Q4 2022 Plains All American Pipeline LP and Plains GP Holdings Joint Earnings Call

February 8, 2023

Yeah.

Good day, and thank you for standing by and welcome to the PAA and PAGP fourth quarter 2022 earnings Conference call.

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Please be advised that today's conference is being recorded.

It is now my pleasure to introduce vice President of Investor Relations Blake Fernandez.

Thank you Andrew Good afternoon, and welcome to the Plains, All American fourth quarter 2022 earnings call. My name is Blake Fernandez and I recently joined claims as Vice President of Investor Relations.

Companies attractive asset base, including its premier Permian operating system, coupled with a long term capital allocation framework focused on increasing returns to equity holders makes it an exciting time for the company.

I look forward to engaging with all of you throughout the year.

In todays material, we're providing forward guidance for 2023, and an effort to improve communication and the forecasting we've made a few updates, including an adjusted EBITDA range, which reflects potential volatility in the underlying commodity market along with the volumetric outlook for each segment. The slide presentation is posted on the Investor Relations.

Website under the news and events section at <unk> Dot com.

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.

An overview of today's call is provided on slide three of <unk>.

Condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix of today's call will be hosted by Willie Chiang Chairman and CEO and Al Swanson Executive Vice President and CFO . Other members of our team will be available for Q&A, including Harry <unk>, President, Chris Chandler Executive.

Vice President and CFO , Jeremy Goebel, Executive Vice President and CFO , and Chris <unk> Senior Vice President Finance and CFO with that I will now turn the call over to Willie.

Thanks, Blake we are very pleased to have you join the claims team.

It's all on the call good afternoon, everyone and thank you for joining US today, we announced strong fourth quarter and full year results exceeding our expectations in both our crude oil and NGL segments.

22 represented a positive inflection point for planes, we executed on our goals and initiatives for the year, we captured meaningful Permian production growth on both our gathering and long haul systems.

And our team was able to capture market based opportunities via our integrated business model flexible asset base as well as commodity price upside.

In summary, fourth quarter and full year adjusted EBITDA attributable PAA was $659 million and $2 five 1 billion respectively with.

With full year results exceeding our February guidance by $310 million or approximately 14%.

As a result, we achieved the low end of our targeted leverage range earlier than expected, which enabled us to announce our multiyear capital allocation and financial framework in November <unk>.

Consistent with that framework, we subsequently announced a 20 per unit or approximately 23% annualized distribution increase in January to be paid later this month, bringing our yield approximately eight 5% based on current trading levels.

Additionally, we completed and announced several win win strategic transactions in both our crude oil and NGL segments, including our cactus II pipeline advantage pipeline Empress facility and our <unk> SaaS minority JV interest sale, which all further optimize our asset base and streamline our operations.

We also achieved record health safety environmental performance by achieving or exceeding our 20% reduction targets and employee recordable injury rate and federally reportable releases metrics, while we've made great progress in both of these areas and have achieved top quartile performance, we remain focused on continuous.

Improvement with zero as our ultimate goal from both of these metrics.

Looking to 2023 and as highlighted on slide four we provide an adjusted EBITDA attributable PAA guidance in a range of $2 45 to $2 55 billion.

This reflects year over year growth in our crude oil segment underpinned by continued Permian production and.

<unk> volume growth on our gathering and long haul systems.

Our guidance also factors in a reduction in our NGL segment, primarily driven by lower weighted average frac spreads.

And C III plus spec product sales volumes as well as the care for SaaS sale, which is expected to close this quarter al will provide additional color on our guidance in this portion of the call.

As shown on slide five we anticipate 2023, Permian crude oil production to grow plus or minus 500000 barrels a day exit to exit based on an assumed 2020 to exit production level of approximately $5 65 million barrels a day.

Our updated forecast assumes an average horizontal oil count rig the rig count of 340, <unk> consistent with current levels.

As part of our routine fundamentals forecasting process will continue to monitor our assumptions regarding natural gas takeaway capacity and commodity prices as the year progresses.

Our Permian JV system is well positioned with more than 4 million long term dedicated acres and operating leverage as shown on slide six we expect to capture approximately 350000 barrels a day of incremental gathering tariff volume for the full year 2023 versus 2022.

For a long haul systems, we're seeing higher utilization year over year, particularly on our cactus one in cactus to systems on cactus. One we are contracted or hedged a substantial portion of our own open capacity for 2023 at levels generally consistent with our prior expectations.

We also expect to see similar year to year year over year throughput.

From the Permian to Cushing on our basin pipeline. Furthermore, we anticipate additional volume on Wink to Webster due to an increase in nbc's.

In our NGL segment, we continue to focus on optimizing the business as well as improving the predictability of our earnings during.

During 2022, we completed a transaction to obtain full ownership of our <unk> facility and announced the $270 million sale of our interest in <unk> SaaS at an attractive multiple and on terms and on terms that will improve our connectivity to the planes for SaaS complex.

Additionally, we are advancing capital efficient debottlenecking and expansion projects around our Fort Saskatchewan facility, and we hope to be able to share additional details with you over the coming quarters.

With that I'll turn the call over to al. Thanks, Wally We reported fourth quarter adjusted EBITDA of $659 million, which includes crude oil segment benefit of Canadian market based opportunities and increased volumes across our systems, primarily within the Permian and along with <unk>.

NGL segment benefits from stronger seasonal sales for.

The full year, we reported adjusted EBITDA of $2 $501 billion, which was $310 million above our initial February guidance fully.

Full year outperformance was primarily driven by market based opportunities captured by our assets throughout the year higher commodity price benefits and increased tariff volumes, primarily in the Permian system.

Slide 19, or 17 through 19 in today's appendix contains walks, which provide more detail on our fourth quarter and full year performance.

Murray of 2023 guidance as well as key guidance assumptions are located on slide seven and eight.

Looking at 2023 compared to 2022 and as illustrated by the EBITDA walk on slide seven we expect adjusted EBITDA of $2 45 billion to $2 $55 billion with year over year growth in our crude oil segment and a reduction in the NGL segment.

Growth in our crude oil segment is primarily driven by anticipated tariff volume increases in our per the Permian gathering and long haul businesses due in part to our increased ownership in cactus II, which is now consolidated into ph financials with volumes reported on a consolidated basis and earnings on a proportional basis.

With.

This is partially offset by the assumption of fewer market based opportunities as well as the lower assumed oil prices in 2023 for our pipeline loss allowance barrels, we expect lower year on year NGL segment adjusted EBITDA as a result of a lower weighted average frac spread in <unk> III.

Spec product sales volumes due to a planned third party facility turnaround as well as our sale of the cap interest I would note that our C. III plus spec product sales volumes are approximately 80% hedged for the year.

Regarding capital allocation as illustrated on slide nine we remain committed to one significant returns of capital to continued capital discipline and three maintaining financial flexibility for 2023, we expect to generate $2 $3 billion in cash flow from operations, which is.

There was approximately $200 million of working capital outflows and excludes approximately $225 million of.

<unk> insurance proceeds related to the settlement of.

Our line 901 class action lawsuit, which we now expect to collect in 2024.

Furthermore, we expect $1 $6 billion of free cash flow inclusive of $270 million of asset sales.

Intended uses of cash flow are as follows one allocate approximately $1 billion to common and preferred distributions inclusive of their respective increases.

To self fund $325 million and $195 million of approved investment and maintenance maintenance capital net to PAA, which include the <unk> JV, well connect and inter basin.

Bottle necking capital to support future growth across our Delaware system.

I would note that this does not include amounts related to potential port that debottleneck and expansion and three retire $1 $1 billion of senior notes through a combination of cash flow asset sale cash on hand and available capacity on our credit facilities.

<unk> expected year end leverage to approximately three five times as of today, we have repaid $400 million of the $1 $1 billion target.

Additional detail on our capital program and the balance sheet are included on slides 10, and 11 before I turn the call back to Willie I wanted to provide a few.

<unk> a few housekeeping items in regards to our series a preferred equity security the owners exercised their one time option to reprice the security at a fixed rate of nine 375%, which will increase annual payments by approximately $26 million.

This is in addition to the series B preferred equity security shifting to a floating rate in November 2022, increasing expected annual payments by approximately $20 million.

As a result of the theory day election, we have the right to redeem the scared.

Security at 110% of par, which is the par is $26 25 per unit.

We will continue to evaluate our longer term capital structure.

But near term, we intend to maintain our financial flexibility and do not foresee any changes with respect to the preferred securities at this time.

During the quarter, we purchased an additional 5% interest in the cactus II pipeline, which resulted in a consolidation of the entity and a noncash gain on investments and unconsolidated entities of $370 million.

Furthermore, 2022 results also include a $330 million noncash impairment related to our California assets with that I will turn the call back over to Willie.

Thanks Al today's results reflect a critical inflection point for the business and a very strong year of performance and execution.

Like to acknowledge and thank our plains team members for their dedication and progress in all areas. We continue to believe that the world needs North American energy supply long term and that our business will perform well in the current and longer term environment as such and as illustrated on slide 12.

<unk> is well positioned to improve returns of capital to unitholders through our capital allocation framework that targets multi year distribution growth.

An eight 5% current yield significant free cash flow generation and balance sheet flexibility built on the strength of our strategically located crude and NGL footprint across North America. We appreciate your continued interest and support and we look forward to providing further updates on our earnings conference in May a summary of our key.

Based on today's call and our goals for 'twenty. Three are provided on slides 13, and 14 with that I will turn the call over to Blake to lead us through Q&A. Thanks, Willie as we enter the Q&A session. Please limit yourself to one question and one follow up for those with additional questions. Please feel free to return to the queue. This will allow.

Now us to address questions from as many participants as practical in our available time. This afternoon. Additionally, the IR team will be available throughout the week to address any additional questions. You may have Andrew we're now ready to open the call for questions.

Certainly as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

And our first question comes from the line of Michael Blum with Wells Fargo.

Hi, Michael.

Hey, thanks.

Good afternoon, everyone.

I Wonder if I could just start just one item I guess relates to the quarter.

Can you quantify if you benefited from the fact that Keystone was was down in December and then.

I understand thats running at reduced pressures today, so does that benefit you at all in 2023.

Jeremy.

Hi, This is Jeremy Goebel.

And in December so it wasn't really impacting the trade month and in December It was more impactful to forward periods. The impact was modest but youll see some from our.

Canadian group and some throughput impacts at our facilities, but by and large that's incorporated into our guidance. It didn't really impact 2022 as much as it will be the first quarter of 2023.

Okay, Great and then just wanted to ask about the capital budget.

Maybe just are there any major projects.

Projects to flag in that in that number and then.

It looks like maintenance is down year over year. So maybe can you talk talked about as well. Thank you.

Yes, Michael these are pretty consistent with kind of previous levels with a slight step up in expansion capital piece, Chris Chandler would you cover the coupons sure Michael its Chris Chandler, we're wrapping up the Wink to Webster project this year and Thats, a little higher year on year, we do have some additional well connects that are driving higher cost based on volume assumptions.

Producer forecasts, we are funding some incremental Permian debottlenecking costs, primarily for station work and Thats driven by supporting of course flow assurance reliability and flexibility there aren't any major projects included in as Al mentioned we're.

Not currently including any costs related to the <unk> SaaS.

Debottleneck projects.

Great. Thank you.

Thanks, Michael.

Thank you.

Question comes from the line of Brian rentals with UBS.

Hi, good morning, everyone, maybe to start off on just the Permian growth expectations. It seems like there was a slight shift in cadence lower for 500000 barrels per day from prior expectations.

But it also seems like plains is capturing a larger share of the gathering in long haul volumes compared to prior year. So I'm curious if you could just discuss the drivers around one the Permian growth guidance, and then second planes as assumptions around market share and margin opportunities into 'twenty three.

Hello. This is Jeremy Goebel first on the production forecast last February we guided to roughly approximately 600000 barrels a day of growth in 'twenty, two and 'twenty three.

Youre going to exit 'twenty, two at roughly $5 7 million barrels a day exit 'twenty three at roughly $6 one to $6 2 million barrels a day that puts you in a range of.

On target with where we worked last year. So we think the cadence is consistent.

340 ish rigs that are working today is roughly 75 more than we're working in that prior period contributing to growth today. So we look at that plus it at roughly 10% increase in the well connects across our system throughout the year gives us pretty much good confidence on a top down level as well as the bottoms up.

Sales from our producer forecast in.

500000 barrels a day outlook that we have some of the offset is to potentially slowing down is what we can foresee as incremental basin decline just from higher production and you've got a rebuilding of a modest level of depth across the system.

Because you had some depletion last year and then.

The continued conversion of development programs to maximizing the value of the inventory and the units as opposed to unbounded well. So that combination gives us a view as to if you just ran out based on historical looked in every well gets completed you get higher than 500000 barrels a day of growth. So that's kind of some of the factors we consider.

And coming out with our view of the production for this year as for the capture rate.

We look at our individual producer contributions and we look at the bottoms up forecast as well as the top down view.

That gives us confidence as to where this our.

Our capture rate will look I'd also highlight that roughly 50000 barrels a day is coming from another gathering system moving onto our long haul pipe. So it's really an intra basin and capture so some of Thats really being gathered by a third party, we capture it intra basin movements to our long haul pipe.

The $3 50 number you could really look at that as 300 relative to 500 as opposed to $3 50 relative to 500.

And then quickly just on margin into 'twenty three is it basically the same as 22 or should we assume any changes upward or down.

Are you talking about long haul margins, yes, long haul long haul Permian crude oil margins.

The incremental margins for spot capacity or more this year than they were last year that directly answering it contract roll offs and step ups can change it but if youre looking at what the marginal capacity work this year versus next year, it's higher this year.

And based on the way, we were able to contract that space for this year, we've locked in largely all of our spot capacity to the Gulf Coast and then going forward, we sold additional capacity in 2425 at successively higher levels.

Great. Thanks.

Consistent with what we've talked about before.

Great I appreciate it and then just for a quick follow up on the NGL segment. It just seems like the fee for fee for service component seems to be trending higher I'm. Just curious if you can talk about is that primarily driven from the asset sale and looking forward are there more opportunities opportunities to term out the side of the business.

I would think some of that would come from just the decline in commodity prices, so that contribution being lower but as Chris talked about we're advancing opportunities for potential adding fee for service. So I think you may see that longer term trend that way, but this year specifically in the erosion of some of the commodity based margins, which is baked into that forecast.

Great I'll leave it there thanks.

Thanks, Brian .

Thank you and our next question comes from the line of Keith Stanley with Wolfe Research.

Keith.

Hi, Thank you.

So first just on the guidance for the year. So one of the drivers in the waterfall as fewer market based opportunities 2023 versus 2022.

Can you talk just high level on what you're assuming in the 'twenty three guidance for marketing and logistics opportunities are you taking some men are you staying pretty conservative and if you are baking in some opportunities where they may be beyond.

The Keystone outage that you already referenced.

Yes, Keith this is Willie.

On the on the guidance for kind of market based what we've done as you know we've got a pretty complex system. That's got a lot of flexibility to be able to capture volumes. When the arbitrage opportunities are there we're not going to get into a detailed assessment of where things are what I would tell you is we put a what we thought was probable that we could.

Capture and then Theres a lot of variations I think that was mentioned in the prepared scripts.

With the range and was actually as a response to some of our conversations with them.

With analysts on not trying to be too precise on that so it's a long winded answer I'm, telling we got some baked in that we think we're going to capture and there are some upsides and downsides and and you know the typical buckets that we capture these in whether it be distressed crude into storage. We've got some time spreads. It's sometimes we're able to capture if the market is.

As conducive from that and then we've got some unhedged portions of our BLA as well as.

Our frac spreads not a lot we've got the predominant amount of that hedged that would give us some upside if oil prices are higher or lower.

And this area also differentials.

Quality differentials.

And impact that.

Got it thank you.

<unk>.

The second question is just on the NGL guidance for the year, so down $100 million year over year last quarter, you pointed to that $100 million impact, but you'd be pretty good in the fourth quarter. So 22 actually came in higher.

You also have the key RSL so.

Is it fair to say the NGL business is improving in some ways. It just feels like the outlook has actually gotten a little bit better than than your last update.

Yes, I think Thats, a fair assessment and remember we expect to close care for SaaS later this quarter. So youll see that that number wasn't included in anything past tense, it'll it'll be prospective but I think thats a fair assessment.

Thank you.

Our next question comes from the line of Mark <unk> with Barclays.

Hi, Good afternoon, maybe just a follow up on the Permian production growth outlook is there any sensitivity you can provide from the plains perspective to that 500000 barrel a day number in terms of 23, EBITDA guidance or any context around the embedded assumptions within your guidance range.

The way, we look at it as a <unk>.

Absolutely.

It's different from the gathering of long haul business, but a simple approach would be 100000 barrels a day would have roughly $10 million to $15 million of EBITDA impact to net to planes. So if you think about that just on the gathering side and the long haul will be a function of what's market and it goes to and so since we've had substantial portion.

If that they all wanted to go to Cushing or our shippers on cactus II decided to ship that at higher rates.

To add additional margin.

That's a rough view on the gathering side and then your view.

And that's assuming no market related opportunities is just the gathering fees associated with that.

Great. That's helpful. And then on slide nine you referenced net debt reduction in the context of the $600 million of free cash after dividends and you also have the 400 million of cash on the balance sheet as of Euro. So just wondering if theres a particular target you have for net debt repayments. This year in the context of the $1 1 billion you have maturing.

Yes. This is al.

The leverage we talked about going down basically to 10 from three 7% to three 5% that's roughly about $600 million is what is what.

Is what we're assuming so it'll be partly a reduction using cash to reduce the gross debt the net debt.

Model is about.

$600 million again, there's things that can happen throughout the year that will change that but that's what embedded in our in our assumptions at this time.

Got it I appreciate the time.

Thanks Mark.

Thank you and our next question comes from the line of John Mckay with Goldman Sachs.

Hello, everyone and thank you for the time appreciate it maybe.

Looking again at the Permian just thinking about kind.

Kind of barrels out of the Houston versus corpus.

Starting to see the corpus online start to follow up on a relative basis, given the export levels. I'm curious if you can kind of share our view share a view of what you think is going to happen in terms of.

The need potentially for actually more capacity or expansions on any of the lines going to corpus and whether or not that could be a 24 or 25 or later conversation.

Hi, This is Jeremy Goebel, I'd say, what Youre seeing is the corporate lines filling up because international demand is waking up for crude oil I would say the west or step up is having a larger impact on the market centers that Houston moving from market centers, there to Webster in Midland and then the fourth quarter of this year.

See a step up in additional movements into the Beaumont from that same markets. So you'll see more of an impact there corpus is continuing to draw barrels, but theres a lot of spot capacity moving into corpus today, and those margins will move out over time just.

To get from.

The lower levels. They are today to closer to Newbuild economics I don't think you are looking at an expansion in the near term the market has to move off incentive tariffs closer to where you could build or support additional construction, but Houston and Nederland, both have strong markets and we'll pull barrels in Cushing will continue to pull barrels based on the excellent crack spreads youre seeing in the.

Market today, so we see the Permian needs all of the above declared but at this point the most efficient dark from a quality.

And a.

Logistics standpoint, as corpus and it yields a premium to the other market itself as an export barrel, that's going to look to price into that market, but theres low overflow capacity into the others and then youll see pull into those other markets, but clearly logistics and quality reasons and pricing youll see corpus pull that export and.

And John you know this but the markets change and different locations as Jeremy outlined.

You can say will be the lead or lag, but there are times when we've got access to all of those markets. So there is times, where corpus will be attractive and sometimes we end up with a pull on Cushing up too on our basin pipeline from Permian to Cushing Cushing and we're able to move volumes there. So.

I think about it if market is is generally dynamic and we have a system that is able to capitalize on really any of that to move barrels for <unk>.

Customers.

That's helpful. Thanks for that maybe just on the.

On the gathering pick up to 50, a day, that's now going to be flowing onto your long haul line steroids are there more of these opportunities out there or is this kind of a one off maybe anything you can share on any others, we could see what that maybe means for rates overall.

Anything else would be helpful.

I think some of that is just a preference for producers to ship barrels. We just offer flexibility of our customers to go to specific markets. As we said earlier on the call. We continue to contract additional space Opportunistically when it makes sense and so we've layered in contracts over time to corpus to Cushing to other markets and we will continue to do that there are step ups.

And our contracts on cactus II.

Webster this year, which can impact that there was additional movement to corpus as contracts roll off from the contract new pieces. It just changes the dynamics in the system. So.

We're not going to disclose who shippers are how they move barrels, but that's something you continue to see we have an attractive gathering system and people like to deal with one operator from wellhead to market and will continue to capture opportunities that work for us and the customers.

Alright I appreciate the time thank you.

Thank you and our next question comes from the line of Jeremy Tonet with JP Morgan.

Hi, Jeremy.

Hi, good afternoon.

Just wanted to come back to the assumptions in the Permian here.

The 500 assume year over year as well as kind of on slide six the market share of those gains across gathering interfacing long haul.

Is there any high level thoughts here will provide as far as sensitivities, if we want to kind of overlay our own assumptions on those how that might impact EBITDA in the year.

Well I think Jeremy Goebel earlier comment on the rough sensitivity is probably fine.

Not as close as we can probably get.

And that was that roughly $10 million to $15 million and the gathering system.

If you for every 100000 barrels a day of growth in the Permian, It's hard to put a detailed number.

More on that because it really depends on what system. It is going on and as you as you might understand the.

Sometimes if it's an MVC that's empty and the volume wants to go differently. It will it will be a benefit and so theres a lot of variables that play into it but I'd, probably just go with that 10 to 15 per 100000.

And Jeremy just recognize on the long haul side, we feel very confident in the volumes that we put in here through the additional hedging in the contracting of additional capacity. So I'd say that the long haul system, but some of this is flex and based on market demand, but we have a very good view of that and I don't know that with a 100000 barrels a day of base and growth within the CLO.

And what we think we'll capture on the long haul side this year.

One thing Thats, notably different this year than past years that you may have picked up as we were coming into this year with substantial amount of our long haul volumes in the Permian.

And 80% of our Frac spreads kind of locked in so that gives us a little more confidence as we think about 2023, but that's different than what we've done in the past.

Yeah.

Got it that's helpful. Thanks, and I'll just kind of a question, maybe maybe for Matt a little bit here, just as far as what's the right leverage level for the business going forward, we've seen larger peers moved to a lower leverage level. So just curious I guess.

How do you think.

What do you think is the right leverage for this business longer term.

No good question.

Yes, we've seen we've seen that same disclosure.

Our current leverage targets, we established in 2019, we lowered them then.

Pandemic hit we have now.

Got into them and have now migrated below.

And what we're communicating versus establishing a new target is that we intend to migrate further below the low end and kind of operate there and I think what what our view is we'll assess that.

We do believe that probably.

Broader energy industry leverage probably needs to be lower than it's been historically.

But we will take a little time and assess that in the future, but for now just kind of look at it passed along the math.

We just intend to kind of operate below the low end.

Yes, I think having additional financial flexibility is a good thing these days.

Got it I'll leave it there. Thank you thanks.

Thanks Colton.

Sure Jeremy.

And our next question comes from the line of Neel Mitra with Bank of America.

Hi, good afternoon.

First question, the Frac spread I know you've talked about that improving.

For 'twenty three on the outlook could you maybe talk about what.

What the moving parts were from the last outlook.

This outlook.

Since you're 80% hedged.

When you look at the NGL basket versus Heiko.

Sure Neal this is Jeremy just think of it.

In the fourth quarter in November natural gas prices were substantially higher than they are now we we're not hedging through that period in the fourth quarter and.

Natural gas price Henry hub, and subsequently <unk> decline, we were able to hedge into so propane and butane and condensate prices didn't have to move materially for relative to the spread of buying <unk> and selling NGL and so we took advantage of that moved to hedge additional volume that came with the stronger.

The pricing, but thats all priced into the forecast we've given today. So we have an outlook that's consistent with the hedging we have and in the forward market. That's there today.

Got it that makes sense. Thank you.

Second question, Jeremy probably for you also.

We had a lot of crude kind of flooding the heath scenario with the with the SPR release last year.

Now that that's gone it seem to have affected a lot of exports and improve the outlook.

It's the same push there for exports and subsequently movement.

To corpus versus Houston this year.

I would say those are somewhat independent because last year light crude exports increased by just a bit more than light crude production growth from the permit from the life.

Basins, including the Permian.

CR was 70% heavy and that's more impacted imports from Canada and imports from other locations. So the real need for replacement from those refineries. The roughly the average of 450000 barrels a day of SCR releases over the calendar year is going to be on the heavy side, they're going to need to find replacements for that distillate yield.

So it's really not a replacement in yields there we look at that more of an impact on the heavy markets light markets. So we still think the best logistics and the best quality, we will draw the additional barrels for export. So we kind of look at those as independent.

Because of the domestic refiners increased last year exports of products and exports of lights and so we just look at those independently.

Got it and if I could just ask one clarification.

Clarification, so when you talk about hedging.

Spread, let's say between the Permian and Corpus Christi market or Permian EMEA.

That for your equity volumes that Youre doing that now.

Now.

It is also to price.

For <unk>, all from our Midland Basin.

Price for contract space on pipelines. So if you think about it on a prompt basis in the given month the spread to the water could be 50.

From EMEA, so it's a little different in Houston, and Corpus, but just from a corporate standpoint, it could be it in excess of 50.

On a longer term basis, if youre looking at the EMEA market it could be easily in the 30 to 40.

So if youre looking at that as the marker.

The relationship has changed divestments wink to Webster startup and Theres less liquidity at any age but.

Still a proxy, but theres a premium for corpus for sure.

Not sure. If your question was the margin recapture the margin on barrels that we buy and move was that your question.

That was it but Jeremy as color was also very helpful. Thank you.

Thank you.

And our next question comes from the line of Neal Dingmann with tools.

Afternoon, guys. Thanks for the time, but it's quite a bit. So I just wanted to ask maybe a different way I am trying to get a sense of if you see any difference win strategy now if I look at sort of simply grow versus distribution and then maybe part of that how you think about that.

Sort of minimum distribution growth coverage that you're uncomfortable with that.

Either side of that if those things have changed.

Yes, Neal this is Willie the strategy Hasnt changed.

Capital discipline and discipline in everything we do continues.

Our goal is to continue to generate lots of free cash flow continue to pay that down we've got we've got the prefs that we want to deal with at some point in time when it's optimal.

As we go forward, we want to have that extra financial flexibility.

We've got some very exciting opportunities potential.

Potential debottleneck on some of our NGL assets. So if you do see us take on some more projects are going to be strong return.

And we're going to be very very measured as we as we go forward, whether it be capital investments or even bolt on acquisitions or or anything else. So that's the way we think about it.

Yeah.

Very good and then one last one just you had mentioned I know previously you had a little bit of downtime or offline in the Canadian facilities I'm, just wondering any update on how thats trending down. Thank you.

Yes. This is Chris Chandler I can take that we did have a turnaround at our <unk> facility late in 2022, we completed that successfully and we're back at full strength across our Canadian assets, both on the Empress extraction plants and at the fractionation facilities at both for SaaS.

And in the East Sarnia.

Okay.

Thank you.

And our next question comes from the line of Sunil <unk> with Seaport Global.

Yes, hi, good afternoon everybody.

So my first question was on Capex, so it seems like.

You guided to Capex little bit higher.

What you did last year.

Yes.

Since there are no specific big item projects.

Kind of run rate, we can assume going forward, especially if the Permian growth.

Going forward because I mean, it's in the same kind of range.

Yes, so Neal if I understood. Your question you are asking kind of trajectory of growth and run rate is that is that what you were asking.

Alright.

Yes, so we do have operating leverage so we've got capacity in the Permian.

Gathering intra basin long haul multiple markets.

So we will always be some opportunities there and then as I as I shared earlier on the NGL assets. There is definitely some opportunities there as well.

Yes.

Okay.

Then.

One question for Al So when I look at the slide it.

Financial assumptions for 2023 could you walk us from <unk>.

Cash flow from operations of $2 3 billion to your free cash flow of $1 6 billion.

Okay.

Yes.

That was from the cash flow the two.

Q3, it would be.

We're assuming $270 million of asset sales, which would increase it.

Right.

David.

The capex both to $3 25 in the maintenance capital would would reduce it.

And I think in our calculation, we have distributions to noncontrolling interests embedded in there as well.

So it's the same formula we use all of the pieces and parts are if you look at our definition of.

Free cash flow Youll bolted to take some of these of these parts to get there.

Does it make sense.

Yeah got it and then one follow up from the previous question was on leverage.

Thank you.

<unk> guided to.

It will be kind of Oh.

Greetings, so does your previous range of $3 five four in the quarter on the leverage metrics.

You'll get there.

Considering the overall environment that we're in.

And hearing from other midstream produce that's also you need to kind of lower that.

$3 75 to four point to five.

<unk>.

I would say probably.

Probably not other than we'd probably have to.

To operate in the lower band of it and operate in the lower band of it on kind of a through the cycle kind of basis.

But again.

As we've communicated on this call and the call in November we intend to operate kind of at the lower band or below and we've had the same dialogue and communication with the rating agencies as well.

We believe the path that we plan to manage our financial capital structure at is commensurate with mid Triple B ratings, and it'll just take time and us executing against what we've laid out to get there. So we're pleased with the progress so far.

We did get one positive outlook recently and we're hopeful again, we just got to continue to execute and deliver like we think we will.

Thanks for that.

Yes.

Thank you.

I'll now turn the call back over to CEO , Willie Chang for any closing remarks.

Thanks, Hey, I did want to add one thing when we talked about things that we look at with.

Intense financial discipline, we've talked about capital investments, we looked at some talk about some of the NGL expansion. The one other thing on their forces is acquisitions and you would expect us to take the same level of financial discipline as we think about acquisitions. When you think about our system and what we're ultimately plan for we've got great assets, we're probably.

Able to capture more synergies out of some of these but we are going to be very disciplined and think about the valuation on these when they do come up.

But again anything Youll see us do is going to go through that threshold of financial discipline.

Thanks to everyone for your attention joining us this afternoon, and we'll look forward to keeping you updated as we go forward through the year. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Good day, and thank you for standing by and welcome to the PAA and PAGP fourth quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.

I ask a question during the session you will need to press star one on your telephone.

You will then hear an automated message advising that your hand has been raised.

Withdraw your question. Please press star one one again please.

Please be advised that today's conference is being recorded.

It is now my pleasure to introduce vice President of Investor Relations Blake Fernandez.

These attractive asset base, including its premier Permian operating system, coupled with a long term capital allocation framework focused on increasing returns to equity holders makes it an exciting time for the company.

I look forward to engaging with all of you throughout the year.

In todays material, we're providing forward guidance for 2023, and an effort to improve communication and forecasting we've made a few updates, including an adjusted EBITDA range, which reflects potential volatility in the underlying commodity market along with the volumetric outlook for each segment. The slide presentation is posted on the Investor Relations.

Website under the news and events section at <unk> Dot com.

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.

An overview of today's call is provided on slide three.

Vice President and CFO , Jeremy Goebel, Executive Vice President and CEO , and Chris <unk> Senior Vice President Finance and CFO with that I will now turn the call over to Willie.

Thanks, Blake we are very pleased to have you join the claims team.

And our team was able to capture market based opportunities via our integrated business model flexible asset base as well as commodity price upside.

In summary, fourth quarter and full year adjusted EBITDA attributable PAA was $659 million and $2 five 1 billion respectively with.

With full year results exceeding our February guidance by $310 million or approximately 14%.

As a result, we achieved the low end of our targeted leverage range earlier than expected, which enabled us to announce our multiyear capital allocation and financial framework in November <unk>.

Improvement with zero as our ultimate goal from both of these metrics.

Looking to 2023 and as highlighted on slide four we provide an adjusted EBITDA attributable PAA guidance in a range of $2 45 to $2 $5 5 billion.

This reflects year over year growth in our crude oil segment underpinned by continued Permian production.

<unk> volume growth on our gathering and long haul systems.

Our guidance also factors in a reduction in our NGL segment, primarily driven by lower weighted average frac spreads and.

<unk> III plus spec product sales volumes as well as the <unk> SaaS sale, which is expected to close this quarter al will provide.

Good additional color on our guidance in this portion of the call.

Our updated forecast assumes an average horizontal oil count rig the rig count of 340, <unk> consistent with current levels.

As part of our routine fundamentals forecasting process, we will continue to monitor our assumptions regarding natural gas takeaway capacity and commodity prices as the year progresses or.

We also expect to see similar year to year year over year throughput.

From the Permian to Cushing on our basin pipeline. Furthermore, we anticipate additional volume on Wink to Webster due to an increase in nbc's.

In our NGL segment, we continue to focus on optimizing the business as well as improving the predictability of our earnings during.

I'll turn the call over to al. Thanks, Wally We reported fourth quarter adjusted EBITDA of $659 million, which includes crude oil segment benefits of Canadian market based opportunities and increased volumes across our systems, primarily within the Permian and along with NGL.

Segment benefits from stronger seasonal sales for the full year, we reported adjusted EBITDA of $2 $51 billion, which was $310 million above our initial February guidance.

Full year outperformance was primarily driven by market based opportunities captured by our assets throughout the year higher commodity price benefits and.

An increased tariff volumes, primarily in the Permian systems slide.

Slide 19, or 17 through 19 in today's appendix contains walks, which provide more detail on our fourth quarter and full year performance. Our summary of 2023 guidance as well as key guidance assumptions are located on slide seven and eight.

Looking at 2023 compared to 2022 and as illustrated by the EBITDA walk on slide seven we expect adjusted EBITDA of $2 $4 5 billion to $2 55 billion.

With year over year growth in our crude oil segment and a reduction in the NGL segment.

Growth in our crude oil segment is primarily driven by anticipated tariff volume increases in our per Permian gathering and long haul businesses due in part to our increased ownership in cactus II, which is now consolidated into PAA financials with volumes reported on a consolidated basis and earnings on a proportionate basis.

With.

Spec product sales volumes due to a planned third party facility turnaround as well as our sale of the <unk> interest I would note that our <unk> plus spec product sales volumes are approximately 80% hedged for the year.

Regarding capital allocation is illustrated on slide nine we remain committed to one significant returns of capital to continued capital discipline and three maintaining financial flexibility for 2023, we expect to generate $2 $3 billion in cash flow from operations, which is.

Assumes approximately $200 million.

Of working capital outflows and excludes approximately $225 million of anticipated insurance proceeds related to the settlement of.

Our line 901 class action lawsuit, which we now expect to collect in 2024. Furthermore, we expect $1 $6 billion of free cash flow inclusive of $270 million of asset sales.

Turning to uses of cash flow are as follows one allocated approximately $1 billion to common and preferred distributions inclusive of their respective increases.

To self fund $325 million and $195 million of approved investment and maintenance maintenance capital net to PAA, which include the <unk> JV, well connect and inter basin Debottlenecking capital to support future growth across our Delaware system.

I would note that this does not include amounts related to potential port that debottlenecking and expansion and three retire $1 1 billion of senior notes through a combination of cash flow asset sale cash on hand and available capacity on our credit facilities.

Bringing expected year end leverage to approximately three five times as of today, we have repaid $400 million of the $1 $1 billion target.

Additional detail on our capital program and the balance sheet are included on slides 10, and 11 before I turn the call back to Willie I wanted to provide a few.

Detail on a few housekeeping items in regards to our series a preferred equity security the owners exercised their one time option to reprice the security at a fixed rate of nine 375%, which will increase annual payments by approximately $26 million.

This is in addition to the series B preferred equity security shifting to a floating rate in November 2022, increasing expected annual payments by approximately $20 million.

As a result of the theory the election, we have the right to redeem the scared.

Security at 110% of par, which is the par is $26 25 per unit.

We will continue to evaluate our longer term capital structure.

But near term, we intend to maintain our financial flexibility and do not foresee any changes with respect to the preferred securities at this time.

Furthermore, 2022 results also include a $330 million noncash impairment related to our California assets with that I will turn the call back over to Willie.

Thanks Al today's results reflect a critical inflection point for the business in a very strong year of performance and execution.

I'd like to acknowledge and thank our plains team members for their dedication and progress in all areas. We continue to believe that the world needs North American energy supply long term and that our business will perform well in the current and longer term environment as such and as illustrated on slide 12 planes is well positioned to improve returns.

Of capital to unitholders through our capital allocation framework that targets multiyear distribution growth and eight 5% current yield significant free cash flow generation and balance sheet flexibility built on the strength of our strategically located crude and NGL footprint across North America. We appreciate your continued interest.

And support and we look forward to providing further updates on our earnings conference in May a summary of our key takeaways from today's call and our goals for 2003 are provided on slides 13, and 14 with that I will turn the call over to Blake to lead us through Q&A. Thanks, Willie as we enter the Q&A session. Please limit.

Self to one question and one follow up for those with additional questions. Please feel free to return to the queue. This will allow us to address questions from as many participants as practical in our available time. This afternoon. Additionally, the IR team will be available throughout the week to address any additional questions. You may have Andrew we're now ready to open the call for questions.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Please standby, while we compile the Q&A roster.

And our first question comes from the line of Michael Blum with Wells Fargo.

Hi, Michael.

Hey, thanks.

Good afternoon, everyone.

I Wonder if I could just start just one item I guess relates to the quarter.

Can you quantify.

Benefited from the fact that Keystone was was down in December and then.

I understand it's running at reduced pressures today or does that benefit you at all in 2023.

Jeremy.

Hi, This is Jeremy Goebel.

And in December so it wasn't really impacting the trade month and in December It was more impactful to forward periods. The impact was modest but youll see some from our.

Canadian group and some throughput impacts at our facility, but by and large that's incorporated into our guidance. It didn't really impact 2022 as much as it will be the first quarter of 2023.

Okay, Great and then just wanted to ask about the capital budget.

Maybe just are there any major projects.

Projects to flag in that in that number and then.

It looks like maintenance is down year over year. So maybe can you talk talked about as well. Thank you.

Yes, Michael these are pretty consistent with kind of previous levels with a slight step up in expansion capital piece, Chris Chandler would you cover the coupons sure Michael It's Chris Chandler, we're wrapping up the Wink to Webster project this year and Thats, a little higher year on year, we do have some additional well connects that are driving higher cost based on volume assumptions.

Producer forecasts, we are funding some incremental Permian debottlenecking costs, primarily for station work and Thats driven by supporting of course flow assurance reliability and flexibility.

Or any major projects included in as Al mentioned we're.

Not currently including any costs related to the <unk> SaaS.

Debottleneck projects.

Great. Thank you.

Thanks, Michael.

Thank you.

Next question comes from the line of Brian rentals with UBS.

Hi, good morning, everyone, maybe to start off on just the Permian growth expectations. It seems like there was a slight shift in cadence lower for 500000 barrels per day from prior expectations.

And it also seems like plains is capturing a larger share of the gathering in long haul volumes compared to prior year. So I'm curious if you could just discuss the drivers around one the Permian growth guidance, then second planes as assumptions around market share and margin opportunities into 'twenty three.

Hello. This is Jeremy Goebel first on the production forecast last February we guided to roughly approximately 600000 barrels a day of growth in 'twenty, two and 'twenty three.

Youre going to exit 'twenty, two at roughly $5 7 million barrels a day exit 'twenty three at roughly $6 one to $6 2 million barrels a day that puts you in a range of <unk>.

On target with where we were last year. So we think the cadence is consistent.

340 ish rigs that are working today is roughly 75 more than we're working in that prior period contributing to growth today. So we look at that plus at roughly 10% increase in the well connects across our system throughout the year gives us pretty much good confidence on a top down level as well as the bottoms up.

Sales from our producer forecast in the 500000 barrels a day outlook that we have some of the offset is to potentially slowing down.

What we can foresee as incremental basin decline just from higher production <unk> got a rebuilding of a modest level of depth across the system.

Because you had some depletion last year and then.

The continued conversion of development programs to maximizing the value of the inventory and the units as opposed to unbounded well so.

That combination gives us a view as to if you just ran out based on historical looked in every well gets completed you get higher than 500000 barrels a day of growth. So that's kind of some of the factors we considered in coming out with our view of production for this year as for the capture rate.

We look at our individual producer contributions and we look at the bottoms up forecast as well top down view.

That gives us confidence as to where this our.

The $3 50 number you could really look at that as 300 relative to 500 as opposed to $3 50 relative to 500.

And then quickly just on margin in the 23 is it basically the same as 22 or should we assume any changes upward or down.

Are you talking about long haul margins for long haul long haul Permian crude oil margins.

All of our spot capacity to the Gulf Coast, and then going forward, we sold additional capacity in 'twenty four 'twenty five at successively higher levels.

Great. Thanks.

These levels are consistent with what we've talked about before.

Great I appreciate it and then just for a quick follow up on the NGL segment. It seems like the fee for fee for service component seems to be trending higher I'm. Just curious if you can talk about is that primarily driven from the asset sale and looking forward are there more opportunities opportunities to term out the side of the business. Thanks.

I think some of that would come from just the decline in commodity prices, so that contribution being lower but as Chris talked about we're advancing opportunities for potential adding fee for service. So I think you may see that longer term trend that way, but this year specifically in the erosion of some of the commodity based margins, which is baked into that forecast.

Great I'll leave it there thanks.

Thanks, Brian .

Thank you and our next question comes from the line of Keith Stanley with Wolfe Research.

Keith.

Hi, Thank you.

So first just on the guidance for the year. So one of the drivers in the waterfall as fewer market based opportunities 2023 versus 2022.

Can you talk just high level on what you're assuming in the 'twenty three guidance for marketing and logistics opportunities are you, making some man are you staying pretty conservative and if you are baking in some opportunities where they may be beyond that.

The Keystone outage that you already referenced.

Yes, Keith this is Willie.

On the on the guidance for kind of a market based what we've done as you know we've got a pretty complex system. That's got a lot of flexibility to be able to capture volumes. When the arbitrage opportunities are there we're not going to get into a detailed assessment of where things are what I would tell you is we put a what we thought was probable that we could.

Capture and then Theres a lot of variations I think that was mentioned in the prepared scripts, we want with the range and was actually as a response to some of our conversations with them.

With analysts on not trying to be too precise on that so it's a long winded answer of telling we've got some baked in we think we're going to capture and there are some upsides and downsides and and you know the typical buckets that we capture these in whether it be distressed crude into storage.

We've got some time spreads it's sometimes we're able to capture if the market is conducive from that and then we've got some unhedged portions of our plc as well as.

Our frac spreads not a lot we've got the predominant amount of that hedged that would give us some upside if oil prices are higher or lower.

And this area also differentials.

Quality differentials.

Impact that.

Yeah.

Got it thank you.

<unk>.

Second question is just on the NGL guidance for the year, so down $100 million year over year last quarter, you pointed to that $100 million impact, but you beat pretty good in the fourth quarter. So 22 actually came in higher you also have the key RSL. So is it fair to say the NGL business.

Is improving in some ways. It just feels like the outlooks actually gotten a little bit better than than your last update.

Yes, I think Thats, a fair assessment and remember we expect to close care for SaaS later this quarter. So youll see that that number wasn't included in anything past tense it'll it'll be prospective but I think it's a fair assessment.

Thank you.

And our next question comes from the line of Mark <unk> with Barclays.

Hi, Good afternoon, maybe just a follow up on the Permian production growth outlook is there any sensitivity you.

From the plains perspective to that 500000 barrel a day number in terms of 23, EBITDA guidance or any context around the embedded assumptions within your guidance range.

The way, we look at it as a.

Roughly.

It's different from the gathering the long haul business, but a simple approach would be 100000 barrels a day would have roughly $10 million to $15 million of EBITDA impact to net to planes. So if you think about that just on the gathering side of the long haul will be a function of what's market. It goes to and so since we've had substantial portion.

If ethanol wanted to go to Cushing or our shippers on cactus II decided to shift out at higher rates.

It would add additional margin.

That's a rough view on the gathering side and then your view of.

And that's assuming no market related opportunities is just the gathering fee associated with that.

Great. That's helpful. And then on slide nine you referenced the net debt reduction in the context of the $600 million of free cash after dividends and you also have before 2 million of cash on the balance sheet as of Euro. So just wondering if theres a particular target you have for net debt repayments. This year in the context of the $1 1 billion you have maturing.

Yes. This is al.

The leverage we talked about going down basically two tenths from three 7% to three five that's roughly about $600 million is what is what is what we're assuming so it'll be partly a reduction using cash to reduce the gross debt the net debt.

We modeled about about $600 million again, there's things that can happen throughout the year that will change that but that's what embedded in our in our assumptions at this time.

Got it I appreciate the time.

Thanks Mark.

Thank you and our next question comes from the line of John Mckay with Goldman Sachs.

Hi, everyone. Thank you for the time I appreciate it maybe.

Looking again at the Permian just thinking about.

Kind of barrels out of the Houston versus corpus.

The need potentially for actually more capacity or expansions on any of the lines going to corpus and whether or not that could be a 24 or 25 or later conversation.

Hi, This is Jeremy Goebel, I'd say, what Youre seeing is the corporate lines filling up because international demand is waking up for crude oil I would say the west or step up is having a larger impact on the market centers at Houston moving from market centers, there to Webster in Midland and then the fourth quarter of this year.

See a step up in additional movements into the Beaumont from that same market. So you'll see more of an impact there corpus is continuing to draw barrels, but theres a lot of spot capacity moving into corpus today, and those margins will move out over time just.

To get from.

The lower levels. They are today to closer to Newbuild economics I don't think you are looking at an expansion in the near term the markets have to move off incentive tariffs closer to where you could build our support additional construction, but Houston and Nederland, both have strong markets and we'll pull barrels in Cushing will continue to pull barrels based on the excellent crack spreads youre seeing in the.

Market today, so we see the Permian need all of the above to clear, but at this point the most efficient dark from a quality.

And a.

Logistics standpoint, as corpus and it yields a premium to the other market itself as an export barrel is going to look to price into that market, but theres lower flow of capacity into the others and then youll see pull into those other markets, but clearly logistics and quality reasons and pricing Youll see corp. This pull that export barrel and.

And John you know this but the markets change and different locations as Jeremy outlined.

I think about it if market is is generally dynamic and we have a system that is able to capitalize on really any of that to move barrels for our.

Customers.

That's helpful. Thanks for that maybe just on the.

On the gathering pick up to 50, a day, that's now going to be flowing onto your long haul line.

Are there more of these opportunities out there or is this kind of a one off maybe anything you can share on.

Again.

Any others, we could see what that maybe means for rates overall.

Anything else would be helpful.

And our contracts on cactus II and Wink to Webster this year, which can impact that there was additional movements to corpus as contracts roll off from the contract new pieces. It just changes the dynamics in the system. So we're.

We're not going to disclose who shippers are how they move barrels, but that's something you continue to see we have an attractive gathering system and people like to deal with one operator from wellhead to market and we will continue to capture opportunities that work for us and the customers.

Alright I appreciate the time thank you.

Thank you.

Our next question comes from the line of Jeremy Tonet with J P. Morgan.

Hi, Jeremy.

Hi, good afternoon.

Just wanted to come back to the assumptions in the Permian here.

The 500 assume year over year as well as kind of on slide six the market share of those gains across gathering interfacing long haul.

Is there any high level thoughts you're able to provide as far as sensitivities. If we want to kind of overlay our own assumptions on those how that might impact EBITDA in the year.

Well I think Jeremy Global's earlier comment on the rough sensitivity is probably not.

Not as close as we can probably get.

That was that roughly $10 million to $15 million and the gathering system.

If you for every 100000 barrels a day of growth in the Permian, It's hard to put a detailed number.

More on that because it really depends on what system, that's going on and as you as you might understand the.

Sometimes if it's an MVC thats empty and the volume wants to go differently. It will it will be a benefit.

So theres a lot of variables that play into it but I'd, probably just go with that 10 to 15 per 100000.

And Jeremy just recognize on the long haul side, we feel very confident in the volumes that we put in here through the additional hedging in the contracting of additional capacity.

I'd say that the long haul system.

Some of this is flex and based on market demand, but we have a very good view of that and I don't know that was at a 100000 barrels a day of space and growth within our CLO movement in what we think we'll capture on the long haul side this year.

And one thing thats, notably different this year than past years.

You may have picked up as we were coming into this year with substantial amount of our long haul volumes in the Permian.

And 80% of our Frac spreads.

Locked in so that gives us a little more confidence as we think about 2023, but that's different than what we've done in the past.

Got it that's helpful. Thanks, and Al. This is kind of a question maybe for Matt here, just as far as what's the right <unk>.

Leverage level for the business going forward, we've seen larger peers move to a lower leverage level. So just curious I guess.

How do you think.

What do you think is the right leverage for this business longer term.

No good question.

Yes, we've seen we've seen that same disclosure.

Our current leverage targets, we established in 2019, we lowered them then.

Pandemic hit we have now.

Got into them and have now migrated below.

And what we're communicating versus establishing a new target is that we intend to migrate further below the low end and kind of operate there and I think what what our view is we'll assess that.

We do believe that probably.

Water energy industry leverage probably needs to be lower than it's been historically.

But we will take a little time and assess that in the future, but for now just kind of look at it pass along the math that we just intend to kind of operate below the low end.

Yes, I think having additional financial flexibility is a good thing these days.

Got it I'll leave it there. Thank you thanks.

Thanks Colton.

Sure Jeremy.

And our next question comes from the line of Neel Mitra with Bank of America.

Hi, good afternoon.

First question, the Frac spread I know you've talked about that improving.

For 'twenty three on the outlook could you maybe talk about.

What the moving parts were from the last outlook.

This outlook.

Since you are 80% hedged.

When you look at the NGL basket versus Heiko.

Sure Neal this is Jeremy just think of it.

In the fourth quarter in November natural gas prices were substantially higher than they are now we we're not hedging through that period in the fourth quarter and.

Natural gas price Henry hub, and subsequently <unk> decline, we were able to hedge into so propane and butane and condensate prices didn't have to move materially for relative to the spread of buying and selling NGL and so we took advantage of that moat and hedge additional volume that gave it the stronger.

The pricing, but thats all priced into the forecast we've given today. So we have an outlook that's consistent with the hedging we have in the Ford market. That's there today.

Got it that makes sense. Thank you.

Second question, Jeremy probably for you also.

We had a lot of crude kind of flooding the heath scenario with the with the SPR release last year.

Now that that's gone it seem to have affected a lot of exports and improved the outlook.

It's the same push there for exports and subsequently movement.

To corpus versus Houston this year.

I would say those are somewhat independent because last year light crude exports increased by just a bit more than light crude production growth from the permit from the light.

Basins, including the Permian.

<unk> was 70% heavy and that more impacted imports from Canada and imports from other locations. So the real need for replacement from those refineries. The roughly the average of 450000 barrels a day of SCR releases over the calendar year is going to be on the heavy side, they're going to need to find replacements for that distillate yield.

So it's really not a replacement in yields there we look at that more of an impacted on heavy markets.

Light markets. So we still think the best logistics and the best quality, we will draw the additional barrels for export. So we kind of look at those as independent.

Because of the domestic refiners increased last year exports of product exports of lights, and so we just look at those independent.

Got it and if I could just ask one clarification.

Clarification, so when you talk about hedging.

Spread, let's say between the Permian and Corpus Christi market or Permian EMEA is that for your equity volumes that you are doing that now.

Now.

It's also to price.

For us, it's an F O b cell from our Midland Basin.

Price for contracts based on pipelines. So if you think about it on a prompt basis in the given month the spread to the water could be 50.

From NBA <unk>, it's a little different in Houston, and Corpus, but just from a corporate standpoint, it could be it in excess of 50.

On a longer term basis, if youre looking at the EMEA market it could be easily in the 30% to 40.

So if youre looking at that as the marker. The the relationship has changed a bit since wink to Webster startup and Theres less liquidity at any age but it's.

Still a proxy, but theres a premium for corpus for sure.

Not sure. If your question was the margin recapture the margin on barrels that we buy and move was that your question.

That was it but Jeremy as color was also very helpful. Thank you.

Thank you.

And our next question comes from the line of Neal Dingmann with true.

Yes.

Afternoon, guys. Thanks for the time, but it's quite a bit as I just wanted to ask maybe a different way I am trying to get a sense of if you see any difference win strategy now if I look at sort of simply grow versus distribution and then maybe part of that how you think about the.

Sort of minimum distribution growth coverage that you're uncomfortable with that.

Either side of that if those things have changed.

Yes, Neal this is Willie the strategy Hasnt changed.

Capital discipline and discipline in everything we do continues.

Our goal is to continue to generate lots of free cash flow continue to pay debt down.

We've got the Prefs that we want to deal with at some point in time, when it's optimal and as we go forward, we want to have that extra financial flexibility.

We've got some very exciting opportunities.

Potential debottleneck on some of our NGL assets. So if you do see us take on some more projects are going to be strong return.

And we're going to be very very measured as we as we go forward, whether it be capital investments or even bolt on acquisitions or anything else. So thats the way we think about it.

Yes.

Yes. This is Chris Chandler I can take that we did have a turnaround at our <unk> facility late in 2022, we completed that successfully and we're back at full strength across our Canadian assets bolt on the Empress extraction plants and at the fractionation facilities at both <unk> SaaS and.

And in the East Sarnia.

Okay.

Thank you.

And our next question comes from the line of Sunil <unk> with Seaport Global.

Yes, hi, good afternoon everybody.

So my first question was on Capex, so it seems like.

You guided to Capex little bit higher.

And what you did last year.

Yes.

Since there are no specific big item projects.

Kind of run rate, we can assume going forward, especially if the Permian growth.

Going forward.

We maintain the same similar kind of range.

Yes, so Neal if I understood. Your question Youre, asking kind of trajectory of growth and run rate is that is that what you were asking.

Alright.

Yes, so we do have operating leverage so we've got capacity in the Permian.

Gathering intra basin long haul multiple markets.

So that will always be some opportunities there and then as I as I shared earlier on the NGL assets. There is definitely some opportunities there as well.

Yes.

Okay.

Then.

One question for Al So when I look at the slide it.

<unk>.

Assumptions for 2023 could you walk us from <unk>.

Cash flow from operations of $2 3 billion to your free cash flow of $1 6 billion.

Okay.

Yes.

From a cash flow.

Two three yes it would.

B, we're assuming $270 million of asset sales, which would increase it.

Right.

David.

The capex both to $3 25 in the maintenance capital.

Would reduce it.

And I think in our calculation, we have distributions to noncontrolling interests embedded in there as well.

It's the same formula we use all the pieces and parts are if you look at our definition of <unk>.

Free cash flow Youll take the some of these parts to get there.

Does it make sense.

Yeah got it and then one follow up from the previous question on leverage I.

I think you've also guided to a mid triple b kind of.

Kind of recruiting.

So previously and a $3 75 to four and a quarter on the leverage metrics.

Youll get there.

Considering the overall environment.

And hearing from other midstream producers also you need to kind of lower that.

$3 75 to four point to five will.

We'll get to Triple B.

Okay.

I would say.

Probably not other than we'd probably have to.

To operate in the lower band of it and operate in the lower band of it on kind of a through the cycle kind of basis.

But again.

As we've communicated on this call on the call in November we intend to operate kind of at the lower band or below and we've had the same dialogue and communication with the rating agencies as well.

We did get one positive outlook recently and we're hopeful again, we just got to continue to execute and deliver like we think we will.

Thanks for that.

Okay.

Thank you.

I will now turn the call back over to CEO , Willie Chang for any closing remarks.

Thanks, Hey, I did want to add one thing when we talked about things that we look at with.

Intense financial discipline, we've talked about capital investments, we looked at some talk about some of the NGL expansion. The one other thing on their horses is acquisitions and you would expect us to take the same level of financial discipline as we think about acquisitions. When you think about our system and what we are ultimately plan for we've got great assets, we're probably.

Able to capture more synergies out of some of these but we're going to be very disciplined and think about the valuation on these when they do come up.

But again anything Youll see us do is going to go through that threshold of financial discipline.

Thanks, everyone for your attention joining us this afternoon, and we'll look forward to keeping you updated as we go forward through the year. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.

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