Q3 2019 Earnings Call

Let me begin by hitting the high points of the information that we released this afternoon we.

We're pleased to report solid third quarter, earning results as outlined on slide three these results exceeded expectations in our fee based segments and reflect a continuation of strong performance in our supply and logistics or SNL segment.

As I will discuss more in detail we've increased our 2019 full year adjusted EBITDA guidance by 100 million plus or minus 3.075 billion and if we have in we have decreased our 2019 growth capital program by 150 million to $1.35 billion.

Additionally, our preliminary guidance for 2020 adjusted EBITDA is approximately 2.55 to 2.6 billion.

This is composed of 2.5 billion for our fee based businesses, reflecting fee based growth of approximately 100 million, which includes offsetting an estimated 85 million of expected impacts from the competitive environment.

Our preliminary adjusted EBITDA guidance for our SNL segment is 50 to 100 million.

Our preliminary 2020 growth capital guidance is 1.35 billion and we expect meaningful reduction on our capital investment programs in 2021 and beyond as we complete our current capital program.

Let me put our 2020, our preliminary 2020 guidance into context with respect to the Permian production growth.

During 2018 Permian production grew by approximately 1 million barrels a day.

And we expect 2019 growth of approximately 800000 barrels a day.

For the full year 2020, we expect Permian production to grow on average approximately 500000 barrels a day, which is about 100000 barrels a day on average less than our prior estimates as we have further calibrated the anticipated impact of producer capital discipline on drilling and completion activity.

I would note that we expect 2020 Permian production to end the year three to 400000 barrels a day higher than year end 2019.

Accordingly, our 2020 preliminary guidance reflects a moderated rate.

Rate of year over year fee based growth. It includes the impact of the more on competitive environment.

As well as a lower level of SNL earnings as new Permian takeaway capacity is placed into service.

The new takeaway capacity relieves infrastructure constraints, which have supported strong spot volume throughput and high utilization on our Permian long haul systems.

Beyond 2020, our next wave of fee based growth is underpinned by multiple strategic capital efficient and highly contracted projects that phase in the service from late 2020 through 2021.

These are outlined on slide four through seven and highlight our focus on optimizing our existing systems and aligning with strategic partners throughout the crude oil value chain.

These projects are supported by long term third party commitments and provide solid visibility for fee based growth as we enter 2021.

Additionally, these projects meet or exceed our targeted return thresholds and we plan to fund them with non dilutive sources, providing strong growth in DCF per common unit in 2021 and beyond.

Now, let me share some brief comments on several the projects.

With respect to Permian long haul projects as shown on slide five we placed the cactus two pipeline into initial service in mid August and have established connectivity to Taft Ingleside and Corpus Christi. The pipeline is mechanically complete and has demonstrated its design capacity of 600000 barrels a day and is currently meeting.

Customer nominations for deliveries to these markets.

On a linked to Webster, we're advancing the project consistent with our expectations and expect the pipeline construction to begin before year end.

We have order the majority of the long lead equipment, we continue to acquire acquire right away and we are targeting in service in early 2021.

The week to Webster JV has completed and undivided joint ownership arrangement with an undisclosed third party, who was acquired 29% of the pipelines capacity in the Midland to Webster segment of the project.

The JV now owns 71% of this segment, but the respective interest of the JV owners at the week to Webster JV level have not changed I would note that our estimated net project cost remains directionally in line with the cost described on our previous earnings conference call, which already accounted for this undivided joint interest rate.

Women.

Beyond the Permian, we continue to advance a number of projects that leverage our existing pipeline systems and hub terminals as shown on slide six upstream of Cushing, where we are advancing potential expansion and optimization opportunities on our range lend in western quarter systems that have the potential to provide pull through.

Benefits to our systems downstream.

Additionally, as previously announced white cliffs is completing a line conversion to NGL service and Saddlehorn is advancing a fully committed 100000 barrel day capacity expansion.

As announced previously we provided an option to a third party through the first quarter of 2020 to acquire a 10% interest from us in the Saddlehorn JV.

Moving to slide seven downstream of Cushing, we are advancing the red Oak JV pipeline project, we continue to target, bringing red oak into initial service in the first half of 2021.

Additionally, the diamond expansion and cap line reversal is progressing.

We are preparing to order long lead equipment required for the project and continue to advance efforts to secure additional committed volumes.

I will note that we've extended the in service timing for the light crude service to the first half of 2021 to better reflect our current estimates for establishing full connectivity of diamond into the cap line system.

Before turning the call over to Al I would also mentioned that our Red River JV expansion is progressing on schedule and were progressing the Cushing connect JV with holiday Holly Energy partners that we announced in October both of these demand pull systems are underpinned by long term third party commitments with that I'll turn it back or I'll turn it over to al.

Now.

Thanks, Willy during my portion of the call I'll share a brief recap of our third quarter results.

Provide additional information on our guidance for 2019, and our 2020 preliminary guidance and review, our current capitalization liquidity and leverage metrics.

Our third quarter adjusted EBITDA of $731 million represents a year over year increase of 15% driven by solid fee based performance is strong SNL performance.

Moving to slide eight our third quarter fee based results of $635 million exceeded expectations and on a sequential basis were driven by higher than anticipated Permian gathering volumes in the early startup affect us too.

Fee based results represent a year over year increase of 13% and an increase of 9% over the second quarter 2019.

Our SNL performance reflects favorable crude oil differentials in the Permian basin.

Slide nine provides an overview of our updated fee based guidance for 2019, our preliminary fee based guidance for 2020, and our estimated growth capex for both years.

We expect to generate more than $1 billion of cash flow in excess of distributions for 2019, resulting in full year common unit distribution coverage of more than 200% and per unit results that exceeded our prior expectations.

Additionally, we have reduced our 2019 capital program by $150 million, two plus or minus $1.35 billion reflected reflecting some shift of capital investment to 2020 as well as some optimization of project scope and lower cost.

With respect to our 2020 preliminary adjusted EBITDA guidance, let me build on a few of will these comments from one Q1 7 through Q3, Q1 9, we nearly doubled our Permian tariff volumes, averaging quarterly growth of approximately 200000 230000 barrels per day.

It's more than 95% growth on our long haul systems for which for the first three quarters of 2019 have operated at effectively 100% utilization.

Our 2019 results also benefited from accelerating the cactus two pipeline into initial service in mid August we expect cactus too in our total Permian tariff volumes to continue to grow in Fourq.

In total our 2020 preliminary adjusted EBITDA guidance reflects year over year fee based growth of plus or minus $100 million and SNL margins consistent with our long held and public expectation for increased crude oil lease gathering competition and narrowing regional differentials pertain.

Kill early in the Permian.

As we indicated at our Investor day presentation in June our 2020 fee based growth is expected to be partially offset by loader lower utilization a spot capacity on several long haul lines, primarily in the Permian basin. Accordingly, our 2020 fee based adjusted EBITDA guidance absorbs an estimated 85 million.

Dollar impact from primarily from these factors.

Looking forward, we believe this amount captures the large majority of the expected impact of competition, including narrowing differentials and changes to close for the next several years.

Furthermore, we have meaningfully meaningful contractual support across our systems and we do not have material contract renewals for several years.

Our 2020 preliminary guidance also includes the impact of approximately $100 million of asset sales. We expect to complete in early 2020, which includes an assumption that the purchase option is exercised on satellite.

With respect to our capital program, our 2020 preliminary capex guidance of plus or minus 1.35 billion assumes approximately 300 million of our net net capex is funded via project debt within the Red Oak JV entity and therefore is not included in the 1.35 billion dollar amount.

Consistent with our targeted financing structure. Our 2020 capital program is expected to be funded with excess distributable cash flow and asset sales and the balance with long term debt.

We do not expect issue common equity to fund our 2020 capital program, we may consider additional preferred equity.

Depending on funding requirements and market conditions.

Before moving from slide nine I would point out that over the last several years, we have funded over $4 billion of a capital investments with asset sales and excess SNL overperformance.

As mentioned previously we have incorporated a $100 million of asset sales in our into our 2020 guidance and we continue to evaluate additional divestiture opportunities. If successful proceeds would be used consistent with our capital allocation Levered fund capital investments pay down debt or return capital to our.

Investors.

Moving onto our capitalization and liquidity as illustrated on slide 10 at quarter end, we had a long term debt to adjusted EBITDA ratio of 2.8 times, which has benefited from excess SNL over performance over the last 12 month as described on our last earnings call. We expect our leverage to take a bit higher in 2020 as we complete.

Our capital program, but we remain focused on continuing to migrate leverage with a moderated SNL contribution down within our targeted long term debt to adjusted EBITDA range of 3.0 to 3.5 times.

As a reminder, the rating agencies make certain adjustments for their leverage calculations, including for our preferred equity securities. The current adjustments add roughly three quarters of a turn so the 3.25 times midpoint of our target range would currently equate to roughly 4.0 times on a rating.

Agency basis.

Reducing our leverage to these levels is consistent with our objective of achieving mid triple B credit ratings over time.

September we completed a public offering of $1 billion of 3.55% senior unsecured notes due December 2029, we intend to use of proceeds in the fourth quarter to retire or 500 million dollar notes due in December and $500 million notes due January 2020, which together.

Weather had an average interest rate of 4.2%.

I would also note that in mid October one of the rating agencies change their outlook on our credit rating from stable to positive rivette, reflecting progress we have made.

We expect to end 2019, with significant committed liquidity and well positioned to continue to finance our growth investments in 2020, we look forward to providing an update on our progress and provide full 2020 guidance. During our year end conference call in February with that I'll turn the call back over to Willy.

Thanks Al thus far in 2019, we've delivered solid fee based results enhanced by strong SNL execution in a period of favorable market conditions. In addition, we've continued to advance our ongoing efforts to improve safety and reliability of our operations with strong performance in those areas year to date.

Looking forward, we've aligned ourselves with long term industry partners across the value chain, which allows us to build an optimized capital efficient projects help solve industry needs and secure returns at meet or exceed our hurdle rate above our weighted average cost of capital.

We remain focused on continuing to grow our fee based business through the completion of our current capital program and ongoing optimization efforts, while maintaining a strong balance sheet and credit profile.

As al mentioned.

We will also continue to look at portfolio optimization and additional potential asset sales.

Acknowledging the headwinds described throughout our call. We believe we're well positioned for 2020 and beyond initiatives described throughout the call drive cash flow as we complete our current capital program, which will allow us to further balance our capital allocation levers, including leverage reduction and returning capital to unit holders.

The next few years.

A summary of our performance versus our 2019 goals is included as well as key takeaways from today's call shown on slide 11 and 12.

We look forward to updating you in February with our full 2020 guidance and before I turn it over to up to roll I do want to make a clarification when I talked about our cactus two pipeline. It is mechanically complete.

I may have referred to it as 600000 barrels a day have demonstrated designed capacity. The correct number is 670000 barrels a day of design capacity with that I'll turn it back to you right. Thanks willing as we enter the Kunaev session. Please limit yourself to one question. One follow up question and then returned to the Q. If you have additional follow ups. This will allow us to address the top questions.

From as many participants is practical in our valuable time. This afternoon. Additionally, let me go and I plan to be available deceiving tomorrow to address additional questions. Eduardo we're now ready to open the call for questions.

If you'd like to ask your question. Please say model by pressing star wondering your Telcel keypad refusing at Speakerphone. Please make sure you beat function is turned off till our signal to return.

Again press star one to pose the question, we'll pause for just a moment hello, everyone and opportunity to signal for questions.

Okay.

Well now take our first question from Jeremy Tonet at JP Morgan. Please go ahead Sir.

Good afternoon.

Hi, Jeremy.

Hi wanted to start off with capital allocation philosophy, and you touched a lot of different ways turn the call, but just wanted to bring it back in light of kind of where the share price sits right now and how it's kind of declined and how you think about stacking capital for.

The project you have if they can be scaled if they could be JV portfolio optimization and thoughts on whether you know.

Buybacks any sense any point the future could make sense just kind of given.

The levels, which trading at right now how that all kind of plays together.

Jeremy This is well let me make a couple of comments and I'll ask out too to add to it I mean, clearly we've got a capital program that's going on for.

This year next year, we what we need to continue to allocate capital to complete that.

That is priority one is to get that Don we always look at ways that we can improve.

Returns of projects, if you've seen we've brought additional partners into that we'll continue to look at that.

But we really had a point of inflection in 2021, where the cash flow starts kicking in from the cap completed capital projects and our and our capital load starts dropping so at that point. It gives us more flexibility to do things and then the other thing we're looking as al talked about we continue to look at potential asset sales.

And even some other ways to.

Additional cash to give us sell some more financial flexibility, so thats kind of the base case.

Depending on if we get some excess earnings from SNL and or asset sales.

There's a possibility for shareholder return.

We would we would only buy shares back if they were valued compelling we have had discussions with our board on it and we would be able to move quickly on it but at this point our focus is really to get our capital projects, Don and get ourselves moving where we can get some of the cash in the door.

Now, we'll see I think you hit it clearly it's one of the the prongs of our capital allocation strategy.

As Willy mentioned, we've had discussions with our board we think we could implemented program very quickly.

It just right now we're prioritizing leverage and funding well, we think are very highly.

Strategic and accretive projects.

But there will be a time when we'll prioritize it if our shares.

If it makes sense at the time when we get there.

That makes sense that's helpful. Thanks.

There's been a lot of talk in the marketplace as we've seen over time with Permian takeaway competition kind of ramping up and it seems like we're at the Prespecified right now with some competitor pipes.

Entering service.

And so just wanted to see if you could provide anymore color on for Q transportation looks like a the guide embeds a little bit of a step down there.

So just wanted to see given that were part way into the quarter right now what level of comfort you have as far as kind of hitting that number.

Any color you could provide there would be helpful.

Jeremy Let me ask Jeremy global to address that Hey, Jeremy.

First of all to answer your.

Second part of your question the near term.

What we were doing is reflecting a surge in production we saw spot capacity in regional differentials across multiple pipes in multiple regions that supported by the we forecasted in Q4 additional takeaway capacity from regions coming on Cactus two came on which is different than that.

That rolled in that some of the spot capacity, we value differently in the fourth quarter as we go through the quarter, we feel comfortable where the projection is going into next year and beyond that I think al touched on it during the call. It really did as well that are our forecast for next year reflects our view of what regional differentials are and what we view spot capacity and allocation.

And we'll be it steps up year over year as this surge in production, we're seeing now thats come into our system Haynes, one thing that takeaway from the call as we've been preparing for this environment for several years, we've been firming up our lease supply we've ensuring we have the right upstream and downstream connectivity to provide our customers at the utmost concern.

Activity in most efficient way to get from the wellhead to the market. In addition that turned up lease supply gives us opportunity. We continue to make sure that where we have slack, we can optimize utilization of our pipeline systems.

On top of that we have substantial long term commitments I think both Willy and al talked about that's why we get excited about the projects. We do we have long term industry partners long term contracts that combined with our marketing position gives us an ability to to make sure our pipes say its full and optimize their capacity.

That's great. That's all for me thanks for taking my questions.

Thanks.

If I know your question has been answered you be removed yourself from the key by pressing star too well now take next question from Shneur Gershuni. Yes. Please go ahead Sir.

Hi, good afternoon, everyone.

Just wanted to actually talk about Permian takeaway capacity for little bit here.

Some of your peers have mentioned the high cost of using DRA and how much capacity gets added to the overall Permian takeaway system. So when spreads seriously compressing and probably expensive to use DRA do you have a sense of how much capacity could be taken out of Permian.

So these results.

I'm sort of taking out this peak capacity of source.

Yes sure this is Chris Chandler.

The short answer is we don't have an estimate of how much capacity could be taken out of your usage was stopped but it is something that we optimize on a daily basis, we take into account things like power cost pipeline flow rate and crude quality and it gets a continuous optimization and really in some cases some of our more recent pipe.

Lines have been designed to utilize a face loan of DRA. So it's it's unrealistic that.

The year rate would be removed completely from using our pipelines.

Sure. There are good this is willing to do it rule of thumb is is it plus or minus 20% on capacity for DRA, just a general comment.

Perfect. Okay. Thank you and as a follow up question.

I know that you've you've sort of given us an initial outlook on 20 in my questions about to be about 21, but you know as you sort of look at the projects that you currently have complete visibility on right now that you're building out and so forth when I look at slide nine you sort of have plus 21.

Capex being mid tier meaningfully lower in 21 versus the current year.

And it's sort of seems to be suggesting that there could be some incremental EBITDA growth and 21 are we looking at something that can be pretty meaningful and 21 in terms of just you know they continue to ramp.

When you sort of think about the capital you're putting in place for 20, how much would you know how much would still be ramping at the end of 2000 into 21 do you have some sort of sense on that.

Yes, sure I would I would look at it as these capital projects kicking in and getting the benefit of it. So it is a meaningful amount that would.

Start ramping up in 2021.

Alright, perfect well those are my two questions. Thank you very much guys.

Thanks.

Well now take the next question from Tristan Richardson at Suntrust. Please go ahead.

Hey, Good evening, guys just had a question that the new development on Wink to Webster can you talk a little bit about how the.

UGI I came about and.

Typically it seems like we've seen your equity partnerships focus on large customers that can bring volumes to bear kind of curious how this one came about.

Thanks.

Good afternoon. This is Jeremy.

Look we are always looking to optimize if you remember at this time there were several competing projects for similar routes.

How hard is an example, when merged with Grand Mesa.

This is optimizing long term takeaway to ensure that theyre sufficient takeaway that need producers' needs, but at the same time, making sure. They in the industry is capital efficient.

Linked Webster and its partners had a fully committed pipeline but for the.

Long term benefit of the the downstream refiners that producers and the owners of the pipeline system belted made sense to merge the projects together and come off of the capital efficient solution you will see us continue to do that and all the projects is bucket.

The white cliffs project that were reversing and turning and NGL service. The I've mentioned Saddlehorn Grand Mesa, The Red River project.

Diamond cap line all of these projects are taking.

Existing capacity or bringing partners together that have potentially competing projects and trying to be capital efficient. So I think linked to Webster was just another one where.

Rational mines come together in the industry and take two projects and put together as one.

Hi, Chris and I would Oh.

I would I would characterize this as really a great example of what we mean by driving capital efficiency across both ourselves in the industry.

I appreciate it and then al you mentioned preferred equity as a potential tool in that tool box could you talk about.

Maybe book in sort of what kind of conditions.

You think.

That would make sense as a as a funding mechanism.

This isn't a balance sheet consideration is it.

Just trying to think of.

What we set the stage that that might be the best option.

Yes, yes clearly.

We view that our leverage will pick up in 2020 as we fund this capital program. So we view that as the funding tool it will be.

Kind of done in concert if we were to do it in relation to how much assets, we may identify to monetize any changes in our Capex program if any.

And then kind of the rate we look at the preferred security.

With the 50 50 kind of equity debt waiting that the rating agencies subscribe to it versus our cost of capital and so and I think ballpark. We have 800 to 800 million to 1 billion kind of in our basket that we could we could utilize so but the security also is subject to market conditions.

And that so we.

We do view that is one of the things will be will be monitoring and if we need to the to manage leverage or fund our program, we'll we'll look to access that market.

I appreciate it thank you guys very much.

Well now take your next question.

Morning. Please go ahead.

Hi, Good afternoon, two questions for me one is in terms of as the year on year Permian growth forecast of three to 400000 barrels a day, whether that is conservative or aggressive I guess time will tell but it seems a little bit more of a conservative numbers compared to some I think some other stuff that's out there can you talk about.

To what extent that's been developed in conjunction with talking to your producer customers versus what that may be a P.A. internal viewpoint.

Sure This is Jeremy.

We we continually look at our forecast, we probably continuous based on dialogue with customers our own internal views that dialogue that the our customers are having a supermarket [noise]. It may prove conservative we basically look at and this case, it's almost a run rate, saying the 300 575 current rigs that are running continue.

On a run through 2020 as the perspective.

To be honest with you 2018 ended with more production than we thought so it began this year. So while activity continued decline this year, our 2019 exit rates higher than we had forecasted at the beginning of the year simply because of the momentum from 2018, it's quite possible that that happens again, we expect 2019 to exit around four.

Six 5 million barrel today, we do in this forecast that really was working from which is really a constant activity forecast I know efficiencies built in gets you to roughly 5 million barrels a day exit next year.

That growth will be different dry different operators and then you'll see some of the integrates will far exceed historical growth rates and you'll see the levity in pieces that have substantially lower so it doesn't necessarily mean anything specific for Pacific operators. It just means that look that's our respective view of this activity level core assets.

And we view well performance will continue the to slightly increase is lateral lengths get longer on a normalized basis. It seems like it's fairly flat. So the impacts of a parent child relationships. We think that our customers are working through at that and well spacing et cetera. So we continue to see that incremental wealthy.

Better than the last well a lot of it because of getting smarter and so as we said none of that's built in what we've got as a continuation of current activity and Thats, what yields that number and based on current.

The current price environment as well correct and gave this is willing to make sure I was clear when I described it.

I gave tune up two numbers one was 2020 average versus 2019 average which is the 500 number.

Which is a little lower than we expected before and then the 300 to 400 number was year end 19 to year end 20, which reflects the back end of 2020, starting to taper off.

Got it thanks, well and then my follow up question really is around some hand holding around us. So now the $50 million to $100 million to what extent you are protected on the downside if relationships could really out of whack in terms of.

You know Permian bauerle, selling at a premium because of MBS MVC commitments and the like.

Relative to Gulf Coast prices, how you feel the 50 to 100 million my because your downside in a scenario like hot.

This is Jeremy I would look at it is that's our current reflection of all the impacts of SNL SNL as in Canada, Ethanols and the Rockies ECS sales in the Permian. So we feel like we've got a good handle on those attributes.

With respect to the Permian, we can be the beneficiary being a pipeline operator and owner of capacity to multiple markets plus the ability to sell into Midland. So the extent that that happens there's ways for us to benefit as well. So I think our length. In this situation will help us it take advantage if that if that turns out to be and we'll continue to look for opportunities to opt.

Demise around our asset base, our SNL footprint and through our marketing affiliate. So that number you know Jeremy touched on this but really its reflection of only look at our contractual commitments.

And.

Okay.

Our contractual position and in 2020, and our volume forecast and like I said.

Rolling in the NGL as well, we think there's a pretty fair reflection of the opportunities that in a in 2020.

Great. Thanks, everyone.

Thank you gave I'll take all right well I'll take your next question from Michael Blum at Wells Fargo. Please go ahead.

Thanks. My question is really about the asset sale approach for next year.

I guess would that be discrete assets or would you also consider.

Existing assets and I guess within that context.

Specifically with Red Oak are you sort of set at the current JV structure or was that they would also be willing to sell down into as well. Thanks.

Let me go ahead and take this one Michael there's no I don't want to get to specific on asset sales, we've talked about the option on on one of the pipelines that specific we've been working a number of potential opportunities and I would answer it's really all of the above as you've seen us implement over overtime, we do have some.

Additional things, we're looking at but it's probably premature for us to give you specifics on that or give you a number on that Jeremy you want to add something yeah. I think I think really captured it we're opportunistic and we like our assets and won't sell them lessons or evaluation that there were comfortable with but in addition, your question specifically on Red Oak.

P 66, and claims are always looking to optimize the ownership the strategic alliances it may be that we keep it this way it may be that we bring some went in at all be based on the opportunity set.

Alright, Thank you Thats all I had.

Thanks, Michael.

I'll now take your next question from heat Stanley at Wolfe Research. Please go ahead.

Hi, the.

Q3, EBITDA was very strong and transportation segment and your your updated guidance.

It implies kind of tick down in the fourth quarter, and transportation and facilities and volumes pretty flat just anything unusual going on there is just conservative in Q4.

Looking forward.

I believe this question was asked earlier, but I think very simply there were a Texas to came online and we had a surgeon production from it condition because we're the first project online all of our Permian outlets all maintained full wild cactus too with that elevated rates. So we wouldn't expect that spot capacity.

Those volumes. In addition, there were some opportunities in the Rockies and others that had spot differentials Red River pipeline was running at elevated levels, but our reflection next year as a step up 100 million from this year in spite of that as projects come online as cactus to fully ramped and towards the end for the year as Red River in Saddlehorn.

He step up so we feel like next year reflected.

But Q3 was an instance, where we had cactus to fall in every one of our Permian pipelines. This full in addition to some rockies opportunities in Red River.

Facility side also theres a lot of spot activity, that's hard to forecast natural gas assets for instance.

Significantly over performed relative.

To the guidance, we had out there. So those are the types of things on a little harder to dissipate.

Got it and just one quick follow up on those sell down of of went to Webster and the 29% interest can you just confirm the party who acquire that interest has not disclose that publicly so the market yeah.

And to our knowledge they have not disclose that.

Okay. Thank you.

Thanks Kate.

Well that's taken as question from convene a tutor.

Pickering Holt co. Please go ahead.

And just to follow up on the 50 to 100 million of SNL next year could you give kind of the high level breakdown of contribution between the Canadian NGL business and crude marketing.

Yes, we don't go into that type of detail in the guidance true.

And I guess, just you know as you look at that number.

Options that would be consistent with pretty tight spread environment on crude.

Yes, correct.

Next in competitive.

Got it and it well I guess you see any impacts on the NGL side of the businesses I mean, the Edmonton spread has come in so is that that's all kind of dialed in here in that 50 to 100.

Yes. It is.

Perfect and then just on the $85 million reference.

You had mentioned stretches the short term basis, the Canadian desk has gotten weaker because of Keystone.

Not sure if that's something that persist on long term basis.

Yes.

Okay see on is that on the crude centered I'm kind of crude side actually I speaking joined the NGL side the physician.

The differentials have compressed as well.

She called and the reason, we don't tried to give too much more transparency is there's so many variables in the market that it really gets into a reconciliation nightmare and what might happen. So I think we'll just stick with our answer on the 50 to 100 and you know the components of what we do.

Understood and just on the I think it was 85 million that you referenced in terms of Permian headwinds next year for transportation, just characterize where in the system. That's hitting is that primarily long haul are you seeing any impact closer to the wellins.

Yeah, I'll, let Jeremy touch on this the 85 was really across our system and it includes Permian long haul as well as some lower tariffs on some Rockies pipelines.

Yeah, I think Willie cover it is primarily long haul, but our reflection of what we think the rates through transportation information transport any changes to contracts, we have within the basin. Our view of what spreads are across the region all impact of into that number.

You know as we've talked before we've got this complex system that can get different markets. When everything is constrained everything's fault going up to Cushing, primarily in with a lot of new pipelines that have been built the volumes now are actually go into on.

To the Gulf Coast markets. So a good portion of that reduction on on long haul is on our basin system going up to Cushing.

Yeah, and I'd also add to this that when you think about our system and the movements within given base and a lot of that is on long term contracts just as the takeaway pipe. So so when you think about it that our guidance next year reflects the economies.

And your base in long haul regional differentials et cetera.

Got it that's helpful.

[noise] Bill I'll take the next question from peers haven't at some is energy. Please go ahead.

Hi, Thanks for taking my question just one question for me I'm curious if you have any update on the Eagle Ford terminals Corpus Christi, the JV with enterprise any changes there I know, there's some talk about maybe.

Enterprise selling their portion.

Thanks peers this is Jeremy.

A business as usual and Eagle JV with enterprise. The partner. We're excited we're shipping two to three cargos a month than the terminal started up in September and.

Our customers are very happy so I think that's the only update I have four yet so we have not been in the loop on what enterprise is doing with their term.

Their ownership.

Yes.

Thank you.

Well take the next question from virtual Forgotten at Bank of America. Please go ahead.

Good evening. Thanks for taking my question first one for me would you be able to talk about what led to the reduction in your trading 19, Capex and Ben.

20 to 20 coming in line with 2020 , sorry traded engine as you previously stated.

Is that because of delays in project construction timing or is that just a lower contribution from jvs.

But it was well that's true.

Sure Israel This is Chris Chandler.

As we shared earlier, we have reduced our 2019 Capex a 1.35 billion to answer your question. It's a mix of timing adjustments project scope reductions and cost optimization. So.

Some of those that flows through to 2020 as well but.

Cost might be something like improved results from competitive sourcing versus our initial estimates.

We're also looking at optimizing line size number tanks number a booster stations exact routing and the pipelines things like that so a capital efficiency something we're always pursuing so our ability to bring that number down for both 2019 and 2020 is.

Gotcha, and maybe a one of your touch.

Briefly on recent market concerns related to potential future federal legislation or any kind of residential director of against a fracking on federal lands have you gone through what could be cool.

Potential throughput impact based on where your assets or.

Yeah. This is Willie it's hard to comment on that it's it's something that's further out there and there's a lot of uncertainty on what what might happen. What I can tell you is we I can give you one statistic that if we look at the acreage dedications that we have we've got less than 20% that are on federal lands.

So from what I've been hearing from the producer community. There's there's some flexibility for people being able to move things around but I think it'd be premature for us too hard to quantify direct impacts before we know what might happen.

That helps thank you.

Yep.

Well I'll take your next question from gene and sounds very at Bernstein. Please go ahead.

Hi, I, just one more on the 85 million impact and your guidance next year and let's see I think did I get lower utilization if spot capacity.

Can you just coming on at this is still anticipating material spot barrels to flow or if that's actually pretty close to the take or pay I guess, what I caught floor level.

Yeah, well a lot of it.

A lot of the volumes on legacy pipes don't have nbcs. So it's sort of a combination of what moves on nvcs lets dedicated to our gathering systems [noise].

And where are we think those volumes naturally flow because landfall, where there's not a little bit not MPC.

Okay, I guess I meant more outside of banner domestic pricing.

No. That's that's the tenants across our system right, we have legacy assets that there aren't new construction and whether it'd be in the Rockies or at the and so a lot of our assets or demand holders historical shipper entry is controlled by refiners. They they ship on those pipelines to feeder refineries.

A lot of the newer construction has nbcs in this reflects that component. So when we win how are you talking about as our plan. This 85 million reflects the net impact across the.

Appliance based on our flows and based on our view of or what are these are the net impact.

The business unit, that's the fee based pipeline business unit.

Okay, and that's helpful and then as the I'm only midstream operator, who will have to do that capacity from the Permian Ti Cushing Houston in Corpus and can you share your thoughts on what you think it's their relative attractiveness of victory destination to shippers bunch, there's plenty of capacity to each one.

Sure.

Cushing has a substantial refining complex and they like need barrels and to the extent you see lower activity in the Rockies in the mid con and there's a shortage of barrels that's what would pull there the quality of that they need pardon me about Permian barrel oil barrels that way.

From a corpus standpoint, the ease of access and the competition for water I think theres substantial new capacity in that market is working as an export market Houston errors. In addition to corpus having some refining capacity Houston has a bigger we're finding base, but it also has substantial exports.

Year to win is in a similar function. So we have customers and gene and if you looked at a map of our system when.

We're done with all the projects in 2021, if you look at slides five or six you can see we can take a barrel from the Permian Basin again, it's the same James Neater Len Corpus Cushing Wichita Falls.

Or or Houston, So our intent is not to tell where our customers where the barrels go but to ensure that they have access to all other men and pricing in our terminals can reflect those options makes our asset stickier for the long term and that's the ultimate playing them over to Bell.

That's really helpful for you and it's OK, yes.

The only thing I would add on that is I would just highlighted that cushings demand. There is a demand for WT high quality right. The medium qualities. There that is the hub for a lot of mid con refineries and as we go forward. We've always kind of predicted that crude segregation is going to get more important as the aggregate barrels get lighter.

And I think we're going to continue to see more of that but there's going to be a continued pull on 45 and lower gravities at Cushing.

Thank you and I appreciate that.

[noise]. That's taken next question from some you'll see vile Seaport Global Securities. Please go ahead.

Hi, Good afternoon, guys and thanks, one of the clarity most of my questions have been hit but I just had a couple of clarifications from points discussed first on the fed through learns drilling I think you mentioned, 20% well start drafting to your current production coming from those kind of learned.

Or is it more <unk> related to it because you medications with regard to the federal lands.

Mike well was my comment was on the total acreage of what we have in the Permian So wouldn't impact existing production right.

Okay got it and then on the Capex side, so seems like from your last.

Update a between 19 and 20 300 million reduction in capital and then I think you talked about another 100 million or so if I said sales. So net net you know when we think about leverage existing 2020, you're talking about a 400 million different supposed to has been doing any provided guidance last time is that correct.

Chris you want to take that you're correct on the capital number and you're correct on the asset sales number that you referenced so.

Consistent with our capital allocation strategy, we look to self fund our capital investments and also a reduced leverage as a as we have the opportunity to.

Let's now go to help that of the of the 2019 and 2020 numbers right. There's a there's a timing component.

A cost savings in an optimization confident we haven't given the break down on that.

But some of that will be capex that will shift from 2020 to 2021.

As well.

Okay, Okay got it thanks.

[noise] Oh, taking I think once you're from David Atlas height Heikkinen Energy. Please go ahead.

Hey, guys I'm.

Thank you, but the question that Shneur asked earlier on 2021 can you just talk about how you expect.

Your return on invested capital to change.

As we get further beyond your guidance now through 2020.

Should there be some meaningful improvement in capital efficiency in 2021 and beyond.

Oh.

Yeah.

Well, it's it's hard beyond 2021, it's hard to to say what.

Our return on capital will be for projects that we don't have that Ed and and all that I think I can speak to the projects that were on the slides Willie walk through and there's a number of them and I think in total they aggregate to over $2 billion have invested capital we feel very good about the return.

Turns were going to get from those projects highly contracted third parties.

With with third parties with natural shippers.

On a long term nvcs and returns that meet or exceed our hurdles, which is three to 500 basis points over so.

We feel very good about the returns we're going to get on what were invested in today beyond that at the you know, it's a little bit harder to find.

Our view is that we need to turn those return hurdles are we shouldn't make the investments. So bottom line is we're trying to be as disciplined as weekend with our with our capital dollars their precious and ultimately we again, we feel very strong about the returns we're going to see and the growth will give us the into when they won as.

We complete these projects.

And then David if I would add also as you think about some of the asset sales that we've done a asset sales sold a good values that should be accretive to the projects where do on so I think directionally theres a lot of positive desire on taken return on capital employed up.

Okay. Thank you and then one follow up just if you wouldn't mind expanding on the moving cap on back a little bit and in terms of timing, what's the cause of that.

[noise] on that project is progressing largely as expected we're on the process of purging cap line itself in routing line fill.

It's going well that's to prepare for both inspection or reversal activities and then the the new section of pipe is an extension of Diamond of course for a Memphis, Tennessee to buy Haley of Mississippi, That's approximately 40 miles.

We are taking a little extra time to make sure. We we've chosen the the best route that has the least impact on the community and and we're in the process right now of of optimizing that route and obtaining the right away from that extension.

Thank you for the clarification I'm just a one last one if you don't mind that process on the 40 miles.

When do you feel like you'll be secure it knowing that that's done and you could proceed with your project.

Oh that should come fairly soon we're preparing to order long lead equipment. We're we're in the middle a detailed engineering so.

They'll always be route optimization until we buy or last piece of right away, but we oh, we have on the scheduled to start construction in early 2020. So that of course requires that the route be locked down for those Oh sections.

Got it appreciate it thank you.

Oh.

I'll take the next question from Christine Cho of Barclays. Please go ahead.

[noise] [noise].

Yes.

Uh huh.

Hi, guys.

Hi.

Right.

Hi, Thanks.

Yes.

Kristine. This this is out no we are not with regard to wink to Webster on these.

Equity investment Jvs.

We've historically treated as investment in reported isn't in our capital investment is is to contributions and clearly the reason we're doing the disclosure around the red Oak is to make sure that whether its debt inside of the JV entity or contributions from us that were.

Full disclosure on on what the true investment is net pro rata to us, but we are not looking at that linked Webster project financing.

[noise].

This concludes today's question answer session and it sounds like to turn the conference back to the speakers for any additional for closing remarks.

Thank you all appreciate you joining us today, and we look forward to providing an update in February .

This now concludes todays call taking for participation you may now disconnect.