Q4 2020 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
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Please standby everyone and we're about to begin.
Okay.
Good day, everyone and welcome to the PAA and PAGP fourth quarter and full year 2020 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Roy Lamoreaux, Vice President Investor Relations Communications and government Relations. Please go ahead Sir.
Thank you Laurie and good afternoon, and welcome to Plains, All American and fourth quarter and full year 2020 earnings Conference call. Today's slide presentation, which contains a good deal and supplementary information is posted on the Investor Relations and news and events section of our website at Plains, All American Dot com.
Audio replay will also be available following our call. A day later this evening, we plan to post our earnings package to the Investor Kit section of our IR website, which will include today's transcript and other reference materials and important disclosures regarding forward looking statements and non-GAAP financial measures are provided on slide two of today's presentation.
A condensed consolidated balance sheet for PAGP and other reference materials are located in the appendix.
Today's call will be hosted by Willie Chiang Chairman and Chief Executive Officer.
And Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry <unk>, President and Chief Commercial Officer.
Chris Chandler Executive Vice President and Chief operating Officer, Jeremy Goebel, Executive Vice President commercial and Chris Herbal Senior Vice President and Chief Accounting Officer, along with other members of our senior management team are available for the Q&A portion of today's call with that I will now turn the call over to William Thank.
Thank you Roy Hello, everyone and thank you for joining US this afternoon and reported fourth quarter and full year 2020 results each of which were largely in line with our expectations.
We also furnished full year guidance for 2021, and I will discuss the results and guidance and more detailed during his portion of the call. So let me start off with a few comments and the progress we made in 2020 and our positioning going forward as.
As we all appreciate the challenges in 2020 were very significant and.
Thankful for and very proud of our team demonstrated strength and resilience and work to overcome obstacles and focused on what we could control.
As a result, we accelerated several key initiatives to which I want to highlight.
First we have fully embraced our company wide transition to efficiency mode, focusing on streamlining the organization, reducing costs and working to optimize all aspects of our business.
Second we have positioned ourselves to generate meaningful positive free cash flow after distributions we.
We implemented actions that improved our 2020 positioning by roughly $1 billion and expect to have strong positive free cash flow after distributions in 2021 and beyond.
The collective result of these activities allowed us to activate a balanced equity repurchase program that aligns with our priorities of reducing leverage and improving our investment grade credit metrics and returning capital to equity holders.
Throughout 2020, we had solid execution against the goals, we outlined at the beginning of the year, which are summarized on slide four.
Notably we delivered adjusted EBITDA within 1% of our initial pre Covid guidance, a significant achievement largely accomplished via strong midyear SNL results buffering the negative impact of reduced volumes on our transportation segment, we completed $450 million of asset sales electing to do.
For our process for certain targeted asset sales into 2021, we also advanced optimization and efficiency initiatives throughout the year, resulting in more than $125 million of Opex and G&A cost savings, which we expect to in year in 2021 and future years.
And most importantly, we continued our progress towards our goal of zero incidents with our best year ever with.
We exceeded our annual 20% reduction target of our total recordable injury rate and federally reportable releases, resulting and a reduction of more than 50% for each metric over the past three years.
In addition to the goals we defined for the year, we continue to increase our alignment with investors and external stakeholders, including many of you and we advanced our sustainability program, improving our disclosures and continuing to enhance our executive compensation program and overall government governance framework with respect to the <unk>.
Heightened focus in 2020 on the topics of sustainability or ESG energy transition and policy agenda share throughout the U S election process, let me share a few comments.
Appreciating all of the above we continue to believe that hydrocarbons will remain a key part of the energy mix needed to meet increasing global population demands and improving quality of life and <unk>.
Ability power generation heating and cooling are all widely recognized as key drivers of energy demand, perhaps less frequently recognized are the basic building blocks of growth and prosperity steel cement plastic and fertilisers each of which require hydrocarbons, we believe the transition to lower carbon intensity.
<unk> will occur over an extended period of time and that all sources of energy, including hydrocarbons.
And efficiency and conservation will be required to meet that demand and to provide a bridge into the future.
In that regard, we expect absolute demand for nearly all forms of energy and an increase for the foreseeable future and.
And for midstream infrastructure remain and the central link between energy supply and demand.
As a result, we have strong conviction and the long term value of our business and the sustainability of our cash flow stream. We also acknowledge that we must continuously improve our operating footprint building on our safety and environmental performance, reducing emissions improving efficiency, increasing conservation and leveraging technology to move.
Whatever aligns with the highest and best use of our asset base and capabilities.
As you've likely seen we've also increased our sustainably disclosures over the past two years and we plan to issue an updated sustainability report later this year, which will share additional information about our sustainability strategy progress and ongoing initiatives.
With respect to current industry fundamentals and the unprecedented shock to global demand clearly reset the base from North American production.
For perspective, we entered the year expecting U S oil production to grow from year end 19 to year end 'twenty by roughly 500000 barrels a day or 4% U S. Oil production is now estimated to have decreased during this period of time by $2 3 million barrels a day or 17%.
This equates to a reset of absolute production expectations of more than $2 5 million barrels a day, which has created a significant level of surplus midstream infrastructure capacity for the foreseeable future.
As illustrated on slide five global demand is expected to continue to recover although the timing of global supply demand rebalance is subject to multiple variables, including on the demand side Covid global Covid vaccination pace and effectiveness and on the supply side, a number of dynamics, including OPEC compliance.
Natural production declines.
Continued capital discipline from producers available surplus capacity as well as the impact of potential regulatory and carbon transition impacts.
Appreciating these variables, we believe that north American crude oil will be needed long term to support growing.
Growing global population needs and at the Permian Basin will be key to meeting those needs.
As producers continue to exercise capital discipline and operate well within cash flow, we believe the Permian to grow oil production to 5 million barrels a day within a couple of years and 6 million or more barrels a day longer term.
<unk> has a highly integrated system in place with a significant degree of flexibility optionality and operating leverage.
Our assets will continue to be critical to meeting the longer term needs of North American oil production growth, while requiring minimal capital investment going forward.
The actions, we've taken position us to generate meaningful positive free cash flow after distributions for years to come and.
And in 2021, we expect to generate free cash flow after distributions of roughly 300 million, which expands to more than $1 billion when including proceeds from targeted asset sales. This is illustrated on slide six.
I'll also note that consistent with our November November commentary on our 500 million comment $500 million common equity repurchase program in 2021, we plan to allocate 75% or more free cash flow after distributions to debt reduction and up to 25% to buybacks.
Beyond 2021, as a result of anticipated EBITDA growth and a run rate of investment capital of $200 million to $300 million a year, we expect to generate a meaningful level of annual free cash flow subject to our annual Board review and approval as leverage decreases over time, we expect the allocation to further shift from <unk>.
Reduction towards equity holder returns.
With that I'll turn the call over to al.
Thanks, Willie during my portion of the call I'll review, our fourth quarter and full year results.
Our current capitalization and liquidity and leverage metrics and provide additional color with respect to our outlook for 2021.
Shown on slide seven fourth quarter fee based adjusted EBITDA of $555 million.
It was slightly above our expectations transportation segment results were in line with our expectations, but decrease compared to third quarter 2020, driven primarily by MVC deficiencies billed and collected in the third quarter related to volume deficiencies from the second and third quarters.
Facility segment results exceeded our expectations, primarily due to higher than expected activity and revenues at our Cushing terminal and certain other facilities.
And were in line with third quarter 2020, effectively offsetting the impact of asset sales completed late in the year.
Fourth quarter supply and logistics results of $4 million were below expectations, and primarily driven by the impact of warmer seasonal temperatures on our NGL sales activities and less favorable margins on Canadian crude oil activities.
Moving to our capitalization and liquidity a summary of key metrics is provided on slide eight our long term debt to adjusted EBITDA ratio was three seven times, which is above our target range of three to three five times.
And reinforces the rationale for debt reduction to remain a top priority within our capital allocation framework.
Additionally, we exited the year with total committed liquidity of $2 $2 billion and we do not expect to access the capital markets for the foreseeable future.
Let me share some additional comments on our 2000 and 'twenty, one guidance, which is summarized on slide nine.
Our fee based adjusted EBITDA guidance of plus or minus $2 1 billion reflects a 2% decrease relative to the preliminary guidance, we shared in November and.
And then incorporates the anticipated impact of a $150 million increase to our 2021 asset sales target and additional reduction and our investment capital program and refined expectations based on our current outlook for 2021 and.
Additional segment level discussion is provided on the slide which recaps notable variances to our 2020 results.
With respect to our SNL guidance. This highlights our expectation for the continuation of challenging market conditions to limit margin based opportunities and the future.
And as Willie noted, we forecast free cash flow after distributions, including targeted asset sales proceeds to be more than $1 billion slightly.
Slightly above our November estimate due to the increasing of our 2021 asset sales target by $150 million to a total of $750 million.
Top priority continues to be maximizing free cash flow after distributions and allocating capital and a balanced and disciplined manner with the intent to reduce debt and prudently prudently return cash to equity holders over time.
We remain focused on disciplined capital management and.
And with the prerequisite of high return must do no regrets for every incremental dollar invested and.
In that regard as shown on slide 10, we exited 2020 with investment and capital $30 million below our November estimate maintenance capital $35 million below our February estimate and we have further reduced our 2021 investable investment capital guidance by 15% from.
$500 million to $425 million.
And I'll note that a high level overview and status update for our two key projects that remain underway is provided on slides 26, and 27 of the appendix of today's slide presentation with.
With respect to returning capital to shareholders. Thus far we have repurchased six 6 million PAA common units for $53 million with an average price of $8 12 per unit.
Consistent with what we have previously communicated we plan on allocating.
75% or more of our 2021 free cash flow after distributions to debt reduction with the remaining balance available for equity repurchases in the event of meaningful asset sales like we are forecasting. This year, we may allocate a higher relative percentage towards debt reduction and recognition.
All of the EBITDA loss associated with the assets so to be clear, we do not plan to utilize debt to fund the equity repurchases with that I will turn the call back over to Willie.
Thank you al our goals for 2021 are outlined on slide 11.
We remain very focused on the long term positioning of our business, which is built upon our continuous diligence of operating safely reliably and responsibly generating meaningful multi year free cash flow after distributions.
Strengthening our balance sheet and financial flexibility, while prudently returning cash to equity holders.
And continuing to advance our sustainability program and disclosures.
We believe hydrocarbons will remain a key part of the energy equation going forward and we believe and the innovation of our industry our PAA.
And the flexibility of our assets to meet the evolving energy landscape energy infrastructure is and will remain the critical link between the supply and demand and we believe and the long term sustainability of our assets operations and cash flow. Thank you for your interest and support of Plains, We look forward to providing you with more additional updates on our.
Our continued progress.
With that I'll turn the call over to Roy who will lead us into Q&A.
Thanks, Lily I'd mentioned that a recap today's call is located on slide 12, as we enter the Q&A session. Please limit yourself to one question and one follow up question and then return to the queue. If you have additional follow ups. This will allow us to address the top questions from as many participants as practical and our available time. This evening. Additionally, our.
Investor Relations team plans to be available throughout the week to address additional questions.
We're now ready to open the call up to questions.
Well. Thank you. Thank you I'd like to ask a question and at this time you may take all for pressing star one on your telephone keypad.
And a speaker phone. Please make sure you may Thompson is turned off to a line of signals to retest once again Thats star one.
Our net your question has been answered you may remove yourself from the queue by pressing star followed by Dave and just too and we'll pause for just a brief comment.
Okay.
All my first.
Jeremy Tonet with J P. Morgan.
Hi, good afternoon.
And Jeremy.
Just wanted to dig in a little bit more if I could on the fee based guidance for 'twenty, one coming down a little bit here I appreciate a portion of it.
It's coming from a bit more asset sales, but still it seems like that type of full.
And for bridge, there and if I think about when you guys gave guidance last quarter.
And if anything the environment has probably somewhat improved with W. Ti moving up the way that it has and you know maybe at the margin producers expecting a little bit more production granted that wouldn't materialize till later in the year, but I guess, we were just thinking there could be more upward bias and downward bias to the guidance here. So just wondering if there's any other moving pieces and we should be thinking about.
Bob.
Al why don't you take that.
I'll take a shot at that Jeremy asset sales are clearly a part of it as well as our capex reduction and some of the optimization around around the Capex program coming down.
As well as just differentials out of the Permian and make movements, both north to Cushing into the water and more challenging so we've dialed that into our thinking as well as just activity through some of our facilities and utilization of some of our facilities on the on the crude and NGL side.
Jeremy This is Jeremy Goebel.
One thing to add there is a significant component of areas as Alan mentioned the optimization of capital.
Worked on and eliminating additional capital by east coping and projects and Thats a significant component on the pipeline size and Thats really the FERC revenue and whatnot.
And lost revenue opportunities and we've worked on those components. That's the biggest driver and the capital reduction and also revenue from our net free cash flow basis, and neutral to positive and longer term, we haven't lost the revenue generating opportunities.
And Jeremy one more thing that I'll ask Jeremy Goebel to comment on our premise from the Permian really even though and the higher price environment.
Our belief is that theres going to be more disciplined from the producers and bringing free cash back to to their shareholders are taking debt down and so our forecast is really a modest growth of production flat to modest growth and the Permian probably not to the extent of what the flat price and first based on history.
That's correct. This is Jeremy again for 2021, our view and Jeremy usually ask this question second so I'm, just kind of preemptively and answer it as modest growth of one and 200000 barrels a day this year larger public companies, taking the 60% to 75% of recycle ratio reinvestment and Thats trended.
Down as prices have run up and we really haven't seen that.
And the material increases and rates to drive additional production growth.
And will ultimately to the upstream comfort companies being in a much healthier position going into 2022 of the prices.
Stay where they are.
Likely leads to more moderated growth and pre pandemic.
Level, but it could lead to more ratable growth and more predictable growth.
And everyone on the production side and being cautious with respect to adding incremental production until demand returns and then the OPEC barrels come back to market. So once you see those two things happen and I think youll see a more constructive environment for activity and you'll have healthier balance sheets.
The smaller e&ps and some of the under Levered and private guys are getting out and in front of this but not enough to make a material impact in 2021, and this is largely around the Permian rest of basins, we have largely flat to slightly declining even with the higher price flat.
Flat prices. So all of that may be and conservative if you think about any rig additions and our impacting six to nine months out of production and.
Anything that's happening and this front periods really impacting the second half or the latter part of the year.
Very constructive going into 2022, but.
Obvious reasons being cautious until demand and OPEC barrels and get back to market.
Alright and levels.
Got it that's all helpful color. Thank you for that.
And maybe kind of just shifting gears a bit here with the move and propane is as we've seen it.
We were thinking it could be more kind of upside bias to SNL here, but it didn't look like there was.
Much showed up this quarter and not to be expected, but even in the first quarter. It doesn't look like necessarily it's making a big impact there and just wanted to get to the core of the NGL business and is that something that you guys still think of it as a core business or is that something that maybe.
If someone else could derive more value from just as you think about coring up your business getting paying down debt and <unk>.
Creasing returns to shareholders overtime.
Jeremy.
Jeremy This is Jeremy again.
Warmer weather persisted through the fourth quarter and even January its not just until the last couple of weeks to where you saw the markets, we sell into largely the Midwest and the northeast so as those inventories drop basis improves we'll capture more opportunities, but some of that could be pushing into later in the year is that the cold has just started so the more per.
Persistence is the cold weather and more likely youll see draws to more normalized propane and those regions and it could just push the opportunity out into later in the year, but we're certainly paying attention to and it is a core business a large business for us and we're going to continue to optimize around it and yes. There were some large backwardation, but that was largely driven by <unk>.
Off coast pulse and not necessarily all of the northeast.
This is Harry and I'd also add.
What you saw last year, especially.
But the inventories and Canada was when and when.
And when you got into that market and and sort of the spring of last year April may and even into early summer June.
Decreased demand inventories and 12 in and Canada, we actually ended the year with excellent.
Higher than normal inventories and.
And Canada, so that also impacts.
Impacts.
The margins to generate out of that business and we have seen a run up and NGL prices and to this year, but also keep in mind.
We treated a little bit like a manufacturing business and we do hedge.
We don't sit there and just.
It takes a lot prices.
All day long so.
You have to factor that and you're thinking too just because near term price our stock doesn't mean that.
We are exposed likewise.
Your line, we took share protection I guess so.
Okay.
Got it and I'll stop there. Thank you very much.
Thanks, Jeremy.
Next we'll move cashmere cristiani with UBS.
Good afternoon, everyone.
Just wondering if we can revisit the guidance.
Responses to share.
And his questions.
The explanation if I understand if you could sort of square this from me a little bit is.
And partially due to outfit sales you also said that there's going to be less capital and.
You mentioned optimization and that's part of it but the Capex is only down about 80 billion book.
And it correctly in your slides.
Was wondering if you can expand a little bit are you seeing that you are more conservative than you were in November.
Just trying to understand and like.
And you can get into a little bit more detail about what's changed and then secondly.
Given the personnel and it can be a lot more work from last year is there going to be a working capital will be used that comes with that.
Yeah Shneur. This is Willie let me, let me start and others can jump in I mean, one other things I want to make sure people realize when we talk about where we are embracing.
Efficiency mode maximum cash flow that is exactly what we're doing we're trying to figure out how do we maximize cash flow and everything we do and one example that Jeremy Global gave was as we think about Capex.
And and commitments on volumes to what we ended up we were able to save some capex on a piece of work.
And not spend it and exchange for and NPV neutral pushing pushing some cash flow out. So it's things like that that are driving the reduced capex and it's frankly, a better resolution and I'm talking with producers and getting our arms around what we think we expect to happen.
Anyone else want to add to that.
I guess your question was on the second part of your question was around working capital release with less personnel. I think this is Jeremy Goebel I think that will happen throughout the year as the market's moved into backwardation at some point, we will opportunistically take positions off and that would allow us per releases.
And the short term debt our working capital.
While we are being optimistic around it.
Okay, great and Thats a.
Follow up question.
And in your appendix and today's slide <unk> got and Investor if HQ and the.
Specifically address federal lands.
And I was just wondering if you can expand on the federal lands exposure I think during the last call. You had said there was about 20%.
But it's not what's been a book slide here I was wondering if you can sort of talk to what do you think your exposure is.
If the current.
Drilling pause or per node.
And last for more than a couple of years.
Jeremy you want to take that.
Sameer This is Jeremy Goebel.
I wouldn't say one word.
And we're in a wait and see mode I think from a producers standpoint, consistent with other commentary and other calls is the expectation is that producers at some point, we will be able and develop the leases that they have no new leases seems like a probable opportunity we need clarity on the way and right away on multiple fronts will it be.
Well it would potentially take longer time to get permits that's definitely possible, but I don't think people have given up on new Mexico at this point.
There's a lot of opportunities and opportunity around it will that impact us euro and reduced capital as well as <unk>.
Tangible impact on production, but still about 15% to 20% number from a total dedication.
But a lot of other producers that we have and new Mexico also have.
Inventory and Texas, that's very much with higher gas prices and higher crude prices as well and the money's I don't know that its an absolute loss events.
And we don't get and new Mexico, We don't get it at all so I would say, there's probably a pivot to more state land and in Texas and a lot of the same producers, we have and new Mexico have significant inventory that would be well and the money and on the Texas side and so I don't think you can just saying plains is going to lose 15, and 20% and you have to look at the whole picture and.
And so I'd say, it's not what lots of new Mexico and out of total loss per claim is one way or oil and gas.
Got it. Thank you very much guys really appreciate the color. Thanks, Greg.
Thanks Shneur.
All of two Michael Blum with Wells Fargo.
Thanks.
Good evening, everybody I guess first question I wanted to ask was around.
Susan.
We continue to allocate some of the excess cash flow to buybacks.
And just given.
<unk> and EBITDA guidance and from.
Perhaps some of the pressure that will put on the balance sheet why not just use all your free cash flow to reduce leverage this year and wait for a bit of a rebound.
I'll make a comment and al I think can jump in and add to it.
One other big things that I'm glad you brought up free cash flow because that's clearly when we think about EBITDA. It only translates into cash free cash flow. So when you think about the asset sales that we've got this year Michael.
It's a it's a pretty significant chunk chunk of.
Capital allocation, which we think we can we can really take a balanced approach to both the equity holders and and continue to reduce debt.
Yeah, and Michael as we mentioned and the commentary our primary focus will be two.
To debt reduction, 75% or more.
Again with the vast majority of what we expect and are in our guidance upcoming from asset sales, we're going to recognize that that we're probably going to have to allocate more against debt reduction.
And this year.
And so we're very much focused on that but we also want to be able to support.
And our equity as well.
And so again leverage valuation of our shares as we go throughout the year our outlook of the business what oil prices are doing and what producer activities are all of those will get dialed in and there is no just prescribed.
Our formula or approach, so we're going to try to balance all of that but again just to be clear our focus will be to reduce debt.
And make sure we manage our leverage.
But we also want to support our equity.
Great I appreciate that my second question is just on the increase and the asset sale target.
Is that just and I'm sure you don't want to tell everyone here what assets are.
And considering but.
Should we assume that you have now contemplated selling additional assets and its not that you think youre going to get better pricing on the existing asset sales and we're targeting.
I would tell you.
Michael its confidence and being able to increased confidence and being able to execute what we when we had considered and.
I believe and leave it at that at this point.
Great. Thank you very much.
Thank you my next one.
Moving to Keith Stanley with Wolfe Research.
Hi, Thanks first wanted to follow up on the last question on the asset sales so.
And you just give more color on I guess the amount of progress you've made to day, where you are and the process. It just it's a big dollar target should we think you are in active discussions now is it still mainly identified assets and thoughts on timing for executing that throughout the year.
Jeremy.
And thanks. This is Jeremy I'd say year to date, we've closed $20 million and asset sales, which those assets generated close to $2 million annually and EBITDA. The rest are in various stages, whether it's and.
Big grounds kicking off the process, but all.
Sales processes are underway.
And I should give you a sense for timing so theres nothing that we havent began marketing yet and it's all things that are actively and the market and in discussions with Counterparties.
Okay great.
Follow up question a separate one can you just give an update on where you are and the permitting process for the Diamond expansion project are there any key permits you still need for that one.
Im not sure if you've broken ground, yet and just an update on the process and timeline. Thanks.
Keith I'll, let Chris Chandler handle that one Keith this is Chris Chandler. So we've secured all of the environmental permits that we need for the Diamond expansion project and those are federal state and local permits.
Everything is slated to begin construction, there and all long lead equipment and pipes and ordered we have secured 95% of the right away.
We're targeting to begin construction and the second quarter of this year and.
Still are targeting to have the line and service by the end of the year.
I will note that we're taking some time to continue our engagement and the community. We've met with elected officials, we've met with local businesses and community leaders all along the route and ultimately we're looking forward to safely and responsibly and building and operating a pipeline and that'll be a long term benefit to the region.
Oh.
Thank you.
Okay.
Next well move on to Colton Bean with Tudor Pickering Holt.
Hi, Colton.
Hi, how are you.
To follow up on the discussion around Q1, EBITDA guidance looks like its just shy of $500 million can you frame to what degree the step down is driven by the fee based business.
Essentially and negative result, and also now and then I guess as a follow on Q1, traditionally and seasonally strongest quarter due to NGL marketing margins.
And that's not from CBD wants them to drive that room.
Before you go ahead and later quarters.
And I'll take a shot at.
It's a large piece of it is related to the fee base.
Necessarily assuming a strong strong ethanol quarter.
As well.
But.
There's a number of things that that at all.
And the differentials and the.
The market.
And we're moving barrels to other Permian, whether it's to cushing or to the water.
We've modeled some some impacts relative to refinery turnarounds.
And again, we've had on our gathering systems, we have some producer forecasts that have been.
Revise down for first quarter, not necessarily and impact for the whole year.
So the terminals.
Some of the utilization and throughput where we've seen positive impacts this year, where we're not necessarily forecasting that those can.
<unk>.
MVC timing on pipes have have have a bit of it as well as well as just some some natural timing on all operating expenses. So no one particular.
Item, but the large piece of it as a result of the two fee based segment.
Got it and then just a follow up on Jeremy's comments around producers potentially reallocating from new Mexico to Texas Federal permits aren't forthcoming.
Is there a material variance in infrastructure and positioning between the two regions of the basin are thinking in terms of potential capex and packs. It produces were to shift their longer term allocation plans.
At fitness, Jeremy realistically and new.
Mexico, we do more of the wellhead gathering and Texas, a lot of our position is around and central gathering and so those positions are.
And the Midland side Theres, some wellhead connects but for the vast majority of our Texas position and it's behind existing batteries and positions.
It couldn't yield lower Capex outlays, and Texas, but all in all the tariffs were somewhat similar between the two regions.
Thanks, I appreciate the time.
Thanks Colton.
Next I'll move to Jean Ann Salisbury with Bernstein.
Hi, all your segments EBITDA or net.
And next year that is part and keep our per barrel, which is blurring.
And I came here.
And that I guess by nine that you can talk about this tomorrow and on a same center net.
And John crude starts with Arctic here could you talk a little bit more about what's driving that and that Dr. Charlie and can be lower.
G&A and this is Jeremy Goebel.
Part of this is driven by market structure. If you look at the steep contango and backwardation and the NGL.
NGL side, and the crude side and it's just less opportunity to stores and so I think part of that is driven there.
From a structural standpoint, they should get to seasonal norms and and.
<unk> winter and summer winter spreads you can see some of that come back, but ultimately we're just looking at the current market structure, and making an assessment and right now you're at a pretty steep backwardation.
And what happens and it sounds like facilities aren't as fully utilized.
Because of the preparation.
Got it.
It can be from when it can be geared towards and.
And any other the other point this is al and I would try and add on just you mentioned the per unit.
The assets sales have impacted the business mix, there as well like the la terminals as an example.
And that we divested that here in 2020 and the fourth quarter.
Some of what we anticipate a change that business makes a little bit other per unit.
Basis.
Okay.
Okay.
Just to follow up on that and I thought that and that's in your crude storage right.
And you call it operational and.
Thanks, so much between contango and backwardation and that's just kind of on the margin and what that net net.
And so.
Yeah, and this is Jeremy.
On the NGL side, it's more.
More exposure to the seasonal spreads and lower contracting on the crude side of our large facilities net largely contracted and there is an operational.
Operational stories, and we can contract opportunistically, when youre and steep contango like last year. So we can flex and make more available to last year with strength.
Contango, we were able to flex and the more but the large facilities that are contracted that hasn't that business mix Hasnt changed it was more opportunistic on the crude side from last year and then.
On the NGL side, the seasonal spreads and start there right now.
Got it that's all helpful. And then just a quick follow up.
<unk> does end up having to shut down.
And the availability of your Bakken rail terminals to start letting asap.
All right of G&A and this is Jeremy again.
And you that is a secondary impact relative to the other exposures, we have Friday because those are.
<unk>, Canada, and Bakken North Dakota assets that could move the barrels out of the Williston and you look at our capacity from Guernsey South net connection.
The pipeline to Cushing from landfill those could be substantially larger impacts and thats readily available now.
But where could we will be able to relative yes, it will but I think the impact will be substantially larger on the pipeline side.
And gene and this is Willie one comment on one time and I would make is clearly what we what we all seek as regulatory certainty when you have permits.
And so that we are watching this very carefully but as Jeremy talked about and we do all of a flexible system and as we have and all of our regions. If there are disruptions, where we should be able to adapt and adjust to be able to capture one.
One get barrels to market and capture some value there.
And then and I couldn't agree more and thank you very much.
Thanks, Jean Ann.
And the next to Michael Lapides with Goldman Sachs.
Hey, guys. Thank you for taking my question I hate to beat the dead horse here on guidance.
And I'm going to try to be pretty specific I don't know if you all can.
How much higher would EBITDA guidance for net.
We're forecasting $750 million of asset sales of how much.
Some of those asset sales per months, you've now completed impactful guidance from there.
Yes.
I'm not sure we can comment on that Michael I mean, you could you can apply it.
Just a round number a multiple and what to get an order of magnitude, but I don't think we're ready to disclose that.
But like all of us somewhere between that.
I used somewhere else and having that same.
Time, Directionally, all I'm not going to be terribly Carl.
Michael This is Jeremy and I, just don't want to disclose anything that could impact valuation of the current processes plains understand those are confidential and we don't want to guide in any way on the asset sales and the potential impact and I hope you can appreciate that.
And when you listen to all this.
And this may help a little bit as well when we everything we've been talking about as far as guidance.
And in November.
We were $50 million higher on and what we thought our preliminary guidance for for transfer of other fee based was where we sit today with the disclosure that we've shared on flat slightly up.
I would tell you that it's a fairly measured approach and I think about where we are right now sometimes you read the headlines and it seems like everything is fixed there remains a lot of uncertainty going forward and so the measured approach to where we think things are going and I think is actually prudent and anything that we look.
At a lot of it is going to happen later in the year as Jeremy Goldman mentioned so.
I just want to make sure I qualified as people think about where we are on and how we're thinking about the year and it is a measured approach with certainly less impact and the first part of the year. If if there is upside it's probably going to be in the back half of the year hopefully that helps.
No that's super helpful. And then all one follow up.
Greg I was thinking about the Canada business and how it fits and starts.
And to the broader portfolio.
Okay.
Greg This is Jeremy so the Canadian business, we spent.
Better part of the last year.
Integrating that system from and executive side, all the way through to operations and we continue to see more opportunities to optimize around that business and further integrate into the U S business.
We're really.
Excited about those opportunities and view that as a core asset and a business that we've been working around two to better understand and more commercially in line with how.
We operate and manage risk here and the United States. So I think.
And that integration process is underway and we look forward to continuing to work with as a group to get there.
Got it thank you guys much appreciated.
Thank you Michael.
Next we'll move to <unk> with Bank of America.
Good evening, everyone. Thanks for taking my question.
And the color so far on guidance.
Wanted to go back.
As all of the comments you made around the Capex.
Coming from rationalization.
<unk> cash flow NPV neutral.
Moving to comment where you need the capex reductions and that particular regard and.
And whether this could limit all.
Operating leverage if we see stronger recovery and growth than you are anticipating.
While this is Willie.
We don't want to share the specifics of any one contract, but you did bring up operating leverage I will tell you you know again if you go into this our mission was to stay ahead of the <unk> the production side and so when you think about our system I know I have shared this before with folks in the Permian.
And we had roughly 5 million tariff barrels per barrel capacity, two and gathering too and intra basin and one in long haul and we built that out over the last number of years. So when you think about operating leverage that we have in the Permian specifically, there's a significant amount of operating leverage and we do have that we'd be able to take our take.
Vantage of we're kind of in efficiency mode. Now, we're trying to consolidate and save power a drag reducing agent and balancing all of those kinds of things, but if theyre barrels and need to be moved and that's one of the reasons. We've made a strong statement about we have a very flexible system with a lot of optionality that it gives us the opportunity to work with.
Either shippers partners to be able to optimize user all of this is Jeremy.
Put a bow on that I think.
What are you hearing really say is that the reduced capital doesn't impact our capacity and anyway and so this is.
We're able to use the flexibility and commercial structure of our business to get to the same result for our customers without spending and capital. So this is pure optimization.
Got it thanks for that and a follow up on the federal lands and issue.
Could you share and.
Comments.
Based on your conversations with producer customers on this issue if you have them.
<unk> already started thinking about our interest in their activity given the evolving opposition deferral and scaling here.
All this is Jeremy.
You know what I would tell you is everyone's waiting to understand the rules of engagement is premature to discuss that.
The discussions with other producers largely.
You have to look at it a connection and thats going to be made in November where we've already been working that and have right away. So I think very little impact to this year's plan is it likely that some of the locations and up drilling permits behind existing pads with existing right away, Yes, I think youll see some of that book.
By and large the discussions somewhat everyone's in a wait and see what the rules of engagement before things that are impacted on a lot of the the impacts now are things that are impacting the fourth quarter of this year and next year. So I think it I think.
While everybody wants to know the answer today I don't think anyone knows the complete roll and once they do it and we'll report back on what that impact book value and.
We're still and that transition we've got people just getting into and to appointed positions and Theres a lot of discussion on the producer side the calls on on their positions with the spirit.
Permitting backlogs I think I would just leave it at that at this point and frankly, it's another reason why we have our measured approach as we think about our fee based on the numbers for 2021.
Got it thank you both.
Thanks.
Okay.
And we'll move next to Gabe Moreen with Mizuho.
Hey, good afternoon, guys. Two quick ones can you just remind me to what extent the cap line reversal economics from contractual backing those contingent at all are fully bought at all on the line can we expand from coming into service.
Jeremy Gabe this is Jeremy.
It is not contingent upon the other line three expansion.
Great. Thanks, and then maybe just a question on ESG and so.
Like it sounds like Youre, putting out a report later this year a view to what extent are you worried about maybe you're evaluating some I would assume smaller investments like.
Renewables to potentially power some of your your pipelines and things like that I'm. Just curious if that's something that's that's all and places the jumbo loans.
And I gave this is willie and maybe.
This channel and.
And in on some other specifics but.
We are looking at a lot of different things around ESG and sustainability right I always talk about first and foremost you've got to run a reliable business and so I really lot of our organization from making the continuous improvements on safety and and on the environmental release side, but as far as being able to move different products, it's going to be that's going to be a longer <unk>.
Longer decision process of development process, and when we think about buying renewable feel a renewable power and certainly a piece of it but the economics have to work for us Chris.
Yes. This is Chris Chandler and I'll just note that we've evaluated a number of opportunities to purchase renewable power under long term contracts or help underwriter support facilities behind our meters like solar wind and battery to.
To date, they haven't met our investment thresholds, but I will say they they are getting more competitive as time goes on so.
There is a potential to make some of those investments out and the future.
The other thing I will note that.
Efficiency goes along perfectly with the goals of reducing emissions and having a lower carbon footprint. So we are always working on efficiency for that reason and for the cost benefits of doing that so.
Whether that's reducing the number of generators, we use and hooking up the permanent utility power optimizing of our pipelines with drag reducing agent or how many pump stations, we operate or the use of variable frequency drives or what pressure, we operated at or whether we operate at full flow for 10 hours or half flow for.
<unk> 20 hours, we're doing all those things all the time and those are all contributed to a per.
A portion of the cost reduction and we've been able to achieve so we're looking at that each and every day and gave I think youll see more about this and our and our report that we'll put out later this year on kind of our strategy, it's really putting our arms around scope one scope two emissions and trying to quantify that and then also be able to.
You have to have good data before you can make made commitments. So we are definitely committed to working through that process and I would ask you to be patient with us until we share later this year.
Thanks, Laura.
Thank you Gabe.
Yeah.
Well move next to sterile Kenneth with credit Suisse.
Hey afternoon, guys hope, you're well Willy you mentioned optimizing assets late last year, you did and asset swap of sorts and and that was fairly well received.
Curious, how youre thinking about that opportunity set to do similar transactions. This year and are there any specific assets that you've identified I guess, yet that could make sense to do something similar.
We've got a lot of identified that we won't share publicly yet because we're working on it.
I can assure you that it is I talked about it quite a bit because that really is the mode that we've got to get into its rationalization and my in my prepared comments I talked about that reset there is a lot of spare capacity and there and so we are continuing to work with potential partners on how do you develop something where you can get all of a rationalization and get more capital.
Patiency and there so more to come on that I, just can't give you a timeframe.
Total.
Uh huh.
All up to some of the comments made earlier around marrying some of what you said around the <unk> guidance and then jeremy's comments about ending the year kind of strong and setting up for a good 2022, and I guess, if you look at the once your guidance you talked about a 23% sort of full year waiting.
You guys have also said that sales are going to be back half weighted and so I guess the simple way I thought about it was I would have thought the first part of the year would have been maybe a higher percentage of EBITDA because of asset sales and witnesses.
And you mentioned net the setup here and volume seems to be setting up for a stronger 2022. So are you guys contemplating a strong end of the year and is there an exit rate on volumes that you could share.
Yeah.
The only the only number I'll share with you is we did talk about the Permian and it's possibly 100 to 200 higher than the beginning Jeremy depending on a lot of different things.
But thats really a key driver of the of course, the Permian volumes that we might see and also as we.
We talked about the higher inventories and Canada, and the NGL side Youre going to have more sales weighted there.
And the profile of sales for the NGL business will be different this year than historically, we entered the year with more inventory was higher inventories and now we have more inventories to sell and it's so cold weather is just occurring now it may push some of the sales into the latter part of the year. So I think a lot of this is just sculpting of the NGL and sales out of the fourth quarter of this year first quarter.
Fourth quarter of last year first quarter of this year and the subsequent periods.
I appreciate the value.
But the only thing I would add to that too as well.
We do.
We are assuming that our transportation segment, while the Permian.
And is.
It is growing it is growing and it's not growing as much as it did and prior years, we do expect to see the transportation segment have quarter over quarter kind of growth. This year most of our asset sales are anticipated in our facilities segment.
And one last thing. This is Jeremy is the Wink to Webster project starts and the latter part of the year as well so and when that starts contributing and that's really just and whatnot.
Pipeline has started out do you have some interim service now, but the real commitment and I'll start and until the latter part of the year.
Got it thanks, again, guys and be well.
Thank you.
And those next to Tristan Richardson with <unk> Securities.
Hi, Good evening guys. Thanks for squeezing me in and I appreciate all the comments and helping US understand the guide I guess I'm, just thinking about the price signal the producer and Youre seeing today.
You mentioned and your customers are reticent to change plans, but.
Can you talk about what you're hearing from customers around what conditions, we would need to see.
For producers to come out of maintenance mode.
Okay.
Yeah. This is Jeremy.
And I tried to articulate and earlier I think what you are.
Okay and <unk>.
Respect the current prices are processed by available production off the market by OPEC and and meaningful number so.
<unk> net.
The U S producer base goes and adds a bunch of rigs and commit to a bunch of additional production and whether demand and delayed demand recovery is delayed or OPEC pushes barrels back on and that could change the balance and so I think part of it is.
Waiting for demand to recover which could be I think we showed some slides earlier and here that shows forecast, which had ramped between now and the end of 2022 with roughly half of it.
Returning this year.
Is going to be how does OPEC, bringing production back on line. So I think there's just a.
People don't want to get out in front of that and candidly for them to scale their balance sheets are in this period is not a bad anything.
So there may be any core activity for one and go ahead.
Thank you and then.
I guess the follow up.
A lot of questions on asset sales and maybe just at the risk of one more.
Can you talk about the identification process flow of asset sales I think we really think of 2017 and 18 and.
Time periods, where you you've tackled some really large low hanging fruit.
Can you talk about the most and price important criteria and identification process today.
Sure. This is Jeremy again, I think the way and look at it as our business works really well when our pipeline and facilities and marketing groups. All work together on an integrated platform things that don't fit within that context are usually things that further were strong and and one of the other but we really don't.
Have a market leading type presence and so.
Things there or our cash flows that are more difficult to manage those were things that.
Or and they have operating risk or higher maintenance capital and things like that and that have different risk profiles and I'd say.
All of those are things that are candidates for sale and you'd see a lot of the smaller NGL facilities around the United States, we've been selling as we moved out of that downstream type market, that's it and strategic exit from those who have seen package to those sales. So I think.
The important thing is from an investment community a lot of things.
Really don't know that we own or operate we're exiting some of those physicians 70, <unk> seemed like bridgetex that we'd have a lot of the assets you probably couldn't maintenance just those things, where it's not something where our three business segments. All are aligned on.
Optimizing value and being and leading positions, but historically, we've also sold interest and assets, where the counterparty has brought value. So that when you look at and MTV basis, It was actually and.
NPV accretive to us too.
Sell down a portion of our interest and all.
Sure.
Partner with them with a counterparty that I've set adds value to the asset.
Okay.
I appreciate it Jeremy Alright, Thank you guys.
Thanks.
That does conclude our question and answer session and at this time I'll turn the conference back over to our speakers for any final or additional comments.
Thanks. This is Willie I just wanted to make a couple of comments here at the and we've got a lot of great question from Bulks and I, just want to kind of reiterate kind of where I see things going here.
And as some green shoots out there hopefully we'd characterize that.
There's still uncertainty out there.
And we talked about our measured approach and and how we're looking at the volumes, but I think what you should take away from this call is clearly the focus is on.
Efficiency mode, and driving all the optimization from an operating standpoint, a portfolio standpoint, we're trying to make ourselves as strong as we can as well as efficient and where ultimately and a commodity business and low cost reliable.
Supplier partner, usually wins and that so that's what you hear about on the optimization side, we've shared a lot on the financial strategy again, it's maximizing free cash flow and we've gotten ourselves to a position, where we're going to be generating meaningful free cash flow going forward, excluding asset sales and with asset sales. It gives.
US little opportunity to jumpstart some some additional deleveraging and so it's really the balanced approach to deleveraging and getting getting value back to shareholders and unitholders and we really think we're on the right path going forward.
We're cautiously optimistic about the future again oil prices are pretty sturdy, but I can tell you. Once your thing that happens, sometimes if with all of US heard the comment about prices fixed prices and <unk> and I think what the North American sector is doing is being very careful not to over respond which would create additional problems. So I.
I think the whole industry right now is really it's moving forward, but I think it's a it's still some.
Question will times as we get through global demand coming back and really getting our arms around the vaccine and and getting control of Covid, So with that I'll stop and thank all of you again for all your patients. This afternoon, and we look forward to chatting with you as we do and.
And our interim basis between calls, but thank you very much.
Thank you to Lora I appreciate you hosting today and thank you each of our investors and analysts for joining our call today. Thank you.
You're very welcome that does conclude our conference call everyone. Thank you for your participation you may now disconnect.