Q1 2020 Earnings Call

Record of execution and by self funding our investments on that front, we evaluated all of our 2020 expansion capital projects and reduced capex by about $700 million for 2020 were.

In response to that could changing conditions in our markets. We still have 1.7 billion of expansion capital in 2020 on good project investments.

Finally, we are returning value to our shareholders with the 5% year over year dividend increase two dollarsfive annualized in the commitment to get to $1.25 when market conditions recover as rich said, we think that holding off on a larger increase now and leaving our balance sheet stronger, but still showing an increase in our dividend strikes the right balance strong balance sheet.

Capital discipline, and returning value to shareholders. Those are the principles, we operate by even in or perhaps especially in times like these here's what we're seeing in our businesses natural gas transportation and storage remains relatively strong and transport volumes are up year over year over time, we're going to see some shifting from associated gas.

Dry gas, but we have assets that serve both.

Refine products volumes are coming down in a way we've never seen before this impact impacts us in several ways. Our refined product pipelines are common carrier pipelines. So we get paid a fee on the actual throughput historically throughput varied only slightly usually growing a percent or so a year.

Lower throughput translates into lower revenues until we start to see recovery in the economy.

In our terminals business most of our revenue comes from MW sees monthly warehouse charges, but ancillary services blending for example are more throughput driven so we see some deterioration. There. This is partially offset by increased demand for previously unleased capacity almost every tank. We have is now under contract.

On refined products volume specifically, we believe this is not a permanent change it's temporary they're all kinds of views about how long is temporary and when we will get to the other side, but we will get there.

Our gathering and processing assets will be negatively impacted by reduced producer activity. We're seeing increased interest however, in our haynesville assets without will take some time to ramp up.

Overall reduce producer activity negatively impacts this part of our business as a reminder, gathering and processing when you put.

The gas portion of it together with the products portion is only about 10% of our budgeted segment.

EBITDA.

Finally in our CFO to business commodity prices are an obvious negative. However, we did a lot of hedging early in the year and as you can see in the updated sensitivities page that we included in this quarter's earnings package, our exposure to oil price changes is reduced going forward.

We're focused on our free cash flow and our capital reductions for 2020. In this segment are expected to offset the distributable cash flow decline for 2020 in this segment.

The outlook numbers Kim will take you through our based on a bottoms up re forecast we worked on with each of our business units in corporate staff that review focused on margin impacts and cost savings opportunities. We also fully reviewed our capital expenditures as I mentioned, it's challenging to give guidance in uncertain times like these.

We think we addressed that challenge by giving you our estimate and also giving you estimated sensitivities and with that I'll turn it over to Kim.

Thanks, Steve Let me mention quickly if the staff for the quarter and how does that change more recently and then also note that time on our outlook for the balance for the year any assumptions underlying that outlook.

For the quarter, our natural gas transport volumes were up 8% or 3.1 Bcf a day.

As we progressed through April we continue to strengthen the volumes, let me remind you though.

On our transport pipe most of our volume.

Our under take or pay contract.

To the extent that we did the drop off in volumes in the future we would not be impacted I.

Our gathering volumes are down to our down 2% on the quarter.

The decline.

Actually there are up 2% in the quarter the decline in the dry gas basins or slightly more than offset by increased in the volumes in the associated quite.

However, we are seeing volume reductions any associated plays in April and we expect more in may.

Petroleum product demand was flat for the quarter.

Positive in January and February and then we saw an 8% decline in March.

Currently we are saying about a 40% to 45% reduction and refined product volumes, which will impact both our product pipeline and our terminal segment.

Crude and condensate volumes were up 9% on a quarter and unlike petroleum products stayed strong in March but they are coming off in April and we expect more degradation in may.

For the full year, we're projecting to comment about 8% below budget on EBITDA and about 10% below budget on Dcs.

So we're projecting roughly $7 billion in EBITDA, and roughly $4.6 billion and Dcs.

We reduced expansion Capex as Steve mentioned by approximately 700 million or almost 30%.

So the reduction in DCF is more than offset by a reduction in cap that.

Resulting in DCF wealth less capex that is approximately $200 million better than our budget.

We currently expect to end the year at 4.6 times debt to EBITDA.

Now, let me break down 8% variance on EBITDA into six buckets to help everyone understand.

The first bucket is lower commodity prices and this is all commodities.

Expected to have a little less than 2% impact.

We're assuming an oil price of about $30 per barrel on average.

For the balance of the year and our sensitivity to oil as Steve mentioned has been reduced is about 1.7 million per dollar change and the price per barrel. So there's not much sensitivity here given the hedges we have in place.

The second bucket lower natural gas gathering and processing volumes.

Also projected to have an impact of a little less than 2%.

For Q2, Q4, we're thinking about at 12% volume reduction, but there is lots of variations between the assets, depending on which space and they serve.

For example on some of our assets, we project well over a 30% decline in volumes.

One other assets, we expect a much smaller declines.

Overall on natural gas.

CMP assets, our assumptions result, and approximately 20% reduction in EBITDA versus our budget for the year.

In one of the primary reason for the discrepancy between the volume decline and the EBITDA decline is that we are projecting greater volume declines on our higher margin assets.

The third bucket lower refined product volumes.

We expect that to impact us a little less than 2%.

This takes into account or the impact on both our products pipeline segment and our terminal segment.

Here, what we're assuming in our outlook is an 18% to 20% reduction in volumes versus our budget for the balance of the year.

With a 40% to 45% reduction in Q2.

Decreasing to 10% to 12% in Q3, and 5% to 6% and keep it in Q4.

The three buckets commodity prices natural gas gathering and refine products at a little less than 2% each account for roughly 5.5% or the 8% variants.

The fourth bucket lower crude and condensate volumes is expected to have an impact of about <unk>, 0.7% of EBITDA.

We are assuming a 19% reduction in volumes Q2 through Q4 versus our budget.

These numbers include the impact on both our gathering systems and our pipeline transport volumes.

For the last two buckets lower capitalized overhead, which as a result of the decrease in capital spending and lower CEO to volumes together account for about a 1% variants.

You mentioned that as we determine the impact on EBITDA, we have taken into account and netted out of the numbers that I mentioned about $80 million and opex and cost savings.

Some of which is still on power that is directly related to the lower volumes.

That covers the most significant pieces in the EBITDA forecast and largely explains the 8%.

On the positive side, we've got about $100 million and savings between lower interest expense and lower sustaining capex.

So the 8% reduction in EBITDA less the savings on interest expense and sustaining capex roughly gets you to the 10% impact on EBITDA.

Now we're operating in a highly uncertain and changing environment, it's difficult to know how quickly economic activity may normalize so and table eight of the press release, we have provided you with sensitivities around the biggest moving pieces of our forecast and that is so that as things change you can calculate.

Right the impact on our forecasts.

And with that I'll turn it over to David Michael.

Thank you Kim.

First I'd like to recognize our accountants, our financial planners are tax department, our Investor Relations and everyone else, who had a hand and Kidder Morgan's close enterprise reporting process this quarter.

Weve interim working remotely since March 16th and in that time, we've successfully closed the quarter effectively performed a control procedures and prepare to a detailed for full year forecast update sensitivities to that forecast as well as significant supporting analysis and despite all of that extra work.

All of the extra challenges, we met our clothes and reporting schedule and that's a result of the resolve in the commitment of our co workers so great work.

Moving onto the quarter as you've heard the current events had a negative impact on our expected net income EBITDA and DCF. However, with the identified capital expenditure reductions, we expect to be able to fully fund our cash needs, including our capital expenditures and dividends with our distributable cash flow.

Additionally, we have an undrawn $4 billion credit facility, which provides ample liquidity, even considering our upcoming maturities we have about $950 million of debt maturing in September another 1.9 billion maturing in the first quarter next year.

Plus despite significant current market turmoil the investment grade debt capital markets have generally remained open and have been available to us.

Furthermore, even with the forecasted EBITDA change we currently project at year end debt to EBITDA level of 4.6 times up from our budget, a 4.3, but still consistent with our long term leverage target of around 4.5.

However, despite our ample liquidity relatively insulated business and overall financial health, we believe it's prudent not to increase our dividend by 25% as previously expected.

So we are declaring a dividend of.

0.26 to $5 per share, which is a one dollar and five cents annualized or a 5% increase from last quarter.

But below our budget of.

31.13 to five cents per share a one one dollar and 25 first <unk> dollars per share annualized.

Now moving onto the earnings performance for the first quarter 2020, compared to the first quarter of last year revenues were down 323 million.

Driven in part by lower natural gas prices versus Q1, or 2019 goes lower natural gas prices also drove a decline in the associated cost of sales of 285 million.

As a reminder, given the way that we contract, particularly in our Texas Intrastate business gross margin is a better indicator of our performance than revenue revenue alone and this is a good illustration of that.

Additionally, Q1 2020 reflects the sale of our KNL and a U.S. portion portion of our Cochin pipeline, which.

Collectively contributed about $74 million of EBTDA in the first quarter of 29 team.

We we have a loss on impairments and divestitures of 971 million this quarter and that includes a 350 million dollar impairment on our oil and gas producing assets in our CEO to segment as well as a 600 million dollar impairment of goodwill associated with that same segment.

Those impairments were driven by the sharp decline in oil prices that we experienced during the quarter.

Largely driven by the impairments, we had a net loss attributable to km I have 306 million for the quarter.

Our adjusted earnings.

Which is our non-GAAP term for net income adjusted for certain items were down 300 million compared to the first quarter 2019, 30 million compared to the first quarter 20 on team.

Adjusted earnings per share was 24 cents for the quarter down one cents from Q1 or 2019.

Moving on to DCF performance natural gas was down 2% for the quarter unfavorable impacts their include our sale of cogent TGP being down due to fiber, one GE impacts and a milder winter than expected.

Then last year.

And lower gathering and processing can control contributions at Kinderhawk, North, Texas and Oklahoma.

Partially offsetting those for contributions from the Elba Island liquefaction and Gulf.

Of course expressed projects.

Products was down 7% driven by oil price impacts on our crude and condensate assets terminals was down 14%, mostly due to the sale of camel and the Canadian terminals Seo too was down 7% driven by lower Seo too and oil volumes.

Partially offset by higher realized oil prices.

Our DNA and corporate charges were low lower by $18 million due to lower noncash pension expenses.

And the benefit from the sale of camel, partially offset by lower capitalized overhead.

Our JV DNA and non controlling interests.

There were 19 million of reductions in.

Between those two and those are explained mainly by our partner sharing in the Elba Island greater contributions and that explains the main changes and adjusted EBITDA, which was 5% lower than Q1 2019.

Total DCF of 1.261 billion is down 110 million or 8%.

[noise] DCF per share a 55 cents.

Per share down five cents from last year and to summarize the DCF impacts.

We had price and volume impacts on the segments of about $70 million weather and five LNG impacts on TGP was another 27 million, it's just greater sustaining capital of 26 million greater pension contributions of 18 million.

And the K, a mill sale impacted our DCF by about $18 million.

The sale impacted the segments by 74, but had offsets in interest DNA and NCR.

Those items were partially offset by the net contributions of Elba liquefaction and GC ex projects, which contributed about 52 million and that gets you to 107 other 110 change.

Now, adding a little bit to what Ken Ken provided for the full year 2020 guidance I'll provide some by segment.

Natural gas segment is projected to be down 4% from plan.

For the full year, driven by lower gathering and processing activity levels products is expected to be down about 17% driven by lower refined product volumes lower crude products.

You mean crude pipeline volumes and unfavorable price impacts.

Our terminals segment is projected to be down 5% driven by lower throughput.

And well that segment is largely take or pay as Steve mentioned, we do have lower ancillary service revenues, a truck rack revenues and bulk business that's impacted by lower throughput.

Cotwos is expected to be down, 16% driven by lower oil and NGL price.

Lower CEO to an oil production volumes as well.

[noise] DNA are lower capital spend leads to lower capitalized overhead, but partially offset by.

Non cash pension income and cost savings.

So that provides a main items driving our EBITDA, 8% lower by segment.

Kim mentioned, our new table eight and I'd also like to note that while we don't foresee this as a material risk.

At this point as large as our assets generally provide.

Critical infrastructure services, we may be exposed to potential credit default events, we did not forecast any of those potential impacts. So if experienced we could see further pressure on the forecast.

I'd also like to draw your attention to a supplemental slide deck, which has been posted to our website.

That provides more information on the assumptions for the year as well some helpful information on our assets customers in contract mix.

Finishing up with the balance sheet.

We ended the quarter at 4.3 times debt to EBITDA, which is consistent with where we were at the year end.

With the 8% EBITDA impact, we expect that to increased to 4.6 as I mentioned by yearend.

And I think the current events underscore just how important it is to have reduced our debt by nearly 10 billion since 2015.

Our net debt ended the quarter at 32.560 billion.

Down about 470 million from year end.

To reconcile that change we had 1.261 billion of DCF. We received proceeds from the sale of Pembina shares of 900 million.

We had a growth capital and JV contributions of about 500 million in the quarter.

We pay dividends of about 570 million.

We paid taxes for some deferred trans mountain sale taxes.

As well as some taxes on the Pembina ship share sales of about 160 million.

We bought back $50 million, where the came I shares and we had a working capital use mainly accrued interest payments bonus and property tax payments in the quarter of about 400 million and that gets you close to the 460 mill $69 million change in net debt for the quarter.

And with that I'll turn it back to Steve.

Alright, Thanks, David and Denise we will now open it up for questions and as we have been doing after the fat past several quarters here.

We ask that you hold your questions to one and one follow up and then if you've got more get back into queue, and we will get back to you.

Denise.

Thank you.

We will now begin at question answer session. If he would like to ask your question. Please press star one.

Your phone and record your name clearly your name is required to introduce your question.

Our first question today comes from GE Nana Salus story with Bernstein. Your line is open.

Hi, I'm not on the contracting of that terminal capacity to get up to 100% did you only contract that it's fair well here well that extra cash flow persists for a longer and just wanted to clarify that's already in the new guidance.

Yes, it's already in the new guidance and we did Oh, we contracted for a variety of terms and John Slosh or why don't you elaborate on that sure. It was a anywhere from one two years 'em, we started off the quarter at 2.3 million barrels of available capacity add.

And as we stand today, we're down to 727000 in most of those are very small chemical type.

We expect that to continue to shrink as the month goes on and and get closer to zero as we finish up the quarter or the month excuse me.

Okay that makes sense and that was outside third party as mentioned, we expect that to the exciting marketing earnings from the contango <unk> from Ken I right.

All third party.

Okay. Thank you.

And then can you learn.

Yes, you business is obviously kind of the most exposed to oil price can you give us what the minimum amount of capex going forward would be that kind of keep that doesn't isn't actually over the next year.

Yeah again, we invested our capex in the CEO to business based on the returns.

That it produces in other words, there's revenue associated with the oil that comes with the capital that we invest and we look at that and we stress test the pricing for that oil and we determine whether or not a it meets our hurdle criteria. Obviously those prices have come down that's why we've taken about 130 million Oh capex out but.

So we're not investing to try to keep.

To keep it flat or what we invest in is based on the incremental economics are those investments.

We've been holding to a relatively small decline rate with the capex that we've been investing you'd expect that decline rate, obviously to increase a bit.

Oh remains to be seen exactly but increase a bit with us pulling capital away from that business.

But again, we invested capital based on the incremental economics that we get.

Our CFO to lifting or lifting cost for most of our investments right now is about $20 and that includes a CEO to price at a market price for sue to not what it cost us to produce that Seo too, which is much lower and so we we look at a we look at our production make sure that it makes sense to continue to produce it and.

As I mentioned, we have a substantial portion of it hedged.

Your next question comes from she linear Green shoots <unk> would you be S. Your line is open.

Hi, good afternoon, everyone.

Appreciate the tough environment that that everyone is in terms of trying to put together guidance and do appreciate the sensitivities. If you put out today I was just wondering if we we can focus on to refine product business for a second here when I look at your Q2 assumptions for 40% to 45% reduction for the budget.

For some budget for the refined products terminals can you provide a little bit of color around the inputs that went into those assumption is that what you're experiencing today and you you're carrying it through did the ended the quarter or is there some relationship to refinery utilization that we should be watching I'm, just trying to understand what what sign posts.

We should be looking out when thinking about you know the volumes as it once you do refined products segment as things unfold in this difficult environment.

Yes, good question and so we did this at a fairly high level as you heard from Kim we sort of did it quarter by quarter, we did do it quarter by quarter and it was based on a current and I mean.

All right as in current month kind of activity that we're seeing on our assets and also discussions with our customers that we had both in the products and and in the terminals business and so that informed the assumptions that we use now.

Having said that you know every it's it's a bit of guesswork right now for everyone, but we made the best informed judgment, we could based on the data that was available to us.

And then again gave you some sensitivity so that she could.

You could adjusted based on different assumptions, if you have them, but I think it was fairly informed based on actual experience for early at least in the second quarter, but also conversations with customers.

Tim anything you want to elaborate on there.

I think that covers it.

Okay.

And for a follow up question I think we appreciate the prudence around the dividend increase being only 5% versus 25% <unk> definitely appreciate the comments and bags that you have the ability to actually pay it out of out of cash flows. If you chose to done it to do it in.

Here, you're looking to revisit in the fourth quarter of this year.

I'm just wondering if the balance of 2020 turns out better than you are currently budgeting.

Would you be open to returning cash to shareholders by a buybacks is in alternative means to returning shares under the existing returning cash flows under the existing buyback program.

Yeah, So your <unk> I'll try to that.

Again, our anticipation is that we want to go the dollar a quarter a normal.

When the economy is normalized.

And we think there's an excellent chance that will happen by the fourth quarter. That's why we put it in a way we did.

I don't think we are.

Never say never it's not our intention to a.

Do significant additional buybacks this year, but again, we'll watch the whole situation very girl.

I think Steve is a these are really unprecedented times.

We're just trying to be very conservative in very protective of the strength of our balance sheet and provide all the flexibility weekend for the company.

The next question comes from Jeremy Tonet with J P. M. Your line is open.

Hi, good afternoon.

I just wanted to start off with the proceedings before the Texas Railroad Commission here and in the event that there is actions to pro rate production or would you be able to kind of walk us through what that would mean for came by the you are you able to business and Nat gas pipes with.

This invoke some type of force majeure on take or pays realize this is a highly unusual situation question, but just wanted to see where you guys thoughts were.

Yeah. So.

Weve evaluated our force majeure provisions and while there are some there is some variability in them.

If you look at our our tariffs on the Interstate natural gas transportation business into pick in particular, which is a big obviously, a big chunk of our overall business.

Force majeure events do not excuse obligation to pay.

And so even if something technically qualified as a force majeure and I'm not saying that this would but even if it did on or our interstate tariffs.

It wouldn't be a force measure on the obligation to pay.

Now in terms of whether they'll actually go ahead with this oh and how it will look when it happens and how it would be different from what is going to happen anyway with people, taking the right economic steps based on the price signals that they're getting in the market I think thats anybody's guess, but at least when it comes to our transfer.

Station tariffs, we think we're fairly well insulated there.

When it comes to see or two production I'll ask Jesse to supplement anything that he sees there, but I mean, we're reacting to price signals to as we'd expect others are and would expect in the event and again I don't think it's very likely but in the event they did.

I'll put in some kind of a pro ration.

I think we can we can we can comply with it and probably would be complying with it just in the normal course, if that's what price is telling us Jesse anything you want to add to that.

Yeah, I think you you covered it is there going to production side just on the takeaway.

From that perspective, we do not have minimum volume commitment so our take away or contracts would not be affected by the preparation.

That's very helpful. Thanks, and you talked about and they are GMP that there's declines in certain basins. I was just wondering if you could walk us through a bit more detail, what you're seeing into various basins and we are actually shut ins happening or anymore color you could provide on on what's happening on the ground right.

Okay, Tom I'll ask you to to elaborate on that.

Yeah, I mean, it's very early days in the.

Overseeing the probably.

Real time, starting now and more so I think that's where you're going to match. The all the associated gas plays are gonna be primarily you know where we see this you know.

Some Permian volumes will be declining or someone coming off with me.

Clearly the box and will be impacted as well those are probably the two biggest area that we're saying Oh, the other side of it going up.

As we progress through the year, we're already getting some.

Inbound inquiries about incremental activity and or dry gas phase them, a part of the network.

Haynesville, particularly so I think you will see some potential off the in those areas.

Maybe a late late this year early next year.

The next question comes from Colton, Bean with two or Pickering, Holt and a company.

Good afternoon. So just a follow up in the question there around the yard business. It's Steve I think you mentioned that lifting costs around $20 a barrel <unk>.

To the extent that acknowledging that you guys may not have or you have integrated economics on the here too. If you were to see a price but dropped below even those integrated economics.

Is there any ability to defer production and settle your hedges on a financial basis, where even purchasing or purchase in basin. It physical volumes are needed.

Yeah. There there is a there is the ability to turned down production and just collect a on the hedges.

We have a customer on the other end of those contracts. So we would.

We would be judicious about that but there is some flexibility to do that.

<unk>.

Got it and then just following up on the on the Capex side of things I think you. All noted that you had taken out about 700 million and 2020.

Quite a bit more than I think C or do you think outboard is beginning to spend for us within the other segments, what some of the moving pieces where there.

Yeah and on the Oh go ahead Kim.

Yeah. So if you look at the the slide deck that David referred to on page five we break that out for you and so and natural gas for example, we pull down capex by about 460, a lot of that is in either removed or deferred GNP investment.

Yes.

In in products. It was about $90 million and that's really a lot of that is coming from some a reduction in.

The crude or the gathering business that as part of that segment.

And terminals was a few project deferrals in there and then see owed to the about 130 that I mentioned terminals was 30 by the way I don't know if I said that skewed to about 130, most of that as project deferrals and to a different two we see a different price environment.

Okay, and anything you want to add to that.

All right.

Your next question is from steer al units with credit Suisse. Your line is open.

Hey, I think everyone lots are all doing well.

So the higher level question, if you will entertain I guess, you've all been through cycles at this point. So what certainly appreciate your your point of view on this and around the downturn does this won't feel different in terms of its lasting impact on the sector originate you mentioned getting back to normal by fourth quarter, but got it. Thank you at least on the supply side.

Maybe there's a lasting impact here and just more broadly what you think came I need to do to adapt I I don't want to lead you too much but do you see yourselves pivoting back towards dry gas basins here are shifting your strategy in any sort of meaningful way.

I'll start it as rich <unk> to add to this I mean this is certainly different unprecedented when you put the combination of the two things the OPUC plus falling apart on March six together with coated crushing demand and I think you have to look at those two things separately in terms of duration on a co bid again, it's still anyone's guess, but.

It is it's a virus virus tends to be temporary even if it comes back it will still be a temporary phenomenon and we would expect demand to return to normal for refined products for example.

As Kim mentioned, we're not really seeing much degradation, yet in our natural gas demand and natural gas throughput.

When you look at the the OPUC plus a situation.

You know if if if.

Even with a return to normal economic activity. If the coalition if you will doesn't hold together and the market is forced to bounce on just fundamentals of supply and demand.

That could take longer or that could be a more lasting impact which would have an impact on the shales and ER and the near term a additional gathering and production investment that we would otherwise it plans to make that could last longer unless a deal as you know put together in a in a better.

Economic environment than than what we're experiencing today on your point about being able to pivot to dry gas plays we do have that ability. If you think about our assets our natural gas assets, we serve dry gas plays like the Marcellus Utica.

From a transmission standpoint, and storage standpoint, with our Tennessee gas pipeline.

System, we serve the Haynesville.

As Tom mentioned, and we've got plenty of room to grow to the extent.

The the dry gas market or to the extent that the gas market comes back into balance with the reliance less on associated gas volumes and more on a dry gas volumes rich anything else you want to add about cycle.

I think you covered it I agree.

Okay.

I appreciate the color there and then just to circle back on on the Capex reduction.

I guess what percentage of of the total Capex cut would you say it or Capex reduction would you say is an actual cut versus national deferral I can see obviously the backlog there is down about I think 300 million or so since the fourth quarter, but I know there's lot of moving pieces in there. So just help understand where you guys have actually turned down on a kind of permanent basis here.

Yeah, So that's hard to say right because.

It depends on if theres a recovery in commodity prices and when that occurs and that's what would drive back in a more more capex on GNP for example in and add on Seo too.

So you kind of have to it kind of have to ask yourself, what do you believe about that.

No we've talked about it as a management team and this is this is definitely goes in the category are forward looking statement because nobody knows for sure right now, but Oh, you know were below the $2 billion to $3 billion threshold up obviously at a 1.7 for this year and our best guess and it is just a gas at this point as we're going to run below that two to three.

A billion dollars range as we look ahead to 2021 as well barring some real big turnaround and Ah It would be awhile before we get back to kind of that two to three range and it would require a thing as I said some return in producer activity driven by a better commodity price environment.

Your next question is from Gabe Moreen with Mizuho. Your line is open.

Hi, Good afternoon, everyone. A quick questions on I guess the language around exposure to credit default events.

Maybe I can just drill down and I don't mean to sort of fish for negatives here at all but.

Any discussions you're having with customers around areas of concern there maybe some surprises you've seen in portfolio and.

For full in terms of customers maybe approaching you for.

Maybe some leniency contractually I'm just curious whether that was based on specific current customer discussions or just generically language.

Well is a fairly generic comment, but let me tell you how we how we look at credit gave we look at it on our Monday meetings. It's it's a <unk>. The second topic, we cover every Monday and we go through and we've evaluated customer by customer you know.

Who has some difficulty has there been a great credit downgrade what are the outstanding receivables et cetera, et cetera, but we also look at and we and we we seek collateral and we call on collateral where we have the rights to do so and we also look at what is the underlying value of the capacity, but that particular customer is holding on.

And in a worst case scenario will they see still need that capacity in order to be able to get their product to market and therefore are unlikely to reject the contracts. So we try to take all of those things into account.

No. There's no good analogy to the current year, there just isn't but if we look at something that was similar in terms of impact on the producers segment. We go back to 2016.

Our bankruptcy defaults in 2016 amounted to about $10 million now this is a through all the reasons I said before it is a worse year than that but we have those mitigations that I mentioned, it's also a little bit difficult to call. Your shots on who you think is going to tip over.

Not tip over maybe they do a debt restructuring instead et cetera et cetera.

And that's why it's very hard for us to projected but I think it was appropriate.

For David to mention it because we don't habit in our revised forecast.

I appreciate that thanks, Steve and then as a follow up to that on T.H.P. can you talk about.

How concerts capital contributions from your JV partners work.

What were to happen, if maybe let's say in the unlikely scenario a capital contribution from a JV partner would not come through.

Then I guess also would you be willing to talk about what's the credit rating is for that one producer on the pipe.

20% of the project.

Uh Huh, Tom I'm going to ask you to answer that I'm not familiar with how dilution works and that sort of thing under the under the agreements do you know.

Yeah, exactly I don't know if the government health food, Okay. Anthony do you have any insight to offer on the capital calls I mean, they've all been going well, but any any other insights.

No, obviously dabbing going well.

And there is a very and support credit support for the the ship or the equity owners that noninvestment grade or unrated.

So to the extent they did not put in that contribution as we have school.

Credit support for the capital contribution.

Right.

The next question comes from Michael Lapidus with Goldman Sachs. Your line is open.

Hi, guys. Thank you all for taking my questions. The first one on the refined products business, which is when you're you're 40% plus demand down take in the second quarter. When you look at your refined products pipeline system relative to kind of the broader United States system as a whole.

Is there something about your system in particular, we think it could be better or worse than kind of a broader nation or do you think your says a good proxy for what's happened in the body last.

Yeah, So Michael I won't try to speak for others, but think about the markets. We serve right. The S.P.P. system is our largest system.

It serves California it serves Arizona.

If you think about our plantation pipeline system that really serves the mid Atlantic its point of terminus is.

Is the or a national airport, a in a near Washington, DC and so you're talking about southeast to mid Atlantic markets, there and the other system as our CFO PL system, which serves a Tampa and central Florida, and so you can you can think about.

Differences in demand and differences in response to this virus and how that's playing out in different places you can also think about.

How it's playing out in which will be likely to recover earlier and I'll. Just ask you to make your own assumptions about that rather than me trying to speculate for other people's pipelines.

Got it. Thank you for that and then one other one looking at slide 12 thing kind of the commentary if that's your customer base and their credit ratings. Just curious if you don't look at the 76% there so that he outlined is being investment grade.

And how many of those are on credit outlook negative watches mean, we're seeing lots of fallen angels in the.

Energy credit World. These days and I'm, just curious how many are or what percent of back what portion of that 76% or you think might be microwaving from investment grade to higher.

Okay. Yeah. So the 76% is investment grade as well as substantial credit support the other thing we identified is our estimate of approximately 1% exposure or on our budgeted net revenues from those who are b minus or below and so those are kind of the fence post we put out there I don't know.

The proportion of that 76% that is on negative outlook I will ask Anthony if you happen to know.

I think most of that already been incorporated into the uptake.

I think that's probably a small very small percentage that on negative outlook generally to the extent there on negative outlet and they can't add dropped from investment grade non investment grade and would trigger a right for us to draw on collateral, but it's relatively small percentage.

The next question comes from each ball paid on your line is open that there's lots with bank of America. Thank you.

Good afternoon, everyone.

Thanks for taking my question and thanks for all the updated guidance and budgets sensitivities.

First one for me regarding options or are we going to stories within your.

Acid.

Platform.

Are there.

And he obviously, but your current exploring a to provide additional storage capacity given this road is recency and.

Oh, you know do have Sixtym Jones Act anchors with over 5 million.

So oh potential capacity can you comment it's all if that is contracted out or if there's a.

Possibility of using that capacity.

Yeah I'll take the last part of that first it is all under contract on the Jones Act capacity.

And.

John will elaborate on this but there there is a reluctance to an end it's under our customers control right. It's under our customers control, but there and it's mostly clean products as I mentioned in the end a there is a reluctance to convert those to dirty products, where we don't already having been dirty product service dirty being crude I mean, and because of cleaning costs et cetera, but.

On anything you want to add to that.

You're correct that two thirds is in clean it won't be converted back to crude and the other is just the economics on the smaller edmar size vessels for storage doesn't make sense from our customer standpoint.

And then on the crude storage I mean again, it makes sense for our refined products assets to be in refined product service, that's where most of our tankage is and a as John pointed out it is filling up rapidly on the crude side. We do have some limited storage capability a in our CFO to business as well as in our.

Our.

Ah products pipeline business, but it's not it's not particularly material.

Got it thanks for that and as a follow up.

After the Keystone pipeline ruling in Montana last week I said, there were few headlights, raising questions about potential challenge to Permian Ivy.

Permits as well can you comment on the potential legal challenge there.

Yeah sure. The the we're aware of the decision obviously it is not stopping us from continuing our construction at this point.

You know I'll, just say that it's hard to imagine.

That the <unk> does that decision applies outside of the project that that decision was related to particularly when you think about you know the implications of all of the various projects that are operating.

Under nationwide permit 12 from the Army Corps, a and all the jobs that are at stake et cetera, it's hard to imagine that.

As a country a we would send those people home during times like this so look we we wouldn't expect this decision to stop our construction on P.H.P. and a important fact areas that we already have we have an existing authorization a verification under nationwide.

Rule 12 that applies to BHP.

Your next question is from Pearce Hammond with Simmons Energy Your line is open.

Yeah, good afternoon, and thanks for taking my question picking it up on Spiros earlier question. During this downturn or there are opportunities to strengthen the company and make it an even better enterprise coming out of the downturn and if so what are some of those steps or opportunities that you could take.

Yeah as I said at the beginning in my remarks, I think we took a lot of really important steps over the last several years to.

To make our company stronger certainly what we're doing continuing to operate and operate well and operate the way we have been has been it it strengthens our organization a you know in terms of further strengthening the balance sheet. We are following the capital allocation priorities that.

That rich outlined a and that I I outlined and we do feel comfortable with our current leverage.

Metric in terms of supporting.

The the rating that we have and we stay in close contact with the rating agencies and and and believes that they agree with that and we'll always look for opportunities to get stronger, but I think we've done a really good job of getting to where we are right now.

Thank you Steve.

The next question is from a Christian Richardson with Suntrust. Your line is open.

Hey, guys. Good afternoon, and just a quick follow up to an earlier question on on what you guys you're seeing in midstream with the really respect to the revised expectation there.

Conceptually can you talk about how much of the revision is due to either expected shut ins.

Existing production or.

Versus you know previously expected volume growth that is just now no longer expected to materialize.

Yeah. So.

Ah you know I think what we tried to do as I said before was we looked closely at Oh, what our current activity levels were.

But also had conversations with our customers to try to understand what they were seeing coming and look just that's going to be an evolving situation. You know shut ins will be the rights solution for certain wells for a certain period of time, but I think there'll be instances, where there's a pro.

Hi organization going on and some of our some of our customers even pointed out that they may drill other wells and shut in other ones that are that are not as economic because hi, hi.

Hi, Geo our water handling costs all kinds of things. So there are a whole variety of considerations that will go into that but I think doing this quarter by quarter I think we captured.

At least our best guess and informed by what our customers are telling us the deep negative that we're seeing right now as well as what we expect that to average out.

Two for the quarter.

Kim any additional detail there.

No I think you Kevin.

[music].

Thanks, and second on the cost saving side.

Can you talked about the 80 million in operating cost savings and mm 100 million and lower interest costs.

And I think you mentioned capitalized overhead, but do you guys see any further opportunity on the DNA side.

Jim go ahead.

Yeah, I mean in these numbers, we've taken into account DNA savings you know things that come from well not traveling.

Yeah, it's things like that so we have tried to take into account a DNA savings.

HM 200 million just so you know what it half of that about is on and from supplement harmful damp on sustaining capex of 100 million was a combination of interested sustaining capex.

But we did take into account DNA savings.

And the other thing I would add there as we continue to look for opportunities to save costs without compromising the safety and integrity of our assets.

One phenomenon that we're really just on the front end of and we've seen.

We've reflected some of this but I suspect we haven't reflected all of it yet is that as we are going out to our.

Vendors and service providers, who are getting a we're getting good cost reductions and we're really on kind of the front end of that people are anxious to do business with us they're anxious to have worked wherever they can at this point and Jesse and his team and Seo to for example, you know there in there in the early part of their cycle at getting those sort of.

Price in term concessions.

From the people, who provide services to us and so I think that can lead to additional capital in Opex savings as we progress on but there are obviously there are negatives on the other side as there are with any forecast, but I think that is one thing I would point to.

Yeah and.

The other thing I'd forecast.

Mention is that we've assumed that a lot of work just gets pushed to later in the year and that we can get you know the basically double the work done in certain cases.

So you know there is the potential that we have other things move out of the or that we I'm just haven't been able to project at this point.

True helpful.

Thank you guys very much.

Your next question is from Danny you, Bonnie whether it be ammo capital. Your line is open.

Thank you I really I follow up on guidance up to the extent that it wasn't informed by conversations with your customers. How confident are you that you'll be able to hit the updated numbers and could you see further revisions your leverage objective as well as your dividend growth target for the year.

Give me want to take the first step that.

How confident are we in these numbers well look we did we get a bottoms up review we involve you know all of our business units, we tried to get in all the data that we could from what are we were seeing from our customers and so we took our best stab at it but as I said earlier it is high.

Highly uncertain market and so you know.

We don't know if those jobs are not they're gonna proved to be correct and so that's why we haven't given.

People want clarity into the judgment, we made about how much we were taking down volumes and then further provided the sensitivity so to the extent that volume on the up worse than what we're projecting or better than what we are projecting people can adjust our number.

And in the future.

Thank you for that that was my only question.

The next question comes from that that got Followell with U.S. capital Advisors. Your line is open.

Good afternoon first thanks for this level of detail I know how difficult it says to put together and it's really very helpful second honest due to business.

There is huge uncertainties, we don't know how prices are going to shake out you guys are pretty heavily hedged for this year, but not as much for next year can you talk about what shut ins will mean for that business in terms of how durable is the field. If you do shut it in.

Would it take additional capital to bring it back can you just curtailing back and then bring it up to kind of these things are right just kind of bigger picture on Santana.

Sure and I'll ask Jesse to supplement this but we're not talking about shutting in fields Oh, there, maybe some turned down here and there depending on the price signals, we're seeing in the cash market as we talked about earlier.

But for example, a you know three smaller fields were looking at instead of instead of introducing a new CEO to those fields just recapturing the CEO to that comes out with our oil production in recycling. It in those fields. So it's not about shutting it down it's more about.

Dialing it back and under the current market environment, not introducing a new CEO to into it but Jesse why don't you comment further.

On that.

That's a good good summary, there, Steve, but I think where we are back a is a you know where obviously high grading production then each field and optimizing the highest cost production highest gas to oil ratios. So we've taken steps to curtail that production you know it each field is different are different.

Divorce different wellbore skin or die Graham. So you know where you have pumps. There's there's obviously some risks that you have to pull those if you restart.

But.

From a material perspective, a you know we think that most of the production will come back a with very little capital required. A you will have some instances where you have to work over well at this early stimulated to get it going but right now we're just high grading production and getting the most profitable barrels to market.

Thank you and then what basis differentials are you guys assuming for the rest of here.

Hi, just you want to answer that is what you're talking about mid cush <unk> yeah.

Go ahead, Jessica we hedge that yeah wasn't it.

Yeah with respect to mid says we are virtually 100% hedge there at a positive in 14 cents. So we are we taking that risk off the table.

Thank you and there are no other questions at this time.

Thank you very much and have a good evening stay safe and stay healthy. Thank you.

This does conclude today's conference call. Thank you for participating and you may disconnect. At this time speakers allowed moment of silence in standby for your published conference.