Q3 2020 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
Roy and Hello, everyone and thank you for joining US. This afternoon, we reported solid third quarter results in all three of our operating segments, which al will discuss more in detail during his portion of the call.
A summary of highlights from todays call are provided on slide three which reflects our progress in a number of areas, including raising our 2020 guidance executing noncore asset sales, providing 2021 preliminary guidance.
Targeting an additional 600 million or more of asset sales.
And progressing our shift to positive free cash flow, which leads to todays buyback announcement.
A few of these are replicated in our key messages for today's call summarized on slide four which highlights positive momentum as we enter 2021.
First we're well on our way in our transition to positive free cash flow after distributions.
Second our year to date performance continued to have continues to highlight the value of our integrated business model.
Third we continue to successfully execute across each of our key initiatives.
And as a result of our progress and our outlook, we have announced a 500 million equity buyback program that we plan to execute in a balanced manner, allowing us to continue to reduce leverage while maximizing value to shareholders. Let me elaborate on each of these points a bit further.
Starting with free cash flow, we've reset we've reached an inflection point, where going forward, we expect to generate meaningful free cash flow after distributions on an annual basis.
As illustrated on slide five we expect 2021 free cash flow after distributions to total roughly $300 million or over $900 million, when including our 600 million plus of additional asset sales were targeting in 2021.
Our preliminary guidance for 2021, adjusted EBITDA is plus or minus $2.2 billion. This includes the estimated impact of our targeted asset sales and assumes a 50 million dollar contribution from our supply and logistics segment.
We intend to provide formal guidance for 2021 on our February earnings call rugs.
Regarding our 2020 year to date results.
And as shown on slide six our business has performed well despite a very challenging year. This.
This afternoon, we increased our full year 2020, adjusted EBITDA guidance to 2.585 billion, which is now in line with the initial full year 2020 guidance that we furnished in February pre coded and is $85 million above our most recent August 2020 guidance.
These results highlight the value of our integrated business model.
And while challenging to forecast, we have demonstrated our ability to capture margin based opportunities during periods of volatility through our extensive asset base.
Our integrated model, meaning full term supply and committed acreage position also enhances our ability to move additional volumes on our system over a long time horizon.
As a case in point and as illustrated on slide seven you can see the significant increase in our term supply and our Permian acreage position, which we believe is highly strategic in the current environment in brings additional value to the table as we work with customers partners and peers to optimize and rationalize.
Infrastructure capacity.
Additionally, as summarized on slide eight we have a strong portfolio of long haul pipelines, representing a combination of supply push and demand pull pipelines. These.
These systems are underpinned by long term third party Nbcs and are further complemented by long term dedications of lease supply to our lease gathering business and strong integration with our hub terminals.
Included on the slide is a summary of third party contractual support underpinning our key long haul systems and.
The average remaining term of these contracts.
In addition to our Nvcs are termed up lease supply provides us an additional level of insurance that our pipelines will continue to be utilized in a variety of market conditions.
Throughout the year, we've continued to execute across a number of key initiatives, which are recapped on slide nine.
We continue to operate safely and reliably embracing cobot protocols in both the field and in offices, social distancing and working remotely as conditions warrant.
I want to acknowledge and thank all of our HPA team members for their hard work and dedication to driving continuous improvement, which is evidenced through our year to date safety and environmental performance metrics.
As discussed previously and as Al will discuss further we are squarely focused on maximizing free cash flow, reducing leverage minimizing investment capital and increasing shareholder returns.
Regarding portfolio optimization on October 15th we closed on the sale of our Los Angeles terminals generating proceeds of approximately $200 million, which brings our year to date proceeds from asset sales to approximately $450 million.
Additionally, we announced a strategic asset swap with IPO inter pipeline that reinforces our NGL asset position at our emphasis complex in Canada.
We continue to advance additional asset sale opportunities and have established an additional 600 million as our 2021 asset sales target with the potential for upside to this target.
We've also made solid progress in our efforts to streamline and drive efficiencies across all aspects of our business and Weve realized meaningful cost savings. We currently expect to realize a $125 million a year or more of fixed cost savings that should and deere in future years.
This exceeds the high end of our previously estimated cost savings range of $50 million to $100 million.
At the same time, we've continued to advance our sustainability initiatives highlights of our progress are summarized on slides 18 through 23 of today's slide presentation.
Before I turn the call over to al I'd like to touch on a couple of other matters that are currently topical.
First regardless of the outcome of Tomorrow's election are out our long term outlook is constructive.
We recognize that a potential change in administration could create headwinds for the industry and for plains. However, it could also bring benefits, particularly for those with pipe in the ground.
Slide 34 of the appendix outline some of our thoughts regarding a potential change in the administration.
Additionally, with respect to an energy transition.
We believe alternative sources of energy will continue to grow and will be an important addition to meeting global energy needs, but we also firmly believe that hydrocarbons will be needed for decades and will remain an integral part of.
Of the global energy supply.
As illustrated on Slide 10, we believe global demand recovery is a question of when and not ETF, which over time should drive a return of constructive oil prices sustainable North American production and higher production levels in key onshore shale basins.
The location scope and flexibility of our integrated system matched with the capabilities of our teams positions planes favourably in such an environment.
In short we believe we are well positioned to manage through the current environment and benefit as demand recovers over time.
In regards to energy markets current negative investor sentiment has impacted the entire sector, including our equity securities, which continue to trade at levels that ascribe minimal value to the long term durability of our business.
We believe this provides a significant value investment opportunity.
For that reason and considering our progress across multiple key initiatives and our constructive longer term outlook today, we announced the $500 million common equity repurchase program.
As I will discuss further we plan to take a very balanced approach and allocate up to $75 million to buybacks in 2020 and up to a 25% of free cash flow after distributions to buybacks in 2021 with the balance being used to reduce leverage.
With that I will turn the call over it out.
Thanks Willy.
In my portion of the call I'll recap, our third quarter results review, our current capitalization liquidity and leverage metrics.
And provide additional color with respect to our outlook for 2020 and 2021.
As shown on slide 11 third quarter fee based adjusted EBITDA of $620 million exceeded expectations in both the transportation and facilities segments.
On a comparative basis transportation segment results increased oversight.
Over second quarter, 2020 result, driven by a $25 million timing benefit.
Related to MVC deficiencies that occurred during the second quarter in.
In addition to a modest increase in tariffs volumes and continuation of cost optimization initiatives.
Relative to third quarter 2019, the slightly lower segment results reflect the co bed related impacts on producer activity level.
Additionally, one accounting related item I will note is that in the third quarter, we recorded a $91 million noncash impairment within our investments in unconsolidated entities attributed to a joint venture in the mid continent area.
With respect to the facilities segment, our third quarter results exceeded.
Expectations, primarily due to operational cost savings and higher than expected revenues at our Cushing facility.
On a comparative basis. The segment was in line with second quarter, 2020, and third quarter 2019, effectively absorbing the impact of asset sales.
Third quarter 2020, SNL result of $61 million benefitted from contango margins as a result of transactions entered into earlier in the year.
Moving onto our capitalization and liquidity a summary of key metrics is provided on slide 12, our long term debt to adjusted EBITDA ratio of 3.3 times benefited from trailing 12 month SNL results of $437 million.
The leverage ratio would be 3.8 times, if normalized using our initial 2020 SNL adjusted EBITDA guidance of $75 million reflect reflecting leverage slightly above the high end of our target level, thus underpinning our focus on reducing leverage.
This week, we will repay our 600 million dollar February 2021, senior notes via the par call option, we have no other near term maturities and our total committed liquidity at quarter end was $2.8 billion or approximately $2.2 billion pro forma for retiring the notes.
We do not expect to access the capital markets for the foreseeable future.
Now I will shift to our outlook for 2020, and 2021, which is summarized on slide 13, as Willy mentioned, we have increased our 2020, adjusted EBITDA guidance by $85 million to plus or minus $2.585 billion, which is primarily attributed to.
The transportation segment and is driven by our third quarter results and our expectations through the balance of the year.
With respect to our preliminary guidance for 2021, which is net of the assumed impact of targeted asset sales underpinning. Our outlook is an assumption for the crude oil price environment and producer activity levels to remain relatively unchanged throughout the majority of the year.
Therefore, an acceleration of demand recovery in corresponding improvement in commodity prices relative to the current levels would be a net positive to our outlook of potentially favorable to our 2021 preliminary guidance.
As we have communicated previously we expect challenging market market conditions for our SNL segment in 2021.
Moving on to slide 14, our expectations for 2020, and 2021 investment capital remain unchanged on a combined basis, but reflects a $50 million shift from 2020 in to 2021 due to project timing.
Ill note that roughly 50% of the 2021 amount is comprised of wink to Webster and Diamond cap line projects.
And roughly 20% to 25% is related to high return wellhead and CDP connections that we expect to be paced with producer activity levels.
The balances associated with smaller high return projects.
A status update and high level overview for the linked to Webster and Diamond cap line projects is provided on slide 31, and 32 of the appendix of todays slide presentation.
Beyond 2021, assuming an approximate $50 per barrel oil price environment, we estimate our run rate investment capital to be within a range of $200 million to $300 million annually. They.
Based on this range high.
Hi, return wellhead and CDP connections with Rep represent approximately 50%. However, if we remain at current price levels, we would anticipate total investment capital to be at an even lower level.
I would also note that we do not have any material capital commitments beyond 2021.
Additionally, we estimate annual maintenance capital to be $200 million or less on a run rate basis.
We are very focused on disciplined management of our balance sheet, minimizing capital investment and maximizing free cash flow.
I'll note that a detailed breakdown of our free cash flow is provided on slide 25 within the appendix as shown our free cash flow for the last 12 months is a positive $521 million, while free cash flow after distributions was a negative $464 million.
With regard to the unit repurchase program as willing noted and as summarized on slide 15, and illustrated on Slide 16, we will be disciplined in how we allocate capital we plan to allocate capital of buybacks in a balanced manner consistent with our priority of reducing leverage over time as.
As we generate additional free cash flow and lower our leverage we expect to be able to increase the allocation to buybacks over time.
For the balance of 2020, we currently intend to allocate up to $75 million for repurchases.
Which effectively equates to the increased 2020 guidance.
For 2021, we currently intend to allocate up to 25% of free cash flow after distributions for equity repurchases the.
The allocation within this range may scale up or down depending on asset sales by.
Financial performance and other factors for example in the absent of asset sales, we may allocate up to 25%.
Towards equity repurchases in event of meaningful asset sales, we Mount may allocate a higher relative percentage towards debt reduction in recognition of the loss of EBITDA associated with the assets sold.
To be clear and this is important we will not utilize debt to fund equity repurchases.
With that I'll turn the call back over to Willy.
Thanks, Al before opening into Q and I want to reinforce three critical points, which are summarized on slide 17.
First we are we believe we are well positioned to manage through the current environment and emerged stronger we have strong conviction in the durability of our business and we have a long term positive outlook for the future.
Our asset base is well positioned to move North American product to market production to market and we have a prominent integrated franchise in the Permian with significant termed up supply committed acreage integrated systems long haul nbcs and access to multiple markets.
We believe the Permian will lead the recovery in North America will continue to be the short cycle solution to meeting the world's supply needs.
We certainly understand the longer term transition to lower carbon energy and we believe that ultimate global population growth and improvement of quality of life standards will drive the need for all energy sources, including conservation and efficiency.
Any energy transition will be underpinned by significant allocation to hydrocarbons, including oil for multiple decades.
Second, we're making meaningful progress on enhancing our financial flexibility and lowering leverage and we remain very focused on further progress as we manage through these near term challenges.
And third we continue to drive for strong alignment with our investors and external stakeholders. We've.
We've had conversations with many of you over the past several months and we thank you for your feedback which has been extremely valuable to help us shape enhancements that weve made in.
And those that were continuing to advance.
We're very focused on managing our business to generate sustainable free cash flow after distribution and improving shareholder returns, which has been a significant focus of today's call.
I would also highlight that we have made considerable enhancements to our governance and sustainability frameworks. In addition to the safety and environmental commitment that I previously mentioned.
In addition to the sustainability presentation and additional disclosures available on our website. We've included a summary overview and some additional detail within the appendix of todays presentation that I would encourage you to review so.
So thank you again for your feedback we look forward to continuing these discussions and we appreciate your continued support.
With that I'll turn the call back over to Roy to lead us into Q any.
Thanks, Willy as we enter the Q and a session. Please limit yourself.
The one question and one follow up question and 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 in our available time. This afternoon. Additionally.
Our Investor Relations team Glancy available this evening into the balance that week to address additional questions. Christy We're now ready to open the call for questions.
Thank you thank.
Thank you up for a question. Please press star followed by the number one on your telephone keypad, calling from a speaker phone. Please make sure you meet function is off to share your silicon, which are quite well I guess I wanted to ask a question, we'll take our first part Shneur Gershuni from GBM Your line with Apple.
Hi, good afternoon, everyone.
Maybe to start off today, if we can start with the preliminary guidance for total anyone on.
Well you cold please firstly about global sport load to efficiency mode with respect to costs.
I was just wondering if you can talk us through how much of the cost optimizations, you've achieved how much is baked into your 2000 total worldwide is there any incremental opportunities thats not there and maybe as part of the guidance question. If you can share growth the EBITDA associated with the planned 600 million of sales.
That you outlined in your presentation.
Thanks for the question one of the things we've really focused on is not setting a target for cost reductions I think as I've shared before I've been burned too many times, where you are going to target and thats exactly the number you get whether its a good answer or bad answer. So we've really pushed the organization to be as efficient as we can so the answer to your.
A question of how much of it is baked into 2021 guidance is yet to be determined because we continue to make progress as we go forward and that's why we'll give you a formal guidance on that in 2021 in February but I do want Chris channel to chat a little bit about the cost savings that we've gotten on outlook.
What the configuration of some of those savings are and then maybe you want to take the EBITDA question I think it is at $40 million that's associated.
With 2021 guidance.
I just saw your Thunder sorry about that.
This is Chris Chandler, so I'll I'll provide some additional color on the cost savings without trying to tie it to our actual 2021 plan as Willy mentioned, but.
We're working very hard to ensure these savings are sustainable we believe we've reduced our fixed costs by $125 million to $150 million compared to 2019 and that would exclude any benefit from asset sales or reductions in variable costs.
We would expect to achieve these savings if we're in an environment similar to the one that we're currently in.
So really from a number of categories. So it can be things like personnel cost efficiency related improvements its organizational streamlining its a consolidation and closure of field offices. It supply chain improvements. It's a reduction in the number of generators that we used to operate our assets, it's moving volumes from trucks on the pipeline.
Line, that's consolidating information systems and so on so we expect to sustain cost reductions in all of those categories going forward and will provide additional color on that when we release, our formal 2021 guidance.
How do you want to anything more to that yes.
Shinier, we we assumed.
Clearly not all of the asset sales happening early in the year. So therefore, it it's not as big of a.
And impacted Willy mentioned, the $40 million, that's an approximate based off of.
More of a mid year type of the convention.
Great and then maybe as a follow up just a clarification with respect to the buybacks. Thank you for taking a formulaic approach to buybacks and take the transparency will be much appreciated.
Just wondering if you can clarify if you do asset sales in fact, kelk is harder that free cash flow and therefore, some of that would be achievable.
For buybacks as well as to as part of your 25% formula or is that excluded from that.
This is out no. It would be included clearly we will.
Use judgment as to the quantity of EBITDA that we're selling.
And in my prepared comments I talked about maybe Scott chief.
Changing the allocation a little bit based on that consideration, but now free our definition of free cash flow and we lay out the calculation of sliding include all investing activities asset sales as well as maintenance capital and investment capital.
Perfect. Thank you very much guidance really appreciate the color today and stay safe.
As shown here I'll just make another comment this is willing when we when we think about consensus of roughly roughly 2.3 billion.
I think I don't know if youre getting after this but as far as kind of normalizing that we have 50 million assumed in our SNL segment I.
I don't know what others have but I I've seen a 100 million in some of the the consensus numbers.
As well as the when you take that 50, plus the EBITDA. It kind of gets you to that same ZIP code. If you normalize the two.
Yes, the consulting we are after.
Thank you for that.
Yes.
And next we'll go to Jeremy Tonet from JP Morgan Your line is open.
Hi, good afternoon.
Good afternoon.
Just wanted to.
Follow on with the asset sales, there and wanted to see the 600 million.
I think you talked about a few different ways before how much of that is kind of incremental to what you guys had said before with asset sales seems likes Thomas slid from 20 into 2021, So just wanted to see what.
What was incremental there how far advanced are you in these.
How much certainty do you have to these closing and when you talk about debt reduction here I don't know if I heard explicitly perhaps how they fit into that versus the other buybacks in outright debt reduction. So just wondering if you could help us on on those points.
Hey, Jeremy Let me, let me start with us I'm going ask Jeremy goebel to to kind of fill in the filling the blanks here. So.
We've said 600 million.
As far as potential upside it could be several hundred for 2021.
We on the 440 that we announced were 450 for 2020 against the 600. All we're doing is we're kind of reset in the slight now and going forward our target of 600 million plus so Jeremy you might want to chat a little bit more Jeremy. This is Jeremy Goebel, we have a continuous process of streamlining our asset base and as we.
Look at cost reductions, we look at the whole organization. This is Chris his team its rest of the group around identifying which assets could potentially be sold what is worth more to someone else than us and thats and involve looking at external markets. What people want we've got substantial and grounds on certain assets and those will be the ones that we look to sell there they are good.
Assets, but they are better off in someone else and based on our use of available capital for potential de leveraging and buybacks. So the 450 million as Willie said that closed against the 600. This year the way you're looking at it potentially a 150. It again next year and that 600 million target, we'd look to exceed if we can be success.
Based on all the opportunities were looking for Al mentioned, a mid year Convention, which gives you a sense you guys understand the timing of investment banking processes and how they roll. So I think you'd see earliest second quarter and then step to go into the second half of next year, if that helps from a timing perspective.
And Jeremy I think you threw in a question on the repurchase you probably get your follow up embedded in there but.
We would look at only common equity repurchases and not either of the two preferred securities at this time.
Got it thanks.
A level and more I just want to go to Jeremy as far as the you gave a great picture as far as what the demand recovery could look like but just wondering how you think that could translate into supply side different patients next year. Just wondering if you could give us a flavor for any thoughts you have for volume increases or decreases by basin across your footprint.
Hey, Jeremy.
Good question I think as we look at it based on credit.
How we talk to producers and our customers.
Say, 20% to 30%.
Of capital cash flows going to go back to shareholders, roughly 70 to 75 or 80% recycle ratio probably on the lower end for next year at less than $50, we assume that thats going to be the market. Our forecast as mentioned in here is based on 40 to $45 oil for next year.
What that looks like in the Permian basin is largely flat fourth quarter throughout the year exit of four one maybe there is some growth and thats lumpy across the system based on timing of completions, but largely managing cash flow and that.
The recent wave of M&A could yield some disproportionate allocation to the Permian away from other basins, we're seeing that with some of our customers, which could yield incremental cash flow, but right now we're sticking with roughly flat to the fourth quarter and for other basins you could see continued declines but largely what you are seeing most producers do is.
The declines that started in the second quarter, they're stabilizing now using drilled and uncompleted wells and we'll try to do that throughout next year and look to see and reevaluate as demand returns and you get back to a more favorable pricing environment for them to get the drill bit back to work.
Got it thank you.
And next we'll go to keep Stanley from Wolfe Research. Your line is open.
Hi, Thanks.
Just following up on the on the asset sales can you give a sense of confidence or visibility and being able to execute at prices. You think are adequate I guess, we haven't really seen a lot of new asset sales since the pandemic. So any sort of early reads you have more visibility on getting good prices.
I'll make a comment Keith.
We have been successful in transacting on number of asset sales as you know I think this will take us.
Above $3.5 billion worth of asset sales and we've been able to do in a good values I don't think were prepared to give you any more detail at this point and.
As we go forward into 2021 and on our guidance. If we have some additional information we can give you some but we wouldn't have announced our intent. If we didn't have some confidence that we can move forward with these.
Okay, Great and second question is just on me the updated guidance for transportation for the year.
$80 million.
The volume it looks pretty similar so can you just talk a little more to some of the big changes.
That are causing Q3, and Q4 EBITDA to be higher and transportation and your expectations last call.
Al why don't you take that sure I'll take a shot at it.
Yes, no EBITDA.
EBITDA up 80 volumes kind of flattish if you recall back.
In in May shortly following the pandemic, we lowered our transportation segment quite meaningfully about $300 million.
And the only reason I'm mentioning that is that as the business performed a little bit better in second quarter, we had a little bit of cushion in our in our in our model.
The following the big change in the uncertainties, we chose to retain some cushion in our guidance when we put it out in August.
And then lower costs being a big part of it some of which are.
Foreign volume related is just cost management, and then a little bit of it is.
With some of our Canadian pipes with the average higher margin just kind of the business mix are really the three.
Key things, but we did have a little bit of cushion in our model when we updated guidance last time.
Great. Thank you.
And next we'll go to Michael Lapides from Goldman Sachs. Your line is open.
Hey, guys. Congrats on a good quarter and appreciate the announced that compelling capital allocation. What we just when you think about the asset portfolio mix.
Outside of the Permian and may be in bound into the Cushing and then into the Gulf Coast. How do you think about what in the plains portfolio over time may prove to be non core obviously, you've got the 600 million you haven't disclosed what that specifically is but when you think about kind of the other parts of the business that may not be.
Or to kind of your long term five year plus strategy, how do you think about what might fit into that bucket.
Well Michael.
I know what you're after here after the list, which we are not going to share right now, but I will tell you. The way. We think about this is everything that we do is really part of the integrated approach. So what you've seen us on the asset sales that Weve transacted, probably the best example, I can give you some of the transactions we did out in California, If you think about the.
Ability of integrated pull through on some of those systems the less integrated pull through that it has.
Probably gives us more opportunity for some gives it gives the it have more opportunity and value with somebody else than ourselves. So I would tell you. The integrated model is very very key.
And you've seen us sell some other assets that as we think about where future outlook of capacity May go.
Again, if it fits better in someone else's portfolio, we've been willing to do that so on fourq im not going to be able to give you much specifics. Although then as you think about assets things aren't tied to integration, but the other point I would tell you as we've done quite a bit on strategic joint ventures in working with other companies.
In efforts of rationalization and creating more capital efficiency from multiple parties. So hopefully that helps.
No that helps and then kind of the nuts and bolts question on cost management, if I look at the nine months of the year to date income statement DNA down 24 million year to date feel about that is down 117, so call. It almost 200 male year to date.
What youre, implying is that some of that will actually come back next year.
Because if you're running at almost 200 million year to date gallon and you're talking about.
Out of 120 550, it almost implies some of that comes back.
I'm going to let Chris Chandler address, but what I'll tell us.
We're very deliberate about how we think about this.
Sometimes you can think about costs and thats variable and fixed and and what we've shared with you is what we think our enduring fixed expense cost reduction so it's truly what you'll see at a minimum versus.
Versus volume related, but Chris why don't you share a bit more sure. Yeah. This is Chris you've got the right numbers, our combined operating and Gionee cost are down almost $200 million versus the same period in 2019 in while we can't directly compare that to the $125 million to $150 million reduction in fixed costs that I mentioned earlier.
It is reasonable to think as some of that difference being related to variable costs in our expectations for what we expect to spend in 2021 in the future years.
The other thing to think about there is a part.
Part of our cost reductions in 2020, our deferrals into 2021.
These can be things like not wanting to undertake large maintenance or overhaul activities and bring out.
Outsiders into our assets and our cobot environment if.
If we have the flexibility within our inspection programs and the regulatory requirements. We have deferred some of those activities into 2021, primarily due to covance. So those are just a few examples of why the numbers are different.
Got it thank you much appreciated.
Michael This is Willie you've talked about operating costs in DNA and Chris touched on it but it's more than that right. So if you look at our maintenance capital expenses not only to talk about the investment capital.
During high returns, but the maintenance capital we've been successful in being able to bring those numbers down a little bit.
That will end year over over a period of time, so its really cost across every bit of the organization and how we spend money.
Got it appreciate abruptly I'll follow up with that came offline. Thank you guys.
Thanks.
And we'll go next to Tristan Richardson from true Securities. Your line is horrible.
Hi, good evening, Thanks for all the commentary on 21 and that the detailed commentary on repurchase six more insight than we're used to.
Just one quick question on the leverage target as a trigger for that sliding scale of the repurchase allocation.
Is the desire to get to a certain point within that three out of three five before ramping that relative percentage or.
If if we're in that.
Before in that band it really just opens it up for you.
Al you want to take that.
No we won't have a specific trigger nor will we necessarily assume you got to hit the exact low end. There's a number of of of variables. I think we summarized that on one of the slides that we would we would consider.
As as we think about it clearly the up to 25% of free cash flow after dividends.
Is where we feel like is the right allocation until we see progress on on leverage being won.
But then the other the other variables as well.
With regard to just industry conditions market conditions et cetera. So.
No we're not going to provide an exact formula for how we do it.
Thanks, Al and just to follow up curious on the fee based 2021 versus 2020.
Can you talk a little about how much we should think of as the delta there being asset sales versus new project contribution delinquent to Webster and just.
The strong Q1, 2020, making for a difficult comp.
This is Jeremy Ed the way to think about Q1 2020 as you still didnt have all the long haul pipes in the Permian.
Service, so epic and gray over ramping so there was on the legacy pipes. There was more there that makes the tougher comp I'd say with regard to project contribution as some of our partners I think I've said earlier today Wink to Webster ramps up this year, that's reflected in our guidance next year.
Essentially think of it as the the Midland to Echo portion will be available.
We still have some origination work in some destination work that we've kind of slowed down some of the capital spend to ensure we had the maximum efficiency of capital with our partners and so it will be later in the year second half to early fourth quarter when that starts up full so theres a slight ramp from the probably the beginning of the second quarter.
To the fourth quarter at that point, the TSH triggers so the real contribution from links Webster doesn't start till the fourth quarter and in Diamond cap line is really a first quarter of begin very beginning of 2022 startup as a way to think about it. So this year is more of a transition year for those two projects. So you think of the comp year over year to the first quarter is largely.
Driven by the new pipes weren't on linked Webster and great. Okay, and then the fourth quarter. This year that will be somewhat steady state until the fourth quarter of next year and then you'll have the start of the ramps of the new projects.
Great. Thank you guys very much.
Thank you Tristan.
Our next so that two years, while production from Bank of America. Your line is open.
Thanks for taking my question and thanks for all the detailed color on the capital allocation plan so far.
Firstly.
Just one more clarification on the asset sales.
Well you said it earlier.
The expected contribution to the 40 million next year, assuming a mid year sale and would that imply around second half overall multiple well. My question is that right and could be total asset growth will soon you'd be larger next year. Thanks.
EBITDA multiple or it could be better than that.
Hey, Paul This is Jeremy Goebel, we certainly think it could be substantially better than that then we're specifically not providing detailed because we're in the process of discussing with buyer side I find it difficult to say do projections on that front for that reason, but theres substantial substantial assets, which will have significant interest in we're going to absolutely do our.
Best to get the highest number and we'd look to significantly exceed that number that you referenced.
I'd say that we'll give you more color as we have it but at this point, we don't I'd Echo Willie's comments it way to think about noncore for us is something that doesn't meet the integration of our.
Pipeline facilities, and marketing type businesses, where we can't get the full integrated high efficiency network that we have and so we're going to continue to look for those opportunities don't.
I don't look at this as a 12 month cycle as a continuous pruning and simplification for us to just become very efficient and so this is a continuous process and we'll update you guys as we have.
The opportunity to but right now we're kind of in the middle of a sausage, making and it wouldn't be prudent for us to to advise you on specifics such as valuation in it and this is al Mike My comment earlier about mid year Convention was trying to illustrate that we didn't assume January one that was an approximate for them don't take a linear exactly linear.
Calculation to that.
I will tell you enough this is not really.
Who's while another another key point to make as we think about cost reductions and simplifying the business it's far streamlining.
With asset sales with with assets that aren't core to you.
Weve sold over the last number of years. It is really I think enhanced our ability to to be able to streamline more because you can focus more on the on the key assets at.
That you have versus trying to spread yourself across lots of different assets.
Got it very helpful and my second follow up here.
On the federal lands exposure so to go back on that but that certainly has been a key focus.
As far as election is concerned so last year you had noted.
You had close to or less than 20% of your dedicated Pullman acres in federal lands.
And as you're looking at your current dealer volume data around those acres.
Yes Hello.
Yes are you able to share any.
At the levels. They are at in how much of that full downstream to your long haul pipes.
Subsequent to it.
With respect to producers have shifted production.
Do you expect to see the replacement volumes appearing in their system. Thank you.
So overall this is willie I want to start on that.
We talked about 20%, but what I would almost rather do is focus on the 80% that's not on federal lands. So.
So when you think about the 80 percentage of the acreage we've got there's a deep inventory that the producers have as far as well sites there and when you go to the federal lands I think the one thing I want to highlight is that there are volumes that are flowing today as we think about potential.
Restrictions on on federal lands the way we view it is most of that is going to be in the future.
Being able to take back leases on federal lands. We don't think is in the purview right now.
So and you also have other producers that have built up a pretty healthy inventory of drilling permits. So I don't want people to take away from this that any risk to federal lands takes existing volumes up our system on a majority if you want to add anything to that.
No really I'd say, it's appropriate that we talk to our customers all the time and they feel comfortable to have a contract with the federal government to develop those asset they have multiyear inventory with options to extend they have substantial inventory because at much higher rig counts now than the activity. So I'd say those are in hand.
I think the base case is a view that there will be a delayed permitting process, but with multi year inventories of drilling ahead of them. They can plan for that in advance. So I'd say the view of everything stops immediately on day, one at that doesn't make a lot of sense could there be delayed in permitting and go back to Obama era, yes could it be if the Trump administration.
Duration wins I think there is a lot of permutations and it's not an on off switch and the state of New Mexico will have something to say about that there is substantial revenues associated with the oil and gas business. So we feel comfortable with our customers that they are going to continue to execute and to the extent. They don't it makes a lot of the other assets, we have worked quite a bit.
When you think of it.
Tougher regulatory environment, if that impacts other operators that can positively impact ours that are operating so there's.
Depending upon how far the pendulum swings we can benefit in different ways of is is not linear and located just in new Mexico. This could impact the Williston basin and push barrels to our systems and other places. So you have to look at this more across the entire regulatory environment is not a binary switch.
I appreciate the color very helpful and if I may just squeeze a quick one.
The buyback language you indicated you can treat we should be there.
He or she is GP units, what could drive the decision between buying back.
Those those two units.
This is al I think as the primary one will be the value.
And the price of the securities our intent would be to to focus on PPA initially.
Got it thank you.
And we'll go next to it slowed in South Korea from Bernstein. Your line is open.
Hi, gene and long haul Oh, Hi, Kerry.
We can now.
Okay great.
What a market share question I did idera Permian volumes, but total Permian.
Looks like you are leading market share and we'll play it per se and first quarter. It's about 22% now is that mainly a function of the pipeline ramping that Jeremy and an earlier question and as the current 22%.
Number and so well to after starts.
CNN high this is Jeremy Goebel, we really don't get into specifics on pipes, but what you would say is there are probably some loss in spot volumes, which would be expected. This would be a stable number I think I'd reference you to page eight in the the guidance Deb presentation, we've listened to our investors and providing some more disclosure there. So we're very.
Comfortable with our Permian long haul position and one of the unique things that we havent really ramped up is.
Our lease supply pushing barrels to market and thats something that we we have the opportunity to do and bring barrels at the profitability and margin is there in some cases, we can make the same amount by selling it in basin versus shipping on a pipeline. So we have some tools that others don't and longer term will fill our pipelines, while others are looking for supply so the.
The view of its a cliff and everything goes away planes will be the one that has volumes on their systems all the time.
As as we show I think it's on page four in the presentation or seven.
We control enough volume to basically fill our pipeline is if we wanted to at the Arps and opportunities are there no. One else can say that so I think the view that the contracts will dictate where the volumes flow so little bit different we can make markets. We can do some other tools I'd say some of the volumes that came off into the mid continent, those were looking to figure out ways and.
Domestic demand pulls more barrels to Cushing you could see some move more in that direction. So there is a lot of things at play it's not as simple as saying, it's going to be static and linear it's market driven and we'll have a hand to saying that because we control enough supply to kind of push barrels so where the differentials support.
Got it thanks, Yeah I appreciate the disclosure on slide eight.
Just had a quick clarifying question on that does that include acreage dedication and at that 90% contracted X date, then that like like 90% of lending your nameplate parent.
Yes, the way to think about is 90% of 90% and then have our total commitments I believe there is a 100000 that our acreage dedication. The rest are NBC and those acreage dedications are well inside of that.
The production levels needed to fill them.
Great I really appreciate it.
The pleasure that property.
Yes I.
I think Jean Ann This is Willie again, one of the things you're really seeing is.
Back to my comment of growth versus efficiency mode. We are firmly in efficiency mode and when you think about our footprint in the flexibility that it has.
We're continuing to push on optimization, and we find different ways to be able to generate generate value versus just running more volumes on new lines.
Great. Thank you.
And we'll go next to calling Bloom from Tudor Pickering Holt Your line is open.
Thank you so just a follow up on all the questions around the 2021 guide if you look at the fee based portion of 2.15 billion and add back the 40 moments associated with asset sales.
Compared to Q4 FY dates are noted actually looks like the numbers are up marginally I guess, one is that a fair characterization that from an exit to exit perspective. Your earnings are actually flat tax and a little bit better for a fee based and then the second is that primarily a function of Permian drilling and offsetting declines in other basins.
Jeremy.
Thanks for the question Denise, let's specific numbers, you're looking for I, just want to make try to match up to the trend that you are looking at this a little higher than my fourth quarter for so yes. They are slightly higher it's not yet I'd I'd view this largely as flat to fourth quarter as we said from the beginning I think thats the way to look at it is.
It's going to be noise, but the general trend would be consistent with fourth quarter. Because you think you're at largely the MVC levels on the long haul pipes and that your gathering systems are basically flat production our gathering exposure outside the Permian is very minimal at this point contributing to this so I think that.
Permian gathering trend plus the long haul trends in the facilities are relatively stable as you see across the assets Thats the way I would look at it.
And we would have anticipated but.
For detailed guidance and it's another thing to think about is remember the basis for this I think it's somewhere in the presentation, but it says.
40 to $45, we basically assuming close to 80% refining utilization in that neighborhood for the downstream pipes, so anything better than that that's that's going to drive potential outperformance.
Understood and just briefly on the two to 300 million and long term investments you mentioned, the 50% that might be allocated to walk next could you just spraying so high level, what the expectation be for that other 50% is the types of projects.
Sure as you think about it just facilities types expansions, we have a lot of exposure in Canada potentially expansions of just along those the pipeline system domestically.
Domestically it could be like I said facilities in and around some of our terminals and docks and assets, but the vast majority we would look at and it's all going to be paced time independent of somewhere between as the numbers would articulate $75 million to $150 million, depending on pricing environments around some of our gathering systems and those that we.
We have a very high threshold in Chris his team has worked really well with the commercial team and dry.
Driving down cost, 30% to 40% on a per unit type gathering costs. So we're going to look at even driving further efficiencies by recycling pumps and equipment as production flows from one area to the other so we're going to keep driving that sustaining capital number down and in a very cost effective and a very operationally in safeway.
But we're looking at that number and we hope to continue to beat that number and drive it down what would be a really big win for us as if producers continue the trend of coming behind existing pads and wells then we're going to get free production and thats when the sustaining capital really dropped so as.
In the Delaware Basin, where we have a lot of gathering exposure.
If you're not building laterals, all you're doing is coming behind existing batteries. That's when that number can get really low and thats. What we are looking forward to as producers get more and more efficient.
Understood appreciate that nickel.
And next we'll go to Gabriel from Mizuho. Your line is open.
Hi, good afternoon guys.
Two quick ones for me one is on the balance sheet and leverage metrics just wondering how the new capital return framework fits within I guess, the gold maybe being investment grade again at all the agencies and also whether the agencies I guess or what have you. It I'd you're comfortable with the plan here.
Now.
Yes, we believe it is compatible with with GE and you know.
We are taking a very disciplined.
Approach to to that allocation, probably what's embedded under it is what you are hearing us talk about is being free cash flow positive won after distributions and 75% of that being allocated to reduce debt and the absolute reduction.
None of that not counting on EBITDA growth, a contra to necessarily de lever. So so it's a very disciplined approach we think it is consistent.
With.
I'd.
Metrics and ultimately.
If we don't generate free cash flow after dividends, we won't be buying in any equity.
In 2021 or beyond so that's a little bit of where we're intensely focused I think you kind of heard that and we'll his comments on running a very disciplined approach to how we run the company.
Thanks, and then maybe as a follow up for me on election to you about all want to promise of read my lips, no new acquisitions, but I'm just curious with all the talk about consolidation within I guess, the energy sector, a large how the capital return framework and I guess the focus on.
Dispositions will fit into I guess, a general viewpoint called midstream consolidation and weather.
Assets that are attractive and ancillary to your footprint come to market, whether you would pull the trigger based on on your current I guess guidance and I'll also.
Yes, Gabe this is Willie when we think about I've talked about rationalization.
A lot of the things that you've seen in our playbook around strategic joint ventures in doing things that are.
That are leveraged friendly and accretive I think you're going to see more of those.
Tear out asset sales and some of the assets. We've got I'd I think valuation differentials will probably create.
A little bit of.
Okay plantation to move on some of those so hopefully thats helpful.
This is Jeremy just to a couple of thoughts.
One.
Our securities we are buying them now we're not issuing any rights I think us using our currency to buy something is largely off the table, but we're looking more as cashless transactions as Willie said its a relative value exercise. The seller is less concerned about the the absolute value at that point, you can still entering the strategic JV.
As with others and get to a point, where you extract the synergies on a relative basis and so those are tougher deals to pull off to be honest with you, but the industry is motivated to get towards getting to the right answers and and taking out idle capacity and getting to a point, where you going to have reasonable returns. So I think we'll continue to look for opportunities to do that.
Our focus will be doing it in a very disciplined way and getting valuation write and doing it in a cashless manager manner, where you can still extract the synergies I think the other way to think about this gabe as you've heard us talk a lot about driving free cash flow plus right.
And all the levers that go into that so for us to do something that would increase debt maybe near term for a long term return.
That's just not in the playbook right now.
Thanks, guys.
And next we'll go to from your from from Seaport Global Securities. Your line is open.
Yes, hi, good afternoon, guys and thanks on the clarity and also to.
Thanks for taking my question. So a couple of questions. So first when we look at the transportation segment seems like this quarter you benefited.
About 65 million or so on the MVC payment.
How should we think about that.
Going forward.
So you are guiding to it kind of similar level of activity.
You are going forward.
And then how should we also think about diving in the context of your customer credit quality. Thanks.
How do you want to take that.
Yes, I mean as far as far as the fourth quarter, we expect to see shipments roughly in line with the contractual.
Requirements clearly if.
That doesn't happen frequently there is the delay.
And you might see.
The collections actually come in first quarter of next year et cetera, if that was the nature of the of the question clearly with regard to the.
The third quarter, we had some of that.
MVC amount related to second quarter and some of it was self contained inside of the third quarter itself.
Okay.
And then my.
Follow close on the industry environment. It was seen it feels a bit of upstream M&A. Just curious what are your thoughts on how does it impacts the midstream and how do you see that environment.
Midstream M&A, obviously, you guys have been active in some asset transactions Mike.
See the upstream M&A kind of perfect, indicating any concrete M&A in that midstream also.
Hi, Simeon this is Jeremy Goebel.
First question was how does that impact us and I'd say from a midstream standpoint.
We generally have larger customers and this is a.
This leads to better credits larger customers, which should be generally a benefit to us each individual transaction is different and the acquired generally.
We'll have existing relationships that we may need to make some new friends, but generally we have a lot to offer and big supply position to help with marketers and on the upstream side. We have systems that are interconnected to anyone and everyone. So we we generally play nice in the sandbox with the bigger customers and I think thats the trend, which you would expect the second part of your quick.
Yes, Jim was associated with the upstream yielding a midstream I think the answer is it's inevitable and it will happen, but just like investment cycles upstream first midstream next downstream following you'll see that it's going to take some time I think theres. The self help that everybody's doing a chris articulated a lot that we're doing on our.
And I think all of our customers and are in similar boat they.
The distribution model and the fit that MLP is have makes it a little bit more difficult than I think leverages, an impediment to transaction. So there is some capital.
Everybody is going to have to heal up their balance sheets and get to a place to where deals can happen. So I think there's probably some time, but it is inevitable that it will happen. It's just it may take some time to get there.
Okay got it thanks, what I'm not going to.
Okay.
I want to thank everybody for joining our call today I appreciate your following us and your continued support and look forward to touching base.
Throughout the remainder of this weekend and in the future. Thank you. Thanks.
Thanks to everyone.
And that does conclude our call for today. Thank you for your participation you may now disconnect.
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