Q1 2020 Earnings Call
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[music].
Good day, ladies and gentlemen, and welcome to the Pea.
And the GP first quarter 2020 earnings call. Today's conference is being recorded at this time I turn the conference over to Roy Lamoreaux, Vice President of Investor Relations communication that government relations. Please go ahead Sir.
Thank you Keith Good afternoon, welcome to Plains, All American first quarter earnings Conference call. Today's slide presentation is posted on the Investor Relations news events section of our.
Website at Plains, All American Dotcom.
Our audio replay will also be available following our call today as a reminder, later this evening we plan to post our standard earnings package to the Investor Kit section of our IR website, which will include today transcript and other reference material.
Important disclosures regarding forward looking statements and non-GAAP financial measures are provided on slide two at today's presentation.
Condensed consolidated balance sheet for PGP and other reference materials are located in the appendix today's call will be hosted by Willie Chiang Chairman and Chief Executive Officer, and Al Swanson Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial Officer, Chris Chandler Executive Vice President and Chief operating Officer and Jeremy.
Global Executive Vice President commercial along with other members of our senior management team are available for the skewed a portion of today's call.
With that I will now turn the call over to willing.
Thanks, Roy Hello, everyone. Thank you for joining us and we hope that you and your families are safe and well through these very challenging times.
This afternoon, we reported solid first quarter, adjusted EBITDA of 795 million, which exceeded our expectations.
These results include the benefit of additional margin based opportunities in our SNL segment, and a $20 million benefit from a contract deficiency payment previously expected to be recognized in the second quarter.
On a GAAP basis, we reported a net loss due to approximately 3.2 billion in aggregate noncash impairments, reflecting the impact of the global market downturn that emerged following our February earnings call.
As we all know the world has changed significantly as a result of the grown of ours and it remains a very uncertain and dynamic time, let me first acknowledged the commitment of our PPA 18 in our colleagues who have responded quickly to the challenges of operating in a socially distant world.
Including minimizing large group exposure and executing on amended procedures for our field staff and control rooms, and more than 95% of our office staff working remotely.
Our team has adapted and maintain our operations, while responding to evolving market dynamics and working closely with our producer and refining customers. During this unprecedented disruption.
Acknowledging that dynamic and uncertain market conditions. This afternoon, we furnished updated 2020 financial and operating guidance. Our 2020, adjusted EBITDA guidance of plus or minus 2.4 to 5 billion is approximately 6% below previous guidance and reflects fee based earnings of 2.2.
Million, a 12% reduction from our pre Corona virus February guidance and stronger SNL earnings of 225 million offsetting a portion of the lower fee based estimate.
This guidance highlights the benefits of our integrated business model, where we can generate additional SNL earnings in certain volatile market conditions.
That said the combination of the current impact on our transportation segment limited visibility regarding the pace of demand recovery in our desire to be proactive really drove our actions that we announced in early April to further strengthen our balance sheet, our liquidity and our long term financial flexibility.
As shown on slide three collectively we expect these changes to result in approximately 1 billion of benefit to our cash positioning in 2020.
As outlined on slide four our specific actions included making significant reductions to both our capital program as well as our common equity distributions.
We also continue to pursue and capture capital and cost reductions throughout the organization and our supply chain as well as additional noncore asset sales.
Regarding asset sales transactions, representing approximately 440 million of our $600 million target have either closed or and pending our pending closing under definitive agreement.
We continue to target a total of 600 million and noncore asset sales in 2020, but we do acknowledge that this number could be more difficult achieving the current environment and could slip into 2021.
Now, let me share a few observation that underpin our outlook.
Shortly after our February four 2020 earnings call.
The World change significantly we've included a few charts on slide five that illustrate the fundamental changes experienced to date.
As the chronic virus escalated into a global pandemic the associated societal mitigation actions, including shelter in place orders and the resulting energy demand destruction accelerated at an unprecedented pace in magnitude. This demand decrease is a significant near term challenges facing our industry.
Specifically as uncertainty around not only the scale and duration of the impact, but also the timing niece and the extent of recovery.
For context, the majority of reputable estimates of year over year global demand destruction for the second quarter ranged from 20% to 25% and plus or minus 10% for the full year.
The Opex plus plus efforts to curtail production of since followed in all these although these cuts alone are not enough to offset near term demand destruction. They certainly will help the longer term process of rebalancing the market, which will depend heavily on the ultimate level of demand recovery as well as the duration and extent of the near.
Or term global surplus.
In North American markets, the widespread shelter in place requirements for most metropolitan areas resulted in an immediate response by the us refining sector to quickly reduce runs the man destruction is impacting the entire value chain by the supply chain, causing crude oil and gasoline inventories to approach.
Peaks, driving wellhead prices to historic lows, and reducing producer drilling and completion activity, causing significant levels of voluntary shut ins, which we expect will cost production levels to decline in the very near future in most if not all key basins.
The overhang of inventory for both crude oil and refine products coupled with the potential for a more gradual recovery suggest that a price recovery may be extended into 2021.
However that we dependent on the duration of the impacted demand the willingness of producers to continue to curtail production.
This backdrop, we're now forecasting a year over year exit to exit basis that the Permian crude oil production in 2020 could be down 15%, 20%, reaching trough levels in June in flattening out the second half of this year.
It remains too early to call Permian growth trajectory for 2021, but we expected to be lower and what we internally forecasted at the beginning of the year pre grown of ours.
As a result of these dynamics in as previously announced in as reflected on slide six we have reduced our 20 22021 capital program by 750 million or approximately 1.35 billion or 50% when factoring in previously anticipated JV project financing.
To a total of approximately 1.55 billion over the two year period.
Our first quarter investment was approximately 350 million and we currently expect an estimate $1.1 billion of total investments in 2020, and 450 million in 2021 with the potential for some timing shifts between the two years.
We expect the vast majority of this investment to proceed considering the highly contracted nature that these projects that said, we continue to challenge all investments in the current environment and are working to capture additional cost savings.
Beyond 2021, we expect annual expansion capex to be below the 500 million dollar level with that let me turn the call over to al.
Thanks, Willy during my portion of the call I'll recap, our first quarter results discuss our 2020 guidance review, our current capitalization and liquidity and leverage metrics I will also review the noncash impairments we reported in the quarter in the first quarter, we generated solid results in each of our.
Segments reporting fee based adjusted EBITDA of $652 million and adjusted EBITDA of $141 million in our supply and logistics segment as shown on slide seven transportation segment results slightly exceeded expectation coming in 11% ahead of the first quarter 2009.
Team and slightly below the fourth quarter 2019.
First quarter facility segment results also exceeded expectations, including the $20 million benefit of an early deficiency payment that will be referenced.
And now results exceeded expectations due to favorable crude oil differentials, partially offset by less favorable NGL margins.
Now, let me shift gears to our 2020 guidance, which is reflected on slide eight.
As Willy discussed previously clearly this is a very challenging market to assess right now the largest headwind for our business is a shift to near term declines in production both from reduced drilling and completion activities as well as from producers shut ins.
Our revised 2020, adjusted EBITDA guidance of plus or minus.
2.45, or $2.4 billion to $5 billion is 150 million or 6% below our original guidance provided in February.
As is normal practice, we are providing a plus or minus number versus the range, but we would caution that with the dynamic market conditions and lack of visibility associated with the Kobin 19 demand destruction. There is a range of outcomes, depending on market development, either to the plus or minus.
Side of these guidance amounts. Additionally, there may be some interplay for the balance of the year between our transportation and supply and logistics segment, depending on shifting market signals associated with storage availability and regional pricing differentials.
Our revised guidance reflects the $300 million downward revision for the transportation segment.
150 million dollar upward revision to our SNL segment.
No change to our facilities segment.
For the transportation segment, our February guidance that assume 10% volume growth from 2019 with 2020 Terra volumes, averaging 7.6 million barrels per day, driven by continued Permian production growth and in the aggregate flat to slightly lower production.
In the remaining use shale basins.
We now expect 2020 shale production to decline in all basins. Both in terms of the year to year average and exit rate, including the Permian and now forecast 2020 transportation segment volumes of 6.6 million barrels per day.
For perspective forecasting transportation volumes for the second quarter alone has proven challenging due to the extreme volatility in recent commodity prices and assessing the corresponding response from producers, which is why we've provided the reminder, about the range of outcomes to the plus or minus of our guidance amount.
With respect to the SNL segment in the near term, we expect to capture additional margin opportunities, resulting primarily from contango market structure as well as overall dynamic market conditions.
Additionally, in 2020, we expect a portion of the benefits from near term contango offer opportunities to be offset by lower margins in our Canadian NGL business.
In addition to our expansion capital reduction that Willie outlined our updated guidance reflects a $35 million reduction in our expected maintenance capital for 2020, which is the result of our emphasis on reducing capital expenditures, while continuing our focus on safe reliable and responses.
While operations.
Moving onto our capitalization and liquidity a summary of key metrics is provided on slide nine and all metrics are strong and remain in line with are favorable to our targets.
Following the actions we announced in early April our investment grade credit ratings were reaffirm bye.
For the fee and Fitch, both with stable outlooks.
Our committed liquidity as of quarter end was $2.5 billion.
Additionally, we have no senior notes maturing in 2020, and one $600 million senior note maturity maturing in February of 2021, Accordingly, we do not expect a need to access the capital markets certainly through the end of this year and we have adequate flexible.
Realty to refinance the February 2021, senior note maturity on our revolver, if capital markets do not present attractive opportunities over the next year or so.
Before turning the call back over to Willie Let me share a few additional comments related to the $3.2 billion.
Noncash impairments, we took in the quarter the recent events and related uncertainty impacting global economies and the energy industry represented a trigger event, requiring an interim assessment of our goodwill balances. Accordingly, we performed a quantitative impairment test as of March 31 and recorded.
A full impairment of the $2.5 billion goodwill balance.
We also recorded additional noncash impairments totaling approximately $655 million.
These include $150 million loss on the classification of our La terminal asset to held for sale that we communicated last quarter as where as well as various noncash asset impairments totaling $505 million with that I'll turn the call back over to Willy. Thank you al.
So as discussed throughout the call and as we've all experienced 2020, clearly remains a very dynamic and challenging environment.
We've taken a number of pro active actions to further strengthen strengthen our liquidity our balance sheet financial positioning and we continue to actively manage our cost and capital expenditures.
We remain constructive long term as we believe that demand will return to meet the needs of a growing global population, although full recovery may occur beyond the next 12 months.
Additionally, it's worth pointing out that we have a very integrated crude oil infrastructure system throughout much of the U.S and Canada with a significant pipeline and storage network in the Permian basin underpinned by significant volume commitments in over 2 million dedicated acres and we believe the Permian will lead North America in the event.
Actual recovery.
The significant retrenchment of industry investment should provide opportunities over time, and we expect that the actions we've taken position PAA well for the future.
Finally, we remain very focused on what we can control, which is prioritizing the health and safety of our employees operating in a reliable and responsible manner and continuing to manage our business for the long term.
I'd like to publicly acknowledge and thank our employees for their hard work and dedication as we continue to navigate through these unprecedented times.
A summary of the takeaways from today's call is outlined on slide 10, we look forward to sharing additional updates on our second quarter earnings call in August with that I'll turn the call back over to ROI. Thanks, really as we enter the Kunaev session. Please limit yourself to one question. One follow up question and then returned to accuse you of additional follow this will allow us to address the top questions.
Many participants is practical.
In our available time this afternoon.
Additionally, revenue going I plan to be available as evening and through the balance the way to drive additional questions.
We were now ready to open the call for questions. Thank you and ladies and gentlemen to pose. The question you may do so my pressing star one on your telephone keypad. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
I wanted to ask a question, we'll pause a moment to similar Q.
We'll take our first question from generic shiny with CBS. Please go ahead.
Hi, Good afternoon, everyone now hopefully everyone is safe.
Just wanted to start off on mall on guidance on the guidance, we'll probably talk of shut ins I guess, the transportation guidance from experience.
It sounds like you're not expecting a reversal of shut ins before the end of 2020.
I was wondering if he can talk about the SNL applied for a minute.
Thanks, subtract out the one Q performance from give guidance you sort of looks like you're saying the back half or the next three quarters since can equal less than half of what you did in the first quarter. So kind of wondering if you don't think you'll be able to capture some of the surgeon storage rates and spreads.
That are currently occurring right now or is it more that you're being conservative similar to how you guided that smelter at 29.
Yes sure Hi, this is Willie I'll start and then I'll, let either Jeremy our Harry jump in one thing I wanted to remind you of is our typical SNL earnings profile is a satellite right you normally the first and fourth quarters are the stronger of a stronger quarters with the second and third less less strong jaromir Perry.
I think our assets are well positioned to take advantage of disruptions and volatility I think are the current opportunities in front of elsewhere, where cash capturing contango going forward market differentials. So any volatility in choppiness in between we'll be able to capture I think this reflects a something were I'd number we're very comfortable and yes, I think our pointed out.
In his prepared comments that Deb.
The guidance reflects.
Positive benefit from contango margin opportunities.
Little bit offset by weakness in in the Ngls expected balance there.
Okay appreciate that color and maybe a follow up I was wondering if we can talk about achieving in opex expenses.
Sure well just wondering if you put any targets out or have any expectations about being able to take down you're achieving an opex expense a lot of your peers.
Or or or taking that down this will tune and also if you can confirm the $500 million Capex number 21 that you mentioned the prepared remarks.
Sure scenario. This is will again I'll I'll start and I'll ask Christian with a comment on this let me start with the easy one first and the Capex Capex expectations for 21, plus is under 500 million so I confirm that.
On DNA and operating expense, we are absolutely pursuing.
A cost reductions.
We have in 2019, we're building on that we've got we've got a lot of initiatives and this year to try to capture some and we've already captured a number of savings. The one nuance I want to give us when we are doing this I've been in many different situations, where you chase cost savings and rather than put a.
While our target out.
We have focused heavily on how do we streamline our organization we've got different segments within the company that we're trying to make sure. We are consistent we get the best practices between it.
So we're really setting and operates as a goal to to streamline and be as efficient as we possibly can and that's kind of the overarching thing, but what I will tell you is the numbers are substantially baked we baked a lot of that into our current outlook, Chris you want to talk little bit more yes. Thanks. This is Chris Chan our oldest build on what really said we're really can.
Continuing what we started in 2019 in the focus there was identifying best practices and really driving organizational consistency across North America. We're also looking closely at our business processes and our business systems for cost and efficiency improvements. So here. We are in 2028, and we're really accelerating all those initiatives we started in 2019.
We are seeing some cost deflation across the industry in our supply chain organization as is working tireless tirelessly to rebate rebid services materials and chemicals and capture that savings we have reduced hiring we're absorbing vacancies.
We are reducing energy and utility costs across our system as we optimize our operations with flows moving in different directions in a different volumes were doing things like optimizing drag reducing agent injection rates, even optimize and the number of pumps were operating and pump stations that we operate travel expenses are down is it.
Correct.
We're operating maintenance spend will not impacting safety or integrity.
We have not implemented a dollar or percentage target.
For our cost savings, but we do expect them to be significant and they could be in the order of the range of $50 million to $100 million for 2020.
And that is as willing said incorporated into our guidance. So I hope that's helpful.
Well bad debt Super helpful. Guys really appreciate the color willing up a lot more questions while ill step back into queue for now thank you in state.
Thanks generic.
We'll take our next question from Keefe Stanley with Wolfe Research.
Hi, Thank you.
First I just wanted to confirm will you said.
Yes, we've gotten a volume in EBITDA guidance for the year, you're assuming volumes trough in June and then kind of flatten out over the second half of the year.
I guess, one is that true and wouldn't that also mean base obviously to saw a moving target based on what you know today, you're thinking 2021 volumes could be kind of consistent with an exit rate for this year.
Yeah, Keith I'm going ask Jeremy to address those.
Keith This is Jeremy Goebel, just as Willie said, what we're looking at is lower activity shut ends in May we estimate for instance in the Permian Basin close to 1 million barrels a day of shut ins June in for wealth may dictated by pricing signals, So contango spreads.
Regional basis differentials.
Flat prices all of those will come in and help producers decision. So while we've assumed is that the most severe it's may June and into July a bit then you have some level of activity coming back in August time period, and so the pace.
Demand destruction and coming back into the market will dictate what that signal is and how much activity comes back. So the inflection point at the end of year will be heavily dependent upon prices there could be an upward trajectory could be flat is largely what weve.
Assumed in this for guidance that we've given.
Okay, but for 2020 years, you're assuming it sounds like you're assuming a little bit of recovery in Q3 Q4 relative to May and June it's just more of a flattening. So the the pace of the underlying decline will naturally mitigate itself as well.
At the decline happens, but there are some activity that will come in just have to offset additional declined so at the very low level of activity, but that's that's consistent with our forecast.
Okay got it.
Second question just curious if you have any more to add on on the thought process around the dividend just factors you weed out how you ended up at a 50% type and I guess, how you're thinking about your leverage targets as part of that decision as well.
Now you want to take that sure.
Yes.
You know as far as is the termination there there was a number of things that we.
Considered as we reflected on one industry industry conditions visibility for those condition, but also leverage.
Our our liquidity being a couple of them our investment.
Program There was no one single.
Kind of driver to reach it and so management.
Did a lot of work Ren multiple scenarios.
Benefit.
Work with our board of directors.
And we came up with the size of it but there was no one single.
Kind of driver with regard to it clearly as we've been talking for a period of time, we have wanted and continued to focus on ensuring that our leverage continues to migrate down over time, and our focus on our retaining and improving.
Our investment grade credit ratings over time factored into two our decision as well.
Yeah, Keith I'll, just reinforce balance sheet and financial flexibility are really the keys.
Got it great. Thank you I. Thank you very much.
Thanks Keith.
Well take our next question from Jeremy Tonet with JP Morgan.
Okay.
Hi, good afternoon.
Just wanted to start off with the Permian.
Turning to Jack tree as you outlined it there just wondering how you think this applies to paint plays itself do you see your volumes being better or worse or kind of in step with the rest the basin there.
And then how does this impact that your system across kind of like the gathering the intra basin pipe to take away. If you could just help us dive into your thoughts there that'll be helpful.
Aaron.
Jeremy This is Jeremy Goebel.
We've assumed largely just for planning purposes that we would be impacted by the the system our system and gathering and inter basin system would be impacted similar to the the general market ads for outbound pipes, we balanced flows on pipes, where we believe that the barrels will.
I want to go over periods. So we have a it's a mix for specific gathering systems, we taken what producers Guidances, specifically given us for intra basin at largely looks like the rest of the basin and for the outbound pipes, we actually balance the entire system based on where we think commitments and how the systems are connect.
And so it's a little bit of the.
Rubik's cube.
Got it and that's why the impacts I mean, do you see more impact on the gathering or the takeaway or just trying to get order of magnitude feeling for for how you see it at 16%.
So the the takeaway a lot of its contracted under TMB. So physical flows in revenue will be different on the intra basin system. It's a mix of T. Andy's in acreage dedications. So the the physical flows in the revenue impact will be different but where we have the team. These on a lot of our long haul pipeline, that's going to have a more muted impact.
On the gathering side, it's going to be based on forecasted productions and overall basin flows will impact the venture basin movements.
Thats helpful. Thanks, just wanted to see supply and logistics moving up transportation moving down the guidance is there any interplay there between one bucket move into the other bucket or is SNL really just kinda contango or other drivers to that.
Opportunity set.
Now I'll go ahead, Harry VF analysis is largely driven by contango, but as the year develops we very well could see some fluctuations between transportation and.
Supply I think I'll touch on that a little bit in his prepared comments valve.
Yes.
Thats right.
They are very well likely could be interplay Jeremy.
Well.
Okay. Thanks for taking my question.
Thanks, Jeremy.
Well take our next question from Michael Levitz with Goldman Sachs.
Hi, guys. Thank you for taking my question can you talk a little bit about what's your customers cars speaking in terms of storage. These days, meaning are your customer concerns about storage filling up so where do you think or are there other mechanism just come due to.
Eight storage concerns faced by the producers, meaning are there opportunities to use other facilities whether it's.
And utilize pipeline capacity, whether it's the other assets.
I will help increase the yet so we're term amount of store it's available to customers.
Hey, Michael This is Willie I'll start and then let Jeremy add onto it clearly there has been a lot of work.
To try to find additional storage within our system, we've been successful for getting some of those barrels.
But it is a very dynamic situation on I'll, let Jeremy.
Went a little bit more yes. Thank you for the question add so if you think about our facilities, they're largely leased out for operational purposes for long term. So the facilities storage is largely spoken for within the basins and with that when our system really a lot of our customers are looking for since planes marketing is a big purchaser.
They're looking for flow assurance, and we have the ability with our system to provide that.
Where there's opportunities for additional storage were fully taking advantage of that with our for ourselves and for our customers. So right. Now I think April we had a build but pricing signals may change things going forward. So there was a build into April but currently prices are rallings, which seats could suggest things could change so going.
Forward that was an issue in April finding flow assurance and takeaway now shut ins are looking to balance the market into we'll see how things go from here.
Got it and one follow on low quickly can you just give us a high level view, how much of your Permian long haul and means for basin pipeline capacity is contracted under take or pay basis versus kind of more volumetrically exposed.
This is al.
A large majority of our Permian takeaway is under Mdcs, whether it's on our pro rata piece of Bridgetex Cactus, one cactus to the basin pipeline system, probably that has the lower percentage that's more the line to run the uptick Cushing.
Intra basin as Jeremy mentioned is a mix.
Got it thanks, guys much appreciated.
And just to add on valves answer a lot of our mid continent pipelines and pipelines long haul from the DJ those were all fully contracted we announced transactions on Saddlehorn in Red River to fully contract those pipelines. So it's not just Permian takeaway, we have TNT throughout our pipeline system. That's clearly been one of our strategies is how do we lock in a long.
Her term lot longer term value as we work with different producers and sometimes we end up doing strategic joint venture on a supply push or a demand pull project where in exchange for his additional volume theres ownership in the bite.
Got it much appreciate it thanks guys.
We'll take our next question from Michael Blum.
With Wells Fargo. Please go ahead.
Thanks, Good afternoon everybody.
I'm wondering when storage can you talk first about the tenor of the contracts you have there on the crude storage side and as contracts roll off how much uplift do you think you'll see in terms of pricing.
We've got we've priced most of our.
Storage on a long term basis, we don't way think about it in the context, So hey, it's a short term opportunity here and that's a few months.
Contango or like Germany pointed out earlier, most of our customers are operational customers and they use those tanks further daily requirement. So.
Minimal contract roll off this year.
So I think thats, probably the best way to think of it.
Okay, Great and then.
A question on the Canadian business. So you sold.
I guess, some U.S. NGL storage assets here.
I just wanted understand it is there or is there a shift in the business model in Canada related to that.
And the second part of that it would be the assets.
Being pointing it out about a four times EBITDA multiple.
Wondering if you could provide your perspective on that multiple thanks sure. Michael This is a Jeremy goebel that first on the business model. Ultimately, we'll we're moving to is larger bulk transactions and focusing on our lowest cost supply Ngls were greatly simplifying the business we're maintaining.
Profitability in margin, but much fewer transactions. So we view it as a much more sustainable business model going forward at with that the the assets that we've sold became less core to our business a with regard to the specific.
Crestwood comments I'd say look this is an asset where crestwood was a very logical buyer and it's worth more to them than it is to us based on their business model, we spoke to multiple buyers and I can just tell you we're very happy with the outcome.
Great. Thank you very much.
Thanks, Michael.
Well take our next question from Tristan Richardson with Suntrust.
Hey, good evening guys. Appreciate all the comments and for quantifying where you can particularly yet in this environment.
Just a quick follow up on that.
Transportation side your outlook, there seeing on sort of a 4% impact on on the volume side versus relative.
Prior expectations, but.
A higher percentage impact on EBITDA side can you talk about the extent to this is two which this is higher tariff barrels being more disproportionately impacted or is this just basic operating leverage.
Just kind of curious there.
Jeremy This is Jeremy I think the way to think about it is some of the spot capacity could have come off of pipelines and that's that's obviously higher tariff, but but some of its full through if it's a gathering barrel that doesn't go through the entire basin that doesn't go through the long haul and those that have that had somewhat of a multiplier impact so.
I'd say, it's a combination of spot and pull through from the lease all the way we that pipeline system.
Hey, Chris than you made a comment about a 4% reduction was that the question.
This will you just on the volume outlook.
[noise], okay because the.
The out Okay got it.
That is at the right number 4%.
I think he comparisons right I've got you Okay Yep.
And I appreciate it and on just a quick follow up on on the facility side could you talk a little bit about maybe some of the.
Tailwinds in the headwinds there I mean.
Seems like better prospects for higher utilization in storage or or possibly price.
To the extent, there's lower throughput activity, just kind of maybe generally the dynamics going on and the facilities outlook remaining unchanged.
Todays has largely contracted under long term arrangements.
So.
Okay, our storage capacity to all major hubs are fractionator, they're all under term right.
And keep in mind part of the where we had a little stronger one Q on that segment was for this contract.
Resolution that we had modeled this later in the year. So that's just the shift between one Q and later in the year.
Okay. Thank you guys very much.
Hey, Kristen this is Willy I just want to make one clarification. The if you're looking on on the page. The updated 2020 guidance remember our guidance for our guidance was a 10% increase and now it's a 4% it's tenant for together that's the total impact on volumes.
Understood appreciate it thank you will.
[noise], we'll take our next question from gay Warren.
With.
Mizuho. Please go ahead.
Good afternoon, everyone I, just a question on Capex and [noise].
You know the scrutiny on gross Capex and the reduction.
The ability to lower Capex further would that be a function more of projects dropping out of your Q or the ability to that maybe slow walk some projects, which are contractors I'm just curious how that's going once you're focused on.
And also the discussions with your partners on those projects.
Yeah, Dave This is Willy thanks for the question I want to ask Chris to give you a kind of an overview of that.
So our capex reductions.
Come from a number of sources certainly our discussions with producers and our customers have guided some of that.
It's really a combination of project deferrals spending delays to match the required project completion dates obviously there is not of incentive to finish anything early and then capturing cost deflation that we're seeing across the industry. So good that continue to change we do continue to talk to our JV partners and our customers and to the extent that.
There are plans change, we'll adjust our plans as well, but I would not expected to be significant.
Okay. So in other words some of these big projects as you've got just or they're going ahead.
Structural back understood and look I've got to question I know, it's on the big business for you, but on the natural gas storage side put out of business you breakout anymore. I don't think yourself sizable but are you seeing any interest in additional contracts there given that that's all sort of futures curve, which at this point seems to be contango.
I know that business with them.
Then well have this fully contracted we continue to see rates creep up so.
Good positive.
Okay. Thanks, guys.
Thanks Kate.
Well take our next question from Colton Bean with Tudor Pickering, Holt <unk> company.
Good afternoon, so just a follow up on the commentary around shut ins in particular, you expectation that production may troughs in June it's how do you reconcile that would be some commentary over the last few days signaling a willingness to green production back online and the 20 to $25 barrel range or effectively where we sit today.
Eco Mrs. Jeremy Gullible, I think pricing signals dictated what happened in May shut ins like Willy mentioned, it's somewhere between three and half in foreign half million barrels a day, U.S. and Canada, a pricing signals in June will help inform what nominations we receive in the coming weeks in what flows on the pipelines.
Just to carry on with would really Ted's may June potentially July trough, we assumed June July time period for trough and then some activity resumption in the August time period. So if it happened sooner that's a positive to our business and this is some of the interplay that al mentioned with SNL, if the market flattens and.
There is more pipeline transportation, that's that's one of the other ways there could be interplay in this but we're planning for a dearth of activity in April May June and then we expect some resumption starting maybe in August time period, that's our that's our planning case.
Got it maybe two to ask the question around alternative storage little bit more explicitly it wouldn't saw form cap line service not expecting until middle of next year, there any potential to utilize that capacity for continual opportunities here in the interim.
This is Christian our I'll take that that is a discussion we had but the answer is no.
The activities required to reverse the pipeline.
Make it a unsuitable for storage.
But one thing to remember Theres terminals on both ends and we're actively using those for for contango purposes. So if a token saying James So we're utilizing all available storage in a safe manner and that we can get barrels in and out of that but unfortunately, while the conduit doesn't work we've worked with our partners to commercialize both ends.
It's a great question, we've looked at it.
Well take our next question from Joel.
<unk> with bank of America.
Good afternoon, thank for taking my question differently as well.
Hi.
First question.
Falling on your comment on beverage audio Justin's question, so given the headwinds.
Gear and further uncertainty can you update us some in conversation with the reduction and how much headroom you haven't beverage.
Yes. This is now.
What I would point to is just that the actions that that they came out with here in the last 30 days.
Standard and Poors and Fitch.
Clearly our leverage today is in good position relative to our our ratings that all three agencies clearly the environment is challenging as we've talked so part of the actions. We've taken is to make sure. We stay ahead of that.
But I would normally try not to put words in their mouth, but I would point to the the S&P in the Fitch press releases that they provided in the last 30 days.
Yeah, Thanks, and have a quick follow up.
Can you provide more details on that you government charges.
Turning around what assets in regions, where.
Hi, there under the question here.
Now.
Impairment charges, Yeah, I was I would put them into into three kind of high level buckets. One the 2.5 billion from goodwill that's basically.
We accelerated the test our normal annual cycle is June 30 for doing that test based on.
All the events in the industry.
We view that we had a trigger event did the test and basically to the 2.5 billion dollar impairment as you probably know theres been a significant number of goodwill impairments in the industry over the last week or two.
And so that's how that when one triggered the L.A. terminal that we put under.
Contract for sale and we expect to close later to the in the year as we transferred that asset held for sale. We took a 150 million dollar impairment on that if you recall, we actually quote flagged that on our February earnings call, we've put it under contract.
Back in two in this year, we knew it was coming it just hasn't flowed through our year end result, yet and the balance of them are basically where we go in and do a analysis on individual assets and based on conditions in cash flow forecast.
You do impairment tests and that that was on multiple assets several of them and it aggregated to be about $500 million.
Got it thank you.
Oh.
We'll take our next question from Japan.
South marry with Bernstein.
Hi, everyone on the exit to exit the chrome or.
For the Permian.
Hi can you share Hobbit parents here. The are you asked or North America declines are always plenty today, it's about the same or bar.
Dan I think you'd look at activity across and it's going to differ by basin I think there's been some quality challenges in the Eagle Ford, which has pulled a lot of activity out of there. So you could see steeper declines in Eagle Ford I think the Williston shut ins have probably been the most aggressive of anywhere.
Words farther from market.
Canadian Productions, we would expect that to to normalize once the that's going be largely driven by shut ins.
So it's going to differ by basin. The DJ you can see the activity declines I think the Permian is going to be lower shallower than than some of the other basins as the wed look at it.
Thank you.
And I know you were <unk> million bottom right 1 million barrels from Paul can you break out how much in Bakken production went gathering or is it and to date and best of luck barrels.
I, we don't have that detailed now, but we can look to follow up with Royal Brad.
Sure I thought I'd like okay, well thank you.
Thanks Joanne.
Take our next question question from can asteroid with Goldman Sachs.
Hi, Thanks for taking my question I'm, just a couple of questions. Firstly on your outlook for 21.
Flat to declining production environment.
I Wonder what are you doing exactly that you might be thinking of standalone.
Second.
Well, yes.
Yeah, we've now seen through distribution cuts from laws.
Good morning identical to go you prioritize income for capital allocation.
Let's move on Google and Bob.
In terms of more awesome lots of build out I guess.
Hey, guys. This is Willie I'll take a all answer and then Alan can add on the Capex of 500 or below we're not trying to telegraph anything specific for the out years other than its below 500, and clearly as you look at our expectations on projects is there's a lot of kit that's been built in.
And our strategy is really moving towards a efficiency mode.
To be able to.
Utilize existing assets, which is why I wanted to to telegraph lower capex spend in the out years.
On a distribution.
Our focus has been to get our debt metrics down.
We the actions I think we've taken on Capex.
An additional cost savings is in motion and once those are those two are up our well on track. It allows us really to focus on increasing shareholder return.
It goodness is Jeremy just one thing to add onto that allows the projects. We're working on now are largely driven by.
By demand, it's refiners committing to long haul transportation on the Red River pipeline linked Westar is largely driven by the buyers of crude that we're buying in Houston are now buying the Permian basin. So lot of the projects. We're working on our pinned by seven to 10 year long term commitments from.
High quality credit quality, Counterparties, and there will be a core assets to the U.S. crude oil transportation going forward. So we've.
Really narrowed down including Diamond cap line, partially driven by St Dreams refining demand. So I think demand pull pipes is where a lot of our focusing incremental capital is.
Got it thank you.
Thanks, Good Nash.
Well take our next question from Becca Followill with U.S. capital Advisors.
Good afternoon guys.
Realizing that this is an incredibly.
Unusual time lots of uncertainty perhaps this is an unfair question can you can you tell us the degree of confidence you had in this guidance that you put out.
Well back I'll give you a I'll give you my answer were balancing everything we currently see we're very confident or the challenges you can imagine is.
What might be there out on the ordinary that it's very difficult for us to see it did that is the demand recovery trajectory does it change dramatically because of a of additional outbreaks or or hot spots. That's that's a big variable a and certainly the other big variable is what really happens on the production side we've got.
Got a the producers had been very proactive in production cuts.
But if we get to a scenario, where that's not the case, which is not what we expect.
But that could certainly change the trajectory. So I don't know if that's helpful. But it gives you RV my view anyway.
Yes, I just wanted to see where the.
Places maybe that would change it.
And then the second question is.
Every curve that you look at it.
There's not another pipe that's needed for the Permian.
Can you give us assurance that when we went to <unk>, it's built that you're not sitting there in a timeframe where it's built.
I would have to volumes following that you're not getting full EBIT topics you expect it is that absolutely.
There's a guarantee that you're going to get those that you've been talking of pipe and once it gets built not sitting there waiting on it.
On volumes to calm.
Both.
This is Jeremy so you're talking specifically about when to western pipeline.
That's the case, yet that's very high credit quality than the summer integrated producers others had the largest I mean, we're tying into the largest refining largest two or two of the largest refiners in the Gulf coast, there will be buying the barrels off that system highly contracted it's it's very long contract.
That said it turns contraction in terms of nbcs or volume metric.
NBC Nbcs.
Thank you your you're aware of this but I'll I'll repeat in anyway on week to Webster that was a a very very.
It was a large pipeline that start off with a two to partners that ultimately back to capital efficiency, we were able to to work win win with ultimately seven total parties.
Which really fill the lineup. So I think that's actually a good example, love capital efficiency on the pipe.
All anchored by NBC. So we would expect that to be a probably the most resilient pipe out there.
Perfect. Thank you.
We'll take our next question from Pearce Hammond with Simmons Energy. Please go ahead.
Yeah. Thank you for taking my question I, just want a follow up on Michael's question earlier.
Give me your unique vantage point in your extensive oil storage assets do you think it is a certainty the U.S. onshore oil storage will fill and if so when do you think that occurs or have the production curtailments.
Really change that calculus.
So peers if april filled that everyone expected, but the pricing signals have changed and so I think.
Pricing for May is largely offset by a lot of the impacts in April with for cards to time spreads with regard to location differentials and quality differentials. So that was absolutely caused the really large.
Three to four minute million barrels a day of shut ins that we're seeing now across North America.
What happens in June as being set by pricing as it goes now so I think storage as a function of an imbalance in supply and demand. So you're just gonna have to watch supply and demand through the figures going forward, we don't want to forecast what the future isn't that the we watch the same thing there and and honestly, it's going to what happens in.
June is going to impact whether things full and the closer you get the full the more incentive it is for producers to date production offline. So I think it's just a dynamic situation and well continue to watch.
Thanks, Jeremy.
Hey, Keith I think we we have time for one more.
Okay.
One more participant question and then we'll we'll call called call for today.
Okay.
Our final phone question well take that question from Vikram I agree with Jefferies.
Good evening, everyone and thanks, we'll all be going on on the call today.
Two questions focused on long term cashman sustainability employed in fourth quarter, yet so I Didnt estimate Dol competition on New York City, where do you could talk about $85 billion why would get magic any change with production outlook has there been any change in that at that $85 million lumber.
I'm trying to understand how much of the decrease in transportation segment, EBIT top and bottom, it's 200 views that insourcing incentives versus change in transportation mix.
Yeah. This is Jeremy gullible vikram, its largely driven by volumes not incentive tariffs. The the vast majority of volume that flows in our system is contracted either through nbcs or acreage dedications. So this is largely volume reductions under acreage dedications our system is.
Completely different it it's contracted in a completely different matter than it was in 2013. These are not we're not largely built on month to month contract is largely either take or pay or acreage dedications through our system.
You might share where our next.
[noise] threshold as far as a contracts coming inspiring it's it's your yes. Its years away I think we provided detailed in the last call that it's minor impacts and 24, and some impacts and 25, plus and so our that weve largely work to anything we build this to support incremental production from additional contracting it's not.
Speculative building.
Okay, great and as a follow up be put somebody segment continues to do pretty well I was wondering how much it could benefit from buying WCS differential is it's it's flowing into that segment with a peanut read volumes that you didn't report that numbers anymore, but.
Are you seeing in PJM volumes do you are seeing James facility, which intending back have you had jade and how much of a if you can quantify what that benefit does include some do segment.
So through our facilities, it's largely fee base tariff revenue a throughputs to our facilities are impacted by WCS and other blend but at this point, it's largely refiners moving barrels in and out of the system. So there is some throughput revenue, but it's largely for shell barrels.
Storage insane Jane's, we're seeing more throughput because we've aligned ourselves with several of the growth project coming through the system until we would expect continued activity there.
Several of the large downstream guys in that market have taken out storage for long periods of time, and they're bringing additional pipeline connections into now.
So we would see throughput increasing cap line some of the other projects that are coming through the Sanjay Matt area will bring more volume in and necessitate feeding downstream refineries.
Yes, thank you very much.
Okay. Thank you everybody for joining us today, we appreciate your time and look forward to updating you.
On an ex call in August.
Keith I think though in our call today, thanks, everyone be safe.
Thank you ladies and gentlemen. This does concludes today's conference. We appreciate your participation you may now disconnect.