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

Jeremy B. Tonet - JPMorgan Securities LLC Shneur Z. Gershuni - UBS Securities LLC Brian Joshua Zarahn - Mizuho Securities USA, Inc. Christine Cho - Barclays Capital, Inc. Ethan Heyward Bellamy - Robert W. Baird & Co., Inc. Tom Abrams - Morgan Stanley & Co.

LLC Ross Payne - Wells Fargo Securities LLC John Edwards - Credit Suisse Securities (USA) LLC (Broker) Michael Blum - Wells Fargo Securities LLC Becca Followill - U.S. Capital Advisors LLC Sunil K. Sibal - Seaport Global Securities LLC Andrew Weisel - Macquarie Capital (USA), Inc. Jean Ann Salisbury - Sanford C. Bernstein & Co. LLC.

Ladies and gentlemen, thank you for your patience and standing by. Welcome to the PAA and PAGP First Quarter 2017 Results. At this time, all of your participant phone lines are in a listen-only mode and later, there will be an opportunity for question.

Just as a brief reminder, today's conference is being recorded and I'd now like to turn the conference over to Director of Investor Relations, Ryan Smith..

Thanks, Justin. Good morning and welcome to Plains All American Pipeline's first quarter 2017 earnings conference call. The slide presentation for today's call can be found within the Investor Relations and News & Events section of our website at plainsallamerican.com. During today's call, we will provide forward-looking comments on PAA's outlook.

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

A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can be found within the Investor Relations and Financial Information section of our website. We do not intend to cover PAGP's results separately from PAA's, as PAGP's result directly correspond to PAA's performance.

Instead, we have included schedules in the Appendix to the slide presentation for today's call that contain PAGP-specific information. Please see PAGP's quarterly and annual filings with the SEC for PAGP's consolidated results. Today's call will be chaired by Greg Armstrong, Chairman and CEO.

Also participating in the call are Willie Chiang, Chief Operating Officer of U.S. and Al Swanson, Chief Financial Officer. Harry Pefanis, PAA's President and several other members of our senior management team are also available for the Q&A portion of today's call. I'll now turn the call over to Greg..

Thanks, Ryan. Good morning and thank you for joining us. Let me start the call by acknowledging that it was a difficult quarter. At the beginning of the year, we indicated that the first six to nine months of 2017 would be challenging, but with the expectation that performance would improve meaningfully as we approach the end of 2017 and early 2018.

That characterization remains true today. What we did not anticipate was weakness in our NGL business that would make the first nine months or so of 2017 even more challenging than we thought.

As noted in the press release, overall results from our fee-based Transportation and Facilities as well as our margin-based crude oil marketing activities were generally in line with the modestly above expectations despite an unplanned outage at our Salt Lake City pipeline system in February and March.

Combined with a few smaller non-recurring items, the impact to the pipeline outage was about $10 million. The first quarter results in our Supply and Logistics segment, however, were meaningfully below expectations. This was due almost totally to our NGL marketing activities coming in approximately $50 million lower than anticipated.

Results from our NGL activities were negatively impacted by warmer weather, increased competition in supply areas, and tighter differentials between Canadian and the U.S. markets among other factors.

Certain of these factors will also weigh on NGL-related results for the balance of 2017, and was the primary reason for reducing our current year guidance.

Looking beyond 2017, we are modifying the way we manage our NGL inventory as well as our contractual arrangements that will reduce earnings volatility and the quantity of seasonal NGL inventory restore in exchange for partially limiting our upside potential.

As noted on slide 3, first quarter adjusted EBITDA was $512 million, which was approximately $30 million all-in below the directional levels we provided in February. As also shown on slide 3, we have been fairly active with respect to acquisition and operational activity thus far in 2017, with a significant focus on the Permian Basin.

We completed the acquisition of two Permian Basin pipelines for an aggregate of $1.3 billion, announced the expansion of two existing Permian Basin pipelines and announced an open season for pipeline service from the Permian to Cushing. We also competed a major financing and initiated an expansion of our STACK pipeline in Oklahoma.

Despite both the expected and unexpected challenges of the first nine months of 2017, we definitely like the way the crude oil sector shaping up for the latter part of 2017 and beyond.

Specifically, producer drilling activity in almost every area is ahead of levels included in our outlook at the beginning of the year especially with respect to the Permian Basin. Rigs are becoming more efficient, laterals are longer, fracs are bigger and well productivity is increasing.

Our outlook continues to incorporate an increasing delay or time lag between increased drilling activity and increased production volumes as producers shift to multi-well pad locations.

Accordingly, we continue to expect our transportation volumes to ramp up in the later part of this year and our confidence level with respect to that outlook is increased particularly with respect to the Permian.

Since, our February call, Permian Basin rig counts have increased by over 20% adding approximately 60 rigs over the ensuing three-month period. Additionally, upstream and acquisition activity in the Permian Basin since the first year has been robust with over $7 billion in acreage transactions announced.

All of these transactions involve meaningful acreage positions in the Northern Delaware Basin.

It does not appear that rig counts currently fully reflect the expected increase associated with the recent upstream acquisitions and therefore we believe that those transactions bode well for sustaining, if not actually increasing drilling activity in the Permian Basin.

Consistent with our positive outlook regarding the next several years, we're seeing increased interest from potential shippers for pipeline space currently available on our existing assets as well as for incremental pipeline capacity.

In a nutshell, we're seeing tangible evidence of rising production momentum that will increase our pipeline utilization and have a very positive impact on our Transportation segment.

Although the timing is hard to predict, we believe rising production levels will provide some potential relief on margin compression that we've been experiencing within our Supply and Logistics segment.

We'll provide additional color during PAA's Investor Day in two weeks, but I do want to highlight that we have updated our Permian production outlook and currently anticipate a 2017 exit rate of approximately 2.7 million barrels per day which is approximately 200,000 barrels per day or 8% higher than the Permian Basin outlook we communicated in February.

Based on current and anticipated activity levels and a $50 to $60 oil price environment, this directional rate of increase is forecast to continue through 2019.

Collectively, these factors reinforce our outlook and confidence in a back-end weighted improvement during 2017 in our fee base growth and a meaningful increase in year-over-year performance in 2018 and beyond. With that, I'll turn the call over to Willie..

Thanks, Greg. Good morning, everyone. During my portion on the call, I will discuss our updated full year 2017 guidance, our 2017 capital program, and provide an update on several recent announcements. Slide 4 contains the financial operating guidance table that was included in our first quarter earnings release yesterday.

Our updated 2017 adjusted EBITDA guidance stands at plus or minus $2.26 billion. This is a reduction of approximately 4% or $100 million from our initial 2017 guidance that we provided in February.

The primary driver of the reduction is the first quarter shortfall attributable to our NGL marketing activities and our estimate of NGL margin compression over the balance of the year.

The impact of this adjustment is partially offset by strong performance in our Facilities segment during the first quarter and anticipated strong Transportation segment performance in the second half of the year as a result of the increasing producer activity particularly in the Permian Basin.

These changes are illustrated on slide 5, which provides a high-level walk from the full year 2017 guidance furnished in February to our revised 2017 guidance with the key variances noted.

Additionally, as Greg mentioned, we continue to expect our 2017 performance to be back-end weighted as we complete several projects over the next few quarters and build our volumes. This expectation, along with the impact of inherent seasonality of our NGL business, is also illustrated in the upper right portion of slide 5.

As shown on slide 6, we continue to progress our multiyear capital program which is expected to be one of the major drivers for our fee-based cash flow growth in 2018.

We have increased our 2017 expansion capital program from $800 million to $900 million primarily due to our STACK pipeline JV expansion, which I'll address in a moment, as well as some additional projects in the Permian, and an expansion of dock capacity at our St. James terminal.

Major projects in our 2017 capital program include completing the Diamond pipeline JV, build-ups of our Permian Basin area gathering systems and connections, including the Alpha Crude Connector gathering system, and our multiphase project at Fort Sask. In-service timing information for all these projects is included on slide 6 as well.

In the Midcontinent region, we're pleased to announce expansion plans associated with our STACK pipeline JV with Phillips 66 Partners.

As shown on slide 7, the existing pipeline from PAA's Cashion Terminal to Cushing will be looped which will expand the capacity of the system by 150,000 barrels per day bringing today capacity to 250,000 barrels a day. The system can be further expanded by approximately 100,000 barrels a day through the installation of additional pumps if warranted.

Additionally, the pipeline will be extended 35 miles west of the Cashion terminal through the heart of the STACK plate to further access area producers. This pipeline system is strategically located to meet the STACK productions growth takeaway needs and are supported by producer commitments.

We anticipate that the expansion will be in service in the fourth quarter of this year. I would also mention that our Alpha Crude Connector gathering system and advantage pipeline acquisitions have been successfully closed.

We're pleased to report that the Alpha integration went smoothly and is essentially complete, and the integration of our Advantage Pipeline JV with Noble Midstream is also proceeding as planned. Both these systems support significant long-term growth opportunities both in the North and Southern Delaware Basin.

Lastly, based on our discussion with several potential large shippers, we recently announced an open season related to capacity expansions of our pipelines from the Permian Basin to Cushing. The open season will provide additional capacity to Cushing for incremental volumes originating from Midland or Colorado City.

We believe we have sufficient demand to support an expansion of roughly 150,000 barrels a day from our current bottleneck Colorado City to Wichita Falls but if there is enough demand we could parallel loop the entire system from Midland to Cushing. A complete loop of the system would provide additional capacity of approximately 450,000 barrels a day.

New pipeline capacity to Cushing could be operational by early 2019. Regarding our previously announced BridgeTex and Cactus expansions both are on track to be complete this year. The BridgeTex increase will be ready early in the third quarter and Cactus will have staged increase starting mid third quarter through mid fourth quarter.

Our current outlook includes utilizing a good portion of this capacity in late 2017 or early 2018. With that I'll turn the call over to Al..

Thanks, Willie. During my portion of the call, we'll discuss our capitalization liquidity and financing activities, and provide an update on our non-core asset sales program.

As shown on slide 8, at March 31, PAA had a long-term debt-to-capitalization ratio of 48%, a long-term debt-to-adjusted EBITDA ratio of 4.8 times on an LTM basis, and $2.8 billion of committed liquidity.

Our leverage is elevated relative to historical levels and our target, primarily as a result of significant investments we have made to increase capacity throughout our Transportation and Facilities segment, compounded by margin compression within our Supply and Logistics segment during the industry downturn.

However, as noted at the bottom of the slide, during the first quarter, long-term debt decreased approximately $245 million and total debt decreased $619 million.

Looking forward, we anticipate that the proceeds from the pending asset sale will largely fund the remaining balance of our 2017 expansion capital program such that the long-term debt will remain relatively the same.

We are also undertaking a review of our hedged inventory management practices with an eye towards balancing our total debt level against optimum inventory-related earnings activities.

Moreover, as Greg and Willie highlighted, we expect to see meaningful improvement in our leverage over the latter part of 2017 and into 2018 through significant earnings growth as projects are completed and utilization on our existing pipeline capacity increases.

Additionally, we intend to manage our capital structure such that we expect to exit 2017 with a long-term debt balance at or below year-end 2016 levels, and with our short-term hedged inventory debt balance measurably below the year-end 2016 level. During the quarter, we raised just under $1.7 billion of equity.

This includes approximately $190 million through the PAA and PAGP continuous offering programs in January as discussed on our last call in February.

Additionally, PAGP completed an equity offering during the first quarter raising net proceeds of approximately $1.5 billion, the proceeds of which were used to purchase an equivalent number of PAA common units.

This offering funded the equity portion of our Alpha Crude Connector acquisition and the balance will be used to fund our revised 2017 capital program.

With the $1.7 billion of equity completed and pending the asset sale proceeds that I will discuss in a moment, we will not be required to access the equity market over the balance of the year, absent any material increase in our capital program or additional acquisition.

Based on our updated 2017 DCF guidance and with the accelerated and upside equity raise we completed in the first quarter, 2017 distribution coverage has been negatively impacted and is expected to be slightly below 1:1 for the entire year but strengthening to be meaningfully above 1:1 by the end of 2017 and into 2018.

As an update to our asset sales activity, our program currently sits at $1.2 billion. Of that, $550 million closed in 2016 and approximately $180 million has closed so far in 2017.

We have two pending transactions under contract totaling approximately $500 million that are anticipated to close in the second quarter or early in the third quarter depending on the timing of regulatory review completions.

We continue to evaluate additional opportunities to accelerate the achievement of our leverage objectives and high grade our asset portfolio by pursuing incremental non-core asset sales and strategic joint ventures. With that, I'll turn the call back over to Greg..

Thanks, Al. As highlighted on slide 9, during our February conference call we described 2017 as a transitional year with multiple events and anticipated fundamental improvements driving improved performance in late 2017 and 2018.

We also shared our views that the most important quantitative measure for assessing PAA's performance in 2017 will be at the level of preliminary 2018 adjusted EBITDA guidance that we furnish in connection with our third quarter conference call in November.

While not without some unanticipated challenges, on balance, we are incrementally more positive about 2018 than we were February. Summarized on slide 9 is a recap of items discussed during today's call that support outlook.

We intend to provide additional details supporting our outlook for 2018 during our annual Investor Day, which will be held in about two weeks. As a final note, we recently announced several officer retirements and promotions. These actions include the promotion of Roy Lamoreaux to Vice President of Investor Relations and Communications.

Many of you know Roy from his previous role in Investor Relations. Roy recently completed a multi-year rotation in a commercial role as Director of Business Development most recently in the Rocky Mountains and we're excited about his return.

Ryan will be rotating within our finance department to Director of Credit and will be working together with Roy to ensure a smooth transition over the coming months. I want to thank you for participating in our call today. Ryan has two brief items to discuss before we open the call up to questions..

Thanks, Greg. As Greg referenced in his comments, we will be holding our 2017 Investor Day on Wednesday, May 24, here in Houston. Although we are approaching maximum capacity, there is still space available if you would like to attend. Please call Investor Relations at 866-809-1291 for instructions on registering for the event.

Finally, before opening up the call for questions, we would ask that you please limit yourself to one question and one follow-up question and then return to the question queue if you have additional questions, so we can get to as many people as possible in the time that we have this morning. Operator, we're now ready to open the call for questions..

Thank you. Our first question comes from the line of Jeremy Tonet with JPMorgan. Your line is open..

Good morning..

Good morning, Jeremy..

Just want to touch base as far as expansion to Cushing from Basin, and was just wondering a lot of industry participants say that the incremental production being light in nature would want to find its way to the water for export.

And just wondering, extending into Cushing versus Corpus just if you could walk us through your thoughts there?.

Let me take a crack at that..

Yeah, go ahead..

So, we think there's going to be some incremental demand coming out of Cushing. If you look at some of the dynamics that have occurred, Diamond Pipeline will create something in the order of magnitude of 170,000 barrels, 150,000 and 170,000 barrels a day of new demand out of Cushing. It was previously sourced from Gulf Coast areas.

Our Red River pipeline probably has another 50,000 to 75,000 barrels of demand of Cushing-based Midcontinent crudes. We recognize, we have increasing supply of STACK production coming in but that will also most likely be offset by lower volumes of Bakken crude coming in with Dakota Access going into service.

So, all-in-all, we think there's enough demand to satisfy at least 850,000 barrel a day expansion of the Basin pipeline system into – it's not really an expansion of Basin pipeline, it's an extension of our Sunrise pipeline system to debottleneck Basin into Cushing..

And Jeremy, I guess, there's two issues, and Harry hit on the demand side of it. Again, if you add those numbers up, there will be incremental pipeline export out of Cushing of roughly 200,000 barrels a day. You need to source that somewhere. The other side of the equation is, the rising production in the Permian Basin needs to find an outlet.

We've talked about this in the past. And today, I think it's not quite on everybody's radar screen but we think it will be in two or three years.

And that's ultimately, you're right, the lighter production is going to want to try and find its way to the water, but there's a lot of better quality or lower gravity crude in the Permian Basin that either through segregation or just simply a lack of blending within the Permian Basin can cause some of the better quality crudes to go to the better markets for it.

And then some of the lighter quality crudes to go to the markets that are best for it. So, with our ability to take crude to Cushing for the better quality and our ability to take some of the lighter quality crude down Cactus to the water, we think we can provide producers both solutions..

Okay. Great. Thanks.

And then for the NGL activities during the quarter, hope you could provide a little bit more detail on what went wrong there, or I guess it seems like your changing your contract provisions to kind of stamp out some of the risk there, but I was just hoping that you could provide a bit more color on what happened there specifically in – how you can ensure that won't happen again?.

Yeah, I mean, if I could probably say what you're thinking, it was a terrible quarter for NGL. And with respect to kind of what's happening, and I'll let Harry kind of help clean up any of my misspeaks here, but clearly, if you follow some of the other MLPs, it was a bit of a warmer weather and it created pressure on margins because of that.

So, you have to clear the product out. In addition, what we're seeing and quite candidly, Jeremy, our job is to look around corners and see problems before they show up. In this particular case, we were either late or, in some cases, didn't see it.

And there's been a dramatic increase in exports that's kind of changed the dynamics in some of the regional relationships that affect margins. Just to put it in perspective, I think first quarter 2017 exports of propane-related products was order of magnitude 1 million barrels a day.

That's up 50% over what it was in the first quarter of 2016, and it's up somewhere close to double what it was in the first quarter of 2015.

So, what's happened and, in some cases, we've had situation where we've had inventory that was based on old contract structures and the clearing mechanism was always if you didn't have enough of a warm winter to get it out of that location, you could ship it to a place like Bellevue.

Well the infrastructure was basically full, and we didn't have the ability to get that out of there. So, we ended up basically getting our face peeled off on the margin on that. What we've done already is we've changed the contract structure and put basically floors underneath there.

We've given up some upside to do that, but given what just happened, we think that's a good tradeoff. And so, where we can, we're basically going through – in fact in many places already, changed the contract structure so that it won't affect the 2018 season. It's certainly going to affect the rest of summer 2017 just because of some of the dynamics.

And then, in addition to that, candidly we'll carry less inventory, and I think the market will be a little bit more at risk and have to put a higher value on our storage assets if it turns out that because we don't carry enough inventory, they can't get all the products that they need.

The next season around, that should manifest itself into a recognition of the value of our storage..

And a little bit more on just, sort of, what compounded the impacts of a little warmer weather in February, the dynamics of warmer winter decreasing demand in, sort of, the demand markets in the U.S. But you also had some products like butane that were in backwardation.

So, when you would typically have a weak market, you would expect a contango, but there were some dynamics that caused butane to be backwardated, so when the hedges rolled to meet the demand, there was a cost associated with that.

And that's somewhat Greg touched on, on implementing processes to better manage the inventory and match it with the demand cycles..

And since you asked, I'll add one other element that's affecting Canada margins for the rest of the year. And that is, there's other – especially in our Canadian markets, there's incremental frac capacity coming onstream. And so, the bottom-line is the purchase price for the feedstock for that has gone up. It's impacting our margins.

And so, this was kind of a real – recent development because a lot of those facilities weren't in service. And obviously with the downturn, some of the activity that they were built for hasn't manifested itself as much in the Canadian production market. And so, there's more competition for that incremental molecule.

Effectively, it's a microcosm or at least a view of what's happened in certain areas in the United States where midstream capacity got ahead of the production volumes. The downturn happened, and as a result of that, there was margin compression fighting for the incremental barrel..

So, it's really those three elements that we just talked about, I'll, kind of, add it together. We chose not to try and put that in the press release because everybody would've quit reading but, well, I'm glad you asked the question..

Great. Thanks. And I'll hop in the queue for my other questions. Thanks..

Thanks, Jeremy..

Our next question comes from the line of Shneur Gershuni of UBS. Your line is open..

Hi. Good morning, guys..

Good morning..

The S&L segment seems to create a lot of noise and anxiety each quarter. But, I think, you gave a thorough explanation to Jeremy's questionnaire, so I'll leave that for now. But you've had a lot more success at guiding your facilities in the Transportation segment.

And you've got a big 4Q exit rate for Transportation, and it sounds like not all of your growth projects are, kind of, included in that number.

How much does the 4Q annualized rate step up in 2018? And does the step-up basically offset all of S&L kind of on a go-forward basis? Do you have any plans to talk about that at the Analyst Day or are you able to provide that now?.

That's a great question and the answer is yes, we do intend to talk about it at quite a bit of length at the Analyst Day. It will be hard on this call to try and condense 100 slides into the time that we have. Willie, you want to answer the question on kind of the step-ups as we go through the year? Go ahead..

Sure. As you think about the rest of the things we've got this year, it's predominant – the leverage is the Permian Basin. So, as Greg talked about the increased expectations for production, we've got this great system out there we've built and we continue to build.

So, it's becoming gathering projects, the long haul pipes, those all start to fill up in the end of the year. And you'll see those – that should carry over to 2018. The other thing is we've got projects that we're completing, the Diamond Pipeline will complete, STACK JV will complete. We've got a number of new tanks we've put in.

So, all those will contribute to 2018 numbers..

So, you'll see part of that, for example, the Diamond, I think, will be up, we'll be filling the pipes certainly in the fourth quarter. You may see a little bit of that, but then you won't see the full benefit of that until 2018.

The same thing is true for – as Willie talked about in his prepared comments, the Cactus expansion that we've got coming on won't be totally complete until about midway through the....

Fourth quarter..

...fourth quarter for the last piece of it. So, if your question is if Supply and Logistics remain challenged, do we have enough fee-based activities to offset what we've given up plus some, and the answer is yes.

And that's – Al comments about our kind of robust look at improvement in leverage metrics is really underpinned by a fairly significant step-up in the fee-based aspects of not only Transportation but also our Facilities.

Because we've got our Fort Sask and other projects coming on that are basically committed in – as we go through this year and part of next year. So we're going to try to highlight as much of that as we can at the Investor Day that's coming up in two weeks..

Great. And just a clean-up question here, you mentioned two pending transactions for $500 million. Does that negate any need to issue any more equity this year? And also, you had a small decline in transportation profit per barrel.

Is that just a reversal of deficiency payments as volumes return?.

In the transportation per barrel, I mean, there can be volume mix. I mean, we've got short hauls and long hauls. And so depending upon how the volume shift, if you had a significant increase in short haul volume, okay, it wouldn't take away from your long haul margin, but it dilutes the average.

So, I wouldn't get too carried away by variations in those volumes. And they are going to be dynamic as we go forward. I think Al covered in his section that at this point in time, we see no reason for incremental Capital Markets Day activity on the equity side either through the ATM or the – any kind of overnight transaction..

I think Greg mentioned in his comments also, we had about $10 million impact from a pipeline that was down in the quarter..

Great. Perfect. Thank you very much, guys..

Thank you..

Our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is open..

Hey, guys, this is Corey (30:11) filling in for Chris. Actually a quick follow-up to Shneur's question about the Transport volumes. So, it looks like you raised the guidance for the actual volumes by about 150 a day, but EBITDA only went up about $10 million. So that's a relatively muted EBITDA per barrel relative to your guidance.

So, just wondering if there are any offsets that are happening that we're not seeing or if those are just lower margin barrels that are being added on to the previous guidance?.

Part of it will be also MVC related. So, for example, to the extent they've already paid us but they've not shipped – haven't shipped the volumes, so there will be some of that noise in there, Corey (30:48), each quarter in there as we get better information. Some of these – we have certain annual make-ups for some, multiyear make-ups for other.

So when they communicate to us that they're going to try and ship and make-up, we include that in our forecast..

And then, remember the first quarter was impacted by the incident that probably reduced volumes by 50,000 or 60,000 barrels a day in the quarter..

Okay. So, it's also – it's even more than the 150 then? Is that – what we're supposed to take away from that? It's about 210....

First quarter would've been higher volume if the pipeline would've been in service for the whole quarter..

Yeah, yeah, yeah.

But if you raised guidance, full year guidance for volumes by 150, that would imply that actually it's more than 200 a day raised, right?.

Well on a blended average just keep in mind that that was already in our forecast before. So, I think wouldn't have changed our forecast.

So, it would have been just the $150 million, but again, the MVCs, for example, if somebody is shipping 50,000 to 60,000 barrels a day and effectively no incremental tariff because we've already recorded through adjusted EBITDA, then, Corey (31:59), that's going to affect your lack of step-up in (32:02)..

Okay. Okay. That makes a lot of sense. Right. That's helpful. All right. And then, just as a follow-up and, Willie, I think, this would probably be for you. It kind of refers back to that chart, that illustrative chart on slide 5 about the seasonality of the EBITDA there.

So, it looks like 3Q is fairly close to 1Q which implies a fairly large step up in, obviously, 4Q.

And from a percentage basis, it looks like S&L is driving up a pretty significant piece of that and I know you guys get this question a lot, but just given how fickle that S&L business has proven to be and the fact that you do have those PIKS converting to cash by 2018, just is that 1:1 to 1:1.5 coverage still the right scenario to play here.

And I guess as a follow-up to that is, would we expect in 2018 as you do have the more ratable Transportation and Facilities EBITDA ramp up, can we expect that S&L will not be contributing to the distribution in the out years?.

Well, I'm not so sure I can break it down exactly the way you did it. We certainly expect over time S&L to recover, but our track record of recent of trying to predict S&L at any given quarter much less on the future years have not been too precise.

So, I think what I was trying to communicate to Jeremy earlier is I think we've got significant movement in our fee based transportation and facilities that we think would overcome the weakness that we're experiencing and potentially even more if it was to happen because we just got so much of the harvesting, if you will, of the capital expenditures that we made.

And then there's also some MVC step-ups that are already associated with assets already in service. It's just there's a ramp out there. So I guess I'm not quite sure how to interpret your question other than the fact that we've – the big step-up in the fourth quarter is related.

There's a seasonality to a part of our S&L business, and that's what's reflected, a portion of it at least in the fourth quarter as you see there. And I think you probably gauge the relationship of the first quarter and the third quarter directly..

And Corey (34:12) maybe – this is Willie. If I can just add, I'm not sure I got the full gist of your question, but when you look at that illustrative by quarter slide on the top of page 5, that's what you're referring to. Our fee-based business ramps up steadily through the year so second, third, and fourth quarter.

It's the green S&L piece what Greg was talking about. If you – the fee-based business is increasing as we go through the year..

Okay. That's helpful. I think – yeah it was a little convoluted the way I had asked that. I think the primary gist there is that, we were always told that, kind of a good baseline to think about for S&L is that kind of $500 million to – sort of low $500 million EBITDA per year.

But clearly baseline is different than floor which is proven to be the case at least in 2017.

So just as it relates to distribution expectations in the future, can we think about a distribution range that would consider S&L floor as part of the payout and not really anything more than that?.

Yeah. We haven't gotten that precise, but I would tell you we are targeting the 110, closer really to the 115 range. And if, in fact, it takes longer for S&L to build up, it may delay by a quarter or two. Somebody might have thought we were going to reengage in raising the distribution.

But right now, our primary focus is getting that coverage back to the 115. We think we can do that through a substantial build in our fee-based transportation and storage facilities. And right now, we're – I mean, I couldn't give you an answer on Supply and Logistics other than the fact we're trying to figure out how much of this is one time.

I mean, again, we made changes to the NGL related, and it's not going to fix the rest of this year, but it should fix all of 2018 with higher confidence level. And so, we're taking the steps necessary to make sure that it is effectively a non-recurring issue as opposed to an unpredictable issue..

Got you. Okay. Thanks for all the color, guys. Appreciate it..

Thank you..

Our next question comes from the line of Brian Zarahn of Mizuho. Your line is open..

Good morning..

Morning, Brian..

Guess on Supply and Logistics topic. Historically understanding the seasonality and variability on differentials.

Historically, what has been the average mix of NGL and crude marketing, cash flows in S&L, is it similar to the volumes?.

No, it's varied over time partly because of acquisitions. I'm looking at Al here, and clearly in, gosh, 2012, 2013 and 2014, Brian, when we were pushing upwards of $800 million to $900 million, this was predominantly on the crude oil side of it.

And it's shifted as margin compression happened first in the crude oil side of it, and some of the constraints that caused that to come down have been relieved and not to – I mean, just to remind people, at the point in time when we were having these conference calls before, and we were reporting some really stout numbers in supply and logistics, we went out of our way to focus people on the fact that many of that was not necessarily predictable and in some cases, not recurring.

So, at this point in time, we're still kind of feeling like we're around the 500 base when things kind of return to normal.

But annually, Brian we're trying to figure out what normal is because normal didn't use to involve three times as many competitors as we have now that have gotten in the business because it's not been as fun to be in natural gas or at least had not been for the last two or three years.

So, there's clearly some things that we saw coming that we could foreshadow and say don't count on this being recurring, and there's been margin compression that we didn't see coming because of newbuilds and the MVCs and basically people willing to take a loss on the S&L to fill up an MVC on their fee-based activities.

So, hopefully that kind of addresses the direction of your question. But today, I think the answer is we'll try and cover that at the Analyst Day to try and give you a breakdown of kind of what the percentage is between NGLs and crude to see if you can, kind of, do a relationship.

I think what you're trying to do, let's say, is it a function of volume? And the answer is not so much..

Okay. Understood. It's a fluid environment right now. I guess on the topic of increasing competition, obviously, robust production growth in the Permian is attracting some new entrants.

How do you assess the competitive landscape going into 2018 and potential impacts to your base business and growth projects? Is there enough to go around or is this something to monitor in terms of increasing competition for crude infrastructure?.

Well, there's no question, it's intensely competitive. I think there's probably been three or four announcements of projects to try and move crude from the Permian basin to the Corpus Christi area and in at least a couple of those cases, these are players that aren't really meaningful players today in the Permian Basin.

So, clearly, the robust outlook for crude production is attracting other parties in there. We think, ultimately, we stand the best chance in – I say the best chance – certainly a very good chance against many of them because we can leverage off of our existing asset base and infrastructure.

What we can't rule out is that somebody basically buys their way into the business by willing to take an unbelievably low return or at risk of almost no return if the volumes don't develop. So, one of the things I mentioned earlier on the question I think that Jeremy asked, and I brought up, was the crude quality issue.

I will say that to the extent we have producers or end users that are focused in on quality, I don't know of anybody else in the basin, maybe one other of our competitors, that can actually segregate and deliver the high-quality barrels that those end users would want than Plains because we start at the wellhead and we go all the way to basically either the refinery inlet or to the export location.

So, hopefully, that carries the day on distinguishing between, all things being equal, do you go with Plains or brand X.

Ultimately, we're certainly being beat about the head and shoulders severely by basically, the comment that we'll be able to build it for transportation of X, and we'll say, well, they don't really have a system, but the answer is, they're willing to do it and the producer or the shippers won't take that risk. We've got to be sensitive to that.

So, we're being competitive. We're looking at our excess capacity and saying, how do we price that to make sure we're competitive against newbuild opportunities. And that may mean giving up margin somewhat on the transportation side to gain volume and keep our competitive edge there.

So, start off again saying – or end up the way I started, it's very competitive out there, but I think we've got a competitive advantage..

I appreciate the color. I look forward to additional color at your Analyst Day..

Thanks, Brian..

And the next question for us comes from the line of Christine Cho of Barclays. Your line is open..

Good morning, everyone. I'd like to start on the S&L business.

If I'm just to look at that illustrative graph that you guys provided, whereas now EBITDA is lower in 2Q and 3Q, and combine that with today's revision for the S&L guidance, it would appear that we're going to see minimal EBITDA in the next two quarters, which then sets up for a big 4Q expectation to meet full year.

I was just wondering how confident are you in this number given the NGL weakness we saw this quarter as well as the large amount of crude pipeline capacity that's slated to come online in fourth quarter of this year that I would think would put some continued pressure on the spreads?.

Well on the bump in the fourth quarter, you're going to realize that a lot of that is the seasonality in the NGL business. So, it's possible that some of that could swing over to the first quarter or some of the first quarter demand could swing back to the fourth quarter, really be sort of weather sensitive.

But the way we've structured our contracts and our business, we should see that margin, it's just which quarter it flips into on the NGL side. On the crude side, I think we've been in a situation where it's been very competitive because of minimum volume commitments, and what we're seeing is, we'll start seeing some MVCs roll off in 2017 and 2018.

We'll see new MVCs come on in 2017 and 2018. We also see increasing production that today is going to satisfy deficiency credits that existed. So, anything can happen, but we think we've gauged the competition and the impact that it could have on our margins fairly well in the second and third quarters..

rising production, fulfilling some of the MVC commitments that are there, so there's not as much pressure on the margins. And then at the same time, rising volumes beyond that but also what we're a little bit worried about is, is the capacity going to be there in time.

I think between Plains and Magellan and Enterprise, we're all doing the most prudent thing we can, which is try and bring on more capacity as much as we can to avoid a train wreck out there.

But you are seeing the recognition of the markets at least that there's an improving differential or return to the differential where there's a potential for space to get tight out there in the Permian, and we're seeing, as we said in the press release and we said in our prepared comments, we're having some conversations with shippers and producers today that we weren't having six months ago about concern about making sure how they secure export capacity out of the Permian Basin to make sure they have a market..

Okay. Very helpful. Thank you. And then just on this call, you guys have talked a lot about Diamond coming online later this year. How should we think about what's going to happen on the Capline? If the volumes fall off here because 200,000 barrels per day are flowing through Diamond plus or minus.

Is there a scenario in which this pipeline can keep running as it is currently configured today?.

So, that's a great question. There's three partners in that pipeline, us, Marathon and BP. We're probably of the view that the answer is most likely no. But we're not only one of the partners. We happen to be the largest one.

And I will say this that the annual cash flow or revenue contribution to us one way or the other is probably order of magnitude 10 million or less..

Yeah..

So, if it does shut down, we think it creates an opportunity to redeploy the asset to another type of activity. There's a potential that it could be in purgatory for a little bit. But ultimately, there's operational issues that need to be factored in as well.

And then, you didn't touch on it but Marathon also purchased – they're the other big user of pipeline space on Capline and they have purchased Ozark and plan to expand this. So, they're certainly planning on at least fulfilling part of their needs from Cushing through that pipeline system, we believe, and then they've also become a partner in DAPL.

So, if we're having this discussion five years from now, I'll be amazed if Capline is still in service, where, between where we're at right now and five years from now, it happens is hard to predict..

Okay. Great. Thank you so much..

And the next question for us comes from the line of Ethan Bellamy of Baird. Your line is open..

Hey, guys.

You've had some protestors on Diamond, will that be on time and what kind of a multiple all-in should we expect there?.

I don't think we've disclosed a multiple. Right now, I mean, we're planning on bringing it on time or we wouldn't have said we were bringing it there. We certainly take in pages out of the playbook of what didn't work.

And we've consulted with the guys at Energy Transfer and they've been open about trying to say, hey, if we do things differently, here's what it would be. We're working with the locals and the local tribes and everything and trying to be as good a citizen as we can, high level of engagement, doing everything the right way.

We think they did as well but we probably certainly had the ability to emphasize and take steps that in hindsight would have told all of us that it'd been done differently. And so, I can't tell you what happens in the future about activist, but I can tell you we think we're doing all the right things to bring it on time and on budget..

Ethan, this is Willie. We haven't seen any significant unplanned delays due to protesters so far. So, so far, so good, but as Greg said, we can't predict the future..

Okay. That's helpful.

And then with respect to the expansion projects, can you give us, maybe a range of multiples or a median multiple on what we expect on net capital?.

Now, let us think about that for the answer, I mean part of it is a little bit – we're leveraging off of our existing system is who gets the benefit of the incremental cash flow, if we're – is it the incremental capital that you spend or is it the leverage on the system that you have because most of the things we're doing aren't standalone, and I'll probably stop right there..

Fair enough. Thanks, Greg..

Okay..

It looks like our next question comes from the line of Tom Abrams of Morgan Stanley. Your line is open..

Thanks a lot. I just want to go back to – relate some of the earlier questions to the $1 billion operating leverage number that we've talked about in the past, and I think 40% of that was S&L. So you're changing the way you operate, maybe some upside.

Is that $400 million less now because of the way you're operating it?.

Yeah. But part of the issue, Tom, is going to be what do you add it to. And so we'll be trying to address that at the Analyst Day with some additional color that probably we couldn't get in to as much detail on the phone here today. But we'll try to revisit that $1 billion uplift and refresh it and refine it.

In some cases, there's some ups, and in some cases, there's some downs. But we'll be trimming that up in about two weeks..

All right.

And just to follow up on the MVCs which underlie, I guess, the delay in part to the recovery on the Transportation side, are we seeing any progress toward chewing through those MVCs or are we just going to another quarter where we really, because of some other things, haven't made progress in having the pipes fill up, if you will, with volumes underneath those MVCs?.

No, I think you – and again, we're seeing it on the Transportation side of it. We have yet to see it materially on the S&L side of it. And that's very hard to predict what's going to happen as people start to take pressure off of the system a little bit. But volumetrically, absolutely.

I mean, we're seeing part – and I can't remember who asked the question earlier – but part of the reason that the volumes are going up in the tail end of the year is there's enough volume for people to catch up on some of the MVCs that they were short on.

And clearly, because of the encouragement we're getting to hurry up and finish our expansions that we have announced both on BridgeTex and on Cactus, we're seeing interest in not only filling that space up from people that believe they've got volumes coming but also talking about what expansion opportunities we have such as the Basin expansion.

So, I think in the Permian, to answer your question is, no, we're making a good progress on the Transportation side, yet to be determined what exactly it's going to do to the S&L business.

But again, the fact that the differentials have gone from trading at a premium to Cushing and Midland to trading at a discount, it would tell you that, it has the potential to come sometime hopefully, it's in 2018..

All right. Great. We'll see you in Houston..

Looking forward to it..

And today comes from the line of Ross Payne with Wells Fargo. Please go ahead..

How you're doing, guys? And this might be a question for Al, but Moody's would like to see you get about to 5 times by year-end with their adjustments down from prior write-ups of 5.5, I assume they're still looking for 5 times with their lease adjustments and preferred equity treatment, et cetera.

If you look at slide 8, it looks like year-over-year you've got a slight increase. I think they had you at 6 times leverage for 2016, and it looks like your long-term debt-to-EBITDA is going up a little bit year-over-year.

So, how are you going to get to 5 times? And I guess the second question is, if Supply & Logistics does not make your number by Q4 and leverage comes in higher than they expect, how much are you willing to defend that rating? You've got S&P and Fitch.

Are you okay with two out of three in case they move you down, or are you willing to do everything including maybe a distribution cut to keep Moody's? Thanks..

I'll start. And maybe let Greg address that end part of it. But clearly Moody's is focused on it. All three agencies are wanting to see us get to that 5 times under their metric. You add roughly a turn to long-term debt, so the four-eighth, roughly five-eighths under the metrics.

All three have a slightly different approach, but they're pretty consistent now. Clearly, we expect to see cash flow growth. Leverage, as you know, Ross, is the numerator-denominator. And so clearly, we just took the denominator down on a trailing basis with the adjustments in our guidance.

We've got other tools and other things we're looking at on the numerator side as well. So, we're very much focused on that. We want to retain Moody's. We want to retain all three. And the bottom-line is, is that we fully intend to do that. Clearly, asset sales, as I commented, we're continuing to focus on the portfolio there.

Managing our hedged inventory debt lower is another tool. And so, we're focused on both of them. Clearly, denominator came down. Numerator is something that we can work on. We do have access to the equity markets, to the preferred market, et cetera, asset sales, as I mentioned. So, I'll let Greg kind of finish on the back-end of that question..

Yeah. I think on – well, what you should take away from that is we've got a lot of arrows in our quiver to defend the investment grade rating. We do want to keep all three. And we can't control what somebody does or how they change their views. But, I think, our target is to get to 5 or less by year-end.

And as Al said, there's other things that we could pull besides just an EBITDA trailing number. One of which, and I think, Ross, you would agree with is that the trailing number is a metric, but it's not always the most important metric.

If by the time we get to year-end, our fee-based contract committed run rate for EBITDA has solidly performed in the forecast we are; you sit there and say, gosh, a quarter or two that thing changes, okay? Then I think that's a consideration all reasonable people should take into account.

As far as distribution cut, I would tell you, that's not on the table right now because we don't think it's appropriate, especially given where our look forward is. Distribution should be based upon the ability to generate it on a perspective basis.

And, again, we see 2018 as returning and even the tail-end of 2017 returning to well above 1:1 and meaningfully above as we get into 2018, as we step up with these fee-based growth and Supply and Logistics sags more than what we would have thought six months ago.

We don't think that changes our coverage, it may change the delay in perhaps raising the distribution depending upon what the nature of that lag is..

Okay. Great, guys. Thank you very much for your color..

Thank you..

And the next question comes from the line of John Edwards of Credit Suisse. Your line is open..

Yeah. Good morning, everybody, and thanks for taking my question. I don't know if you've answered it to an earlier question on the S&L.

If you go back to that slide 5, you've got the – where the relative contributions are – not much contribution Q2 and Q3, another big step up in Q4, and just – is that going to be a volumetric contribution there or is it margin? How should we think about that? I know likely you'll say, well it's a combination of those, but I just thought if you have any color on that, that would be great?.

No I think – I mean, it's primarily margin. Because there will be some volume sag because of the seasonality of the NGL side of it. But we'll have volume growth, we expect in the Supply & Logistics on the crude oil side. We tend to view it as an integrated system. And clearly, we're trying to move volumes and fill up our pipe.

And if you recall, some of Harry's and Willie's comments, four or five quarters ago, we understand that we may have to give up margin on the Supply & Logistics to get it to the right pipe location.

We do think we're starting to see – and again, it varies by region, but clearly in three of areas the Permian, the STACK area, and the Eagle Ford, we're seeing volumes not only level out but growing and effectively all three of those areas in our Bakken area and certain other areas in the Rockies, our margins are still under complete attack because there is not as much recovery there and there is a lot of incremental pipe competition.

So, it's a combination of those two which is what we presume. But we typically see a sag in profitability during the second and third quarters, it's just going to be more pronounced because of some of the carryover – the hangover effect, if you will, the time it takes us to retool some of our NGL activities..

Okay. That's helpful. And then, my second question. You indicated with regard to inventory management, you would limit your upside a bit. And I'm just – I mean any quantification you can put around how you're thinking about the upside limiting as you've in effect – as you're putting some floors in there..

It's a balance with also, as Al mentioned, in terms of how we're trying to manage our credit metrics as well. But in certain areas like in the NGL side of it, quite candidly, I think we've been the mullet of the industry in terms of we've been carrying more inventory than we've been paid for in terms of the service.

And so, if we quit doing that and it turns out to be a co-winner, I think people will recognize, gosh, there's value and trying to make sure somebody stores this and we need to be protected. Our game plan here is to provide a service not to provide a commodity exposure for them.

So, it will vary within the commodity and it will vary by the region, and it's going to be painful for us to try and make sure the market recognizes because we're going to maybe have to forego some margin that we can make if we were willing to carry inventory, but if we're not making enough for the risk and we can't retool our contracts, then the answer is we'll make the storage available to third party.

If they want to lease it from us, that's fine. If they don't, then we'll just wait until next year and see if they still (01:01:18) not important..

And our next question comes from the line of Michael Blum of Wells Fargo. Your line is open..

Thank you. Just maybe following up on that topic.

So, when you talk about managing the hedged inventory facility going forward and kind of limiting the risk there, are you only talking about the NGL side of that business or also on the crude side?.

From a credit metric side, we're talking about both of them. From a managing the margin side of it, it's more on the NGL side for the reasons, Michael, that I just mentioned on the prior question..

Okay. And then, second question is you've kind of talked informally in the past about potentially looping Cactus, if there's shipper interest to go to Corpus, obviously, there's a bunch of projects shooting for Corpus.

Could you just give us your latest thoughts on that potential project and just generally your thoughts on crude going there and all the competing projects?.

So, what I'd like to do is defer that to the Analyst Day because I think we'll end up with a much more effective discussion and presentation on that. Clearly, as I mentioned earlier, we've got a fairly significant increase in our capacity on both BridgeTex and on Cactus, and we're having engaged discussions about that.

There's certainly other competing projects out there. We think we can provide a better solution whether it'd be on our existing pipes or on potentially expanding the pipes, and we'll talk about that on the Analyst Day with some props that will help us put that in perspective..

Okay. Great. Thank you..

Thank you..

And the next question from Becca Followill with U.S. Capital Advisors. Your line is open..

Good morning, guys.

Back on S&L, on the NGL business, is part of that a loss that if we just take that to breakeven, it's additive to the $230 million for 2017?.

No. Within the overall $50 million shortfall there's a portion perhaps that you'd say – I mentioned earlier we got our face peeled off on one deal where we effectively had to roll a hedge that was protecting us against macro moves but it didn't protect us against all the basis risk and we've changed the contracts on that.

So there's some of that, but it's probably, it's less than 40% of that for sure..

The first quarter impact..

The first quarter impact. I'm sorry..

Yeah, so looking forward, a lot of that is just driven by tighter supply cost..

So for the rest of the year, that's not losses?.

Right..

And then it's hard to tell on – I'm sorry?.

It's a reduction of what we had previously forecasted for earnings. They're not embedded losses..

Okay. Thank you.

And then on page 5, it's hard to tell from this chart at the top, is there any forecast for S&L to have a loss in Q2 or is that just breakeven?.

It's so close to breakeven, I mean, if you had a movement one way or another, you might have a $5 million or $10 million swing in that back there. I can't tell you that it won't, it's just, because the carrying cost on inventory, et cetera, could impact it..

It's just the seasonality in NGL. You're not really selling NGLs but you are occurring....

Storage cost..

...storage cost, transportation cost, to get it to storage things like that, that the margin is captured in the fourth quarter of this year and first quarter of next year..

So it's a reporting issue. It's not a loss against the transaction. It's just a matching of the transaction versus the profit..

Got you. Thank you..

Thank you..

And the next question from Sunil Sibal of Seaport Global Securities..

Hi. Good morning, guys. And thanks for all the detailed clarification. Just one question for me. When you think about the M&A environment in Permian and your other areas of operations, it seems like there are still some asset packets out there; you obviously have done a fair bit of participation already.

I was wondering with your cost of capital where it is, how are you guys thinking about that, and what kind of levels to you to pull off any significant transactions?.

You know, I'd tell you, I mean we're still chewing through the acquisitions that we just made. We continue to participate, Sunil, in the projects, because again, there're certain that if we can bring enough synergies to the table, that we think we can compete with some very aggressive capital.

So far, if you look at some of the transactions that have happened away from us, the buyers haven't necessarily been using synergies as much as I've said they've been trying to enter in to what's a great area.

And their view of the future may be a little bit different than ours, but the way you win these things is you pay more than anybody else will pay. And so if somebody is willing to – that needs to get into the area, and they don't have it, they may be willing to pay more than what the synergy-adjusted number for us would be.

If your question is are we out of the acquisition market, the answer is absolutely not. Do we feel like we are compelled to try and make acquisitions to build up our business out there? No. But are we prepared to if it's a right fit? Absolutely. And there's other ways to do it than just acquisitions. And we've been pretty creative.

Jeremy and his team, we did a combination acquisition joint venture at the same time with Noble who had a big supply that they could commit. We had a system that had flexibility that made sense for them and us, and we've made some commitments on it.

So, there's other ways to work with parties to become more competitive, and in fact in some cases make a very good rate of return even though you're paying more than anybody else would pay to get the asset..

Okay. That's what I had. That's helpful. Thanks..

I think we've got time for a few more questions. I think we've got three more on the board we'll take them and call it a day. So, if we can go ahead operator..

Certainly, next from Andrew Weisel of Macquarie. Your line is open..

Hey, guys. Thank you for taking my question. Just a couple of quick ones. The joint venture contribution of the Transportation segment was down a little bit sequentially.

Could you walk through the drivers of that reduction versus the fourth quarter, and what's embedded in your outlook for the full-year, please?.

It's just timing..

Yeah..

So, I guess it's just a timing issue on the step change there..

It's just between first quarter and second quarter timing..

If you caught that. Between first quarter and second quarter timing..

Okay.

I meant why was it down from the fourth quarter?.

It was because of the incident in the Rockies, those aren't JV lines..

Got it. Okay..

Part of it – there are three lines that were impacted, two of them were JV lines..

Yeah. And Andrew just to put a fine point on that. We didn't have a release or anything. We actually just had an (01:08:28) that basically said the pipeline maybe moving, there's tremendous amount of rain and we shut the pipeline in, because we didn't want an issue to occur. And so we lost about 30 days worth of transport on that.

That was in the JV line..

Actually, two JV lines..

Okay.

And in the full-year, what type of number is embedded in your segment guidance?.

Andrew, I don't have that right here. If you don't mind, we'll have – maybe call us back offline and we'll have the contribution there if it makes sense..

Sure. Okay. Great. Then my other one, I just want to clarify, I'm pretty sure that this is the case.

But the STACK JV expansion – do you think of that as being totally independent from the potential Permian to Cushing line or is there any synergy of any sort, or might one affect the other?.

No. It's separate..

Okay. Great. Thank you..

Thank you..

We'll take our last question from, comes from Jean Ann Salisbury of Bernstein. Your line is open..

Hi. Good morning.

I'm sorry to be the 20th person asking about that, I know, but does the Q4 S&L guidance anticipate wider crude differentials particularly Midland than Q1 through Q3 or is that step-up pretty much all NGLs?.

Well the first quarter actually started off with tighter Midland differentials and they got weaker..

Yeah..

But it's probably consistent with where the market has been in the second quarter, I would say..

Okay.

So, if Midland differentials widen from here, that would probably be a upside from what's in your forecast?.

If they move meaningfully..

Yes..

Okay. Thanks.

And then secondly on your marketing expansions on both BridgeTex to Houston and Cactus to Corpus, I was just wondering if you could walk through a little bit of color on those talks with shippers and what causes a shipper to currently prefer one to the other or if one is just generally more attractive?.

Since we have two kids, we think they're both great in their own different ways. A lot of the movement to the Houston or refinery delivery for people trying to source supply there, certainly some on the water movement.

But in general, the latter product is probably going to go on Cactus to get to the water, and there's also some splitter facilities down there that feed there. So, it really depends on what the producer has and what their objectives are..

Okay.

On the whole, they're actually fairly equal?.

I think the demand – the demand is there for different reasons..

Okay. That's all. Thank you for taking my questions..

Thank you..

Justin, do we have any more questions?.

And there are no more questions in queue. I'll turn it back for any closing remarks for you, sir..

I want to thank everybody again for dialing in, and we wanted to make sure we took as many questions, all the questions, if possible. Hope we've been able to do that. We look forward to updating you in the next quarterly conference call, but also seeing those at Investor Day in about two weeks. Thank you..

And ladies and gentlemen, here on the phone, today's conference will be available for replay 1:00 PM today through June 9 of 2017. You can dial-in and access that replay any moment by dialing 800-475-6701 or internationally at 320-365-3844, both using the same access code of 421795.

Again those numbers are 800-475-6701 or internationally at 320-365-3844, both access code of 421795. We do thank you very much for your participation and using our Executive Teleconference Service. You may now disconnect..