Good day and thank you for standing by. Welcome to the PAA and PAGP First Quarter 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your speaker today, Roy Lumber. Please go ahead.
Thank you, Joseph. Good afternoon and
welcome to Plains All American's Q1 2021 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at plainsallamerican.com, where audio replay will also be available following today's call. Later this evening, we plan to post our earnings package to the Investor Kits section of our IR website, which will include today's transcript and other reference materials. Important disclosures regarding forward looking statements and non GAAP financial measures are provided on Slide 2 of today's presentation. A consolidated balance sheet for PAGP and other reference materials are located in the appendix.
Today's call will be hosted by Willie Chang, Chairman and CEO and Al Swanson, Executive Vice President and CFO. Additionally, other members of our executive team are available for the Q and A portion of today's call, including Harry Pefanis, our President Chris Chandler, Executive Vice President and Chief Operating Officer and Jeremy Goble, Executive Vice President and Chief Commercial Officer as well as Chris Herbold, Senior Vice President and Chief Accounting Officer. With that, I will now turn the call over to Willie.
Thanks, Roy, and thanks to each of you for joining us this evening. We plan to keep our prepared comments brief. We continue to make solid progress on our plans, reporting first quarter results that exceeded our implied expectations by roughly $50,000,000 generating strong free cash flow, maintaining full year 2021 adjusted EBITDA guidance at plus or minus $2,150,000,000 and advancing a number of key objectives. I'll note that our full year guidance incorporates an estimated $25,000,000 net benefit from Winter Storm Yuri. Al will provide more detail on our results and outlook in his section of the call.
I'll plan to focus my comments today on our longer term positioning.
We are
increasingly constructive in our outlook for global energy demand recovery. COVID vaccinations are progressing, key world economies are reopening and global inventory levels have drawn down meaningfully. On the supply side, the combination of OPEC's discipline, recent increases in Permian activity levels and our ongoing dialogue with producers reinforces our confidence in the Permian to resume growth in the back half of twenty twenty one and importantly building momentum into 2022 and beyond as global supply and demand balance improves. We expect the Permian to exit 2021 at 4,400,000 to 4,500,000 barrels a day, which is an increase of 200,000 to 300,000 barrels a day from year end 2020 to year end 2021. Notwithstanding our constructive bias, we chose to maintain our 2021 adjusted EBITDA guidance of $2,150,000,000 at this time due to the combination of the timing matters that Al will cover and the fact that our constructive view of the fundamentals is weighted towards the end of the year.
For PAA, we believe 2021 and now expect to generate plus or minus $400,000,000 after distributions and excluding asset sales. We remain confident in our ability to achieve our 2021 asset sales target of $750,000,000 having continued to progress formal sales processes with strong levels of interest and engagement. Including targeted asset sales, our projected free cash flow after distribution to grow to $1,150,000,000 Beyond 2021, maximizing free cash flow will continue to be our focus. We expect to generate sizable levels of free cash flow after distributions over a multiyear period and any further asset sale proceeds would be additive. We plan to continue allocating free cash flow after distributions in a balanced manner with a near term focus on debt reduction and a larger percentage shifting over time to equity holders through a combination of share repurchases and or distribution increases.
We believe this balanced approach of strengthening our balance sheet, while also increasing cash return to our equity holders offer meaningful value for our current and prospective investors. Our long term cash flow visibility is bolstered by the substantial completion of our multi year system build out resulting in a significantly lower CapEx profile going forward, which is illustrated on Slide 5. We continue to exercise discipline, limiting our investment capital to must do no regrets opportunities. And relative to our prior estimates, we have further reduced our 2021 investment and maintenance capital expectations by $65,000,000 or roughly 10%. A high level overview and status update for our 2 key remaining projects linked to Webster and the Diamond expansion Capline reversal are located within the appendix today's presentation.
With that, I'll turn the call over to Al.
Thanks, Willie. As shown on Slide 6, our first quarter fee based adjusted EBITDA of $559,000,000 exceeded expectations and was in line with Q4 2020. 1st quarter results benefited from lower power costs, including gains on power hedges and stronger results in our natural gas storage business as well as some lower operating expenses that are timing related and we expect to incur later in the year. These benefits more than offset the revenue impact of the storm related downtime across our Texas and Mid Con pipeline systems as well as lower realized revenue at certain non hub crude terminals and Canadian NGL facilities. Before I get into the performance relative to our guidance and to level set everyone, our first quarter supply and logistics was expected to be weaker than normal because NGL margins for the quarter were locked in during the second half of twenty twenty and did not reflect the rising prices during the Q1.
Looking forward, our NGL margins for the balance of the year are a little lower than the current market, but are in line with historical margins. Focusing on the Q1, adjusted EBITDA of a negative $13,000,000 was below our guidance for the quarter. The primary drivers for the underperformance were a combination of the negative impact of winter storm Yuri and less favorable crude oil differentials in both the U. S. And Canada.
The impacts of winter storm Yuri extends into the Q2 as inventory builds in the Gulf Coast compressed crude differentials in the U. S. Additionally, despite proration levels in Canada being in line with our expectations, we continue to see differentials that are less favorable than we originally Free cash flow fluct Free cash flow fluctuates based on changes in and the timing of short term working capital requirements. While the Q1 benefited from these items, even after adjusting for them, we were able to increase our forecast for the year by $100,000,000 Our capitalization and liquidity metrics are provided on Slide 7. As of March 31, our long term debt to adjusted EBITDA ratio was 4.0 times, which is above our target range of 3 to 3.5 times and reinforces our focus on further debt reduction.
Additionally, we've exited the quarter with $2,800,000,000 of committed liquidity. As outlined on Slide 8, we increased our fee based 2021 adjusted EBITDA guidance by a net $25,000,000 and decreased our S and L segment guidance by a similar amount resulting in our overall 2021 adjusted EBITDA guidance remaining unchanged at plus or minus $2,150,000,000 The slide summarizes some of the drivers of the changes for each segment. I would note that the change in inter segment NGL fees was approximately $40,000,000 for the full year which reduces our facility segment adjusted EBITDA with a corresponding increase to S and L. Before returning the call to Willie, Slide 9 summarizes the equity repurchase program that we initiated in November. Although we did not make equity repurchases in the Q1, our capital allocation plans remain consistent with allocating up to 25% of our 2021 free cash flow after distributions to equity repurchases.
The ultimate total allocation, pace and timing will continue to be balanced as described on Slide 9. With that, I will turn the call back over to Willie.
Thank you, Al. We've turned a meaningful corner with respect to free cash flow generation and we expect to enhance unitholder value by generating significant levels of free cash flow over a multi year period and we will continue to allocate free cash flow to the benefit of our unitholders. We are increasingly constructive on the long term outlook of North American Energy, including our business as global demand continues to recover. Meanwhile, our focus continues to be maximizing our free cash flow through optimizing and rationalizing our systems, working with customers, partners and peers to align interests and streamline and rationalize excess capacity, lowering our cost of operations, advancing our sustainability program and above all delivering safe, reliable and responsible operations. A recap of our 2021 goals are outlined on Slide 10 followed by a summary and key takeaways from today's call provided on Slide 11.
We appreciate your investment in and support of Plains and we look forward to providing you with additional updates on our continued progress. With that, I'll turn the call over to Roy to lead us in the Q and A.
Thanks, Willie. As we enter the Q
and A session, please limit yourself to one question and one follow-up question and return to the queue if you have additional follow ups. This will allow us to address the top questions for as many participants as practical in our available time this afternoon. Additionally, our Investor Relations team plans to be available throughout the week to address additional questions. Joseph, we're now ready to open the call for questions.
Thank you, presenters. And we have our first question from Shneur Gershuni. Your line is open.
Hi, good afternoon, everyone. Maybe to start off, I was wondering if you can sort of reconcile the guidance for me a little bit here. Overall, you had a strong quarter, certainly better than you had guided from a fee based perspective. Your commentary on the call today, definitely more constructive than it was last time. You talked about building momentum.
It sounds like your production forecast for the Permian back half weighted, but it's certainly better. And so kind of on the math, you kind of view expectations by $60,000,000 since your fee based guidance is only up about $25,000,000 Is that an election of conservatism? I think you had mentioned the word election before. Or is there a degradation in the base business? Is something happening in the back half of the year?
I was wondering if you can just sort of expand on that for us, if you can.
Thanks, Shneur. I'll start off and then I'll let Jeremy and Harry kind of fill in the blanks. When you think if your question is around the full year or just Q1, was it focused on just Q1?
It's around the full year. I mean, at the end of the day, you beat expectations, but you maintain guide, which it seems to imply even on the fee based basis, seems to imply that you're expecting a worse back half of the year. Yes. But you talked about momentum and positive commentary. So I was just trying to figure out if you can square that if that's conservatism or if that's or if there's something that we need to be thinking about?
Yes, Shneur, let me start and then others who can jump in here. I made a comment in my prepared comments, if you think about the benefits of the that we got based on the storm, it's really $25,000,000 across the whole year. It's $25,000,000 for the year. And that's related to some of the shifting in the impacts of the storm shifting into S and L. And I think that'll be a good starting point maybe for Jeremy to comment a bit more.
Good afternoon, Shneur. So it's a bit of an acceleration. We saw some benefit in the Q1. That $50,000,000 that you mentioned is driven by the transportation segment seeing additional or lower operating costs somewhat offset by lower volumes and our facilities segment benefiting from some opportunistic around our NGL facilities. Part of that involved some operating expenses close to $5,000,000 to $10,000,000 that was deferred to later in the year just because of timing and interruptions in Q1.
So that is part of the net $50,000,000 going down to $25,000,000 The other component is driven by S and L. There were some impacts of Yuri that were pushed into the Q2 and even further based on market spreads and timing. So you'd see some of that erosion is just all lumpiness associated with Yuri. So if you say the net impact is 25 versus 50, the other part is just wait and on the rest of the opportunity. We see completions, we see efficiencies, but we really haven't seen the rigs accelerate faster.
And so we're looking to see for production growth back in weighted. And we're also seeing, Al mentioned this as well, is we're not seeing Canadian differentials widen to historical levels based on the level of proration. Part of that's built into our plan and we're looking to see. But as far as core Permian assets and other assets, they're performing in line with expectations. There's no degradation to that core business.
Okay. That makes sense. Really do appreciate the wait and see aspect of it. Maybe as a follow-up question, I was wondering if we can talk about the asset sale process. If you can remind us in terms of the timing and EBITDA that you've baked into the guidance for this year and does this process black you out from doing any share repurchases?
Hi, this is Jeremy Goble again. As Alan and Willie both stated, we are very confident in our ability to execute the processes all began in the Q1 of this year. We don't want to speculate on timing or impact of the transactions just for sake of confidentiality. But I feel very strongly in our ability to execute with regard to our targets.
Richard, why don't you comment on the blackout period?
So I don't think the asset sales, the timing of that will have any impact on repurchases. We've predicted or included that as part of our guidance. And so no impact on the ability to affect repurchases.
Perfect. Thank you very much. Really appreciate the color and the clarification today.
Thanks, Shneur.
We have our next question from Christine Cho from Barclays. Your line is open.
Thank you. Jeremy, you usually provide sort of like expectations for what exit rate for the year is on Permian volumes. So curious if we could kind of get that and maybe sort of what that means for 2022 for you guys? And in that context, how should we think about earnings growth tied to the volumes with the headwind that we're going to be 1 year closer to some contract expirations? Just at what point do you guys think about blends and extends to keep volumes on your system for longer?
Jeremy?
Christine, good questions. So we'll start and if I get them right, I heard there's an exit rate. What does that mean for momentum in the 2022? And then what does that mean for our ability to contract longer term on our pipes? So with the first question, I would say that we're seeing a positive bias on drilling and rig completion efficiency manifesting themselves in shorter cycle times and higher EURs and that's driven by spacing.
We're seeing February was a bit of a speed bump. I mean Texas production, New Mexico production were down just because of timing, but March April came back stronger. What we're seeing is an acceleration of some completions into this commodity environment, but the rigs aren't there. They're pacing our original projection. So we're seeing some acceleration of production, but nothing that materially changed our outlook.
So if we entered the year at 4,200,000 barrels a day, our view is 4,400,000 to 4,500,000 barrels a day exit. Rigs really need to step in and for acceleration, but this goes to your 2022 expectations. We're increasingly optimistic about North American production, but it ultimately comes down to supply and demand. We're not going to see that material rig ramp until you see OpEx production come out from behind pipe and you see demand fill that. So I think there's a wait and see approach there.
That's why we're cautiously optimistic, but we need to see demand respond and we need to see the OPEC barrels hit the market before you'll really see an expectation. So it's really too early to call 2022 because you need to see that backfill of additional rigs to enter material production growth. I know I didn't directly answer your question, but that's how we're thinking about it this time. With regard to blended extends, we're constantly in dialogue with our customers. Right now with 50 to 66 Midland MEH differentials, that doesn't bode well for re contracting at levels that we'd accept.
So what we're doing is we're staying close to our customers. We continue to add dedications of the lease and we're now well over 2,500,000 acres with term that continues to extend. Our customers are very happy with us. And when those customers come back to re contract, part of the big problem with the long haul pipes right now is people securing supply. We first purchased over 900,000 barrels a day and are in a very strong position when it comes to either filling the pipes ourselves or re contracting.
So volume is not going to be a concern in filling our pipes. We want to do it at the right time. So I think we have levers that most don't. So we'll be patient, but we're in constant dialogue there and we'll constantly look for opportunities to rationalize across the space to where while you say we don't have time, 2025 is a long time from now before we have any material reductions on our commitments. So we do have time to let some of this evolve.
We think that the industry understands the overcapacity and they're constantly looking for options to rationalize and we'll be right in the center of those discussions.
And Christine,
I'm sorry, go ahead.
No, go ahead, please.
I was just going to add, this is Willie. The key point on this is the momentum that builds with our expectations in the end of 2021. It happens at the end of 2021, but clearly, if you don't build the momentum, there's a longer lag time before you see the benefits. And that's what we're optimistic about and we see the recovery kind of driving a quicker growth trajectory into this year if everything continues the way we expect it to.
Okay. And then just because you did sort of end the comments on pipeline or rationalization, As we think about that, it would seem that a conversion to gas would maybe make the most sense since we have sufficient takeaway on the NGL side. From what I understand, it doesn't sound like it's that simple to convert a liquids pipe to gas. It sounds like it requires meaningful CapEx to change out pump stations. And I've also heard that the diameter needs to be at least 30 inches Is that right?
Or are there other things that these pipes could transport that would require less spending? Just trying to get a sense of what the options are here.
Well, Jeremy and Chris have been working this. Jeremy, why don't you start off?
Christine, thanks again. On the rationalization piece, gas is a natural home for takeaway as you look for more gas getting the markets. It's a question of valuation and capital in scope. So those get reviewed from time to time and then it's a question of how do you deal with existing contracts and existing options across the options across the system and so are our peers. And so I'd say just be patient.
We don't have details for you now. Some of the comments you make around gas are true just because of the compressible nature of the gas and fuel consumption increasing with smaller diameter pipes that does make sense. So all of that gets looked at, but I just need you to be patient as we as the industry works through the best options, but we're all working on it.
Chris, do
you have anything you want to add?
Yes. This is Chris Chandler. I guess I would just confirm kind of the points you made in your initial question. Natural gas pipes are typically larger, and they, of course, require compression instead of pumps like you have on liquids pipes. So it can be done and it's certainly specific to the asset in question, but it's been done a number of times, sometimes liquid to gas and back to liquid in the history of our industry.
So there's certainly opportunities to do it out there. But in general, you have to pumps with compressors and you do take an efficiency or capacity impact by having a relatively smaller pipe than you might install if you were building it from scratch.
Hey, Christine, this is Willie. One of the other benefits I think that's important is it seems as if it's getting harder and harder to build assets now. One of the things that we've got is a lot of operating leverage in our system, which gives us the capability to be able to evaluate some of these things perhaps more than others. And the challenge really is, if you think about capital efficiency across the industry, while it may not be perfect and if you were designing it from scratch, you'd go with a new line of a certain size. In many cases, if you factor all these other things in, it does make a lot of sense.
And that's what the industry is really needs to start working through.
So really helpful. And maybe if I could just tack on a follow on, Are all your major long haul pipes out of the Permian over 30 inches or more?
This is Chris Chandler. They vary in size from 20 up to 36 inches
Great. Thank you.
To the Permian.
Thanks, Christine.
We have our next question from Jeremy Tonet from JPMorgan. Your line is open.
Hi, good afternoon. Hi, Jeremy. Hi. Just wanted to kind of dive in a little bit more on your producer conversations and what's given you, I guess, the sense of confidence, I guess, into 2022. It seems like the privates are a bit more active than the publics.
And just wondering what that means for planes, if you agree with that and you kind of see different activity trends there and what that means for you guys?
Jeremy, thanks again for the question. It is consistent. So the public company operators are largely holding the line and maximizing free cash flow and waiting for supply and demand to balance. Their investors are demanding it, free cash flow going back to equity holders and paying down leverage. The large private producers with little to no leverage, they just see the returns and they're investing in that.
They're investing heavily in it. So there's I wouldn't generally say it's private versus public. I'd say a very select group of very large privates that are very well capitalized. That's the group that's hitting the accelerator. And so they'll have some impact, but that's not all that's driving this.
I think $65 oil with slight backwardation versus steep backwardation allows producers to hedge. I'd say that's more free cash flow for them to allocate. So I think market structure aggregate flat price, but there's cautious optimism on that side and there's a few select operators that are stepping out in front of it. The generalization is made with all the privates versus all the publics. I'd say that there's a gray area and there's a select few that are really hitting the accelerator.
Got it. That's helpful. Thank you for that. And just want to pivot towards energy transition, obviously, very topical and getting more topical. I'm wondering if you had any thoughts on that subject these days.
And specifically, thinking about carbon capture and wondering if you see the 45Q credits as they're written right now, it was kind of sufficient to move forward projects. If you have existing assets that could be kind of redeployed in that direction, just any thoughts in general would be helpful.
Jeremy, this is Willie. On CO2 sequestration, I would tell you in transport, we have not been as active as far as looking at that. Others can make a comment on it. The point I would make on energy transition is, as you know, our company doesn't produce a resource and we don't manufacture a product. We have commercial agreements to move products from point A to B and find solutions.
And so, while we may have not been advancing some of the discussion in some of the advancing discussions on specific sequestration projects, We do stay very in tune with our upstream and downstream peers and as well as our peers. We see a lot of activity and really it's our role to figure out how can we generate solutions to moving things around. At this point in time, again, back on CO2, we haven't there's nothing that we have really moved forward on, but we say there's really no news I can share with you other than we stay tuned on different things we can do on energy transition.
Got it. I'll leave it there. Thank you.
Thank you.
We have our next question from Tristan Richardson from Truist Securities. Your line is open.
Hi, good afternoon guys.
Hi. Clarification
question with respect to the upper bound of potential repurchases. Should we think of that as inclusive of asset sales to the extent they materialize throughout the year? Is that purely just of the free cash flow after distributions guidance?
Al, why don't you take that?
Yes. I would think of the up to 25% being the have to take into account and consider the EBITDA that we're selling as well. And so if as you're selling an asset, part of those proceeds need to go to reduce debt just to keep leverage flat. So you got to think of it after that. Again, we provided the up to 25% to give a mathematical maximum, but practically with asset sales, it would be less than that.
And then I would also
point you to the other points on our Slide 9, just there's other considerations that we'll factor it in. We view this as a tool that will be part of our
That's helpful.
And then, appreciate the earlier comments on the cadence of the year. Curious, is there any delta around the timing of asset sales that's factored in? Just to follow-up on a previous question, sort of has the timing changed within the year in terms of general assumptions for asset sales that is contributing to sort of that 4th quarter weighted outlook?
Tristan, it's Jeremy. I'd say, 1, we don't want to speak to timing of the asset sales as we talked about earlier. But we have assumptions in there. They haven't materially changed since the beginning of the year. If something does change, we'll update once we make the announcement of the divestiture.
Appreciate it. Thank you guys very much.
Thanks Tristan.
We have our next question from Keith Stanley from Wolfe Research. Your line is open.
Thanks. Good evening. Just two quick follow ups. First, sorry if I missed this. Did you comment on the amount of asset sales completed now year to date?
Keith, this is Jeremy Goble. We've completed $20,000,000,000 of asset sales to date. And so that's consistent with what we had. I guess we did that in January of this year. So that's the total amount completed to date.
The rest is in progress.
Okay, great. And then the other one, I just want to understand. So the lower NGL intersegment fees item, I assume that's just you're lowering rates on some of the facilities assets that the S and L business uses. And I just want to clarify, I think you said facilities EBITDA is hurt $40,000,000 by this and it helps us and L by $40,000,000 for the year?
Keith, that's correct. This is Jeremy. Effectively, thinking about it is we just charge our marketing affiliate market rates and we look at that. We make assumptions for beginning of the year, impact by market structure and competitive rates around the area. And so we made that adjustment.
And so it's a net neutral. It's just an allocation from facilities to FFO.
Great. Thank you.
We have our next question from Gabe Moren from Mizuho. Your line
is open. Most of my questions have been But maybe I was just going to talk about how, I guess, low you think you can sort of whittle down your ongoing maintenance CapEx and just CapEx outside of where you're kind of finding those savings so far and how you might be able to take those numbers on an annual basis?
Sure, Gabe. I'll let Chris Chandler address that.
Hi, Gabe. It's Chris Chandler. I'll start with maintenance capital. We've said previously that we think a long term run rate for maintenance capital is less than or equal to $200,000,000 We still believe that to be the case. We did update our guidance for 2021 to $180,000,000 a $15,000,000 reduction.
There's a number of factors driving that, including asset sales that have been completed and ones that are forecasted later in the year. We're also completing a number of multi year improvement programs related to integrity and reliability that we won't have to spend on going forward. Regulatory requirements continue to evolve a lack a lack of investment or a lack of commitment to maintenance or integrity. But when best practices are found internally or within the industry, we certainly look to apply those. As to your question on investment capital, we've lowered our guidance there by $50,000,000 from $425,000,000 to 375,000,000 dollars Likewise, there's a number of factors involved.
We're always looking to optimize our maintenance capital spend. So some of that's cost improvements, scope reductions, timing optimization. We'll talk with our customers. And if we can delay a part of the scope of a particular project without a financial impact or with support of the customer, we will do that. We've also pushed back the start of construction for the Pyhalia project.
That's the piece of the Diamond expansion at the very end, the 40 miles that goes from the Memphis refinery to the Capline facility outside Byhalia, Mississippi. We've done that to take some time to evaluate some alternatives in response to our stakeholder engagement activities that we've been doing for almost 2 years now. We're still planning on a startup by year end, but if the alternatives cause that to change, we'll certainly provide an update when appropriate.
Hey, Gabe, this is Willie. One thing I want you to take away from what Chris talked about is back to the maximizing free cash flow goal that we all do. I mean, it's part of our dialogue every day as we think about investment CapEx, maintenance CapEx, operating costs on how do we maximize free cash flow, right? And so it is a much broader discussion and it's really taking hold in the business and that's why we think we will continue to have success in that area.
Thanks, Chris. Thanks, Willie. And maybe I could just ask a quick follow-up on, I guess, the ViaLIA extension. If your timeline slips there for whatever reason because you have to look at alternatives, do the Capline contracts still kick in as expected? Or are those tied together somehow?
So this is Chris. I'll answer that. On the Capline reversal, the main line that originates in Patoka and ends at St. James, that project is moving ahead as scheduled. It's an independent project, and it's independent of anything on the Diamond expansion and the Diamond extension.
So things are unchanged there and that's still on schedule for a start up by year end.
Thanks, Chris.
We have our next question from Michael Lapides from Goldman Sachs.
Real quick, just on a follow-up on Diamond Capline. Can you remind us when do you expect Capline to be fully in service kind of so both legs? And do you expect it to be full run rate EBITDA in that 1st year or will it take a couple of years to kind of ramp in of that?
Jeremy? Thanks for the question. As Chris mentioned, there's a we're evaluating some alternatives associated with the Diamond piece. But to reiterate what Chris stated is, you'd be at full run rate on committed capacity for Capline from north to south. There is some look to add additional commitments over time.
On the diamond piece, we're a look to add additional commitments over time. On the diamond piece, we're evaluating alternatives and we'll update you guys as soon as possible.
Got it. And then on Diamond, it's gotten messy obviously at the city council and with the litigation underway as well, both state and federal. Just curious, is there an opportunity to use your partner's pipeline? There's a second pipeline that kind of runs not too far from Bihelia. Do you have that opportunity to utilize that as a workaround or is that a full pipe right
now? Michael, this is Willie. I would tell you we're evaluating all options and leave it at that.
Got it. Okay. Thanks guys. Much appreciated.
Thank you.
We have our next question from Jean Ann from Bernstein. Your line is open.
The committed tariff that was posted for Wink to Webster recently for $0.72 and then $0.45 per barrel, which I think has caused some investor confusion and if we're being honest, some confusion for me as well. Is the right way to think about it that that's just an interim rate for large customers and the true committed long term rate hasn't been posted or disclosed yet?
Gina, this is Jeremy. You're absolutely correct. This is just interim service with limited pump capacity, it's limited origination capacity and it's effectively matching the ARB from Midland to Houston during a period prior to the Q4 when the MDCs kick in. So that has no reflection on the long term permitted tariff. And limited just alternatives.
And eventually when the pipeline is up and running that long term tariff rate will be posted?
That's correct.
Okay. Thank you. And then as a follow-up, any update on the Rangeland expansion? It seems like with Keystone getting axed that might be garnering more interest?
Dina, this is Jeremy. We're in constant dialogue with our customers. We have interest in that expansion, but at this point, we're shipping and our capacity is full going south from Canada to the U. S. In multiple destinations.
We have our last question from Harry Mateer from Barclays. Your line is open.
Hi, good afternoon, guys. Al, you highlighted the large drop in short term debt in the Q1 and I think historically you've tended to guide that number to fluctuate in the $400,000,000 to $800,000,000 range. Is that still a good guide to use? And how should we think about the short term debt line trending for the rest of 2020
Yes. What we would say is, it's obviously a number of variables that will impact kind of the long term trend, but that's probably still a reasonable long term number. What I would say is we do expect some of the benefit we saw in 1Q to be temporal, But we do expect again on our free cash flow after we've
seen
in
1
we've seen in 1Q to be 10 pro.
Okay. And then related to that, just when it comes to debt reduction, you think about getting these asset sale proceeds in the door. How are you planning to prioritize that debt reduction? Is there something prepayable you have or is it going to be about lengthening runway or might you target some high coupon debt to sort of better boost metrics like free cash flow and obviously
harder to get So it's obviously harder to get out and take out and
there's an
upfront cost associated with that. We do have, I think, $1,150,000,000 maturing within the next couple of years and a few other issues shortly after. So we will likely target some of the near term senior note maturities to look to retire some on the front end. With that said, we will take a look at if there is an economic benefit to some of longer dated stuff. But it's out there a ways.
And we think we'd be better suited to try to maintain and manage near term exposure.
Okay, got it. Thanks very much.
Thanks Harry.
I wanted to thank everybody again for joining our call and we look forward to having follow-up conversations with many of you in the coming days. So thanks again. We look forward to updating you again in August.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.