Q3 2021 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
Caps could be in the range of three to three 5% some of them have banking some of them don't so yes. We are absolutely exposed that will be incorporated in our guidance when we have a better view in that.
In February but I would say we are monitoring it were paying attention it should more than offset the cost, but it's something that we will give you a better sense for what that impact is because some movements like spotless, that's won't be impacted by that.
Let's not take all of it and we will be exposed to that but I would just say, let us give you some guidance in February once we have a better sense for what that looks like and what volumes on different types of work right.
Or do you want to just confirming what you mean by exposed.
Escalators exposed just means we have escalators in them that there's an opportunity for exposure to.
Escalation you also exposed to costs, but lower capital budget higher revenue exposure should be directionally positive, but we'll give more guidance in the spring or in February Jinan did that answer your question.
Yeah.
Yeah.
So I appreciate that and then as my follow up congrats on getting the cap line reversal then.
100000, that's flowing out.
Roughly how much is coming from Canadian crude versus <unk> and kind of talk about what would cause that number to go up is it just kind of more production.
And in Canada are there kind of a specific third party project expansion if I could.
Pick up on getting getting more crude.
Yep.
While there is never an easy answer to this but I'll, let Jeremy.
Give it as best shot here.
Say to your first question, we would expect it to be 100% Canadian crude and to your second question I think there's a number of projects potentially restructuring how crude gets across the Canadian border and what markets. It goes to and so once there's clarity with enbridge and its shippers and Trans Canada shippers.
I think we will see how much how many barrels flow to the telco and the potential to expand it. So we definitely think theres opportunities to increase from where it is today, but there needs to be certainty of which barrels ended up in Tokyo, New S shipper history to get there.
That's very helpful. That's all for me. Thank you.
Right that's correct.
Thanks, Jean Ann.
Yes.
Next one on acute is colton bean from two door Pickering Holt <unk> company. Your line is now open.
Great.
Just wanted to follow up on <unk> comment around lower storage rates at Cushing any rough sense as to the volumes rolling over the next year or two and just general exposure there.
Jeremy.
I'd say, we actively manage it so it's staggered over time and obviously the further out you get okay.
The near term uncertainty is less we're just putting it out there that hey, there is some exposure, it's not hard, but it's nowhere near 100% of the contracts.
As you know.
Generally for our facilities, they're highly contracted assets and for the next 12 months that will be highly contracted assets, but we're just making people aware of lower inventories does put pressure on whether it's spot movements or theres no contango opportunities around there. So some of that as more of the opportunistic storage that us and our customers experience.
We'll be there so it can be limited to throughput and storage rates, but incremental success of storage rates will be at lower rates than historical one. So there is no near term cliff. It's not like Cushing is gonna be fully exposed to next year. It's a much smaller portion of that is just something we're pointing out that backward dated market make it tougher on facilities and operate.
So you are running with no Cushing right Youre running it bottoms in the system.
Got it and then maybe switching back to cap line, you mentioned needing to know how many volumes show up in personal care.
Is that the is that kind of thing.
Preferred option now and seeing what producers and refiners are looking at or is there any opportunity to structure a bundled rate all the way from Alberta.
I think theres always opportunities, but I think the key thing now is they're trying to enbridge is trying to understand what the rules are right too.
How they agree on what it is so in the future certainly to tab of joint and rate.
But I think near term getting it there and having a right across I think.
They just want certainty where the barrels are all in we've had discussions with all of the longer term carriers, but I think the uncertainty of what the structure looks like and what they can offer us as pressing it relative to adding additional joined.
<unk> tariffs with third parties.
The comment I would make this is Willie again is if you think about.
The longer picture.
Theres always going to be abnormalities.
For periods of time, whether or not youre going to be up in a backward dated market.
Tango markets. If you think about the production profile and what we believe to be the the energy demand that's going to be needed in the world are long term barrels are going to flow to the water.
And.
It may be quarter, two quarters, three quarters away, but as constraints gets fixed.
Efficient paths to markets ultimately get filled and Thats, what we believe in and that's what we're playing for.
Got it thank you.
Yeah.
Thanks, one on acute as chase move you from Bank of America. Your line is now open.
So just wanted to come back to the line of questioning around the Permian I think last quarter on the conference call you guys talked about kind of stabilization of Permian oil volumes kind of in the near term and it really didn't expect much growth until you got to around the mid part of next year.
If I missed it I apologize, but could you kind of update us on kind of your view of Permian oil volumes over the near term and do you expect those to grow now just given the iron ore price.
Yeah. So chase, we probably would rather give a much better update after we hear when all the producers are going to be doing but you are correct in that on our last earnings call. We had a lower a lower rate that we thought the year would end at and I think because of the increased completions I mean, you had stepped up clearer.
It's higher I think the trajectory is probably similar where it's going to be flatter and then ryzen in 2022, Jeremy you want to add to that chase.
We had the last call in May and I'd say.
July and August were very strong months from the end of June July and August were strong months for completion and so our four five to $4. Six is moved to four eight to $4 nine which is more in line with consensus but after that call I'm sorry. In August we were just starting to see that wave and then now where we're seeing that continue.
I think you're always going to see towards the end of the year as people make sure they hit their capital budgets a bit of a slowdown, but usually it ramps up in the first part of next year when the capital budgets are reloaded. So I think from a shape perspective, it'll continue to grind higher I'd say.
Drilled and uncompleted wells with that inventory continues to get exhausted youre going to need to see rigs to show up for sustained growth and so we would expect to see some of that in the first quarter of next year.
I was giving specific guidance the way to think about it as the private operators continue to.
AD completion crews and rigs as you've seen in the industry has seen I think your large and midsize independents are largely holding the line even at $80 oil I don't know third party pressure, whether it be from the government or are investors started looking for growth at those level because the returns are high but they are holding the line where else.
So seeing the integrated start to look to step out and potentially add activity. So it's.
Not a perfect picture right now, but we have a good sense for what's happening.
And we will have a better one in February but if I were to give you a qualitative answer to what's going to drive growth right now it looks like the integrators will start to step up activity in the privates will drive growth Youll see allocations of capital.
That'll be important to people allocate capital to other basins at the higher prices since they do work at these prices or do they stay within the Permian and let those decline I think these are all things that will bear out between now and February.
Alright, that's helpful.
Pretty bullish on the wholesale service go over here, we're pretty bullish on activity levels.
'twenty two.
Hum.
My quick follow up question.
Turning around kind of Cushing and I guess, maybe I have a question on inventories obviously inventories are below five year averages or even five year lows.
And for this time of year.
Obviously global oil supply demand dynamics are pretty tight with OPEC still holding crude off the market, but we probably need more at this point.
But as we kind of move into 2022 balances probably.
No.
At least kind of balance out a little bit.
And you know maybe that they may be a little bit oversupplied, depending on kind of what happens with Iran, and some other things, but when you think about that and things kind of moving from Cigna.
Significantly under supplied to a more balanced you might start filling Cushing again on the inventory side. So when that happens what do you think those barrels actually come from and if theyre coming from the Permian and just kind of help us understand.
The operating leverage you would have.
Those barrels come.
Come back into Cushing, if they come from the Permian.
Sure I think what.
Where they come from has once again become dependent on the capital allocation to the Rockies mid continent and apps.
Absent growth in those markets.
Canada Youre going to have some from the line three expansion, but absent that youre going to see if you see continued increase refining runs.
Youre going to need to pull on the Permian to supply those because inventories and supply and.
In basin, and Sunrise will be our primary exposure there.
The contracted portions of it and you've seen throughout different quarters. This year when when there is a poll when Canadian upgrades are down or when the balances pull like they are today youll see exposure from the base in the corridor and Thats a pull through from the gathering system to the Sunrise and basically I'd say, that's the primary lever.
And then anytime theres throughput in a terminal there's additional fees in terms associated with that in the in the Cushing market as well, but that's where you would see.
We do agree with you that if demand continues to grow at this pace and there's no additional upsets from Covid.
Supply will be outstrip demand will outstrip supply and that should drive additional rigs and allocation of capital to the Permian because you'd have to think at this point.
Theres, probably higher discount rates and steep backwardation associated with longer dated projects. It probably pulls capital into short cycle projects, you'd probably see even more waiting with the guys who have other options.
We do agree with you that that could happen, but forecasting that's pretty difficult from where we sit right now, but we will have a better sense of February.
Hey, Jay.
One thing to add to that if you just want I want to just give you a perspective of our system that we have in the Permian. If you think about our gathering intra basin and long haul lines, we have access to multiple markets. So as Jeremy described what was happening in the flexibility on basin. If the if the R supports moving barrels to the coast. They go to the coast if they are.
Supports going to Cushing, we have the flexibility to get volumes on basin going up to Cushing.
What it does do is a lot of a lot of the volumes that we have gone to the coast or supported by minimum volume commitments. So a person can opt to send that up to Cushing, which we would get the benefit of the tariff.
And.
We would then have a little bit more noise on the transportation side on if a barrel didn't flow, we still get paid there'll be some deficiency payments, but I just wanted to reinforce it's a benefit of the system that we have and that we have multiple outlets that we could get some benefit from.
It makes sense, Randy I'll turn it back over thanks for the color.
<unk>.
For the next question, we do have Becca Followill from U S Capital Advisors. Your line is now open.
Good afternoon, you guys talked a little bit about that youre evaluating SNL and you're reporting mechanisms.
<unk> pulled that into other segments is there any other visibility that you may be considering in terms of providing additional information on Canada or others.
Other segment reporting.
I'm going to let al Swanson dress that Becker.
We're going to take a look at what we think the right reporting would be <unk> structure Becker and if we do decide to make a change which we havent yet.
We'll come out with that in February So I think it's premature to try to speculate on potential changes.
Especially when we haven't decided for sure that we're going to make them.
Can we put in requests in the meantime.
Yeah.
Our IR team is available to phone calls after the.
<unk> always noisy clearly.
Bring it on Becker bring it on.
As you know the reported the segment reporting structure.
The mirror kind of how we are managing the business centers.
Some very.
Particular rules around that.
We have to keep in mind as well.
That's all thank you and I don't know if you talked about it early in the prepared remarks I apologize. If you did the $200 million asset impairment what was that for.
Al you want to cover that yeah. It was our remaining terminal on the East Coast Yorktown.
Gotcha, Okay. Thank you.
Thanks Becca.
Alright, there are no further question on acute I'll now turn the call over back to the presenters.
Well once again, we thank you for your continued interest and support of planes. We look forward to giving you more more updates as we go forward. Please stay safe and I will say go Astros. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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Good day, and thank you for standing by walk them to the PAA and PAGP third quarter 2021 earnings conference call.
This time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session. So ask a question. During the session you will need to press star one on your telephone if you require any further assistance press Star Zero I would now like turn the conference over to your Speaker today, Mr. Roy Lamoreaux. Please go ahead.
Thank you Tina and good afternoon, and welcome to Plains, All American third quarter 2021 earnings Conference call.
Today's slide presentation is posted on Investor Relations website under the news and events section at Plains, All American Dot com or an audio replay will also be available on today's call important disclosures regarding forward looking statements and non-GAAP financial measures are provided on slide two the condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix.
Today's call will be hosted by really changed chairman and CEO announced Swanson executive Vice President and CFO. Other members of our team will be available for the Q&A session, including Harry <unk>, President, Chris Chandler Executive Vice President and Chief operating Officer, and Jeremy Goebel, Executive Vice President and Chief Commercial Officer, and Chris <unk>, Senior Vice President Finance and Chief accounting.
I'll start with that I will now call turn the call over to Willie.
Thank you Roy and thanks to everyone for joining our call well, what a difference a quarter makes since our last earnings call oil and gas prices are materially higher as global demand returns to pre pandemic levels and the markets are increasingly concerned about a supply demand imbalance.
Once again, the Permian appears to be the obvious choice for increasing domestic oil production reinforcing our confidence in the long term outlook for our business in terms of the third quarter, we delivered better than expected adjusted EBITDA of $519 million. Despite some operational challenges at our Fort Saskatchewan fractionation facility.
We continue to execute on a number of our initiatives.
We have maintained our 2021 adjusted EBITDA guidance of plus or minus $2 $1 7 billion. This is despite an approximately $40 million negative impact of nonrecurring and timing related items, which includes a fire that we experience experienced at our Fort SaaS facility in late September Al will discuss the 2000 <unk>.
'twenty, one EBITDA impacts relate impact related to these items in his prepared comments.
With respect to <unk> SaaS, while it's unfortunate that this incident occurred.
Acknowledge our Canadian teams execution of our emergency response plan and that Fortunately no injuries occurred our team's been assessing the damaged area and making the appropriate repairs to return capacity to service in the near future.
Now, let me shift to our 2021 outlook and positioning for 2022, which is summarized on slides three and four.
Notably, we further reduced 2021 investment capital by $50 million and have increased forecasted 2021 free cash flow after distributions by the corresponding amount to plus or minus $1 4 billion.
This reflects our continued execution of the goals and initiatives that we outlined at the beginning of the year, which have centered around maximizing free cash flow and consistent with our plan. We have allocated this free cash flow to reduce debt and to execute our repurchase program and we have improved our visibility to increased cash return to our <unk>.
Equity holders, including prudent distribution growth as leverage approaches our target metrics.
Additionally in October we closed the planes Oryx Permian basin joint venture and are confident in our ability to achieve the JV synergies that we've previously identified in fact, we expect some of the synergies will be recognized earlier in 2022 than anticipated and overview of the JV is included in the appendix.
With respect to our remaining key projects the fully contracted wink to Webster JV pipeline running from the Permian to the Houston area markets is scheduled to enter full service around year end with committed volumes scheduling to begin ramping up in first quarter 'twenty, two and continuing into 2023.
Additionally, the NBC back topline JV reversal for South bound service from <unk> at our St. James is on track line fill from Paducah has commenced which is expected to be completed in December and is on schedule for January 2022 in service date.
Cap lines initial throughput is expected to be approximately 100000 barrels a day and our system has adequate capacity to serve growth in Canadian production.
Regarding sustainability, we have continued to advance on multiple fronts.
Publishing our sustainability report in July we have received positive feedback from investors and we've seen notable improvements in our ESG scores from our key third party ESG rating agencies.
In August we announced further improvements to our governance, resulting in a 100% of planes directors now being subject to public election, and just last week, we announced the appointment of Dan No Act to the role of Vice President emerging energy and process optimization and the formation of a cross functional entered emerging energy team.
Dan has been with plans for 13 years, most recently as vice President of operations for our natural gas storage business, we're taking a very thoughtful and disciplined approach to evaluating a number of opportunities in and around our existing asset base and operations. We look forward to sharing more information as appropriate in the future.
Now, let me make some comments about global supply and demand and industry fundamentals that are shown on slide five and as further detailed in the appendix hydro.
Hydrocarbons are absolutely critical to the global economy.
Demand is recovering to pre COVID-19 levels, resulting in sustained inventory draws against our multiyear backdrop of reduced upstream investment and a continuation of OPEC discipline.
Global energy markets are tight with storage shortages in traditional energy sources, including natural gas coal and crude oil as evidenced by the increase in most all commodity prices as seasonal heating demand approaches.
Global supply chain disruptions are exacerbating product shortages in certain regions and incentivizing increased coal fired power.
Generation on others.
We believe North American energy supply will play a very key role in satisfying global demand in the Permian is positioned to drive the vast majority of U S short cycle production growth.
Permian completion activity has increased since our prior earnings call reinforcing our confidence in the magnitude of production growth, which could be approximately 2 million barrels a day in four or five years, assuming no material change in present day producer discipline capital recycle rates as well as no significant supply chain impacts.
We look forward to providing additional updates in February with the benefit of timely data. Following the completion of producer budgeting season that is currently underway.
We believe that plains is very well positioned to serve the global Paul on North American energy supply, which also positions us well to generate significant free cash flow going forward, which is summarized on slide six.
With that I'll turn the call over to al to cover our third quarter financials full year guidance and capital allocation al. Thanks Willie.
An overview of our third quarter results as illustrated on slide seven within the context of our full year guidance and directional estimates for the quarter third quarter adjusted EBITDA of $519 million.
Seeded our guidance expectations driven by the.
Stronger throughput across our Permian pipeline systems, and hub terminals as well as incremental NGL sales in Canada, partially offset by operating expenses associated with the port faster incident, and a continuation of supply and logistics margin compression.
Additional detail on our third quarter transportation and facilities segment results are summarized on slide eight.
Our capitalization and liquidity metrics are provided on slide nine total debt decreased approximately $650 million during the quarter and approximately $1 billion since year end 2020.
Proceeds from the gas storage divestiture were temporarily used to reduce bank debt and commercial paper borrowings.
We intend to ultimately use the proceeds to retire the $750 million senior notes due in June 2022 at the March 2022 par call date.
Our long term debt to adjusted EBITDA ratio was three eight times at quarter end.
It remains above the high end of our target range and reinforces our commitment to further debt reduce debt slide.
Slide 10 provides a recap of our capital allocation plans for the year, including a summary of the equity repurchase activity. We have completed since we implemented the plan last November in total we have repurchased $18 1 million PAA common units for $167 million with <unk>.
$64 million repurchased in the third quarter.
As Willy mentioned and as detailed on slide 11, we have further reduced 2021 investment capital and continue to expect an annual run rate to range between 200 and $300 million.
As detailed on slide nine.
2021, adjusted EBITDA guidance of plus or minus to $1 $75 billion.
With that reflecting third quarter transportation segment over performance offset by an estimated $25 million impact from the <unk> SaaS incident. In addition to approximately $15 million and timing related items comprised of Wink to Webster entering full service roughly two months later than we had previously.
As we forecasted and an MVC deficiency timing shift into the first quarter of 2022.
I would also note that 2021 guidance does not incorporate the planes oryx Permian basin JV as we do not expect the JV to have a material incremental net EBITDA impact on our full year 2021 result.
Which is consistent with our discussion on our JV announcement conference call.
<unk>.
November guidance into context relative to our initial 2021 guidance furnished in February and illustrates the most notable drivers to date and expected through year end.
Acknowledging the significant significant degree to which the margin based earnings reported within our SNL segment have continued to evolve over the past. Several years. We are currently reviewing our reporting segments to ensure alignment with our current and future operating decision.
<unk> as well as the competitive environment in which we operate.
Through this review we determined our segment changes warranted, we intend to incorporate this change within our fourth quarter earnings release, our 2022 financial and operating guidance and our 2021 10-K with that I'll turn the call back to will.
Thanks Al our third quarter results reflect continued execution of our plan we.
We've made progress reinforcing our balance sheet.
And divesting non core assets at attractive multiples, while exercising strong capital discipline and preserving our most notable strengths we have an integrated wellhead to market asset base and business model.
<unk> alignment with customers and partners throughout the industry value chain.
We have strategic positioning in key U S and Canadian producing regions demand centers and export outlets. We are a leading Permian franchise with significant operating leverage and we have investment grade credit ratings as we look forward. This positions us to generate significant positive free cash flow for years to come benefiting from.
Improved global fundamentals and a growing Permian basin owners of PAA and PAGP are positioned to benefit from this growth through our comment commitment to increasing cash return to equity holders over time with that I will turn the call over to Roy who will lead us into Q&A. Thanks, Louie prior to opening the call to Q&A I would mentioned that a summary of.
Of our 2021 goals and key takeaways from today's call are provided on slides 14 and 15.
As we enter the Q&A session. Please limit yourself to one question and one follow up question and then we will return to the queue.
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, at our IR team clarity available throughout the week to address additional questions.
Shannon were now ready to open the call for questions.
Alright, so as a reminder to ask a question you will need to press star one on your telephone.
To your question press the pound key again that is star one on your telephone please stand by them or we can follow the Q&A roster.
We do have a question from Michael Bluhm from Wells Fargo. Your line is now open.
Thanks, Good afternoon everybody.
I had a question on M&A really asset divestiture side, obviously, you guys have been pretty aggressive over the last few years I would say on that front.
I think you are effectively done after this year or do you see.
Continued asset divestitures in 'twenty, two and beyond.
Hey, Michael This is Willie thanks for the question.
And I appreciate the acknowledgment that we have been aggressive in optimizing our portfolio through sales.
We've completed $4 $5 billion worth of asset sales in the last number of years and we think we're we think we're probably at the end of the significant asset sales. However, we continue to look at all kinds of opportunities.
We believe in the efforts of continuous improvement, we always look to see if assets are worth more to others and there is a win win there. So at this point in time, we do not anticipate announcing a formal desk disposition program for 2022, hopefully that helps.
That helps thank you.
Maybe on a related note.
Any update you can provide in terms of efforts to either repurpose or rationalized pipeline capacity.
Out of the Permian I know youre seeing strong Permian volume growth, but.
Or is it still a decent amount of excess capacity.
Yes, I'm going to let Jeremy addressed this but I do want to make a comment I think we've proven ourselves that as far as repurposing and optimization and I will just point out that both the wink to Webster the project as a result of <unk>.
Consolidation and rationalization of a number of shippers.
And if you think about our repurposing of cap line.
And reversing it from an idle line to a line that's going to go on service, it's completely in our playbook, but I'll, let Jeremy talk about the Permian there are thoughts Hey, Michael This is Jeremy Goebel.
The industry as a whole so not just plains all the large owners of pipeline are looking at some projects make more sense than others. At this time nothing has been announced but I would tell you that that everyone wants that to happen.
But the counter to that is you're also going to look at supply and demand and based on production growth. So I think it's.
It's something we continue to look at we will look at it with other partners, we will look for rationalization.
And cost reductions across the system, we will look for Repurposing assets.
A lot of that is new some of the.
Potential alternatives that Dan is looking at and are.
And in the group and Chris's group <unk> that will be announced he's going to look at potential projects. So I think we're early in the process. It suddenly if those but the industry is looking at gas conversions were filed product conversions, all kind of not just in the Permian, but across the system. So I think.
Stay tuned, but this is something that it's going to take time, it's going to take industry partners to make that work and we're aware of it we're going to keep looking at it but but no update at this time.
Thank you.
Michael.
Yes.
Thanks, one on acute is shneur <unk> from UBS. Your line is now open.
Hi, good afternoon, everyone.
Maybe to start off.
There've been a lot of comments throughout this earnings season about positive developments in the Permian from a production perspective, some of the majors, we're talking about more volumes.
You have a slide on that as well also.
With the JV in place now with Oryx.
Do you feel that claims is better able to capitalize on its growth or are you able to give us a little bit more color than when youre able to give it the time of the announcement.
Again, I'll ask Jeremy to comment on this but the whole purpose sweep.
Did the Oryx JV is if you think about back to rationalization and trying to be capital efficient. We think that was clearly a win win win win for Orange win for us in winter for customers and putting that together, but everything we've done around the Permian is really focused around how do we build that integrated that integrated value.
Chain from from wellhead, all the way to markets and what the ability for us. The first purchase we think that really gives us a differentiated view of the Permian. So short answer is I think it's absolutely key to two Additionally building out our system in the Permian and I don't know Jeremy if you have any other comments you want to make about it shneur.
<unk>.
We just closed in about a month ago and so what I would say is.
Transition has gone very smooth.
Objective number one is turned the pipeline over safely continue operations and service existing customers and so that process is all going very well I would say.
You've already seen capital rationalization of our ability to defer or eliminate whether its expansions of our system or they're putting new connections in place. So I think we're seeing some of those on the cost side. We're rationalizing their commercially we're approaching that now. We're finally allows us to jointly approach our large customers.
And our smaller customers and we became the salt to customers and they are generally very excited about plans taking over operator ship. We're looking for long term solutions extensions of contracts are very stable long term cash flow from this asset and initial results are positive and we're going to continue to drive for that so just on the intra basin movements alone.
We're looking to take the system, which Scott expanded reliability quality control and connectivity.
And create long term partnerships with our customers and Thats, where the focus has been and it's gone very well.
Great really appreciate that and maybe as a follow up question here. It seems you've purchased about 64 million units during the quarter were $160 million since the authorization thats in place so you're producing units outstanding by my math about two 5% your free cash flow after dividend is actually increasing based on your guide.
And know the Formula is up to 25% you've reiterated that in the past, but even if I take into account.
Asset sale adjustment related debt reduction it sort of suggests that you've got about $150 million worth of capacity into year end do you expect that to still be a part of the plan and is that the expectation that the board likely has for next year that you'll have a similar up to 25% view in terms of returning capital to unitholders.
Well sure I think we've I think we've demonstrated that we are definitely executing against the plan. We've got a slide somewhere in the <unk> in the presentation that kind of talks about <unk>.
All of the conditions that we look at including outlook.
<unk> of the units the yield of the units and so we intend to continue to buy I don't think we're going to be specific about how much winter wear but thats clearly continues to be part of the.
Capital allocation plan.
Along with the primary piece go into debt reduction al you want to add anything to that yes.
I would echo that clearly we have tried to articulate that the.
The map formula is to come up with the limit.
<unk> primary focus is to try to manage our leverage in the very near term as Willie mentioned in clearly we're still running above it.
But we thought we could do it in a balanced way to.
Implement some some repurchases.
One time.
We would plan to probably provide commentary on.
Those percentages or the free cash flow.
Allocation for 2022 on the February call.
Alright, perfect. Thank you very much appreciate the color today, Hey, <unk> I wanted to add one thing to the to Jeremy's comments on on the Oryx JV. We can't give you a lot of details right now because we're just.
Kind of in the midst of transition successful transition moving forward, but I will highlight that as we announced at the when we announced the deal. There is a lot of acreage dedication that anchors volumes, there and I also want to complement the jeremy's team in Brentwood and his team as we've as we've gotten together, there's a lot of excitement.
Anytime you get two good teams working together so I do think we're going to continue to make progress and we'll be able to share more on the next call.
Really appreciate that thank you.
Next one on acute is Jeremy Tonet from JP Morgan Your line is now open.
Hi, good afternoon.
Hi, Jeremy.
Just a couple of high level macro questions if I could just wondering.
About Cushing operating we've seen inventories really.
Yes.
Reaching these very low levels do you see an impact on the market here as this continues to drain do you see a reversal of this at any point just wondering if you could talk about I guess what impact this could have an <unk>.
On the crude oil market as a whole and exports as well Jeremy.
Jeremy or Jeremy you want to talk about that hi, Jeremy how are you.
Good.
So cushing inventories so it's been declining since Covid right. This has been.
Along decline and have accelerated recently and so what that does is it just creates a patient situation with steep backwardation and a tightened Brent and <unk> are thinking about that is that the scarcity of availability for crude crisis. So that.
<unk> creates the demand at Cushing for neat barrels as opposed to blended.
<unk>.
Settled barrels with a Nymex so think about that it can pull additional barrels from different regions in the Permian for operating in.
It ebbs and flows right. So that's going to be a pull away from exports exports. So this is not something.
When everyone said that basin is going to completely dry up that doesn't always happen. This is something that cyclical so parts of it the pull towards the water will move barrels that way right now you've got a pull towards Cushing just because you've got limited inventory. So that's a moving barrels in that direction. So.
<unk> get solved right. If there is a pull towards cushing barrels flow to Cushing full to the water crude markets are just not static and that will impact margins as refiners. So this is it.
Not a simple, yes, or no answer I would just say that as the inventory decline there or less barrels to physically settle contracts, it's going to pull more neat barrels from different basins.
And production growth in the Rockies and the mid continent, that's been a poll barrels from the Permian Basin is one way to think about that.
And Jeremy Cushing remains a very key hub Friday, and we think it continues to remain a very key up going forward.
Got it that's helpful. Thanks.
Operationally those barrels are needed in those terminals that are most connected to supply sources and distribution sources will continue to operate and be profitable in spite of a steeply backward dated market that's against stories.
I will tell you that we are seeing some pressure on some pressure on margin or on re contracting on the on our Cushing storage. So that may be a factor of lower thank you sit today.
Got it that's helpful. Thanks, and thinking about the Permian and the levels of growth that you outlined there potentially getting pretty strong in the coming years here.
Wondering how you think.
Bottlenecks in the basin could emergent and not on the crude oil side, but on the natural gas side. Just curious if you think that that could be something of a speed bump.
A couple of years down the road as far as that Nat gas takeaway needs and new pipeline needed for that and whether that could slow down in crude oil production.
Well I think back to what our Jeremy was talking about on rationalization and optimization within the basin I think theres a lot yet to be played out if you do look at the constraints.
Natural gas is probably one of the first constraints you hit.
With the growth in the production and if you compound that with the desire for the industry to not flaring as much it puts a little additional pressure on that so I think theres a lot yet to come on opportunities.
To optimize hopefully within existing pipes.
And thats more to come more to come as we go forward Jeremy This is Jeremy.
The way I'd look at it is there's going to be a few constraints labor pressure pumping.
Other types of supply constraints on the service side gas is one that.
Depending on your production forecast 'twenty three 'twenty four.
On the negative side from <unk>.
Flowing barrel.
But the positive side I would say for the industry as a whole there is a resistance to flaring now which is I think positive from an ESG perspective, but it could constrained production we've seen it at times the processing plants go down or other things in the field, but I think the industry is getting better thinking more forward and solving those issues and taking.
Capacity out of the basin to do it. So I think the gas issue does get solved in everyone's aware of it there's three projects out there chasing it so I think whether that happens or our conversion happens I think that will get solved more right in front of US is the labor thing labor issue.
Thats affecting all markets and then potentially the lack of maintenance on surface equipment. I think those are the negatives I think on the positive side, what we're seeing from a growth standpoint is less activity and more accomplishment on the gathering side.
The desire to reduce reduce methane emissions is going to have fewer connections bigger connections very efficient operations on the gas crude and water side. So I think youre going to see the industry move to more efficient less potential emissions points, which is good for our capital flowing into the granite less capital to get more barrels to the system. So.
I think youre going to see some negatives and positives come out of this but I think all in all we're going to work the industry will solve these issues. It does reinforce the need for all parts of the value chain to work together, if you think about efficient value chains.
I think I think global situation's going to force that upon US we were in the peer growth mode, where everybody was growing and now as we have a little bit of a check step the sufficiency mode or our optimization is going to play out with more and more players.
Got it thank you Jeremy and welcome.
Thank you Jeremy.
An excellent on acute.
Jean Ann Salisbury from Bernstein. Your line is now open.
Hi, good evening, and what share of EBITDA roughly is linked to PPI or some other inflation index.
Do you anticipate that if costs go up less than that this could provide a material benefit over the next 12 months, there's been I get excited about that.
Yes, generally speaking I would tell you we have we would we would expect to be able to offset cost increases with with our escalators. There may be some timing issues. There I don't know if anyone wants to offer any more detail.
This is Jeremy so we have the way you would look at it as some of the longer term contracts have.
Moving the acreage dedications in the Permian are exposed and so.
Some of them have cast a lot of the producers recognizing this.
<unk> could be in the range of three to three 5% some of them have banking some of them. So.
So yes, we are absolutely exposed that will be incorporated in our guidance when we have a better view in.
In February but I would say we are monitoring it were paying attention that should more than offset the cost, but it's something that we will give you a better sense for what that impact is because some of those less like spotless, that's won't be impacted by that but it's not take all of it and we will be exposed to that but I would just say, let us give you some guidance in February once.
We have a better sense for what that looks like and what volumes on different types of Oliver Chen.
Jeremy do you want to just confirming what you mean by exposed.
Have escalators exposed just means we have escalators with capacity there is an opportunity for exposure to escalation youre also exposed to cost, but lower capital budget higher revenue exposure should be directionally positive, but we'll give more guidance in the spring Alright and February Jinan did that answer your question.
Yes, yes.
Yeah sounds moderately positive.
Appreciate that and then as my follow up congrats on getting the cap line reversal then on that 100000, that's flattened out.
How much is coming from Canadian crude versus the last one kind of talk about what wed let you know before for that number to go up is it just kind of more production in the Bakken and in Canada are there kind of a specific third party projects or expansions that could lead to take capital and getting hitting mark.
While there is never an easy answer to this but I'll, let Jeremy.
Given his best shot here.
I'd say to your first question, we would expect it to be a 100% Canadian crude and to your second question I think there's a number of projects potentially restructuring how crude gets across the Canadian border and what market that goes to and so once there is clarity with enbridge and its shippers and Trans Canada.
I think we will see how much how many barrels flowed epitope as a potential to expand that so we definitely think there is opportunities to increase to where it is today, but there needs to be certainty of push barrels ended up in <unk> history to get there.
That's very helpful. That's all for me Thank you <unk>.
<unk>, it's Greg.
Thanks, Jean Ann.
Next one on acute is colton bean from two door Pickering Holt and company. Your line is now open.
First I just wanted to follow up on <unk> comment around lower storage rates at Cushing any rough sense as to the volumes rolling over the next year or two and just general exposure there.
Jeremy.
Yeah.
I'd say, we actively manage it so it's staggered over time and obviously the further out you get.
The near term uncertainty is less we're just putting it out there that hey, there is some exposure, it's not hard, but it's nowhere near 100% of the contracts.
Generally for our facilities they are highly contracted assets and for the next 12 months that will be highly contracted assets, but we're just making people aware of lower inventories does put pressure on whether it's spot or events or theres no contango opportunities around there. So some of that as more of the opportunistic storage that us our customer.
His experience will be there so it can be limited to throughput and storage rates, but incremental success of storage rates will be at lower rates than the historical ones. So there is no near term cliff that's not like Cushing is going to be fully exposed next year. It's a much smaller portion of that is just something we're pointing out that backward dated markets make it tougher on facilities.
And operationally you are running with no Cushing, Brian Youre running it bottoms in the system.
Got it and then maybe switching back to cap line, you mentioned needing to know how many volumes show up in <unk>.
Is that the is that kind of the.
Its preferred option now is seeing what producers and refiners are looking at or is there any opportunity to structure a bundled rate all the way from Alberta.
I think theres always opportunities, but I think the key thing now is they are trying to embrace just trying to understand what the rules are right too.
How they agree on what it is so in the future certainly to tab I joined right.
But I think near term getting it there and having the right across I think.
They just want certainty where the barrels of oil and we've had discussions with all of the longer term carriers, but I think the uncertainty of what the structure looks like and what they can offer it as prescient relative to adding additional joint.
<unk> tariffs with third party.
The comment I would make this is Willie again, if you think about.
The longer picture.
There is always going to be abnormalities.
Over periods of time, whether or not youre going to be up in a backward dated market.
Contango markets. If you think about the production profile and what we believe to be the the energy demand thats going to be needed in the world are long term barrels are going to flow to the water.
And it may be quarter, two quarters, three quarters away, but as constraints gets fixed.
Efficient paths to markets ultimately get filled and Thats, what we believe in and that's what we're playing for.
Got it thank you.
Excellent.
Chase moving from Bank of America. Your line is now open.
So just wanted to come back to the line of questioning around the Permian I think last quarter.
The conference call you guys talked about kind of the stabilization of Permian oil volumes kind of in the near term and it really didn't expect much growth until you got to around the mid part of next year.
If I missed it I apologize, but could you kind of update us on your view of Permian oil volumes over the near term and do you expect those to grow now just given the higher oil price.
Yes, so chase, we probably would rather give a much better update after we hear what all the producers are going to be doing but you are correct in that on our last earnings call. We had a lower a lower rate that we thought the year would end at and I think because of the increased completions it stepped up.
It's higher I think the trajectory is probably similar where it's going to be flatter and then <unk>.
Ryzen in 2022, Jeremy you want to add to that chase.
We had the last call in May and I'd say.
July and August.
<unk> months from the end of June July and August were strong months for completion and so our four 5% to four six is moved to four 8% to 49, which is more in line with consensus but after that call I'm sorry. In August we were just starting to see that wave and then now where we're seeing that continue I think you're always going to see.
At the end of the year as people make sure they hit their capital budgets a bit of a slowdown, but usually it ramps up in the first part of next year when the capital budgets are reloaded. So I think from a shape perspective, it will continue to drive higher I'd say drilled.
Drilled and uncompleted wells that inventory continues to get exhausted youre going to need to see rigs to show up for sustained growth and so we would expect to see some of that in the first quarter of next year.
Without giving specific guidance the way to think about it as the private operators continue to.
AD completion crews and rigs that you've seen in the industry has seen I think your large and midsize independents are largely holding the line even at $80 oil I don't know if third party pressure whether it be from the government or are investors started looking for growth at those level because the returns are high but they are holding the line where also.
The integrated start to look to step out and potentially add activity.
Not a perfect picture right now, but we have a good sense for what's happening and we'll have a better one in February but if I were to give you a qualitative answer to what's going to drive growth right now it looks like the integrated we will start to step up activity in the privates will drive growth Youll see allocations of capital.
That'll be important to people allocate capital to other basins at the higher prices since they do work at these prices or do they stay within the Permian and let those decline like these are all things that will bear out between now and February.
Alright Thats helpful.
We're pretty bullish on the also servicing over here, we're pretty bullish on activity levels.
Thousand 22.
No.
Hi quick follow up question, there's a lot of questioning around kind of Cushing I guess, maybe I have a question on inventories obviously inventories are.
Below five year averages or even five year lows.
At this time of year.
Obviously global oil supply demand dynamics are pretty tight with OPEC still holding crude off the market, but we probably need more at this point.
As we kind of move into 2022 balances probably.
At least kind of balanced out a little bit.
And maybe they may be a little bit oversupplied, depending on kind of what happens with Iran, and some other things, but when you think about that and things kind of moving from being <unk>.
Significantly under supplied more balanced you might start filling Cushing again on the inventory side. So when that happens where do you think those barrels actually come from if they are coming from the Permian just kind of help us understand.
The operating leverage you would have.
Those barrels come.
Come back into Cushing, if they come from the Permian.
Sure I think.
Where they come from it's once again it depends on the capital allocation to the Rockies mid continent and apps.
Absent growth in those markets.
Canada Youre going to have some from the line three expansion, but absent that youre going to see if you see continued increase refining runs.
Youre going to need to pull on the Permian to supply those because inventories and supply and.
In basin, and Sunrise will be our primary exposure there.
The contracted portions of it and you've seen throughout different quarters. This year. When there is a poll when Canadian upgrades are down or when the balances pull like they are today youll see exposure from the basin corridor and Thats a pull through from the gathering system to the Sunrise and base and I'd say, that's the primary lever.
And then any time, there's throughput in a terminal there was additional fees in terms associated with that and the Cushing market as well, but that's where you would see.
We do agree with you that if demand continues to grow at this pace and Theres no additional upsets from Covid.
Supply will be outstrip demand will outstrip supply and that should drive additional rigs and allocation of capital to the Permian because you'd have to think at this point.
Theres, probably higher discount rates and steep backwardation associated with longer dated projects. It probably pulls capital into short cycle projects, you, probably see even more waiting with the guys who have other options.
We do agree with you that that could happen, but forecasting thats pretty difficult from where we sit right now, but we will have a better sense of February.
Hey, James.
One thing to add to that if you just want I want to just give you a perspective of our system that we have in the Permian. If you think about our gathering intra basin and long haul lines, we have access to multiple markets. So as Jeremy described what was happening in the flexibility on basin. If the if the R supports moving barrels to the coast. They go to the coast if they are.
<unk> supports going to Cushing, we have the flexibility to get volumes on basin going up to Cushing.
What it does do is a lot of a lot of the volumes that we have gone to the coast or supported by minimum volume commitments. So a person can opt to send that up.
Cushing, which we would get the benefit of the tariffs.
And.
We would then have a little bit more noise on the transportation side on if a barrel didn't flow, we still get paid there'll be some deficiency payments, but I just wanted to reinforce it's a benefit of the system that we have and that we have multiple outlets that we could get some benefit from.
Makes sense alrighty ill turn it back over thanks for the color.
Thanks.
For the next question, we do have Becca Followill from U S Capital Advisors. Your line is now open.
Good afternoon, you guys talked a little bit about that you are evaluating SNL and you're reporting mechanisms.
Q2 fold that into other segments is there any other visibility that you're may be considering in terms of providing this.
For information on Canada or or.
Other segment reporting.
I'm going to let al Swanson dress that Becker.
We're going to take a look at what we think the right reporting would be <unk> structure Becker and if we do decide to make a change which we havent yet.
We'll come out with that in February So I think it's premature to try to speculate on potential changes.
Especially when we haven't decided for sure that we're going to make any.
Can we put in request in the meantime.
Yeah.
Our IR team is available for phone calls after the call.
To install always noise look clearly.
Bring it on Becker and bring it on.
As you know the reported the segment reporting structure.
Samir kind of how we are managing the business. So there is there are some very.
Particular rules around that.
We have to keep in mind as well.
Helpful. Thank you and I don't know if you've talked about it earlier in the prepared remarks I apologize if you did the <unk>.
$200 million asset impairment what was that for.
Al you want to cover that yes. It was our remaining terminal out on the East coast.
Tim.
Gotcha, Okay. Thank you.
Thanks Becca.
Alright, there are no further question on acute I'll now turn the call over back to the presenters.
Sure.
Well once again, we thank you for your continued interest and support of planes.
Look forward to giving you more more updates as we go forward. Please stay safe and I will say go Astros. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.