Q2 2020 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
Million with that I'll turn the call over now.
Thanks, Willy during my portion of the call I'll recap, our second quarter results discuss our 2020 guidance 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.
Transportation segment results were generally in line with our expectations, but due to the impact of producer shut in.
Tight regional basis differential in the timing of shipper deficiency payments.
Reflect quarterly sequential and year over year declines.
We expect to collect the second quarter shipper deficiency payments in the second half of 2020.
Second quarter facility 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 Sears reflected on slide nine.
As Willy mentioned, our two revised 2020, adjusted EBITDA guidance of 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.
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 TNBC this deficiencies.
Unit margins have improved reflecting higher expected average tariff rates and 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 <unk>.
June we completed a $750 million 10 year debt offering at 3.8%, which will be used to repay our $600 million.
We worry 2021 maturity via the 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 willing.
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 the world needs North American energy in as the largest in one of the most economics 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 and 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 unitholders 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 P.A. 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.
Waste 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.
Well for one question and one follow up question and then return to the Q. If you have additional follow ups. This will allow us to draft. The top questions from many participants as practical are available time.
Additionally, our IR team plans 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 while everyone opportunity to signal for questions.
We'll take our first question in queue caller. Please identify yourself and proceed with your question.
Okay, Snowberger 70 units.
Hi generic.
How are you guys are interesting phone form up Tonight.
Hopefully all as well.
Start off a little bit here just.
We can start off again, a little bit bigger picture.
When you lost gave guidance on the law firms call.
No when recounted bottom and so forth who had a fairly on animals view is kind of an exit rate for the court ruling for this year.
You sort of moved the goalposts 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 so something like efficiencies like we saw mill offs. So.
From a lumpy breakeven perspective, just wondering if you can sort of talk thats, the input or to come up with UK.
Sure Let me, let me start and then Jerry Jeremy will 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 cover as well as some of his observations on the other things that we're looking at Jeremy.
Your highest Jeremy goal.
So we basically had modeled refrac holiday, but the shut ins and curtailments happened very quickly so into may yet rebalancing towards the second half of June. So you think about it was steeper, but it recovered quicker and if you think about there's three components those barrels either went into storage as barrel did.
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 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 year and maintain production until we see higher prices. So I think everyone's articulated what their plans going to be and we see that across our system as volumes 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 been here.
It seems to be honest thing in this range, but all those assumptions are based on the type of pricing.
Yes, I think a big a big difference what we thought may happen is because of the proactive nature of the producers shutting in we are really of what we were able to avoid this filling up of store Twitter, which would have created 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 and 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 do good same things for left and that you.
And thank you are just costing less and nothing's really changing in terms of what you're putting in place in terms of assets.
Have you scaled back some projects a little bit that's why don't you Im just trying to understand if theres kind of an impact in terms of output for 21, and 22 and beyond.
Things are just costing on his own less than what you previously thought.
Well sure I'll start again.
Clearly, we've 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 do and no regrets capex right. So to answer your questions. Its.
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 prove execution efficiency on our projects, we have seen some material and labor cost deflation and 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 linked to 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 us generic.
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.
And diamond projects. So when you think about that you think about 2022, it really sets us up to be able to to lower our expectations, what where to spend on capital in 22 plus.
Perfect that that makes a ton of sense really appreciate the color guys, that's more questions, but I'll jump back into queue.
Have a great we think thanks.
Thanks sooner.
Thank you.
And again caller. Please identify yourself and proceed with your question and we'll take our next.
Question during Q. Please go ahead.
Good afternoon, this Jeremy Tonet from JP Morgan.
Hi, Jeremy.
Right.
Just want to.
Startup like could you know there was no significant contango opportunities in the quarter and just wanted to see how that translated into your 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 from Contango perspective, we captured all that and on the ethanol side not on the.
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 what harmful able to utilize all the contango storage that we had available.
Secondly law that positions were put on term basis. So we were looking at longer term positions rather than just doing short one month positioned so you'll see some of that.
Hum crossed and future months, and then the third component of it that sort of muted it was.
Particularly in Canada. The inventories are are on 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 they'll be 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 those will be as robust as we thought that I've been earlier in here.
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 kind of different movements in different.
Since long haul for short haul if you could just give us a flavor probably different basins kinda change and in this guy burst the last that'd be helpful.
Jeremy Big Jeremy This is Jeremy.
Part of that wasn't in the reduction is you've got lower volumes, but you collect the MVC 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 within 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 left in Midland to take care of shorts and when another directions or went into storage. Our stated containment as they were under produced 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 if it's produced it shows up.
That's 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 completed 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 the ballpark of 25 million.
When shake that you three.
We'll take our next question in queue.
Caller, please identify yourself and proceed with your question.
Yeah.
Hi keeps family at Wolfe Research.
Actually it 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 leading on DUC inventory.
Keith This is Jeremy.
For a flattish case that would be largely rely on DUC inventory for a case, where you see.
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. We're looking at is roughly flattish to slight growth in the way to think about it as you had a an inventory of uncompleted.
Well as to.
In the Permian, specifically to mass 400, plus rigs you immediately ramp down over two to three months to the <unk> hundred 25 to 135 rates, but you had substantial uncompleted inventory, but those rigs that were drilling the wells were completed so there's there's some surge capacity in.
They are we done this 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 can hold production flat with the rigs you have today and you probably need to start bringing rigs on towards the end of next year or later early in the 2022 for growth.
Great. That's very helpful. And then second question.
I'm just trying to square so your volume guidance went 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 the delaware versus the big landlords or just any color on your system versus basin wide for the year.
At the when look at it though is.
Impacts to us can be.
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 side from the Mdcs I think at 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.
So it's not the gathering piece of the business.
Well take our next question.
Caller, please identify yourself and proceed with your question.
[noise]. Good afternoon, everyone. This is a result for the non bank of America.
Hi, as well.
I really Ah. Thanks for taking my question here, Firstly, just wanted to get an update on.
What you're seeing in your gathering accretion in the Permian and maybe perhaps if you are in a position to update your outlook and so if the the high double digit exit to exit decline groups that you had referenced in the past.
Yes off your Permian crude gathering peers have noted some improvement in volumes in Midland since may and.
Have made 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 in the shape of the curve I don't know if there's anything else specific that you want to know.
Jimmy any matter, whose whose role 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 quality of the acreage underneath ours relative to 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.
Did you.
Would you be able to provide color on sort of you know the bulk of volume declines.
Where the bulk of volume declines or below nbcs. It sounds like it's mostly on the long haul try but also how close the current volumes argue nbcs, so trying to get a sense of.
Under recovery circumstance.
How close we are do those levels.
Yeah, I'd say it was like this is Jeremy I would as saying that that the changes in the basin reflect changes in our long haul system for the most part D saw it when we talked in the last call that 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.
It's important that you 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 in a lot of our assets I'd say, we reflect the basin or some proxy for it.
Got it got it and a quick one if I may just.
On the cost savings initiatives and.
Number do you 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 gets 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, I, 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 organization 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 and personnel costs, we've tempered hiring and replacing any vacancies with employees that we redeployed internally.
Yeah, we've looked at our Ah our operations for the next two years and re optimized all of our maintenance activities around those expected operations. So for example, a TENX 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 lives and of course integrity Rick.
Carmen some regulatory requirements, we've seen a a large reduction and travel and entertainment expenses as you would expect.
Our supply chain organization has been very busy competitively bid in both materials and services and we've seen significant savings there and then finally, our technical resources instead of focusing on expansion projects. It 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 and like where we said we think we're going to be able to carry that into 2021 and beyond even as Bob.
Answer cover.
You know what are the things we really pressed forward on is not setting a dollar value. We really challenged 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 in 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.
We'll take our next question in queue caller. Please go ahead.
Hi, 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 of the recent Berkshire Hathaway transaction with Dominion I wanted to get your perspective on do you think valuations are attractive for Doug divestitures, and 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. Then it is to us well and 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 to a number of transactions that were currently working on I can give you any more resolution on that because we're in the middle 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 a demo 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.
There's nothing that drive and staff to do anything now we've got a pretty.
Pretty identified path of 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 open but we.
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 is Jeremy I.
I would just stated 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 and 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 thats not necessarily a proxy for for all transactions.
Willy mentioned, we're constantly evaluating our assets and making and generate specific returns in his.
Keep in harvest at our exit and 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 with 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.
Giving 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 in loss, Canada that can connect from trend to 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 to planes and it's.
Assets, if something would happen, but but candidly from a regulatory standpoint, everybody is watching it to see as a precedent.
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 to get get confusing.
And to Jeremys point, what the assets set we have it gives us a lot of optimization opportunities to handle not only the dapple experienced but if there were no 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.
Appreciate the color.
We'll take our next question in queue caller. Please go ahead.
[noise] Hi, 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 stepped back and really I asked the question now when you look around the portfolio and obviously the Permian is core and obviously assets like cap line, our core and dining.
Once you have a lot about that in a lot of other basins, where you don't necessarily have a lot Gail you know outside of the Permian and the storage in 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 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 yeah, 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 info.
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 to the right home for the assets if they're available we're not in that position, where we have to sell assets for the wrong values, but we are always talking with people to 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 and.
Year to give you our ARPU.
Our blueprint on but hopefully that helps.
No that help thank you for that much appreciate it guys.
Thanks, Michael.
Like our next question in queue caller. Please go ahead.
Oh.
Hi, This is Kent in Calgary from Bernstein.
Do you expect U.S. crude exports can fall off in the second half and would that reduced the share of Permian players are going to market versus other whereas if you think or Cushing.
Yeah, Hi, this is a Jeremy right now we're seeing strong flows to the Gulf Coast, obviously differentials in demand will play into that but absolute volume production is down. So you would expect from a market standpoint, you've exports to go down.
Relative share Corpus and Houston Corpus has been increasing as linked West circuit was long that can change analysis I think there's a few things that will continue to move it demand and location of demand is going to have a big impact on that.
Okay, and that you wouldn't necessarily say that because quarter.
Sure happy that that we've been negative I guess.
Hi.
Less.
Not necessarily because the demand is there simply from all the nbcs across the pipes in the doctor in a full as many barrels as they can that are physically available I don't think from an export standpoint, we're not seeing there.
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 who has access to barrels.
Let me clarify that that's helpful.
Then is there any appetite from customers today to blend and extend contracts all right. There's no not really the time.
HM I would do you named us as Jeremy again, I 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 that theres a lot of bankruptcies going on that but so those comp.
Track discussions are being hasn't individuals I think the next wave of discussions on the long haul that will be part of it for sure.
Okay. Thank you that's okay.
Thanks for taking in.
Well take our next question in queue caller. Please go ahead.
[laughter], Tristan Richardson with Truest I really appreciate all the comments you guys gave them. The second half 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.
And our flat with for Q versus the normal seasonality is part of that dynamic the expected timing of.
MPC deficiency payments or the timing of contango capture curious some of the factors, making that second half a little more ratable than.
Normally see.
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, sorry, you definitely we'll see that.
Thank you okay for some of the contango is mitigating this is as strong contango margins of third quarter fourth quarter and actually got.
For a little stronger in the direct labor in the fourth quarter to.
Great. Thank you and then maybe just one on on contango opportunities in general I think.
Is there a way to frame up the total size opportunity of sub spread opportunities that were created by all of this disruption or.
Or another way to think about spread opportunities that might be sort of 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.
He our fee based earnings. So you know 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 try to keep tanks empty for for contango.
Or or or basis spread arbitrage harrier Jeremy on anything.
No I can get coverage.
So I didn't ask you 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 now 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 ehsanul opportunities present themselves.
Can you ask that again I'm, sorry, you broke up there okay.
Sorry to have you better now yeah.
Just I was going to ask about whether the magnitude of working capital return to the back half of the year, assuming no. Other contango were SNL opportunities present themselves.
This is out.
As you know working capital and and that is difficult to forecast, we clearly built a.
Decent amount of contango storage and NGL into the second quarter first quarter to second quarter with seasonal build prices margin all that oh come into play. So it. 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 periodic and can impact a margin and all that with that said quarterly as it relates to the activity, we think over periods of time that.
For orders a lot of that seasonality comes out and it's the than purely price and our focus is going to be on generating free cash flow.
Okay, Great and then maybe really if I can follow up on your comment on one served as the 2021 gross capex being in larger projects is that.
Imply that the 300 million that's left US your base level TNT curves 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 quote 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 in July.
He called Mrs. Jeremy goal I would say that the vast majority of curtailments, where we've seen gone with outside of the Williston basin.
In by July so the the declines we've seen had been offset by.
Some additional completions, we've started to see in June and now in July and August we expect more so I 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 as soon 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 is 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.
Well.
Yeah.
In the near term or 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 in our or.
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, whether its distribution increases and or share repurchases in those decisions are far enough out that it would be premature to talk about how we will approach that the other than the other thing we'll look at carefully as a its all also effect of 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 decision that BP announced this morning.
Reduced its.
Well production for the long run.
And if this becomes a longer term trend.
How do you view the capital intensity of your 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 well 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 men 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 in line to go into a different service they may help or 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 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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