lower GOR, it may pull the overall GOR down for a little bit, but those wells, even wells that start at lower, will continue to grow. So, overall, we see the GORs increasing in as a general trend, increasing in the Bakken.
Neal Dingman (Managing Director of Energy Research)
Appreciate the answers. Thanks.
Operator (participant)
The next question comes from Neel Mitra with Bank of America. Please go ahead.
Neel Mitra (Senior Analyst)
Hi, good morning. Thanks for taking my question. I wanted to touch on the, the share repurchase. I think, the leverage level over the last 12 months has been 3.36, which you pointed out. Are you looking to buy back shares after the September debt maturity, or are there other factors or criteria which you're waiting for to start executing on that $2 million program?
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
No, I think the plan is to, you know, allocate the capital as appropriate from, you know, the third quarter through the remainder of the program. So, you know, it's over several years and, you know, we expect that to be executed in, you know, each of those years going forward. But it will obviously ebb and flow as we have opportunities to spend capital on high growth projects in a particular quarter, then, you know, it will be allocated there, and other quarters, it'll go, you know, go in other directions. So, but we are committed to completing the program over the time period that we have said, and I think on track with our plans with this maturity coming up in September.
Neel Mitra (Senior Analyst)
Okay, perfect. My second question relates to the Medford rebuild. Could you talk about the decision to move forward with that? My understanding was that with the Magellan merger, you're able to batch NGLs up the refined pipes, so there was an ability to maybe replicate Medford with Mont Belvieu sending volumes up to Conway and then also with the Easton acquisition. So maybe you can kind of educate me on that, on you know, the where I'm wrong or what's not connecting and how Medford benefits ONEOK.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, I think the first thing how Medford benefits ONEOK is you just do the math on 210,000 barrels a day at fractionation capacity for $385 million. That is a very low cost per barrel capacity for fractionation. The second thing is what you're alluding to, is could we take all our raw feed all the way down to Mont Belvieu and fractionate it, then turn it around and take certain products and ship them all the way back up to the Mid-Continent and deliver them into the Mid-Continent. That could be a possibility. This is a much more efficient way to do that, to have all those volumes, not have to make that travel and consume that variable cost.
We'll fractionate them in the Mid-Continent, be able to put them back into the Mid-Continent as we need them, but still have the ability to move them down into the Gulf Coast. The third thing it also does is, by not having to move all that raw feed down, all the way down to Mont Belvieu to fractionate and bring it up, we are actually creating capacity on our Arbuckle system to be able to source even more raw feed into the Mont Belvieu system. So we're moving that volume off of the Arbuckle system, fractionating it in Medford, and then putting it on the Sterling system. So it's a much better way to balance our system as we go forward. So our system was really designed to have Medford where it is, and it runs more efficiently that way.
So we're pretty excited about bringing this facility back up.
Neel Mitra (Senior Analyst)
Okay, perfect. I appreciate all the detail.
Operator (participant)
The next question comes from Craig Shere with Tuohy Brothers. Please go ahead.
Craig Shere (Director of Research)
Hi, thanks for taking the question. Congratulations on the strong performance.
Walt Hulse (CFO, Treasurer, and EVP of Investor Relations and Corporate Development)
Thank you.
Craig Shere (Director of Research)
I just have one question. It's, it's obvious that you're, finding ways to, more than nickel and dime at, at very high return, you know, stable contracted growth that is beyond what was originally guided with the Magellan acquisition. But this kind of relates to some of the questions that have already been asked, but it seems that apart from contracted, stable, very high return growth, that your asymmetric optimization opportunities between y-grade or purity NGL transport with increased lending opportunities with the Easton acquisition and more, that in any given year, I mean, it's not going to go down, but you have increasing asymmetric upside in any given year. Am I thinking about that wrong?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
No, Craig, I think you are thinking about that correct, especially, as we continue to put into place some of these low capital projects that I had mentioned about earlier, we are going to increase our blending opportunities, both with our blending our refined products, blending butane into gasoline that we do, but also with the Easton acquisition, we have customers at our terminals now that are also blending NGLs into their facilities. And this is going to allow really allow us to supply that those volumes into those locations and create a bundled service in there, where we're looking at the whole value chain, and we'll be able to track even more volume into our terminals on the Gulf Coast down there.
So yeah, I think you are seeing that we will continue to grow this, and this is an area that we saw that when we bought the Magellan acquisition, and it, and it has been... We've been very pleased with how it's playing out.
Craig Shere (Director of Research)
Craig, that's a good-
Pierce H. Norton II (President and CEO)
This is Pierce. I want to add one thing to what Sheridan says, you know, as a big picture comment, as this company has gotten more diversified, it is harder, you know, to point to one thing that maybe that will drive our numbers down, which is, I think, what you're kind of alluding to, is that, you know, there's not maybe as much downside as maybe we've had in the past. So I think that's one comment I would make to your question.
Craig Shere (Director of Research)
Right. That, that's very helpful. And I think Sheridan's point that, you know, it's not just the optimization I mentioned, but increasing bundled opportunities, which would seem to be even more stable long-term returns that get the icing on the cake potential with the optimization. But all of it's happening at once as you take these expansion and attractive bolt-on opportunities.
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Sure.
Operator (participant)
The next question comes from Sunil Sibal with Seaport Global. Please go ahead.
Sunil Sibal (Managing Director of Senior Energy Infrastructure)
Yeah. Hi, good morning, everybody, and thanks for all the color on the call. I'm not sure if I missed this, but could you talk a little bit about the economics on the Medford project? How should we think about, you know, returns on that project?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Well, incrementally on the Medford project, we already, even with MB-6 coming up online here at the end of this year, we still have need, contracted need for more fractionation capacity. So what we took a look at is where was the cheapest fractionation capacity we could get and where is the best fit into our system, and also with the idea of bringing that much on with what we have contracted already today, we have a very nice project, and we do this a lot.
We have a very nice project with a lot of upside on this capacity, and that's why we're going back at Medford, that we will be able to grow into this as we continue to see volume grow across our systems, be able to have that fractionation capacity online, to be able to timely meet our customers' demands as they continue to grow their, their system as well. So basically, we're saying we're putting in, we're once again putting in a very low-cost option that allows us to compete in all basins across our footprint.
Sunil Sibal (Managing Director of Senior Energy Infrastructure)
Okay, thanks for that. Then, on the Bakken processing, it seems like a lot of commentary we hear is gas to oil ratios getting higher, and seems like, you know, your processing system is running close to 85%-90% capacity, or at least it was in Q2. How should we think about, you know, opportunities in terms of processing there in that region?
Sheridan C. Swords (EVP of Commercial Liquids and Natural Gas Gathering and Processing)
Yeah, we continue our, our. I think I understand your question. I mean, our facilities up in the Bakken are running at a pretty good utilization, but we still have, you know, we're running about 1.6 BCF today. We have 1.9 BCF capacity, so we still basically have a plant to be able to grow into or be able to handle turnarounds on our system as well. We will continue to monitor production growth and at that time, and if the right time that we need to, we'll put more capacity in that region as well, to make sure we can be able to service our customers out there, that they have a very reliable alternative to move both the gas and the NGLs, to make sure they can produce their crude oil.
Because that's really what they're after. They're after, the production of their crude oil, and they just need to make sure they have a very reliable and resilient outlet for their gas and NGLs.
Sunil Sibal (Managing Director of Senior Energy Infrastructure)
Got it. Thanks for that.
Operator (participant)
This concludes our question and answer session. I would like to turn the conference back over to Andrew Ziola for any closing remarks.
Andrew Ziola (Head of Investor Relations)
Our quiet period for the third quarter starts when we close our books in October and extends until we release earnings in late October. We'll provide details for that conference call at a later date. Thank you all for joining us, and have a good day.
Operator (participant)
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.