Q1 2024 EnLink Midstream LLC Earnings Call

Participants

Brian Brungardt; Director of Investor Relations; EnLink Midstream LLC

Jesse Arenivas; Chief Executive Officer, Director; EnLink Midstream LLC

Dilanka Seimon; Executive Vice President, Chief Commercial Officer; EnLink Midstream LLC

Benjamin Lamb; Chief Operating Officer, Executive Vice President; Enlink Midstream Inc

Spiro Dounis; Analyst; Citi

Praneeth Satish; Analyst; Wells Fargo Securities, LLC

Naomi Marfatia; Analyst; UBS

Jeremy Tonet; Analyst; JPMorgan

Elvira Scotto; Analyst; RBC Capital Markets

Wade Suki; Analyst; Capital One Securities, Inc

Harry Mateer; Analyst; Barclays

Presentation

Operator

Greetings, welcome to the EnLink Midstream Q1 2024 earnings call. (Operator instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Brian Brungardt, Senior Director of Investors. Please proceed with your quest. Thank you, Brian, you may begin.

Brian Brungardt

Thank you and good morning, everyone. Welcome to EnLink's first quarter of 2024 earnings call. Participating on the call today are Jesse Arenivas, Chief Executive Officer; Dilanka Seimon, Executive Vice President and Chief Commercial Officer; and Ben Lamb, Executive Vice President and Chief Financial Officer. Walter Pinto, Executive Vice President and Chief Operating Officer, is also in the room to answer any questions.
During the Q&A session, we issued our earnings release and presentation after the markets closed yesterday and those materials are on our website. A replay of today's call will also be made available on our website at investors.enlink.com.
Today's discussion will include forward-looking statements, including expectations and predictions within the meaning of the federal securities laws. Forward-looking statements speak only as of the date of this call, and we undertake no obligation to update or revise. Actual results may differ materially from our projections and a discussion of factors that could cause actual events to differ can be found in our press release presentation and SEC filings.
This call also includes discussion pertaining to certain non-GAAP financial measures. Definitions of these measures, as well as reconciliation to comparable GAAP measures are available in our press release and the appendix of our presentation, and we encourage you to review the cautionary statements and other disclosures made in our press release and our SEC filings, including those under the heading Risk Factors.
We'll start today's call with a set of brief prepared remarks by Jesse, Dilanka, and Ben, and then leave the remainder of the call open for questions and answers.
With that, I would now like to turn the call over to Jesse Arenivas.

Jesse Arenivas

Thanks, Brian, and good morning, everyone. Thank you for joining us today to discuss our first quarter 2020 Full results, all our operations were not immune to the impact of the winter weather during the quarter. Our results showcase the resiliency of our business. We continue to be encouraged with the longer term setup for EnLink, given our diverse systems and incremental demand potential for natural gas to help power our nation's growing industrial and power needs, including the developing industries around data centers and artificial intelligence. For the quarter, we generated $338 million of adjusted EBITDA, driven by the strength of our Louisiana system and offset by temporary volume impacts from the winter weather impacts of our GIG. and P. systems. These results were in line with our expectations and drove solid free cash flow after distributions of approximately $74 million. Consistent with our approach to return capital to investors, we repurchased approximately 50 million of units outstanding, taking our total buyback execution to nearly 10% of the units outstanding over a little more than two years, all while continuing to invest and grow our business.
Last quarter, we discussed our commitment to provide safe, reliable and cost-efficient CO2 transportation solutions linking emitters with sequestration providers.
Despite recent progress on the regulatory front, while we continue to develop our CO2 transportation expertise by operating both newbuild and converted CO2 pipelines, the CCS industry as a whole has been slower to develop than we initially anticipated. However, we are continuing our discussions regarding CCS opportunities of ExxonMobil as well as other parties and look forward to providing an update when we reach definitive terms.
Overall, we continue to see positive momentum for our business. We have spoken at length in prior quarters about the next wave of LNG demand coming starting in earnest in 2025 and how that is reshaping the landscape and driving our three phases of growth in Louisiana, the local will provide more color around our Louisiana natural gas strategy, and I'm impressed with the quick execution. We are seeing customers respond to the shifting market dynamics as they look to secure the natural gas critical to their operations. To that extent, we've executed our first project to help resupply the eastern part Louisiana through a capital-efficient quick-to-market de-bottlenecking project that is fully subscribed the high-quality customers beyond just Louisiana, though the need for natural gas to help power our modern society becomes more apparent as industries look to secure, reliable and affordable energy like you we've been amazed at the rapid emergence of the data center demand for power, particularly driven by the AI revolution. This is occurring across the country, even right here in North Texas we understand and can appreciate that these are early days and that consultants, policymakers, utilities and the investment community are still trying to get their collective arms around the ultimate impact of this growth in demand, but the initial forecasts are staggering while data center electricity consumption was approximately 2.5% of the U.S. total in 2022. Their forecast for this demand triple and more by 2030 to help to help put that in perspective, according to the Boston Consulting Group, this growth in consumption is equivalent to adding EUR40 million homes. What is key for our industry is that these AI data centers are not only voracious users of energy, but they run 24 seven that do not turn on and all renewables will surely play a key part that because of this dynamic, we expect natural gas to be a large contributor to meet the increased baseload demand for power generation we consider this to be a potential incremental growth driver, creating a rising tide that will lift all boats in the natural gas industry and one that is likely to drive rapid and exciting change to our business. Wells Fargo analysts predict forecast that additional natural gas demand could be seven Bcf to more or more by 2030. Assuming that natural gas accounts for 40% of the fuel mix.
To wrap up my comments, EnLink is executing today to meet customer needs and excited about the growing need for natural gas to provide reliable and affordable energy to power our modern society.
So with that, I'll turn it over to Dilanka to provide an update on our commercial opportunities.

Dilanka Seimon

Thanks, Jesse, and good morning, everyone. Last quarter, we discussed the shifting Louisiana gas supply and demand market and how we are focused on creating shareholder value. Today, I would like to provide a quick update as I mentioned during the last call, we are approaching the Louisiana gas opportunity in three phases on our first phase of opportunities, which is realizing the full value of our existing assets through renewing capacity at higher rates. Our commercial team has worked with our customers and we have successfully renewed the vast majority of the contracts up for renewal in 2024. This renewal represents an incremental annual margin opportunity, which is included in our 2024 financial guidance. The second phase of opportunities is leveraging our assets to drive attractive quick-to-market projects. Last night, we announced the first execution of such a project to some additional compression. We are increasing gas supply to the Mississippi River corridor by approximately 210 million cubic feet per day. The project is expected to cost approximately 70 million with an in-service date in the fourth quarter of 2025. This debottlenecking project result in a mid single digit EBITDA investment multiple. We are pleased to have fully contracted the capacity with a diverse mix of highly creditworthy customers. The third phase of opportunities is to add new projects to increase supply to our gas pipelines to meet the increasing demand in the Mississippi River corridor market and to expand our gas storage position. In this regard, we are in the process of marketing, our expansion of Jefferson Island Storage Hub and are very pleased with the response from our existing and new customers. We are excited about this longer-term opportunity as we can nearly double our working gas storage capacity through brownfield expansions.
With that, I'll turn it over to Ben to provide an overview of our operations and our financial results.

Benjamin Lamb

Thanks, Dilanka, and good morning, everyone. Let's start with the Permian for segment. Profit for the first quarter of 2024 came in at $89 million. Segment profit in the quarter included approximately $9.3 million of gross operating expenses tied to plant relocations and $2.4 million of unrealized derivative losses. Excluding plant relocation, OpEx and unrealized derivative activity segment profit in the first quarter of 2024 decreased 10% sequentially, but grew 12% from the prior year quarter. In addition to plant relo costs impacting operating expenses, the first quarter results included a one-time utility true-up expense, increasing Permian OpEx by approximately $5 million. Our diverse mix of producers remained active during the quarter. However, results were impacted by the winter weather and producer timing. Average natural gas gathering volumes were approximately 2% lower sequentially, but were 13% higher than the prior year quarter. The Tiger two facilities in the process of coming online and will enable the next phase of Permian growth.
Turning now to Louisiana. We experienced another quarter of solid performance in the gas segment, benefiting from price volatility along with strong results in the NGL segment, driven by normal seasonal effects. Segment profit for the first quarter of 2024 came in at $110.4 million, including 19.5 million of unrealized derivative losses. Excluding the impact of unrealized derivative activity, segment profit in the first quarter of 2024 grew approximately 26% sequentially and grew approximately 23% compared to the prior year quarter.
Moving to Oklahoma, we delivered segment profit of $85.7 million for the first quarter of 2024, including $4.1 million of unrealized derivative losses. Excluding the impact of unrealized derivative activity, segment profit in the first quarter of 2024 decreased 19% sequentially and decreased approximately 7% from the prior year quarter, driven by lower volumes and the onetime contract reset that we discussed in last quarter's call.
During the first quarter, we saw operators remain active with Regeneron acreage. However, average natural gas gathering volumes were 7% lower sequentially and 3% lower compared to the prior year quarter. As a result of the winter weather and a few cases of price-related shut-ins ramping up with North Texas segment profit for the quarter was $59.8 million, including $0.1 million of unrealized derivative losses. Excluding unrealized derivative activity, segment profit in the first quarter of 2024 decreased 12% sequentially and decreased 18% from the prior year quarter, driven by lower volumes and the onetime contract reset. Natural gas gathering volumes were 6% lower sequentially and 10% lower compared to the prior year. More like Oklahoma volumes were impacted by winter weather and a small number of price-related shut-ins. These solid results reflect the benefits of our diverse asset mix, which are weather was a modest headwind for our G&P businesses.
While our Louisiana gas segment benefited from the short term volatility. In total, our segments drove another robust quarter with $338 million in adjusted EBITDA. We are tracking toward the midpoint of our adjusted EBITDA guidance of $1.31 billion to $1.41 billion for full year 2024. While we don't give quarterly guidance, let me remind you that our Louisiana NGL segment experienced some seasonality with the second and third quarters being seasonally weaker capital expenditures, plant relocation expenses, net and Lake investment contributions were $111 million in the first quarter of 2024.
Free cash flow after distributions for the first quarter came in at approximately $74 million on the balance sheet side, we continue to be in a very strong position with a leverage ratio of 3.3 times at the end of the first quarter. Can we retain ample liquidity. During the quarter, S&P recognized our strong credit profile and upgraded us to BBB- moving us into investment grade following the prior upgrade from Fitch. Consistent with our capital allocation plan. We maintained the common unit distribution of 13 and a quarter cents per unit in the first quarter, which represents a 6% increase over the first quarter of 2023. Additionally, we remain active with our common unit repurchase program with approximately $50 million spent in the first quarter. This puts us on pace to complete our $200 million unit repurchase program for 2024. Since the end of 2021, we've now repurchased approximately $46 million common units or nearly 10% of units outstanding in summary, the EnLink team delivered solid results in the first quarter of 2024, and we expect the momentum to continue for the rest of the year.
With that, I'll turn it back over to Jesse.

Jesse Arenivas

Thank you, Ben. The EnLink team delivered another quarter with solid execution in the first quarter of 2024 that showcase the resiliency of our diverse assets. We're excited for the future and remain committed to meeting the needs of our customers in 2024 and beyond.
With that, he may now open call for questions.

Question and Answer Session

Operator

(Operator instructions) Spiro Dounis, Citi.

Spiro Dounis

Thanks, operator. Good morning, guys. First question on carbon capture, if we could. I was hoping for a little more detail on the status that began on specifically as you all noted last call, it sounded like all the parties were incentivized to really come to a resolution quickly, just given some of the capture obligations coming in 2025. So one. Just sort of curious, should we read anything into anything on the lack of the update here? And are you in a better position now than where you were a few months ago to maybe narrow the bands on any potential outcomes, high spirits?

Dilanka Seimon

Jesse?

Jesse Arenivas

Thanks for the question. Yes, I think last quarter we talked about the pause and Pecan Island and the broader opportunity to address additional or alternatives to the Grand Island project. Those can those discussions continue. We don't have an update today, but we have made a lot of progress on defining the scope of additional projects. However, remember, this is a new industry and it's been more challenging to find a mutually beneficial transportation option. We're still working that and we'll have an update as soon as we have one for you. As I noted earlier, this has taken longer for the industry as a whole has taken longer than we had predicted. But remember, we have to proceed at the pace of the emitters and sequesters until maybe till they define the definitive agreements, then you know or our ROE, it can't be consummated. So at the same time, you know, we're gaining experience and ours in the CCS space. Our Bridgeport facility is now operating given us viable practical experience, both transport and CO2 capture and new-build and repurposing of pipe.
So we think this is key.
As we've said, we are very well positioned along the river corridor with pipe in the ground decades, long experience with regulators, customers. And so we believe we've not lost conviction at all. We think CCS will play a major role in decarbonizing the industrial sector. We think we're very well positioned to take advantage of that. And ultimately, the timing hasn't been as planned, but the longer term, we believe we will win.

Spiro Dounis

Yes, I think that just the second one, maybe for you, Ben, just thinking about some of the items that impacted the first quarter and how to think about and moving forward in 2Q, you mentioned some shut-ins in Oklahoma. Curious if that you see a bigger impact there as we head into 2Q, if you think maybe well, connections are enough to offset some of that. And then in the Permian, obviously, you mentioned weather impact early in the quarter. Can you maybe give us a sense of how you exited 1Q and what that looks like for 2Q?

Benjamin Lamb

Yes, Spiro, starting in Oklahoma I think most of the shut-in activity is either in the rearview mirror or will be here very shortly. It was it was very isolated that between a little bit of that and the winter weather volumes were a bit soft for 1Q. We actually have a pretty robust schedule of well connects for Oklahoma in the coming in the coming days here. So we feel good about Oklahoma for the rest of the year in terms of the Permian, it, but for the winter, weather volume would have been about flat in 1Q versus 4Q. And that's not surprising when you think about the way we've talked about the growth in the basin this year after we had this furious pace of growth in the Midland Basin last year this year, Midland is flatter and the growth is in the Delaware. The Delaware has been full for us. In fact, we've been offloading some volumes waiting on the plant to come online. Good news is the plant is coming online literally as we speak, and that's what will enable that next leg of Permian growth.

Spiro Dounis

Got it. I'll leave it there. Thank you, gentlemen.

Jesse Arenivas

Thanks.

Operator

Praneeth Satish, Wells Fargo.

Praneeth Satish

Hi, guys, good morning. I guess unless I missed it. Can you can you give us an update for where you see CapEx trending in 24 and 25 in light of the Henry Hub Two River project at anything change there as it relates to CapEx guidance? And then I think you've got 50 million, if I remember correctly, for the Exxon for a kind of a placeholder for Exxon CCS projects in the budget this year. Could that be reduced given some of the delays that you mentioned?

Jesse Arenivas

A good morning for nice big picture CapEx. Even the midpoint of the 2024 guidance is for 65, and that has not changed with the Henry Hub River project. We reserve some dollars in the capital budget for these Phase two, Louisiana gas expansions. So there's no addition for this year. It too early, of course, to talk about a 2025 CapEx. But I would just say that sitting here today, we don't have any reason to believe it is materially different than the run rate we've been on in 24 and even back in 2023.
On the CCS side, you're right. We did allow for 50 million of CCS spending in arriving at our FCSAD. guidance for 2024. And you're also right that as the year goes on and things have been slower to develop than we would have hoped. It becomes less likely that we spend all 50 million of that. We don't have an update for you today, but it potentially could result in an increase in 2020 for FCFID.

Praneeth Satish

Thanks. And then I guess as I look at your Phase 1 of your Louisiana growth strategy. I think you're getting a $20 million uplift this year. And how much of your remaining Louisiana transport contract portfolio is still under legacy rates where you could kind of reprice it to current market rates? And I guess, do you think you could see another $20 million bump in 2025?

Dilanka Seimon

It's Dilanka here. Good morning, Praneeth. Very happy with the recontracting we've been doing now. Louisiana gas system speaks very well to the value of assets. As you indicated correctly, most of the recontracting rates already baked into the 2012 budget. We don't see a similar uplift in 25. Are we, at this point, substantially recontracted for the rest of 24? And we are working on renewables of 25, there might be a marginal uplift, but majority comes in in the number that was baked in this year from Kinect.

Praneeth Satish

Thank you, guys.

Operator

Naomi Marfatia, UBS.

Naomi Marfatia

Hi, good morning. Thank you for taking my question. Maybe as a follow-up to an earlier question. As we look ahead, seems like I think has some good Permian growth expectations, particularly around the Delaware. Can you give us an update on potential need for adding processing capacity beyond the TIGER-2 plant location?

Jesse Arenivas

Yes, it's of course, you've been focused on getting TIGER two in service to enable the next leg of growth. As far as looking beyond that, the good news is we've now three times successfully relocated an existing processing plant to the Permian. And so that gives us the luxury of being able to time the decision to add capacity closer to the need. So we'll be watching carefully as the year develops and as our producers share their plans with us when the right time to add that capacity and we don't think that the decision we have to make today because with the benefit of a portfolio of assets eligible for relocation, we can bide our time a bit and learn more from our producers to get the timing.
Just Right.

Naomi Marfatia

Great, thanks for the color. Maybe to switch on to capital allocation, given endings high FCFU., curious on the thought process around balancing the value proposition between buybacks or and or deleveraging?

Jesse Arenivas

Yes. We remain focused on returning capital to the common unit holder. As we said in the prepared remarks, over the past few years now, we've eliminated about 10% of the shares outstanding through the share repurchase program, and we'll continue to execute the 200 million common unit repurchase program that the Board authorized for this year. And on the balance sheet side, we're in very good shape, having just gotten the upgrade to BBB- from from S&P and we are at or slightly below, in fact, our leverage target. So we are largely going to remain focused on the on the common unitholders.

Spiro Dounis

Thanks for the call and have a great rest of your day.

Operator

Jeremy Tonet, JPMorgan.

Jeremy Tonet

Hi, good morning. Or I just wanted to touch base on the Louisiana side, a little bit more as far as either phases of the project and just wanted to get a sense it a better feel for I guess what the scope of the potential opportunity is in the timeframe that these these phases could come to fruition?

Jesse Arenivas

Good morning to all of you again on the handwritten River project is indeed, a great example of a quick to execute good return on capital project that needs immediate customer demand and leveraging our assets in the ground.
So just a bit color on the project. This one add compression along our 26 inch connecting the Henry Hub to deliver part of the market to increase throughput by about 210 million cubic feet per day. The best thing is that we are fully contracted for this project with a diverse set of creditworthy customers. So that project is well underway.
And on execution, I'll also add that we executed a similar project like this last year by adding compression to increase deliveries to the Venture Global Calcasieu Pass project again by about 200 million cubic feet per day. And the good news today that we believe have more demand for this. And we are working on even other opportunities to bring additional supply to our systems through better interconnectivity, new-build pipe, natural gas storage expansions, et cetera. So the funnel of opportunities is quite encouraging beyond these debottlenecking type projects that I just mentioned, the storage expansion, the renewable part, et cetera. We will take a little bit longer, but the teams are very focused and bringing these projects to market because clearly there is a market demand for it.

Jeremy Tonet

Got it. So does that kind of like? No, we shouldn't really expect any incremental announcements in the near term. Kind of things are accomplished in the near term for the Louisiana strategy or just trying to get time timeframe of when these items could come together?

Dilanka Seimon

As you outlined, Joe, I think the near term, you potentially can expect something on the storage side as we've talked about the nine Bcf, our storage expansion, we are working on. We've completed the engineering studies and we are busily marketing of the that expansion. So in the next couple of quarters, you can potentially expect us to have FID our storage expansion as well.

Jesse Arenivas

Jeremy, this is Jesse. Let me just add kind of on a macro scale. We've said before you have the optionality of our Louisiana assets is MBS. We operate two of the four market systems. There's redundancy. So there's a lot of these low, a lot of low hanging fruit that we continue to trade at a deal doesn't meet the customer demand. So I think, you know, it just proves that owning this diverse set of assets continues to provide future opportunity for our business.

Jeremy Tonet

Got it. Thank you for that. And then just quickly wanted to go to the Oklahoma and North Texas segments. And just wondering, given the current strip? And given your producer customer conversations, how do you feel about executing against that segment guidance?

Jesse Arenivas

Yes, and we feel good about the segment guidance at this point. Clearly, there was a headwind from the weather and a little bit of extra activity in the first quarter. But like I say, I think most of that is in the rearview mirror or will be here shortly. And I think things look, Brian, particularly in Oklahoma, as we get closer to the end of the year as the strip for 2025 gets closer becomes closer to it realization.

Jeremy Tonet

Got it. Thank you for that. I'll leave it there.

Jesse Arenivas

Thank you.

Operator

Elvira Scotto, RBC Capital Markets.

Elvira Scotto

Well, good morning, everyone. I guess just one question from me impact the two guys see from kind of where the Waha prices are, the negative Waha prices. I know you have some takeaway capacity, I believe, on Whistler. So it really impacts when Matterhorn on zone. I think you did some capacity, but just any color there would be helpful.

Jesse Arenivas

Yes, Elvira, we are we really haven't seen much impact from the challenges in Waha for the gas that we market. We've already hedged Waha basis last year at prices significantly better than of course, what you see on the screen today. So it's not a direct price risk to us.
And in terms of producer behavior, obviously, it's in oil-directed basins. Nobody's shutting in over negative Waha prices, but also just given who our customers are, they do a good job of planning their transportation needs. And so everyone has has egress out of the basin we're really not seeing much of an impact from what's going on at Wall right now. We are excited, though, to bring Matterhorn on in the second half because clearly the market is demonstrating, but there's a need for that capacity.

Elvira Scotto

Well, thank you very much.

Operator

Wade Suki, Capital One.

Wade Suki

Good morning, everyone, and thanks for taking my question. Just wondering if you might be able to comment on what you're seeing in the in the M&A market, maybe a maybe contrast how the sort of inorganic opportunities might rank compared to organic, if you don't mind?

Jesse Arenivas

Yes. Well, you know, there's quite a few assets in private hands that need to find permanent homes. And I do think that the seller expectations, it has somewhat moderated over the last couple of years, but we're going to remain very disciplined in doing anything in the M&A market to make sure that it does exactly what you're talking about, but it competes favorably with the other uses of capital that we have, including all of the things that the law has talked about in Louisiana. So while we are always in the flow of those discussions, you're going to see us remain very disciplined.

Wade Suki

Got it, thank you. And just thinking about kind of commercial activity in Louisiana. Could you maybe contrast sort of what you're seeing today in terms of pipeline prospects versus what you might have been, say, six months ago a year ago.

Dilanka Seimon

So I'll take that one. I think we are seeing the demand driver to continue. A lot of the industrial facilities in that region are facing the dynamic of the LNG. full of gas, particularly as a venture local documents facility comes online. So I would say that the different is that people are seeing that demand materialize a lot of people kind of tangentially knew this was going to happen, but it's becoming more real as we've seen in the recontracting of our capacity and the ability for us to bring relatively quickly these projects to market. And as I mentioned earlier, we have several other projects that we are pursuing and that together with the participants in that area kind of coming to terms with the changing dynamic that I think bodes really well for future projects for us and to us, it takes you want one more if I may squeeze it in here.

Wade Suki

Kind of dovetailing off that last bit more of a macro question, you are seeing any signs of a softening or a slowdown among your industrial customers. To the extent you could speak to?

Dilanka Seimon

No, we are not seeing that impact. There are some expansions being announced, particularly on the on the ammonia side with all the incentives that are at play currently, the blue ammonia sector is kind of really taking off and recall that one of these ammonia plants kind of the world-class kind of train, which is about 1.3 million tonnes of ammonia is about 110 to 100, 31,000 MMBTU of gas per day per train. So many are being discussed around the river corridor around the asset that's creating incremental demand there in addition to the kind of robust demand there already exists in that area.
One thing on that is the storage component with natural gas price volatility together with the demand from the LNG plants that are coming along to meet their operational flexibility, you really need storage gas storage to balance that out on the increasing power demand is another reason for that to grow. So I think, again, I just noted storage or surrender storage on Nickelodeon, build storage are very crucially located to absorb that market demand as well. So we are very excited about that opportunity in storage in addition to the transport bit.

Wade Suki

Fantastic. Thank you so much for taking my questions.

Operator

Harry Mateer, Barclays.

Harry Mateer

Good morning. I have a follow-up on the balance sheet and acknowledging you're a bit below your leverage target. But now you do have IG ratings to the three agencies does change anything for you in terms of ways you could optimize the balance sheet, whether that's, you know, some different tranches of the debt coupons or tenor. And I guess related when you look at the preferreds, just the shifting narrative recently about the trajectory of rates this year caused you to maybe reconsider paying those down further or maybe replacing with senior debt since you do have some balance sheet capacity area has been a lot to unpack there.

Benjamin Lamb

I mean, I think the the good news on that most of the debt structure is that it was put in place at a time when the base rates were significantly lower than they are today. And so while the upgrade to investment grade is recent, we already had a very low cost debt structure in place. And so I don't think that there are that many opportunities to optimize within the existing debt structure.
Now on the preferred side and in general, we still think that it's better value to focus our excess free cash flow on returning capital to the common unit holder, but we have opportunistically reduced the preferreds, particularly when we can get them below par, which frankly lately hasn't hasn't been very easy to do I don't be surprised to continue to see us do a little bit of that opportunistically, but we don't have anything no current plans to do anything bigger on the preferreds, including by using the, as you say, a little bit of leverage capacity that we have because having just gotten the upgrade from triple-B minus, we want to be clear, we're committed to it retaining that triple-B minus rating. And I think that the increasing leverage to do that and to deal with the preferreds with at this point would maybe not be in keeping with that goal.

Harry Mateer

Got it. Very clear. Thank you.

Operator

There are no further questions at this time. I'd like to pass the floor back over to Jesse for closing comments.

Jesse Arenivas

Thank you, Alicia, for facilitating our call this morning, and thank everyone for being on the call. As always, we appreciate your continued interest and investment in EnLink. We look forward to updating you with our second quarter results in August. In the meantime, we wish you well and have a great day.

Operator

That concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.