This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
Operator
digit adjusted EBITDA multiple and significantly enhances our position across the entire Delaware Basin. In May, we developed a 100-day plan to close and integrate Durango's assets and personnel. I am very pleased to report that the transition has been seamless. We have already identified several process and system improvements that have begun generating value. And we have developed a robust integration plan that includes preventative maintenance, facility upgrades, and capacity expansions to existing infrastructure at the Dagger Draw Processing Complex. Following closing, we immediately took over project management responsibilities for all growth and maintenance capital projects. Construction is progressing well on the 200 million cubic feet per day King's Landing I, and that remains on schedule with an expected in-service date in April of next year. We are also mid construction on a 20 inch pipeline running across the Durango system that will provide connectivity to King's Landing upon in service and greatly improve system hydraulics. Additionally, we began deferred maintenance projects to elevate operations to Kinetic's safety and environmental standards. We have also welcomed over 70 talented employees to the Kinetic team. The feedback we have received from new employees has been positive, and they are enjoying the function-based structure and management of our operations team. Turning to our results, in the second quarter, we processed gas volumes of 1.58 billion cubic feet per day, representing 7% growth year-over-year, despite wellhead volume curtailments in response to Waha hub pricing, which averaged approximately 140 million cubic feet per day. Second quarter adjusted EBITDA was over $234 million, a 13% increase year over year, reflecting new volumes from the MVC-backed agreements in Lee County and improved commodity margins, as well as contributions from the expansion of PHP and Delaware Link. This was partially offset by price-related gas volume curtailments and only two months of contribution from GCX. So for context, If we'd closed Durango contemporaneously with the sale of GCX, Kinetic's second quarter adjusted EBITDA would have increased to almost $238 million. With the successful completion of the Durango and GCX transactions, we are revising upwards our prior 2024 guidance to reflect the underlying strength of our business as well as the impacts of the transactions. Trevor will discuss this in more detail momentarily. I'm incredibly impressed by our team's focus and execution over the past few months. Their dedication and attention to detail allowed for both transactions to close on time and has resulted in a swift integration process.
Delaware Link
And now with that, I'd like to hand the call over to Trevor. Thanks, Jamie. In the second quarter, we reported adjusted EBITDA of $234 million. For the quarter, we generated distributable cash flow of $163 million and free cash flow was $105 million. Looking at our segment results, our midstream logistics segment generated an adjusted EBITDA of $148 million in the quarter, up 7% year over year, largely driven by improved commodity margin, increased process gas volume, and continued marketing benefits on our PHB capacity, despite the wellhead volume curtailment that persisted throughout the quarter. Shifting to our pipeline transportation segment, We generated an adjusted EBITDA of $94 million, up 25% year-over-year. This increase was driven by contributions from the PHP expansion and Delaware LINK, and was only two months of contributions from TCX. Total capital expenditures for the quarter were $38 million. Our leverage ratio for our credit agreement stands at 3.4 times below our leverage target of 3.5 times. As Jamie mentioned earlier, We are revising upwards both our 2024 adjusted EBITDA and capital expenditures guidance to reflect earnings outperformance throughout the first half of the year and the successful completion of the Durango acquisition and GCX divestiture. We now estimate full year 2024 adjusted EBITDA in the range of $940 million to $980 million, a 3% increase at the midpoint versus the previous guidance range midpoint and implies over 14% growth year over year at the midpoint. Specifically, within the midstream logistics segment, we now expect process gas volume growth in the high teens. Our new growth expectations are inclusive of six months of Durango's existing business, which includes approximately 200 million cubic feet per day of process gas volume from the Maljamar and Dagger Draw facilities. We expect the existing Durango volume to nearly double with the in-service of the 200 million cubic feet per day King's Landing cryo in April of next year. Additionally, the Lee County MVC increase in margin expansion for gathering, treating, and processing will contractually begin in November. Our pipeline transportation segment will no longer reflect contributions from GCX following the divestiture. However, we expect the segment will continue to experience strong year-over-year growth throughout the remainder of the year with the full-year benefits from Delaware LINC and the PHP expansion. We have modestly updated our commodity outlook for the remainder of the year. Our revised guidance assumes approximately $77 per barrel for WCI, $2 per MNBCU for natural gas at the Houston Ship Channel Hub, and $0.60 per gallon for natural gas liquids. Today, approximately 13% of our remaining 2024 expected gross profits is directly influenced by commodity prices, which is primarily associated with kinetic equity volumes. Currently, our direct commodity link exposure is sourced from the following components, approximately 30% natural gas or ethane, 30% propane and butane, and 40% crude. As we mentioned during our Durango acquisition announcement call, with certain provisions of some of the Durango contracts, we retain ownership of the condensate, Therefore, WCI will represent a greater contribution of our direct commodity link growth profit going forward. Turning to our capital expenditures guidance, we now expect capital expenditures to be between $260 million to $300 million for the full year. This increase reflects capital for the construction of King's Landing 1, pre-FID work for King's Landing 2, and an associated acid gas injection well. the new and amended long-term gathering and processing agreements in Eddy and Lee counties, and capital for integration, and growth and maintenance costs associated with the existing Durango business. For context, roughly $100 million of the guidance increase is capital associated with Durango. The remainder of the increase is driven by new projects in New Mexico that have been announced since issuing our full-year 2024 CapEx guidance in February. The projects included in our initial 2024 CapEx guidance are trending approximately 5% below budgeted costs. Our operations and commercial teams have done a tremendous job so far by optimizing scope and reducing construction costs where possible. We remain highly focused on our disciplined capital allocation approach. Our priorities are aligned with our strategy, which enables us to allocate capital to the highest return opportunities to maximize shareholder value. And with that, I would like to open up the line for Q&A.
Lee
Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If your question has been answered or you wish to remove your question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you are using a speakerphone, please pick up your handset before asking your question. In the interest of time, questions will be limited to one question and one follow-up per person. We will pause here briefly as questions are registered. Our first question comes from the line of Michael Bloom with Wells Fargo. Michael, your line is now open.
Michael
Thanks. Good morning, everyone. I wanted to talk Good morning. Wanted to talk about the change in CapEx, specifically the $100 million related to Durango. I wanted to just provide a little more color. Should we think of that as growth capital that's earning a return? Is that maintenance? What is in that $100 million?
Operator
Good question, Michael. So $100 million should be thought of in this context. It is growth capital, so it includes King's Landing 1, It is growth capital as it relates to, we talk about the 20-inch backbone pipeline across the system, which will allow for, obviously, additional volumes to be connected that will then obviously be used to fill up King's Landing 1 and some of this pre-FID and long-lead critical path items that we've got sanctioned for King's Landing 2. So that is the bucket. There is a, if I was going to think about sort of remedial maintenance, it's probably $5 million of that amount. And maintenance is probably an equivalent amount on top of that. So that's pretty small. And think of the increase, honestly, Michael, that's about Yeah, relative to the 125-165, and I'm sure everyone would like sort of maybe the bridge. So 125-165 is where we started life. We said, as we've gone through the entire conference circuit over the course of the spring, we said, listen, with the Eddy County announcement, 200 million gross spend, think of it as 50-150. 50 for this year, 100 for next year, and 50 into 2026. That still, I think I would put the Eddy County and the new Lee County amendment, which has got a little bit of capital, that's a good number. So take your 145 to being the midpoint of the original range and say, just add 50. And then for all the Durango stuff that we've talked about, King's Landing 1, some growth capital, as well as now the pre-FID spend, think of that as 9,800 million bucks. And that should get you right on the number you guys are looking for. As you know, we spend so much time agonizing over making sure we look at every invested dollar and making sure that it's earning a clear return for our overall business. And we were very mindful when we set up our guidance this year. We obviously have had the opportunity to grow the business, which is incredibly exciting. And we are very, very focused on making sure we are free cash flow positive.
Michael
Got it. Thanks for all that. And then maybe a related question. Since you're spending on King's Landing 2, I know you're calling it pre-FID, but How should we think about timing for when that plan could be in service?
Operator
So there is a bunch of items. I would say any decision on a new processing plan from inception to completion in service is probably a two-year undertaking. There are items, and it's not necessarily just ordering a cryo box from UOP Honeywell. But there is switchgear, there are transformers, there's a lot of associated kit that have very long lead items. So what we wanted to do was get ahead of that. If we were going to sort of think out into the future of an in-service date, you would be looking at beginning of third quarter of 26. Got it.
Michael
Thank you so much.
Lee
Thank you. Our next question comes from the line of Jeremy Tonant with JP Morgan. Jeremy, your line is now open.
Jeremy Tonant
Hi, good morning.
Operator
Good morning, Jeremy.
Jeremy Tonant
Thanks for all the detail today. Just wanted to kind of go to New Mexico a little bit more. Now that Durango has settled, just wondering if you could provide a bit more color on what you see in the landscape there. I think some private equity consolidation there and just if you could update us, I guess, on the competitive landscape, the opportunity set there, that would be very helpful. Thanks.
Operator
Sure. So as we've talked before and as we've talked with investors and your peers, we are incredibly excited by the opportunity set that we see in New Mexico. Ironically, it is not just the Northern Delaware, as you would think about the Northern Delaware Basin, but it's also the shelf. And the shelf is, I think, probably somewhat of a forgotten area that over time just hasn't got any particular attention or focus. But there seems to be a lot of smaller producers that have positions that would like to see that the rock quality is very good and they just need a processing outlet. So set a different way. The opportunity set is more plentiful than we could have ever imagined. As such, that has accelerated our decision-making on wanting to get to do the pre-FID expenditures on King's Landing 2 because we can now see in our forecast that King's Landing 1 will be fully sold out. sooner than we ever could have imagined. And as you also know, Jeremy, we were very clear when we announced Durango. You have 200 million cubic feet a day of actual process, inlet processing capacity. And that's how we run. It's pretty static. 70, 75 million bucks of EBITDA, as we said on our call back when we announced this in May, same store sales, if you will, relative to the 2023 numbers. We bring on King's Landing, April 2025, and you see that increase from that 70-75 to almost $150 million of EBITDA run rate from that point forward. And as we've also talked to people, we are going to expand. dagger draw, we've got some expansion, we can expand a little bit, King's Landing one, we will bring an idle cryo that we've got that we'll actually go and add. We've got a work through takeaway on the residue side, we'll obviously work out what we're doing on the NGL side, but I think we very quickly will get from a 200 baseline of inlet today to probably the latter part of next year, we'll have 500 million cubic feet a day of processing capacity. And then into 2026, and you think about that statement on the third quarter, you'd be at 700. And the overall margins we see are pretty consistent. Even today, just given the lack of infrastructure, there's a need for treating, there's a lot of components, there's a lot of low pressure connections for some of the smaller producers. less high-pressure connects up there than what we typically see, I would say, on our base business. So I do think it's a pretty – I think we've just found a phenomenal opportunity that we just couldn't be more excited about.
Jeremy Tonant
Got it. That's very helpful. Thank you. And I want to touch on one of the points you brought up there as it relates to Permian egress in general. Just wondering, updated thoughts on that given recent announcements and also I think having that capacity in Permian Highway was certainly a help in the quarter and just wondering, I guess, how you think about that over the balance of the year? How much help would that provide having that capacity and when do you think that kind of fades away?
Operator
So I'll answer the last part first. You know, obviously we saw, I think, one of the investors in Matterhorn talk about the potential in service in September, if I recall, on yesterday's call. You guys would know better than I because I'm sure you were on that call. And that obviously is going to be a big help. But it's, you know, I think it's not the panacea, but it's a step in the right direction. I think that will certainly help Waha. I cannot recall a period over the last nine years where we have seen consistently this level of weakness from Waha. I'm looking around the table here, but I don't think I've ever seen it. I mean, in September, we still have, are we today negative four cents, Annie? Is that where we are? Negative four cents. Negative four cents. That's crazy. The PHP from our vantage point and from our customers, I mean, Chris Kendrick can talk about this. I was going to call him crickets, which is his fan favorite. But it's, you know, our customers could not be happier because they have been able to get Gulf Coast pricing. And even with the weakness in that Houston ship, and that's been a little bit, I think, followed a little bit of volatility around the up and downs of Freeport amongst other reasons. But I think they have been very, very happy. I think it has been obviously one of the differentiators for us. It's the reason that we continue. The Durango customers all want Gulf Coast pricing. And so we see an opportunity to give that benefit up there, up the northern end of the Delaware. where they've really been starved and very much focused on traditionally an EP Permian price. So I think we think that probably the net benefit fades to some extent with obviously Matterhorn. But as evidenced, you had the comment yesterday of in service of Matterhorn and we're still negative. We were negative 23 or 24 and now we're negative four, but we're still negative. So I would say it's certainly... you continue to have a lot more gas and we continue to need a lot more egress solutions for the Permian. And our customers will remain very happy and so will we with all the space that we have.
Jeremy Tonant
Got it. That's helpful. Thank you.
Lee
Thank you. Our next question comes from the line of Tristan Richardson with Scotiabank. Tristan, your line is now open.
Tristan Richardson
Hi, good morning, guys. Jamie, you noted the high team's growth across your footprint, which includes Durango and the Lee County NBCs. Can you talk about the better outlook you're seeing in the base business? Is this all just higher growth in New Mexico? Is this efficiencies, completion efficiencies, GORs? Just maybe kind of curious what you're seeing in the base business across the Delaware.
Operator
So think of it this way. I think it should be telling in my earlier commentary that 20% of our gas now comes from New Mexico. When did that start? January of 2025. Bingo. It was like the lights went on and we had a massive infusion coming out of New Mexico. And obviously Durango adds to that because it's an existing business. I think our base business, what's really the proudest thing about what I can see for this company is that for so long we would engage with you and with investors and talk about the promise and prospect of something like Alpine High. Alpine High, we had 140 million cubic feet a day. And maybe some of the other questions that are going to follow. If you go and just take that on top of our 1.58 BCF a day of processing capacity, we're over 1.7, right? Over 1.7 inlet for our business. That's pretty staggering. And remember, that is before you really take Durango, right? Durango doesn't show up, if you will, until the second half of this year. And we have two BCF a day of total inlet capacity. So I would say our base business has been pretty, you know, it's kind of, there's some growth. It's not spectacular, but it's not, it's nowhere near, we think, as game-changing and landscape impacting as what we see with New Mexico.
Tristan Richardson
That's helpful context. And then you noticed in this, you noted in the first 100 days seeing some of these small expansion upgrade opportunities, whether it be a dagger draw or the 20-inch line. Should we think of these opportunities as part of that 5.5 times 2025 you talked about when you announced the deal? Or could these opportunities be incremental to that? And maybe is it a way to think about these opportunities?
Operator
So, Tristan, I think you think about the magnitude, right? I do think on the basis of the stair step that I laid out as far as inlet expansion at Durango. If 200 represents a 70-75 base and 400, which is the addition of King's Landing 1, gives you a base that, when sold out, looks like 150, and then you're later the next year, because we have it in our numbers, and you have it as part of the Eddy County capital that we gave you, you go to 500, then that's obviously going to add you another almost $40 million. And then you're thinking about a King's Landing 2. That would add you a potential another... 70 to 75 million on top. This is a map. I mean, five times is how we thought about on the basis of, hey, you have that 150, 160 of EBITDA and you've got, you bought, you paid with stock and with cash and with capital deployed, you've got, you know, eight plus hundred million dollars of total consideration. And that's how you do the simple math. We're talking about things that drive the returns and significantly greater than that setup basis that I just outlined.
Tristan Richardson
Super helpful. Appreciate it. Thank you, guys.
Lee
Thank you. Our next question comes from the line of Spiro Donis with Citi. Spiro, your line is now open.
Spiro Donis
Thanks, Alberta. Morning, team. Maybe to start, first question is just on the asset mix going forward. following Durango and some of these opportunities that are coming out now, it sounds like it's going to swing you really more towards a GMP asset base. And so just curious, is the RapidSight on your part to have that pipeline transport exposure, maybe keep pace so you can maintain that integrated profile?
Operator
I think Spirality is, but as we've mentioned, you have an interesting decision to make, right? We have more, we have, as we look at our forecasts, we could obviously join forces with a number of players that have projects for egress and think about taking an equity stake, much like obviously Targa just did with Blackcomb. We could have played that role almost the same. I think what we've been consistently telling you is we're focused on shorter-dated contracts conversion cycles on deployment of capital in other words don't deploy capital and then two and a half years or 30 months or 26 months or whatever the time frame is before you start to see cash flow try to make it obviously the deployment and the cash flow receipt within a much shorter space of time um That we could see on an intrabasin basis. So Delaware Link continues to be something that has been a really strong contributor to our overall business. We see it on our kinetic NGL business. We're looking for other opportunities as to how we can do that. They are shorter builds that are smaller in scale, shorter duration. and immediate cash flow, and obviously they help the base business. So we are mindful of keeping that mix. Is it going forward with obviously the GMP uplift, 65-35, which is sort of, I think, where we first started life as a pro forma merged company with Kinetic back in 2022? Maybe. And we'd like to build it up again. So we're looking for opportunities that continue to allow us to keep that mix balanced.
Spiro Donis
Got it. Understood. Helpful caller. Second question, just wanted to quickly go back to free cash flow and how to think about the outlook. Jamie, in response to an earlier question, I think you said you're highly focused on being free cash flow positive. I think for 24, we can get there. That seems like a pretty easy lift. I guess as you think out to 25, with all these projects coming, obviously a high-class problem to have. Do you still think that's something sort of durable out over a multi-year basis from here?
Operator
Yeah, I think, look, when you think about what we've got going forward, right, I think, Spiro, you and I have talked about this with Trevor and Maddie and Alex from time to time. You know, our overall base business, when we – when we think about 25, is our base business, meaning the legacy business, is probably $100 million of capital for 25. And then you've got, obviously, the Eddy County expansion, which I said, you know, that $200 million split 50-150. And then, obviously, you've got the balance of Durango. And I really do think we're going to try that to manage from a capital deployment standpoint, how we think about... managing it relative to, obviously, the EBITDA profile. We do see, obviously, really good top-line growth, 14% year-on-year to the midpoint, I think it is. Now, I think you've heard me say before, I would challenge you to find another company where I can look out the next several years and think about an EBITDA growth, 25, 26 now, 27 at sort of a double-digit rate. That is hard to do. You can't do it forever. You can do it for a time. But that's the strength that we see when you add in Durango and you look at our base business and some of the changes such as the NGL contract changes that happened in 26 and obviously partial benefit, 27 full benefit. There's lots of things going on. And so we will think about that top line growth and how that allows us to obviously then think about our overall capital deployments. So I do think 25, you still see the positive free cash flow. As we mentioned, we put it in the press release, I think pro forma, the second half of this, second half of 25, what, 10% increase in free cash flow per share as a result of the Durango transaction. So I do think it's very much the blueprint. Great.
Spiro Donis
That's a helpful color, Jamie. I'll leave it there. Thanks. Thanks.
Lee
Thank you. Our next question comes from the line of Keith Stanley with Wolf Research. Keith, your line is now open.
Keith
Hi. Good morning. Following up a little bit on the importance of positive free cash flow for you, how are you thinking about when you could restart dividend growth for the company since you're at the leveraged target but obviously having a lot of growth opportunities accelerating? Keith, good morning.
Operator
Nice to hear from you. You're very consistent on the dividend. You get the prize. I think we have talked to you at length on the dividend, and it is not lost on us that we have had a lot of support and patience in shareholders. Honestly, I look at the picture and believe that we can manage both. from a growth standpoint within our capital growth so that everyone wins. So I think, as we've always said, you need to be thoughtful as to exactly the increase you would think about, but I think it is manageable. And so it is, I would say, nearer term, not longer term as to an action.
Keith
Great. That's helpful color. Second question, can you just maybe give an update on the importance of eventually connecting the legacy Kinetic and Durango footprints, what it would add for you, and how you're thinking about doing that, whether it's building or potentially through transactions?
Operator
Really good question. So we've said every commercial opportunity has to stand on its own merit. And if we see opportunities, whether we're going into Eddy County and thinking into Lee County, that give us an opportunity either to connect to the existing Pegasus lateral, which is the one that goes up into Lee County, whether it ultimately, how that connects ultimately to Durango, and then we think about how we then think about Eddy County. we will engage in conversations with producers. We're not going to build just for the sake of building. We will only build to the extent that there's a compelling commercial underwritten proposition that justifies and warrants the connection.
Keith
Thank you.
Lee
Thank you. Our next question comes from the line of Teresa Chen with Barclays. Teresa, your line is now open.
Teresa Chen
Morning. Following the FID and eventual in-service of Kings Landing 2, how much runway does that give you, given the growth outlook you have for the acreage? And can you talk about additional opportunities beyond that and how that ties into your view of run rate capex on an annual basis going forward?
Operator
Really good questions, Teresa. I would say we are seeing obviously a sight line for overall production growth up in the northern Delaware and the shelf that would support a King's Landing II development. As I mentioned at the outset, what's fascinating about that particular area is that the drill bit is handicapped by processing capacity. Can't flare. You really need a solution on the gas side. And so it makes for a very challenging, I think, proposition for producers. So our site line certainly sees us through a KL2. Does it go on beyond that? I think it's too early to tell. We sit here now and we are 40 days into owning Durango. Admittedly, we had six plus weeks as we went through the FTC process and we engaged in some conversations with customers, but really the engagement has started in earnest over the last sort of six plus weeks. And so, and it's not just processing capacity, right? Because as I mentioned, one of the things that we're really focused on is we can build processing, but we need egress. And egress comes in the form of two flavors, residue and NGL. And, you know, Annie Penzig would tell you up there, you got telescopic pipelines that pretty much all fall. It's not really a great outcome. You've got some challenges. You really just have TW, you've got EPNG, you've got EE. There are challenges on each of those because of how full they are and how full they run. So I think there's a lot of things that have gone into this, some of the early decisions and some of the, I would say, early analysis on King's Landing 2. So line of sight, sort of TBD, sort of watch this space over time and we can keep you apprised on how you're seeing. You know, the interesting thing when we go down south is, you know, I know everyone focuses on AI and gas growth and what this all means. The thing that I probably didn't complete in my statement is what makes me proudest about where we sit now is I really feel like Alpine High isn't even in the vernacular of this company anymore. And all the growth that we see really isn't, there's nothing predicated on Alpine High. If Alpine High just stays as it is, it doesn't make a difference to us. If it grows significantly because there's a call on gas with gas prices, well, that's going to have an impact as well, because as we know, it's in a highly gassy area. So I really do think that's a pretty interesting change, not subtle, pretty significant and profound for the company as a whole.
Teresa Chen
Thank you so much.
Lee
Thank you. Our next question comes from the line of Neil Mitra with Bank of America. Neil, your line is now open.
Neil Mitra
Hi, good morning. I wanted to kind of understand the run rate capex or how we should be thinking about it now that the business has changed so much. Obviously, it's listed with the Durango acquisition. But we have possible King's Landing II, other additions. Just when you think about the GMP spending going forward, is there some number that we should try to put in there as a good run rate, understanding that things are constantly changing?
Operator
I'd love to tell you that it was that easy, and obviously it is more, I think, it has ebbs and flows, and obviously you're not necessarily going to be... As it is, we're building a crier now, so obviously... And we've started the pre-FID work on a second crier. That's probably... That's not necessarily the norm that a company of our size would be considering to look at processing... building processing capacity, so on a sequential basis. And you might have more of a peak and then a trough. So as it relates to this year at 280, I think you've heard from us with Trevor that, look, I think if we were going to... And you've got to be very careful as you sort of think about our overall percentages and how you think about it. But, you know, you've got something that's probably... 200, 400 kind of million dollars, I think is a good, that's a, I know that's a really wide range and I apologize, but it's hard to give you any real precision because you don't really know. But that's the sort of amount that I think you would be, you know, peak would be one thing, 200 would be, you know, another. I really do think that's pretty good. As I said, our base business, our base business next year, we thought about a hundred million dollars. And, you know, that's got WellConnects and that's got maintenance capital in it and that's got, you know, some looping. You've got some compression. So you've got growth in that number. And that base business is a pretty big business, but it's more mature, right? It's more mature and built out. My sense is with Durango, the 20-inch goes a long way. There's a lot more low pressure, which would be more, which would be, I'm looking at Kendrick, more higher capital burden, right, the smaller producers. So, you know, I think, you know, if base business is 100, maybe on a, once you've got the processing capacity, maybe you're looking at, you know, 50 to 100 for just, for like a Durango, just given WellConnect, looping, other things.
Kendrick
Neil, this is Chris. Just piggybacking on that, too, I don't want to be lost in the group that we're seeing much higher margins up in Durango, too. So the dollar capital invested up there is going to return a higher amount.
Operator
Yeah, if we have an average on a dollar, like $1.10 MCF, you're looking at a 50% increase in that margin, right, up there in the north. And that's obviously because you're packaging everything, compression, treating, gathering, processing. And so that's obviously very, very attractive. And treating, you know, I know we've spent a lot of time talking about treating. Treating is, I think, one of the real, real focuses for our producers, just given the dispersion of gas quality that they find.
Neil Mitra
Okay, perfect. Appreciate the color. My second question is, It's around the base business in the Southern Delaware. Jamie, you were alluding to the fact that Waha is still negative and probably will be until Matterhorn comes online. Given that a lot of your producers have, you know, roughly 50-50 oil and gas splits in that basin, have you seen any curtailments, any wells that are, you know, delayed being turned in line such that once Matterhorn comes in line that you see kind of a surge in growth for, you know, the last four months of the year?
Operator
As far as broad-based curtailments, I think Apache is really the whole story. And that's really Alpine High, both rich and lean. I would say delayed completions, Callan, would probably be the ones as far as, but they weren't delayed because of gas prices. They were delayed because of an acquisition. And I think just the typical pause that you have after you close a transaction and you sort of want to assess everything. I don't sense that there's been any impact on us. We continue to see good turn in line activity. And I think you know, as we indicated in our materials, we'll have a full return to service in the fourth quarter of obviously the Apache Alpine High Volumes. So, you know, I think that will obviously be a benefit because, you know, we weathered through that impact financially in the second quarter. And we, you know, I look at it and say, It was pretty amazing how good the business is running on the basis that we made consensus, and we had a mismatch between our closing of Durango, which was the end of June, and the GCX deal, which was the beginning of June. So we had one month missing out of the pipeline transportation segment as well, and yet we still hit the consensus estimates.
Kendrick
Neil, this is Chris. It's worth noting, too, A large percentage of our customers move their gas on PHE and are exposed to different gas markets. So they aren't as exposed to Waha, which is another benefit that we provide our customers. So another reason why we're not seeing the impact to a large majority of our customers.
Neil Mitra
Right. Great. I appreciate all the calls.
Operator
Thank you.
Lee
Thank you. Before our next question, reminder, if you would like to ask a question, press star one on your telephone keypad. Our next question comes from the line of Jackie Coltis with Goldman Sachs. Jackie, your line is now open. Hi, good morning.
Jackie Coltis
Thank you for taking my question. I just wanted to have another follow up on New Mexico. So you were able to realize an uplift on your system there prior to MVCs that started in April and May. Just more broadly, where do you see New Mexico trending from here, and do you expect to see upside from that new amendment in Lee County prior to the fourth quarter?
Operator
So Jackie, the new amendment on the Lee County MVC will start, I think it's kind of November of this year, so you won't see a benefit before November. Great customer relationship, makes all the sense in the world. It's really a discussion driven around treating more so than just about anything else. And I think, you know, we've been probably a broken record on this point. You know, we've really, Matt Wall and the operations team have done a phenomenal job. And we've taken elevated levels of CO2 and even we've seen, you know, nitrogen and obviously H2S So we've really, really had, I think, a really strong out of the gate showing on what we've been able to do on the blending and treating side. As far as New Mexico from here, honestly, I think it's the story. I think it's the story for this company, right? I mean, we've got a nice base, don't get me wrong, and that provides great blend stock, given it's sweet. We've got some great customers. But if you're looking for significant stair-step changes in the context of the growth on our system with volumes and obviously financial margin that's created, New Mexico is the story. And so what that looks like going forward, as I said, we will see Another 200 million cubic feet a day, that will be our inlet capacity when we finish King's Landing 1 and expect it in service April of next year. We expect it to be full pretty quickly. We're already going to go from 400 to 500. We've talked about dagger draws, some additional recompression and moving a 60-day cryo that we have that we're going to move up there. So that's going to be, I think, another blessing for the producers up there. So you can see, just look at it, if you just measure it on nothing more than just the inlet capacity expansions. It's all about New Mexico right now. And that obviously is consistent with what we see with our producers and how they're deploying and allocating capital. And obviously we will be right there with them to provide the needed services that they're looking for.
Jackie Coltis
Great, appreciate it. And just as a follow-up, so as you grow, as your processing grows, do you get to a critical mass where you think you'll have enough NGLs where you'd want to build your own NGL assets over time?
Operator
The short answer is, look, we could all aspire to different things, but the reality is when you're dealing with relative to what I'll call the... The enterprises, TAGAs, transfers, One Oaks of the World, the size of their asset base between Bellevue and obviously their long haul pipelines into the basin are such that we could never compete and we would never contemplate thinking about competing. We don't have an export capacity. We think we can do things contractually, which we've done. As far as we have a diversification of NGL service providers, which is obviously a net benefit. We've got great relationships. We own a portion of Chinook. So we think that we can participate and give that vertically integrated value chain and optionality to our customers. But no, we're not going to get into the NGL business and That's just beyond, I think that's beyond our wallet.
Jackie Coltis
Got it. Thank you so much. Appreciate the time.
Operator
No problem. Thanks, Jackie.
Lee
Thanks. Thank you. There are no questions registered at this time, so I'll pass the call back to Jamie Welch for any closing remarks.
Operator
Thank you, everyone. We're really excited, as you can probably tell. A really solid quarter, really excited about the outlook for the business. And enjoy the rest of your summer. No doubt we'll see some of you next week, and then we'll start it back up in the fall straight after Labor Day. So reach out if there are any questions, and thank you for your time this morning.
Lee
That concludes today's call. Thank you for your participation. You may now disconnect your line.
Disclaimer