Q4 2020 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
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[music].
Please standby everyone and we're about to begin.
Okay.
Good day, everyone and welcome to the P. A a N P. A G P fourth quarter and full year 'twenty and 'twenty earnings call. Today's conference is being recorded at this time I would 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 a supplementary information is posted on the Investor Relations and news and events section of our website at Plains, All American Dot Com, where audio replay will also be available following our call. A day later this evening, we plan to pose.
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 consolidating 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, and 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 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 a 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 on 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.
We have positioned ourselves to generate meaningful positive free cash flow after distributions.
We implemented actions that improved our 2020 positioning by roughly a $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.
And 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 a strong midyear SNL results buffering the negative impact of reduced volumes on our transportation segment, we completed $450 million of asset sales electing a day.
For a process for a certain targeted asset sales into 2021, we also advanced optimization and efficiency initiatives throughout the year, resulting in more than a $125 million on opex and G&A cost savings, which we expect to and year in 2021 and future years.
And most importantly, we continued our progress towards our goal a 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 continued and increased our alignment with investors and external stakeholders, including many of you 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 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, a growth and prosperity steel cement plastic and fertilisers each of which require a 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 the 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.
From midstream infrastructure remaining and a central link between energy supply and demand.
As a result, we had a strong conviction and a long term value of our business and a 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 have also increased our sustainable disclosures over the past two years and we plan to issue an update a 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 and reset the base from North American production per 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.
<unk> 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 and more than $2 5 million barrels a day, which has created a significant level a surplus midstream infrastructure capacity for the foreseeable future.
Yeah.
As illustrated on slide five global demand is expected to continue to recover although the timing a global supply demand rebalance is subject to multiple variables, including on the demand side Covid global Covid vaccination pace and effectiveness and on a supply side, a number of dynamics, including OPEC compliance natural pro.
<unk> and declines.
A continued capital discipline from producers available surplus capacity as well as the impact of a potential regulatory and carbon transition impacts a.
I appreciate and 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 a 6 million are more barrels a day longer term.
Plains 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 a position us to general freight 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 a $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% a more free cash flow after distributions to debt reduction and up to 25% to buybacks.
And 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 on terms.
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 review, our current capitalization and liquidity and leverage metrics and provide additional color with respect to our outlook for 2021 and.
As shown on slide seven fourth quarter fee based adjusted EBITDA, a $555 million was slightly above our expectations transportation segment results were in line with our expectations, but decreased 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.
<unk> 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 of 2020, effectively offsetting the impact of asset sales completed late in the year.
Fourth quarter supply and logistics results, a $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 a 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.
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 incorporates the anticipated impact of a $150 million increase to our 2021 on asset sales target.
And additional reduction and our investment capital program and.
And refined expectations based on our current outlook for 2021.
Additional segment level discussion is provided on the slide which recaps notable variances to our 2020 results with.
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 above our November estimate due to the increasing of our 2021 asset sales target by a $150 million to a total of 750.
<unk>.
A 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 with a prerequisite of high return must do no regrets for every incremental dollar of invested.
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.
I'll note that a high level overview of a 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 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 a meaningful asset sales like we are forecasting. This year, we may allocate a higher relative percentage towards debt reduction and recognition.
And of the EBITDA loss associated with the assets sold 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.
Our goals for 2021 are outlined on slide 11 and.
We remain very focused on a 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 and 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 team and a flexibility.
Ability of our assets to meet the evolving energy landscape.
Energy infrastructure is and will remain the critical link between a new supply and demand and we believe in a 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 a continued progress.
With that I'll turn the call over to Roy who will lead us into Q&A.
Thanks, Willy I'd mentioned this 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.
Thank you. Thank you I'd like to ask a question and at this time you May six also a pressing star one on your telephone keypad, Okay and from a speaker phone. Please make sure you may comes from MS turned off to a lag a signal to retest once again Thats star one.
And that 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 moment.
Okay.
On the first.
Jeremy Tonet with J P. Morgan.
Hi, good afternoon.
And Jeremy.
Just wanted to dig and a little bit more if I could on the fee based guidance for 'twenty, one coming down a little bit here <unk>.
Appreciate a portion of it probably is coming from a bit more asset sales, but still it seems like that type of a poll.
From a bridge there and if I think about when you guys gave guidance last quarter.
Anything the environment has probably somewhat improved with GAAP UTI 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 a downward bias to the guidance here. So just wondering if there's any other moving pieces and we should be thinking about.
Al why don't you take that yes.
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 non.
Sure.
Cushing into the water 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 on level one.
One thing to add there is a significant component of areas as al mentioned the optimization of capital we've worked on eliminating additional capital by Visco and projects and that's a significant component on the pipeline size and Thats really a deferred revenue.
Lost revenue opportunities and we've worked on those components. That's the biggest driver and the capital reduction and also a revenue from a net free cash flow basis, and neutral to positive and longer term, we haven't lost a revenue generating opportunity.
And Jeremy one more thing that I will ask Jeremy Goebel to comment on our premise for the Permian really even though in a 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 taken 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.
This is Jeremy again.
2021, and our view and Jeremy usually asked a question second and so I'm, just kind of preemptively and answer at a modest growth of one and 200000 barrels a day this year larger public companies, taking a 60% to 75% a recycle ratio reinvestment and thats trended down as prices have run up we really haven't seen that.
And material increases and rates to drive additional production growth.
This will ultimately to the upstream comfort companies being in a much healthier position going into 2022 if prices.
Stay where they are.
<unk> leads to more moderated growth and pre pandemic.
<unk> levels, but it could lead to more ratable growth and more predictable growth.
Everyone on the production side, and we're being cautious with respect to adding incremental production until demand returns and then the OPEC barrels come back to market. So what do you see those two things happen and I think youll see a more constructive environment for activity and you'll have a healthier balance sheets.
On the smaller E&ps and some of the under Levered and private guys are getting out in front of a this but not enough to make a material impact on 2021 and this is largely around the Permian rest of basins, we have largely flat to slightly declining even with the higher flat prices. So while that may be deemed conservative if you think of.
Any rig additions and our impacting six to nine months out a production.
Anything that's happening and this friend periods really impacting the second half or the latter part of the year a very.
A very constructive going into 'twenty and 'twenty two but.
For obvious reasons being cautious until demand and OPEC barrels a day back to market.
Alright and levels.
Got it that's a helpful color. Thank you for that.
And maybe kind of just shifting gears a bit here with a moving propane as as we've seen it a.
We were thinking it could be more kind of upside bias to ask.
And al here, but it didn't look like there was more.
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.
And someone else could derive more value from just as you think about coring up your business getting paying down debt and <unk>.
Creasing, a return to shareholders over time.
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 a largely in the Midwest and the northeast so as those inventories drop basis improves or capture more opportunities, but some of that could be pushing into later in the year is that a cold has just started but a more persist.
And this is a cold weather a more likely youll see draws to a more normalized propane and those regions and it could just push the opportunity out into later in a 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 Gulf coast.
Polls and not necessarily hold and northeast.
Hey, guys. This is Harry and I'd also add.
And what you saw last year, especially.
And with the inventories and Canada was 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.
<unk> and Canada, we actually ended the year with excellent.
Higher than normal inventories and.
And Canada, so that also.
Impacts.
The margins to generate a out of that business and we have seen a run up and.
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.
So we don't sit there and just a.
It takes a lot prices.
All day long so.
You have to factor that into your thinking too just because near term price is pop doesn't mean that we are.
Exposed and likewise.
And we took away a production I guess so.
Yes.
Got it and I'll stop there and thank you very much.
Thanks, Jeremy.
Next one and those cashmere cristiani with UBS.
But a good afternoon everyone.
Just wondering if we can because a PDR and the guidance.
Responses to a chair.
And these questions.
The explanation if I understand if you can sort of a square this from me a little bit is.
And partially due to asset sales you also said that there's going to be less capital and <unk>.
You mentioned the optimization thats part of it but I mean, the Capex is only down about 80 million Bucks.
And it correctly in your slides.
Was wondering if you can expand on a little bit on are you, saying that youre a more conservative than you were in November.
Just trying to understand and like you can get into a little a bit more detail about what's changed and then secondly.
Given the asset sales can be a lot lower 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 of the things I want to make sure people realize when we talk about where we are embracing it.
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.
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, a physician's off and that would allow for a release of.
And the short term debt our working capital.
But we are being optimistic around it.
Okay great.
Follow up question.
And in the appendix and todays slides, you've got and Investor if a Q on the.
And specifically address federal lands.
I was just wondering if you can expand on a federal lands exposure I think during the last call. You had said there was about 20%.
But it's not what's given us a slide here I was wondering if you can sort of talk to what do you think your exposure is.
If the current.
Drilling pause a protocol.
And last for more than a couple of years.
Jeremy you want to take that.
This is Jeremy Goebel.
I wouldn't say one.
We're in a wait and see mode I think from a a producer standpoint consistent with other commentary on other calls.
And 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 land and right away on on multiple fronts will it be.
Well it would potentially take longer times to get permit, but thats definitely possible, but I don't think people have given up on a new Mexico at this point.
And I think theres, a lot of opportunities and opportunity around it will that impact us zero and produce capital as well as.
Potential impact on production, but still a at 15% to 20% number from a total dedication, but a lot of the producers that we have a 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 then.
We don't get a new Mexico, we don't get it at all so I would say, there's probably a pivot to more state land and Texas and a lot of the same producers. When you have a new Mexico have significant inventory that would be well on the money and on the Texas side and so I don't think you can just say plains is going to lose 15% to 20% and you have to look at the whole picture and so I'd say it's.
<unk> was launched a new Mexico is not a total loss per claim is one way to look at.
Got it. Thank you very much price really appreciate the color. Thanks, Greg.
Thanks Shneur.
Well move to Michael Blum with Wells Fargo.
Thanks.
Good evening, everybody I guess first question I wanted to ask was around a decision.
Continue to allocate some of the excess cash flow through buybacks.
And just given a reduction in EBITDA guidance and from.
Perhaps some of the pressure that will put on a balance sheet why not just use all your free cash flow to reduce leverage and wait for a bit of a rebound.
I'll make a comment on al and I think can jump in and add to it.
One of the big things that I am glad you brought up free cash flow because thats 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 a 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 debt reduction a 75% or more.
Again with the vast majority of what we expect and our and our guidance upcoming from asset sales, we're going to recognize that that we're probably going to have to allocate more against a debt reduction.
And this year.
And so we're very much focused on that but we also on available to support.
And our equity as well.
And so again leverage valuation of our shares as we go throughout the year 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.
A 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 a I'm sure you don't want to tell everyone here what assets.
And considering but.
Should we assume debt 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.
Move to Keith Stanley with Wolfe Research.
Hi, Thanks first wanted to follow up on the last question on the asset sales so.
Can you just give more color on I guess, the a the amount of progress you've made today, where you are and the process. It just it's a big dollar target should we think very active discussions now is it still mainly identified assets and thoughts on timing for executing that throughout the year.
Jeremy.
Yeah. Thanks. This is Jeremy I'd say year to date, we've closed $20 million and asset sales, which those assets.
Ups generated close to $2 million annually of EBITDA and the rest are in various stages, whether it's and.
On a bid rounds kicking off a process, but all.
Sales processes are underway, so that 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 a.
A 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.
I'm not sure if you've broken ground, yet and just an update on the process and timeline.
Keith I'll, let Chris Chandler and all 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 pipe spent ordered we've secured a 95% a the right away.
We're targeting to begin construction and the second quarter, a this year and a.
Still a targeting to have a line and service by the end of the year.
I will note that we are taking some time to continue our engagement and the community. We 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, what's moving.
Hi, how are you.
A follow up on the discussion around Q1, EBITDA guidance looks like its just shy of $500 million can you frame to what degree and the step warm and is driven by the fee based business.
Essentially a negative result, and also now on them and just as a follow on Q1 traditionally a seasonally stronger quarter due to NGL marketing margins and what's not.
And from CBB wants them to drive that.
As a portfolio dialed in later quarters.
And all.
I'll take a shot a.
It's a large piece of it is related to the fee base.
Necessarily assuming a strong strong ethanol a quarter.
As well.
But.
There's a number of things that debt at a.
And the differentials and the.
On the market.
And we're moving barrels out of the Permian, whether it's to cushing or to the water.
We've modeled some some impacts relative to a refinery turnarounds.
And again, we've had on our gathering systems, we have some producer forecasts that have been a.
A revised down for first quarter, not necessarily and impact for the whole year.
And 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 <unk>.
Continue.
MVC timing on pipes have have a have a bit of it as well as well as just some some natural timing on a operating expenses. So no one particular.
Item, but a large piece of it as a result of the two fee based segment.
Yes.
Got it and then just a follow up on Jeremy's comments around producers potentially reallocating from new Mexico to Texas with federal permits aren't forthcoming.
Or a material variance in infrastructure and positioning between the two regions of the basin thinking in terms of potential capex impacts it produces more than a shift their longer term allocation plans.
As a Fitzgerald me, a realistically and new Mexico, we do more of a wellhead gathering and Texas a lot of our position is around and central gathering and so those conditions are on.
Midland side, there's some wellhead can export 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 tariffs are somewhat similar between the two regions.
Thanks, I appreciate the time.
Thanks Colton.
Next I'll move to Jean Ann Salisbury with Bernstein.
Hi, Doug.
EBITDA for the next.
Net Gary that is 42 per barrel, which is blurring and.
And I came here.
And that slide nine that you can talk about that Larry and on the thanks Shannon.
And on crude starts to put it together and 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 a steep contango and backwardation and the NGL.
NGL side and the crude side and it's just less opportunity his stores. So I think part a that is driven there.
From a structural standpoint, and they should get to a seasonal norms 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 there's some debt facilities aren't as fully utilized.
Because of evaporation.
Got it Greg.
It can be from yet, but it could be pure storage.
And any other the other point this is al and I would throw out on on just you mentioned the per unit. Some of the assets sales have impacted the business mix there as well like the L. A terminals as an example.
Net debt, we divested that here in 2020, and the fourth quarter and.
Some of what we anticipate a change that business makes a little bit on a per unit.
Basis.
Okay.
Okay.
A follow up on that I thought that must be a great storage went on and you can.
Call it operational and.
So much of a total <unk>.
And backwardation and that's it.
And a on the margin what debt.
Net.
Uh huh.
And this is Jeremy on.
On the NGL side, it's more.
More exposure to the a seasonal spreads and lower contracted on a crude side of our large facilities debt largely contracted there is some operational stories, we can contract opportunistically when youre in a steep contango like last year. So we can flex and make more available to last year with a C.
A contango.
We're able to flex and a more but a large facilities that are contracted that has and 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 really helpful.
And then just a quick follow up and <unk> does end up having to shut down a lot.
And the availability of your Bakken rail terminal start letting and thank you.
Alright on G&A and this is Jeremy again.
And you that is a secondary impact relative to the other exposures, we have a friday and locate our.
Our wolfcamp, a and in Bakken and 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 and Cushing from landfill that it could be substantially larger impacts and that's readily available now.
But where could we will be able to rally two yes, it will but I think the impact would be substantially Margaret on the pipeline side.
And gene and this is clearly one comment on one comment I would make is clearly what we what we all seek as regulatory certainty when you have permits.
And so that we're watching this very carefully but as Jeremy talked about we do have 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 gift barrels to market and capture some value there.
And then and I couldn't agree more and thank you very much of a step up.
Thanks, Jean Ann.
On the next to Michael Lapides with Goldman Sachs.
Hey, guys. Thank you per hopefully my question I hate to beat a 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.
We arent forecasting a $750 million of asset sales and how.
Much debt.
And so those asset sales from ones, you've now completed and impactful guidance from there.
I'm not sure we can comment on that Michael I mean, you can you can apply a just a round number a multiple and what to get on order of magnitude, but I don't think were ready to disclose that.
But mike on its somewhere between that.
I used somewhere else thats, having a point.
I'm directionally on I'm, not going to be terribly Carl.
Michael This is Jeremy I, just don't want to disclose anything that could impact valuation on a current processes play to understand and those are confidential and we don't want a guide in any way on the asset sales and a potential impacts and I hope you can appreciate that.
And when you listen a helpful. This.
This may help a little a bit as well when we everything we've been talking about as far as guidance.
And in November.
We were $50 million higher on what we thought our preliminary guidance for a per transport or the fee based was where we sit today with the disclosure that we've shared on a flat slightly up.
And 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's fixed there remains a lot of uncertainty going forward and so the measured approach to where we think things are going I think is actually prudent and anything that we look.
And at a lot of it is going to happen later in the year as Jeremy and Gulf mentioned so.
I just want to make sure I qualified as people think about where we are on on how we're thinking about the year and it is a measured approach with certainly a less impact on 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.
That's super helpful. And then one follow up.
Just curious I was thinking about the Canada business and how it fits in.
On the broader portfolio.
Jeremy.
Greg This is Jeremy so the Canadian business, we spent a.
From a better part of last year.
Integrating that system from a 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 I think we're really.
Excited about those opportunities and view that and a core asset and a business that we've been working around.
And to better understand and more commercially aligned with how.
We operate and manage risk here and the United States. So I think.
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 well move to swallow a product with bank of America.
Good evening, everyone. Thanks for taking my question I appreciate the color so far on guidance.
Just wanted to go back.
On a song of the comments you made on the Capex coming from rationalization, what GP cash flow NPV neutral or.
Are you able to comment where you need the capex reductions and that particular regard and.
Whether this could limit.
Operating leverage if we see stronger recovery and growth than you are and distribution.
Yeah <unk> this is willie.
We don't want a share the specifics of any one contract, but you did bring up operating leverage I will tell you you know again and should go into this and our mission was to stay ahead on the production side and so when you think about our system I know I'm sure. There's a fourth faults in the Permian, we had roughly 5 million tariff barrels a barrel capacity two and.
Gathering too and interface and one on 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 and we'd be able to take take advantage of where kind of a in efficiency mode. Now we're trying to consolidate assets.
Our a drag reducing agent and balancing all of those kinds of things, but if theyre barrels and need to be moved.
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 available to us to optimize relative.
This is Jeremy.
To put a bow on that I think.
And what Youre hearing really say is that a reduced capital doesn't impact our capacity a anyway and so this is.
We're able to use the flexibility and commercial structure of our business to get to the same resolve and for our customers without spending a capital. So this is a 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 or just thinking per activity given the evolving opposition to federal debt ceiling here.
And while this is Jeremy.
You know what I would tell you is everyone's waiting to understand and the rules of engagement is premature to discuss that.
And discussions with the producers largely.
You have to look at it a connection and that's gonna be made in November where our we've already been working on and have right away. So I think very little impact to this year's plan is it likely that come with a locations and up drilling permits behind existing pads with existing right away I think youll see some of that but.
By and large the discussions and somewhat everyone's on 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. A 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 a complete roll and once they do it and we'll report back on what that impact flow.
And I think we're still on that transition we've got people just getting into a into a 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 a cap line reversal economics from contractual backing those contingent at all or a fully bought at all on on the line three expansion coming on from service.
Jeremy Gabe this is Jeremy.
It is not contingent upon the 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 a 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 on the plate was a jumbo from them.
And I gave this is willie and maybe <unk>.
This channel and.
And on some of the specifics.
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 a that's going to be a longer a.
Longer decision process, a development process and when we think about buying a renewable feel a renewable power and that's certainly a piece of it but the economics have to work for us Chris.
Yeah. 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 a 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.
<unk> goes a long 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 thats a reducing the number of generators, we use and hooking up the permanent utility power optimize.
And on our pipelines with drag reducing agent or how many pump stations, we operate or the use of variable frequency drives are what pressure, we operated at or whether we operate at full flow for 10 hours a half flow for 20 hours, we're doing all those things all the time and those have all contributed to 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 a 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're definitely committed to working through that process and I would ask and be patient with us on until we share a later this year.
Thanks, a lot.
Thank you Gabe.
Yeah.
Well move next to a sterile Jonas with credit Suisse.
Hey afternoon, guys hope, you're well a 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's a lot a spare capacity and there and so we are continuing to work with potential partners on how do you develop something where you can get a little rationalization and get a more capital.
Patiency and there so more to come on that I, just can't give you a timeframe.
Total.
Uh huh.
Follow 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, a strong and setting up for a good 2022, and I guess, if you look at the once your guidance talks about a 23% sort of a full year waiting.
You guys have also said that sales are going to be back half weighted and so I guess, a simple way I thought about it was I would've thought the first part of the year would have been maybe a higher percentage of EBITDA because of asset sales wait and see.
And you had mentioned that the setup here on a volume seems to be setting up for a stronger 2022. So are you guys contemplating a strong end of the year and and is there a negative rate on volumes that you could share.
You know the a.
The only the only number I'll share with you is we did talk about the Permian and it's a 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 on the NGL side Youre going to have more sales weighted there.
And the profile a sales for the NGL business will be different this year than a historically, we entered the year with more inventory was higher inventories now and we have more inventories to sell and it's on cold weather is just occurring now it may push some of the sales into the latter part of a year. So I think a lot of this is the sculpting of the NGL sales out of a fourth quarter of this year first quarter.
Fourth quarter of last year first quarter, a this year and the subsequent periods.
I appreciate the color.
The only thing I would add to that too as well.
We do.
We are assuming that our transportation segment, while the Permian.
As is.
It's 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 half a 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 when assets are contributing that's really just.
And while the pipeline.
Pipeline has started out do you have some interim service now with a real commitment and I'll start and until the latter part of a year.
Got it thanks, again, guys and be well.
Thank you.
Yeah.
On this next to Tristan Richardson with tourists 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 producers are seeing today.
Mentioned and your customers are reticent to change plans, but can.
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 that earlier I think what you are.
Okay and <unk>.
Respect a current prices are propped up by available production off the market by OPEC and and meaningful numbers. So.
<unk> is it the U S per user base. It goes and adds a bunch of rigs and commit to a bunch of additional production and weather demands a delay and recoveries delayed or OPEC pushes barrels back on and that could change the balance and so I think part of this is <unk>.
Waiting for demand and recover which could be I think we showed some slides earlier in a year that shows a forecast which had ramps between now and the end of 2022 with roughly half of it.
And returning this year.
It's 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 and this period is not a bad in a right.
So there may be any core activity.
Go ahead.
Hello, and 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 a asset sales I think we really think a 2017 and 18 and.
Time periods, where you you 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 got a further were strong 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 a.
Or they have operating risk or a high maintenance capital things like that and that have different risk profiles, let's say.
All of those are things that are candidates for sale and you'd see a lot of the.
A smaller NGL facilities around the United States, we've been selling as we moved out of that downstream type market. That's a a strategic exit from those and you've seen packaged those sales so I think.
And that's 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 positions. Some you've seen like bridge techs that we have put a lot of the assets you probably couldn't payments just those things, where it's not something where our three business segments. All are aligned on.
Optimizing value and being in a leading position, but historically, we've also sold interest and assets, where the counterparty has brought value. So that when you look at and NPV basis, It was actually and.
NPV accretive to us to sell.
Sell down a portion of our interest and all.
Sure.
A partner with them with a counterparty that a 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 a great question from Bulks and I, just want a kind of reiterate kind, a where I see things going here and.
There are some green shoots out there hopefully we'd characterize that.
There is still uncertainty out there.
And we talked about our measured approach and and how we're looking at on the volumes.
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 a as efficient and we're ultimately in a a commodity business 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 a.
A little opportunity to jumpstart some some additional deleveraging and so it's really that a balanced approach to deleveraging and getting getting a value back to shareholders and unitholders and we really think we're on a right path going forward.
We're cautiously optimistic about the future again oil prices are pretty sturdy, but I can tell you once you're a thing that happens, sometimes if and we've always heard the comment about prices fixed prices and 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 think.
The whole industry right now is really is it's moving forward, but I think it's a it's still some.
A question, we'll 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 a year patients. This afternoon, and we look forward to chatting with you as we do.
And on 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.
Yeah, a very welcome that does conclude our conference call everyone. Thank you for your participation you may now disconnect.
Okay.