Q3 2023 Plains All American Pipeline LP Earnings Call

November 3, 2023

Good day, and thank you for standing by and welcome to Plains, All American <unk> third quarter 2023 earnings Conference call.

This time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone you will then hear an automated message advising your hands raised.

Your question. Please press star one again, please be advised that today's call is being recorded I would now like to hand, the conference over to your speaker today, Blake Fernandez, Vice President Investor Relations. Please go ahead Sir.

Thank you Norma good morning, and welcome to Plains, All American third quarter 23 earnings call. Today's slide presentation is posted on the Investor Relations website.

The news and events section of planes Dot Com an audio replay will also be available following today's call.

Morton disclosures regarding forward looking statements and non-GAAP financial measures provided on slide two and overview of today's call is provided on slide three a condensed consolidating balance sheet for PAGP and other reference materials are in the appendix.

Today's call will be hosted by Willie Chang, our chairman and CEO.

Al Swanson Executive Vice President and CFO as well as other members of our management team with that I will turn the call over to Willy. Thanks, Blake Happy Friday, everyone and thank you for joining us this morning.

We reported strong third quarter results, along with the closing of two Permian gathering bolt on acquisitions and the continued execution of our multi year capital allocation framework, which is focused on lowering leverage and increasing the return of capital to our unit holders.

As a result of our.

Year to date performance and the partial year contributions of our recent bolt on acquisitions, we are raising our full year 2023, adjusted EBITDA guidance to a range of two six to $2 65 billion. This reflects an increase of $50 million to $100 million from the high end of our previous guidance range a high level.

A review of our updated 2023 guidance is located on slide four and al will share additional detail in his portion of the call.

As summarized on slide five our Permian JV acquired Rattler midstream Southern Delaware Basin crude gathering system, and <unk> Energy's Northern Delaware basin touchdown crude gathering system for an aggregate cash consideration of approximately $205 million or approximately $135 million net to <unk>.

These bolt on acquisitions are expected to generate Unlevered returns in line with our return thresholds of approximately three to 500 basis points above our weighted average cost of capital. In addition to enhancing our position in the Delaware basin the.

The assets will further position the Permian JV expanded service and offerings and extend commercial relationships with both new and existing customers.

Regarding todays capital allocation update we continue to make meaningful progress towards our goal of lower absolute debt and maintaining a strong balance sheet that can withstand various commodity cycles as.

As highlighted on slide six we are lowering our long term leverage ratio target range to $3 two five X to 375 times.

This is intended to be a long term range target.

Target range, where we may operate below the low range low end of the range during certain periods are temporarily above the top end of the range and the advent of strategic transactions with a goal of moving back into the target range on a long term basis.

We expect to exit the year below three five times due to a reduction in net debt of approximately $450 million, which is underpinned by the repayment of $1 1 billion of senior notes in 2023.

And further support of our capital allocation framework laid out in November of 'twenty, two we intend to recommend to our board a 20 per unit annualized increase in our quarterly distribution payable in February of 2024 as seen on slide seven on.

On an annualized basis, the distribution would increase from $1 seven per unit currently to a $1 27 per unit, representing a 19% increase.

I would also note the proposed acceleration and timing of our annual distribution increase which would pull the increased forward from our may timing to February.

This is all consistent with our objective of increasing returns to our unit holders and it reflects our continued confidence in our business, which is bolstered by the benefits from the recent bolt on acquisitions.

Long term, our free cash flow generation continues to support our multi year capital allocation framework, which continues to target annualized distribution increases of approximately 15 cent per unit each year until reaching a target common unit distribution coverage of approximately 160% with that I'll turn the.

Call over to Hap.

Thanks, Willie we reported third quarter, adjusted EBITDA attributable to PAA of $662 million.

This reflects the benefit of annual tariff escalators higher volumes in regions outside of the Permian contribution from recent bolt on acquisitions and the benefit of market based opportunities. These were partially offset by lower than expected Permian volumes due to weather related impact on gas processing capacity.

And field compression issues that ultimately impacted oil production and extended into the middle of August.

NGL segment benefited from stronger regional basis differentials and additional spot opportunities on both propane and butane resulted in higher realized frac spread.

Slides 12, and 13 in today's appendix include walks, which provide more detail on our third quarter performance summary.

A summary of our updated 2023 guidance is located on slide eight as.

As a result of strong year to date business performance in both our crude and NGL segments and the contributions from our recently announced bolt on acquisitions, we are raising our full year 2023, adjusted EBITDA guidance to two six to $2 $65 billion, our updated outlook factors in lower than expected Permian.

<unk> for non predominantly driven by the weather related impacts we continue to expect year over year growth in our crude oil segment driven by a tariff volume increases in tariff escalations for the NGL segment, we remain highly hedged and expect a typical seasonal step up in sales as we enter the winter months.

Yes.

Shifting to capital allocation is illustrated on slide nine for 2023, we expect to generate $2 $45 billion in cash flow from operations and $1 $45 billion of.

Free cash flow, which takes into account the cash outlay for our recently announced bolt on acquisitions. This resulted in $450 million of free cash flow after distributions available for net debt reduction.

We continue to self fund $325 million of investment capital net to PAA, which is consistent with previous guidance. We have increased our maintenance capital budget by $15 million to $210 million net to PAA for 2023. This reflects additional maintenance capital for recent bolt on acquisitions and <unk>.

Integrity maintenance activity for the year before turning the call back to Willie I wanted to share a few directional comments on 2024 with formal guidance to come early next year. We continue to expect growth in our crude oil business, primarily driven by operating leverage continued Permian growth Arafat.

Duration and full year contributions from bolt on acquisitions in our NGL segment, we have seen volatility in frac spreads, but have made meaningful progress in hedging over two thirds of our expected 2024, frac exposed volumes at a spread above 60 per gallon. Additionally, we should benefit.

From the absence of planned turnaround activity next year, which negatively impacted commodity exposed volumes in 2023 with that I will turn the call back to Willy.

Thanks, Al and before finishing today's call I want to reiterate a few key messages first current global events have highlighted and reaffirmed the importance of hydrocarbons in everyday life planes remains very well positioned as north American supply will continue to be critical to global energy security affordability and reliability.

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Secondly, and importantly, our business remains strong we continue to execute our strategy of generating meaningful cash flow maintaining capital discipline, reducing leverage and increasing return of capital to our unit holders and lastly, we continue to have confidence in our business, which is built on an integrated flexible asset base.

With operating leverage across our system. We appreciate your continued interest and support and we look forward to fielding your questions as well as giving you further formal updates on our earnings call for 2024% in February with that I'll turn the call over to Blake to lead us into 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 us to address questions from as many participants as possible in our available time. This morning. Additionally, the IR team will be available to address any additional questions. You may have normal I believe we're ready to open up the call to questions. Thank you as a reminder to ask a.

Question, you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced when ma'am. Our first question. Please.

Our first question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Thanks, Michael.

Hi, good morning.

I wanted to first ask just about the bolt on acquisitions.

Acquisitions in the Permian do you expect this to be kind of normal course did you see more opportunities to consolidate in the Permian.

And then kind of second part of that is do you see should we expect to see any kind of any type of back to the outside of the Permian.

Yes, let me, let me speak to the bolt ons Michael.

Good question as you know, we've got a great footprint that allows us to capture synergies and opportunities that are out there.

We do think there are more opportunities.

We're going to be very very disciplined on how we approach it the valuations are going to be key.

And I think.

Youll see Youll see continued focus on that we look at all opportunities because our interests are in the best unit are best interest of our unit holders, but I think youll see both bolt on opportunities in both the Permian and outside of the Permian.

Okay, Great and then my.

Second question is really around probably related to the first.

So now for reducing the leverage target.

Maybe you could just walk us through that.

Is that in any way related to <unk>.

What you see down the road in terms of M&A and having flex.

Flexibility taxpayer.

Michael This is al.

Our view was as we intended to be running the company at a lower leverage than what we had been historically.

Part of the reason for committing to publicly like like we have is our intent was to do it to we believe the broader energy sector is and will be running with lower leverage and we want to actually complete and get our upgrades to mid triple B and we think these this rate.

<unk> that we've established puts us solidly in that with some flexibility for them.

And recognizing.

Again, our intent is to run the company a little bit more conservative with the balance sheet.

Got it thank you.

One moment for our next question please.

Our next question comes from the line of Brian <unk> with UBS. Your line is now open.

Hi, good morning, everyone. Thanks for the prepared remarks on the impacts on volumes in the Permian this quarter related to weather it sounds like.

I just wanted to follow up on the Permian outlook here first part of the question is are you seeing any recent crude gathering acquisitions in the basin.

Volumes for the quarter or going forward and then second part maybe a little more longer dated question, we've heard some very constructive Permian growth expectations.

24% to 25% I'm, just kind of curious if you could kind of give us an early look of what you've seen for Permian activity. As we look ahead to next year.

Brian I'm glad you asked the question this is Willie.

We will give first off we'll give you a formal guidance in February on 2024 in the Permian, but I'll give you. Some snapshots here. This has been a it's been a little bit of a strange year in that we had some some weather issues in the summer that really impacted both second and third quarter.

Our original guidance for the year was 500000 barrels a day growth exit to exit we updated on our last call that we thought it was going to be a little bit below that and our views now is it's probably in that $3 50 to 400 range for the year, but the thing I wanted to share with you is if you look at our October volumes in gathering this may address.

To your question, we're actually a 175000 barrels a day higher than October than we were for the third quarter. So it really gives us confidence in the fourth quarter and never can't perfectly predict the future, but we are seeing increased volumes as we start the fourth quarter off and then certainly a lot of the recent announcements, particularly with one of.

Large transactions and one of the very large super majors really.

Lynch support and aligns our view of the Permian going to be around for a long long time as we go forward.

Okay.

Great. Thanks, appreciate that and maybe to touch on the distribution seems to come up a little bit above expectations.

Last year's capital allocation updates so kind of curious if you can refresh us are there any structural changes that we'd be thinking about or is kind of targeting that one six coverage over a multiyear framework is still the right way to think about it.

Ultimately some of these acquisitions impact that distribution network going forward. Thanks.

Yes. This is al.

Still we still are committed.

In the future for the 15th annual increase in the 160% coverage at the common level.

Part of the reason for moving it up in the extra nickel is related to the to the acquisitions that we've completed they are accretive.

Again, we've targeted.

Yes.

Hurdle rates that will bring good accretion for these bolt on transactions and we also have seen strong performance out of our business, but but once we complete this we're back to the 15 and 160% coverage. We think the 160% coverage allows us to basically fund.

Investment capital going forward and number.

Number of small bolt ons in the future without actually needing to raise external money, so kind of live within our own cash flow.

Great all makes sense I'll leave it there and enjoy the rest of the morning.

Thanks, Brian. Thank you one moment for our next question. Please.

Our next question comes from the line of Gabriel.

Moreen with Mizuho. Your line is now open.

Thank you good morning, everyone, maybe if I can just ask a follow up on Michael's question about.

Recurring bolt on M&A, you mentioned looking at things outside the Permian can you maybe elaborate on which basins you might think about as far as <unk>.

During those bolt ons and is doing something like the oryx JV structure.

Willing to you in other basins outside the Permian as well.

Gabriel This is Jeremy Goebel.

They were structured agnostic, we're just trying to.

<unk> garnered the most synergies in a way that works for us and the counterparty, where we would focus that's where we have strength that say for our vantage point, we have gathering assets in all of our basins, where we have a strength at our marketing business our pipeline business in our terminals and we can add value to assets will continue.

Look there. So if you look across our footprint, where we have strength is an area, where we think we can add value and extract synergies into accretive deals and in a manner that al just mentioned, that's where we're going to target.

Thanks, Jeremy and then maybe if I can ask about sort of the hedging of the frac spread exposure heading into 'twenty four.

Because you mentioned that you had put a lot of those spread exposure. So bad at this point are you close to that 80% level that you're targeting do you see yourself getting there with near term or are you kind of leaving some stuff open and anticipation of some strength.

Yes, Gabe, we're not going to disclose the exact number but.

Al's comments on well over 60% hedged.

I was really indicative of that we've got a good portion of this hedged at good values and we will give a further update when we get into February.

Okay. Thanks, a lot.

One moment for our next question.

Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.

Hi, good morning.

Follow up on the sorry, again on the Frac spread just to make sure I understand this right. So the 60% is hedged above <unk> 60, a gallon.

Can you say Directionally I think 2023 was a little higher than that when you did your plan just trying to think directionally, where where that sits on the 60.

Yes, Keith this is Willie again for 2023, we were very well hedged we actually put these hedges on proactively in late 2022. So if you think about the weighted average value of that hedge is a little bit over 70.

So if you compare it to what we actually hedged in 2023.

Circa a dime lower than that.

If you think about the impact of that that's roughly.

Plus or minus $70 million and as al pointed out. We also have a turnaround we had a turnaround this year that next year that we won't be having that may get a little better indication of where the NGL businesses.

That's very helpful. Thanks for that.

The second one.

I know the company has talked about the preferreds not being a near term priority.

Just curious what the with the official leverage target now at three and a quarter to three and three quarters.

Under certain circumstances would you consider going above the leverage target in order to repurchase the preferreds or if you were to take out the preferreds at some point down the road would you need to still stay within that that new leverage band.

This is al.

Theres been no change in our thinking around the around the preferreds.

Debt markets are are fairly high.

And issuing a new 10 year would be 656% and three quarters is a long way of saying that the rates on the preferreds are still fairly attractive in our view relative to our weighted average cost of capital.

Our intent would not be to meaningfully.

Increased leverage to take those preferreds out.

So it's hard to say hypothetically, what you might do a few years down the road, but no we wouldn't we won't sacrifice, our our financial flexibility to reduce them again, because they are not that high relative to our cost of capital.

We think our weighted average cost of capital today is in the 11% to 12% range.

And the preferred on the same weighting.

Our 200 plus basis points less so.

Again, but.

There'll be one day, where maybe we will bill if they come out.

But we don't want to sacrifice financial flexibility.

Thank you.

Thank you one moment for our next question. Please.

Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.

Hi, Thanks for taking my questions I wanted to touch on the Permian long haul volumes. It seems like they fell a little bit more disproportionately relative to gathering and intra basin in the quarter versus the second quarter and also how did basin perform just given the.

Low Cushing inventories this quarter.

Neil highest Jeremy Goebel.

I would say is on the long haul volumes that was just some market dynamics in corpus. It was cheaper for the shippers to buy at corpus to that was to ship the barrel from Midland. So it was just an election by some of the shippers on the pipeline, but it's transitory the pipelines going into the fourth quarter in line with where they've historically been and demand is robust.

Just longer term for the shipments basin is a similar story there was as the inventories came down there was less need for movements in that direction, but directionally as those inventories go down there's more pull on basin.

Got it perfect and then.

If I could ask generally.

Your what youre seeing in the basin.

Growth dynamics I know most of the gas processors had flat volumes from May through August just just like yourselves, but can you touch upon which regions got affected the most with the new Mexico Delaware.

Was impacted the most versus the other basins and then also what youre seeing from producers during the heat that would have impacted their side versus the infrastructure side.

Understanding that you guys are are up and running again and not cover with strong volumes.

Thanks Neil.

<unk> area North ended in Mexico, I think the other dynamic there was the.

Some of the issues around flaring and staffing of flaring. So it all hit at once and it was within a three month period.

But the big surge in volume is coming from those same regions and part of the northern Midland Basin. So I'd say, it's recovering and then seven we see that momentum carrying baseline connections. We have made in November and we'll make this month next month into next year that that momentum can continue.

And Jeremy.

Don't know if I got a response on basin, how that was running during the quarter. If you don't mind commenting on that.

Sure. It was in line with expectations of those inventories range, we would expect the volumes to increase.

Okay, great. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Doug <unk> with Citi. Your line is now open.

Alright, thanks for the question.

Just a couple of follow ups on guidance, so maybe I'll ask them both at once.

First I was just wondering if you can kind of help bridge. The fact that the EBITDA guidance moved higher but then we saw cash from operations and free cash flow move a bit lower.

So the acquisitions have an impact on that.

Are there any other kind of bigger moving pieces you can point to there.

And then again kind of on the implied <unk> guidance, the midpoint implies a step down versus this quarter I'm. Just wondering if you can kind of help reconcile that step down versus some of the tail on some of the year and quite these acquisitions.

Probably Permian growth rebounding at that.

This is al I'll take a shot at the first one yes.

Between the free cash flow and the cash from operations effectively the acquisitions reduce cash flow from the free cash flow number, but roughly the $135 million that we described.

The other two higher higher EBITDA has been.

Our forecast is offset by higher taxes as well as our assumed working capital on merchant needs again, which is all timing related.

Those were really the three things I would point to.

Yeah.

As to as to kind of guidance.

Third.

Third quarter to fourth quarter.

Again, we feel like the midpoint of our range, we do see quarterly flux between them.

It would probably be better to take offline with the IR team kind of any more micro.

Detailing type of discussion.

Okay understood I appreciate it.

Thank you one moment for our next question. Please.

Next question comes from the line of Jeremy <unk> with J P. Morgan Securities. Your line is now open.

Hey, guys. This is robin ready on for Jeremy I think it's been hit on a couple of times on the call already but.

Just to clarify are you guys able to disclose what part of the guidance range that is attributable to the base business strength.

Given the you guys had already pointing to the high end last quarter.

First is the incremental contribution from the proton acquisitions. Thanks.

Sure. This is Jeremy it's roughly $10 million to $15 million.

From the acquisitions.

Okay perfect. Thank you and then for the second one last quarter, you talked about Canadian optimization opportunities.

And maybe utilizing some of that underutilized capacity at Sarnia, So curious to hear updated thoughts here and.

What you guys are seeing in terms of low capital a smaller growth optimization opportunities. Thanks.

Yes, I'll take a stab at that I mean, I think as we shared last call.

Our east West.

System together has been it gives us an advantage because we've got spare capacity in the east and that was a key part of our ability to be able to move quickly on our de bottleneck in the west. So we continue to work on a lot of neat opportunities around optimization, both of our Empress complex for SaaS and Sarnia.

And I think the thing to take away from it is no big announcements on projects other than what we've already announced but theres clearly capacity there that we can continue to optimize and utilize without having to put greenfield projects in.

Perfect. Thanks for all the color.

Thank you.

One moment for our next question.

Our next question comes from the line of Neal Dingmann with two Securities. Your line is now open.

Good morning, all thanks for the time.

First quick one could you just give an update I think you've talked about this in the past just on the minimum volume commitments, where do you stand there in kind of as you enter 'twenty four Cabos Sip.

Yes.

I'm not sure I understand the question can you repeat it.

And then there's also an amendment on long haul or.

Yes, just on the long haul you Sir.

Sure what I would.

Say as we continue to have constructive dialogues with the customers nothing to highlight at this point enterprises announcements obviously.

Additive to that equation and market dynamics are such that.

With the continued acquisitions enhancing relationships with customers, we feel we're in a good place and we'll give you guys an update when it's appropriate we do believe in the base and long term in these acquisitions and improve recoveries should all support that ongoing growth through the decade and continued contracting in the pipeline.

Great and then just on a second could you give the latest on the continued Canadian opportunities such as admin Tinder, Ontario round like that NGL extraction plant site or some other things you have.

Sure broadly in Canada around the NGL system, I think the opportunities youre going to see us.

Our task is constrained the opportunity for east west movements at higher margins and other things to purchase additional NGL theres opportunities throughout next year that we'll see.

I don't know if thats, what youre asking for but it seemed to me that there are margin enhancement opportunities around the system and we'll look to use our system to capture them.

Yes, Neal and the other thing I would add is as we think about our Canadian footprint.

We're very bullish on western Canadian gas production, so as that increases and there is additional takeaway to the west coast. We think it encourages additional production and that gives us the opportunity to be able to capture more ngls out of a workstream.

Great detail, that's exactly I was looking for thanks guys.

Thank you one moment for our next question.

Our next question comes from Sunil Sibal with Seaport Global Your line is now open.

Yes, hi, good morning, everybody and thanks for all the clarity on the call.

Just wanted to understand some of the dynamics on the.

The guidance increase so it seems like from what you indicated $10 million to $15 million impact.

Bolt on acquisitions.

And at the same time, you guys, reducing your volume expectation. So is it fair to assume your unit margins are going up.

And then any significant driver of that obviously tactics that increasing but that does probably well known.

Yes, I'll take I'll take a shot at it this is al.

In the crude side, we've seen have seen and are expecting more favorable market based opportunities we have.

Scene over the year higher movements into and out of Cushing.

Our non Permian assets have performed well and then clearly the contribution from the acquisition and the and.

In the NGL segment, we've seen benefit from higher better improved NGL yields this is likely temporary.

In the ACO gas stream as well as more attractive differentials.

The east as Jeremy mentioned.

Those are really the things that are kind of driving it.

One thing to note, though on the with.

We view the Permian reduction as transitory. This is building momentum into the fourth quarter and into next year. So the view that it slowed down our expectations long term, it's slowed down if not as a function of transitory title.

Understood.

Then.

On the pipeline loss allowance.

No.

Acquisitions that you've done could you remind us what is your total <unk>.

<unk> with the pipeline loss allowance.

Hey, Neil it's Blake.

Historically, what we've said is two to 3 million barrels and we haven't provided an update to that I think it's correct to think as more volumes ultimately make their way onto the system that could increase over time, and we will give an update when appropriate.

Understood. Thanks.

Thank you.

For next question.

Our next question comes from the line of John Mccain with Goldman Sachs. Your line is now open hey.

Good morning, everyone and thank you for the time I wanted to touch on kind of broader picture for Permian long haul we've had some.

Changes in the market recently seminal coming out of service.

The Gray Oak open season, it seems like it's about to go forward I guess I'd just be curious to hear from your side, where you see kind of overall balances for the market in the next couple of years.

And.

Whether or not you expect we could see more conversions out of crude service, if there's something else. Thanks.

Yes, John this is Willie.

There's a lot of puts and take to this.

I think about the moves that were proposed possible projects. These are what I would call smaller increases maybe a 100 200000 barrels a day.

We think longer term with.

With the growth of the Permian.

It were consistent with our with our views that capacity is going to get tight I don't think new build long haul lines, they're going to get built.

With the with the seminal announcement, it's taken a little bit out so theres a lot of puts and takes again against it but long term. Our views are have not changed it's still going to be tightening capacity.

In a market, that's going to be harder and harder to build long haul lines.

Alright.

Maybe shifting gears you touched on the working capital a little bit in the quarter.

And I know, it's transitory and should come back I was just larger than it looks like we've seen in a couple of quarters is there a when we're thinking about capital returns next year potentially buybacks is there a kind of a minimum level of cash you would want to see on on the balance sheet and.

Does this quarter's kind of larger working capital draw affect that.

That math at all.

This is al we do see fairly significant quarter over quarter working capital flexes and we use the word working capital.

If we're building inventory and we're borrowing short term on our credit facilities.

It's a working capital use although technically they are both in working capital. So it's kind of working capital and merchant requirements. We.

We do see quarter to quarter fairly significant moves generally over a 12 month period, all those normalize out.

We normal.

Normally model assuming.

Lower cash balances and what what.

We've been running.

We will be showing that when we show you the year end balance sheet, because the cash balances will have been.

Assumed with the note we just paid down here in October.

But normally we would model about $100 million of cash on the balance sheet, and we use our credit facilities and the commercial paper markets.

Balanced this out and it is timing.

End up.

Reverting back to more of a normalized balance over over the course of a few quarters.

Alright, I appreciate the time.

Thank you for your questions.

This concludes today's conference call. Thank you for participating in today's call. You may now disconnect everyone have a wonderful day.

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Good day, and thank you for standing by and welcome to Plains, All American <unk> third quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone you will then hear an audit.

Message advising your hand this race to withdraw your question. Please press star one again, please be advised that today's call is being recorded I would now like to hand, the conference over to your speaker today, Blake Fernandez, Vice President Investor Relations. Please go ahead Sir.

Thank you Norma good morning, and welcome to Plains, All American third quarter 23 earnings call. Today's slide presentation is posted on the Investor Relations website under the news and events section of <unk> Dot Com an audio replay will also be available following today's call.

Gordon disclosures regarding forward looking statements and non-GAAP financial measures provided on slide two and overview of today's call is provided on slide three a condensed consolidating balance sheet for PAGP and other reference materials are in the appendix.

Today's call will be hosted by Willie Chang, our chairman and CEO.

Ill Swanson executive Vice President and CFO as well as other members of our management team with that I will turn the call over to Willy. Thanks, Blake Happy Friday, everyone and thank you for joining us this morning.

As a result of our year to date performance and the partial year contributions of our recent bolt on acquisitions, we are raising our full year 2023, adjusted EBITDA guidance to a range of two six to $2 65 billion. This reflects an increase of $50 million to $100 million from the high end of our previous guidance range.

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.

The assets will further position the Permian JV expanded service and offerings and extend commercial relationships with both new and existing customers.

As highlighted on slide six we are lowering our long term leverage ratio target range to $3 two five X to 375 times.

This was intended to be a long term range target.

We expect to exit the year below three five times due to a reduction in net debt of approximately $450 million, which is underpinned by the repayment of $1 1 billion of senior notes in 2023.

On an annualized basis, the distribution would increase from $1 seven per unit currently to a $1 27 per unit, representing a 19% increase.

I would also note the proposed acceleration and timing of our annual distribution increase which would pull the increased forward from our may timing to February this.

Long term, our free cash flow generation continues to support our multi year capital allocation framework framework, which continues to target annualized distribution increases of approximately <unk> 15 per unit each year until reaching a target common unit distribution coverage of approximately 160% with that I will.

Turn the call over to al.

Thanks, Willie we reported third quarter, adjusted EBITDA attributable to PAA of $662 million.

<unk> and field compression issues that ultimately impacted oil production and extended into the middle of August the.

The NGL segment benefited from stronger regional basis differentials and additional spot opportunities on both propane and butane resulted in higher realized frac spread slides 12 and 13 in today's appendix include walks, which provide more detail on our third quarter performance a summary of our updated.

<unk> thousand 23 guidance is located on slide eight as.

Our updated outlook factors in lower than expected Permian production per non predominantly driven by the weather related impacts we continue to expect year over year growth in our crude oil segment driven by a tariff volume increases in tariff escalations for the NGL segment, we remain highly hedged and expect a typical.

Seasonal step up in sales as we enter the winter months.

Shifting to capital allocation is illustrated on slide nine for 2023, we expect to generate $2 four of $5 billion.

Cash flow from operations and $1 $45 billion.

A free cash flow, which takes into account the cash outlay for our recently announced bolt on acquisition.

As a result in $450 million of free cash flow after distributions available for net debt reduction.

Higher integrity maintenance activity for the year before turning the call back to Willie I wanted to share a few directional comments on 2024 with formal guidance to come early next year. We continue to expect growth in our crude oil business, primarily driven by operating leverage continued Permian growth era.

The duration and full year contributions from bolt on acquisitions in our NGL segment, we have seen volatility in frac spreads, but have made meaningful progress in hedging over two thirds of our expected 2024, frac exposed volumes at a spread above <unk> 60 per gallon. Additionally, we should benefit.

From the absence of planned turnaround activity next year, which negatively impacted commodity exposed volumes in 2023 with that I will turn the call back to Willy.

Thanks Al before finishing today's call I want to reiterate a few key messages first current global events have highlighted and reaffirmed the importance of hydrocarbons in everyday life.

<unk> remains very well positioned as north American supply will continue to be critical to global energy security affordability and reliability.

With operating leverage across our system. We appreciate your continued interest and support and we look forward to fielding your questions as well as giving you further formal updates on our earnings call for 2024 in February with that I'll turn the call over to Blake to lead us into Q&A. Thanks, Willie as we enter the Q&A session. Please limit yourself to one question.

And one follow up.

Those with additional questions. Please feel free to return to the queue. This will allow us to address questions from as many participants as possible in our available time. This morning. Additionally, the IR team will be available to address any additional questions. You may have normal I believe we're ready to open up the call to questions. Thank you as a reminder to ask a question you will need to press star one.

One on your telephone to withdraw your question. Please press Star one again, please wait for your name to be announced when ma'am. Our first question. Please.

Our first question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Thanks, Michael.

Hi, good morning.

I wanted to first ask just about the bolt on.

Acquisitions in the Permian do you expect this to be kind of normal course, do you see more opportunities to consolidate in the Permian.

And then kind of second part of that is do you see.

Should we expect to see any kind of any type of activity outside of the Permian.

Yes, let me, let me speak to the bolt ons Michael.

Good question as you know, we've got a great footprint that allows us to capture synergies and opportunities that are out there.

We do think there are more opportunities.

We're going to be very very disciplined on how we approach it the valuations are going to be key.

And I think.

Okay, Great and then my second question is probably related to the first.

Rationale for reducing the leverage target.

If you could just walk through that and is that in any way related to what you see down the road in terms of M&A and having flexibility.

Flexibility taxpayer.

Michael This is al.

Our view was as we intended to be running the company at a lower leverage than what we had been historically.

<unk> that we've established puts us solidly in that with some flexibility for them.

And recognizing.

Again that our intent is to run the company a little bit more conservative with the balance sheet.

Got it thank you.

One moment for our next question please.

Our next question comes from the line of Brian <unk> with UBS. Your line is now open.

Thanks.

Hi, good morning, everyone. Thanks for the prepared remarks on the impacts on volumes in the Permian this quarter related to weather it sounds like.

I just wanted to follow up on the Permian outlook here first part of the question is are you seeing any recent crude gathering acquisitions by basin kind of back volumes in the quarter or going forward and then second part maybe a little more longer dated question. We've heard some very constructive Permian growth expectations.

24% to 25, I'm just kind of curious if you could kind of give us an early look of what you've seen for Permian activity. As we look ahead to next year.

Brian I'm glad you asked the question this is Willie.

We will give first off we'll give you a formal guidance in February on 2024 in the Permian, but I'll give you. Some snapshots here. This has been a been a little bit of a strange year in that we had some some weather issues in the summer that really impacted both second and third quarter.

Your question, we're actually 175000 barrels a day higher than October than we were for the third quarter. So it really gives us confidence in the fourth quarter and never can't perfectly predict the future, but we are seeing increased volumes as we start the fourth quarter off and then certainly a lot of the recent announcements, particularly with one of them.

Large transactions in and one of the very large super majors really lends support and aligns our view of the Permian going to be around for a long long time as we go forward.

Okay.

Great. Thanks, appreciate that and maybe to touch on the distribution seems to come up a little bit above expectations from last year's capital allocation updates. So kind of curious if you can refresh us are there any structural changes that we'd be thinking about or is.

Kind of targeting that one six coverage over a multiyear framework is still the right way to think about it.

Ultimately some of these acquisitions impact that distribution network going forward. Thanks.

Yes. This is al.

Still we still are committed.

In the future for the 15th annual increase in the 160% coverage at the common level.

Part of the reason for moving it up in the extra nickel. This is related to the to the acquisitions that we've completed they are accretive.

We've targeted.

Yes.

Hurdle rates that will bring good accretion for these bolt on transactions and we also have seen strong performance out of our business but.

Once we complete this we're back to the 15 and 160% coverage, we think the 160% coverage allows us to basically fund.

Investment capital going forward.

Number of small bolt ons in the future without actually needing to raise external money, so kind of live within our own cash flow means.

Great all makes sense I'll leave it there enjoy the rest your morning.

Thanks, Brian. Thank you one moment for our next question. Please.

Our next question comes from the line of Gabriel <unk>.

<unk> with Mizuho. Your line is now open.

Yes.

Thank you good morning, everyone, maybe if I can just ask a follow up on Michael's question about.

Recurring bolt on M&A, you mentioned looking at things outside the Permian can you maybe elaborate on which basins you might think about as far as.

During those bolt ons and is doing something like the oryx JV structure appealing to you in other basins outside the Permian as well.

Gabriel This is Jeremy Goebel I would say, we're structured agnostic, we're just trying to.

Basically garner the most synergies in a way that works for us and the counterparty.

We would focus that's where we have strength.

For our vantage point, we have gathering assets in all of our basins, where we have a strength at our marketing business our pipeline business in our terminals and we can add value to assets will continue to look there. So if you look across our footprint, where we have strength is an area, where we think we can add value and extract synergies into accretive deals and the amount of that outlook.

That's why we're going to target.

Thanks, Jeremy and then maybe if I can ask about sort of the hedging.

Frac spread exposure heading into 'twenty four.

Chris You mentioned that you had put a lot of those spread exposure to bad at this point are you close to that 80% level that you're targeting do you see yourself getting there near term or are you kind of leaving some stuff open and anticipation of some strength.

Yeah, again, we're not going to disclose the exact number but.

Al's comments on well over 60% hedged.

I was really indicative of that we've got a good portion of this hedged at good values and we will give a further update when we get into February.

Okay. Thanks, a lot.

Thanks, Gabe one moment for our next question.

Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.

Hi, good morning.

Follow up on the sorry, again on the Frac spread I just want make sure I understand this right. So the 60% is hedged above <unk> 60, a gallon can you say directionally I think 2023 was a little higher than that when you did your plan just trying to think directionally, where where that sits on the 60.

Yes, Keith this is Willie again for 2023, we were very well hedged we actually put these hedges on proactively in late 2022. So if you think about the <unk>.

Weighted average value of that hedge is little bit over 70.

So if you compare it to what we actually hedged in 2023.

<unk> lower than that.

If you think about the impact of that that's roughly.

Plus or minus $70 million and as al pointed out. We also have a turnaround we had a turnaround this year that next year that we won't be having so that may give you a little better indication of where the NGL businesses.

That's very helpful. Thanks for that.

The second one.

No. The company has talked about the preferreds not being a near term priority.

Just curious what the with the official leverage target now at three and a quarter to three and three quarters.

This is al.

No change in our thinking around the around the preferreds.

Debt markets are are fairly high.

Like in issuing a new 10 year would be 656 and three quarters.

A long way of saying that the rates on the preferreds are still fairly attractive in our view relative to our weighted average cost of capital.

Our intent would not be to meaningfully.

Increased leverage to take those preferreds out.

We think our weighted average cost of capital today is in the 11% to 12% range and the preferred on the same weighting.

Our 200 plus basis points less so so again there'll be one day, where maybe we will take them out.

But we don't want to sacrifice financial flexibility.

Thank you.

Thank you one moment for our next question. Please.

Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.

Hi, Thanks for taking my question I wanted to touch on the Permian long haul volumes. It seems like they fell a little bit more disproportionately relative to gathering and intra basin in the quarter versus the second quarter and also how did basic perform just given the.

Cushing inventories this quarter.

Neil highest Jeremy Goebel.

What I would say is on the long haul volumes that was just some market dynamics in corpus. It was cheaper for the shippers to buy at corpus to that was to ship the barrel from Midland. So it was just an election by some of the shippers on the pipeline, but it's transitory the pipelines going into the fourth quarter in line with where they've historically been and demand is there.

Robust longer term for the shipments based and there is a similar story there was as the inventories came down there was less need for movements in that direction, but directionally as a inventories go down there's more pull on basin.

Got it perfect and then.

If I could ask generally.

What youre seeing in the basin.

The dynamics I know most of the gas processors had flat volumes from May through August just just like yourselves, but can you touch upon which regions got affected the most.

The new Mexico, Delaware that.

And that was impacted the most versus the other basins and then also what youre seeing from the producers during the heat that would've impacted their side versus the infrastructure side.

Understanding that you guys are are up and running again in October with strong volumes.

Yes.

Thanks Neil.

Stateline area North ended in Mexico, I think the other dynamic there was the.

Some of the issues around flaring and staffing of flaring. So it all hit at once and it was within a three month period.

But the big surge in volume is coming from those same regions and part of the northern Midland Basin. So I'd say, it's recovering and then sell it and we see that momentum carrying baseline connections. We have made in November and we will make this month and next month into next year that that momentum can continue.

And Jeremy.

I don't know if I got response on basin, how that was running during the quarter.

Don't mind, commenting on that sure.

Sure. It was in line with expectations of those inventories range, we would expect the volumes to increase.

Okay, great. Thank you.

Thank you one moment for our next question.

Our next question comes from the line of Doug <unk> with Citi. Your line is now open.

Alright. Thanks for the question just a couple of follow ups on guidance, So maybe I'll ask them both at once.

First I'm just wondering if you could kind of help bridge. The fact that the EBITDA guidance moved higher but then we saw cash from operations and free cash flow will be lower.

Sure the acquisition having impact on are there any other kind of bigger moving pieces you can point to there.

And then again kind of on the implied <unk> guidance, the midpoint implies a step down versus this quarter.

I'm just wondering if you can kind of help reconcile that step down versus some of the talents of the year and quite these acquisitions.

Permian growth rebounding.

This is al I'll take a shot at the first one.

The free cash flow and the cash from operations effectively the acquisitions reduce cash flow from the free cash flow number, but roughly the $135 million that we described.

The other two higher higher EBITDA has been in our forecast is offset by higher taxes as well as our assumed working capital and merchant needs again, which is all timing related.

We are really the three things I would point to.

As to as to kind of guidance.

Third quarter to fourth quarter.

Again, we feel like the midpoint of our range, we do see quarterly flux between them.

It would probably be better to take offline with the IR team kind of any more micro.

Detailing type of discussion.

Okay understood I appreciate it.

Thank you one moment for our next question. Please.

Next question comes from the line of Jeremy Tonet with JP Morgan Securities. Your line is now open.

Hey, guys. This is rough and ready on for Jeremy.

I think it's been hit on a couple of times on the call already but.

Just to clarify are you guys able to disclose what part of the guidance range that is attributable to the base business strength.

Given that you guys had already pointing to the high end last quarter.

First is the incremental contribution from the proton acquisitions. Thanks.

Sure. This is Jeremy it's roughly $10 million to $15 million.

From the acquisitions.

Okay perfect. Thank you and then for the second one last quarter you talked about <unk>.

Gideon optimization opportunities.

And maybe utilizing some of that underutilized capacity at Sarnia. So curious to hear your updated thoughts here and.

What you guys are seeing in terms of low capital smaller growth optimization opportunities. Thanks.

Yes, I'll take a stab at that I mean, I think as we shared last call.

Our east West.

Just him together has been it gives us an advantage because we've got skip spare capacity in the east and that was a key part of our ability to be able to move quickly on our de bottleneck in the west. So we continue to work on a lot of neat opportunities around optimization, both of our Amtrust complex for SaaS and Sarnia and.

I think the thing to take away from it is no.

No big announcements on projects other than what we've already announced but theres clearly capacity there that we can continue to optimize and utilize without having to put greenfield projects in.

Perfect. Thanks for all the color.

Thank you.

One moment for our next question.

Our next question comes from the line of Neal Dingmann with <unk> Securities. Your line is now open.

Morning, all thanks for the time just one first quick one could you just give an update I think you've talked about this in the past just on the minimum volume commitments, where do you stand there in kind of as you enter 'twenty for carbo.

Yes.

Im not sure I understand the question can you repeat it.

And then it is volatile and dependent on long haul or.

Yes, just on the long haul you Sir.

Oh sure.

What I would say is we continue to have constructive dialogues with the customers nothing to highlight at this point enterprises announcements obviously.

Additive to that equation and market dynamics are such that.

Great and then.

And second could you give the latest on the continued Canadian opportunities such as admin Tinder.

Ontario around like that NGL extraction plant site or some other things you have.

Sure I broadly in Canada around the NGL system, I think the opportunities youre going to see is the forecast.

<unk> SaaS is constrained the opportunity for east west movements, and higher margins and other things to purchase additional NGL theres opportunities throughout next year that we'll see.

I don't know if thats, what youre asking for but it seem to me that there are margin enhancement opportunities around the system and we'll look to use our system to capture them.

Neil and the other thing I would add is as we think about our Canadian footprint.

We're very bullish on western Canadian gas production, so as that increases and Theres additional takeaway to the west coast. We think it encourages additional production and that gives us the opportunity to be able to capture more ngls out of a workstream.

Great detail Thats exactly I was looking for thanks guys.

Thank you one moment for our next question.

Our next question comes from Sunil Sibal with Seaport Global Your line is now open.

Yes, hi, good morning, everybody and thanks for all the clarity on the call. So just wanted to understand some of the dynamics on the EBITDA guidance increase so it seems like from what you indicated.

$10 million to $15 million impact.

Bolt on acquisitions.

And at the same time, you guys, reducing your volume expectation. So is it fair to assume your unit margins are going up.

And then any significant driver of that obviously tonics that increasing but that was probably well known.

Yes, I'll take I'll take a shot at it. This is now in the crude side we've seen.

<unk> seen and are expecting more favorable market based opportunities, we've seen over the year higher movements into and out of Cushing.

Our non Permian assets have performed well and then clearly the contribution from the acquisition and the and the.

NGL segment, we've seen benefit from higher better improved NGL yields.

Likely temporary.

In the gas stream as well as more attractive differentials west to east as Jeremy mentioned, so those are really the things that are kind of driving the one thing to note though on the.

The Permian reduction as transitory. This is building momentum into the fourth quarter and into next year. So the view that it slowed down our expectations long term a slowdown it not as a function of transitory title.

Understood.

And then.

On the pipeline loss allowance.

All right.

Since the acquisition you've done could you remind us what is your total <unk>.

<unk> with the pipeline loss allowance.

Hey, Neil as Blake.

Understood. Thanks.

Thank you.

For next question.

Our next question comes from the line of John Mccain with Goldman Sachs. Your line is now open hey.

Good morning, everyone. Thank you for the time I wanted to touch on kind of broader picture for Permian long haul we've had some.

Changes in the market recently seminal coming out of service.

The Gray Oak open season, it seems like it's about to go forward I guess I'd just be curious to hear from your side, where you see kind of overall balances for the market in the next couple of years.

And.

Whether or not you expect that we could see more conversions out of crude service, if there's something else. Thanks.

Yes, John this is Willie.

There's a lot of puts and take to this when I think about the moves that the proposed possible projects. These are what I would call smaller increases maybe 100 200000 barrels a day.

We think longer term with.

With the growth in the Permian, we just it.

Consistent with our with our views that capacity is going to get tight I don't think new build long haul lines youre going to get built.

In a market, that's going to be harder and harder to build long haul lines.

Alright.

Maybe shifting gears you touched on the working capital a little bit in the quarter.

And I know, it's transitory and should come back I was just larger than we've it looks like we've seen in a couple of quarters is there a when we're thinking about capital returns next year potentially buybacks is there a kind of minimum level of cash you would want to see on on the balance sheet and.

Does this quarter's kind of larger working capital draw effect.

Is that math at all.

This is al we do see fairly significant quarter over quarter working capital flexes and we use the word working capital is.

If we're building inventory and we're borrowing short term on our credit facilities.

It's a working capital use although technically they are both in working capital. So it's kind of working capital and merchant requirements. We.

We do see quarter to quarter are fairly significant moves generally over a 12 month period, all those normalize out.

We normal we normally model assuming.

Lower cash balances and what what.

We've been running and we'll be showing that when we show you the year end balance sheet, because the cash balances will have been.

<unk> with the note, we just paid down here in October.

But normally we would model about $100 million in cash on the balance sheet and we use our credit facilities and the commercial paper markets to balance this out and it is timing.

Reverting back to more of a normalized balance over over the course of a few quarters.

Alright, I appreciate the time.

Thank you for your questions.

This concludes today's conference call. Thank you for participating in today's call. You may now disconnect everyone have a wonderful day.

Q3 2023 Plains All American Pipeline LP Earnings Call

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