Q2 2020 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
Half of 2021 with the potential for partial early service in second quarter of 2021.
The diamond and cap wind projects remain on budget with both projects expected to be in service late 2021.
As summarized on slide seven we continue to advance initiatives to optimize our asset portfolio and streamline our business with respect to portfolio optimization, we have closed or contracted for approximately 440 million in asset sales year to date, which includes $190 million expected to close before year end.
We continue to advance a 160 million or more of additional divestiture opportunities some of which can be more challenging achieving the current environment and will likely extend into 2021.
With respect to optimizing our business, we continue to streamline and drive efficiencies across all aspects of our business in May we estimated the benefit of this process to result in 50 to 100 million of cost savings for 2020.
Based on our progress to date, we're on track to achieve the higher end of our range, which is reflected in our updated guidance. We also expect a significant portion of our savings to endure in future years, as we continue to reduce our cost structure.
Additionally, our 2020 guidance from maintenance capital remains unchanged at $215 million with that I'll turn the call over to al.
Thanks, Willy during my portion of the call I'll recap, our second quarter results discuss our 2020 guide and review, our current capitalization liquidity and leverage metrics.
As shown on slide eight in the second quarter, we generated fee based adjusted EBITDA of $520 million.
Pertains segment results were generally in line with our expectation, but due to the impact of producer shut in.
Tight regional basis differential in the timing of shipper deficiency payment.
Reflect quarterly sequential and year over year decline.
We expect to collect the second quarter shipper deficiency payments in the second half of 2020.
Second quarter facilities segment results exceeded expectations, primarily due to operational cost savings and higher than expected throughput at certain of our mid continent terminal.
On a comparative basis. The segment was in line with second quarter 2019, despite the impact of asset sales and down sequentially. As a result of multiyear deficiency payment received in the first quarter as well as the impact of asset sale.
The final logistics results of $3 million exceeded our expectations as contango based margin opportunities and more favorable NGL margins.
Offset the impact of shut in driven volume shortages timing of inventory costing and the typical NGL seasonal dip that occurs in the second and third quarters.
Now I will shift to a discussion of our 2020 guidance with two reflected on slide nine.
As Willy mentioned, our revised 2020, adjusted EBITDA guidance, as plus or minus $2.5 billion is $75 million or 3% above our guidance provided in may and reflects an increase in all three segments.
For the transportation segment, we have revised down our expected average daily volumes by 4%.
Reflecting second quarter actual volumes, our current views of anticipated throughput on our system in the second half.
As well as shipper NBC this deficiencies.
Unit margins have improved reflecting higher expected average tariff rates in our continued focus on reducing operating costs.
Ill note that our updated guidance incorporates a shift between quarters of earnings related to the timing of timing impact of MVC deficiencies relative to billing cycle and the deficiency payments are also contributing to the higher average tariff rate for 2020.
With respect to the SNL segment the guidance threefold increase reflects our to second quarter performance plus the benefit to the second half of the year from contango opportunities captured to date as well as the stronger than anticipated NGL and crude oil margins.
Moving to our capitalization and liquidity a summary of key metrics is provided on slide 10.
Our reported long term debt to adjusted EBITDA ratio of 3.2 times benefited from trailing 12 month supply and logistics results of almost $500 million.
As noted on the slide the leverage ratio would be 3.7 times, if normalized using our initial 2020 SNL adjusted EBITDA guidance, reflecting leverage slightly above the high end of our target level, thus underpinning our focus on reducing leverage.
In June we completed a $750 million 10 year debt offering at 3.8%, which will be used to repay our $600 million February 2021 maturity.
As of par call option during the fourth quarter.
We have no other near term maturities than our current.
Our total committed liquidity at quarter end was $2.9 billion. As a result, we did not expect to access the capital markets for the foreseeable future.
As we stated earlier Nick call improving our free cash flow is a key objective.
And to the extent exceeds distributions will be reduced will be used to reduce debt in the near term as shown on slide 11.
Our free cash flow through the first six months of the year as a positive $122 million and free cash flow after distributions was a negative $370 million.
Absent short term changes in working capital associated with hedged inventories storage, we expect our cash generation combined with lower capital investment to benefit.
Free cash flow for the balance of the year and into 2021 and beyond with that I'll turn the call back over to will.
Thanks Al as discussed throughout the call I want to reinforce we remain on track with our revised expectations that we articulated in May and we're intently focused on execution during what remains to be very dynamic challenging environment.
We remain constructive on long term energy demand as population growth in the quest for Betty better living conditions will drive global energy demand in the years to come ultimately in the world needs North American energy and as the largest in one of the most economic producing regions. We expect that the Permian will ultimately lead in North American recovery.
Given the critical nature of our integrated crude infrastructure system in key North American basins, and our large Permian position, which is underpinned by significant volume commitments and more than two and a half million dedicated acreage in facility dedications, we believe we're very well positioned to overtime.
Additionally, we are taking the right steps to further streamline our business to lower our cost improved cash free cash flow generation reduce leverage and return cash to our unit holders after reaching our leverage targets. These actions make us a stronger company and positions us well for the future.
Before I open the call up for questions I do want to acknowledge and thank all of our PAA team members for their hard work their commitment and dedication as our workforce continues to operate in a socially distant world. We remain laser focused on safe reliable and responsible operations and managing our business for the long term a summary of our Taco.
Voice from today's call is outlined on slide 12 with that we'll look forward to sharing additional updates on our third quarter earnings call in November.
I'll turn the call back over to right.
Thanks, William we ended Q, an excess fleet fell to one question and one follow up question and then return to the Q. If you have additional follow ups. This will allow us to address the top questions from many participants as practical large available pines deep.
Additionally, our IR team plant be available seasoning into the balance of a week to address additional questions. Dan We're now ready to open the call for questions.
Thank you Sir at this time opened four for questions if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to leg or signal to reach our equipment again press star one if you'd like to queue up for question.
As we take questions callers. Please identify yourself with both name and company. Then proceed with your question and we'll pause for just a moment to allow everyone opportunity to signal for questions.
We'll take our first question in queue caller. Please identify yourself and proceed with your question.
Snowberger 70 units.
Hi generic.
How are you guys are interesting phone club Tonight.
Hopefully all as well, we will start off a little bit here just.
It can start off I guess, it a little bit bigger picture.
When you Lockheed guidance on the law firms call.
No when recounted bottom and so forth will have a fairly on animals view is kind of and exit rate for the court ruling for this year.
You sort of move the goal posts a little bit with this call today.
I was wondering if you can share with us what are the key signposts that that you're watching too.
Or are you looking at completion crews as a leading indicator.
Are you waiting for sustainable increase in rig counts shutting reversals crude differentials just kind of wondering what are the things that you're looking at.
Could it be of some something like efficiencies like we saw mill offs. So.
From a lumpy breakeven perspective, just wondering if you can sort of talk that's the input or to come up with your feet.
Sure Let me, let me start and then Jerry Jeremy you up we'll global Walt will.
Give me his insights on this.
Generally speaking the guidance that we thought.
On the Permian specifically.
Where we are right now is pretty much it's pretty close to expectations. When you think about everything else that the differences the slope of the curve and how quickly it happened and potential recovery curve, which I think Jeremy can can cover as well as some of his observations on the other things that we're looking at Jeremy.
Your highest Jeremy global.
So we basically had modeled refrac holiday, but they shut ins and curtailments happened very quickly. So into May you had rebalancing towards the second half of June. So you think about it was deeper but it recovered quicker and if you think about theres three components those barrels either went into storage as barrel.
Can get produced because it for payment or those barrels were just lost because of natural declines lack of completions. So across the system. We see producers now getting into starting to stabilize production. So I think our exit rate plus or minus 100000 barrels a day. There are some movements in between I'd say volumes now recoveries.
Tailwinds came back quicker than we thought but you're going to experienced declines. So I think people are getting back to work slowly.
But you're going to have a significant inventory of ducs. So we're going to manage can watch completions, we're going to watch rigs, but I think in general you see maintenance capital and.
Articulated by all the upstream producers everyone's looking to stabilize production towards the end of the year and maintain production until they see higher prices. So I think everyone's articulated what their plans going to be and we see that across our system. Its volume stabilizing as opposed to the volatility we saw in May and June.
Yes, so the other thing right Eric the other thing as all this is based on kind of a plus or minus $40 crude oil crude oil price, it's really stabilized in here.
It seems to want to stay in this range, but all those assumptions are based on the type of pricing.
Yes, I think a big a big difference on what will what we thought may happen is because of the proactive nature of the producers shutting in we're really of what we were able to avoid this filling up of store Twitter, which would have created a.
A knee jerk reaction across the system, which would have been more severe than what's happened. So I think the the crude oil prices, where they are as health that.
And the proactive the or the proactive nature of what the producers did help the crude oil price and helped.
Kind of avoid a containment problem.
Yeah that makes.
Perfect sense really appreciate the color on lot baby as a follow up.
Question.
Capex again.
Just wanted to focus specifically on multiple million dollar reduction.
Is this just you're finding ways to you know to do the same things for last.
And that Youve.
And things are just costing less and nothing's really changing in terms of what you're putting in place in terms of assets.
Or have you scaled back some projects a little bit as well too Im just trying to understand if theres kind of an impact in terms of output for 21 in 22 and beyond.
Or things are just costing 100 million less than what you previously thought.
Well sure I'll start again.
Clearly, we've said over and over again, we're focused on improving our cash flow and capex spend any spend we've got as precious and we've got an intense focus and laser on on how do we avoid spending capex. We have an internal term that we use its its must doing no regrets capex right. So to answer your questions. It.
It's really a little bit of all the above but I'll ask Chris Chandler to comment yes. Thanks really this is Chris Chandler, we're always looking for ways to optimize scoping and prove execution efficiency on our projects, we have seen some material and labor cost deflation.
Of course with the slowdown in upstream development, we're able to execute projects more efficiently without paying to expedite equipment. Our material are paying overtime to complete work. We've also been successful and optimizing the scope of our larger projects, including winter Webster and Diamond cap line. This might be things like number of tanks or size of tanks at a origin or destination facilities.
And finally, we have deferred several projects in Canada. So beyond the 2021 timeframe. So it's really a combination of a number of efforts like Willy mentioned to continue to bring down our capital spend.
And maybe just a little bit about 22 beyond Shneur, we guided to 450 million of Capex in 2021.
Just a little bit over a third of that is on winked Webster and our cap line in Diamond project. So when you think about that you think about 2022, it really sets us up to be able to to lower our expectations what were to spend on capital in 22 plus.
Perfect. That's that makes a ton of sense really appreciate the color guys. That's more questions, but I'll jump back in the Q how does it have a great will take thanks.
Thanks winner.
Thank you.
And again caller. Please identify yourself and proceed with your question and we'll take our next.
Questionnaire and Q. Please go ahead.
Good afternoon, this Jeremy Tonet from JP Morgan.
Hi, Jeremy.
Hi.
Just want to.
The start up like could you know there was significant contango opportunities in the quarter and just wanted to see how that translated into results.
How much of that did you secure kind of in long term contracting and showed up in that facility side first maybe shorter term contracting and showed up in the SNL side.
And just trying to get a feeling for how that dynamic point out.
Jeremy I think Harry can cover that for you so on firm.
Tangoe perspective, we capped at all that and on the ethanol side not on the.
And the facility and it probably looks muted and thats because a couple of things first of all.
One.
We had under Hoover's from producers, we won't fully able to utilize all the contango storage that we had available.
Secondly, law that positions were put on a term basis. So we were looking at longer term position rather than just doing short one month positioned so you'll see some of that.
Come across and future months, and then the third component of it that sort of muted it was.
Particularly in Canada. The inventories are on a weighted average cost basis. So just the way that weighted average cost mechanism works not all the.
You know profits that will probably generated within the quarter actually occurred in the core, though we spread out over the balance of the year. So all that is reflected in the guidance for.
The balance the offsetting that for the balance of the are those are tighter differentials and spreads that we normally been able to capture historically won't be as we're not anticipating that those will be as robust as we thought it might have been earlier in the year.
Got it.
That is helpful. Thank you and then just wanted to get into the guidance a little bit more I guess I think the transportation volume guidance went down a little bit versus what you I said, but the.
The EBITDA went up so just wondering what kind of the moving pieces are you know now versus tend to drive that if it's kinda different movements in different basins long haul for short haul things just give us a flavor probably different basins kinda change in this guy burst the last I'd be helpful.
Jeremy Thanks, Jeremy This is Jeremy.
Part of that wasn't in the reduction is you've got lower volumes, which you collect the MDC to EBITDA will go up horizontally with lower volumes, we expect that to correct itself over the course of the year as because if you think about it we talked about the issues with in May and June pricing suggested the barrels stay in the basin.
So it made no sense for the marketers to ship a barrel from Midland to the Gulf coast They lifted in Midland.
Take care of shorts, and when another directions or went into storage or stayed in containment as they were under produce so that will reflect itself in EBITDA will show up at the volumes won't show up on the gathering side. That's more of a natural has produced it shows up.
Thats the way I would think about that lower guidance for transportation on share volume movements, but high EBITDA will reflect that we were paid for the movement.
Okay, maybe just a complete it then what type of NBC a dollar value do you expect to show up in the next quarter to kind of make it all come together.
It's in that ballpark of 25 million.
When shake it you three.
Well take our next question in queue.
Caller, please identify yourself and proceed with your question.
Yeah.
Hi keeps family at Wolfe Research.
Hi, good on.
Hi, So first I just wanted to confirm Jeremy I think you said $40 Wales, you'd expect kinda flatter production year end 21 versus year end 20 in the Permian is that your best sense right now and does that require rigs to come back or or more leaning on DUC inventory.
Keith This is Jeremy.
Sure a flattish case that would be largely rely on DUC inventory for a case, where you see but the way we look at it is when rigs show up at six to eight months before the volume impact so any improvement in activity is unlikely to happen in the first part of next year, we view it as more of a mid next year. So a lot of the scenarios were looking.
That is roughly flattish to slight growth in the way to think about it as you had to an inventory of uncompleted wells to.
In the Permian, specifically to mass 400, plus rate you immediately ramp down over two to three months to that 125 to 135 rigs, but you had substantial uncompleted inventory, but those rigs that were drilling the wells were completed.
There's theres some surge capacity in there we don't just sort of think thats going to drive growth, but that's going to create some noise in forecasting production, but candidly for an impact of a rig because of pad drilling in the process as they go through now it's close to six months before you see anticipated impact and production.
So we would think that in a very likely case, you could hold production flat with the rig you have today and you probably need to start bringing rigs on towards the end of next year or later early into 2022 for growth.
Great that's very helpful and second question.
Im just trying to square so your volume guiding swing down, but it sounds like your Permian basin wide volume outlook is now a little better on the margin in the last call. It is that a function of kind of you guys being a little more exposed to the Delaware versus the big landlords or just any color on your system versus.
Recent wide for the year.
At the when look at it though is.
Impacts to us can be that its revenue barrel right on our guidance so that could be touched three times. So any movement. It amplified so changes in forecasting I'd say that we feel strongly about our assets in where their position where volumes will be I think a lot of that noise on the long haul.
Aside from the Mdcs I think that that predominantly where it is on the gathering we have very healthy gathering system connections were seeing a lot of activity in the northern Delaware in Western Delaware and our Midland Basin assets are holding in well too I think this is largely driven by a long haul and nbcs.
Okay got it that makes sense. Thank you.
It's not the gathering piece of the business.
Well take our next question.
Oh, please identify yourself and proceed with your question.
Good afternoon, everyone. This is a result for the en banc of America.
Hi, as well.
Hi, really thanks for taking my question here, Firstly, just wanted to get an update on.
What youre seeing in your gathering increase on the Permian and maybe perhaps if you're in a position to update your outlook and some of the high double digit exit to exit decline groups that you had referenced in the past.
So if your Permian crude gathering peers have noted some improvement in volumes in Midland since may and.
I have missed some positive revisions to their outlook. So anything you can provide we'd appreciate that.
So as well I think Jeremy coverage are kind of our volume outlook and the shape of the curve I don't know if there's anything else specific that you want to know.
Jimmy any matter. These huge well this is Jeremy I, we don't give specific gathering asset guidance, but I'd say, our like I said another way to the previous call. We we feel good about the activity and things are holding in throughout the end of the year I think we.
I think our guidance reflects where we see volume to be in we're not a disadvantage relative to any gathering assets and we put our the quality of the acreage underneath ours relative anyone we that's Willy mentioned earlier between facility in acreage dedications, we've got over two and a half million acres between Texas and new Mexico.
Though and we feel strongly that we just don't give specific asset guidance.
Understood appreciate that that's that's helpful and just to clarify some of your comments on the drivers of the transportation segment.
Maybe to update here.
Maybe if you would you be able to provide color on sort of you know the bulk of volume declines.
Where the bulk up the volume declines or below NBC. It sounds like it's mostly on the long haul tried but also how close the current volumes argue nbcs so trying to get offensive.
Under recovery circumstance.
How close we are to those levels.
Yeah, I'd say, we've all I. This is Jeremy I would say that the the changes in the basin reflect changes in our long haul system for the most part D saw.
We talked in the last call, though we're forecasting close to two and a half million barrels a day of declines from March to May on onshore U.S., Yeah, Hey, Dave has come out in supporting that they see a steep percent decline there you see volumes ramp up through this quarter and into next quarter, that's gonna be the shape of what it looks like a lot of our assets I'd say we broke.
Next the basin or some proxy for it.
Got it got it and a quick one if I mean just.
On the cost saving initiatives and.
The number but they do have quantified towards the higher end up range around 100 million this year.
Are you able to.
Provide some some color on what our solid is a specific things that you have made what type of initiatives. They wear and you know.
How much can we expect to be reasonable in 2021 and beyond.
Yeah.
Chris can give you a little more insight.
But we do expect to have a good portion of that carry over into following years. Our efforts here are really how do we get lower our cost structure across the company through a number of different things whether be organizations systems.
Efficiencies and things.
Chris do you want you have some things you want to give some insight or yeah. Those are all this is Chris Chandler the organizations really stepped up and delivered cost savings really almost across all of our categories. I'll give you. Some examples we've seen reductions in personnel costs, weve, tempur hiring and replacing any vacancies with employees that we redeployed internally.
We've looked at our our operations for the next two years and re optimized all of our maintenance activities around those expected operations. So for example tanks that we're going to take out of service earlier in the year, we've been able to delay until next year to utilize in contango storage, yet still listen of course integrity Rick.
Harman some regulatory requirements, we've seen a large reduction and travel and entertainment expenses as you would expect.
Our supply chain organizations been very busy competitively bidding both materials and services and we've seen significant savings there and then finally, our technical resources and says focusing on expansion projects have really looked internally to optimize our systems and are finding ways through number of pumps, we run and with.
Pump stations, we operate in the trade off between horsepower and drag reducing agents to lower the operating cost on our pipelines even at the same through part of the same volume. So it's really it's in every category and we're seeing some very good success. Some like Lilly said, we think we're going to be able to carry that into 2021 and beyond even as volley.
Answer cover.
One of the things, we really pressed forward on is not setting a dollar value we really challenged our organization how do we how do we become as streamline as we possibly can and our team hasn't let us down and we've got a number of initiatives that Chris articulated a number of them, but we're going to keep pushing on this because it's a continuous effort.
Thanks. Thanks.
Very helpful. Thanks, really Chris and journal and have a great didnt.
Thank you.
Well take our next question in queue caller. Please go ahead.
Oh, Yes. This is Pearce Hammond with Simmons energy.
Thanks for taking my question.
I appreciate your comments Willie on the divestitures in the prepared remarks and in light at the recent Berkshire Hathaway transaction with Dominion I wanted to get your perspective on do you think valuations are attractive for Doug divestitures in the current market and do you see opportunities to further streamline and optimize planes through additional divestitures.
So the answer is we're always looking at our our assets to see what makes sense for us and what doesn't right. If it if it is worth more to others than it is to us when we strive for that win win win for the the buyer the seller in the employees to to get the asset over to up to a business that.
At a can maximize the value. So I made a comment about a number of transactions that were currently working on I can't give you any more resolution on that because we're in the middle love of some of those things but to answer. Your question. We are absolutely looking at opportunities to.
Not only just asset sales, but we've been a one of our strategy is had been with strategic joint ventures to try to optimize capital efficiency, where you can either.
Sure cost synergies commercial synergies.
Capital synergies. So those are obviously in play and then the larger transactions you know.
Theres nothing that drive the staff to do anything now we've got a pretty.
He identified path that were on and if we are able to do the things that we want to do we think it's going to unlock value in in our company, which will help us if there is there ever an opportunity to do something broader.
As far as the Berkshire deal I really can't comment on that but you know all all is opened but we're also very very cognizant of what makes sense, what's what's transactional and we're focusing on things that we can do.
Okay. Thank you Willy.
Hey peers this as Jeremy.
I would just state that the Berkshire transaction, that's a unique set of assets and you need fit for for a buyer I still think there needs to be some health in the term loan b in the credit market to bring specific buyers back to it I think a lot of the strategics or on the shelf right now so that's not necessarily a proxy for all transactions.
As Willy mentioned, we're constantly evaluating our assets and making and generate specific returns in its.
Keep in harvest at or exiting so anything in the exit Bucks, we're constantly looking for opportunities to maximize value with third parties and so we're trying to pair specific assets what specific buyers and so the things that we think are candidates for sale. We're waiting to those specific buyers are healthy we don't want to.
Give anything away.
Thank you Jeremy and then a quick follow up if the Apple is shut down would that be of net benefit for planes because of your rail assets.
Yeah peers. This is Jeremy we have the Bakken north assets than most Canada that can connect from trend to Regina. So we can benefit on the pipeline in the and the rail side and also from an S and L's standpoint. So I think there are opportunities there were waiting to see how that plays out, but we would look to maximize value the planes and it's.
Assets, if something would happen, but but candidly from a regulatory standpoint everybody's watching it to see as a precedent.
Yeah, I'll just make a comment appears on on dapple, we're not close to it because we were not a partner and we certainly don't operate it but one thing that we are watching with a with a lot of care is what precedent. Thus set again I don't know the details but to have a line that's been operating for a number of years safely.
Being shut down for different reasons, it's it's an environment of uncertainty and it's certainly something that we don't Oh, we don't see the benefit of.
So that's one and we we always hate to see rules and regulations get get confusing.
And to Jeremys point, what the assets. So we have it gives us a lot of optimization opportunities to handle not only the dapple experience, but if there were you know interruptions elsewhere, if there's an interruption in.
As far as Hurricanes in the Houston ship Channel Corpus Christi, there is having the asset base that we have gives us the flexibility to move barrels where they need to go.
I appreciate the color.
Well take our next question in queue caller. Please go ahead.
[noise], Hey, guys, Michael up he gets of Goldman Sachs.
Somebody asked the question about asset M&A earlier, and I want to kind of pick a step back and really I asked the question now when you look around the portfolio and obviously, the Permian as core and obviously assets like cap line, our core and dining.
Once you have a lot about that in a lot about their base and where you don't necessarily have a lot Gail you know outside of the Permian and the storage at Cushing in topline and that the Gulf Coast.
How do you think about what potentially noncore or what the kind of the optimal portfolio longer term not necessarily in the next 12 or 24 month, but kind of three to five five to seven years from now what that would look like for the company.
Well, Michael it's a tough question to answer because.
You know I'll give you our fundamental strategy, maybe that will answer it may help you understand how we think about it I mean, clearly with the with the base. We've got a we do want to build around existing assets. We have built optimization capabilities in flexibility. Those are all up projects that you've probably seen us do.
In areas that we don't have an advantage or a significant presence you've seen us obviously try to try to find the right. The right home for the assets if they're available we're not in a position where we have to sell assets for the wrong values, but we are always talking with people again trying to unlock what makes sense for different.
Folks so I think.
You'll continue to see as build around our base.
In the areas that you can look out on the map that we don't have as a core a core a core asset base. If if theres an opportunity that makes sense for us to do something with someone else. There. We obviously would consider it we also factor risk we factor a lot of things cash flow into it. So it's kind of a hard answer.
Sure to give you our ARPU.
Our blueprint on but hopefully that helps.
Yeah that help thank you for that much appreciate it guys.
Thanks, Michael.
Take our next question in queue caller. Please go ahead.
Oh.
Hi, This is Kent in called varied from Bernstein.
Do you expect U.S. crude exports to fall off in the second half and would that reduced the share of Permian players are going to market versus other congrats in Houston or Cushing.
Yeah, Hi, this is Ed Jeremy right now, we're seeing strong flows to the Gulf Coast, obviously differentials and demand will play into that but absolute volume production is down. So you would expect from a March standpoint, you've exports to go down.
Relative share Corpus and Houston Corpus has been increasing as linked Wesser comes along that contains balances I think there's a few things that will continue to move it a demand and location of demand is going to have a big impact on that.
Okay. Thank you you wouldn't necessarily say that because carpet the export hattie that that I like the negative I got some yeah, alright, alright less.
Not necessarily because the demand is there simply from all the nbcs across the pipes in the doctor going to pull as many barrels as they can that are physically available I don't think from an export standpoint, we're not seeing ever.
From a quality standpoint, we're seeing normalization between Houston in Corpus and when that happens, it's just going to be a matter of demand and new has access to barrels.
[laughter] that's helpful. And then is there any appetite from customers today to blend and extend contracts. So right now not really the time.
I would you then this is Jeremy again, I would say that there has been a bit a shock between March April may and June.
As we get into that those those discussions will be had across all assets were extending contracts in the field and doing things doing a lot of different things with our customers, but those discussions will be had a to optimize longer term relationships with customers, but it's a little bit too early.
As a lot of bankruptcies going on that but so those contract discussions are being had with individual I think the next wave of discussions on the long haul that will be part of it for sure.
I think if that's okay.
Thanks for taking in.
Well take our next question in queue caller. Please go ahead.
[noise], Tristan Richardson with truest.
Hey, I really appreciate all the comments you guys came on the second half I. Just one quick question around seasonality in the second half way I think the Threeq you directional estimate you share.
Suggests something a bit higher end or flat with fourq you versus the normal seasonality.
He is part of that dynamic the expected timing.
BC deficiency payments or the timing contango capture curious some of the factors, making that second half a little more ratable than than what youve normally see.
[music].
Interest and I think you covered a the two of them NBC timing impacts in contango as Harry outlined I don't know if anyone else has anything to add to that.
Just as Jeremy the one thing the seasonality in Ngls as always in the third quarter versus the fourth quarter scenario, you definitely we'll see that.
Thank you okay for some of the contango is mitigating this is as strong contango margins in third quarter fourth quarter and actually got.
For a little stronger in the threshold in the fourth quarter to.
Great. Thank you and then maybe just one on on contango opportunities in general I mean.
Is there a way to frame up the total size opportunity of spread opportunities that were created by all this disruption or.
We are another way to think about spread opportunities that might be.
Nonrecurring just with all the disruption we saw March April May June.
I'll make a comment and others can jump in one of the things. We consciously tried to do is increase our fee based.
Yes, our fee based earnings. So if you went back a number of years, we might have more storage available to capture some of these are our intention now as the assets that we've got if we can get fee based service out of it it makes more sense for us to do that and tried to keep tanks empty for for content.
Go or or or basis spread arbitrage area, Jeremy you want to having.
No I think that coverage.
So I didn't answer your guys lessen it's been in the past.
Fair enough. Thank you.
Well take our next question in queue caller. Please go ahead.
Hi, good morning, with Mizuho or just two quick questions for me. The one out if you can just comment on sort of the working capital return you're expecting in the back half through the year.
Assuming no other I guess contango or other ethanol opportunities present themselves.
Can you ask side again, I'm, sorry, you broke up there Gabe.
Sorry to hear me better now.
Yeah, Yeah, just I was going to ask about whether the magnitude of working capital return in the back half of the year, assuming no. Other contango were SNL opportunities present themselves.
This is out.
It is you know working capital and and that is difficult to forecast, we clearly built a.
Decent amount of contango storage and NGL is into the second quarter first quarter to second quarter with seasonal build prices margin all that come into play.
It's one that we will not start forecasting you know working capital swings.
We won't be doing a true forecast a in our guidance for how we're defining free cash flow for that very reason.
Because prices at the end of a period can can impact to margins and all that with that said clearly as it relates to the activity, we think over periods of time that.
Four quarters, a lot of that seasonality comes out and as the that unfairly priced and our focus is going to be on generating free cash flow.
Okay, Great and then maybe willing if I can follow up on your comment on one served as the 2021 growth capex being in larger projects is that.
Imply that the 300 million that's left US your base level GMP gross capital that you are spending kind of year in your out just curious if your characterization Carla.
I would say in the right neighborhood, but I don't want to I don't want to what specific numbers because its two years out, but it's a fair way to look at it.
Okay appreciate it.
We'll take our next question in queue caller. Please go ahead.
Good afternoon, Colton Bean TPH.
Just a follow up on some of my questions around transportation is it possible to speak a bit more explicitly to what type of volumes you all have seen over the course of July.
He gold Mrs. Jeremy goal I would say that the vast majority of curtailments for we've seen gone with outside of the Williston Basin.
In by July so the the declines we've seen and been offset by.
Some additional completions, we've started to see in June and now in July and August we expect more so I'd see activity ramping and curtailments are behind us.
I'm not going to talking about specific assets, but I would say that the production in July a exceeded our forecasts or estimates.
Understood.
And then just as you look at capital needs expected the average a 500 million or less sounds like potentially a decent bit less it does seem like excess free cash flow should continue to grow. So do you think about allocating that capital zero, reaching your leverage target a gating event to allocating more cash to unit holders or it is equity valuation also factor into the.
That priority ranking.
Oh.
Yeah.
In the near term leverage will will take priority, but clearly do we have to exactly.
He hit hit our target that'll be a question. We're we're a bit a ways as I've mentioned that are.
Our in the prepared comments about with where we think our leverage is in a more challenged SNL environment, which is what we're expecting going forward, but we will be focused on using the the access in the near term for for debt reduction leverage reduction and then we'll be looking to allocate.
To equity holders of whether its distribution increases and or share repurchases in those decisions are far enough out that it would be premature to talk about how will approach that the other the other thing we'll look at carefully as a.
It's all also affect though kind of what what does the future look like right. So theres a better certainty of the future that that may change a story a little bit. So it's a it is a bit of a moving target, but clearly the messages we want to get our we don't want to get our leverage down to to lower levels.
Got it appreciate the detail.
I think we have time for one more question can we go ahead and take that please.
We'll take our last question in queue caller. Please go ahead.
This is going to issuing from Goldman Sachs quick question, how how would you react to the deficient that BP announced this morning.
Reduce its.
Well production for the long run.
And if this becomes a longer term trend how do you view the capital intensity will fuel business.
And with the decisions that you have to me.
Well go Nash icon on volume lower volumes I think I'm, you know again back to what we're focused on is how do we reduced our capital intensity right and I think you've seen us take actions do that.
Portfolio optimization plays a piece of that and it's just very difficult to to lay out a strategy on what you might do with your with your portfolio without knowing.
Timing extent and duration of what what people are doing but directionally speaking to answer. Your question. We would have obviously adapt and again everything we're doing is to try to put the position, but the company in a position where we floors in the future and so we would not be or we would you take that.
Input and then just adjust our capex programs appropriately or a or look for more opportunities to.
Do some strategic Jvs in some cases, maybe there's an opportunity for a line to go into a different service that may help a less carbon intensive a world. So until we have better definition of that it would be hard to kinda articulate a specific strategy.
Got it thank you.
Thanks, Good Nash.
This concludes acuity I will now I'll turn it over to Willie for any closing remarks.
Well, great listen thanks, again for everyone dialing in how we hope you remain safe and we look forward to talking to you. All soon thank you very much.
Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.
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