Good day. Welcome to the PAA and PAGP second quarter 2019 earnings call. Today's conference is being recorded. At this time, 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 at plainsallamerican.com. Slide two contains important disclosures regarding forward-looking statements and non-GAAP financial measures. The appendix includes condensed consolidated balance sheet information for PAGP. 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 of 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&A portion of today's call. With that, I will now turn the call over to Willie.
Thanks, Roy. 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 ±$2.975 billion, driven primarily by our S&L 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 at our 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 over time. 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 Wink to Webster project, further aligning with industry partners to optimize the project. In that regard, MPLX, Delek US, and Rattler Midstream have joined as partners in the Wink to Webster joint venture. 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, Plains' equity interest in the Wink to Webster joint venture has decreased from 20% to 16%. We are targeting Wink 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 and commercial flexibility to drive returns above our targeted threshold with further upside. On the Diamond Capline JV, we have sanctioned an expansion and extension which will connect the Diamond Pipeline to the Capline system. These projects are expected to be placed into service in late 2020 for light crude grades and early 2022 for heavy crude grades.
The combined Diamond and Capline project scope is underpinned by a 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 100,000 barrels a day, plus a new Fort Laramie origin 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. An initial expansion of 60,000 barrels per day is underway and is expected to be placed into service in late 2020, with the potential to increase to 100,000 barrels a day.
In May, we announced an expansion and new joint venture on our Red River Pipeline system, through which Delek increased their long-term minimum volume commitment from 35,000 to 100,000 barrels a day and acquired a 33% equity interest in the project for $128 million. This transaction expands our long-term alignment with a strategic partner and shipper. It supports and more than funds the 85,000 barrel a day capacity expansion. It increases Plains' net 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, we're proceeding with pre-construction 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 agreements, 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 Rangeland and Western Corridor 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 Corridor 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 as Al will discuss in greater detail, we've increased our 2019 capital program by $150 million, which is expected to be more than offset by proceeds from JV asset sales completed to date and our strong S&L performance generated in the first half of the year. Before I hand the call over to Al, let me share a quick update on Cactus II. I'm pleased to report that the pipeline is mechanically complete from Wink to Ingleside, and that we're currently performing commissioning and line fill activities. As of today, the line is approximately 50% filled with crude, and we anticipate entering initial commercial service sometime next week.
We expect to have direct Cactus II connectivity to Corpus in service by the end of the first quarter 2020. At this point, I'd 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'm going to call over to Al.
Thanks, Willie. 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 S&L segment. 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 of 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 ±$2.975 billion.
This increase was driven by our S&L performance 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 and a $20 million increase in maintenance capital, as we expect to complete more work in 2019 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 of lower costs on Wink 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 sanctioned 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 will 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 benefits from S&L over-performance over the last 12 months.
Excluding the S&L 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 Willie.
Thanks, Al. We had a solid quarter of financial, operating, and commercial performance, and we're pleased to have made significant progress on a number of our initiatives that position us well for our 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 slides nine and ten. With that, we'd be happy to take your questions. I'll turn the call over to Roy.
Thanks, Willie. As we enter the Q&A session, please limit yourself to one question, one follow-up question, and 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, Brett LeGille and I plan to be available this evening and tomorrow to address additional questions. Melissa, we are now ready to open the call for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, please press *1 on your telephone keypad. If you are on a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, for questions at this time, please press *1 now.Our first question will come from Shneur Gershuni with UBS.
Hi, good morning, guys. Or I should rather say good afternoon. Just maybe to start off on the guidance that you put out today, I understand that it's going up for the S&L 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, Sunil. This is Jeremy Goebel. Question is a good one. In reflection of the changing in the industry on 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 online and potential barrels coming off of basins. I think it's just to reflect our current guidance, our view. We'll continue to update that throughout the year as we talk to our customers. It's a dynamic time in the industry, and it's within 1% of our original forecast, but we're just reflecting it of where we think that the market's headed.
If I can paraphrase, essentially, you're losing some volumes on low-margin areas, but you're gaining on some others or maintaining on the higher margins. Is that kind of the right way to think about it?
I think there's just a lot of moving pieces with respect to our asset base, where it's hard to identify and simplify it 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 see things moving and differentials across the basin and market influence how barrels move.
No, that makes perfect sense, and I didn't want to beat up on a minutiae item. Just wanted the clarification. Then one other last clarification question. There sort of 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 what Plains' final ownership is going to be of the project?
Sure. We will own 16% of the Wink to Webster project, which will be over 1 million barrels a day in 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, that reflects our lower interest in the project. At this point, we haven't given 2020 guidance for capital. We will later this year.
Perfect. Thank you very much. I've used up my two questions. I'll jump back in the queue.
Thanks, Shneur.
Our next question will come from Jeremy Tonet with JP Morgan.
Hi, good afternoon. Just want to follow up a little bit there on the Permian. Given kind of producer commentary has been changing a bit there. Some people kind of pulling in on growth or deferring. You guys in the past have 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 discussed changes in their approach. That would be helpful for any color there.
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. We had a reduction coming into the year to 400 horizontal rigs and that's 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. 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 our customers on our pipeline, and we'll stay on top of that.
Yeah, Jeremy, this is Willie. The question that you ask is a good one, but very difficult to answer. I think that the key on this is we want to wait till the rest of this year when we continue to monitor, as Jeremy said. 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. 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?
Those are sort of one-time type of events. A lot of it centered around differentials that got wider around post-apportionment and around some of the upgrader outages in the plant turnarounds in Western Canada. I certainly wouldn't characterize those as recurring type of events.
That's a helpful color. Thank you for taking my questions.
Thanks, Jeremy.
Our next question will come from Tristram Richardson with SunTrust.
Hey, good afternoon, guys. Now that we're kind of midway through the year and you have a better sense of the JV structure on Wink to Webster, a schedule on Capline and St. 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 or prospects that we could see CapEx lower next year versus 2019?
Al, why don't you 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'll be roughly equivalent to the neighborhood we are this year. There's some timing issues as to whether some of it pushes into 2021 versus pulls forward into 2020. There's also whether or not we look at doing a project finance inside of the Red Oak
joint venture. There's some things that could cause it to shift, but we think it'll be roughly in the neighborhood of a full share.
That's helpful. Thank you. Not to bring up a lightning rod item, but can you talk about just tariffs surcharges to the extent that future build-out pipelines, et cetera, this may be something that you employ when and where the procurement process incurs these costs?
Yeah, this is Willie, Tristan. I'll give you my view on this. As with everything it seems these days, there's a lot of moving parts. On Cactus II, 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 wanted. The key point on this is we purchased the steel before the tariffs were implemented. We are going through the exception process with the Department of Commerce, and we'll continue to do that to try to get resolution on it. As a parallel path, we have moved forward with a surcharge, and if we're able to get an exemption, clearly we would stop the surcharge and rebate it as appropriate.
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, Tristan.
Appreciate it. Thank you guys very much.
The next question we'll take will be from Colton Bean from Tudor, Pickering, Holt & Co.
Good afternoon. Just to follow up on Wink to Webster, I think Delek had recently noted their net project cost and the implied total is about $2.4 billion. I think that seemed a little bit low relative to the prior S-curve commentary, just in terms of your expectations on 2020. I wanted to see if that 2.4 was consistent with your expectations or if there were some Plains-specific considerations we should be aware of.
We're not going to rate exactly what Delek's quote was. They could have some financing or other things net to their interest. I think that may not necessarily tie directly to ours. I think ours is closer to the $500 or $550 million range net to our interest for the entire scope of the project and without financing.
Got it. That's helpful. Just looking at the Rangeland and Western Corridor expansions, can you provide a bit of context on the scope of that project and what the driver is of 2021 in-service? Would 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 Rangeland as north of the border currently flows into Edmonton, with the ability to flow the Edmonton or Sundre barrels down to the border and have those picked up by the Western Corridor system. At Guernsey, it will connect to the Liberty project and ultimately into Red Oak to feed barrels to the integrated solution with P6, D6 Plains and the other partners in the system.
Got it. Just a quick clarification. If you were to get the system online a little bit early with Western Corridor, would Saddlehorn be 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'll largely be a full pipeline. I think the intent is to bring a lot of that capacity on in a similar timeframe. If there are earlier opportunities, we'd certainly look to take advantage of them.
There's some work that needs to be done on Western Corridor as well. It's probably not a huge timeline difference between when Western Corridor would be capable of increased capacity and when Liberty would be in service.
Got it. 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 3s as these projects come online? Just curious kind of how much headroom you think you might have on the metrics.
When we look at it internally, I know it's hard from the outside, but we normalize what we think S&L will be on an ongoing basis. So we do expect with the addition of Red Oak, a slight uptick in 2020 from where we're at, and then migrating down. We will not 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 in 2020. We will migrate down over time.
Okay. Curious obviously what that normalized level of S&L is, but at some point maybe I'll get that number. The second question for me is around.
Good try, Gabe.
Sorry, go ahead.
Good try.
Keep trying. maybe just in terms of Capline, can you speak to, I guess, the volumes on that expansion? How much is contracted? Is that refiner-driven, producer-driven? Just kind of what actually emerged from the open season. Just curious if there's more color there.
I think, Gabe, at this point, we'd say that it's sufficient to reverse the Capline Pipeline system from Patoka south, also to expand and tie in the Diamond Pipeline system and support that. We've met in the excess of our internal returns as well as our partners to sanction the project. We'll be looking for opportunities to add additional volume and commitments to the system based on timing of other connecting carriers and volumes. We'll be on top of that with the ability to continue to increase returns.
Jeremy Goebel.
One other point on that is, there's an additional benefit for us. With Capline idle, you've got cost to maintain that. When you put it in service, you'd save some money there as well. That's one of the things that helps the return.
Thanks, Willie. Just one quick follow-up on Capline. Is there any regulatory approvals needed for either the extension on Diamond or the reversal, or are you just kind of good to go there?
Harry, yeah. This is Chris Chandler, I'll talk on the extension to Diamond. There is about a 40-mile segment that we'll be laying from Memphis to be able to tie into Capline, that'll, 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.
Hey, thank you. Just wanted to clarify first, Wink to Webster, 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, in terms of S&L, I'm sure you're not going to give me exact numbers, but can you give me kind of just like rough idea of the magnitude of how much of the beat or the contribution came from crude oil locational spreads versus the Canadian NGL business? Thanks.
The large majority of it was from the crude oil spreads, both in the Permian and in Canada. Much smaller degree from NGL.
Okay, perfect. Thank you.
Next we'll take a question from Keith Stanley from Wolfe Research.
Hi, good afternoon. The updated transportation guidance, the $1.7 billion, it implies a pretty steep ramp in the second half of the year. Is that mainly Cactus II starting up, or is there anything else significant that drives EBITDA higher in the balance of the year?
That's a significant contributor. It's one of the primary contributors in the second half of the year. The rest of it is just line-of-sight volume growth onto the system that we feel pretty comfortable with.
Okay. Just Cactus II and then just typical growth that you guys usually see.
Correct.
Adjusted.
Okay. Just a follow-up on the NGL business in S&L in Canada. How would you say that business is positioned right now with the low NGL pricing that we're seeing, steep contango in the forward curves over the next few months and into 2020?
Yeah.
Jeremy, 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, which we take advantage of in this type of market. We've done a lot of work over the last year streamlining our business, taking some of the volatility out of the business, making more of a consistent return. I think we're well-positioned. We certainly have put ourselves in a position where we probably won't see the spikes in upside in a, say, high demand environment in the winter. We also have eliminated the risk of a significant amount of downside if we get into a low-demand winter. I think we're pretty well-positioned.
Thank you.
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 pipelines going there in the second half, that could stop those pipes from ramping as much as initially thought. Is there any market intel you can share around your view on that?
I think we have line of sight into our connecting carriers and our shippers' demand, but not necessarily into everyone else's. Clearly, you can follow the permitting processes and the schedule of the other facilities coming online. The PAA Eagle Ford JV with Enterprise, that's starting up next month. That's additional capacity that's coming online, and then our shippers on Cactus II have already contracted the capacity necessary for their full demand. It may be timing of tanks and connections, but for the large part, there's definitely a line of sight for Cactus II to ramp up to its full capacity.
This is Chris Chandler. I'll just reiterate that the carriers that we're 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. Sorry to get 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 low change in EBITDA would suggest that it was mostly gathering.
Yeah, I'd say it's primarily gathering. Whether it's timing, producers' capital budgets. As you're aware, our numbers are gathering into long-haul, so they propagate. With the timing of Cactus II, that's going to offset some of the long-haul piece, so I think it's really primarily a view of gathering.
Great. Thanks. That's all for me.
Next, we'll go to Dennis Coleman with Bank of America.
Good afternoon, and thanks for taking my question. A lot has been hit on S&L, and it sort of feels like the old days where big beats come out of that sector, so congrats on that. I do just want to ask, it 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 increase in activity there. Is that right? 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. Yeah. Partially, 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. That's been for a number of quarters. This quarter, we actually had, and I think it's embedded in one of the footnotes on the slide, we exited with $400 million of cash on the balance sheet again. Technically, if we would've been able to pay everything down, it would've been a lot lower as well. That increase wouldn't have been as much. For a number of quarters following the BridgeTex sale, we haven't been able to fully borrow just from a use of cash. In this quarter, we had the cash on the balance sheet again.
Okay. Just maybe I missed this, but S&L, this is just a one-time shot, continuing to think about the out years in the prior range that you've talked about?
Dennis, this is Willie. Let me see if I can't give some color on this. S&L 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 will go away, right? Clearly this year is something where the spreads have been wider. We've been able to capture opportunities there. Exactly what we've said we think will happen is happening in that as the long-haul pipes starting up 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.
Please don't take this S&L performance as something that's different than what we talked about. We've always said meaningfully less S&L in 2020 going forward because of the pipes that have been built. The way we ought to view our S&L segment is it provides the ability to capture arbs when they're there, and we'll use that to pay for capital investments or reduce debt. We shouldn't count on any large number as far as S&L goes going forward at this point in time anyway.
Great. That's perfect. Just thanks for confirming that, Willie. That's all.
You bet.
Our next question will come from Sunil Sibal from Seaport Global Securities.
Yeah. Hi. Good afternoon, guys. Most of my questions have been hit. Just wanted to go back to your projects on the Western Corridor and the Rangeland. I was just curious, the additional flexibility that you're adding, does it help you move the heavier volumes too, or is it more of lighter volumes, and then that helps offload some of the lighter volumes from some of the other pipelines?
It's designed as a light pipeline because of the size of the Western Corridor and Rangeland system, so that it would be prohibitive to move any substantial volume of heavy. It's going to be a light-only pipeline system that will tie into Cushing and then eventually distribute to multiple Gulf Coast destinations. It offers a lot of flexibility to the shippers.
Okay. Got it. On Capline reversal, I was wondering if you could talk a little bit now about the returns on that. Should we expect that to be better than some of the other project returns that you have outlined?
I think, as it's sanctioned, it's consistent with the brownfield projects we typically do with the ability to even outperform that if we're successful in subsequent open seasons.
Okay. The baseline at least is the same as some of the other projects, correct?
With brownfield projects.
Yeah. Okay. Thanks, guys.
Thank you.
Next, we'll take a question from Becca Followill with U.S. Capital Advisors.
Good afternoon. Wanted to revisit the guidance for transportation for 2019 and your degree of confidence in it. It seems like there's almost daily landmines right now in the E&P space. 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. I'd say that we're in active dialogue. We have an expansive lease marketing pipeline commercial group that's in constant contact with our customers. We get from the vast majority of our shippers monthly updates. I think we have a good sense. If you think about it, the planning cycle for the upstream guys from when the rig shows up to when it's production, it's roughly 8 months is the cycle time now. The crystal ball gets fuzzy outside of six, seven, eight months. Within a six-month window, you usually have a fairly higher degree. Look, there's going to be variability. Things are going to go higher in some areas and lower other. More of that's 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. I would put the 2020 as a different degree of uncertainty as the second half of this year.
Becca, we're not giving guidance on 2020 right now.
Becca, all the things you mentioned go into our forecasting. We start with sort of dialogue we have with producers. We incorporate our views, we adjust it for potential risk with respect to timing, performance, etc. Listen, it's not going to be exact. It's our best estimate, we try and factor in many of the things that you raised in your question.
Great. Thank you, guys. That's all I had.
Thanks, Becca.
That does conclude our question and answer session today, and I'll turn the call back over to Roy Lamoreaux for closing remarks.
Hey, 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.