Ryan Smith - Plains All American Pipeline LP Greg L. Armstrong - Plains All American Pipeline LP Harry N. Pefanis - Plains All American Pipeline LP Alan P. Swanson - Plains All American Pipeline LP.

Gabe Philip Moreen - Bank of America - Merrill Lynch Jeremy B. Tonet - JPMorgan Securities LLC Michael Blum - Wells Fargo Securities LLC Shneur Z. Gershuni - UBS Securities LLC Faisel H. Khan - Citigroup Global Markets, Inc. (Broker) John Edwards - Credit Suisse Securities (USA) LLC (Broker) Jeff Birnbaum - Wunderlich Securities, Inc. Sunil K.

Sibal - Seaport Global Securities LLC Timm A. Schneider - Evercore ISI Ross Payne - Wells Fargo Securities LLC Benjamin Wang - Bank of America Merrill Lynch Selman Akyol - Stifel, Nicolaus & Co., Inc. James Carreker - USCA Securities LLC Charles Marshall - Capital One Securities, Inc. Ganesh Venkataram Jois - Goldman Sachs Asset Management LP.

Ladies and gentlemen, thank you for standing by. Welcome to the PAA and PAGP Third Quarter Results. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to Ryan Smith, Director of Investor Relations. Please go ahead..

Thanks, Linda. Good morning, and welcome to Plains All American Pipeline's third quarter 2015 results conference call. The slide presentation for today's call is available under the Investor Relations section of our website at www.plainsallamerican.com. During today's call, we'll provide forward-looking comments on PAA's outlook for the future.

Important factors which could cause actual results to differ materially are included in our latest filings with the SEC. Today's presentation will also include references to non-GAAP financial measures, such as adjusted EBITDA.

A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can be found under the Financial Information tab of the Investor Relations section of our website. Today's presentation will also include selected financial information for Plains GP Holdings or PAGP.

We do not intend to cover PAGP's results separately from PAA's. Instead, we have included schedules in the Appendix to the slide presentation for today's call that contains PAGP's specific information. Today's call will be chaired by Greg Armstrong, Chairman and CEO.

Also participating in the call are Harry Pefanis, President and COO; and Al Swanson, Executive Vice President and CFO. In addition to these gentlemen and myself, we have several other members of our senior management team present and available for the question-and-answer session. With that, I'll turn the call over to Greg..

Thanks, Ryan. Good morning and welcome to today's call. Yesterday, PAA reported adjusted EBITDA for the third quarter of $497 million, which was $17 million above the midpoint of our third quarter guidance range. Slide three contains comparisons of various performance metrics to the same quarter of last year, as well as our third quarter 2015 guidance.

As noted on slide four, this is the 55th consecutive quarter Plain – PAA has delivered results in line with or above its quarterly guidance.

And as also indicated on slide four, for the third quarter of 2015, PAA declared a distribution of $0.70 per limited partner unit, and $2.80 – which is $2.80 on an annualized basis, and will be paid next week and represents a 6.1% increase over PAA's distribution paid in the same quarter last year.

PAGP declared a quarterly distribution of $0.231, which represents a 21% increase over the quarterly distribution paid in the same quarter of last year, and 0.125% increase over the distribution paid last quarter. PAA has increased its distribution in 44 quarters of the last 46 quarters, and consecutively in each of the last 25 quarters.

While we have this slide on the screen, I would also note this slide illustrates that the overall growth in PAA's quarterly EBITDA over the last 14 years has not been linear and is impacted by both seasonal and cyclical influences.

During our second quarter call in early August, we provided our views on the industry conditions for the crude oil midstream sector. The conditions we discussed drove a downward revision to our 2015 adjusted EBITDA guidance and PAA's 2015 distribution growth target.

These adjustments were based on our view of potential future impacts on PAA's margins and volume capture related to reduced volume growth or production declines in certain areas, as well as increased competition for the marginal barrel associated with excess takeaway capacity and the market implications of over commitments associated with ship-or-pay contracts.

On balance, these issues impacted our third quarter results generally as we expected. However, as Harry will discuss, our – they are currently trending to be greater than expected in the fourth quarter.

In my closing comments, I'll address the impacts of refinements to our outlook on PAA's guidance for the balance of 2015 and also what that means directionally for 2016. With that, I'll turn the call over to Harry to discuss our operating performance for the quarter and our ongoing activities..

Thanks, Greg. During my portion of the call, I'll review our third quarter operating results compared to the midpoint of our guidance and discuss the operational assumptions used to generate our fourth quarter guidance, and provide a brief update on our 2015 capital program.

Overall, third quarter was in line with expectations with above-guidance performance in the Facilities and S&L – I'm sorry, Supply and Logistics segment, offsetting below-guidance performance in the Transportation segment.

As shown on slide five, adjusted segment profit for the Transportation segment was $253 million or approximately $19 million below the midpoint of our guidance. Our volumes were up over 4.5 million barrels per day in the third quarter, but were approximately 235,000 barrels a day below our guidance.

Our crude oil pipeline volumes were approximately 190,000 barrels per day lower than anticipated, with most of the shortfall occurring in the Permian Basin. Our gathering volumes in the Permian were lower, primarily due to several pipeline segments in the Delaware Basin being placed into service later in the quarter than anticipated.

We also have lower than expected proceeds from third-party pipeline carriers. Our Permian Basin mainline pipeline saw lower than anticipated volumes due to unplanned downtime at a connecting carrier, lower than anticipated pumpovers to third-party carriers and slightly lower volumes on the BridgeTex system.

Adjusted segment profit was $0.61 per barrel and was in line with our guidance, but it reflects the positive impact of lower operating expenses offset by foreign exchange rates that were unfavorables compared to guidance.

Adjusted segment profit for the Facilities segment was $148 million, which was approximately $17 million above the midpoint of our guidance. Volumes of 126 million barrels of oil equivalent were in line with our guidance.

Adjusted segment profit of $0.39 per barrel was $0.04 per barrel above the midpoint of our guidance due to lower than anticipated operating expenses. And I'll note that a portion of the operation expenses were timing-related and are expected to be incurred in the fourth quarter.

Adjusted segment profit for the Supply and Logistics segment was $95 million or approximately $18 million above the midpoint of our guidance. Volumes of 1.1 million barrels per day were in line with our guidance. Adjusted segment profit was $0.92 or $0.16 above our guidance.

A higher than anticipated adjusted segment profit was in essence the netting of better than expected results from our NGL sales business partially offset by lower than expected results from our lease gathering business.

I'll note that a portion of the favorable NGL sales results were related to inventory pricing, which is a timing related matter and will impact the fourth quarter results relative to our previously provided guidance.

Let me now move to slide six and review the operational assumptions used to generate the fourth quarter 2015 guidance we furnished yesterday. For Transportation segment, we expect volumes to average approximately 4.7 million barrels per day, which is an increase of approximately 195,000 barrels per day from the third quarter.

However, approximately 200,000 barrels per day lower than we previously expected for the fourth quarter. The lower volume expectations are a combination of several factors.

First, we expect gathering volumes to be lower than previously forecasted, and those volumes are spread-out fairly equally between the Permian, the Eagle Ford, and the Mid-Continent areas. We're also expecting volumes on a couple of our joint venture pipelines that we do not operate to be lower, particularly the BridgeTex and White Cliffs systems.

We expect a couple of our refinery supply pipelines to be – to have lower volumes due to turnarounds. And lastly, in the Permian Basin, we are forecasting lower receipts from a couple of our connecting carriers.

Adjusted segment profit per barrel is expected to be $0.63 per barrel or $0.02 per barrel higher than the third quarter, as volumes are increasing at some of our higher tariff lines. But this is partially offset by lower values for our pipeline loss allowance volumes and a lower Canadian dollar.

The fourth quarter volume increase is driven by recently completed projects in the Delaware Basin and the continued ramp up of our Cactus pipeline, partially offset by lower volumes on Mid-Continent pipelines. For our Facilities segment, we expect an average capacity of 128 million barrels of oil equivalent per month.

This is an increase of 2 million barrels from the third quarter. Adjusted segment profit per barrel is expected to be $0.36 or $0.03 per barrel lower than the third quarter.

The volume increase is primarily attributable to placing into service an additional 1.2 million barrels of storage capacity at our Cushing Terminal and additional 1 million barrels at our Sarnia facility in Canada.

Segment profit per barrel is expected to decrease primarily due to lower utilization of our rail facilities and the timing of certain expenses previously expected to be incurred in the third quarter. I'll note that as compared to our previous guidance, rail utilization is expected to have the greatest impact on this segment.

For our Supply and Logistics segment, we expect volumes to average approximately 1.2 million barrels per day or about 80,000 barrels per day higher than volumes realized in the third quarter. Adjusted segment profit per barrel is expected to be $1.64 or $0.72 per barrel higher than the third quarter.

Anticipated volume and segment profit per barrel increase from the third quarter reflects the seasonal impact of our NGL sales volume, partially offset by slight decrease on our lease gathering volumes. As for our 2015 expansion capital program, we're still forecasting a $2.2 billion capital program for 2015.

We place a number of assets into service in both the Delaware Basin and in the Eagle Ford in the third quarter, which have been discussed in detail on previous calls.

The bulk of the spend in the fourth quarter relates to longer lead time projects, such as our Cushing to Longview, Caddo and Diamond Pipeline, and our Fort Saskatchewan expansion project. All these projects are progressing as anticipated. I also want to provide a quick update on a couple of other matters.

First you may have seen Shell recently announced that they have cancelled plans to develop the Carmon Creek project in Canada. As a result, our Indigo pipeline project was cancelled and Shell will reimburse us for our costs incurred to-date. This was a 2019-2020 project so it really doesn't have any impact on our near-term outlook.

And then, the second item I want to discuss was Valero. They have an option to acquire a 50% interest in our Diamond pipeline and we're currently in discussions with Valero regarding the potential for them to exercise their option prior to the end of 2015.

A summary update of the overall 2015 program and targeted in-service dates is illustrated on slide seven and slide eight respectively. And lastly, we expect maintenance capital to be in the $200 million to $220 million range for the year. So, with that, I'll turn the call over to Al..

Thanks, Harry. During my portion of the call, I will review our financing activities, capitalization, and liquidity. PAA ended the third quarter with a solid financial position, an investment grade credit rating, over $3 billion of liquidity, and well-positioned to manage through a period of challenging industry conditions.

This positioning was reinforced in August when we completed a $1 billion offering of 4.65%, 10-year senior unsecured notes.

As we communicated in prior calls, based on our cautious near-term industry outlook, in March 2015, we completed a $1.1 billion overnight equity offering in order to fund the vast majority of PAA's equity needs associated with our 2015 capital program.

As a result, we have not issued any units under our continuous offering program since early January.

Greg will provide comments on our 2016 capital plan in his closing comments, but I will note that while we will need to raise equity in 2016 to fund our capital program, the total equity capital requirement is expected to be less than the 2015 equity funding levels.

Given the current environment, we are considering a number of different options to supplement or reduce the need for our continuous equity program during 2016. Slide nine illustrates PAA's capitalization and liquidity at the end of the third quarter.

PAA had a long-term debt capitalization ratio of 55%, a long-term debt to adjusted EBITDA ratio of 4.5 times, and $3.1 billion of committed liquidity.

Our long-term debt to adjusted EBITDA ratio is above the high end of our target range and likely will be in the near term as a result of the challenging environment, where we are in the current industry cycle, and the impact of our ongoing capital program.

We expect this leverage ratio will improve and return to our targeted levels as the industry recovers and we realize the EBITDA growth from our recent capital investments. We remain steadfast in our commitment to maintaining the capital structure and credit profile that is consistent with a mid to upper BBB credit rating.

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

Thanks, Al. On balance, PAA delivered operating and financial results in line with and slightly ahead of third quarter adjusted EBITDA guidance. But as summarized on slide 10, we're forecasting midpoint adjusted EBITDA of $595 million and $2.2 billion for the fourth quarter and full year of 2015 respectively.

Although the fourth quarter guidance is about 20% higher than our third quarter performance, it is projected to fall short of initial expectations. The full year mid-point guidance level of $2.2 billion for 2015 is $75 million, or about 3%, below the $2.275 billion guidance that we've previously provided.

As discussed in both our June 4 Investor Day in New York and also on our August 5 earnings conference call, we are constructed to bullish on the intermediate and long-term outlook for crude oil prices, activity levels and Plains future prospects. However, we continue to remain highly cautious with respect to the near term.

Last quarter, we attempted to incorporate that cautious outlook into our guidance for 2015 and also our directional guidance outlook for 2016. However, the current operating environment appears to be developing into the more challenging environment for PAA than we expected, which required further recalibration for the balance of 2015.

To be very clear, our comments regarding PAA include our assessment of the macro environment for crude oil, as well as PAA's position in each of the regions that we operate. Plains is very crude-centric and has one of the largest footprints in the crude oil space in the U.S. and, to a lesser extent, Canada.

Our comments are not intended to be a blanket observation about the operating conditions for other midstream entities, regions that we do not operate or natural gas conditions.

With at least one notable exception, our historical practice has been to provide preliminary shadow guidance on adjusted EBITDA, DCF and distributions for the upcoming year in our November call, which is generally followed by detailed guidance in February during the year-end earnings conference call.

In the 8-K we furnished yesterday, we did not comment on 2016. In addition to the carryover impact of competition for marginal barrels on unit margins, there are a multitude of factors that will impact PAA's 2016 operating results, including capital spending levels by upstream companies for which we currently have limited visibility.

The guidance we typically provide incorporates information from a variety of sources regarding development drilling plans, including direct and indirect conversations with producers.

However, at present for 2016, we do not feel like we have sufficient clarity as to how much producers are going to spend or how they're going to allocate capital among the regions.

As a result, we believe it's prudent to defer providing preliminary shadow guidance for 2016 and any detailed commentary on our future outlook until our February conference call, at which point, we expect to have better information and clarity on our anticipated 2016 performance and future outlook.

Again, to be clear, we're still looking for adjusted EBITDA growth in 2016 above 2015 levels and even more meaningful growth in 2017. But given the information that we currently don't have and the current market dynamics, we're not in a position at this time to provide more precise expectations.

Our decision to defer providing additional guidance is directionally consistent with the approach we took in November 2008 when, for a variety of similar reasons, we did not provide forward guidance on our November conference call. I can provide some directional guidance on our preliminary capital plans for 2016.

As we discussed at our June 15 Investor Day, we have a large portfolio of expansion capital projects that we believe will be required to meet the long-term needs of both the upstream and downstream sectors.

In the absence of substantially lower crude oil prices and associated reduction in activity levels and production expectations, we would have anticipated 2016's capital program would be comparable in size and relative composition to our 2015 capital program.

However, given the near-term uncertainly and higher cost of capital in the current environment, we're taking a number of actions to meaningfully reduce the size of our 2016 capital program. Importantly, the projects impacted by these reductions will have a relatively modest impact on our adjusted EBITDA contributions for 2016 and 2017.

These actions include deferring certain projects, working with existing and potential partners to modify existing capital projects. Additionally, we are looking at our current asset portfolio. We'll consider selective asset divestitures or trades with the assets that are not considered strategic.

Collectively, these efforts are designed to reduce the amount of both equity and debt capital we need to raise during 2016 in the capital markets, increased risk adjusted returns on invested capital, and increased core – our focus on our core assets that are strategic to our future growth.

We plan to provide more specifics on our February 2016 call, but we currently expect our 2016 capital program will be approximately 25% to 30% lower than our $2.2 billion 2015 capital program.

I would also like to note that we believe the expected near-term uncertainty will lead to some commercial opportunities for diversified midstream players such as Plains. We have one of the largest and most integrated crude oil transportation and terminalling networks within the midstream crude oil space.

In response to the changing market condition, we'll be aggressively focused on identifying and capitalizing on commercial optimization opportunities that arise out of the uncertain market environment and are available to us, because of our integrated system.

In addition, without jeopardizing our long-term growth prospects or the improved relationship we share with our vendors, we also expect cost reductions and supplier efficiencies as we right size our capital program, consider selective divestitures and otherwise adjust our business to efficiently operate in a challenging environment that we expect over the course of the next 12 months to 15 months.

Let me now focus in on a couple of other items.

As expected, distribution for the coverage for the third quarter on a stand-alone basis was below 1.1, coming in at approximately 0.8 to 1, which is partly due to the inherent seasonality of our NGL business and the fact that we're in a transition period with several significant capital projects expected to ramp-up EBITDA over the next two years.

For the first nine months of the year, distribution coverage was just below 0.9 to 1, at 0.88 to 1, and based on our guidance for the fourth quarter, it's expected to be 0.94 to 1, as – based on the mid – excuse me, at the midpoint.

Based on our outlook for challenging industry conditions and competitive dynamics over the next 12 months to 15 months, it's clear 2016 will be a challenging year for PAA.

Looking beyond the next 12 months to 15 months, given our fundamentals based view on production growth, we would expect meaningful cash flow contributions from the completion of approximately $3 billion to $4 billion of Transportation and Facilities related capital projects, as well as an overall ramp up of activity associated with the expected market recovery.

Big picture, many of the larger exploration production companies are significantly reducing their international and deepwater spending, and increasing their focus on the U.S. Additionally, many of the mid and smaller-sized operators are poised to ramp-up activity and production as oil prices recover.

While unutilized capacity within PAA's Transportation and Facilities systems is a drag on near-term results, as we see a return to rising production levels, it becomes a high-impact benefit to Plains.

As a result, during 2017, we expect to see improvement in our distribution coverage toward our minimum targeted distribution coverage of 105% to 110%, which will pave the way for distribution growth, and a return to our leverage metric consistent with our targeted range of 3.5 times to 4 times.

And then finally, more favorable market conditions for the Supply and Logistics segment. PAA is a very crude-centric midstream entity and being long capacity in an extended downside for crude oil is challenging. However, as slide 11 illustrates, this is not Plains first rodeo.

Plains has an extensive, strategically located and integrated network of assets, an experienced management team, and proven business model that has performed well for a number of industry cycles and will do so through the current cycle. We thank you for participating in today's call and for your investment in PAA and PAGP.

We look forward to updating you on our fourth quarter earnings call in February of 2016. Linda, we're now ready for questions..

Your first question comes from the line of Gabe Moreen from Bank of America. Please go ahead..

Hey, good morning, guys. A couple questions from me. One is can you – I know, you don't ordinarily call out crude-by-rail in terms of what's embedded in your guidance from a financial contribution standpoint.

But can you give us a sense of what is in your guidance now for crude-by-rail? Did something change over the last three months with crude-by-rail in terms of what was embedded in expectations, and I guess I'm looking to calibrate whether things can get even worse form here on crude-by-rail versus what's in your expectations?.

Yes. So we have minimal volumes in our crude-by-rail that we have forecasted for the quarter. It's – I think most of what we have forecasted is contracted capacity, so far the contracted capacity..

Yeah. Gabe, as you probably saw on the 8-K, I think, we had originally forecasted load/unload volumes of about 290,000 barrels a day. I think, we lowered that to 185,000 barrels a day, and I think, as Harry mentioned, most of that is supported by commitments..

And how far do that 185,000 barrels a day ballpark commitment can go from a timing perspective?.

Look, on commitments, Gabe, I don't have any information really available, but they are term commitments..

Okay. Switching gears, you kind of mentioned the leverage metrics, the commitment to investment grade at PAA, but can you talk about sort of PAGP and potential debt capacity there? Clearly, you've seen some other MLPs supportive of their underlying MLP's equity needs by taking on additional debt at the GP level.

Do you think you have additional debt capacity at the PAGP level to potentially help PAA out from equity needs in 2016?.

I think we're going to be cautious on trying to give specific directional on what our capital raising efforts, what are – I think, it is fair to say that there is roughly $575 million of debt at the General Partner and the distribution is about $600 million, so it's about a one turn. So Gabe, there is certainly leverage capacity there.

Let me just stop there at that, and just say, we're certainly aware of what others have done, and we're not only looking to review what's been done but what could be done. So – but I think, you have identified a resource there..

Understood. Thanks, Greg.

And then the last question from me is just, I guess I understand you're trying to signal the confidence in the long-term outlook with the sequential distribution increase that just occurred and which you just announced, but could you talk about I guess the decision to increase the distribution, I guess, how much of the – was that a debate internally and what you're trying to signal with that?.

Clearly, I think, what we're trying to signal in the last call, and we followed through on was, we needed to lower the expectations for growth. We also didn't want to – the modest – it was a modest increase; in relative terms, I think, it was $0.02 or $0.005 a quarter.

And so we lowered it, Gabe, and yet continue to have an increase, so that we fulfilled our commitment if you will to the market to raise the distribution we set out at the beginning of the year. And then we basically said, we're not quite sure we're ready to comment on 2016 and we're still not.

So it was more a follow-through and in big terms it wasn't a major increase in the overall burden on the partnership. Clearly, if we had known everything at the beginning of the year that we know now, we would have picked a different target..

Understood. Thanks, Greg..

Thank you, Gabe..

Your next question comes from the line of Jeremy Tonet from JPMorgan. Please go ahead..

Good morning..

Good morning, Jeremy..

Greg, I was just wondering if you could refresh us as far as your current thinking, as far as how the crude oil market might be recovering and when you see the timing of that bottoming out, if it's more mid-2016, later 2016 or any thoughts or color there would be great?.

We're wrestling right now with the impacts of the changes that we have seen. But our belief from the bigger picture and we're a little bit hesitant, Jeremy, I got – at our last conference call, I got schooled a little bit on people telling us they just didn't care about our views.

But I think from a macro standpoint, we're still second half – latter part of second half of 2016, first part of 2017. I could give you the very elongated 35-slide presentation, but – on our views on the micro.

We think actually the supply demand balance is probably going to be achieved in mid-2016, that's to say the marginal production – or marginal production equals the marginal demand.

And you might ask then, why wouldn't we expect the rally to happen then? We're candidly carrying just a ton of inventory in not only the U.S., but also the world, but primarily the U.S.

and we're probably right now about little over 100 million barrels of inventory above last year's level, which in last year's level, it was pretty consistent with what you might call a norm, a little elevated, but call it the new norm.

And so if you simply say how long does it take to get 103 million barrels out of inventory back down closer to normal? If you spread that over a 365 days, that's 275,000 barrels a day.

So even if production rolls over, we think you got to have a little bit of an extension to where – as you've come in to supply demand balance at the margin, you've got to take care of the inventory situation. We're not believers that you have to see inventory get all the way back down to normal before you start to see price response.

But you need to see that you can get there..

Great. Thanks for that.

And I think you might not want to tip your hand too much here, but I figured I just want to check as far as the different alternative equity sources, be it preferred equity or mandatory convertibles, is everything on the table as far as alternative equity for next year or can you give us any color on gives and takes between the different sources in your mind?.

Well, a couple things I would note. I mean obviously, we prefunded a lot of – potentially all of 2015, and so we're really looking at 2016 and as I mentioned, we're going to be lowering the relative spend by 25% to 30%. So next year's capital needs will be meaningfully less than 2015. As far as the options on the table, there is a lot of options.

I don't know I'd say all options on the table, because I'm not sure what all means. But I'd say all reasonable options are on the table. We're certainly aware and monitoring what others are doing.

And I think, as Gabe identified in his comment earlier today, I mean, we have a couple of options that maybe some don't have, because we've kept very low leverage at the GP level at – really at one turn of leverage there. And so overall, I think, we've got a few more options than you might otherwise anticipate.

We'd not want to get into any specifics at this point in time other than to say again the need is going to be less than what it was in 2015 overall and that we have lot of tools in the toolbox..

And, Jeremy, as Greg mentioned in his prepared comments, we also are looking at select asset divestitures of non-core assets that would reduce equity requirements..

Great, that makes sense. And then just one last one from me. It seems like the topic du jour is the GP/LP collapse in the space.

And I was just wondering if you guys could just kind of share your thoughts as far as when and if that would ever make sense for you guys or any other strategic combinations?.

I would say, we're – you should know that we're as management and as the members of the board and the GP owners, a huge alignment of interest with respect to always doing the right thing for the equity holders for both the LPs and the GP.

And because we have roughly 62% of the GP held in private hands that serve on the board, those are pretty easy conversations to have to explore potential alternatives. If we had this discussion two years ago, we probably would not have put some of the options on the table that you'd have to look at realistically in the current environment.

So we're monitoring what is going on in the market with – and how transactions are being perceived. Clearly, in the current cost of capital environment, the GP burden is incrementally more negative on our cost of capital at the margin than it would have been a couple years ago.

So if you look back even where the assumption was, we would grow the distribution 20% whether you want to look at that as three years of 7% or two years of 10%. Our weighted average cost of capital was in the 7.5% to 8% range and the General Partner burden on that was probably at about 2% – 2.5%.

So it was meaningful, but it wasn't really – wouldn't stacking it up two high, today and I realize there's been some price activity in the market today, but entering today that weighted average cost of capital is probably closer to 10.5% and the General Partner is about 350 basis points of that.

So it certainly weighs heavier on the mind in this type of environment than it did before and having a lower cost of capital is important, having a very competitive cost of capital is critical.

So I'd say we're open to looking at alternatives today that might not have been on the table two years ago, would not want to signal any strong leaning one way or the other at this point, it's still pretty early in the game..

Great. Thanks for that color..

Thank you, Jeremy..

Next, we'll go to the line Michael Blum with Wells Fargo. Please go ahead..

Thanks. Good morning, everyone. I think most of my questions were addressed.

Just one I wanted to ask, in the past you've talked about the Supply and Logistics business kind of on a kind of a ratable basis be able to generate, I think, it was around the $500 million per year EBITDA kind of in a "normalized market." Is that still a good statement, or do you think that number has moved down given kind of where we are in the market?.

Michael, I think, it's a great question. There is probably two answers to it. One I can answer and one that we're working on the answer.

I think – we think longer term again in the absence of some of the issues that I think are transitory, yeah, we felt pretty good about the $500 million, and to be clear, we actually said it's really in the $500 million to $550 million with the midpoint of $525 million.

I don't think anything has exchanged our intermediate to long-term conviction about that. What we're certainly seeing is in what I'd call this transitionary period where you've got a lot of capacity coming on and in many cases shippers that are overcommitted on the portion of the volumes they actually control.

We're seeing a lot of pressure on those margins that push that down to the $500 million and we believe it actually will be somewhat below that in the near term. We don't think that's a permanent issue. We think it's a transitory issue. So as far as trying to calibrate that for you, I can't do it at this time. We're certainly working on that.

I mean, obviously we have a lot of data. We're just trying to make sure that before we come out with our 2016 numbers, which we will address that question obviously, very clearly on the February call that we have the best information and are able to share with you exactly so you can follow our logic on how we got there..

Great, thanks. It was very helpful. Thanks, Greg..

Thank you..

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

Hi. Good morning, guys. My question on the taken has been answered, but kind of following up on what clubs you have in the bag. If you sort of think about it the distribution itself or retained DCF is kind of your lowest cost of capital option.

Is it fair to conclude given your equity needs, given the challenging environment that we'll probably not see any growth in the distribution in 2016 for the sake of prudence?.

Well, first off, I – just let you know, if we're using the golf analogy, we're not going to limit ourself to 14 clubs in the bag. So, as I've said, we've got a lot of options available to us and we don't want to try to conform to any expectation there.

But I think all we're prepared to say at this point in time, and we – in our prepared remarks, we said, 2016 is going to be challenging. We introduced the concept on the last call that certainly holding it flat was a consideration. We haven't taken that consideration off the table.

And all we can say at this point in time – because again until we actually give you some numbers that you can put it in context, I don't think it would be particularly fair or relevant to try and then draw conclusions from. So we stopped in our prepared remarks after much debate about simply saying that – let's say, 2016 is going to be challenging.

We know what tools we have available to us, we just want to be able to quantify what's going forward..

Okay. And an operational question, I was wondering if you can expand on your prepared remarks with respect to the Transportation segment's margin.

Is this a function of contracts falling off? You sort of expect things to improve in 2016, is it a mix of new projects coming online that are lower margin? I was wondering if you can sort of give us some color as to how we should think about that margin as it progress over time, or is this part of the challenging environment that you highlighted..

Yeah, I think the per barrel results were in line with our guidance. The tick down, I think, just slightly in the fourth quarter is mainly due to a little bit of OpEx shift and a little bit from the Canadian dollar. But we're not – most of our historic volumes is common carrier lines, no commitments.

It's really the newer projects that have the commitments. So as those ramp up, the tariffs are actually probably higher on the newer volumes..

Yeah. To be clear, in the Transportation segment, the pressure really is and you saw it in the volume adjustment that we made for the fourth quarter. It's more of a volume issue. The margin per barrel will move around based upon the actual mix.

So if you fall short a little bit in volumes in higher tariff barrels, then it's going to change that number and vice versa on the lower. But as Harry said, most of our committed barrels that we built for projects had the higher tariff on there. So it's really a volume mix on the Transportation side.

Where we see the word pressure on margins is more in the Supply and Logistics area, and then, to a lesser extent, some of the activities in the Facilities side of it where frac spreads and other elements factor into it..

So I'd say, one thing to think about in the Transportation segment is we've put a lot of new pipe into service in the Delaware Basin. We've completely debottlenecked it. And we have a tremendous amount of capacity.

So, I think, we're extremely well-positioned as production expands in the Delaware Basin, we should capture our fair share if not more of the volume increase in that area. So embedded in our Transportation segment is a lot of capacity upside as that part of the basin ramps up.

Greg mentioned earlier, we're trying to recalibrate what we think the production expectations will be..

What we are seeing and I mentioned it in the prepared comments is – and again, this is in the macro a little bit, but we've driven it down to our particular regions.

And unfortunately it falls in the intermediate to longer term range, intermediate being, let's say, 18 months out or thereabouts, is we're seeing a lot less emphasis on international and deepwater focus from some of the big guys and a much bigger focus in on trying to move onshore and to participate in the shale play.

So when you actually listen to several of the calls and we're trying to collect as much information both through direct conversations and indirectly through the same avenues everybody else does, which is on conference calls and other public statements.

It just looks like there's a huge focus on the volume uplift and certainly we know the resource is there and the technology's there. So again, that's why it's pretty easy to be confident in the intermediate to longer term. And as Harry said, we've got a lot of excess capacity. We're certainly overbuilt right now.

We've got unused capacity and we've got capital spend and not revenue, so it's dragging on the aggregate results. But longer term, we won't have to spend much capital and we get a lot of big uplift out of it..

Great. And one last final question. Over time, fixed costs tend to become variable.

A year into the challenging market that we're in right now, have you identified any opportunities to really trim down your OpEx and your SG&A? And could that be some of the – a partial offset as we look forward into next year?.

I can put your finger on exactly what's in the discussion right now and yet hasn't been quantified enough to be able to be filtered into the guidance that we can share with you, but certainly will be by the time we get to the February call.

But absolutely, I mean, we're right at literally – if you think about it, Thanksgiving will be the one-year anniversary, if you will, of the start of the very precipitous drop.

And we're trying to challenge those very issues, what type of schedules do you need to maintain given the outlook, and what can we do to repackage the services that we provide to the producers, so that we give them the top service but we still do it for a cost that allows us to make an even better return than we're going to make if we don't change.

So I'd say stay tuned and that will be certainly one of the things that we'll address in the February call is to trying to quantify that for you. And it should be a net positive add relative to the negatives we're seeing, or I say a net positive.

It will be a positive offset, partial at least to some of the negatives we're seeing on the margin that haven't yet been filtered into the margin pressure we've got..

Great. Thank you very much. Thanks for the color..

Thank you..

And next we'll go to the line of Faisal Khan with Citigroup. Please go ahead..

Thanks. Good morning.

I just want to understand a little bit in terms of what information do you have today versus what you had in the second quarter that caused you guys to take your fourth quarter guidance down, I guess, EBITDA guidance down by like 13%? So what was the new information that you were able to get that you didn't have back then that you have today? Because the problem is is that with the GP down 20%, I mean, it looks like things are compressing faster than people thought and you thought.

So that's the concern in the market and that's sort of why people seem to be focused around the unit margins, which are down versus your previous guidance?.

Yeah. And clearly, we feel the same pain when the market is down. I mean, we're never happy to deliver less than stellar results. We're, obviously, Faisel, a very crude-centric company, one of the most crude-centric in one of the most challenging markets.

But to answer your question, I think if you go back to our Investor Day that we had at the beginning of June and there we used the terms highly cautious and we flagged a couple of issues that we thought that were going to cause increased competition because of capacity.

I think what has happened over, since early June until the August maybe in which if you can think about that was roughly about a two-month period, and then now we've added another three months onto it. We're trying to calibrate that. We took a shot at it in the second quarter results call that was held on August 5, I think, and we missed it.

The bottom line is the competition from these incremental capacity that's out there and as well as the impacts of ship-or-pay where the shippers have shortfalls and the volumes they control has distorted some of the conventional relationships of basis differentials and to some extent has actually resulted in just severe competition that we – it was higher magnitude than what we really anticipated.

And so we're not only competing for the barrel at the gathering level to pick it up, but then we get to choose which pipeline that it goes on. If you go back and read the words carefully that will be posted in the script, we going forward are going to be taking a very aggressive approach to protect our market share, if you will.

And we have more tools, we think, than normal, but that doesn't mean we're not going to impact margins. So it's really the culmination of we gave it what we thought was a very good shot in the August guidance that we provided for the fourth quarter and third quarter.

We hit the third quarter numbers in general, but we're still seeing a lot of competition. So we've tried to really make sure we calibrate it to the best of our ability and it's just been the cumulative effect of that.

Harry, anything to add?.

Yeah, I mean, couple of things. We had some delays in some service based on supply plan. You just can't make that up in the year. Like Greg said earlier, we still have a lot of confidence long term in those pipes in the areas that we're located.

When you look at the oil price probably a little lower than we forecasted, that impacts our pipeline loss allowance volumes. And then a couple areas, we just had little bit of lower volume than anticipated, little – little steeper declines in Mid-Continent and maybe the Eagle Ford than we had thought about in August.

And when you compound that with some of the ship-or-pay or take-or-pay commitments that sort of exacerbates the – some of the differentials there. So those are impacts that – those are items that impacted the fourth quarter of the year that weren't embedded into our guidance in August..

Yeah..

I would also say, some of the inventory builds that have now started to have better contango opportunities really didn't develop until late. So you won't see much of that until the first part of 2016.

So all of that will be factored into the numbers that we provide in February, but more reason for us not to want to try to take another shot at something with less than the level of information we needed to give you a really good feel for 2016..

And certainly rail to was – was another drivers, that the sort of differentials out of the North Dakota area really prevent volumes from moving on rail, a lot of that's driven by commitments..

But then the question becomes that in the margins, the unit margins we see now in the – in your fourth quarter guidance, as you're throwing everything in the kitchen sink at it or could there be some sort of other, sort of ball that drops in the quarter? That's what we're trying to understand here, is that as you guys throw everything at that fourth quarter number and or could we still see something – is there something that could be unexpected that comes out of that..

Yeah. One of the biggest fluctuations that occur in our NGL business, it's seasonal.

We will give our best guess of what we think NGL volumes will be in the quarter – fourth quarter versus first quarter, but obviously weather can drive whether those earnings are in the fourth quarter or the first quarter, but if you look at that six-month period, there is not, we don't see a risk in that..

Yeah, Faisel, if I can break your question down a little bit.

It would, in any year, especially this year, but in any year, it would be never be a good thing to take a given quarter's margin and assume that's the base level because of the seasonality that affects first quarter, second quarter, third quarter and fourth quarter especially, the first quarter and fourth quarters are your higher margins, the third quarter and the fourth quarters are you lower on those basis.

And then as Harry mentioned, for example in our NGL business, the customers have to pull out of inventory and from whether we bought for them and offset it with contracts they have to pull it out by the end of the heating season, but they don't necessarily had to pull it out in the fourth quarter.

So we have to make an estimate whether it's going to be fourth quarter or first quarter. So there is some and that will affect unit margins as well as the volume. So – but to answer your question, we don't, I mean, we pretty much try to tell you everything that we know. We don't know of any other balls that would drop or we would have said it.

What we're trying to do is give you the best calculation and we got a constructive comment from one of our Director, before we got on the call, we said, we're not going to provide guidance for 2016.

So just make sure you let them know whether Plain can go up or down from 2015 and so we added the comment to the script that we still expect growth in 2016 and even more measurable growth in 2017. We're just trying to give you the best guess to quantify that for 2016, and we just need more data and we're going to get that between now and the call..

Okay. And last question from me.

Diamond Pipeline, so if Valero exercises their option, does that mean that they because you've already spent a lot of the capital on the pipeline? Is there some sort of payment that comes back to you or how does that work?.

Well, no, we – I mean, that pipeline is we haven't started construction in terms of actually laying pipe. We've been buying right-of-way and everything else. So we've incurred some cost and there would be some reimbursement of our sunk cost that it would just reduce our future capital going forward in 2016, and I think we actually extend into 2017..

Yes..

Okay. Yes, they would reimburse us for the cost we've had to-date plus a paring cost. So, they – yeah, they'd be 50%-50% heads-up basis, but they would be caught up. It's $900 billion project in total..

Got it. Thank you..

Thank you..

Next we'll go to the line of John Edwards with Credit Suisse. Please go ahead..

Yeah. Good morning, everybody. Most of my questions have been asked, but just the one that was on my mind, I'm just wondering and you touched on this, Greg.

The margins in S&L, the Supply and Logistics, I mean in a declining environment and you're mentioning there is some overcommitted shippers relative to volume they control, I mean how do you see that playing out over the next year or so?.

Well, I mean that's what we're trying to actually put our arms around pretty tightly. I mean, effectively John and I know you've followed the company for a long time, so you may have to dust off your memories, but we can go back to some discussions we had in the early 2000s.

We've dealt with situation where we've had overcapacity before and one of the unique aspects of PAA is I say unique, certainly one of the distinguishing aspects of PAA's business model is, we engage in the margin functions, so we can actually buy barrels and on a consolidated basis move it – pick which pipelines it goes on.

My earlier comments about being a little bit more aggressive in this environment and also monitoring our cost real closely is, we think we'll be able to capture some barrels and retain some barrels, maybe a better way to say it, that you do not otherwise would expect would have been pulled away.

And so, we're not really going back to the kind of – type of market that we saw in the early 2000s through most of the mid 2000s. As somebody asked the other day, said, what – how is the market going to react when you've got all this excess capacity out there. And the answer is, up until 2010 we had excess capacity throughout the entire system.

So we're used to dealing with it, we just need to basically adjust on things to be able to be as aggressive as we should be and we will do so.

As far as incrementally, it varies by particular counterparty as to whether you can compete against some of these guys, where they've got huge – if they've got a $5 ship-or-pay tariff and you're going to have trouble if they're willing to loose $2 at the wellhead to buy that barrel, so they can ship against their tariff and net that loss down to three barrels, if they don't otherwise have the barrel.

So, we're trying to dial that in, we've got a pretty good – better handle today than we did three months ago on just what those comments are out there, because nobody actually discloses those as publically as we'd like for them to, but you have a way of finding that. So we'll that information when we get to the February call.

But I think for that reason, we expect to see some of our gathering margins get under pressure as we try to retain and acquire barrels for our pipeline system that is why – I think that it's transitory, but that's why I think the baseline level of $500 million may be pierced during 2016..

All right. That's super helpful. Thanks. My other questions have been asked. Thank you very much..

Thank you, John..

Next we'll go to the line Jeff Birnbaum with Wunderlich. Please go ahead..

Hey. Good morning, everyone. Thanks for all the color this morning. Most of my questions have been asked and answered as well. So just one quick one from me. I understand you're kind of obviously somewhat reluctant to talk too much about financing or the use of the GP balance sheet next year.

So, maybe just ask both in sort of a slightly different way I guess. There is a number of owners obviously of PAGP including parties with capital available and certainly expertise managing assets.

So to what extent are you considering or discussing whether that's in addition to or even instead of alternative high cost equity sources, partnering with some of those existing owners of Plains to help drive growth and accretion at the LP level?.

Gabe, I think, your first interpretation was correct. We're hesitant to get into much in the way of detail there.

I would harken back and I was somewhat tongue in cheek with my analogy, but we haven't limited ourselves to 14 clubs in the bag, and that's certainly a club that we would think would be available, obviously you have to line it up against short-term and long-term objectives and you're going to try and balance all that against what the cost is.

So, I think, just now that our whiteboard is filled with a lot of different alternatives right now?.

Okay. Thanks, guys..

Thank you..

Next we'll go to the line of Sunil Sibal with Seaport Global Securities. Please go ahead..

Hi. Good morning, guys..

Good morning, Sunil..

Most of my questions have been answered, but I just wanted to get your take on the industry environment. Clearly I think what you are facing is not just particular to you guys.

And I was wondering, what's your sense of how the industry is kind of reacting to this environment, clearly there has been some infrastructure capacity overgrowth in many of the areas.

Do you – when you talk to your other counterparts in the space, get the sense that the industry as a whole is kind of coming together to be more rational in terms of adding more capacity, especially in some of the basins?.

And again, I want to just reference my prior comments in August that kind of got me a little bit chastised for appearing as if I was speaking on behalf of anybody other than PAA. So all of our comments today have been limited to PAA and specifically to our view of the crude oil market as it affects us.

I think, there's still of lot of capital out there, not so much from the public market, Sunil, today, but in private hands and at one point there was estimates of anywhere from 80 to 100 private equity backed management groups that were looking for midstream opportunities that can be both in the form of acquisitions as well as construction.

So I think the answer is region-by-region there is a bit of a different answer.

I think, there is some discussions, and I don't think it's inappropriate about some – longer-term some bigger pipeline commitments, but I think that's reflective of the long-term enthusiasm that the large producers have for the resource base and again what gives us rise for a fairly constructive, but not flat out bullish intermediate to long-term view.

As far as in the near-term I don't know that there is going to be anything incremental that's going to affect 2016 or early 2017 in terms of incremental construction. So it's really a longer-term issue than a shorter-term issue.

Harry, anything on that?.

No, I think that's right, there is still some longer term projects that are being developed, those are based on longer-term fundamentals..

But there is no bottlenecks or anything from the major locations right now that require incremental pipe that's not already in process.

There is certainly some debottlenecking within the extremities and so for example the Delaware basin, et cetera, whereas we're extending out that place, extending out – you know, we've built additional pipelines that then connect to our pipelines that get us to markets.

But as far as from like a Midland or from the Niobrara or from the Bakken or the Eagle Ford there is more than adequate takeaway capacity from those areas right now. We don't know of any big projects out there in the near-term horizon. That's not to say in the two-year to three-year horizon, you might not probably see some come up.

But there's yet – no, nothing other than what's been announced..

Okay. That's very helpful, and thanks for the color, guys..

Thank you..

Next we'll go to the line of Timm Schneider with Evercore. Please go ahead..

Hey, good morning. I was just wondering if you could maybe quantify for us just in the quarter and then I have a follow-up.

What reduction on the volumes was tied to timing versus a fundamental decline in kind of production versus cannibalization from some of the other pipelines?.

That was for the fourth quarter?.

Yeah. For Q3 and Q4, if you have it..

All right. Probably easier to talk about Q3..

Three quarters timing..

Yeah, three – probably three quarters of it was timing related. On the shortfall in third quarter, on the – some of that carried over from the fourth quarter, but I'd say most of the fourth quarter heritage is really going to be the latter – the other issues.

Yeah, the fourth quarter is – if you take the 200,000 barrels that was lower than we had originally forecasted, it's probably a third to 40% of that is just probably volume-related within the areas, and that's probably equally split between the Eagle Ford, the Permian and Mid-Continent.

In some of the Mid-Continent areas, some of those barrels was hedged to pipes. So it's a little – the impact to us is more than maybe the volume reduction in the area..

So one barrel of production depletion would cost us two tariff barrels through our system, because it may have moved from pipe A to pipe B, each of which has its independent tariff, and so you count those barrels based on a tariff barrel..

Yeah. Probably, another quarter of it is just timing on a couple of turnarounds on some supply pipelines and then maybe another 10% or 15% is buying from third parties that we thought would deliver to us, that don't deliver to us..

Got it. And I mean, if you look at, kind of if you look, the Permian specifically, you got hit with a bunch of expansions over the last couple quarters. Can you look ahead, I mean, you had Permian Express II that came on this quarter. But the next big one isn't till second half of 2017.

So do you guys think that we'll actually see the rates of the cannibalization decline over next couple of quarters? Or is there still a descent, I guess, descent room to go on or not....

Most of our volume in the Permian is on our gathering systems, and so it's really going to be sort of the pace development in the Permian.

If that make sense?.

But we think the Permian is probably going to be one of the more resilient areas for maintaining if not growing production even during that time period. So I think the answer to your question is, at this point in time is, yes, in the Permian area.

It's not so much a given answer in some of the other areas where you're seeing some declines and you still have people scrambling at the margin for barrels..

Yeah. I also should chime in that about 10% of the volume decline also relates to some of our Canadian assets. The dynamics in Canada are more of a rate based. So volume declines usually trigger some type of rate change as well. So it's not always one to one, but we do have the capacity in Canada to recover some of the volume declines through rates..

And then a last follow-up for me is on the strategic side. So obviously, the rollups have been a theme of the MLP into the GP.

If you go the other way, so GP into MLP, given that the GP is owned by, I think you said, 60%, 65% private, can you just give us maybe what are the steps here – is that just a vote across the private owners or how would that, just hypothetically speaking, work?.

I mean, once you've got a public entity, it's more complicated and there are no simple one vote and you're out kind of deal. I think our structure and, as I alluded to earlier, it gives us a few more options that probably weren't available to some that have already occurred.

And so, beyond other than saying that we're looking and analyzing what would be in the best interests of both PAA and PAGP's holders long-term really wouldn't be appropriate to comment beyond that..

All right. Thanks for your time. Thank you..

Thank you..

Next we'll go to the line of Ross Payne with Wells Fargo. Please go ahead..

How are you doing, guys? I know you touched on it a little bit earlier, but if you can speak to how you're going to manage your rail fleet in light of lower demand? And second of all, Greg, you kind of alluded to getting back to more normalized leverage metrics, I know it's somewhat preliminary, but can you speak to your expectations on when that might happen? Thanks..

Yeah. Just I'll try to reiterate kind of what I intended to say in the prepared remarks. Again 2016 is going to be challenging, 2017, we expect to see one of the projects that we have coming onstream that many of which are committed.

So we know they're going to bring incremental EBITDA and we think we have a feel that it's going to be additive, obviously there's an underlying business that's certainly being challenged right now. And so the best way for us to delever is simply raise EBITDA.

And you know, again, we're carrying, Ross, a lot of projects, I think we estimated in the $3 billion to $4 billion range, that's either on our balance sheet or included in what people expect us to put on our balance sheet, that's not yet contributing full EBITDA. So, you would expect that to be a major contributor to any type of deleveraging.

We'll continue to fund our capital program prudently. We've generally used 55% equity and 45% debt and we're pushing down next year's capital needs 25% to 30% is what our current thinking is right now. And obviously that's going to change as we get through our full budgeting process.

So, I would say, again 2016 is going to be challenging; 2017, we said – during 2017 we expect a lot of things to happen, one of which is the approaching and returning to the credit metric range that we like to have of 3.5 times to 4 times. And then also other factors that we talked about that we think will also – 2017 is kind of a critical year.

And on the first question, Harry?.

Yeah. So, on rail, we leased most of the railcars that we have, they're on fixed turns. They're sort of on a ladder basis. So, every year we have railcars rolling off. The way we manage is by not renewing railcars.

So we'll carry some railcars this year that won't be fully utilized in 2016, but the remarketing of that is pretty saturated right now already, so I'm not sure there's a whole lot of upside in remarketing, but the real answer is, we just scale back rail each year..

And then, we've got some rail facilities that we're opening up in Canada. So we're able to redirect some of our railcars back from an area that probably no longer needs railcars in certain areas of the Bakken, certainly don't need as many, to areas in Canada that are going to need it as their production rises.

And they're looking for other avenues to get crude volumes as a whole into the U.S. and in some areas particular crude oil volumes to a particular market. And I think our forecast for Canada volumes overall is they're going to rise about 200,000 barrels a day of production next year.

So clearly, that's going to – obviously part of the reason why we're constructing some of the rail terminals up there, but we are able to move the cars around..

All right, great. Thanks, guys..

Thank you, Ross..

Next we'll go to the line of Gabe Moreen with Bank of America. Please go ahead..

Gabe, you there?.

Hey, how it's going. This is Ben on Gabe's team. Just a quick question. Kind of given your footprint along the Gulf Coast and in St.

James, has the increase in waterborne crude imports had an impact on your business?.

The increase in waterborne imports? I would say most of the waterborne imports have been actually coming into the – if you look at East Coast and Houston area, the Gulf Coast there..

Yeah..

Yeah, no. Our business in St. James has been pretty constant. We have a full dock there. It's probably one of the – it's an asset that's highly utilized. So as imports ship, we have the opportunity to capture more volume at St. James, but it's a pretty full terminal to start with..

All right, great. Thanks, guys..

Next we'll go to the line of Selman Akyol with Stifel. Please go ahead..

That was actually pretty good. Good morning..

Good morning, Selman..

So couple quick questions, one is sort of a micro, one is more of a macro. First of all, Greg, you had talked about the remaining competitive.

So, I'm just kind of curious, are you guys offering price concessions on gathering and transportation or are you guys receiving requests by producers for concessions?.

Yeah. I think – and there was actually recently an article on Reuters where they published, I think we lowered tariffs on six pipelines..

Yeah. So, some of them were tied to – some of the tariff restructuring were tied to transactions where we had committed volumes and we had an established rate structure. So we had an incentive rate structure. Some in the Mid-Continent area were just to be a little more competitive and in areas where we thought we had some competition.

And then, that's really the two categories that the rate restructuring falls into, but yes, we have restructured rates in some areas..

Can we expect more of that as we go into 2016?.

I think we reserve the right to do whatever makes sense to be able to optimize the cash flows. I would, Selman, if you recall, we did that pretty aggressively in the early 2000s, especially in 2004 I think after we bought (1:08:10). We went in and tried to make sure that we had to balance the best.

We're not quite like Saudi Arabia, but we try to figure out what's the best balance of providing a service and at the premium price, but a quality service at a lower price with more volume. And so we'll look for those areas in just about every part of our asset base.

And we think that's going to be a major competitive advantage for Plains over the long-term as we work through this next 12 months to 15 months..

Got it..

When you think about some of those lower rates, they are associated with new volumes that have been committed to the system, so..

Okay. Thanks. And then this is more of a macro question. But you've referenced overcapacity several times, so I'm just wondering if U.S. production peaked at 9.6 million barrels a day, and today we're probably closer to 9 million barrels a day. Where does the U.S.

really have to be in order to better balance supply and transportation demand?.

That's a tough question. If you look at the Bakken alone, there is probably 1 million barrels a day of rail capacity, that's not being used. So part of the capacity, I mean, if you think of it this way, if you were one-to-one with production versus pipeline, right, that's not nearly enough. You need a lot of excess because your markets change.

The refinery goes down, that's in that region you have to have a way to get excess capacity. So you need some excess capacity above the normal operating levels just to be adequately supplied.

What's happened is I mean there's just a huge investment in all of these areas, and rail was a major carrier out of the Bakken because it was the quickest and the cheapest in terms of construction but the most expensive to move a marginal barrel on a variable basis. The trade-off was is that a lot of pipelines have now been built.

So, I mean, again if you just – you almost have to take it area by area, and in some areas like in the Permian, for example, we've got a lot of excess capacity there today on a takeaway.

But it's probably going to be one of the areas that everybody expects to be kind of last rig down, first rig is up to be able to go ahead and fill those pipes, which is part of the exciting part of that our view of really the intermediate to longer term.

So we've got a lot of excess capacity we may able to build in there, and so it really – it's going to find its equilibrium in each region and probably you're going to have to margin push out rail and trucks where you can anytime for a pipeline.

Having said that, what we've also seen is sometimes the cheapest transportation cost if it takes you to the worst market is not the one that you want to use. And we think the markets are going to go back to kind of a shifting dynamic here over the next 18 months..

All right. Thank you..

Next we'll go to the line of James Carreker with U.S. Capital Advisors. Please go ahead..

Thank you.

I just was wondering if you guys would comment on given your desire to limit your capital needs, how does that affect kind of M&A plans going forward?.

Obviously, any M&A transactions based on its unique merits, I don't think it takes us out of the game. We certainly need to and it's a relative cost of capital issue I think when we look at who our competitors are. So we've got several areas that we think acquisitions makes sense.

We've always found that there is appropriately priced and adequate levels of capital for really good transactions on acquisitions. So, James, we wouldn't use that that to say we're not in the acquisition game. We're more trying to make – because acquisitions, the great thing about them, they generally come with existing cash flow.

What we're really talking about, James, is the projects will have two-year and three-year lead times, where you're spending capital for cash flow that may not show up for 24 months to 36 months.

In this type of environment where we can defer those without cannibalizing our business platform, we're certainly in the business of doing and that's what we've been referring to earlier.

And in some cases, we've used in the past tools working with other parties to say, you've got to commit, we got to commit, let's build the pipeline together instead of two separate pipelines. So there are some things that we think we have the ability to do because of our platform, but we don't think it takes us out of the acquisition game at all..

And then in that M&A vein, is there any – I know it's always asked, but what are you guys seeing on the private side in terms of bid/ask spreads and valuation, certainly the public markets have come down, but what are you seeing on the private side?.

Aggressive top and we haven't really had many transactions to be able to measure that. I think as you know, people throw big hats in the ring and then try to substitute their smaller hat for once they get included in the process, but there is a lot of private equity capital out there.

So I think they're looking for a place to put it to work, but at the end of the day it has to make economic sense where we think we stand out a little bit. Obviously, we think our cost of capital is going to be higher than it certainly has been.

But we also have synergies and in this environment synergy should matter much, much more than they did when you were competing against the marginal public capital where you didn't have to have any synergies to have access to cheap capital. And I don't think I'd put private equity in the cheap capital category..

Sure, appreciate the color. Thank you..

Next we'll go to the line of Charles Marshall with Capital One. Please go ahead..

Hey, good morning everybody..

Good morning, Chuck..

Going on a limb here, but in terms of your possible asset divestitures into 2016 to offset capital needs, can you kind of discuss what type of assets you're looking to consider as maybe non-core, and if you're currently marketing a sale of any assets at this point?.

We wouldn't probably care to comment on either of those right now.

But appreciate other than the fact that we're open to the concept, clearly if we've got some non-core assets that don't fit and that that volume – using that capital instead of raising incremental equity that capital makes sense, that's certainly something that we're capable of making a logical decision on that, but as far as trying to identify which assets or what process we have is no, we'd just as soon not comment..

Okay. Got it. And then just in terms of waterborne cargos this quarter, so there were some volumes moves (1:14:40) segment.

Can you describe the barrel movement there and do you expect any further volumes going into 2016?.

I'm sorry, I didn't understand your question..

There was waterborne cargos, some volumes....

Those are opportunistic. I mean every once in a while we find opportunity for waterborne cargos. So it's just an opportunistic environment..

It was extremely, I think it was more a rounding in what came through the data..

Got it..

So I didn't understand. That may have been the question somebody asked earlier too, I thought the question was waterborne in general..

Got it. And just lastly from me.

For maintenance capital for 2016, can you kind of give us a good guidance number for where you expect sustaining capital be for next year?.

I probably wouldn't expect to be materially different than what we have right now. I think we're running $200 million to $220 million is kind of the range. Having said that, I mean obviously we are in the budgeting process and we haven't gotten that far.

So if it's $195 million or $235 million, I'm not going to feel too bad about that, but I don't think it's a meaningful shift..

Okay. That's it from me. Thanks guys..

Thanks Chuck..

All right. And next we'll go to the line of Ganesh Jois with Goldman Sachs. Please go ahead..

Yeah. Thanks, all of our questions have been answered..

Thanks Ganesh..

That was the last question..

Well, we've been on the phone here for quite a while, we just wanted to make sure that we took all questions that came in. We appreciate your support.

We certainly regret that any guidance that we provide has an impact on the equity price that's negative, but I can assure you we're working hard to basically put forth the best results and do the best things for the shareholders. Thank you very much..

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect..