Q2 2023 Plains GP Holdings LP Earnings Call

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Operator: Good morning. Thank you for standing by. Welcome to the PAA and PAGP Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Blake Fernandez, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for standing by welcome to the P. H a N P E. G P second quarter 2023 earnings call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone you will then hear an automated message. It bites in your hand, just raised to withdraw your question. Please.

Press Star one again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Blake Fernandez, Vice President of Investor Relations. Please go ahead.

Blake Fernandez: Thank you, Michelle. Good morning and welcome to Plains All American Q2 2023 Earnings Call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at plains.com, where 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. Highlights from the quarter are provided on slide three. A condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix. Today's call will be hosted by Willie Chiang, Chairman and CEO, and Al Swanson, Executive Vice President and CFO, as well as other members of our management team. With that, I will now turn the call over to Willie.

Thank you Michele good morning, and welcome to Plains, All American second quarter 23 earnings call.

Today's slide presentation is posted on the Investor Relations website under the news and events section of claims Dot Com. We're an audio replay will also be available following today's call.

Disclosures regarding forward looking statements and non-GAAP financial measures are provided on slide to highlight.

Highlights from the quarter are provided on slide three.

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 CFO as well as other members of our management team with that I'll now turn the call over to Willy. Thank.

Willie Chiang: Thank you, Blake. Good morning, everyone, and thanks for joining us. In our release earlier this morning, we announced strong Q2 results, along with the closing of a Permian gathering bolt-on acquisition on 28 July. We provided an update on our NGL segment optimization efforts at Fort Saskatchewan. These announcements reflect meaningful progress towards executing on our full year 2023 targets and goals. As a result of our year-to-date performance and the bolt-on acquisition, we now expect to be at the high end of our $2.45 to $2.55 billion adjusted EBITDA range for 2023. Our revised outlook also contemplates slightly lower than expected Permian production, driven by lower commodity prices and some weather-related impacts that occurred in June and July. A high-level overview of our updated 2023 guidance is located on slide four, and Al will share additional detail in his portion of the call.

Thank you Blake good morning, everyone and thanks for joining us in our release earlier. This morning, we announced strong second quarter results along with the closing of our Permian gathering bolt on acquisition on July 28, and we provided an update on our NGL segment optimization efforts at Fort Saskatchewan. These announcements.

Reflect meaningful progress towards executing on our full year 'twenty three targets and goals as a result, our year to date performance and the bulk as a result of our year to date performance and the bolt on acquisition. We now expect to be at the high end of our $2 45 to $2 55 billion adjusted EBITDA range.

For 2023.

Our revised outlook also contemplates slightly lower than expected Permian production, driven by lower commodity prices and some weather related impacts that occurred in June and July a high level overview of our updated 23 guidance is located on slide four and al will share will share additional detail in his portion of the call.

Willie Chiang: As summarized on slide five, our Permian JV acquired the remaining 43% non-operated interest in the OMOG JV from Diamondback Energy via a negotiated transaction for $225 million, or approximately $145 million net to Plains' interest, which was funded with excess free cash flow. This further aligns us with Diamondback in the core of the Midland Basin and is consistent with our objective of capital discipline and efficient growth, complementing our existing footprint. With regard to updates on our NGL business optimization, a summary of today's announcements are provided on slide six. In summary, we sanctioned a 30,000 barrel a day Fort Sask Train 1 debottleneck and expansion. We also added connectivity projects to both our Co-Ed Wide Grade Gathering Pipeline and our Fort Sask Fractionation Complex, which further integrates and expands our NGL system.

As summarized on slide five our Permian JV acquired the remaining 43% non operated interest in the <unk> JV from Diamondback energy via a negotiated transaction for $225 million or approximately 145 million net to planes as interest which was funded with excess free cash flow.

This further aligns us with diamondback in the core of the Midland Basin and is consistent with our objective of capital discipline and efficient growth complementing our existing footprint with regard to updates on our NGL business optimization, a summary of today's announcements are provided on slide six.

In summary, we sanctioned a 30000 barrel a day <unk> SaaS train one to bottleneck and expansion. We also added connectivity projects to both our coed wide grade gathering pipeline and our <unk> SaaS fractionation complex, which further integrates and expands our NGL system.

Willie Chiang: We entered into commercial commitments, substantially increasing the weighted average contract tenor to 10 years across our Fort Sask fractionation capacity and our Co-Ed pipeline. Overall, we expect the NGL projects to generate unlevered returns in excess of our hurdle rate on approximately $200 million of investment capital. This multi-year investment fits within our previously communicated expectations for total average annual capital spend of $300 to $400 million a year net to PAA over the coming years. Lastly, we have a third-party supply agreement that expires at the end of 2024, which reduces our overall frac spread exposed volumes by approximately 15,000 barrels a day. The combinations of these announcements is expected to be EBITDA neutral in 2025 and beyond in a $0.55 to $0.60 per gallon frac spread environment.

We entered into commercial commitments substantially increasing the weighted average contract tenure of 10 years across our four SaaS fractionation capacity and our <unk> pipeline.

Overall, we expect the NGL projects to generate Unlevered returns in excess of our hurdle rate on approximately $200 million of investment capital. This multi year investment fits within our previously communicated expectations for total average annual capital growth of capital spend of $300 million to $400 million a year.

Net to PAA over the coming years.

Lastly, we have a third party supply agreement that expires at the end of 2024, which reduces our overall frac spread exposed volumes by approximately 15000 barrels a day.

The combinations of these announcements is expected to be EBITDA neutral in 2025, and beyond and a 55% to 60 per gallon frac spread environment with the contributions from the <unk> SaaS expansion associated connectivity projects and cord pipeline agreements offsetting the expiry of the NGL supply agreement import.

Willie Chiang: With the contributions from the Fort Sask expansion, associated connectivity projects, and Co-Ed Pipeline agreements offsetting the expiry of the NGL supply agreement. Importantly, the end result is a more predictable and durable level of fee-based earnings in our NGL segment, underpinned by long-term contracts. Additionally, we're no longer exploring a joint venture and a higher cost expansion of Train 2 at the Fort Sask facility as it did not meet our required return thresholds. Before turning the call back over to Al, I want to leave you with three messages. First, we've exceeded our EBITDA targets through mid-year, and we expect to be at the high end of our full-year guidance range. Second, we closed an attractive Permian bolt-on acquisition that further improves our premier Permian footprint in an efficient, disciplined manner.

The end result is a more predictable and durable level of fee based earnings in our NGL segment underpinned by long term contracts. Additionally, we're no longer exploring a joint venture and a higher cost expansion of train two at the <unk> SaaS facility as it did not meet our required return thresholds.

Before turning the call back over to Al I want to leave you with three messages first we've exceeded our EBITDA targets through mid year, and we expect to be at the high end of our full year guidance range.

Second we closed an attractive Permian bolt on acquisition that further improves our premier Permian footprint, and an efficient disciplined manner and third we announced several strategic actions in our NGL segment, which will help improve the long term durability and the quality of our cash flow stream over time.

Willie Chiang: Third, we announced several strategic actions in our NGL segment, which will help improve the long-term durability and the quality of our cash flow stream over time. All of these actions align with our goals of remaining capital discipline, generating multi-year free cash flow, reducing leverage, and increasing returns of capital to our unit holders. With that, I'll turn the call over to Al.

All of these actions align with our goals of remaining capital discipline generating multiyear free cash flow, reducing leverage and increasing returns of capital to our unit holders with that I'll turn the call over to al.

Al Swanson: Thanks, Willie. We reported Q2 adjusted EBITDA attributable to PAA of $597 million. This includes benefits from increased volumes across our systems in our Crude Oil segment. As mentioned on our last call, the NGL segment experienced lower sales volumes as a result of planned turnarounds and seasonally weaker demand. Slide 11 and 12 in today's appendix contains walks, which provide more detail on our Q2 performance. An overview of our updated 2023 guidance is located on slide seven. As a result of business performance in both our Crude Oil and NGL segments year to date and the partial benefit of the OMOG acquisition, we now expect to be at the high end of our full-year adjusted EBITDA guidance of $2.45 to $2.55 billion. We continue to expect year-over-year growth in our Crude Oil segment, driven by Permian tariff volume increases.

Thanks, Willie we reported second quarter, adjusted EBITDA attributable to PAA $597 million.

This includes benefits from increased volumes across our system and our crude oil segment as mentioned on our last call. The NGL segment experienced lower sales volumes as a result of planned turnarounds and seasonally weaker demand slide.

Slides 11, and 12 in today's appendix contains walks, which provide more detail on our second quarter performance.

An overview of our updated 2023 guidance is located on slide seven as a result of business performance in both our crude oil and NGL segments year to date and the partial benefit of the <unk> acquisition. We now expect to be at the high end of our full year adjusted EBITDA guidance of $2 45 to $2.

$5 5 billion, we continue to expect year over year growth in our crude oil segment, driven by Permian tariff volume increases for.

Al Swanson: For the NGL segment, we remain highly hedged and do not expect a material impact from the lower frac spreads or Canadian wildfires. Shifting to capital allocation, as illustrated on slide eight, we remain committed to one, significant returns of capital to our equity holders, two, continued capital discipline, and three, reducing debt and increasing financial flexibility. For 2023, we expect to generate $2.5 billion in cash flow from operations, $1.6 billion of free cash flow, with $600 million of free cash flow after distributions available for net debt reduction, resulting in year-end leverage below 3.5x. We will continue to self-fund $325 million and $195 million of 2023 investments and maintenance capital net to PAA, which is consistent with previous guidance and includes the anticipated capital related to today's NGL announcements. With that, I'll turn the call back to Willie.

For the NGL segment, we remain highly hedged and do not expect a material impact from the lower frac spreads or Canadian wildfires shifting to capital allocation as illustrated on slide eight we remain committed to one significant returns of capital to our equity holders to continued capital discipline.

And three reducing debt and increasing financial flexibility for 2023, we expect to generate $2 5 billion in cash flow from operations $1 6 billion of free cash flow was $600 million of free cash flow after distributions available for net debt reduction, resulting in year end leverage below three.

Five times, we will continue to self fund $325 million and $195 million of 2023 investment and maintenance capital net PAA, which is consistent with previous guidance and includes the anticipated capital related to today's NGL announcements with that I'll turn the call back to Lilly.

Willie Chiang: Thanks, Al. Today's results reflect another Q of strong execution, and we remain very confident in our ability to continue delivering on our goals and initiatives. Macro uncertainty continues to drive volatility in both the crude and NGL markets. However, we previously took steps to proactively mitigate this risk by entering into a combination of short-term crude contracts and hedges in the long-haul crude business, along with our substantial hedge position in our NGL business. Over the long term, Plains remains well-positioned as North American supply will continue to be critical to meeting growing global demand. As previously outlined in our capital allocation framework, we remain focused on continuing to meaningfully increase returns of capital to unitholders through targeted multi-year distribution growth. We have a 7.5% distribution yield, significant free cash flow generation, and balance sheet strength as shown on slide nine.

Today's results reflect another quarter of strong execution, and we remain very confident in our ability to continue delivering on our goals and initiatives macro uncertainty continues to drive volatility in both the crude and NGL markets. However, we previously took steps to proactively mitigate this risk by entering into.

A combination of short term crude contracts and hedges in the long haul crude business, along with our substantial hedge position and our NGL business.

Over the long term planes remains well positioned as north American supply will continue to be critical to meeting the growing global demand.

As previously outlined in our capital allocation framework, we remain focused on continuing to meaningfully increase returns of capital to unitholders through targeted multiyear distribution growth.

We have a seven 5% distribution yield significant free cash flow generation and balance sheet strength as shown on slide nine. We appreciate your continued interest and support and we will look forward to providing further updates on our earnings conference call in November with that I'll turn the call over to Blake to lead us into Q&A.

Willie Chiang: We appreciate your continued interest and support, and we will look forward to providing further updates on our earnings conference call in November. With that, I will turn the call over to Blake to lead us into Q&A.

Blake Fernandez: 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 us to address questions from as many participants as practical in our available time this morning. Additionally, the IR team will be available to address any additional questions you may have. Michelle, we are now ready to open the call for questions.

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 us to address questions from as many participants as practical practical in our available time. This morning. Additionally, the IR team will be available to address any additional questions you may have.

Michelle we're now ready to open the call for questions.

Operator: As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. The first question comes from Spiro Dounis with Citi. Your line is open.

As a reminder to ask a question. Please press star one on your telephone and wait for your name to be in there.

To withdraw your question. Please press star one again.

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

The first question comes from Spiro <unk> with Citi. Your line is open.

Spiro Dounis: Thanks, operator. Good morning, everybody. First question, maybe to start with the guidance. From what I could tell, you all were trending probably towards the upper half of the range, even before this bolt-on acquisition. Curious, can you maybe speak to how much of that upgraded outlook is legacy operations versus the bolt-on? Sounds like maybe there could be some puts and takes into the end of the year.

Thanks, operator, good morning, everybody.

First question, maybe to start with the guidance.

What I can tell you all are trending probably towards the upper half of the range even before this bolt on acquisition.

Curious can you maybe speak to how much of that upgraded outlook is legacy operations first default on it sounds like maybe there could be some puts and takes since at the end of the year.

Willie Chiang: Yeah, Spiro, the way I would characterize it is, the bolt-on is really a smaller piece of the amount. The transaction is expected to close here. It hasn't closed yet. Actually, it has closed, so it's going to be five months. It's predominantly over-performance in the business.

Yes, Spiro the way I would characterize it is.

The bolt on is really a smaller piece of the.

The Mt.

The transaction is expected to close here Hasnt closed yet so we're actually it has close so it can be five months, but it's predominantly over performance in the business.

Spiro Dounis: Great. That's helpful. Thanks, Willie. Second one, just going to the NGL segment. Train 2 didn't meet the hurdle rates. Curious, maybe you can just go through some of the dynamics there and maybe what could bring that project back onto the burner here. Beyond what's been announced today in Canada, anything else you're still pursuing around optimization there?

Great. That's helpful. Thanks, Willie second one is just going to the NGL segment.

So train two didn't meet the hurdle rates I'm curious maybe you can just go through some of the dynamics, there and maybe what could bring that project back onto the burner here and then beyond what's been announced today in Canada anything else you are still pursuing around optimization there.

Willie Chiang: Yeah, I'm going to let Jeremy touch on that. I want to open with one comment on this. When you think about all the things, there's a lot of moving of parts around this whole optimization project. The thing to think about is we always drive for the capital discipline, high return option as we think about these options. Jeremy?

Yeah, I'm going to let Jeremy touch on that but I want to open with one comment on this when you think about all the things there's a lot of moving parts around this this whole optimization project, but the thing to think about is we always drive for the capital disciplined high return option as we think about these options Jeremy sure.

Jeremy Goebel: Sure. Spiro, I think the way to think about it is we were looking at alternatives. Chris and his team have identified some lower-cost brownfield opportunities around our Train 1 system. We were able to offer a package that between that and some existing capacity we have in the east at Sarnia, we are able to meet our needs through doing that. We found a substantially more capital-efficient way to get to the same place. Us and our partner decided that a commercial arrangement versus a partnership was a better way to solve the problem.

I think the way to think about it as we were looking at alternatives.

Chris and his team have identified lower cost brownfield opportunities around our train one system.

The comment we were able to offer a package that between that and some existing capacity we have in the east in Sarnia, we're able to meet our needs through doing that we found at substantially more capital efficient way to get to the same place and as our partner decided that a commercial arrangement versus a partnership with a better way.

Solve the problem.

Spiro Dounis: Understood. Anything else in terms of Canada and optimization? Is this it for now, or are you still more potentially in the background?

Understood and then in terms of anything else in terms of Canada and optimization as it kind of it for now or are you still more potentially in the background Chris.

Willie Chiang: Chris?

Chris Chandler: Morning, Spiro. This is Chris Chandler. We continue to find some pretty compelling opportunities across our system. Of course, we just talked about the opportunities in Edmonton at our Fort Sask facility. We also have the NGL extraction plants at Empress outside of Medicine Hat. As Jeremy mentioned, we have some unutilized capacity at our Sarnia, Ontario fractionation facility. We look at ways to optimize all of those, and we're making small targeted investments to further grow our business in all those areas. I think there continues to be opportunities, and we're excited to pursue them.

Chris Good morning, Spiro This is Chris Chandler.

Continue to find some pretty compelling opportunities across our system of course, we just talked about the opportunities in Edmonton at our forecast facility, but we also have the NGL extraction plant site in Paris outside of Medicine hat and as Jeremy mentioned, we have some.

Utilize capacity at our Sarnia, Ontario fractionation facility so.

We look at ways to optimize all of those and we're making small targeted investments too.

Further grow our business and all of those areas. So.

I think there is there is there.

There continues to be opportunities and we're excited to pursue an.

Willie Chiang: Spiro, the way these things typically work, as you build some of these things out, you end up finding additional optimization opportunities. It's kind of a continuing process as we go through things.

And Spiro the way these things typically work as you as you build some of these things out you end up finding additional optimization opportunity. So it's kind of.

Continuing process as we go through things.

Spiro Dounis: Great. I'll leave it there. Have a good weekend, everybody.

Great I'll leave it there have been weekend everybody. Thanks.

Willie Chiang: Thanks, Spiro.

Operator: Please stand by for the next question. The next question comes from Brian Reynolds with UBS. Your line is open.

Thanks, Darrell please standby for the next question.

Yes.

The next question comes from Brian Reynolds with UBS. Your line is open.

Brian Reynolds: Hi, good morning, everyone. Maybe just as a follow-up to the guidance update, just kind of questions around your intrabasin volumes going forward, just given the peer acquisition that took place in Q2 or whether you're seeing any fundamental shifts in the H2 of Permian volume expectations. Thanks.

Okay.

Hi, Good morning, everyone, maybe just as a follow up to the guidance update just kind of questions around intra basin volumes going forward.

Given the pure acquisition that took place in <unk> or whether youre seeing any fundamental shifts in the back half Permian volume expectations. Thanks.

Jeremy Goebel: Okay. I think there was two questions there. On intrabasin volumes, the acquisition doesn't impact those. This is a Midland Basin acquisition. Basically, it's something we already operate, gross volumes flow straight into Midland. There's no intrabasin component to it. I think your second question was overall expectations for the Permian. What I would say is the first part of the year we're exceeding expectations. The last few months have been behind a bit. The activity so far this year has been largely in line. I'd say it's trending a little bit below at this point, the productive capacity is still there to get there. It's going to be a function of timing of completions in the H2 of the year.

Okay. So I think there is two questions there on intra basin volumes the acquisition doesn't impact us.

Our Midland Basin acquisition. So it basically is something we already operate so gross volumes flow straight into Midland Theres, No intra basin component.

As far as I think your second question was overall expectations for the Permian.

I would say is the first part of the year or exceeding expectations. The last few months have been behind a bit the activity. So far this year has been largely in line.

I'd say, it's trending a little bit below at this point, but the productive capacity is still there to get there. So it's going to be a function of timing of completions in the second half.

Yes.

Willie Chiang: Spiro, you're aware that we ended up with some weather problems in the back half of June and July. It was really weather-related, hot weather. There were some gas plant issues. The producers have been very disciplined not to flare. We also had a lower flat price in that period of time. There is probably not as much incentive to try to produce. We think we're through that. Oil prices have been more constructive, highlighted by the OPEC decisions today with a little more support behind it. As we think about the rest of the year, we've incorporated all of this into our outlook on guidance. We actually have Permian volume guidance just a little bit below our 500. Even with that we still think we're going to be at the high end of the range.

And Spiro Youre aware that we ended up with some weather problems in the back half of June and July It was really weather related hot weather there were some gas plant issues and the producers have been very disciplined not to not to flare also we had a lower flat price in that period of time. So there is probably not.

As <unk> as much incentive to try to produce so we think we're through that oil prices have been more constructive highlighted by the OPEC decisions today with a little more support behind it. So as we think about the rest of the year. We've incorporated all of this into our.

Outlook on guidance, we actually have Permian guidance volume guidance, just a little bit below our 500, but even with that we still think we're going to be at the high end of the end of the range.

Brian Reynolds: Great. Appreciate all that color. Maybe as a follow-up, can you just give us an update on the minimum volume commitments that are being worked through in 2023, and how we should think about that as we look ahead into 2024? Will those be fully worked through, and could that be a tailwind as we think about 2024 early numbers? Thanks.

Great I appreciate all that color and then maybe as a follow up can you just give us an update on the minimum volume commitments that are being worked through in 2023 on.

And how we should think about that as we look ahead into 2024 will those be fully worked through and could that be a tailwind as we think about 2024th through the numbers. Thanks.

Jeremy Goebel: The way I would look at it is that there's two pipelines that are accruing deficiencies. I would say that the time period to work through those deficiencies, they're still accruing some on the pipelines. I would view it as something that's going to take a few years to work through. Just because of the other commitments on the pipeline, you have to look at it as the using deficiency credits is the last barrel that's shipped. The barrels that are committed ship first, any spot barrels are next, and then the deficiency. From a capacity standpoint, working through the deficiency barrels on a space-available basis, so that takes time to get through. It'll take probably a couple of years to do that.

The way I would look at it as a.

Theres two pipelines that are growing the fastest.

I wouldn't say that.

Time period to work through those efficiencies they are still accruing some on the pipelines. So I would view it as something thats going to take a few years to work through.

Just because of the other commitments on the pipeline you have to look at it as that.

That using deficiency credits at the last barrel.

<unk> shipped the barrels that are submitted shift first any spot barrels or next and then the efficiency. So from a capacity standpoint working through the <unk>.

The variables on a space available basis, so that takes time to get through it will take probably a couple of years to do that.

Willie Chiang: Brian, our outlook hasn't changed. We still expect the spreads to strengthen as capacity shrinks with increasing production. As you probably know, and we've chatted about on the Permian takeaway capacity to the Gulf Coast, we've essentially made sales and contracts to kind of protect that predominantly for this year and 2024. That gives us a little bit of buffer, and we would expect that the rates between Permian and the Gulf Coast should expand out to ultimately incremental transportation costs.

And Brian our outlook Hasnt changed we still expect the spreads to strengthen as capacity our capacity shrinks with increasing production.

As you probably know and we've chatted about on the Permian takeaway capacity to the Gulf Coast, We've essentially made sales in contracts to kind of protect that for the next step predominantly for this year and 24, so that gives us a little bit of buffer and we would expect that.

The rates between Permian and the Gulf Coast should should expand out to ultimately incremental transportation costs.

Brian Reynolds: All makes sense. Appreciate the time. Enjoy the rest of your morning.

While it makes sense I appreciate Glenn enjoy the rest of your morning. Thanks, Brian Please standby for the next question.

Willie Chiang: Thanks, Brian.

Operator: Please stand by for the next question. The next question comes from Gabriel Moreen with Mizuho. Your line is open.

Please standby for the next question.

The next question comes from Gabriel Moreen with Mizuho. Your line is open.

Gabriel Moreen: Hey, good morning, everyone. I was wondering if you could maybe speak to your CapEx outlook for this year in light of a little bit of the tweaking to the Permian outlook. You're running a little bit light, I think, of your guidance if you annualize it. I'm just wondering, is it a possibility you come into the lower end on the CapEx range given that Permian volume outlook?

Hey, good morning, everyone.

I was wondering if you could maybe speak to your Capex outlook for this year in light of a little bit of a tweaking to the Permian outlook.

You are running a little bit I think of your guidance. If you annualize. It. So I'm just wondering because of the possibility to come into the lower end on the Capex range, given that Permian volume outlook.

Willie Chiang: Gabe, Chris Chandler will cover that. There's a lot of work that we go through to keep capital discipline across the company. Chris?

Gabe Chris channel or cover that Theres, a lot of work that we go through to keep capital discipline across the company Chris Yes. Good morning, Gabe, we do continue to optimize our spend for 2023 thinking.

Chris Chandler: Yeah. Good morning, Gabe. We do continue to optimize our spend for 2023. Thinking in buckets for our gathering system projects, we're pacing our investment timing with our customers' schedules. Willie mentioned some color there with leaving a period of some adverse weather and lower prices. We expect that to kind of pick up in H2 of the year. On Permian infrastructure investments, we do complete projects as needed to match expected production growth in the different regions of the Permian. We try to time that appropriately. Remember, we just announced a new NGL project at Fort Sask, and we're going to be able to fund the 2023 portion of that project within our existing guidance of $325 million net to Plains for 2023. There are some moving parts there, but we're reiterating our current guidance for the year.

Thinking in buckets for our gathering system projects, we're pacing.

Our investment timing with our customers schedules and Willy mentioned.

Yes, so some color there with.

Leaving a period of some adverse weather and lower prices, we expect that to kind of pick up in the second half of the year on Permian infrastructure investments, but we do a complete projects as needed to match expected production growth in the different regions of the Permian. So we try to time that appropriately and then rich.

Remember, we just announced a new <unk>.

NGL project for SaaS, and we're going to be able to fund. The 2023 portion of that project within our existing guidance of $325 million Nessa planes for 2023. So there are some moving parts there but.

We are reiterating our current guidance for the year.

Gabriel Moreen: Understood. Thanks, Chris. Then maybe on this M&A deal, and a little bit of a two-parter. One is, to what extent when you do these gathering deals within the JV, are you either extending or renewing further downstream commitments? I realize that may be a commercially sensitive question to ask. Then just kind of lay of the land in terms of getting more of these gathering acquisitions kind of done and what it's looking like.

Understood. Thanks, Chris and then maybe on this M&A appeal.

Little bit of a two parter one is to what extent when you do these gathering deals within the GDP.

Either extending or renewing further downstream commitments I realize that may be a commercially sensitive question to ask and then just kind of lay of the land in terms of getting more of these gathering acquisition.

Tom I want to welcome Mike.

Jeremy Goebel: Sure. The way I look at it is if we're buying from a producer, generally there is an improvement in the contractual relationship. We had one as being partners with them, but we converted it a bit to something that was more appropriate for us not being business partners and us being the owner and them being the shipper or the producer. The terms were strengthened to reflect that relationship. We have a great relationship with Diamondback and look forward to growing with them in this area.

Sure.

The way I'd look at it as if we're buying from a producer generally there is an improvement in the contractual relationship we had one thats being partners with them they'll be converted in a bit to something that was more appropriate for us not being business partners and us being the owner and then being a shipper on the producer. So there was a the terms were strength.

And to reflect that relationship we have a great relationship with Diamondback and look forward to growing with them in this area.

Okay.

Gabriel Moreen: Great. Thanks, Jeremy.

Great. Thanks, Jeremy.

Operator: Please stand by for the next question. The next question comes from Michael Blum with Wells Fargo. Your line is open.

Please standby for the next question.

The next question comes from Michael Blum with Wells Fargo. Your line is open.

Michael Blum: Thank you. Good morning, everyone. Just wanted to stay on this tuck-in acquisition here and just get your thoughts on whether this is kind of was a one-off opportunity, or do you think there's going to be other potential kind of tuck-in deals here that we should expect to see over the next couple of years?

Thank you and good morning, everyone.

So just wanted to stay on this tuck in acquisition here and just.

Get your thoughts on whether this is kind of a one off opportunity.

I think theres going to be other potential kind of tuck in deals here that we should expect to see over the next couple of years.

Willie Chiang: Michael, this is Willie. The way we look at this is we've got a great franchise across North America, particularly around the Permian. If there's anyone that can extract synergies in these opportunities, it should be us. We're going to remain very disciplined as we approach this. When you think about what we might do, it's things like these bolt-on acquisitions, bite-sized bolt-on acquisitions that make a lot of sense to us. I would expect that we are going to continue to look at opportunities there, and if there are strong return projects that are strategic and meet the hurdle rates of our returns, we are going to consider them. We've got to stay disciplined and we look at a lot of things and we end up with a few. Jeremy, anything to add on this?

So Michael this is Willie I mean, the way we look at this is we've got a great. We've got a great franchise across North America, particularly around the Permian.

<unk>.

If there is anyone that can extract synergies and these opportunities it should be us, but we're going to very very disciplined as we approach. This.

So when you think about what we might do its things like these bolt on acquisitions bite sized bolt on acquisitions that make a lot of sense to us. So I would expect that we're going to continue to look at opportunities there and if there are strong return projects that are strategic and meet the.

The hurdle rates.

Our returns we are going to consider them.

We've got to stay disciplined and we look at a lot of things and we ended up with a few Jeremy anything to add on this no. Michael I would just say this is consistent with the advantage transaction in the west.

Jeremy Goebel: No. Michael, I would just say this is consistent with the Advantage transaction, the purchase of West's interest in Cactus II last year and this one. This is a trend, but it's something like Willie said, it's got to fit for us, it's got to work for them. We're going to be very disciplined. As you said, we look at a lot, but it's got to compete for capital with the rest of our potential uses.

Parts of the west as interest and taxes to last year and Thats one so.

This is a trend but it's.

It's something like Willie said as it is.

Fit for us its got to work for them, we're going to be very disciplined as he said, we look at a lot, but it's got to compete for capital with the rest of our potential uses.

Michael Blum: Okay, great. That helps. Just in light of today's announcements there on the Canada investment that you're going to be making, just wanted to confirm that your long-term annual capital spend rates are unchanged.

Okay, Great that helps and then just in light of todays announcements.

The investment that youre going to be making.

Just wanted to confirm that your long term kind of annual capital spend rates are unchanged.

Willie Chiang: I'll take that one. Absolutely. We expect to stay between the three to $400 million range as we go forward. We've set average, because there could be some lumpiness in some of the timing around the projects, but you can expect us to stay within that range for a number of years.

I'll take that one.

Absolutely, we expect to stay between the $3 to $400 million range as we go forward.

We've set average because there could be some lumpiness and some of the timing around the projects that you can expect us.

To stay within that range for a number of years.

Michael Blum: Thank you.

Thank you.

Willie Chiang: Thank you.

Operator: Please stand by for the next question. The next question comes from Keith Stanley with Wolfe Research. Your line is open.

Thank you please.

Please standby for the next question.

The next question comes from Keith Stanley with Wolfe Research. Your line is open.

Keith Stanley: Hi, good morning. Wanted to stay on the frac expansion project. Just want to clarify, the project is EBITDA neutral in 2025 and beyond because of the existing contract rolling off. I assume that existing contract you have is in the money or favorable in some way. Could you just give more color on the dynamics there on why the EBITDA from the project itself would be offset?

Hi, good morning.

I wanted to stay on the Frac expansion project. So just want to clarify that the project is EBITDA neutral.

<unk> thousand 25, and beyond because of the existing contract rolling off but I assume that existing contract you have is in the money or favorable in some way.

Could you just give more color on the dynamics there on why the EBITDA from the project itself would be offset.

Jeremy Goebel: Sure, Keith, this is Jeremy. That contract was entered into in about 25 years ago, and we're changing the relationship that we have with that counterparty in it. I view this as, depends on how your view of commodity exposure is. We gave you a sense for where it is. At $0.50 it would be in the money. At $0.70 it wouldn't be. You have to look at this $200 million as a series of projects. It's gathering projects, it's connectivity between facilities. The frac expansion is just a small portion. That's the uniqueness of the brownfield expansion. This is a series of projects with diverse customer bases for very long term. We're excited about the durability of the cash flow and predictability. It's basically taking a third of our frac spread exposure and converting it to a durable cash flow.

Sure Keith.

This is Jeremy so that contract was entered into in about 25 years ago and so we're changing the relationship that we have with that counterparty unit. So.

I view this is.

It depends on how you view of commodity exposure as we gave you a sense for where it is at 50. So it would be in the money at 70 cents. It wouldn't be but you have to look at that $200 million and a series of projects. It's gathering projects, it's connectivity between facilities.

<unk> expenses, just a small portion that's the uniqueness of the brownfield expansion.

As a series of projects with diverse customer bases for very long term. So we're excited about the durability of the cash flow predictability.

It's really taking a third of our frac spread exposure in converting it to a durable cash flow, but we are changing the contractual nature of that we have servicing this customer as part of this process.

Jeremy Goebel: We are changing the contractual nature that we have, servicing this customer as part of this process.

Willie Chiang: Keith, maybe to add one thing. This just reinforces the integrated system we have. When you really look at it, we talk about our saddle and the seasonality of it. It goes back to trying to increase a portion of our cash flow to the fee-based side, and it should flatten that saddle as we go forward. We think that predictable, more durable earnings long term should help as far as we think about valuation for our units.

And Keith maybe to add one thing this just reinforces the integrated system, we have but when you really look at it we talk about our saddle and the seasonality of it.

It goes back to trying to increase the portion of our.

Cash flow to the fee based side and it should flatten that settled as we go forward. So we think that predictable.

More durable earnings our long term should should help as far as as we think about valuation for our units.

Keith Stanley: Got it. Thanks. Sorry, I'm going to stick with NGLs for my second question. Just obviously frac spreads came down a lot in Q2, although propane's kind of coming back with oil now. Can you comment at all on where you stand on 2024 exposure and how open you are to pricing? Relatedly, just looking at NGLs in 2024, these turnarounds seem like they have a pretty big impact this year, $50 million in Q2. Should we assume that turnaround impact would reverse and be a benefit in 2024 looking forward? Or how should we think about that?

Got it.

And sorry, I may stick with Ngls for my second question just.

Obviously frac spreads came down a lot in Q2, although propane kind of coming back with oil now.

Can you comment at all on where you stand on 2020 for exposure.

How open you are to pricing and then Relatedly just looking at Ngls in 2024.

These turnarounds seemed like they have a pretty big impact this year $50 million in Q2, so should we assume that turnaround impact would reverse and be a benefit in 2024 looking forward or how should we think about that.

Jeremy Goebel: Sure. There was two questions there. On the turnaround, I don't think we have any material turnarounds projected for next year, and I don't think the impact was quite that big for this year. I would view it from a capital standpoint, yes, there's substantial maintenance capital that goes into them. From a cash flow standpoint, you won't have the maintenance capital and you'll have some additional production. I don't think the impact's in the neighborhood of $50 million. Your other question, can you repeat that?

Sure.

There is two questions there on the <unk>.

Around I don't think we have any material turnarounds projected for next year and I don't think the impact was quite that big for this year.

We view it from a capital standpoint, yes, or substantial maintenance capital that goes into them, but so from a cash flow standpoint, you won't have the maintenance capital and you'll have some additional production but.

I don't think the impacts in the neighborhood of $50 million.

Your other question.

Willie Chiang: Really, frac spread exposure. I'll take this.

Can you repeat that really frac spread exposure and I'll take this key.

Jeremy Goebel: Yeah.

Willie Chiang: Keith, we don't disclose what we're going to do on frac spread exposure. You're right, frac spread exposure were high. They've come off significantly. They're coming back. What I would tell you is we try to time and be very thoughtful about how we do hedge forward. As we go forward into 2024, we'll definitely share more at the end of the year. The market is improving as far as the frac spread environment for 2024.

We don't disclose what we're going to do on Frac spec exposure.

<unk> frac spread exposure, where high they've come off significantly they're coming back and what I would tell you as we look at we try to time and be very thoughtful about how we do hedge forward and as we go forward into 2024.

We'll probably share we'll definitely share more at the end of the year, but the market is improving as far as the frac spread environment for 2024.

Keith Stanley: Thank you.

Thank you.

Willie Chiang: Thank you.

Operator: Please stand by for the next question. The next question comes from Neal Dingmann with Truist Securities. Your line's open.

Thank you please standby for the next question.

The next question comes from Neal Dingmann with true with Securities. Your line is open.

Neal Dingmann: Yes, guys, can you just talk about twofold, one on 2024 CapEx, maybe a little more details, and then secondly, just on capital allocation. We're on that 3.5 target. Thank you.

Thanks, guys can you just talk about twofold, one on Capex being a little more detail and then secondly, just on capital allocation around that $3 five target.

Jeremy Goebel: Al?

Now.

Willie Chiang: The first question was on capital, Neil?

Right.

The first question was on capital Neil for 'twenty four for 24.

Neal Dingmann: For 2024.

Willie Chiang: For 2024?

Neal Dingmann: Yes.

Willie Chiang: $300 to 400 million is what we're going to stick with for the next number of years. Your second one, could you re-ask your second question?

I would have $300 million to $400 million is what we're going to stick with for the next number of years and your second one could you re ask your second question.

Neal Dingmann: Yeah.

Willie Chiang: Neil, are you still there?

Neil are you still there.

Willie Chiang: Yes.

Willie Chiang: I guess we can end.

Yes, I guess, we can offer one thing.

Neal Dingmann: Sorry, I just got cut out for 1 second.

I'm, sorry, I, just got cut off for one second.

Willie Chiang: Did you hear my comment on 2024 CapEx?

Did you hear my comment on 'twenty four capex.

Willie Chiang: Yeah

Willie Chiang: will be $300 to 400 million, consistent with our target across the years. Could you ask your second question on capital allocation?

'twenty four capex will be $3 to $400 million.

Consistent with our with our target across the years and then it could you ask your second question on capital allocation.

Neal Dingmann: Yeah. I know you've got the 3.5 target. I'm just wondering, if you keep where we are for free cash flow, you can get below that. Would you keep taking it below? How do you think about payout versus taking that debt load?

Yes, just on I know you got the three five targets I'm just wondering if you can.

We have a free cash that you can get below that would you keep taking below or how do you think about sort of payout versus taking that down.

Al Swanson: Yeah. At this point in the year, our guidance is that we expect to be a little below the 3.5x at year-end. Clearly, a function of that'll be what is our working capital requirements in the H2 of this year that can move it a little bit. Our stated range still remains 3.75x to 4.25x. As we've articulated over the last few quarters, we intend to operate below that for the near term. Really there's no really other moving part. If we get a little extra cash flow, we'll reduce debt in the H2. The rest of the capital allocation is lined out. Clearly, if we're successful with another bolt-on acquisition, that can change the dynamic a little bit. We do still expect to be at that 3.5x or below.

Yes at this point in the year. Our guidance is is that we expect to be a little below the three five times at year end clearly a function of that'll be at what is our working capital requirements in the back half of this year that could move it a little bit.

Our our stated range still remains $3 75 to four and a quarter and as we've articulated over the last few quarters, we intend to operate below that for the near term.

And.

So really there is no really other moving part if we get a little extra cash flow will will reduce debt in the back half but the.

The rest of the capital allocation is lined out clearly if we're successful with another bolt on acquisition that can change the dynamic a little bit, but we do still expect to be at that three five times or below.

Willie Chiang: Neil, did that answer your question?

Neil did that answer your question.

Neal Dingmann: Yes, sir. Thank you.

Willie Chiang: Okay, thanks.

Yes. Thank you.

Operator: Please stand by for the next question. The next question comes from Neil Mitra with Bank of America. Your line is open.

Okay. Thanks.

Standby for the next question.

I'm sorry.

The next question comes from Neel Mitra with Bank of America. Your line is open.

Neil Mitra: Hi. Thanks for taking my question. Willie, I think you alluded to some of the issues in the Q2 with just Permian growth and seeing that in your slides with gathering intrabasin and intrabasin. I was wondering if you could just speak to some of the issues that were faced in the Q2. I think some of your peers alluded to this, but just wanted to understand what underpinned some of the production issues that are now resolved.

Hi, Thanks for taking my question.

You alluded to some of the issues in the second quarter with just Permian growth and seeing that in your slides with gathering intra basin and intra basin and I was wondering if you could just speak to some of the issues that were faced in the second quarter I think some of your peers alluded.

But just wanted to understand what underpins some of the production issues that are now resolved.

Willie Chiang: Yeah. In my earlier comments, Neal, it really was a lot of hot weather issues that affected gas processing. What we've seen is the producers have remained very disciplined around not wanting to flare. You also had a lower price environment that probably didn't give people an incentive to try to push any harder. There's capital discipline that the producers had. It was really back half of June and July, and since then it's kind of improved. I don't know if there was more that you were looking for. I don't know. Jeremy, you have anything to add?

Yes in my earlier comments, Neil it's it's really was a lot of hot weather issues that affected gas processing and what we've seen is that producers have remained very disciplined around not wanting to flare and you also had a lower price environment that probably didn't give people an incentive to try to push any harder.

So there is capital discipline and the producers had and it was really <unk>.

Back half of June and July and since then it's kind of improved.

I don't know if there is more that you were looking for I don't know Jeremy you have anything to add yes, I would say a lot of that led to producers talk completing wells into that environment. So they are going to produce what they had a throttle wells that they had maybe not complete all the wells that they were intending to spend pushed completions into the August in four time period.

Jeremy Goebel: Yeah. I would say a lot of that led to producers not completing wells into that environment. They're going to produce what they had. They throttle wells that they had. Maybe not complete all the wells that they were intending to. That pushed completions into the August and forward time period.

Neil Mitra: Yeah. Okay, perfect. Thank you. Then for my second question, wanted to understand how you're looking at recontracting Cactus II, maybe with when it extends, ahead of possibly a competitor coming out with an open season, or if that affects how you look at recontracting. I know that the forward curve has improved, so just your general thoughts on the long-haul pipe recontracting. Thank you.

Okay perfect. Thank you.

And then for my second question I wanted to.

Understand how you are looking at re contracting cactus team, maybe with blend and extend.

Ahead of possibly a competitor coming out within the open season.

Or if that affects how you look at re contracting.

I know that the forward curve has improved so just your general thoughts on on the.

Long haul pipe re contracting thank you.

Jeremy Goebel: Sure. Neal, what I would say is we continue to have constructive dialogue with our customers. The back end of the view of prospective rates hasn't been nearly as volatile as the front end. Those discussions continue. There's options to extend on the Cactus II Pipeline at attractive rates for our customers. That one is pretty clear. I'd say, for Cactus I and others, our integrated business model and asset base provides us unique advantages and aligns us with our customers for long periods of time. We fully expect to do that as a function of when and timing, and we'll update you guys when we have more information.

Sure what I would say is we.

We continue to have constructive dialogue with our customers.

The back end of the view of prospective rates hasn't been nearly as volatile over the front end.

Discussions continue there are options to extend on the cactus II pipeline at attractive rates for our customers. So that one is pretty clear I'd say for catalyst one and others.

Our integrated business model and asset base provides us unique advantages and aligns us with our customers for long periods of time, and we fully expect to do that as a function of when and timing and we'll update you guys. When we have more information.

Neil Mitra: Thank you very much.

Okay.

Okay. Thank you very much.

Operator: Please stand by for the next question. The next question comes from Sunil Sibal with Seaport Global. Your line is open.

Please standby for the next question.

The next question comes from soon now simple with Seaport Global your line is open.

Sunil Sibal: Yes. Hi, good morning, everybody. Just wanted to understand a little bit better about bolt-on acquisition. Seems like those volumes are already reported as part of your gathering volumes and just that you will get better economics on those. If you could talk about kind of return on this kind of bolt-on acquisition.

Yes, hi, good morning, everybody. So just wanted to understand a little bit better about.

On the acquisition so seems like those volumes are already reported as part of their gathering volumes.

It will get better.

Economics on those.

And if you could talk about kind of write down on this kind of bolt on acquisition.

Willie Chiang: Jeremy?

Jeremy Goebel: Sure. You're correct. Because we operated the asset and had over a 50% interest, it was consolidated, and gross gathering volumes wouldn't change. That specific asset doesn't impact long-haul or intrabasin. I think we said it before, it just further aligns us with they want to drill wells and be in it. They feel very comfortable with the relationship and us as operator, so it makes sense for us to acquire that position. Diamondback can recycle that into however it wants to use its capital.

Jeremy sure Youre correct, because we operate in the asset and had over 50% interest there was a consolidated gross gathering volumes wouldn't change that specific asset doesn't impact long haul or intra basin.

<unk>.

I think we said it before it just further aligns us with they want to drill wells and DNS. They felt very comfortable with the relationship and us as operators. So it makes sense for us to acquire that position and diamondback and recycle that into however, everyone who uses of capital.

Sunil Sibal: Okay. Second was a little bit broader question on capital allocation. It seems like the bond maturity you have coming up in H2, you should be able to take care of that. It seems like you still want to target higher than where you will end up in 2023 in terms of the leverage metrics. I'm just kind of curious, is this geared towards more of creating capacity for taking out pref over a longer period of time, or what are the kind of longer-term thought process in terms of that leverage goal of 375 to 425?

Okay.

And then second I was a little bit broader question on capital allocation. So.

Slide <unk>.

Bond.

Maturity coming up in the second half, we should be able to take care of that.

And it seems like.

You still want to target.

Hi.

Then we have you will end up in 2023.

So the leverage metrics. So I'm just kind of curious as this geared towards more of kind of.

Creating capacity for perhaps picking out perhaps over a longer period of time or what are the kind of.

Longer term thought process in terms of that leverage.

Call It 275 to 495.

Willie Chiang: Hey, Sunil, this is Willie. I'll give you my thoughts on capital allocation, and then Al can certainly add to it. As we think about capital allocation, there's two primary things. One, we need to drive free cash flow. You can't do anything if you're not driving free cash flow. The second one is really around discipline around everything we do, but particularly on CapEx. As we think of the order in how we allocate going forward, one, we want to protect our commitment to return capital to the unitholders. We laid out this capital allocation framework. That's going to be high on the list. Then we go to strategic high return bolt-on projects that we will consider that make sense to help us efficiently grow the business.

Hey, Neil This is Willie I'll give you my thoughts on capital allocation and then al can certainly add to it as we think about capital allocation. There's two primary things one we need to drive free cash flow you don't you can't do anything if you're not driving free cash flow in the second one is really around disciplined discipline around everything we do but particularly.

On Capex, so as we think of the order in what we how we allocate going forward.

We want to protect our commitment to return capital to the unitholders, we laid out this capital allocation framework.

So that's going to be high on the list.

Then we go to strategic high return bolt on projects that we will consider that makes sense to to help us efficiently grow the business opportunistic buybacks and the preps are probably further down the list because we want to maintain financial flexibility and a strong balance sheet. So thats, what we kind of juggle back and forth, but as you think about the.

Willie Chiang: Opportunistic buybacks and the pref are probably further down the list because we want to maintain financial flexibility and a strong balance sheet. That's what we kind of juggle back and forth. As you think about the priority and the way I see it, that's kind of the order. Al?

And the way I see it that's kind of the way the order al yes.

Al Swanson: Yeah, that is accurate, Willie. I would add, yeah, the note we have coming up in October, $700 million. We exited June with $900 million of cash. That will be repaid out of that. Again, as I commented on an earlier question, we've left our leverage target the same at 375 to four and a quarter and intend to operate at the low end or below. That is partially to have some capacity on our balance sheet to be able to weather through the industry ups and downs as well as be able to fund things as we need to. Ultimately, at some point in the future, we will look to address the pref, but there's no near-term plan to do that.

Sure.

That is accurate.

The only thing I would add the note we have coming up in October $700 million, we exited June with $900 million of cash so that will be repaid out of that.

Again as I commented on earlier question.

<unk> leverage target the same at $3 75 to four and a quarter and intend to operate.

At the low end or below and that is partially to have some capacity on our balance sheet.

To be able to weather through.

The industry ups and downs as well as available to fund things.

As we need to.

Ultimately at some point in the future we will look to.

Dress, the perhaps but theres no near term near term plan to do that but over time, we would expect that would be a good use of of some of that capacity and hopefully.

Al Swanson: Over time, we would expect that would be a good use of some of that capacity and hopefully it would be taking those out with debt. We don't believe we should be using common equity at this time due to the valuation.

It would be taking those out with that we don't believe we should be using common equity at this time due.

Due to the valuation.

Sunil Sibal: Got it. Thanks.

Got it thanks.

Operator: I show no further questions at this time. I would now like to turn the call back to the company for closing remarks.

Yes.

I show no further questions at this time I would now like to turn the call back to the company for closing remarks.

Willie Chiang: Thanks. Well, listen, everyone, thanks for your time and joining us this morning. We hope to see you soon, and have a nice weekend.

Thanks, well listen everyone. Thanks for your time and joining US. This morning, we hope to see as soon and have a nice weekend.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating you may now disconnect.

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