Q1 2022 Plains All American Pipeline LP and Plains GP Holdings LP Earnings Call
Good day, and thank you for standing by and welcome to the PAA and PAGP first quarter 2022 earnings call.
This time, all participants are in a listen.
Two months after the speaker's presentation, there will be question and answer session.
Ask a question during the session you will need to press star one on your telephone.
Thank you for your assistance Christoph zero.
I would like to 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 first quarter of 2022 earnings call. Today's slide presentation is posted on the Investor Relations website under the news <unk> events section of <unk> Dot Com. We're an audio replay will also be available following today's call important disclosures regarding forward looking statements and non-GAAP financial measures are provided on slide two and an overview.
Today's call is provided on slide three consolidated consolidating our 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 CEO and Al Swanson, Executive Vice President and Chief Financial Officer.
Other members of our team will also be available for the Q&A, including Chris Chandler Executive Vice President and Chief Operating Officer, Jeremy Goebel, Executive Vice President and Chief Commercial Officer.
And Chris herbal senior Vice President Finance, and Chief Accounting Officer with that I will now turn the call over to Willie.
Thank you Ryan and good afternoon, everyone and thank you for joining us.
Well our business is off to a strong start to the year reported solid first quarter adjusted EBITDA attributable PAA of $614 million, which is above our previous expectations.
Given the quarter performance and our outlook for the balance of the year, we are increasing our full year 2022 guidance for adjusted EBITDA by $75 million to plus or minus $2 $2 75 billion with a bias to the upside.
This was primarily driven by constructive fundamentals Andy associated benefits of a higher commodity price environment within both our crude and NGL segments.
Al will provide more detail on our quarterly results and our full year outlook in his portion of the call.
Current global events have highlighted and reaffirmed the importance of hydrocarbons in everyday life spring a renewed focus on energy security and the need for safe reliable and responsibly produce energy.
The North American energy industry plays a critical role with abundance of resources access to capital our skilled labor force and innovative technology.
We believe the call North American shale more specifically the Permian will remain strong for decades and that our integrated midstream asset base and business model will play a critical role connecting energy supply with global demand.
As shown on slide four we are executing on our levers for maximizing unit holder returns in the Permian. We continue to expect at least 600000 barrels a day of production growth in 2022 of which we anticipate capturing approximately an incremental 280000 tariff barrels per day.
On our Permian gathering systems year end of 'twenty, one to year end 'twenty two.
As a result of our system flexibility and operating leverage we have added an incremental 45000 barrels a day of contracted short term volumes to our Permian long haul pipelines versus our full year expectations in February .
As Permian production continues growing beyond 'twenty, two we expect meaningful growth on both our gathering and long haul systems.
In our NGL segment, we expect continued growth in Western Canada gas production, and improving NGL supply and demand fundamentals combined with a higher price environment. This drives our focus on optimizing and debottlenecking, our existing facilities and operations to allow additional volume capture over the next over the next several years.
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Additionally, we continue pursuing capital efficient emerging energy opportunities such as the recently announced Mou with a tour of power, which is a subsidiary of the Ontario government to conduct a feasibility study, which could result in adding hydrogen storage capability at our Windsor, Ontario, Salt cavern storage facility.
This would directly support a tour powers Brighton Beach generation station and aligns with our larger hydrogen strategy outlined recently by the province of Ontario.
Regarding our financial strategy, we expect to continue generating significant multi year free cash flow and we will allocate this cash in a balanced manner to maximize.
Holder returns our near term focus will continue to prioritize debt reduction, while also increasing cash return to equity holders and making disciplined capital investments.
In that regard, we announced a 15.
Per unit annualized distribution increase last month, and we have cumulatively repurchased approximately $250 million of common equity under our repurchase program since inception.
As shown on slides five and six demand recovery contrast, it against the multiyear backdrop of reduced upstream investment is causing a tight supply and demand tight supply and demand balance, resulting in global inventories drawing down and hovering at multi year lows, all of which underpins a higher commodity price.
This environment.
The conflict between Russia, and Ukraine is further exacerbated market tightness and increased commodity price volatility.
We expect U S shale production led by the Permian will continue to be crucial to supplying in meeting global energy demand with plains integrated system and business model, well positioned to benefit and generate significant multiyear free cash flow. This is supported by our Permian gathering system and 4 million dedicated acres.
With approximately half of the total horizontal Permian rigs currently located on that acreage or.
Our highly contracted long haul pipelines and meaningful Permian operating leverage as well as our existing critical infrastructure and other key producing north American basins.
Furthermore, high levels of cash flow and strong distribution coverage position us to reach our leverage target mid 2023 with meaningful capacity to further increase cash returns to equity holders and drive strong unit holder returns, both near and longer term.
With that I will turn the call over to Hal Thanks Kelly.
We reported first quarter adjusted EBITDA of $614 million.
Which includes the benefit of NGL seasonality higher volumes and commodity prices and the startup of the cap line and Wink to Webster pipelines.
Slide seven and eight can take quarter over quarter and year over year segment, adjusted EBITDA walks, which provide more detail on our first quarter performance.
A summary of our 2022 guidance is located on slides nine through 11.
We've increased our full year 2022, adjusted EBITDA guidance by $75 million to plus or minus 2.2 dollars $75 billion the.
Kris is driven by several factors, including the benefit of improved frac spreads and volumes in our NGL business and improvements in our crude oil segment, including increased volumes benefiting our Permian system as well as higher pricing on pipeline loss allowance barrels, partially offset by reduced merchant opportune.
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As detailed in our earnings release, we reached agreements in principle to settle two class action lawsuits regarding line 901, and recorded an $85 million increase in our net expense associated with the line 901 incident, which has been treated as a selected item impacting comparability.
<unk> and excluded from adjusted EBITDA.
The first is the class action lawsuit pending in federal Court in California, which is proposed to be settled for $230 million.
We believe this will be substantially reimbursed by insurance.
The second is a derivative suit pending in Delaware Chancery Court and the proposed settlement includes the payment of approximately $2 million in attorneys fees and other nine non financial terms more information regarding the settlement of these matters and the changes to our line 901 accruals are set forth.
And the line 901 update included in the earnings press release.
An overview of our current financial profile is provided on slide 12.
We remain focused on generating significant free cash flow and allocating that through a balanced approach that reflects our continued focus on debt reduction in the near term for.
For 2022, excluding the anticipated impacts of the line 901 settlement in our estimate of timing of the insurance reimbursement our free cash flow guidance is relatively unchanged, giving effect to this timing, we have reduced our guidance by $150 million.
Importantly, the impact is expected to reverse over the next 12 months and our year end 2022 leverage guidance remains at plus or minus four to five times.
Accordingly, we are maintaining the amount of cash available to be allocated to discretionary unit repurchases for 2022 from what we indicated in our February guidance, which was approximately $100 million.
Our capital program outlook is unchanged from last quarter and are summarized on slide 13, we remain committed to capital discipline and expect consolidated 2022 investment capital of plus or minus $330 million and maintenance capital of plus or minus $220 million.
Summary of our capital allocation framework is on slide 14 in the first quarter, we repaid $750 million of senior notes and repurchased two 4 million common units for $25 million, leaving up to $75 million available for potential discretionary.
<unk> over the balance of the year.
Additionally in response to feedback we have included several slides in today's appendix, which are designed to provide additional detail and improved visibility into our new crude oil and NGL segments.
From a historical and forward looking perspective with that I'll turn the call back over to Willy Thanks Al.
Our business is off to a very positive start in 2022 supported by constructive fundamentals are favorable commodity price environment and increasing volumes on our Permian JV in long haul systems as.
As such we remain well positioned to continue executing against our 2002 2022 goals as outlined on slide 15.
Before opening the call to Q&A I'd like to share some comments on our longer term outlook and how we position ourselves for 2023 and beyond.
As I stated earlier, we believe the Permian will be critical to meeting increased global oil demand slide 16 shows our Permian production outlook against current takeaway capacity out of the basin.
Our February outlook for production reflected growth of roughly 600000 barrels per day per year over the next several years, increasing to 7 million barrels.
By 2025.
We currently have a slight positive bias to our production forecast and we will update that if appropriate later this year.
Any meaningful incremental production above the 600000 barrels per day growth should benefit our systems.
Looking at Permian takeaway. The current nameplate capacity is approximately 8 million barrels a day of which we believe that slightly greater than two 7 million barrels a day roughly 90% is the efficient operating capacity.
As production and long haul utilization continue to increase spare capacity will begin tightening and tariffs to the water should return to a more normalized level.
In fact, we've begun to see the early early innings of this and forward markets as indicated by the Midland The U S. Gulf coast spreads to the water doubling in 2023 to approximately 80, a barrel and tripling in 2024 to approximately $1 25 per barrel from today's prompt month of.
<unk> <unk> 40, a barrel.
So my point is plains has a critical asset base and our key producing basins and we have pipe in the ground with meaningful available capacity across our system with minimal capex requirements.
Our integrated business model and asset base allows us to move energy to multiple markets safely reliably and responsibly and we will benefit from any production accelerating beyond our current expectation, whether it's capturing additional growth or improved long haul margins from current market levels today.
As illustrated on slide 17 in recent years, we've taken numerous steps to position our business to be successful in any environment.
We strive for operating excellence, improving our safety and environmental metrics greater than 50% since 2017.
We've continued to optimize our asset base and focused our business by completing over $4 5 billion of noncore asset sales and created additional alignment through 15, JV strategic joint ventures, and most recently, forming the Permian gathering JV, which is a system back by $4 million long term.
Dedicated acres.
Furthermore, we have continued investing in our key legacy assets, while exercising capital discipline, creating operating leverage throughout the assets with minimal future capital requirements.
In our NGL business, we continue to further optimize our facilities and operations through commercial alignment and are evaluating some high return debottlenecking opportunities.
Financially, we expect to continue generating significant multi year free cash flow and achieve our targeted leverage by 2020 through mid 2023.
We have positioned ourselves to continue taking a balanced capital allocation approach, including our commitment to maintaining our investment grade rating and increasing overall returns to our equity holders.
While we are focused on and expect capital efficient growth in our business even at current EBITDA levels, we have a strong distribution coverage of approximately 250%, giving us meaningful capacity for growth and equity returns.
In summary, we believe we're well positioned now and into the future.
So with that I'll turn the call over to Roy Thanks, Louis and the summary of the key takeaways from today's call are provided on slide 18, as we enter the question and answer session. Please limit yourself to one question and one follow up question and then return to the queue. If you have additional questions. This will allow us to address the top questions from as many participants as practical in our available time this afternoon.
Additionally, our Investor relations team plan to be available throughout the week to address additional questions Gena, We're now ready to open the call for questions.
Alright.
So that's a question you will need to press star one on your telephone.
On your question.
Again that is star one to ask a question.
First question comes from the line of Jeremy Tonet from Jpmorgan Your line.
Good afternoon.
Hey, Jeremy.
Hey, just to start off I guess with orix a bit more.
And kind of how the integration is going there and do you see I guess, the integration leading to new commercial opportunities or just a bit more color I guess on progress there would be helpful.
Jeremy.
Cover that one.
Thanks, Jeremy for the question this is Jeremy Goebel.
So based on when we formed the JV, it's outperforming expectations just from an activity standpoint, as well as from a synergy capture standpoint.
If we had to approximate today, it's roughly 10% ahead of schedule.
We're getting closer to finalizing the integration process, but we do see more opportunities, but we're making sure we're operating safely and efficiently and providing customer service, we're actively and engagement with extending contracts with customers I would say it's going.
Certainly as well, but I would dare to say better than planned and we would expect to continue to grow that position customers are excited about it offers more service as we talked about more connectivity and optionality. So I think its borne out to be good for the shareholders of the JV as well as the customers and we will look to continue to prove ourselves to the customers and growth.
Business.
Got it that's very helpful. There and then.
Kind of pivoting towards I guess.
Energy evolution opportunities you talked about the hydrogen storage opportunity there and just wondering I guess.
How deep do you see the opportunities set at this point.
What's the path forward, I guess with that to figuring out whether thats, something REO and I guess could that could there be other hydrogen or other energy evolution opportunities.
With converting an existing asset.
Hey, Jeremy This is Willie let me make a couple of comments and then I know, Chris will talk specifically about the hydrogen opportunity as we've articulated before we've got a pretty broad asset base and the focus on emerging technologies is how do we integrate that in with our existing assets, particularly around our areas of competency as well.
Our asset base. So when we think about things Thats, how do you how do you get connected in with existing systems. We have Chris can you cover the hydrogen piece, yes sure. This is Chris Chandler, what's exciting about.
Hydrogen for this particular opportunity as it can be used as a means to store renewable energy and the concept. There is when there is excess renewable energy you can use that to create hydrogen and obviously you can store hydrogen in our case and underground salt caverns, it's a well proven technology, it's been done across the industry for them.
AIDS and.
In our case, our Windsor facility sits right next door adjacent to the Ontario power station.
Sure.
Has today and we.
We could repurpose existing caverns or develop new caverns very cost efficiently to be able to store hydrogen and then in the middle of the night when the Sun isn't shining or the windows isn't blowing that hydrogen can be used to generate power with existing power generation assets like gas turbines or boilers. So we're evaluating that.
Particular opportunity in Ontario, but that technology can be applied everywhere in the Canadian government certainly interested in it in areas beyond just that particular location and with our storage position across Canada, we see multiple opportunities for similar technology adoption.
Got it that's very helpful I'll leave it there thanks.
Thanks, Jeremy.
Thanks, one on acute is Michael Bluhm from Wells Fargo.
Lives.
Thanks, Good afternoon, everyone.
So I wanted to ask first about.
Volumes production growth, obviously, the public e&ps. It seems are staying on message in terms of capital discipline, but you and maybe of your midstream peers are talking about seeing higher volumes across your systems now and also into the rest of the year and beyond so just just wanted to try to reconcile that and see how are you.
Seeing any change in producer activity our messaging.
Jeremy Michael Good afternoon. This is Jeremy Goebel.
But what I would say is it's consistent with what we stated in the first quarter.
You saw volumes.
<unk> in the fourth quarter of last year, then December January were somewhat soft somewhat due to weather somewhat due to slower completions, we've seen that cadence increase as you exit the first quarter and into the second and it's largely driven by private operators integrated but the independents are talking about total production profile. So there are declines.
In other areas and growing in the Permian So Permian as a whole is consistent other basins are consistent with where we had them, but by and large based on what we see across the basin and we're seeing it trend in line to slightly above as Willie said in their producer mixes is consistent with what we thought and we see roughly half the.
Within the basin on dedicated acres that will he was talking about so that gives us pretty good insight. So so far it's tracking I'd say.
The things, we're watching our labor and manpower natural gas takeaway seems to be getting solved so.
There are some governors on growth, but so far so good in <unk>.
Like Willie said, we have a positive bias that some activity probably gets brought from the beginning of next year to the fourth quarter given the the higher prices at this level versus where they were expected when they came into the year.
And Michael the only thing I would add is that Jeremy talked about you might pull some barrels in the lag of additional activity is going to be backend loaded, but the most important pieces momentum into 2023.
Got it thanks for that.
Other question I just wanted to ask was about the.
Guidance, specifically the NGL segment.
If you could just talk through the drivers there a little bit.
Want to make sure I understood how much of that is volume driven versus spread so thank you.
So Michael we've actually put some.
Some additional disclosure on the back.
As a result of some feedback number of feedback we got and I think what I'd like to do is ask Jeremy Goebel to walk through two slides, there, which I think we're one or two slides to kind of give you. The perspective of how we look at the business and that May answer your question.
Jeremy sure Michael if everybody can flip to slide 27 is an overview of the assets I think the first thing.
In general as we move.
<unk> West to east, we gather in the <unk> SaaS, which is.
Near Edmonton on the far West So we aggregate third party supply, we fractionate store and transport for them to market.
That's part of the third party business, we actually buy some additional Y grade as well as gather some Y grade from Cochrane and we move that east for further fractionation at Sarnia.
At Empress which is the next start over.
Extra that's our largest straddle plant, we pull Ngls out an annual keep whole contracts and basically take the agency at the Y grade Ngls.
In exchange for keeping hold on ACO gas will fractionate, some there and sell into local markets on that PTC pipeline or will move further east to Sarnia for further fractionation and sale. So that's how it flows. So when we talk about third party business a lot of that is around the <unk> SaaS and Windsor in St. Clair.
Those would be two of the bigger locations for third party and then when we talk about Empress and part of that Cochrane straddle Thats, where we get the Y grade that on the keep whole contracts. So if you could then flip to slide.
30.
If you look at slide 30. This gives you a sense for the breakdown so that fee for service business around the storage assets in the east and around the fractionation storage and transport assets in the West <unk>.
35% the remaining 65% is associated with roughly 50000 barrel a day, a straddle and think of that as roughly two thirds at Empress and one third coming off the Cochrane plant. So that's the main driver so that 65% associated with our straddle is the keep whole construct and then the rest is the fee for service business.
Mike.
Does that help yes very helpful. Thank you.
And there are some additional information there on slide 31, that'll give you kind of the the hedge profile that we've had so I think it will it will allow folks to better understand our business.
Alright next one on the Q is Jean Ann Salisbury with Bernstein.
All lines.
Hi.
I appreciate the slides.
I wanted to ask you about slide 16.
Growth and takeaway.
Can you kind of talk about what you mean by efficient operating capacity with a 90% is that kind of your number with no drag reducing agent or something else.
Essentially it is as you start getting into the higher flow rates on the pipelines you start to get less efficient. So certainly if you go back in time when you look at the 2014.
In earlier periods, there were times when the arbitrage opportunity was very very significant and people utilize that capacity.
More normal efficiency point would be roughly <unk>, 90%.
Okay.
You said that a third of.
People concern I guess.
<unk> the rate that you have now.
And then $1 million.
The right target.
Production.
Well, what's shown on that is we haven't updated our guidance on production, it's still roughly 600000 barrels a day per year with as we pointed out our expectation for an upward bias. There are others out there that are higher production profiles than we do and that's what's shown in the upside sensitivity and the way <unk>.
And I would think about this slide is there was a view that it's hard for us to participate in any of the growth and what this is intended to show is that as growth increases, we clearly will get the benefit of that in our gathering systems as well as other systems.
Definitely allows us to participate in the volume growth and then and then the other component of that is as utilization increases.
We would expect that the.
The arbitrage.
As the foreign market of my comments earlier, it starts to widen back out and get back to what I would call more a more normalized environment. So and then we would obviously benefit from that as we as we go forward with spot rates.
And I guess, just as a follow up.
Are you seeing any interest from customers on blending and extending contract and I guess similarly are you.
Listed here blending and extending.
Jeremy Hunt you talked about Jean Ann This is Jeremy I'd say, it's a combination of things.
We're in active discussions and filling spots space at market rates on shorter term deals.
<unk> through next year most of our spot capacity is taken to the Gulf coast at current rates are higher and the expectation is to keep it in shorter rates and then enter those dialogues when we get closer to what we view those normalized rates. So.
We right now is not the time to enter into long term deals we're doing some but it's their stair step to match what the current market book. So we're not locking in these 40 <unk> tariffs for anything other than month to month.
80, plus since you do maybe a year and then you look to some that maybe step up to that dollars 25 level, but when we when you're talking about blend and extend on some of our larger contracts I think patients on both us and the operator.
They are very comfortable with us on the gathering side. So we continue to extend those agreements to align for the longer term. So we're very comfortable that we will have the volume on the system and the customers on the system. It's just a matter of timing and like we said they are very happy with the arrangements. We have today and we look to extend those when we're both aligned on that but it's probably a next year thing that before it is too.
That way they can make sure they get the space and we can make sure we have a constructive dialogue around aligning on longer term rates.
Great that's really helpful. Thank you.
Thanks, Jean Ann.
Thanks, one on the Q is Neel Mitra from Bank of America your normalize.
<unk>.
Alright, thank you.
As a follow up on slide 16 as well.
Useful it.
It looks like in 2025.
With the upside case, youre at that 90% utilization and you've hit that normalized rate.
Any color on what that normalized rate is I know you talked about.
Clearnet 24, right thinking about the dollar claims filed with the forward curve, but.
When you hit up against that 90% or more.
What do you expect that the rates should be.
Yes, Neal this is Willie so one comp one of the purposes of US showing this is I don't think it's a it's a binary it's a binary equation where you hit.
Certain point and if you achieve.
A different tariff rate.
What we've typically seen is as you start ramping up and capacity gets.
Capacity gets tighter youll start to see an increase you don't have to get to the 90% before you start seeing the increase and then ultimately when you think about what a tariff rate might be.
It really is going to be set by what the incremental buy if you were to build a new pipeline, but that would cost and we expect that to be higher than perhaps it has been in the past the last round of pipes were built in 2019.
And then as you go forward and you have to build new pipes. One can argue that with maybe some supply chain issues in steel costs and permitting issues. It gets more and more challenging so there might even be some upward price adjustments.
Adjustment on what might the tariff be Jeremy do you have anything to add yes, I think.
That is correct in this assumption that's going to based on term origin. What other services are offered so we'd prefer not to speculate on that but the forward market is indicating.
Something that is getting more healthy in a more constructive dialogue between the carrier and the operator in the industry is comfortable with us. So we'll provide further guidance on longer term rates as we get closer if that's all right with you.
Perfect. Thanks for the color.
And just as a follow up.
Kind of close to the 900000 barrels a day that you control of crude.
Can you walk through maybe some of the ways, we're able to capture.
The commodity upside right now, whether it's blending or being able to control the barrel through.
Long haul pipes et cetera.
Maybe what the short term drivers are right now.
There, we've got a pretty we've got a very flexible system and.
What I would tell you is the immediate benefits of a higher priced environment is.
<unk> loss allowance, we have an increased its a higher price capture on that so that would be something that's very easy to quantify.
The other pieces between blending arbitrage.
Tangle storage really depends on a lot of market issues.
So it's hard to point out specific things that we might.
Be capturing other then point out that over a long period of time when the opportunities are there.
We have a whole organization that focuses on being able to capture those opportunities Jeremy anything to add yes, I'd say the other piece that's out of that is just from an activity standpoint with long term dedications more activity yields more tariffs additional tariffs.
Higher pls capture on the NGL business, obviously, the frac spread exposure is there we have this long term dedications also have the tariff escalators. So it's there.
There is a number of functions that capture that now that's offset to some extent by cost on the operation side. If you have a large capital budget. There is additional cost there, but having a smaller capital budget, we're somewhat insulated so I agree completely with Willie those are just a couple of supplement.
Supplemental ways that we do benefit from <unk>.
Inflation or higher prices.
Got it thank you I appreciate it.
You.
Thanks, along the line is Brian notes from UBS.
Volumes.
Hi, good evening, everyone maybe.
Maybe just a follow up on a quick guidance question you know the $75 million guidance raise just kind of curious was it really just relates to the.
Permian crude gathering volumes in the NGL segment with roughly no change the long haul it in terms of just EBIT contribution.
Yes.
I'm going to let al talk about that but there is there is a component in that.
We were able to get some additional long haul.
Term contracts done that added to our added to our guidance numbers. So the point I would make there is to reinforce what I. Just said earlier. It is sometimes you can't it's not a formula that you can look at if the opportunities are there and it makes sense for the different partners, we've been able to add some short term long haul.
Components in there, but you are right its volumes and NGL volumes and crude as well as pricing impacts both on Pls and Frac spreads Alan anything to add yes, no you covered it.
I think you summarized it.
Ngls more commodity base.
<unk> had positive BLA pricing positive volumes.
Partially offset by lower merchant opportunities primarily up in Canada.
Great I appreciate the color and then maybe just dive a little bit deeper into the long haul segment.
It appears that Youre, receiving roughly 45000 barrels per day deficiency payments in your guidance for 2022.
But it looks like we saw a 45000.
Per day upward revision in the long haul volumes with the updated guidance on the last call you talked about kind of anywhere from you know.
A year and a half to two years for the Permian kind of soak up those excess spot barrels and put the wink to Webster ramp et cetera, but I was curious just based off of the guidance update but matching that 45% to $45 for the 'twenty to 'twenty two guidance, whether that was potentially pulling forward, maybe a <unk> 23 benefits, where we can get above those MVC levels is it.
Relates to plains.
Brian if I understand your question.
Trying to match the barrels for barrels I think the key point on the long haul barrels as those are additional volumes, we were able to capture it isn't tied with a shifting of volumes anywhere.
If that helps if that helps answer your question.
So as it relates to the potential earnings inflection kind of cadence the same at the last call kind of still middle of next year at the end of next year based off of just the Permian production outlook in terms of getting above MVC.
Well if I understand your question.
What we're trying to show with <unk> 16 is that regardless of the <unk> opportunities to capture additional volumes. So clearly on our on our Permian gathering on the Permian gathering sector. We've got an additional we've got additional capture on the slides.
Another 30, another 30000 barrels a day versus what we had in February which totals 280000 barrels a day in the gathering system right. So that's that's a piece of growth that we are capturing.
And then the other opportunities are opportunities that will catch when the opportunities present themselves.
So that's the key point I don't want people to walk away with is that until nbc's fill up there's no opportunities for planes to capture additional volumes right. That's part of our as part of our App.
<unk> guidance upgrade is additional volumes, we have been able to catch the comment that was made in the fourth quarter call was if you think about it just mathematically you've got additional nbc's coming on and if you were to mathematically match and additional production volume that would be the theoretical number but theres always opportunities out there to capture additional.
<unk> barrels.
I think you hit that.
Really appreciate the extra color on that have a great evening everyone.
Thanks.
Excellent Q is Banco <unk> from U S capital advisors.
Line is now open.
Hey, guys.
Hi.
Just a lot going on this afternoon. So if you could just clarify again on the $150 million decrease in free cash flow.
How much of that wasn't working capital and how much of that was line 901.
Al.
Primarily we assumed and model that as line 901, we believe there'll be.
Timing between the time, we pay and the time, where ultimately reimbursed by insurance.
We are assuming some increased working capital roughly offset by the stronger performance that we're modeling in the company.
Perfect.
They were.
The return of the insurance payments.
This is Joe or does that bleed into 2023.
That is we're assuming some of the collections will straddle into 2023, so in theory that will be a higher.
Our free cash level of benefit.
23 due to the timing.
Okay. Thank you.
So let me just thank you thanks Pekka.
Next question comes from the line of.
<unk> from Seaport Global Securities.
Hi.
Yes, hi, good afternoon folks and thanks for all the clarity.
I wanted to go back to the slide pretty again for the couple of seconds.
The February guidance.
Guidance.
Between the three components of the Pie chart.
Have you been able to hedge.
I'd better rates then.
Then you would see.
February .
I guess that will become the unhedged prices have moved up you are getting a significant upside.
Jeremy This is Jeremy Goebel, I would say, it's a combination of the two we actively monitor and when we see prices Spike we might layer in some additional hedges, but coming into this year. The hedges. The most recent hedges are at higher rates and we've had additional volume as Willie said, so part of the outperformance is border flows from Western Canada.
To the eastern markets have been higher so we extract additional ngls and thats all at the spot rates. So those sales will be this year or next year. Some combination. So it's volume it's a combination of incremental volume at a hedge levels securing some additional hedges at higher prices and then capturing the higher <unk>.
<unk> on the unhedged component, which is roughly 20% for the remainder of the year.
And so Neil just to make sure.
The predominant amount of 2022 Frac spreads is hedged.
Okay, and then kind of follow up to that.
As the market deep enough to hedge.
<unk> also.
Mostly unhedged.
Sunil This is Jeremy again, we actively monitor and think of it as a rolling program. So we have an active 2023 and once again, we are opportunistic around when they do that well we will provide further guidance as we get into 'twenty three but we manage it as an operation and manage earnings associated and we're trying to capture higher levels as well. So we'll continue to update you on that.
There is a deep enough market and it's very thin in 'twenty, four but 23 is pretty active.
Got it and then lastly could you remind us on the process less than loans, how much is the tip.
The bps you get on the volumes that can move.
BLA.
The good way to think about that.
Margin sensitivity.
Yeah.
3 million barrels.
It's substantial it's two to 3 million barrels a year associated with BLA, depending upon operating performance and we continue to optimize around that so it's a big footprint predominate thats predominantly in the U S, where we do collect that.
Potential.
Got it thanks, thanks for that.
Thanks Sunil.
And there are no further questions on queue.
Back to the presenters.
Yes. So this is willie I'll disclose but thank you.
For your participation on the call I know Theres a lot going on.
We've appreciated feedback we've had many discussions with folks and as always we're trying to further improve our improve our <unk>.
Disclosure and transparency in how we run the business and I do know that as we've changed our segments.
There is an opportunity to continue to make improvements. So I appreciate the support and feedback and we'll look forward to updating you as we go forward. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Great.
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Okay.
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