Q1 2020 Earnings Call

We do however, look forward to providing an update at our AGM which is held today at 2 p.m. Mountain time 4 p.m. Eastern time this year. The AGM will be held as a virtual only meeting which will be conducted via live audio webcast participants are recommended to register for the virtual webcast.

A week ten minutes before the presentation start time for further information on feminist virtual AGM including a copy of the AGM presentation. Please visit the shareholder information page under the investor Center tab at www.cummins.com. We would once again like to thank all of our stakeholders for their support with that will wrap things up Chris, please go ahead and open the line up for questions.

Thank you at this time. I would like to remind everyone in order to ask a question. Press star. Then the number one on your telephone keypad. Your first question comes from Jeremy top of JPMorgan Chase open.

Hi, good morning.

Or you hear me? I just wanted to go into the assumptions in your guidance a little bit more if that's possible. When we think about slowing activity possibly curtailment wage. Are you able to share kind of any more color as far as like the depth and duration that might be kind of baked into you know ranges in your guidance, and I guess what, you know, what levels would push that bottom in there.

Jeremy we we've studied, you know, what's going on in the market and we've we've done quite a forensic analysis around, you know, where the shut-ins might might happen what the impact on you and demand is what the impact on on gas demand is associated with reduced still units and and so quite a quite a comprehensive customer by customer analysis and including you know, their their liquidity and and ability to execute through these difficult times and and so often, you know, all all that thinking went into our guidance clearly didn't take take our guidance likely but we we do reaffirm Where We Are

Fair enough. You just kind of curious on your conversations with producer customers their the extent to you know, could there be actions taken to help out or a producer's asking for blend and extend or change of contract terms or or anything like that? Just trying to get a a feeling for what you guys are seeing out there.

You know, we we do have some involves as you would expect everything from you know reductions on subleases to blend in extends to lower. And you know, of course we're willing to consider all requests, but you know, our our view is they they have to be a bargain I'm going to is not going to shock absorber for the whole industry, but we are open to making Bargains and you know, it'll depend on each customer. They're credit worthiness. You know, how large of a customer they are where they are what our capabilities are. So it is on a case-by-case basis, you know, but we we just can't transfer wealth from our stakeholders to to their stakeholders that that just can't happen and we we need to defend ourselves.

That makes sense.

Does that make sense and just one last one if I could want to see you guys had talked about asset sales being a possibility and didn't know if you had any kind of broader thoughts about m&a that that could happen in you know the issue here or if that doesn't make sense given all the dislocation and and back to your last purchase with KML is everything kind of proceeding to plan with regards to integration in Synergy vacations granted that everything changed now with covid-19, but didn't know if you could say anything. They're right. Yeah absolutely starting in reverse order our Chef team. I mean, I'm I'm humbled an amazed what what's been happening kind of during this, you know remote operations the fact that we've been safe pass our safety records as good as it's ever been. Our reliability is as good as ever been. We've we've moved every mcf a gas every barrel of oil tendered wage.

And so doing great are Kinder integration is completely on track the center the synergies are tracking. Well, you know, the the last name on the list is is trading US based operators that we're going to come up and and uh be do that face-to-face doing that remotely now, so the Kinder integration has has gone out with without a a hitch are getting the court wrote was very well done the projects continue in the field. So alter am very well. It's it's astonishing and and part of the topic of of the AGM what we've been able to accomplish to really stabilize our our balance sheet including you know, the song additional liquidity on the balance sheet when it comes to now, you know, I I kind of wrote the guy's a note yesterday after our board meeting saying yep.

The the stabilization effort is now formally over with the board meeting and now we can get back to doing what we love to do which is making money. And and so, you know, we are now looking forward and I'm I'm pretty sure shareholders and all stakeholders are glad with the options we took but now it's game on again. So what will be looking at everything?

Got it. That's very helpful. That's it for me. Thanks.

Your next question comes from Matt Taylor of Tudor Pickering hold your line is open.

Hey, good morning, guys. Thanks for taking my questions here. Just yeah, just following up there on Jeremy's question. If you mind can you just give a bit more detail there, especially on the level of suckiness duration that you're assuming and then a bit more on what you mean by large-scale shut-ins and the reason I'm asking is your competitors was outstanding Canadian shut-ins could be as high as a million to a million and a half a million. So any any further thoughts that would be most helpful you mean what we've done is, you know customer by customer analysis. Our our people are speaking with customers all the time. So, you know we factor in what we what's in the market what we know on a customer by customer basis, you know, when we when we last spoke with folks we we we shocked our our 2020 forecast and and made some high-level assumptions on what could happen. Now we've since gone in and done a customer by customer analysis.

on on Dale you and demand

And on gas processing volumes and and you know, what what order Gillian Supply, you know, we'll we'll or or Dammam options will occur. For example, you know, we'll Southern Lights turn off before Coalition or will you know suffered demand erosion. We've we've come around this in in great detail and we were comfortable with what we said now, you know the the shot in words and I know some of them that got attention from some of you you know, those are those are lawyer worth, please don't interpret that is as that we don't really stand behind our guidance because cuz we do wage what would that's meant to address is is you know for for a while. I think we all lived in the you know, what happens if Enbridge shuts down entirely and and the whole system gets backed up and and I think yep.

He's all acknowledge that is possible. But not that likely and so, you know, we we we put those words into reflects, you know, that that kind of our life scenario. But but please don't interpret it as that that we're not standing behind our guidance. I would just add in terms of the question around around duration a we modeled it I would say it's extremely similar to what we're seeing as kind of all third-party analysis and what peers are generally looking at which is cute too. It's probably going to be the hardest hit home with a recovery through Q3 and then through Q4 so we're not assuming cute cute is the worst and it stays that way we are assuming some recovery through Q3 and Q4 off. But again, we're you know, those those aren't things we were we're guessing at those are those are based on what we know from our customers.

That's great. That's really helpful. Thanks. Thanks for that guys. And just to help clear the Arabic. Can you provide some thoughts just on what your expectation is on base of leave it there? Cuz I mean obviously your assets are highly contracted suck if there is some potential downside there, you know, just framing that against the backdrop of of Highly contracted assets.

Yeah, for sure. I mean if he just zoom out for a minute, you know, we came into the year without a huge contribution from from our Marketing Group. And now that contribution is is less Thursday. We're we're ninety to ninety-five percent. I don't know the exact math probably closer to 95% fee for service right now. And so, you know, we're at or around the level where we're off we're protected by by agreements. And so, you know, we we will have a great resilience at those agreements subject to you know, underlying crime Venus and and and liquidity of of of customers which seems to be holding up quite well. And and so I think that that I hope that life that we should have a we should start to get pretty sticky around these levels.

it's

When one more if I may then a few HPP the other major project in the province's looking for a partner. Can you just address that is is there anything that you'd be willing to combine there or is there any actual provision that prevents your partner from from moving over to that project which is you know, as as everyone knows is currently under construction versus staying with your currently deferred project. I mean, yeah, I mean in terms of our our project job one was too ugh safely defer all the the projects Scott talked about, you know, we participated with the ones that were well Advanced and and we could you know safely execute in this this market and and which will once in service provide incremental ebitda. So that was job one job too is to safely defer the projects that were early Innings phase seven eight nine hundred and then the the Dead

The petrochemical project and we we have hundreds of millions of dollars invested in those projects that we want to safeguard so that when we pick those projects up if if we've got, you know, excuse the millions of dollars invested that when we pick them up that previous investment still has the same value and we don't suffer any destruction of of of capital and you know, we we have a couple of the mines with our Quality Partners on directionally on how to do that are all of our teams are working to safeguard that that off at that value. So that was job one. As I said earlier, you know we have now I think very successfully safeguarded Pembina Thursday. We are extremely resilient at this point and you know, your your question would be something that we wouldn't dare to dream about until we got here dead.

You know, we're we're aware of the situation there. You know, we have a great relationship with with with inter pipeline, but our current focus is is bringing our project back at the right time.

That's helpful. Thanks guys for taking my question.

Your next question comes from Linda as a gas of TD Securities your line is open. Thank you. Good morning switching to your cost savings. I'm wondering first of all, how much of that hundred million is already reflected in q1 and if it's not fully reflected, which I'm assuming it's not how might we think of the ramp over the year how much it might be deferred versus sustainable prospectively IE temporary versus permanent. And can you just also confirm that it's all incremental to any sort of previously identified synergies relating to Kinder Morgan Canada and the various integration.

the the

The hundred million was a internal Target that we we said and it is what we consider a permanent saving but if that's saving was for the balance of this year and that saving did not double dip any kind of Kinder Morgan synergies. I think that's what you're after. It was it's truly incremental. I you know, most of it has to do with taking a billion dollars out of our investment plan and it takes a lot of talented people to invest a billion dollars wisely off. But you know, we're not we're not going to do that this year most likely so, you know, when we looked forward to to next year, you know, your question might be off if the if the hundred million was for, you know, 7/12 of the year and and by the way, none of it was prior to this reporting. Could that be more wage?

July's next year and as a you know, I don't want to I don't want to get too too much into to forward-looking. But you know, I think most of that can be maintained for the foreseeable future.

That's helpful and recognizing that you're reporting systems might be a little bit more challenging to access remotely while everyone's working safely. I'm wondering if you could give us a sense of what April looks like for your marketing business, you know, did you see any sort of reductions in in volumes on the condensate side whether it was in coaching or off your local production? Can you talk about your Contracting year and how things might have shifted versus the attributes of the contract that you established on April 1st this year versus last year.

That's a a fair amount of detail. I don't know we can get into into that. But Linda the you know, what we're seeing on the ground week-by-week name is more favorable than what I think people might expect and so the you know, I know there's obviously lots of lots of press on volumes going down but you know, you know, if if you would, you know, as you zoom out and you think about the you know, for example, the monthly payment program that the Alberta Government and not the government put in of half a million barrels that came and went in and came and had absolutely no impact from that wage. And so, you know, we we have and again, we'll talk a little bit more about it at the AGM. But we we are surprisingly resilient when you go into what our product ma'am.

And so, you know our oil sands pipelines for example, our synthetic crude and so and costs of service. So, they're not impacted. You know, we we don't have a lot of touch points with same The Producers other than dealing with Supply and you know, Southern Lights is is looking like the the initial shock absorber for that, uh that uh, I still went demands disruption and you know Goshen and our systems are again, you know to the extent we start to cut into to to that supplier as a secondary. We are protected by by agreements. And so if they're you know when you get a bit forensic about it, and and you know, we are very very resilient in terms of the marketing business, you know again, I don't want to get too too forward. April is dead.

I'll looking kind of the same as March and then it looks

Looks like it's getting you know a little a little bit better again, but it it's it's highly volatile see forward-looking information. We just we just don't really really know but consider it's only 5% or 7% of what we're what we're now forecasting.

I think it just is a follow up on your marketing. You're always finding different ways to make money under different market conditions and I'm just wondering one of the opportunistic aspects that might manifest itself, but my knowledge is around storage and maybe finding opportunities for the industry to potentially store product crude in unused pipelines in your system or anything like that. Are you are you seeing any opportunity to kind of bring back asset capacity to to help the industry or is that something that's not really a possibility? Well, I mean command Ambridge for their their their brainstorm to use a a large age pipeline out of service pipeline for for storage. I thought that was a terrific idea and a great example of how the infrastructure companies can can work with the the companies. You know, we've got Thirty million barrels of storage and so, you know Thursday

Our our teams are working very very hard, you know, you know, even even storage that we use typically for ngls. Can we use it for for crude? Can we juice storage that's normally reserved for operations for you know, the next next number of months. So that that is something we're we're certainly looking at do we have tanks that are fully leased out financially but aren't full and is there a sublease possible? So, you know that's you're bringing up a good point that you know, those are some of the some of the gems that may, you know, may provide us additional resilience and you know, we're not Factory and a lot of good news right now into into our guidance, but undoubtedly them some some good news in the event. There's there's more bad news, but I'll I'll just add just really quick and again, I think it's we've we've taken an approach to birth.

Term out our our storage capacity in many cases and it's not as if it's sitting there and being unutilized and the the team is exploring every opportunity that we can to find as many scribe if there is a spare space not being utilized. We're we're we're looking at that. It's not we have contracts. That's our our you know, the model that we've gone forward with so as contracts Roloff will look at home doing with the that capacity. But right now we've turned most of that out there looking at only the available capacity that isn't being utilized and lend a test a little finer detail wash your your question about the savings week some amount of that savings I guess is in the first quarter when you consider, you know, our compensation plans and things like obviously it's not going to be the best year for our staff in terms of of our plans are are are designed to be correcting birth.

you know when we when we don't deploy all the capital that we hope to deploy and and you know, we're

At the low end of the range versus the middle of the high range our our comp plans reflect out. So, you know, some of that was present already in the first quarter based on on those results, but not much. Thank you. Appreciate the context. I'll jump back in the queue.

Your next question comes from Patrick Kennedy of National Bank Financial your line is open.

Hey guys. Hope everyone's keeping well if we assume that, you know, quite a few of your Monte customers will be accessing the the hundred million dollar Federal EDC Loan program, which obviously you'll need to pay back in 12 18, 24 months wondering if that you know, relatively urgent need for them to raise cash and deliver presents unique opportunity for you guys to not go on the offense or anything but you know acquire some higher-quality gas processing infrastructure from certain producers as part of any take-or-pay contract renegotiation, you know while as you say making sure you don't transfer any wealth in the process.

Yeah, I mean you wouldn't believe the number of ideas that that we all have on on what's possible in this in this market, but we've been focusing mainly getting ourselves here and being able to you know, stabilize the company we've we've got tremendous balance sheet flexibility. I think as I said, we're sticky on on our ability to make money, but but you make a fair point, you know, when whenever you get in these situations the the life difficult thing to know is what's the right amount to pay. You know, I think the market right now for example is wondering what multiple you know feminine ought to have what multiple you know Ambridge ought to have it you know, and and is there a new world like on one hand you've got conflicting conflicting signals, you know stable dividend birth.

Are worth more because interest rates are are low, so that should should push valuations up but then you have you know, a backdrop of how long it's Adam and destruction going to last a offsetting that you have a generally lower growth. So, you know, those are things that the markets got to got to figure out and and we're trying to figure out and so, you know, if there were a good gas plan opportunity wage, I don't know what to pay for that right now. So that's one of the things we've got to grind through here as we come out and and you know transition from Chicago are always top-of-mind defense to to to offense, but but certainly that could be a capability.

Right. Yeah, and and kudos to you guys for all the actions on the liquidity front and sustaining the Triple B flat credit rating there as well.

Look just moving over to the marketing side. So 30% 35% hedged, I guess on the fraction for 21. Not sure if they'll be an opportunity to move that up through Thursday half the year, but you know at the same time we're seeing the propane Market has tightened up a little bit here. So just curious if your marketing team is able to take advantage of Summer seasonal Arbitrage on the curb right now which you know could help support your marketing cash flows into next winter and into twenty twenty-one.

Thanks. I'll start with that. I mean so so we have a systematic hedging program that will show that will get us to 50% hedged in 2021 by roughly October time frame when we set our budget and by that time will be will be roughly 10% hedged for 2022 as well. So we will continue to be rolling in Hedges as we move through the year. I mean you're bringing up a great point on propane, you know as we sit here today, we're adding inventory at a relatively cheap price and asmik pointed out all this discussion today has been around what can go wrong and what the downside is. No one's no one's looking across the valley and seeing what can go right and you know with with our marketing business essentially reflecting about 5% of life based on the current forecast. There's really not a lot left there. So any sort of price Improvement we could see some pretty big swings to the upside and certainly with propane inventories. Yep.

Down significantly in the pretty low in Canada. There is there is that opportunity for the upswing and propane. I'll turn it over to Stew to see if you want to add any incremental color. Yeah. No, we're off tracking. It's hot and and and again right now the opportunity to secure the product at very low cost. We're undertaking and and we do believe there. There's some upside in the near future for for that commodity and our our tracking it closely. So we're we're looking we're looking and following that on a daily basis and planning for across the valley. As God is described in thinking, you know are optimistic that will be will seeing some some increases in pricing. We've got we've got a lot of like our our position in terms of how we are. We've got a lot of capacity that available right now to to store through the summer and and and sell through through the winter. So it's it's not like like we're you know, uh full here like like the oil sick.

It's a very a very different animal and and you know again not be something we talked about a little bit at the AGM people may have forgotten that we're only 40% oil and compensate as a company and some of our other businesses, you know are based on just gas economics, you know, ethane off staying relatively strong and so even propane and butane are are not fantastic now, but we're not selling them now we're going to we're selling most of that way. We generally store in the in the summer. So again, it it's it's kind of an interesting Mosaic of of resilience when you when you get into the the details of how going to make slime.

Okay, that's great color last clean up question. If I could just on a lion see if we can get an update on both the re-contracting process, you know to extend commitments Beyond 20 20 may also the the block and expansion just you know, given the pull back and North Dakota production. Um, what's the status there and when we might see the need for incremental takeaway capacity month, so I'll start with this is Jason at the the pullback in the in the development of crude oil within the box is obviously impacted the associated gas with it's definitely a bit trickier to to keep that expansion moving forward. So, you know for the time being I'd say, yeah, it's that that project it's a bit more challenge than I would say. It was last year, but there is still is a fairly big challenge with flaring gas in in the bath.

And then sometimes that's an area that was queuing up to have some discussions with some officials. But obviously with the environment that we're in at the moment, we we weren't able to have those. So we're off to start the discussion through the summer in terms of re-contracting. We you know a number of the contracts were all over annually and some of those world over annually laughing. We're also working through details with with a number of our customers in terms of extensions. It's again in the first quarter of the Year. Obviously with what's been going along the conversations on that France have been pretty quiet. I eat I don't think fundamentally things have changed much at the moment the the spreads between Alberta and Chicago Creek is the Alberta prices are looking good. But if you look forward into to Winter and twenty Twenty-One those things start to wind up so so we think there's some strength on on the alliance and birth

long term in terms of re-contracting

not are here also any disruption that we have seen on the processing side in the back and through the aux cable assets hasn't been due to a fundamentals. It's been that the customers haven't been able to access storage. So it's kind of a short-term. So in the area that we're processing, you know, you know, they're still is like at the end of the tunnel as Jason mentioned through the flaring and and the economic development of that resource to expand Alliance.

Got it. Okay, that's great. Thanks guys.

Your next question comes from Robert Quan of RBC Capital markets. Your line is open money. So when you refresh guidance, it's been almost two months since then. So kind of since that time what's come up, it's made you more optimistic or a little bit better than than you had originally thought and then what's transport is an incremental headwind you're thinking sometime. You know headwinds is is really the continued nation of of marketing earnings and and that's that's fully baked in. We don't have a lot of Hope baked in there. I think as with previous questioning, you know, we we take their could be outside there, but we're not we don't think it's prudent to to forecast that but I think it's just really when when you kind of get into the

Got so, I'm going to works and you know.

It would be easy and I think the the the you know, when I when I see how our stock price has been correlated to to oil and I've got a fantastic route at the AGM to talk about it would be as if the General market said if if you know a million barrels came out of the market of of Supply that you know out of call it five million barrels off four million barrels that you know call out a twenty or twenty-five percent reduction that are go hemnes. Keep it would drop by Twenty or twenty-five percent. It's it's almost as if that's what the market assumed but when you get into the into the guts of it, you know, the verision acquisition was all gas and so gas is doing pretty good. And when you look at, you know, State Supply, you know, it's the Monty that's producing a lot of that condensate in behind peace and and the money's a gas play. It's not a connoisseur wage.

It it gets talked about in the Kiwanis a flake is kind of state was making all the money but right now gas is is paying paying for people's costs. And so people are going to produce that too long to harvest the gas maybe a little more than than condensate and then you look at where does the condensate come from? Well, you know a hundred hundred fifty that comes up Southern Lights and bulbs and you know, I think the industry generally knows that the largest customers on on that line are marketers and and that's out of the money right now. So they they they're they're probably going to shut it off or whereas our customers are. Are you actual users of the of the product and and so, you know the underlying economics of continuing to flow that that product or a pretty good and then you you kind of go in behind all of all of that into what protection do you have from from the contracts? It's it's it's pretty job.

Good and you know I think demands is still pretty good people forget, you know feminists the ethane back back back bone of the whole country and and and and demand wage because of you know, all the packaging and medical supplies and things like that demand stays is is stayed pretty good there. So it's really going from you know, kind of the original view we took on guidance that you know, a bunch of our interruptible volumes were going to go away and you know, that was obviously correct but then taking the the time between then and now to work it through based on what order oil output in the base and would drop and off, you know, so you you obviously the the least economic reservoirs will probably stop producing first and then who are those people and is it sagged e Thursday?

At mining if it's saying D. Where do they get the

Oh, well, they don't get it for Pembina, you know or or yes, they do but there's a contract and and then are they are they if they want to continue to to to to buy a condensate what's their credit worthiness? And if they don't want to continue buying condensate, will they do they have the wherewithal to keep paying the contract? So it's it's getting in behind kind of like the banner numbers and and working through how that actually works at Pembina. And again a topic for this afternoon is we've we've taken in, you know, amazing steps forward and diversification since the 2015 oil price crash and including buying a ten billion dollar natural gas based company off and buying a four and a half billion dollar company that owns a major import Pipeline and has you know, all investment-grade credits in behind or Thursday.

It's in storage location. And so that that diversity is serving us extremely. Well right now.

On it if I can just finish with, you know taking a little bit more on the guidance. So between the commodity and the volumes just wondering if you can highlight within the next two buckets where some of the specific exposures that you're monitoring or put differently what needs to happen to go below the low end of the range. And if you know, there is something on the side. If you do go Below on the commodity side how much of that might just be shifting into twenty Twenty-One if you think about what you talked about earlier of party and some snow this year and you just put it in storage and that's in theory should

Yeah, that's a you know with so many moving Parts. I understand the your desire to understand that very very difficult question to answer. You know, the the you alluded it to it in your note this morning, you know, the the words the lawyer words we put in into our guidance, you know, those dead lawyer words reflect hitting tank tops, you know where you know, the the scenario where you have massive system-wide shut-ins and it looks ever less like that's going to happen that that the industry will continue to work curtailed rather than than than than shut down. But you know the what what could it could take us below our guidance for example is if we had, you know, a major mid-cap failure mid-calf customer failure or something like that, but you know with with a little bit of backstopping phone number

The federal government and and you know credit to to our mid cops. I mean, they're they're starting to announce. They're they're they're announcing stronger than I expected. They've got some support from the federal government hopefully more to come and and and you know, they're making money on gas. Like they're supporting there's themselves on gas like six or larger made cap customer 70 eventive. They're they're they're doing okay on the gas side. And and so there's there's going to be quite resilient resilient wage. But what could take us lower there would be a a unexpected failure of one of those companies or you know, a a violent second wave of faith in the US and and you know reversing the the slowly improving gasoline demand picture of things things like that could take us lower, but we don't suck.

Those are on balance.

Likely, but you know, we I thought we thought it was prudent and responsible to point out that pills are still possible. And you know, I would say it a different way had we not put those words, you know, you would have qualified the guidance that way anyway yourself you would have said having a feminine still guiding but man if if we have that we if we hit storage tops then you know, their their their guidance is probably not going to hold so you would have had heard those words anyway.

So just to maybe summarize either commodity prices stay flat and don't recover or go down is one second would be much more significant than wage in today. And then the third would be externally major asking for bankruptcy. Yeah, and I saved your item wanted to or the same, you know, if I if prices are lower than your second condition happens and then and now you're now you're asking yourself can the people who pay Pembina keep paying them and for how long and so long I would, you know direct you to you know, the, you know, our our our big big mid caps and and you know, their their liquidity situation and and Financial Health check.

That's all I got. Thank you very much.

Your next question comes from Robert peculiar of CIBC Capital markets your line is open.

Hey, good morning. You've answered most of my questions just a couple of follow-ups here. First of all, I want to thank you for your comments on the blending extended the importance of protecting your own stakeholders. Bring that up. What is the force for sure claims activity been like I don't think we've had a single FM and and that doesn't surprise us because our our legal teams don't believe that that condition would be met in our current agreements.

Okay, and just a little bit of a detail here. It's either was a little bit of a support payment for Ruby and you also guaranteed something for Thursday. So my question is how much support do you think would be would need for the rest of the rest of the way and it's not included in your path exercise.

Yeah, I'll take that. I mean ckpc. I mean that's really just it's more of an accounting. So remember back in February we entered into a project finance agreement with life partners with both Pembina and p i c guaranteeing that loan. So really that guarantee is the discounted future difference between wage rate would have been had, I've done it versus the rate on that facility. So, it's really I'd call it almost accounting noise. We wouldn't expect that number to change, you know, as we proceed through that project, but of course that that deferred right now, so I would almost call that a accounting noise right now Rob and then on Ruby, I mean the Ruby consistent with I mean every quarter that's been the same note in the financial statements. We're advertising about 16 million a quarter for another one year. We just entered into a term loans for one more year.

For a note that we do a couple of years.

Years ago and we're just slowly amortizing that no down.

Okay, and just the last question here, I think you've clearly indicated that where you stand with the guidance and you know things get worse than 20 21 you might have to defer Capital again for those projects that were deferred from 20 in that circumstance. You'll be in a 1 a.m. Meeting for free cash flow positive situation. So I just want to know what your view is on dividends in that circumstance that you've clearly indicated that phone number does it make sense to the dividend any more than you already have which is perfectly understandable. What what would you be for 20 21 in the circumstance where there's more project approvals and very minimal capital.

You know certainly the if that were to occur, you know, we I think right now the the committed capital for 20 21 Club three four hundred million dollars. So you're right, you know, we if we maintained our current level of ebitda, you know, we got a bunch of projects that are coming in to a service that ought to supplement what we have off now so, you know, you could argue it it ought to go up but if if we had offsetting weakness in in in the market, maybe you know, let's say downsizing case would would be that it would be flat with our our current guidance. We we'd still we'd be producing a lot of free cash flow. No no question about it and you know the to the office and we can't bring back those projects that we divert as a market circumstance isn't right. You know, we we could we could put that money towards our normal 5% off.

Got a dividend increase which would probably be top-of-mind but it also would put us in a position where we could we could buy something. I mean if if that circumstance happened you could argue money ought to be dropping sharply to acquire things and multiples ought to be established. I think would be to my earlier point which I don't know what to pay for Thursday right now so that certainly we could we could rather than deploy capital on on those projects. We could deploy Capital into wage Acquisitions and and increased increased dividends. So I think it would be you know in that circumstance. I don't I don't think our first month.

Our first use of capital would be further debt repayment. You know, we're going to be you know, we're extremely well-positioned now will be extremely well-positioned not even up in a position of weakness. So it would be probably first a dividend increase in second to take advantage of an ongoing week or Mark.

That's very good color. Thank you.

Your next question comes from Benton of BMO. Your line is a

Okay. Thanks. Good morning. I know a couple of questions on on your guidance and puts intakes and whatnot. But I guess I guess we got to appreciate that you guys are working with some pretty tight wages there on on guidance. Oh really going down to the lower end is is really not not that big in terms of materiality. So I guess my my question really is on your payout and yield and you mention sustainability and also the leverage I mean, even if if you do move below the lower end of your range perhaps some and it has to be really traumatic for you to see concern around your dividend your balance sheet of that, correct?

Correct. We have no concerns about the dividend.

Okay, and is you mentioned a few times coverage which is pretty conservative peers their you've been through several Cycles fifteen sixteen and and Faith Christ. Is there is there a level arrange that you're comfortable with? And where you want to get to a long-term?

Are you talking referring to pay ratio? Yeah, exactly is the 55 is that is that a good good range just in up markets and down markets wage? Yeah, I I would say longer-term will probably be between 55 and 65%

Okay, so you're lowering? Okay. Can I ask you had some good commentary around fifteen sixteen and and how resilient you work during that time? And and all the facts are pretty clear fifteen sixteen. You were quite resilient maybe one or two quarters, you saw pressure and high top that you have a drip program on so you're much better position now, but I'm sure that the way that you're responding to this This concerns or downturn is is much more dramatic or the quicker than than fifteen sixteen. So it's just really funky this downturn is so uncertain or is it something to do with capex flexibility or is there something else that's that's driving it?

I mean it it does the first thing that that drove it is safety, you know, if we're early Innings on a 4.5 billion dollar project and we have thousands of wage working in a in a relatively confined location our first concern with deferring the pet chem project was was safety in Iraq, and you know rewind 8 weeks. Nobody knew, you know, what mortality rates would be things like that. No idea what productivity I'm like trying to build a world scale petrochemical facility. And so our our initial reason to delay those projects was was off for safety not putting people at risk that we didn't need to to put at risk. So the secondary was preserving preserving capital and and birth

You know.

Also. The third was our customers. I mean did did our customers really need us to put another billion and half dollars a pipe in the ground for volumes that they don't happened. So when when we you know, I called most of the the CEOs associated with those expansions and they were quite grateful grateful that we were, you know going to defer a year because you know, they are all under contract we built those pipes put them in service. They had to pay so we're just exacerbating their own situation of liquidity when their volumes are flat earthers down. The last thing they need is a bunch of additional capacity to pay for and so you know, it it it was for safety second customers, you know, really and then thirdly just needs to stay well within our in our guard rails and defend our our our credit ratings, but make no mistake those those projects we are.

We are preserving our ability to bring them back when the signals are are right. We've we've had some staff transitions, but we are preserving our core capability to snap back. And so we we very much you those as deferral. We are investing more than we would need to you know, in a scenario like we we could pull back even more capital on those projects, but then we would we would destroy value and we so we're we were investing in more than we need to to ensure that we we for example the petrochemical facility that we complete long lead items rather than you know, turn them into scrap metal because that would destroy value. So we're we're investing a bit extra to make sure that long lead items are are the engineering Spanish and and those are completed modules so that we can we can bring bring them back. So it's much much more than a financial exercise. It's a dead.

It's a an exercise that that that contemplates all of our stakeholders.

Okay, that's great. Thanks everybody.

Your next question comes from Rob. Hope of Scotiabank your line is open.

Morning, everyone just a follow-up question just on the nitty-gritty of how the systems worked. I guess. I just want to get a sense of whether what your view is of dealing with doors in the base. And and whether or not Southern Lights will move down enough of its volumes in potentially Cochin to offset the demand of offset the lower demand of the oil sands and then a follow-up there would be if there is no storage. Would that be a force majeure claim for your customers?

So the answer your second question is we don't believe so the answer to your first question is absolutely you know, it's tag needs go down. There is a demand and what we see so far is that that's not coming at our expense. I mean, we're we're seeing slight reductions in in quotient but still at or above contracted levels on on on peace where we're at or around are contracted levels with physical barrels. And so we we are not suggesting that coming out of our systems. So there's only one other place that can come from so far we've asserted that four years, uh, because our our customers, you know, the ocean are the users of that product and on and on on peace they have gas economics to help support them. Whereas importers don't have that on on Southern Lights Off.

Leave a sort of four. Sometimes that that would be the initial shock absorber.

And is it rolls past the entire Imports there to coach and and to piece we have the contractual backpack stopping?

I appreciate the call. Thank you.

There are no further questions at this time. I will now return the call to mister McDougal for closing comments.

Yeah First Bank Scott for doing all the reading for me these a voracious reader. So he he loved better at it than I am. I don't read a lot. So thanks Scott. Thank I want to thank God, you know all the listeners. Uh, those who are supporting us through this this tough time. I'm very proud of the actions. We've undertaken and I've got some great charts and graphs this afternoon for the the AGM, which I'm looking forward to sharing with you and I'm feeling cautiously optimistic where we are today. So thank you and we'll see you at the ATM.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may not disconnect.

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