Q2 2019 Earnings Call
Good day and welcome to the <unk>.
<unk> second quarter 2019 earnings call today's conference is being recorded.
I'd like to turn the conference over to Roy Lamoreaux VP of Investor Relations. Please go ahead Sir.
Thank you Melissa good afternoon, and welcome to Plains, All American second quarter 2019 earnings Conference call.
Today's slide presentation is posted on the Investor Relations news and events section of our website.
Plains, All American Dot com.
Slide two contains important disclosures regarding forward looking statements and non-GAAP financial measures. The appendix includes condensed consolidated balance sheet information for PGP.
Today's call will be hosted by Willie Chiang.
Chief Executive Officer, and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial Officer, Jeremy Goebel, Executive Vice President commercial and Chris Chandler Executive Vice President and Chief operating Officer, along with other members of our senior management team are available for the Q and a portion of today's call.
With that I will now turn the call over to Willy.
Thanks, Roy and good afternoon, everyone and thank you for joining our call.
Let me begin by hitting the high points of the information we released today.
We're pleased to report second quarter earnings results that exceeded our expectations as outlined on slide three these results reflect strong performance in our margin based supply and logistics segment.
And fee based earnings that were in line with expectations.
As al will discuss more in detail, we have increased our full year adjusted EBITDA guidance by 125 million to plus or minus 2.975 billion driven primarily by our ethanol segment.
We continue to execute on a number of initiatives to position us for the future and to create long term value for our investors.
We provided a comprehensive review of these opportunities that are investor day, and highlighted our strategy of optimizing our systems and driving improved returns by advancing capital efficient projects that leverage existing assets and align us with industry partners.
We also continue to focus on managing our financial position to further lower leverage and prudently return cash to equity holders overtime.
Our progress on our commercial initiatives are reflected on slides four and five.
Let me highlight a few.
Regarding our Permian takeaway projects, we have continued to enhance the week to Webster project further aligning with industry partners to optimize the project in that regard MPLX Delek us in Radler midstream have joined as partners in the week to Webster joint venture and we expect an additional undisclosed third party to announce their ownership in the project in the near future.
As a result of these transactions Wink to Webster is highly contracted under long term volume commitments. Additionally planes equity interest in the weight to Webster joint venture has decreased from 20% to 16% we are targeting a week to Webster capacity to be in service beginning in early 2021.
In the Rockies and mid continent, we've progressed a number of projects that are great. Examples of capital efficiency utilizing our existing assets in commercial flexibility to drive returns above our targeted threshold with further upside.
On the Diamond cap line JV, we have sanctioned and expansion and extension, which will connect the diamond pipeline to the cap line system.
These projects are expected to be placed into service in late 2020 for light crude grades in early 2022 for heavy crude grades.
The combined Diamond and Southline project scope is underpinned by sufficient long.
Sufficient level of long term commitments to achieve our targeted investment return thresholds and we are working to further enhance returns by bringing additional committed volumes to the system.
The Saddlehorn JV partners recently announced a capacity expansion of up to 100000 barrels a day plus a new Fort Laramie ordered on the Saddlehorn pipeline, which is underpinned by long term volume commitments. This project is primarily increasing pumping capacity and enhancing commercial alignment to provide additional flexibility to our shipper customers.
And initial expansion of 60000 barrels per day is underway and is expected to be placed into service in late 2020, but the potential to increase to 100000 barrels a day.
In May we announced an expansion in new joint venture on our Red River pipeline system through which dealt like increased their long term minimum volume commitment from 35000 to 100000 barrels a day and acquired a 33% equity interest in the project for 128 million.
This transaction expands our long term in alignment with a strategic partner and shipper.
It supports and more than funds the 85000 barrel day.
Capacity expansion.
It increases planes not committed annual cash flow and it provides an additional source of funding for our capital program or debt reduction, we expect to announce an open season for additional volume commitments on the system in the very near future.
On Red Oak were proceeding with Preconstruction activities on its 50 50 joint venture with Phillips 66 that was officially sanctioned in June .
The system will enable volumes from Cushing, Oklahoma, and the Permian basin to access multiple Gulf coast destinations, including Corpus Christi, Ingleside, Houston, and Beaumont, Texas, We expect the project, which is underpinned by long term shipper brings to begin initial service as early as the first quarter of 2021.
We along with our partner will evaluate the outcome of the current supplemental open season in progress.
We also continue to advance additional commercial opportunities, including a potential expansion of our range land in western quarter systems to support Canadian production growth and further enable movements from Edmonton to U.S. Gulf Coast markets.
These expansions are subject to the outcome of the western quarter open season, that's currently underway.
Each of these projects demonstrate opportunities that are enabled by our existing asset base, our operational capabilities and commercial presence, which allows us to build and position ourselves for the future with accretive growth. These projects will be completed over the next two or three years and we expect to be able to self fund the equity portion of our investments through this time period.
As a result of these projects and this album discuss in greater detail. We've increased our 2019 capital program by 150 million, which is expect to be more than offset by proceeds from JV asset sales completed to date.
And our strong SNL performance generated in the first half of the year.
Before I hand, the call over to Al Let me share a quick update on the cactus too.
I'm pleased to report that the pipeline is mechanically complete from Wink to Ingleside and that we're currently performing commissioning in line fill activities.
As of today the line as approximately 50% filled with crude.
We anticipate entering initial commercial service sometime next week.
We expect to have direct cactus to connectivity to corporates in service by the end of the first quarter 2020.
At this point I would like to publicly acknowledge the hard work and dedication of our team to bring our second Permian takeaway project into service within the last 12 months with that I'll turn the call over to al.
Thanks Willy.
During my portion of the call I'll share a brief recap of our second quarter results provide updates to our 2019 guidance and growth capital program and review our current capitalization liquidity and leverage metrics, we reported second quarter adjusted EBITDA of $784 million, which represents a year over year increase of 55% driven by strong performance in our SNL segments as summarized on slide six our second quarter fee based results of $582 million were in line with expectations, representing a year over year increase of 10% and were roughly flat to the first quarter 2019.
Looking forward to the balance of the year as illustrated on slide seven as Willie noted we have increased our 2019, adjusted EBITDA guidance by $125 million to plus or minus $2.975 billion.
This increase was driven by Rs and outperformance in the second quarter, primarily attributable to favorable crude oil differentials in the Permian Basin, and Canada and improved NGL margins.
Additionally, we have lowered our 2019 transportation segment guidance by approximately $25 million or 1%.
Calibrating for our current outlook on producer activity levels through the balance of the year.
Our 2019 DCF guidance was increased by $65 million, reflecting the increased adjusted EBITDA guidance, partially offset by $40 million of higher income tax expense in Canada.
In a $20 million increase in maintenance capital as we expect to complete more work in 2019, then than originally anticipated.
As illustrated on slide seven given the newly sanctioned projects Willie discussed we have increased our 2019 capital program by $150 million net up lower costs on linked to Webster, resulting from our reduced equity interest in the project.
We remain focused on capital discipline and prudent financial management.
In that regard the increase in our capital program is more than offset by the $128 million of cash received from the formation of the Red River JV and the $65 million increase in our 2019 DCF guidance.
Additionally, while the large majority of the capital associated with these newly sanction projects is expected to be incurred in 2020 and 2021, we do not expect to issue common equity to fund our capital program in those years, and we'll continue to explore and utilize potential asset sales strategic jvs and alternative financing opportunities to add funding flexibility.
Moving to our capitalization and liquidity as illustrated on slide eight at quarter end, we had a long term debt to adjusted EBITDA ratio of 2.8 times, which benefit from SNL over performance over the last 12 months.
Excluding the SNL over performance, we remain focused on continuing to migrate leverage down within our targeted long term debt to adjusted EBITDA range and achieving mid triple B credit ratings over time.
Based on our updated 2019 guidance, we expect to exit the year with full year common unit distribution coverage of more than 200% more than $1 billion of cash flow in excess of distributions and per unit results that exceed our prior expectations with that I will turn the call back over to Willy.
Thanks Al.
So we had a solid quarter of financial operating and commercial performance and we're pleased to have made a significant progress on a number of initiatives that position us well for future.
We remain intently focused on executing our 2019 plan and advancing the projects and initiatives that we set forth throughout our call today.
A summary of the 2019 goals and the key takeaways from today's call are shown on slide nine and 10.
With that we'd be happy to take your questions I'll turn the call over to Roy.
Thanks billing.
As we enter the Q and a session. Please limit yourself to one question. One follow up question then return to the queue. If you have additional follow ups. This will allow us to address the top questions from as many participants as practical in our available time. This afternoon. Additionally, retina yellen I plan to be available this evening and tomorrow to address additional questions. Melissa we're now ready to open the call for questions.
Thank you, ladies and gentlemen, I'd like to ask a question at this time. Please press star one of your telephone keypad.
On a speaker phone please make sure that Jim you function is turned off till now.
Our equipment.
Once again for questions at this time, please press star one now.
And our first question will come from Cowen Your question.
Hi, good morning, guys.
Hey, good afternoon, I'm, just maybe to start off on the guidance that you put out today I understand that its going up partially the EUR is going up to the SNL beat and so forth.
I was just wondering if you can sort of give us a little bit of detail on the transportation side.
You have margins going up but you've got volumes going down any particular reason.
That you would attribute to the volume change.
Jeremy.
Thanks Amir this is Jeremy Goebel AD question is a good one in reflection of the changing in the industry in the upstream side I think our guidance reflects our expectations for the year.
It includes pipeline utilization changes with regard to Gulf coast pipes coming on line in potential barrels coming off a base and so I think thats. It just to reflect our current guidance. Our view, we will continue to update that throughout the year as we talk to our customers, but it's a dynamic time in the industry and it is within 1% of our original forecast, but we're just reflecting end of where we think that the market is headed.
If I can paraphrase essentially you're you're losing some volumes on low margin areas.
But youre gaining on some others or maintaining on on the higher margins is that kind of the right way to think about it.
I think theres, just a lot of moving pieces with respect to our asset base, where it's hard to identify and simplified to that I think in the context of a $25 million move in the entire thing that's just a reflection of.
The entire asset base, and how we think see things moving differentials across the basin and market influence how.
No that that makes perfect sense and I didn't want to beat up on a a manouchehr item just I just wanted that clarification and then one other last clarification question there seems to be.
More and more.
Participants joining the wink to Webster pipeline.
Does this change your capex outlook at all.
As you think about next year and do you have a sense of White Plains is final ownership is going to be of the of the project.
Sure, we will own 16%, the Wink collector project, which will be.
Over 1 million barrels a day and fully contracted pipeline. We're excited about it we took a reduction in our interest to make room for the additional partners. We've given guidance for 2019 and that reflects our lower interest in the project, but at this point, we haven't given any guidance for per capital will be will later this year.
Perfect. Thank you very much I have used up my two questions I'll jump back in the queue.
Thanks Schneur.
Our next question will come from Jeremy Tonet with JP Morgan.
Hi, good afternoon.
Just wanted to follow up a little bit there on the Permian and given kind of.
Producer commentary has been changing a bit there.
Some people kind of pulling in on growth or deferring and you guys in the past I've kind of presented your view as far as longer dated Permian growth I'm wondering has anything changed materially from your prior expectations specifically.
Concho discuss changes in their approach so that would be helpful for any color there.
Sure we continue to monitor that and stay in front of our customers. We have moderated our forecast in the Permian and that's reflected in our guidance forecast for the rest of 2019 the.
We had a reduction coming into the year to 400 horizontal rigs and as steady state for the second half of this year, you're roughly at 390 now so marginally it is a bit lower but it's fairly consistent with our views, but on the margin. It is lower and we'll continue to.
Monitor producers views and how they look to operate within cash flow and specific to your customers on our pipeline and we'll stay on top of that.
Yeah. Jeremy this is well I guess the question that you ask is a good one but very difficult to answer and I think that the key on this as we want to wait till the rest of this year. We continue to monitor as Jeremy said, but I think we'll be able to give a little better color on 2020 and beyond over the next three months.
That's helpful. Thanks, and then maybe just following up with regards to the opportunities that arose in Canada would you be able to provide a bit more color on what happened there and I guess the ability to kind of capture those margins again in the future.
No those are sort of onetime type of events.
A lot of it centered around.
Differentials that got water around.
Post apportionment and.
Around some of the.
Upgrader outages in the planned turnarounds in the.
In Western Canada. So.
I certainly wouldn't characterize those as recurring type of event.
That's helpful color. Thank you for taking my questions.
Thanks, Jeremy.
Our next question will come from Tristan Richardson with Suntrust.
Hey, good afternoon guys.
And now that we're kind of midway through the year and you have a better sense of the JV structure on went to Webster.
Schedule on cap line and Saint James as you look at some of these long lead projects.
Could you talk a little bit about how capex is shaping up for 2020, and just the potential prospects that we could see capex lower next year versus 2019.
I don't want to take that.
Yeah. This is al.
I think our view was is that we wanted to wait and update our 2020 capital probably in November on that call.
We would probably say it will be roughly equivalent to the neighborhood. We are this year.
Clearly there are some some timing issues.
The weather some of it pushes into 2021 versus pull forward into 2020.
There's also whether or not we look at doing a project finance inside of the Red Oak.
Joint venture so there's some things that could cause that to shift, but but we think it will be roughly in the neighborhood of this year.
Helpful. Thank you and then not to bring up a lightning rod item, but can you talk about just.
Terrorists surcharges to the extent that you know.
Future build out pipelines et cetera.
This may be something that you employ when and where the procurement process encourage these costs.
Yeah. This is Willie Triston I'll give you my I'll give you my views on this this is a as with everything. It seems these days is a lot of moving parts in a week on cactus two we ended up buying international.
Non U.S. steel because.
The U.S. steel producers were not able to produce the pipe in the spec that we want it.
The key point on this is we purchased the steel before the tariffs were implemented.
And so.
We are going through the exception process with the department of Commerce and continue we'll continue to do that.
Just to try to get resolution on it.
As a parallel path we have we have moved forward with a surcharge and if we're able to get.
Get an exemption clearly we would we would stop the surcharge and in rebate it as appropriate.
But again this is something that I highlighted early on where we've got to make sure that the regulations and the rules are clear for people before they make the investments on these projects.
Hopefully that helps Kristen.
Appreciate it thank you guys very much.
The next question, we'll take some Colton bean from Tudor, Pickering, Holt and company.
Good afternoon, so just to follow up on when to Webster delicate recently noted there net project costs and the implied totals about 2.4 billion. So.
I think that seemed a little bit low relative to the prior S curve commentary just in terms of your expectations on 2020. So wanted to see if that 2.4 was consistent with your expectations or if there were some planes specific considerations, we should be aware of.
We're not going or.
Exactly what dogs quote where they could have some financing or other things net to their interest. So I think that may not necessarily tied directly to ours.
I think ours is closer to the 500 or $550 million range net to our interest for the the entire scope of the project and without financing.
Got it Thats helpful.
Then just looking at the range than in Western court or expansions can you provide a bit of context on the scope of that project and what the driver is a 2021 in service with those barrels be expected to flow on Liberty and Red Oak or should we expect some of those to be dropped off in billings or other refinery complexes.
That's a good question think of rains line as north of the border currently flows into Edmonton, but with the ability to flow the Edmonton or sundry barrels down to the border and have picked up by the western quarter our system at Guernsey It.
Connect to the Liberty project, and ultimately into Toronto 15 barrels to the.
Integrated solution with P 66 planes in the us.
In the in the system.
Got it and just a quick clarification. If you were to get the system online a little bit early with western quarter with Saddlehorn do an interim solution or is it still pretty firm that you need Liberty online.
The Saddlehorn open season, as Willie suggested recently closed and that will largely be a full pipeline.
So I think the intent is to bring a lot of that capacity on a similar timeframe. If there are earlier opportunities. We certainly look to take advantage of it.
There is some work that needs to be done on western corridor as well so it's.
No probably not a huge timeline difference between western corridor.
Well be capable of increased capacity and when liberty would be in service.
Got it I appreciate that.
Our next question will come from Gabe Moreen with Mizuho.
Hi, Good afternoon Al can you speak to.
How high you'd be willing to let leverage go in your metrics go sort of on a temporary basis.
If you've got a large number to finance in 2020 with the fact that you may have visibility to getting that leverage back down into the threes.
As these projects come online just curious kind of how much headroom you think you might have on the metrics.
We do intend to migrate yeah, when we look at it internally I know, it's hard from the outside but we we normalize what we think SNL will be on an ongoing basis.
And so we do expect with the addition of Red Oak, a slight uptick in in 2020 from where we're at.
And then migrating down.
We will not.
Do you bring it up to a point, where it would cause.
Concern, but we don't view that we have to be inside of the newly established leverage range. You know in 2020, we will migrate down overtime.
Okay curious, obviously with a normalized level of SNL is but at some point, maybe or maybe we'll get that number.
The second second question for me is around maybe that's right. Sorry go ahead, Okay, I guess right.
Keep trying.
Then maybe just in terms of cap line can you speak to.
I guess the pool.
Volumes on on that expansion, how much is contracted as that.
Refiner driven producer driven just kind of what what actually emerged from the open season, just curious if theres theres more color there.
Our internal returns as well as our partners to sanction the project will be looking for opportunities to add additional volume and commitments to the system based on timing of other connecting carriers and volumes that will be.
We'll be on top of that with the ability to continue to increase return.
Just one other.
One other point on that is that Theres, an additional benefit for a benefit for us with cap line idle you've got cost to maintain maintain that when you put it in service you certainly you save some money there as well so thats one of the things that helps the return.
Thanks will and just one quick follow up on Calpine is there any regulatory approvals needed for either the extension on timing or the reversal or you just kind of good to go there.
So permitted yes. This is Chris Chandler I'll talk on the extension the Diamond there is about a 40 mile segment that will be laying from Memphis to be able to tie into cap line and that will of course require.
Normal permits for that new piece of pipe.
Great. Thank you.
Next we'll take a question from Michael Blum with Wells Fargo.
Hi, Thank you.
Just wanted to clarify first.
Went to Webster. So is that now set at a million barrels in terms of the capacity and not 1.5.
You know what Michael you should think about it this way, it's a 36 inch line.
Which capacity is roughly 1.5.
Hopefully that helps.
Okay.
Second question just on the quarter terms of SNL.
I'm sure you're not having any exact numbers, but I mean can you give me kind of just like rough idea of the magnitude of how much of the the beat or the contribution came from two crude oil locational spreads versus.
The Canadian NGL business. Thanks.
The large majority of it was from the crude oil spreads both both in the Permian and in Canada.
It's much smaller degree from NGL.
Okay perfect. Thank you.
Okay.
Next we'll take a question from P. Stanley from Wolfe Research.
Oh, hi, good afternoon.
I'd be the updated transportation guidance or the 1.7 billion. It implies a pretty steep ramp in the second half of the year is that mainly cactus to starting up or is there anything else significant that drives EBITDA higher and the balance of the year.
And that's a significant contributor it's probably one of the primary contributors in the second half of the year, but the rest of it is just.
Line aside volume growth onto the system that we feel pretty comfortable with.
Okay. So just cactus too and then just typical growth that you guys usually see.
Correct adjusted.
Okay, and then just a follow up on the NGL business in and in essence Allen Canada.
How how would you say that business is positioned right now with with the low NGL pricing that we're seeing but steep contango in the forward curves over.
The next few months and into 2020.
Okay.
So Harry why don't you take that one.
It's hard to go into a lot of detail on our positioning obviously the contango market helps we have propane and butane storage capacity to take advantage of in this type of market.
We've done a.
A lot of work over the last year is streamlining our business and taking some of the volatility out of the business, making more consistent returns so.
Well I think we're well positioned we certainly.
Put ourselves in a position where we are.
Probably won't see this the spikes in.
Upside and in.
Say high demand environment in the winter, but we also have eliminated the risk of significant amount of downside if.
If you get into low demand.
Winner.
So.
I think we're pretty well positioned.
Thank you.
Okay.
Next we'll take a question from Jean Ann Salisbury from Bernstein.
Hi, there are some concerns that corpus export capacity won't be ready in time for the pipeline going there in the second half and that could stop those pipes from ramping as much as initially got is there any market until you can share or on your view on that.
Oh, I think we have line of sight and.
Our connecting carriers and our shippers demand, but not necessarily to everyone else is clearly you can follow.
Permitting processes from the schedule.
And then the other facilities coming online.
The P.A. Eagle Ford JV with with enterprise, that's starting up.
Next month, so thats additional capacity, that's coming online and then our connecting carriers have already.
Our our shippers on cactus two have already contracted the capacities necessary for their full demand so maybe timing of tanks and connections, but for the large part there's definitely a line of sight for cactus two to ramp up to full capacity.
Yes ill just this is for.
This is Chris Chandler I'll, just reiterate that the.
Carriers that were connecting to have indicated that they will be able to support the full capacity of the pipe.
By the end of September .
Great. Thank you.
And then sorry to go back to this but can you share any more detail on if the decrease in volumes in 2019 guidance was more on long haul or in gathering I guess, the the low change in EBITDA would suggest that it was mostly gathering.
Yes, I'd say, it's primarily gathering assets, whether it's timing producers' capital budgets, but but as you are aware the our numbers are gathering in the long haul so they propagate but what the timing of cactus to that's going to offset some of the.
The the long haul piece. So I think it's really primarily a gathering of you of gathering.
Great. Thanks, that's all from me.
Next we'll go to Dennis Coleman with Bank of America.
Yeah. Good afternoon, and thanks for taking my question a lot has been hit on on SNL and it sort of feels like the old days were a big beats come out of that sector. So congrats on that.
I do just want to ask.
Does seem like there was a tick up in the short term debt at the end of the quarter and I'm guessing that relates to the to the increase in activity. There is that right and should we expect to see that trend back down or how should we think about that.
This is al I'll take a shot at it.
Yes, partially we've been we've been.
In a situation, where we haven't had a need to borrow short term as much as what our inventory positions were.
And that's been for a number of quarters. This quarter, we actually had I think it's embedded in one of the footnotes on the slide we exited with.
In of cash on the balance sheet again, so technically if we would have been able to pay everything down it would have been a lot lower as well that increased when it's been as much.
But for a number of quarters following.
The Bridgetex sale, we havent been able to to full Karl just from the use of.
From a use of cash in this quarter, we had the cash on the balance sheet again.
Okay. Okay.
And just maybe I missed this but so.
So now this is just a one time shot continuing to think about the out years in that.
In the prior range that the that you've talked about.
Dennis This is Willie let me, let me see if I can give some color on this SNL. This year is playing its position exactly as we expected we've given guidance over the last number of periods of time that once the pipes get overbuilt the arbitrage opportunities.
We'll go away right. So clearly this year is something where the spreads have been the spreads have been wider we've been able to capture opportunities there.
And exactly what we've said we think will happen is happening in that as the long haul pipes start starting up late later part of this year. The arbitrage opportunities go away. The twist on that was Canada and I think some of that is getting solved today as well.
With both additional volumes, leaving Canada because of the slight reductions of.
Constraints as well as some of the rail facilities pulling barrels out so I wouldn't please don't take this SNL performance has something that's.
Different than what we've talked about we've always said.
Meaningfully less SNL in 2020 going forward.
Because of the pipes that have been built and the way we ought to view. Our SNL segment is it provides the ability to capture arps, when they're there and we'll use that to pay for capital investments or reduce debt, but we shouldn't count on the we shouldn't count on any large number as far as US now goes going going forward at this point in time anyway.
Great that's perfect just thanks for confirming that well.
You bet.
Our next question will come from Sunil Sibal from Seaport Global Securities.
Yes, hi, good afternoon guys.
Most of my questions have been hit but just wanted to go back to your projects on the Western Canada arrangement.
I'm just curious you know the additional flexibility that you are adding does that help you move to have your volumes too or is it more applied for volumes and then that helps offload some of the lighter volumes from some some of those pipelines.
So it will it's designed as a light pipeline because of the size of the western core offerings on system. So that it would be prohibitive to move any annual volume of heavy so it's going to be a light only pipeline system that will tie into Cushing and then eventually.
Distribute to multiple Gulf coast destination. So it offers a lot of flexibility to the to the shippers.
Okay got it.
And then calpine to vote. So I was wondering you know if you could talk a little bit no. The oh about that or downs on that should we expect that to be back to Dan.
Some of the other part of it sounds like you have arc arc line.
I think.
As it's sanctioned it's consistent with the brownfield projects, we typically do with the ability to even outperform that if were successful in subsequent open season.
Okay. So that's the baseline at least is the same as some of the projects correct.
With brown projects.
Yeah Okay.
Thanks, guys.
Thank you.
Okay.
Next we'll take a question from Becca Followill with Us capital advisors.
Good afternoon, I'm wanted to revisit the guidance for transportation for 2019, and your degree of confidence in it. It's it seems like there's almost daily land mines right now and the E N P space.
Is the is the guidance based on discussions you had prior to Q2 does it incorporate everything we've seen in Q2, and then does it risk it for other things that might happen across the year.
That's a good question, but I'd say that we're in active dialogue we have.
Expansive lease marketing pipeline commercial group, that's in constant contact with our customers.
We get.
For the vast majority of our shippers monthly updates I think we have a good sense for if you think about it the planning cycle for the upstream guys from when the rig shows up to when its production its roughly eight months as the cycle time now.
The line that Crystal ball gets fuzzy outside of 678 months, but within a six month window, usually have a fairly higher degree that theres going to be variability and things are going to.
Go higher in some areas and lower other more thats going to be driven by individual well performance not changes in activity 2020 will look different because of changes in activity, but the second half of this year will largely be driven by well performance of things that are already planned to come online. So I would put the 2020 as as a different degree of uncertainty as the second half of this switch which back and we're not giving guidance on 2020 right now.
Becca.
All the things you mentioned.
Go into our forecasting we start with sort of.
Log we have with producers, we incorporate our views and we adjusted for potential risk with respect to timing performance.
Et cetera. So.
Listen, it's not going to be exact it's our best estimate, but we try and factor in many of the things that you raise your question.
Great. Thank you guys. That's all I had.
Thanks Becca.
And that does conclude our question and answer session today ill turn the call back over to Ray Lamoreaux for closing remarks.
Hi, Thank you all for joining today and I look forward to updating you on our call in November .
Once again that does conclude our conference for today. Thank you for your participation.