Plains GP Holdings LP (PAGP) 2017 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the PAA and PAGP Third Quarter 2017 Results Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Roy Lamoreaux. Please go ahead, sir.

Thank you, Terry. Good afternoon, and welcome to Plains All American Pipeline's Third Quarter 2017 Earnings Conference Call. The slide presentation for today's call can be found within the Investor Relations and News & Events sections of our website at plainsallamerican.com.

During today's call, we'll provide forward-looking comments on PAA's outlook. Important factors that could cause actual results to differ materially are included in our latest filings with the SEC. Today's presentation will also include references to non-GAAP financial measures such as adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can be found within the Investor Relations and Financial Information and section of our website.

We do not intend to cover PAGP's results separately from PAA's as PAGP's results directly correspond to PAA's performance. Instead we've included schedules in the appendix of the slide presentation for today's call that contain PAGP-specific information. Please see PAGP's quarterly and annual filings with the SEC for PAGP's consolidated results.

Today's call will be chaired by Greg Armstrong, Chairman and CEO; Willie Chiang, Executive Vice President; and Al Swanson, Executive Vice President and Chief Financial Officer. Harry Pefanis, President, and several other members of our senior management team are present and available for the Q&A portion of today's call.

Acknowledging that there are other on the Street announcing earnings at this time and at the request of several shareholders and analysts, we plan to limit our call to approximately 1 hour this morning.

With that, I will now turn the call over to Greg.

Thanks, Roy. Good morning and welcome. In addition to our third quarter earnings press release, yesterday we also issued a press release with respect to PAA's management succession plan and transition process. This reflects several years of thoughtful preparation and planning. And before I turn the call over to Willie and Al to review the quarter's performance and our financial position, I wanted to recap the highlights of this plan.

Near the end of 2018, I will have served 37 years as an employee and officer at Plains, with 26 of those as CEO. My plan is to retire as CEO at that time. And the Board of Directors has approved a transition plan that provides for Willie to succeed me as Chief Executive Officer, and for me to continue as non-Executive Chairman of the Board of Directors through December of 2019. At that point, I intend to retire from the board. Harry will continue as President and a director.

As both cofounder of PAA and a meaningful equity holder, I'm pleased that Willie will become our next CEO and have every confidence that Willie, Harry and the rest of PAA's leadership team will continue to build upon PAA's success. As many of you know, Willie joined Plains in 2015 as Executive Vice President and Chief Operating Officer over our U.S. activities, and was appointed to the Board of Directors in February 2017. What you may not know is that several years before he joined PAA Harry and I had identified Willie as the top candidate to succeed me as CEO and deliberately set about recruiting him into the PAA organization. Those conversations were part of the board level discussions regarding long-term succession planning that started approximately 8 years ago.

You should also know that we use succession as a process versus an event at a point in time. With that in mind, over the last 2 years Willie, Harry and I have been working together through this process to ensure a seamless transition. This has provided Willie the opportunity to learn about and experience PAA's culture, business strategy as well as processes and practices that have contributed to our successful growth over the last 30-plus years. Through his leadership and fresh perspectives, Willie has brought significant value with additional perspectives to our operational, commercial and organizational activities.

As the next step in the transition process over the next few months, Willie's role as Chief Operating Officer will be expanded to cover both the U.S. and Canada, and Harry will take on the newly created role of Chief Commercial Officer. The transition process will continue over the next year or so, as the 3 of us work together to facilitate the seamless transition.

Let me now turn the call over to Willie.

Thanks, Greg. I'm deeply honored to be selected as the next CEO for PAA and look forward to continuing to the transition, working with you, Harry, our management team, Board of Directors and all of our employees to continue your 35-year legacy of a long-term profitable growth company.

And with that said, let me make a few comments on our response and impacts to PAA from Hurricanes Harvey and Irma. Approximately 4 million barrels a day of refining capacity was affected, and the refining industry responded well, bringing much of that capacity online quickly. As you all know, we have significant infrastructure feeding the Gulf Coast refining center from producers in the Permian. And I'm thankful to report that we did not have any significant damage to our assets, and only a minor financial impact that Al will touch on briefly during this remarks.

I also want to commend our PAA team. We are proud of their response to the disruptions and the way they worked with all of our customers to prevent any producers connected to our pipelines from being shut in. We're also very proud of the way our employees, like so many other in Houston from all over the country, jumped in to support our impacted employees and others in the community during the ongoing recovery.

Now let me move and address our business today. We've got a lot of exciting projects going on and I want to share with you our strategic positioning, the plan we've outlined to strengthen our balance sheet, demonstrate the operating capabilities of our systems and to capitalize on strategic opportunities. Now Al will discuss more specific details in his section, but we delivered results that were slightly ahead of guidance for the third quarter, when adjusted for some timing impacts. And we are on track with respect to the deleveraging plan we announced in late August.

We have a number of projects coming online, as we've been executing successfully on our capital program, summarized on Slide 3. Construction on the Diamond JV Pipeline was substantially completed in late October, and we're in the process of commissioning the pipeline. We expect to begin commercial operation in December and to meaningfully ramp up volumes in the first quarter of 2018.

We've also completed our new STACK JV Pipeline project with the Cashion to Cushing section placed into service on November 1 and the extension to the STACK to be in full service later this month. This asset and other capacity-enhancing modifications we've recently made allow us to provide increased market access to Cushing from multiple STACK producers.

As for our Permian long-haul systems, we're on track to complete modifications to expand Cactus I, and we will soon be in a position to fully utilize the expanded capacity on the BridgeTex JV. Additionally in July, we announced plans to expand our Permian to Cushing capacity by approximately 120,000 barrels a day by extending our Sunrise Pipeline system. This project is moving full speed ahead and is expected to be complete early 2019, backed by producer support and allows us to alleviate a constraint between Colorado City and Wichita Falls. It also gives us the ability to further increase our future capacity from the Permian to Cushing in a phased approach.

On the facilities side, over the past few months we've completed the last of our 2017 new tank additions, which added roughly 3 million barrels of additional tankage at our Cushing, St. James and Patoka terminals, including key storage to support commercial operations for the Diamond Pipeline.

In Canada the multi-phase Fort Saskatchewan Project is nearing completion. 2 caverns, back-stopped by long-term storage contracts are now in the commissioning phase and will be in full operation by the end of the year.

We're also making good progress in advancing our project to build a second Permian to Corpus Christi pipeline, as well as some additional intra-basin projects that will increase the efficiency of movements within the Permian Basin, reduce our operating expenses and facilitate future segregation of crude qualities as demand warrants.

Additionally, although the in-service timing of this potential project is farther on the horizon, we're seeing progress towards a potential reversal to the Capline Pipeline, which flows northbound from St. James, Louisiana to Patoka, Illinois. Marathon Petroleum Company, BP and PAA have recently launched a joint non-binding open season for movements from Patoka, Illinois to St. James, which could provide a key link for crude access to the U.S. Gulf Coast markets as well as global export opportunities.

Additionally as Al will discuss, our asset programs remain on track with respect to our West Coast terminal sale. We recently signed a definitive agreement with another purchaser that will generate roughly the same proceeds as the canceled transaction. We expect this transaction to close by year-end or shortly thereafter.

Now before I turn the call over to Al, let me address maintenance CapEx. The amounts reported for the third quarter and projected full year 2017 levels include approximately $50 million associated with an asset integrity repair and replacement project in our Southern California terminal network. We expect to substantially complete this non-recurring project by early-to-mid 2018. Excluding the cost of this projects and taking into account asset sales and asset additions, we would expect future normalized maintenance CapEx to run in the range of $190 million to $210 million a year with fluctuations dependent on work schedules and various other factors.

At this point, I'll turn the call over to Al.

Thanks, Willie. As noted on Slide 4, our results for the third quarter were slightly above guidance and comparable to 3Q 2016 results, despite a $6 million net adverse impact from Hurricane Harvey. Although third quarter performance exceeded guidance, we have maintained our full year 2017 adjusted EBITDA guidance at plus or minus $2.075 billion. A portion of our overperformance in the third quarter is associated with timing-related contributions from NGL inventory costing and operating expenses of approximately $30 million, a portion of which we expect to reverse in the fourth quarter of 2017 and first quarter of 2018.

Additionally, we now expect our fourth quarter Transportation segment results will be adversely impacted by approximately $25 million for 2 items that were not factored into our previous guidance. The first is a commercial contract settlement, and the second is a temporary volume restriction downstream on the BridgeTex Pipeline. The contract settlement in a one-time event and the volume restriction downstream of BridgeTex is expected to be resolved in the first quarter of 2018.

I would also note that our updated Transportation segment guidance for 4Q reflects a $21 million decrease sequentially from 3Q. This reflects the impact of several items, including the timing of operating expenses and the commercial contract settlement I just noted, as well as the benefit of collecting on MVC deficiencies in 3Q actual results that were forecasted for 4Q and assets sales early in 4Q which impact segment profit and will also reduce Transportation segment volumes by approximately 140,000 barrels per day on a quarter-over-quarter basis.

Excluding the impact of the timing and one-time issues but including the impact of asset sales, 4Q run rate for Transportation-related EBITDA reflects the continued growth we expect to see continue into 2018. We have not updated our 2018 preliminary adjusted EBITDA guidance of plus or minus $2.3 billion for our fee-based segments and a range of $100 million to $300 million for our Supply and Logistics segment. We plan to update and provide additional detail on our 2018 outlook when we hold our February 2018 conference call to discuss fourth quarter and full year 2017 results, which will incorporate the most current producer activity information and the impact of potential additional sales or joint ventures.

As Willie indicated and as summarized on Slide 5, we remain on track with the critical elements of our deleveraging plan. In October, we completed an $800 million offering of 6.125% Series B preferred equity. As a reminder, the Series B capital is perpetual, will never convert into common units, has a fixed rate of 6.125% for 5 years, then becomes floating at LIBOR plus 4.1% and PAA has a par call right beginning in year 5 as the rate becomes floating. The transaction size was $200 million more than assumed in our deleveraging plan.

Net proceeds totaled $788 million and were used to reduce debt. In October we declared the previously announced distribution reset, which will allow us to retain an incremental $1.1 billion of cash flow over 6 quarters. We remain on track to achieve our current $700 million asset sales target, having already completed sales totaling $385 million, virtually all of which closed after September 30, and the benefit of which won't be reflected on our balance sheet until year-end.

As I noted earlier, the completed asset sales are all Transportation segment assets. We expect to complete the balance of the sales by year-end or early 2018. Additionally, hedged inventory related borrowings at the end of the third quarter were approximately $200 million lower than the balance at June 30, and we expect to reduce these borrowings by an additional $100 million or more over the next quarter or 2, assuming current commodity prices.

By applying the vast majority of the cash provided by the preferred transaction, asset sales and the reduced distribution in inventory monetization towards our debt reduction; we expect to significantly reduce our total debt level during 4Q '17. Accordingly, we intend to redeem a total of $950 million of senior notes before year-end 2017 which are our 2 nearest maturities and among the most expensive of our senior note issuances and are comprised of $600 million of 6.5% senior notes maturing in May 2018 and $350 million of 8.75% senior notes maturing May 1, 2019.

In connection with these retirements, we expect to incur charges totaling approximately $43 million in the fourth quarter of 2017, but will result in lower interest expense throughout 2018 and early 2019. We are committed to achieving our deleveraging objective by early 2019. And as Willie mentioned in his remarks and as denoted on Slide 6, we remain on time and on budget with our capital program.

The capital program for the second half of 2017 and full year 2018 remains at $1.15 billion. But we now expect to be able to accelerate about $100 million of expenditures from early 2018 into the fourth quarter of 2017.

To the extent that the incremental projects Willie referenced earlier materialize as we hope they will, incremental capital expenditures above the $1.15 billion level will be largely funded by the additional proceeds raised through our recent preferred offering and incremental asset sales above the $700 million target level. Overall, these actions and execution of our deleveraging plan will significantly strengthen our financial position and bring PAA's credit metrics in line with our targeted credit profile by early 2019.

I would also note that our cash distribution coverage for the third quarter was approximately 135%, which includes the negative impact of Supply and Logistics segment. Based on our guidance for fourth quarter, coverage is projected to be approximately 190% and the second half coverage is 160%. Excluding the S&L segment positive contribution, fee-based coverage for the second half of 2017 is projected to be approximately 150%.

I will now shift over to a couple of accounting matters included in our 3Q results. Our depreciation and amortization expense for the quarter included non-cash impairment charges totaling $15 million associated with our asset sales program. Additionally, PAA's 3Q '17 GAAP earnings include a mark-to-market derivative loss of $214 million, which is included as a selected item impacting comparability. In any given quarter, we recognize gain or losses on financial derivatives that we use to hedge purchases and sales of physical commodities and our hedged inventories that are not reflected in the quarter's results.

With that, I'll turn the call back over to Greg.

Thanks, Al. Over the last 30 years PAA has built a powerful interconnected asset base and business platform. And we are excited about our positioning for the next several years, especially with respect to several new takeaway projects we're working on in the Permian Basin. I look forward to working with Willie, Harry, Al and the rest of the team as my role transitions from CEO to non-Executive Director and then retaining significant equity holdings in PAA. With that, I will turn the call over to Roy for a few quick comments for we open the call up for questions.

Thanks, Greg. I would note that we have included our typical earnings update materials in the appendix of today's presentation. Additionally, as we enter the Q&A session, we ask that you please limit yourself to one question and one follow-up question and then return to the queue if you have additional follow-ups. This will allow us the time necessary to address questions from as many participants as possible in the amount of time that we have allotted this morning. Terry, we're now ready to open the call for questions.

(Operator Instructions) And we'll go to the line of Jeremy Tonet with JP Morgan.

While you guys aren't provided thoughts on 2018 EBITDA guidance at this point, I was just wondering if you might be able to share anything as far as the ramp in producer activity is materializing versus your expectations. Anything that can share there?

Really it hasn't changed much, Jeremy, so far. I mean obviously we're probably doing like you're doing, paying attention to all the current calls and discussion that are going on out there and somewhat battle between returns on capital and growth. But as a practical matter, I'd say we're pretty much in line, especially in the Permian with respect to the volume growth that we expected. We still think we'll exit the Permian probably in the 2.7 million to 2.8 million barrels a day range. The well counts have been as high or higher in terms of wells drills that we thought. The performance per well has been as good, in fact and in many cases better. That's been a little bit offset by fewer completions. So geographically within the basin, there may be a disparity with what we thought would happen in one area versus another. But overall, the aggregate volumes are about the same. So our takeaway pipes are doing what we thought. Intra-basin there is some time lags and we track the ducts, not only in number but also in location by operator and where it is on our acreage. And candidly, we're very comfortable. I think we've got probably, we estimate about 20% to 25% of the total duct count resides on or very near our acreage. So it's not a performance issue. It is a timing issue. But again, that's on the intra-basin pipes. The takeaway pipes are pretty much on track. With respect to the other areas, I think Eagle Ford is running a little bit behind. And the Bakken as well, but that's not really where our operating leverage to financial performance is located. So it's not having a big impact on us.

That's helpful, thanks, and granted S&L is a small part of the business, but I was just wondering 5 weeks into the quarter here, we've seen some spreads widen out. We see the posted tariff on Midland [COE] quite strong there. I'm just wondering if you could provide us any thoughts as far as how that is progressing this quarter, just what you've seen to date so far.

Absolutely. Obviously we've given our guidance out there with what we expect to achieve between now and the end of the year. And so it's constructive relative to that. We're not really taking any different position on our -- what I'll call the intermediate term outlook for Supply and Logistics, just because it's something that's happened recently and somewhat storm-related. I mean there's certainly opportunities that we should have from time to time to perform better. But at the same time, Jeremy, as we sit here today, I've got to tell you. I mean the Midland-Cushing differential is actually positive instead of negative. And yet I think it's fair to say our basin pipeline is still pretty full. So the pipeline side of it's good. The S&L part of it where we would normally make incremental dollars if that number was negative, is adversely affected. So some of this balances out. I would say everything is consistent with what we have had discussions on our last 2 phone calls.

Also you need to consider, the fourth quarter is from our NGL business is very seasonal. So we're confident over the earnings that we'll have between the fourth quarter and first quarter. But weather can impact the variability between those 2 quarters.

Yes, definitely. If it gets real cold on December 25, it's going to show up in the fourth quarter. And if it gets real cold in early January, some can slide. But overall, I'd say we're still in the same exact ballpark on S&L that we've guided to previously.

That's all very helpful, thank you, and congratulations to Willie.

And next we'll go to the line of Vikram Bagri with Citi.

I wanted to start with S&L segment. Jeremy's question, quality and location differentials have widened meaningfully. But the guidance is flat. It sounded like the guidance is conservative. And if not, if I look at 2018 numbers, the way you have characterized the low end of your S&L guidance is $75 million of EBITDA from this year and $30 million in adjustments. So that would imply that either you expect differentials to stay wide next year, or you expect a rebound in lease gathering and NGL business next year if you want to hit that number again this year.

Vikram, I don't want to be rude. But again, we're going to try and spend 95% of our time on 95% of our business. Our guidance of the S&L is just as I explained to Jeremy. And that's about as much color and we're going to give on it. It's like candidly trying to predict future weather patterns just because it's raining right now or shining right now doesn't make a lot of sense for us.

Understood, and then on your fee-based segment guidance, fourth quarter guidance was $555 million in your recent presentations. If I add this $25 million impact that you highlighted and account for asset sales and asset sale cancelations, I still don't get to $555 million. So is there any way you can quantify the impact of timing differences in operating expenses and VC payments that you highlighted in your prepared remarks?

Yes. If you take, I think, the difference would be roughly $40 million, and so you're talking about we spiked out $25 million. But operating expenses is part of it. We didn't give a specific number. So you're right on top of it. You're talking about a less than $5 million to $7 million difference.

And next we'll go to the line of Brian Zarahn with Mizuho.

On asset sales, good to hear that Northern California transaction is moving ahead. Given the distribution reset and progress on your target, do you expect to pursue other opportunities, and would they be in similar geographies or perhaps different geographies?

When you say similar opportunities, I think Willie touched on -- I mean obviously we've got 2 kind of focuses right now within the Permian Basin. We're certainly building additional capacity to get us from Colorado City to Wichita Falls, which gives us the ability to access capacity that we currently have from Wichita Falls to Cushing. That construction is underwritten, if you will, by producer commitments. What it positions us to do is to be able to potentially extend another piece of pipe the rest of the way to Cushing to take advantage of the incremental capacity that we just are in the process of creating. So that's a focus area and would be a very positive rate of return, because of the leverage off our existing system. And then of course the Permian to Corpus, kind of what we call Cactus II, those would be the main focus areas. I mean quite candidly in the other areas of the U.S., there's excess capacity in just about every basin that you have there. We do have some things going on in Oklahoma in the STACK and some of the related areas there and it's profitable and it's good. But quite candidly, it's so close to market there's just not as much opportunity in terms of incremental returns as there are in the Permian.

Appreciate that in the Permian. I actually didn't ask the question clearly enough. I was asking more on the asset sales.

Oh, I'm sorry.

No, that's okay. I was going to ask about Cactus II and actually I'll follow-up with that one. But on the asset sales, given the progress towards $700 million, the distribution reset; do you anticipate you're mostly done or would you look to optimize your assets? And you've been selling in the mid con and California. Those are the geographies. You could see other opportunities or potentially other parts of your system?

Sure, Brian. This is Willie. I'll take that question. We're always looking to make sure that we've optimized our portfolio. But at this point, the one asset that we are looking at, we've received some inbound interest on, is our LA Basin terminals. So that's something that we're going to be having some more discussions on. It's a system in Los Angeles. It's got 8 million barrels of storage, and it's interconnected with all the refineries. So it's a very key piece of infrastructure. That's probably the only one at this point that we'll talk about.

We'll stay tuned on that process, and if I can just follow up on Cactus II; any update on your discussions with potential shippers? How do you view a potential JV partner with this project?

Yes, Brian. Willie again, here. Again, I wish I had favorable news to report immediately. But this is a process. We still have a lot of interest. We think we got the best project out there and I would just say, stay tuned.

Very good, Willie, congratulations and Greg. I know you've got some time. But when the time comes, I'm sure you'll miss everyone at Plains. I don't think you'll miss the research analysts as much.

And next we'll go to the line of Jean Ann Salisbury with Bernstein.

Can you talk a bit more about the downstream constraints that impacted BridgeTex? Are those belonging to a third party, and what should we be looking for to see if they clear over the next couple months?

Yes, Jean Ann, this is Willie again. I'll take that. This was really a -- it's a third-party system that is constraining barrels out of the terminus. So they've got a project to resolve that and it should be resolved in the first quarter.

Okay, can you share, I guess, which project it is?

It's Magellan's project coming out of their MEH facility.

Great, thank you, and then as a follow up, can you expand a bit more on the role of the new Chief Commercial Officer? Specifically, does it have responsibility for S&L earnings, which I think has historically sat with the assets?

Sure. We've always had a commercial function and it's just sort of dividing up the commercial and the operational oversight between Willie and myself. This is Harry. So yes it would, obviously, include the S&L segment.

Great. That's all from me, and congratulations, Willie.

And next we'll go to the line of Keith Stanley with Wolfe Research.

Can you give any updated thoughts just on M&A? Still some private assets out there on the Permian gathering side. Any interest in some of those assets?

I'd say a lot of interest. So far it's been really tough to (inaudible) the bar. There's still a lot of capital out there, still a lot of competition. It's probably more economic for us to build something than it is to buy something. We're very pleased with the Alpha because it fit right on top of our system and we were able to capture some synergies and there's others out there that lend themselves to that. But candidly, the clearing price has been so high. So rather than moan and groan about how a lot of capital is disrupting our business, we've chosen to sell into that same market in areas where it's not as core to us. So I wouldn't think that M&A from an asset acquisition makes sense. I still think there's potential for joint ventures and other ways to approach win-win solutions out there through consolidation or joint ventures.

Okay, great thanks, and just on the volume guidance for 2017, the Transportation segment volumes were taken down. I'm assuming part of that's the BridgeTex constraint. What else, just at a high level, is driving that? It implies Q4 volumes are a little soft.

The majority of it was the asset sales that I mentioned.

It was a timing issue. We had forecasted those actually to be I think to be completed January 1. And so we got it closed earlier.

So that impact would be sequential 3Q to 4Q, as well as versus prior guidance.

So it was assumed to be sold in our '18 preliminary guidance. It was not in our fourth quarter.

And next we'll go to the line of Harry Mateer with Barclays.

First question is just, Al, maybe you can walk us through how you plan to fund the retirement of the 2018-2019 notes this quarter. I know from the prospectus for your preferred you had a little over $800 million of CP outstanding. So my assumption is the preferred proceeds just went towards that CP balance. So is the notes redemption going to be funded with asset sales, or revolver, or a combination or some other source?

Yes, I mean the preferred plus assets sales, all those proceeds, and again we expect virtually the majority of the asset sales to be done either by year end or very soon into '18. So that's $1.5 billion. And we prefer to keep our hedged inventory, our merchant inventory funded with short-term sources, CP or bank borrowing. So in essence, by temporarily reducing that pending, calling these notes in, we're just basically going to refinance it that way. But we have a substantial amount of proceeds between the asset sales and the preferred plus, just a quarter with the reduced distribution.

Okay, so if I'm looking at total debt, it wouldn't be fair to just take $950 million off it for the '18's and '19's. There would be some offset there for CP to fund that?

Correct. But when you look at total debt between third quarter and fourth quarter, you're going to see a material reduction for the reasons I just mentioned.

Got it, okay, and then just in the third quarter, what drove the sequential increase in long-term debt?

Capital program. We have virtually no asset sales proceeds in it. But it was our capital program, which for the second half was geared a little bit more towards the third quarter, as well as just the distribution reset didn't kick in for the August payment. So those two combined is what temporarily ticked it up. And you'll see again, a very significant reduction in the fourth quarter.

And next we'll go to the line of Shneur Gershuni with UBS.

Congratulations to everyone on all the changes. Just to start off with a few questions here. Given some of the comments about the E&Ps living within cash flows, you kind of wonder if the high end of their expectations for the Permian probably comes in quite a bit. Do you see that some of these competing projects for takeaway capacity start to fall away as some of the lofty expectations for growth seem to come in? I was wondering if you can talk about how that potentially changes the dynamic for that market, or for those proposals?

Well, one of the things we've learned is never to underestimate the disruptive nature of excess capital, what we think are entry barriers and economic hurdles don't always apply. So it would be hard to get inside the mind of some of the other players. I think it's fair to say that of the 6 or 7 projects that were initially thrown out there on the board, so it speak, to build from the Permian to Corpus, everybody probably recognized not all of those were going to get done. And some of them were really players not necessarily really, I'd say, viable projects. So I think it's fair to say that not all of them are going to get done. We think there's certainly room for one very solid one. There may be room for 2 over time. We think our project probably because we do think that we'll end up with a partner. Because I think there's producers that have vehicles that they want to be a participant in that. But we think our cost is going to be lower. Our timing is going to be faster. And that should translate into better economics. So we feel good about ours. I really can't speak to somebody else's willingness to go ahead and plunge forward or not.

Great, and as a follow-up question, and I preface this by saying I'm not asking about S&L guidance. When we think about the changes that you put in place to protect against the downside for the NGL impact that you had last year. If those trends were to completely reverse in 2018-19 or whatever year, would you be able or be in a position to capture the upside? And I was also wondering if you could sort of talk about the fact that the Bakken is trading at a premium to Midland. Does that present any opportunities either to deploy capital or to capture that in the S&L business?

This is Harry. I think the measures that we've put in place -- and I think we even mentioned this on the last call -- would put us in a position where we would not be able to capture the type of upside that maybe would have been available under the historical ways that we've managed our NGL inventories. But we have a diversified system. So we would participate in some of the upside opportunities, just not to the same magnitude as maybe we would have historically participated. On the Bakken, I think the differentials are telling you there is too much capacity. So I'm not sure what the opportunity set would be to further invest.

Fair enough, really appreciate the color, and once again congratulations both to you, Greg, and to you Willie, as well.

And next we'll go to the line of Tristan Richardson with SunTrust.

Just curious on your outlook for spending in '18 in the Permian. Is any of that number include any assumption for the Cactus II opportunity?

Nothing meaningful, and when Al made the comment earlier to the extent that the projects we are chasing come to fruition, and a projects let's say was launched for Cactus II in late '17 going into '18, you're going to spread that spending over really '18 and '19. And given the extra proceeds we raised in the preferred as well as the asset sales that Willie's kind of referred to that we're still chasing incremental to the $700 million, we think we can handle all of that without having to one, access the equity market; and absolutely without jeopardizing our targeting deleveraging program. So we've built in flexibility into our plans and our promises to the public to allow us to go ahead and run the business and take advantage and capitalize on opportunities without trying to then go backwards in either deleveraging plan or our pledge not to raise incremental equity.

That's very helpful, thank you, and then just the last one. Greg, you may have mentioned this. But in terms of the So Cal and asset integrity project, when that concludes and just sort of was the bulk of it, did that occur in 3Q or should we some of that tail off into next year?

Tristan, this is Willie. We're spending on that in '17, and that will taper off through the first quarter of '18 and perhaps just a bit into the second quarter.

Yes, so if you -- and that was $50 million. And I think we've got $240 million guidance for '17. So if you back that off, you'd be at the $190 million. And then as a practical matter, we sold some assets that contributed to that. So when you kind of back that out as a one-time event, that gets you back to that $190 million to $210 million range based upon not only what we sold but what we're also putting into service that will need to be serviced going forward.

And next we'll go to the line of Tom Abrams with Morgan Stanley.

I had a question about Canada, and I see your overall spending down, but Canadian spending too in just one small project. There's a lot of activity up there. You're in some good positions. Just not sure why you're not making that much more of a growth-y type area for yourselves, (inaudible) more capital. I just wondered if you're just playing light in capacity or you're maybe attached to producers who aren't growing or competing for projects in consortiums that aren't winning those projects. Or just what's going on up there that's not making that a much bigger growth area for you?

Well, there are several projects we're evaluating in Canada. They're just not advanced enough to include in a forecast. A lot of the infrastructure though is also geared towards when you look at some of the opportunities in Canada, a lot of it's a little more gassier too. And our investments are mainly on the liquid side.

It is something that you might expect then in '18 or '19 so much more-- much larger spending potentially?

I mean obviously we hope that we'll have some investment opportunities in Canada that some of the opportunities we're chasing will develop into capital projects. I'll also note we have a fair amount of capacity at some of our assets as well and there's a little bit of overcapacity in the fractionation facilities at Fort Sask right now.

Yes, I was going to say, it's way too early to try and project any kind of order of magnitude. The bigger projects can be somewhat episodic. I mean they either happen or they don't. And so it's really hard to forecast that. There's certainly, I'll just say beyond '18, I would tell you that there's certainly a potential for a lot of the excess capacity to start filling up. And therefore you start triggering it. But it's probably not going to result in any significant spend in 2018 calendar year.

And next we'll go to the line of Patrick Wang with Baird.

Could you elaborate on the $100 million CapEx pull forward? Specifically, which projects did that relate to?

Yes, I'll take that one. The $100 million is really there's no specific large projects. I would bucket them into three areas. One is getting ahead a bit of the producer completions. We've got some connections there that we're doing. We've got some pull forward on projects that improve our efficiency within the Permian around some of our key delivery points. And then the third one is--

We were just able to (inaudible) spending from '18 to '17.

Yes, I was trying to come up with the right way to say it. We typically have lag spending versus our estimates. But this year we've actually been right on. So we've actually spent a bit more than we thought we would.

Got you, okay, that's helpful, and then really quick, on the asset sales. I know we touched on it lightly in the past. But can you give a general range of multiples you're seeing or are expecting on the broad program, acknowledging that the numbers can vary very widely (inaudible)?

I think at this point we're still in discussions with folks on specific assets and prefer not to disclose it. But I'd say they're attractive valuations relative to how we view them internally. So we're being very opportunistic. And as we get further into this, all along we've looked for opportunistic buyers, folks that view it as worth more to them than us and willing to share a portion of that. And we've continued to see that.

It's hard to group assets in South Louisiana, assets last mile for refiners, terminals all into one bucket. So I don't think that would be fair to the buyers or to us in general. But I would tell that we're selling them and they're well above our hold prices.

Next well go to the line of Matt Schmid with Stephens.

Broadly maybe could you just provide an update on what you're seeing in terms of crude gravity and quality in the Permian with the growing Delaware production, and just opportunities that creates for you? Obviously you have Cactus II and as well just opportunities both on your existing systems and how you're thinking about future projects.

Michael, this is Willie. This whole quality issue, we've got quite a strategy on that. I think we've talked about it quite a bit on building our systems in the Delaware Basin to be able to segregate. And our belief is that the barrels are going to be getting a lot lighter. If you look at the amount of 45-plus gravity, it's about 300,000 barrels a day now, growing to a million-plus. So a lot of those volumes are coming and that's really the crux of the benefit of a Cactus Pipeline being able to take that directly to the water. Because I think we are going to see a lot of pushback from refiners. We are already starting to see it as far as the lightening of the general stream going up to Cushing. The refiners don't want it any lighter. So it's an integral part of the strategy and a piece of everything we've been building.

Yes, I would Matt, we've also just recently seen some refiners that have been willing to pay incremental values, if you will, for a particular quality of crude that comes out before it gets comingled in with some other volumes. And so two things, one reinforce what Willie said, directionally, yes. We see the whole stream in the Permian lightening up, especially in the Delaware. The Midland Basin seems to be holding pretty constant. But if it gets mixed together, obviously that takes the whole stream up. And so that's one is it's exactly where we thought it would be and trending that direction. And then the second is, is that we are starting to see -- I won't say pushback as much as some willingness to pay more for a particular quality of crude. Ultimately, if you roll the clock forward 3 or 4 years, that should reinforce the comments we made previously that quality is going to matter and that we'll probably get paid either by being able to segregate it from the well head all the way to the load port or to the refinery. We should be able to provide a service that has a distinctive value and there's really only one other party out there that can do that. So we feel pretty good about the investments we've made and continue to make to be able to harvest from that down the road. It's not a near-term rate of return benefit. But it's a long-term fundamental system valuation.

Matt, sorry to miss-cue on your name. And I think the other comment I would make is I think we're right now at the point where this is really going to become an issue going forward. I think up until now there's been a lot of discussions about these systems have been able to absorb the lighter barrels. And going forward, this really has to be a key issue.

And next we'll go to the line of Vikram Bagri with Citi.

Just a quick follow-up on rail assets, can you remind us what the status of MDCs is and when do they expire?

Rail?

Yes.

I think most of them have pretty much expired.

So we have a couple minor ones.

2, and I think one expires. We'll have to get back to with on the dates.

But it's in our outlook that we've given, we've kind of factored all that in.

We don't see any more questions in the queue, Terry. Appreciate your time, and I think you can close it up, Terry.

Thanks, everybody, for attending today.

Ladies and gentlemen, that does conclude your conference for today. Thank you for using AT&T Executive Teleconference Service. You may now disconnect.