Good day and thank you for standing by. Welcome to Plains All America's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Blake Fernandez, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Norma. Good morning and welcome to Plains All American third quarter '23 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at plains.com. An audio replay will also be available after today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. An overview of today's call is provided on Slide 3. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, our Chairman and CEO; and Al Swanson, Executive Vice President and CFO as well as other members of our management team. With that, I will turn the call over to Willie.

Thanks, Blake. Happy Friday, everyone and thank you for joining us this morning. Today, we reported strong third quarter results, along with the closing of 2 Permian gathering bolt-on acquisitions and the continued execution of our multiyear capital allocation framework which is focused on lowering leverage and increasing the return of capital to our unitholders. As a result of our year-to-date performance and the partial year contributions of our recent bolt-on acquisitions, we are raising our full year 2023 adjusted EBITDA guidance to a range of $2.6 billion to $2.65 billion. This reflects an increase of $50 million to $100 million from the high end of our previous guidance range a high-level overview of our updated 2023 guidance is located on Slide 4 and Al will share additional detail in his portion of the call. As summarized on Slide 5, OMAG JV acquired Rattler Midstream's Southern Delaware Basin crude gathering system and LM Energy's Northern Delaware Basin touchdown crude gathering system for an aggregate cash consideration of approximately $205 million or approximately $135 million net Plains. These bolt-on acquisitions are expected to generate unlevered returns in line with our return thresholds of approximately 300 to 500 basis points above our weighted average cost of capital, in addition to enhancing our position in the Delaware Basin. The assets will further position the Permian JV to expand its service and offerings and extend commercial relationships with both new and existing customers. Regarding today's capital allocation update, we continue to make meaningful progress towards our goal of lower absolute debt and maintaining a strong balance sheet that can withstand various commodity cycles. As highlighted on Slide 6, we are lowering our long-term leverage ratio target range to 3.25x to 3.75x. This is intended to be a long-term range target range where we may…

Thanks, Willie. We reported third quarter adjusted EBITDA attributable to PAA of $662 million. This reflects the benefit of annual tariff escalators, higher volumes in regions outside of the Permian, contribution from recent bolt-on acquisitions and the benefit of market-based opportunities. These were partially offset by lower-than-expected Permian volumes due to weather-related impacts on gas processing capacity and field compression issues that ultimately impacted oil production and extended into the middle of August. The NGL segment benefited from stronger regional basis differentials and additional spot opportunities on both propane and butane, resulting in higher realized frac spreads. Slides 12 and 13 in today's appendix include walks which provide more detail on our third quarter performance. A summary of our updated 2023 guidance is located on Slide 8. As a result of strong year-to-date business performance in both our crude and NGL segments and the contributions from our recent bolt-on acquisitions, we are raising our full year 2023 adjusted EBITDA guidance to $2.6 million to $2.65 billion. Our updated outlook factors in lower-than-expected Permian production, predominantly driven by the weather-related impacts. We continue to expect year-over-year growth in our crude oil segment driven by tariff volume increases and tariff escalation. For the NGL segment, we remain highly hedged and expect a typical seasonal step-up in sales as we enter the winter months. Shifting to capital allocation, as illustrated on Slide 9. For 2023, we expect to generate $2.45 billion in cash flow from operations and $1.45 billion of free cash flow which takes into account the cash outlay for our recently announced bolt-on acquisitions. This results in $450 million of free cash flow after distributions available for net debt reduction. We continue to self-fund $325 million of investment capital net to PAA which is consistent with previous guidance. We have increased our maintenance capital budget by $15 million to $210 million net to PAA for 2023. This reflects additional maintenance capital for recent bolt-on acquisitions and higher integrity maintenance activity for the year. Before turning the call back to Willie, I wanted to share a few directional comments in 2024 with formal guidance to come early next year. We continue to expect growth in our crude oil business primarily driven by operating leverage, continued Permian growth, tariff escalation and full year contributions from bolt-on acquisitions. In our NGL segment, we have seen volatility in frac spread but have made meaningful progress in hedging over 2/3 of our expected 2024 frac exposed volumes at a spread above $0.60 per gallon. Additionally, we should benefit from the absence of planned turnaround activity next year which negatively impacted commodity exposed volumes in 2023. With that, I'll turn the call back to Willie.

Thanks, Al. Before finishing today's call, I want to reiterate a few key messages. First, current global events have highlighted and reaffirmed the importance of hydrocarbons in everyday life. Plains remains very well positioned as North American supply will continue to be critical to global energy security, affordability and reliability. Secondly and importantly, our business remains strong. We continue to execute our strategy of generating meaningful cash flow, maintaining capital discipline, reducing leverage and increasing return of capital to our unitholders. And lastly, we continue to have confidence in our business which is built on an integrated flexible asset base with operating leverage across our system. We appreciate your continued interest and support and we look forward to fielding your questions as well as giving you further formal updates on our earnings call for 2024 in February. With that, I'll turn the call over to Blake to lead us into Q&A.

Thanks, Willie. As we enter the Q&A session, please limit yourself to 1 question and 1 follow-up. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as possible and are available time this morning. Additionally, the IR team will be available to address any additional questions you may have. Norma, I believe we're ready to open up the call to questions.

Thank you. [Operator Instructions] Our first question comes from the line of Michael Blum with Wells Fargo.

I wanted to first ask just about the bolt-on acquisitions of the Permian. Do you expect this to be kind of normal course? Do you see more opportunities to consolidate in the Permian? And then kind of second part of that is do you see -- should we expect to see any kind of -- any of this type of activity outside of the Permian.

Yes. Let me speak to the bolt-ons, Michael. It's a good question. As you know, we've got a great footprint that allows us to capture synergies and opportunities that are out there. We do think there are more opportunities. We’re going to be very, very disciplined in how we approach it. The valuations are going to be key. And I think you'll see continued focus on that. We look at all opportunities because our interest are in the best interest of our unitholders but I think you'll see both bolt-on opportunities in both the Permian and outside of the Permian.

Okay, great. And then, my second question is probably related to the first. The rationale for reducing the leverage target, maybe you could just walk through that? And is that in any way related to what you see down the road in terms of M&A and having the flexibility to act there.

Michael, this is Al. Our view was, as we intended to be running the company at a lower leverage than what we had been historically. Part of the reason for committing to it publicly like we have is our intent lets to do it. Two, we believe the broader energy sector is and will be running with lower leverage. And we want to actually complete and get our upgrades to mid-BBB. And we think this range that we've established puts us subtly in that with some flexibility for that and recognizing, again, that our intent is to run the company a little bit more conservatively with the balance sheet.

One moment for our next question, please. Our next question comes from the line of Brian Reynolds with UBS.

Thanks for the prepared remarks on the impacts on volumes in the Permian's quarter related to weather, it sounds like -- but kind of just wanted to follow up on the Permian outlook here. First part of the question is, are you seeing any recent crude gathering acquisitions in the basin kind of impact volumes for the quarter or going forward? And then second part, maybe a little more longer-dated question. We've heard some very constructive Permian growth expectations into '24 into '25. I'm just curious if you can kind of give us an early look of what you're seeing for Permian activity as we look ahead to next year.

Brian, I'm glad you asked the question. This is Willie. We'll give -- first off, we'll give you a formal guidance in February on 2024 in the Permian but I'll give you some snapshots here. This has been a little bit of a strange year in that we had some weather issues in the summer that really impacted both second and third quarter. Our original guidance for the year was 500,000 barrels a day growth exit to exit. We updated on our last call that we thought it was going to be a little bit below that. Our views now is it's probably in that $350 to $400 range for the year. But the thing I wanted to share with you is if you look at our October volumes and gathering, this may address your question, we're actually 175,000 barrels a day higher in October than we were for the third quarter. So it really gives us confidence in the fourth quarter. You never can perfectly predict the future but we are seeing increased volumes as we start the fourth quarter off and then certainly, a lot of the recent announcements, particularly with 1 of the large transactions in 1 of the very large super majors really lends support and aligns our view of the Permian going to be around for a long, long time as we go forward.

Great. Appreciate that. And maybe to touch on the distribution, it seems to come up a little bit above expectations from last year's capital allocation update. So kind of curious if you can refresh us. Are there any structural changes that we'd be thinking about? Or is kind of targeting that 1/6 [ph] coverage over a multiyear framework, still the right way to think about it? And how ultimately some of these acquisitions impact that distribution outlook going forward.

Yes, this is Al. We still are committed in the future for the $0.15 annual increase in the 160% coverage at the common level. Part of the reason for moving it up and the extra nickel list is related to the acquisitions that we've completed. They're accretive. Again, we've targeted hurdle rates that will bring good accretion for these bolt-on transactions and we also have seen strong performance out of our business. But once we complete this, we're back to the $0.15 and 160% coverage. We think the 106% coverage allows us to basically fund investment capital going forward and number of small bolt-ons in the future without actually needing to raise external money. So kind of live in our own cash flow means.

Great. I'll make sense. I'll leave it there.

One moment for our next question, please. Our next question comes from the line of Gabriel Moreen with Mizuho.

Maybe, Willie, if I can just ask a follow-up on Michael's question about recurring bolt-on M&A you mentioned looking at things outside the Permian. Can you maybe elaborate on which basins you might think about as far as doing those bolt-ons and is doing something like the Oryx JV structure appealing to you in other basins outside the Permian as well?

Gabriel, this is Jeremy Goebel. I would say we're structure agnostic. We're just trying to basically garner the most synergies in a way that works for us and the counterparty. Where we would focus, it's where we have strength. I'd say, from our vantage point, we have gathering assets in all the core where we have a strength in our marketing business, our pipeline business and our terminals, we can add value to assets. We'll continue to look there if you look across our footprint, where we have strength is an area where we think we can add value and extract synergies into accretive deals and the manner that Al just mentioned, that's where we're going to target.

And then maybe if I can ask about sort of the hedging of the frac spread exposure heading into '24. Just you mentioned you had put a lot of the spread exposure to that at this point? Are you close to that 80% level that you're targeting? Do you see yourself getting there near term? Or are you kind of leaving some stuff open in anticipation of some strength?

Yes, Gabe, we're not going to disclose the exact number but Al's comments on well over 60% hedged was really indicative of -- that we've got a good portion of this hedged at good values and we'll give a further update when we get into February.

One moment for our next question. Our next question comes from the line of Keith Stanley with Wolfe Research.

Follow-up on the -- sorry, again, on the frac spread. I just want to make sure I understand this right. So the 60% is hedged above $0.60 a gallon, can you say directionally, I think 2023 was a little higher than that when you did your plan? Just trying to think directionally where that sits on the $0.60.

Yes, Keith, this is Willie again. For 2023, we were very well hedged. We actually put these hedges on proactively in late 2022. So if you think about the weighted average value of that hedge is a little bit over $0.70. So if you compare it to what we actually hedged in 2023, it's circa dime lower than that. If you think about the impact of that, that's roughly plus or minus $70 million. And as Al pointed out, we also have a turnaround -- we had a turnaround this year that next year that we won't be having. So that may give a little better indication of where the NGL business is.

That's very helpful. The second one I know the company has talked about the preferreds not being a near-term priority. Just curious with the official leverage target now at 3.25% to three quarters? Under certain circumstances, would you consider going above the leverage target in order to repurchase the preferreds? Or if you were to take out the preferred at some point down the road, would you need to still stay within that new leverage band?

This is Al. There's been no change in our thinking around the preferreds. Debt markets are fairly high, like an issue in a new 10-year would be 6.5%, 6.75%. It's a long way of saying that the rates on the preferreds are still fairly attractive in a easier to our weighted average cost of capital. Our intent would not be to meaningfully increase leverage to take those preferreds out. So it's hard to say hypothetically what you might do a few years down the road. But we won't sacrifice our financial flexibility to reduce them again because they're not that high relative to our cost of capital. We think our weighted average cost of capital today is in the 11% to 12% range. And the preferred on the same weighting are 200-plus basis points less. So again but there will be 1 day where maybe we will be able to take them out but we don't want to sacrifice financial flexibility.

One moment for our next question. Our next question comes from the line of Neel Mitra with Bank of America.

I wanted to touch on the Permian long-haul volumes. It seems like they fell a little bit more disproportionately relative to gathering and intrabasin in the quarter versus the second quarter? And also, how did basin perform just given the low Cushing inventories this quarter?

It's Jeremy Goebel. What I would say is on the long-haul volumes. That was just some market dynamics in Corpus. It was cheaper for the shippers to buy at Corpus than it was to ship the barrel from Midland so it was just an election by some of the shippers on the pipeline but it's transitory. The pipeline is going into the fourth quarter in line with where they've historically been and demand is robust longer term for the shipments. Basin is a similar story, there was -- as the inventories come down, there was less need for movements in that direction. But directionally, as those inventories go down, there's more bolt-on basin.

Got it. Perfect. And then if I could ask generally your -- what you're seeing in the basin on growth dynamics. I know most of the gas processors had flat volumes from May through August, just like yourselves. But can you touch upon which regions got affected the most? Was it the New Mexico Delaware that was impacted the most versus the other basins? And then also what you're seeing from the producers during the heat that would have impacted their side versus the infrastructure side, understanding that you guys are up and running again in October with strong volumes.

Thanks, Neel. It was that Stateline area north into New Mexico. I think the other dynamic there was the -- some of the issues around flaring and stopping of flaring. So it all hit at once and it was within a 3-month period but the big surgeon volume is coming from those same regions and part of the Northern Midland Basin. So I'd say it's recovering and then some and we see that momentum carrying based on the connections we have made in November and we'll make this month and next month into next year that momentum should continue.

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

Sure. It was in line with expectations and as inventory strain, we would expect the volumes to increase.

One moment for our next question. Our next question comes from the line of Doug Irwin with Citi.

Just a couple of follow-ups on guidance. So maybe I'll ask both at once. First, I'm just wondering if you could kind of help bridge the facts that the EBITDA guidance moved higher but then we saw cash from operations and free cash flow move a bit lower, I'm sure the acquisitions have an impact on that. Are there any other sort of moving pieces you can point to there? And then again, kind of on the implied 4Q guidance, the midpoint implies a step down versus this quarter. Just wondering if you can kind of help reconcile that step down versus some of the tailwinds in the year-end light these acquisitions and probably Permian growth rebounding a bit.

This is Al. I'll take a shot at the first one. Yes, between the free cash flow and the cash from operations, effectively, the acquisitions reduced cash flow from the free cash flow number by roughly the $135 million that we described. The other 2, higher EBITDA has been in our forecast is offset by higher taxes as well as our assumed working capital and merchant needs. Again which is all kind of timing related. Those were really the 3 things I would point to. As to kind of guidance -- third quarter to fourth quarter, Again, we feel like the midpoint of our range, we do see quarterly flux between them. It would probably be better to take offline with the IR team kind of any more micro detailing type of discussion.

Okay. Understood. Appreciate it.

Thank you. One moment for our next question, please. Question comes from the line of Jeremy June with JPMorgan Securities.

This is Brian Reddy [ph] on for Jeremy. I think it's been hit on a couple of times in the call already but just to clarify, are you guys able to disclose what part of the guidance raise is attributable to the base business strength, given that you guys had already pointed the high in last quarter versus the incremental contribution for the bolt-on acquisitions?

Sure. This is Jeremy. It's roughly $10 million to $15 million from the acquisitions.

Okay, perfect. And then for the second one, last quarter, you talked about Canadian optimization opportunities and maybe utilizing some of that underutilized capacity at Sarnia. So curious to hear updated thoughts here and what you guys are seeing in terms of low capital, smaller growth optimization opportunities.

Yes, I'll take a stab at that. I mean, I think as we shared last call, our East West system together has been -- it gives us an advantage because we've got spare capacity in the East and that was a key part of our ability to be able to move quickly on our debottleneck in the West. So we continue to work on a lot of need opportunities around optimization, both of our Empress compact sport SaaS and Sarnia. And I think the thing to take away from it is no big announcements on projects other than what we've already announced but there's clearly capacity there that we can continue to optimize and utilize without having to put greenfield projects in.

Thank you. One moment for our next question. Our next question comes from the line of Neal Dingmann with Truist Securities.

Just one first quick one. Could you just give an update? I think you've talked about this in the past, just on the minimum volume commitments where you stand there and kind of as you enter '24, how those sit?

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

Yes, just on the long haul, yes, sir.

Sure. What I would say is we continue to have constructive dialogues with the customers. Nothing to highlight at this point. Enterprise announcement is obviously additive to that equation and market dynamics are such that with the continued acquisitions, enhancing relationships with customers, we feel we're in a good place and we'll give you guys an update when it's appropriate. We do believe in the basin long term in these acquisitions and improved recoveries should all support that ongoing growth through the decade and continued contracting in the pipelines.

Great. And then just on a second, could you give the latest on the continued Canadian opportunities such as in Edmonton or Ontario around like that NGL extraction plant sites or some other things you have?

Sure. Broadly in Canada around the NGL system, I think the opportunities you're going to see is the -- task is constrained the opportunity for East-West movements and higher margins and other things to purchase additional NGLs. There are opportunities throughout next year that we'll see, I don't know if that's what you're asking for but it seems to me that there are margin enhancement opportunities around the system and we'll look to use our system to capture them.

Yes. Neal, the other thing I would add is as we think about our Canadian footprint -- we're very bullish on Western Canadian gas production. So as that increases and there's additional takeaway to the West Coast, we think it encourages additional production. And that gives us the opportunity to be able to capture more NGLs out of a wet stream.

Great detail. That's exactly I was looking for.

One moment for our next question. Next question comes from Sunil Sibal with Seaport Global.

Thanks for all the clarity on the call. So just wanted to understand some of the dynamics on the EBITDA guidance increase. So it seems like from what you've indicated $10 million to $15 million impact of bolt-on acquisitions and at the same time, you're reducing your volume expectation so is it fair to assume your unit margins are going up? And then any significant driver of that? Obviously, tariffs are increasing but that was probably well known.

Yes, I'll take a shot at it. This is Al. In the crude side, we have seen and are expecting more favorable market-based opportunities, we've seen over the year, higher movements into and out of Cushing. Our non-Permian assets have performed well and then clearly the contribution from the acquisitions. In the NGL segment, we've seen benefit from higher, better improved NGL yields. This is likely temporary in the AECO gas stream as well as more attractive differentials West to East, as Jeremy mentioned. So those are really the things that are kind of driving it.

One thing to note, though, on the -- we view the Permian reduction as transitory. This is building momentum into the fourth quarter and into next year. So the view that it slowed down our expectations long term a slowdown if not, this is a function of transitory timing.

Understood. And then on the pipeline loss alone with all the recent acquisitions that you've done, could you remind us what is your total explore on crude with the pipeline loss alone?

Sunil, it's Blake. Historically, what we've said is 2 million to 3 million barrels we haven't provided an update to that. I think it's correct to think as more volumes ultimately make their way into the system. That could increase over time and we'll give an update when appropriate.

One moment for our next question. Our next question comes from the line of John Mackay with Goldman Sachs.

I wanted to touch on kind of broader picture for Permian long haul. We've had some changes in the market recently, seminal coming out of service, the Gray Oak open season seems like it's about to go forward. I guess I'd just be curious to hear from your side where you see kind of overall balances for the market over the next couple of years and whether or not we could see more conversions out of crude service and to something else?

Yes, John, this is Willie. It's -- there's a lot of puts and takes to this. When I think about the moves that are -- the proposed possible projects, these are, what I would call, smaller increases, maybe 100, 2000 [ph] barrels a day. When we think longer term, with the growth of the Permian, we just -- we're consistent with our views that capacity is going to get tight. I don't think new build long-haul lines are going to get built. With the Seminole [ph] announcement, it's taken a little bit out. So there's a lot of puts and takes against it. But long term, our views have not changed. It's still going to be tightening capacity in a market that's going to be harder and hard to hold long-haul lines.

All right. That's fair. Maybe shifting gears. You touched on the working capital a little bit in the quarter. And I know it's transitory and should come back. It was just larger than we -- it looks like we've seen in a couple of quarters. Is there a -- when we're thinking about capital returns next year, potentially buybacks. Is there a kind of minimum level of cash you'd want to see on the balance sheet? And does this quarter's kind of larger working capital draw, affect that math at all?

This is Al. We do see a fairly significant quarter-over-quarter working capital flexes. And we used the word working capital as if we're building inventory and we're borrowing short term on our credit facilities, it's a working capital use, although technically, they're both in working capital. So it's kind of working capital and merchant requirements. We do see quarter-to-quarter fairly significant moves generally over a 12-month period, all those normalize out. We normally model assuming lower cash balances than what we've been running and we'll be showing that when we show you the year-end balance sheet because the cap balances will have been consumed with the note we just paid down here in October. But normally, we would model about $100 million of cash on the balance sheet and we use our credit facilities in the commercial paper markets to balance this out. And it is timing. We end up reverting back to more of a normalized balance over the course of a few quarters.

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