Ryan Smith - IR Greg Armstrong - Chairman & CEO Harry Pefanis - President Willie Chiang - COO Al Swanson - CFO.

Kristina Kazarian - Deutsche Bank Shneur Gershuni - UBS Faisel Khan - Citigroup Gabe Maurin - Bank of America Jeremy Tonet - JP Morgan John Edwards - Credit Suisse Brian Gamble - Simmons & Company Sunil Sibal - Seaport Global Selman Akyol - Stifel Charles Marshall - Capital One.

Ladies and gentlemen, thank you for standing by. Welcome to the PAA and PAGP First Quarter 2016 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. [Operator Instructions] As a reminder, this conference is being recorded.

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

Thanks, Linda. Good morning, and welcome to Plains All American Pipeline's first quarter 2016 results conference call. The slide presentation for today's call is available under the Investor Relations and News & Events section of our website at www.plainsallamerican.com. During today's call, we will provide forward-looking comments on PAA's outlook.

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 the schedules in the Appendix to the slide presentation for today's call that contain 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; Willie Chiang, Chief Operating Officer US; and Al Swanson, and CFO. In addition to these gentlemen, and myself we'll have several other members of our senior management team present and available for the Q&A portion of today's call. With that, I'll turn the call over to Greg..

Thanks, Ryan good morning and thank you all for joining today's call. Yesterday evening PA reported EBITDA of $621 million, which was approximately $50 million on 9% above this point for first-quarter's guidance. Harry will provide additional details later in the call.

As shown in slide three our first-quarter results reflected combination of performance above expectations inclusion of deficiency amounts four different pay obligations that have been built and collected. At some time the reflective items will be reflected in the year.

Explain the timing related items and the shipper deficiency the PAA results came in roughly $16 million or 3% over the midpoint of our guidance.

As noted in yesterday's press release the guidance, we also know wonderful year 2016 midpoint of our adjusted EBITDA from approximately 4% to $2.175 billion what is lower than anticipated producer of activity levels and the resulting impact on our overall production forecast for the lower 48 onshore volumes over the mallets of 2016 as well as related impacts of the ongoing competition through the marginal barrel.

PAAs guidance assumptions Regarding Producer activity levels and associated production forecast was generated in the fourth quarter 2015 went well averaged $42.50 per barrel introduces were generally discussing 2016 budgets and plus or minus 30% below 2015 actual expenditures.

You may recall PAAs 2016 crude oil price assumptions called for an average price of $35 of barrel and $45 dollars a barrel in the first and second quarters respectively and average price of around $57 per barrel for the second half of 2016.

Using that price forecast and back solving for activity levels in capital expenditures and ballots in cash flow it's equated kernel rig cap of 500 rigs which is approximately 36% guilty thousand 15 average rig cap. We are now one third of the way through 2016 and thus PAAs oil prices options have been directly in line with the actual prices.

First-quarter prices virtually significantly raise from $42 a barrel to $26 a barrel. On average of approximately $34 a barrel which is close to our assumption and $35. Oil prices for the second-quarter to date have averaged approximately $42 dollars a barrel and closed yesterday around $44 a barrel compare to a resumption $45.

Importantly however the critical drivers of PAAs operating and financial performance is lower 48 onshore crude oil production volume which are driven by producers drilling for completion activity.

Unfortunately our onshore crude oil drilling activities is lagging below our 2016 forecast assumptions and we anticipate the completions introduction volumes will fall in the latter half of 2016. Without observation in mine I wanted to share some important details that right contacts for 2016 guidance adjustment.

First as stated on slide 4, based on PAAs fundamental Analysis of each of the oil basins we estimate that approximately 55% of US onshore law 48 production nearing 2015 it Was derived from Wells completed during 2014 through 2015.

Declined rates varied by basin average annual decline rates from Georgia oil was treated with high-volume hydraulic fracturing in shale resources play generally range from 65% to 80% in the first year following the initial production and 30% to 40% in the second year.

As a result the significant production plans require high activity levels to maintain or increase productions in these regions. Flying the steep dive in oil prices on gas prices from late January to early February and the increased burden of high leverage many key onshore all production facilities to 2016 spending class of directly 40% to 50%.

As a result of these various pressures the first quarter of 2016 the lower 48 rig count averaged approximately 440 rigs as compared to our assumption of 500 rigs, a 12% variant. Importantly however at the average overhead count resulted in steady decline throughout the quarter averaging 526 rigs in January, 426 rigs in February and 363 rigs in March.

Average so far for April is about 331 which is about 34% below the level on which we based our 2016 forecast. It's clear that drilling time and the recoveries are improving but not sufficient to offset the 34% decrease rig count relative to forecast. For reference the average recount for fourth-quarter segment 2015 was approximately 600 rigs.

Although all our assumptions and prices were in line with March 31, more recently we are beginning to see Progressive production decline that we included in our initial 2016 guidance.

Additionally the refactoring our current oil rig count of approximately 330 rigs and recent commentary from some of the leading oil field service companies regarding the production activity levels in second-quarter we now expected to aggregate lower 48 onshore of 2016 of 700,000 barrels of day as compared to our previous estimate of roughly 325,000 barrels a day which was associated with the average rig count of 100 rigs.

We intend to provide similar information on a region by region basis in about 3 weeks when PAA holds its annual investor day.

At that event, we will also share our thoughts on investor levels, supply demand balances as well as the challenges and opportunities that we see over the next several years as we transition to the down cycle from the next expansion piece.

To be clear PAA has one of the if not the best crude oil asset platforms in business models with meaningful upside to recover in gross production growth and we are staying very constructive on the intermediate to long term US and Canadian crude oil business. Ryan will provide additional details of our investor day at the end of today's call.

I have just couple of more items before turning the call over to Harry. In early April, PAA announced a quarterly distribution of $0.70 for limited partner units which is $2.80 on annualized basis and PAGP announced a quarterly cash distribution of 23.1 cents per class A share which is 92.4 cents per class A share on annualized basis.

Both PAA and PAGP's cash distribution are unchanged from the quarterly distribution paid in February 2016. Additionally PAA announced a prorated quarterly distribution of approximately $0.37 per series A preferred unit. We elected to pay the deferred distribution in cash which will result in the issuance of additional 858,000 series A preferred units.

On a quarterly basis cash distribution coverage was approximately 1.01 to 1including distributions paid in kind on the preferred units overall distribution coverage was approximately 0.96 to 1. With that I will turn the call over to Harry. .

Thanks Greg, during my portion of the call I will cover our first-quarter operating results compared to the midpoint of our guidance and provide recent update on our 2016 capital program. Slide 5 illustrates the summary for first-quarter 2016 results.

As shown on slide 6 adjusted single profit for the transportation segment was $269 million approximately $9 million above the high-end of our guidance range. A quarter volumes were approximately 4.6 million barrels per day or 67,000 barrels per day below our guidance.

Volumes in the Permian basin were approximately 82,000 barrels per day higher than the previous quarter but about 80,000 barrels per day below our guidance.

And while 80,000 barrels per day miss on guidance seems large, it's comprised of combination of first our gathered volumes being lower than forecasted, and second, our actual volumes with MVC shippers being approximately 10,000 barrels per day less than forecasted and then third the effect of such lower gathered at MVC volumes.

And MVC is minimum volume commitment volumes. By [indiscernible] effect, I mean that once we capture at the drill head through our gathering activities, it may result in the same barrel being transported on more than one of our pipelines.

This was certainly the case in the first quarter as gatherings and MVC shortfalls also impacted volumes on our Permian basin trunk lines. Adjusted profit of $0.64 was above our guidance of $0.59 per barrel primarily due to the revenue recognition of MVC volume deficiencies in the first quarter.

Excluding the MVC deficiencies we look forward to receive cash but the volumes would have been in line with our guidance of $0.59 per barrel. Adjusted segment profits for the facility segments was $167 million which was approximately $16 million above the high-end of our guidance range.

Volumes of approximately 127 million barrels of oil per month were in line with our guidance. Adjusted segment profit of $0.44 per barrel was $0.06 per barrel above the mid-point of our guidance.

And was due to several factors including higher than forecasted activity at our terminals, lower than forecasted operating expenses and the revenue recognition of MVC volume deficiencies.

The MVC revenues related to our rail terminals excluding the MVC deficiencies adjusted segment profit would have been $0.42 per barrel or $0.04 above the mid-point of our guidance. Adjusted segment profit of the supply and logistics segment was a $184 million or approximately $10 million above the mid-point of our guidance.

Volumes were approximately 1.2 million barrels per day in line with our guidance.

Adjusted segment profit per barrel was $1.65 or $0.08 above the mid-point of our guidance which was primarily driven by more favorable crude oil market options in Canada, inventory costs in consideration that will reverse later in the year and stronger than forecasted demand for butane in our NGL sales activities.

In general operating expenses for each of the three segments will roll out guidance forecast, a portion of which are timing related issues that will be incurred later in the year. In total, the timing benefit related to these operating expenses and the inventory costing considerations I just mentioned was about $12 million for the quarter.

Moving on to our capital program, Slide 7 provides the anticipated in service states for PAAs significant project. On note the permit delays that push out the portion of our capital spend are diamond and river pipelines and weather related issues that extend into the timing of our Canada pipeline.

These delays will not impact 2016 financial results but may push back the service days of these projects by a month or two. The impact of these delays on our 2016 capital program is offset by the addition of a recently approved expansion projects totaling 2.5 million barrels at Cushing, St. James and Stoca terminals.

All these projects are supported by long term contracts. Before I turn the call over to Willie, I want to mention that we have recently executed a couple of long terms gas storage contracts at our prime facility which start in 2018.

These contracts total 12 BCF of gas storage and are expected to facilitate the movement of natural gas to LNG export facilities near the Gulf Coast. With that I will turn the call over to Willie..

Thanks Harry, good morning. My protocol I will address our acquisition or divestiture activities, our operating and financial guidance for second quarter and the full year 2016. I also want to touch on our initiatives to optimize PAAs assets and reduce our costs.

In January this year we announced our plans to sell $200 million to $400 million in assets as part of an asset review process. As a result of that review and the anticipated acquisition of the complimentary Canadian NGO business that was announced on April 4, we increased our target for 2016 ads of sales to a range of $500 million to $600 million.

As summarized on Slide 8, we have completed 4 transactions of approximately $350 million since the beginning of the year.

The assets sold include the Bola Pipeline in our Louisiana, Gulf of Mexico pipeline assets, crude oil storage tanks located at the Holly Frontier refinery at Tulsa, Oklahoma, 4 refined product terminals located on the East Coast and a Gulf Coast gas processing facility.

We are currently working on several additional transactions totaling approximately $150 million that are either under contract or in advanced stages of negotiation and are expected to close in the second quarter of 2016.

We are also evaluating a few additional non-core assets that we may take to market later this year as well as potential projects we are taking on as strategic partner adds alignment of interest and value. A good example of this type of project is our diamond pipeline JV with Valero where they are both an equity owner and an anchor shipper.

Overall we have been very pleased with the transactions we completed and with the values we expect to realize on the remaining assets.

we believe that the assets sold are a better fit with the buyers and will allow them to capture incremental synergies and generate an attractive return or fairly compensating PAA for the historical and prospective cash flows. Equally important proceeds from the sales allows us to redeploy capital to our core assets generating stronger returns.

Great example of this is our pending purchase of our Canadian NGO business owned by a unit of Spectra Energy for 200 million CAD or approximately $150 million which is summarized on Slide 9.

This acquisition is a very complimentary fit with our Canadian NGO business platform and will provide us with synergies with solid cash flow base and meaningful upside potential.

As Greg highlighted earlier and summarized on Slide 10, largely in response to significantly lower drilling activity than we assumed at the beginning of the year, we reduced our 2016 adjusted EBITDA guidance by a $100 million. The lower production expectations primarily impact are transportation in our supply and logistics segments.

Increased competition for the marginal barrel compresses lease margins which will see in our supply and logistics segments and it reduces our volumes in the transportation segment which is partially offset by the benefits of our MVCs.

In the facility segments we anticipate incremental earnings from our Canadian NGO assets primarily related to our pending acquisition and increased US storage facility utilization, partially offset by reduced rail activity.

I will touch on this more in a moment but it is important to know that our updated guidance reflects lower expected growth than our transportation segment but it still represents positive growth for us year-on-year despite our expectations productions decline in many of the major onshore producing basins.

Slide 11 shows that while Permian Basin forecasted production is expected to be relatively flat in 2016 versus a year-over-year average production levels our Permian Basin platform volume forecast are expected to grow approximately 19% over that same period.

As Harry noted in his comments, we also want to remember that because of our inter connected system of single barrel of production, it can have multiple impacts on our reported volumes, in some cases equating to 2, 3 or even 4 times of transportation on barrels of transportation volume.

Slide 12 summarizes the operational assumptions used to generate our guidance for the second quarter 2016 which we furnished yesterday.

For our transportation segment we expect volumes to average slightly below 4.8 million barrels per day for the second quarter or an increase of 162,000 barrels a day over the first quarter 2016 volumes but generally lower than levels included in the beginning of our year guidance.

Most of the volume growth in the second quarter is related to anticipate increase in Permian volumes to be transported on RPA systems. Offsetting these benefits and impacting system profits are timing impacts around the recognition of MVCs and integrity and maintenance expense cost as well as the sale of our Boa and Louisiana, Gulf of Mexico assets.

we expect adjusted segment profits to be $0.58 a barrel and while lower than the first quarter it's in line with our original guidance. We expect MVC related volumes to be slightly lower in the first quarter and a portion of kind of new agreements will not be recognized in the quarter due to timing and billing intervals.

For our facilities segment we expect an average capacity of 129 million barrels of oil equivalent per month which is slightly above first quarter volumes. The volume increases as a result of 1.75 million barrels of new tankage of our Cushing and St. James Terminals partially offset by reductions associated with our East Coast Terminal sale.

Adjusted segment profit per barrel is expected to be $0.38 which is $0.06 lower than the first quarter. the decrease in segment profit for barrels attributed to higher operating costs merely due to timing and MVC impacts which impact our per unit margins.

For our supply and logistic segment we expect volumes to average 1.07 million barrels per day or 158,000 barrels lower than the volumes in the first quarter. Adjusted segment profit for barrels is expected to be $0.42 or $1.23 per barrel lower than the first quarter.

a lower volume and segment profit per barrel is primarily due to weather driven seasonality associated those activates. It also includes our expectations of slightly lower lease gathering volumes and margins due to continuing crude oil market conditions. Finally we are focused on, very focused on optimizing our assets and managing in reducing costs.

PAA has a very integrated value chain and a unique business model that allows us to optimize our margins across the entire system.

Slide 13 shows how we participate in that full value chain from the lease gathering we purchased approximately 900,000 barrels a day of crude to multiple transportation segments, storage facilities in key terminals and access to multiple markets.

Our strategy is to utilize our lease gathering business to purchase our first barrel and a s a result of our system capture the multiple opportunities within the system. This combination allows us to be more competitive and to continue to grow our volumes profitably even in a declining production environment.

We are also increasing our focus on cost without sacrificing safety compliance or operating excellence. Our increased efforts are primarily in three areas. Prudently managing our head cunt and reducing our contractor usage as well as negotiating fairly with our suppliers.

We have been successful in offsetting a portion of our workforce attrition by reallocating personnel from areas that activity has slowed such as rail operation and some of our asset sales to fill other needs across the organization.

Collectively, our total employee head count is running approximately 4% below levels projected at the beginning of the year. We have been pleased with our progress and along with cost savings from reduced contract usage and supplier services, we expect to see additional efficiencies in savings which are included in our 2016 guidance numbers.

With that I will turn the call over to Al..

Thanks Willie. During my portion of the call I will review our capitalization and liquidity, review our treatment of deferred revenue from MVC contracts or adjusted EBITDA as well provide an update to the equity credit percentage referred to our recent preferred equity security.

The overall financial position improved during the first quarter 2016 which is highlighted on Slide 14. At March 31 we had long term capitalization ratio of 49%, a long term debt to adjusted EBITDA ratio of 4.2 times and $3.8 billion of committed liquidity.

This improvement is associated with both the $1.6 billion preferred equity transaction and asset sales completed during the quarter. Proceeds from the preferred equity transaction in our targeted asset sales are than adequate to fund our 2016 capital program.

The recently announced Canadian NGO acquisition and our distribution shortfall so we expect that 2016 would lower long term debt when we entered the year. a high level sources of cash is summarized on Slide 15.

While our long-term debt to adjusted EBITDA ratio remains elevated relative to historical level in our targeted range given the current range of the crude oil cycle we remain committed to our targeted credit metrics and expect our leverage will improve to within our targeted range as we realize the benefits of new projects coming on line coupled with an industry recovery.

Naturally we will closely monitor developments in the near term and we have a number of additional levers available to us to mitigate and adverse impacts and / or improve our financial position if necessary.

As Harry mentioned during his portion of the call we have favorable financial compared to our guidance, approximately half of the overall performance relative to the mid-point of our first quarter of guidance was included with the MVC contract deficiencies builder collected in adjusted results.

As we have discussed in prior conference calls we have certain agreements that require counterparties to deliver transport or throughput at minimum volume over agreed upon period. Some of these agreements include make up right if the minimum volume is not matched.

If a counter party has a makeup right associated with a deficiency GAAP requires that as we invoice and collect the cash we defer the revenue attributable to the counter party make up right and subsequently recognize revenue at the earlier of when the deficiency volume is delivered or shipped or when the counterparties make up right either expires or determined to be impractical or remote.

Beginning this quarter we included in our selected items impacting comparability, the deferred revenues associated with MVC deficiencies since this buildings vary by contract and for the most part are not built on a quarterly basis, there will be a fluctuating impact on quarterly results during the year.

In future periods when the revenue is subsequently recognized for GAAP purposes we will reverse the MVC deficiency adjustment.

Before I turn the call over to Greg I want to provide an update on the comments I made on February call around the equity credit percentage designed by Moody's to our $1.6 million equity transaction that closed during the first quarter.

On our February 9 earnings call that we had requested that Moody's reconsider the 25% equity credit they assigned to the securities. They in fact reconsidered and determined that the preferred security will receive 50% equity credit. We are appreciative of the follow through and pleased with the outcome.

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

Thanks Al, we are pleased with PAAs first quarter performance and despite continuing industry challenges believe we are well positioned for the balance of the year and beyond.

In addition to the constant goal of compliance and environmentally responsive operation, as discussed in our year-end earnings call on February 9, we have 3 simple goals for 2016.

First is to maintain a solid balance sheet of the credit metrics and ample liquidity, second is our captive program to facilitate cash flow growth underpinned by MVCs and position PAA to benefit meaningfully as US production volumes increase.

Third is to optimize our assets and focus organization to deliver the best results possible under whatever conditions we encounter in the near term. As demonstrated by today's call and our first quarter results we are off to a solid start with respect to all three goals.

Although 2016 will be a challenging year we have substantial liquidity and are well positioned financially to manage through a challenging industry period.

Additionally as a result of the ongoing initiatives as Willie outlined earlier we expect not only to manage well through the down cycle but also to position the PAA to capitalize on the increase in volumes and other opportunities available as we progress to the expansions by the stage of the next upcycle.

These initiatives include disposing the non-core assets adding complimentary assets focusing on cost and efficiencies, reinforcing customer JV relationships and further refining our integrated value chain.

Looking forward PAA has the best, largest and the most inter-connected crude oil platform in the US and a business model that has been proven through performance through a number of prior cycles.

We also have the visibility for incremental cash flow contributions from project completions backed by MVC and other contractual support as well as significant leverage to sustained increase US crude oil production with no to low incremental CapEx.

And for those reasons we believe PAA and PAGP represent inexpensive low risk, long dated US crude oil production growth. I want to touch on one more matter before I turn the call back over to Ryan.

As discussed in the last conference call we are in the process of evaluating potential simplification alternatives between PAA and its general partner and are in frequent contract regarding potential simplification with the three largest owner general partner in the PAA and PAGP boards.

This process involves evaluating PAAs future performance, needs and opportunities under various industry scenarios as well as exploring a wide range of alternative structures to attempt to identify win-win transaction that would better position PAA to perform, prosper in such scenarios.

As many of you on this call are aware there are number of potential variations to a simplification and is important that we not only do the right thing but we follow a process that demonstrates thoughtful, prudent and balanced governance practices.

Some of these processes take longer than any of us would like but done correctly can still be accomplished within a reasonable time period. The evaluation time process is ongoing and no decision on any particular alternative has been reached. Nor can we provide any assurance that any particular alternative will be pursued or affected.

As we continue to work through this process we will be monitoring industry developments and market conditions but we do not intend to disclose further developments with respect to this evaluation process except to the extent of the specific course of action as proved, the process is concluded or we believe that the situation warrants an interim update.

With those thoughts in mind I respectfully request that you refrain from asking questions with respect to the topic or process or timing as these comments that I have just shared summarize all the information we are able to provide at this time. With that I will turn the call back over to Ryan. .

Thanks, Greg. Before we open the call up for questions, I just wanted to remind everyone that we will be holding our 2016 PAA and PAGP Investor Day on May 25 here in Houston, there is still space available and we still encourage anyone who wishes to attend but hasn't registered to do so as soon as possible.

If you have not received an invitation, please contact Investor Relations at 866-809-1291. Once again thank you for investment in PAA and PAGP and for joining us on today's call. We look forward to updating you on our activities at our investor day in May and our second quarter earnings call in August.

Linda we are now ready to open the call up for questions. .

[Operator Instructions] We will begin with the line of Kristina Kazarian with Deutsche Bank, please go ahead..

Maybe you can help me out with this one.

I get a lot of questions on what I am thinking 2016 as I need to put your distributions and my general comments is that I don't think so but could you provide your current thoughts on the topic and why you don't think this is going to happen in the near-term?.

Kristina, we were pretty specific at the beginning of the year that based upon our outlook for 2016 and what we extrapolated at the end of 2017 that we didn't feel like we needed to because although we knew we were going to run negative coverage in 2016, we saw the light at the end of the tunnel with our projects come on in 2017.

We haven't updated that comment since then at this time and to some extent my earlier comments about the concept of discussion, simplification wrap around that very issue so other than what we have said with respect to the simplification we can't really comment more at this time. .

Okay.

You think I said the coverage improved during the quarter kind of filter that one times number and we got the incremental credit from Moody's up to 50% now but can you give me some more high-level comments around how comments with the rating agencies are going?.

Yes, as you would expect we have an ongoing dialogue with the agencies, again we are very [indiscernible] preferred as both agencies have had fairly recent published material on it and I would point you back to reading that.

Clearly they understand that running above our historical leverage at target, we also have a long track record of keeping and returning back to those levels overtime, so I think we have pretty incredible track record with them but I would point you to more of what they have published on specific comments..

Can I imagine I am looking at Slide 7, they are giving a lot of the cash flow that coming from major projects coming online, is that right?.

Yes, again I would point a, we have provided them a lot of details around project cash flows, MVCs, distribution for those. We know that they at least consider that and how they evaluate a credit. .

Perfect, thanks guys. .

Next we will go to the line of Shneur Gershuni with UBS. Please go ahead. .

Just a quick follow up to the last follow ups on the agency, did you preview the guidance with the agencies and are they cool with it or should we expect another update from them?.

We did and arguably a lot of our comments on the February call, spoke to the activity level then, so we don't expect that the revision here, the 4% reduction would be a surprise to either agency or to most of the analysts on this call. .

Yes, sir this is Greg and I would just make the comment that if there is a more transparent company out there then I would be surprised, you should assume that that level of transparency carries over to our dialogue with the agencies as well. .

No I agree the guidance was in line, I just wanted to see if this was previewed.

I have an interesting guidance, I was listening to your prepared remarks and going through your slide, based on your scenario where pricing is going up because volumes are going down because your guidance effectively reflects that, so when I think about the exit rate for 2016, especially how you laid it out in Slide 4, there wouldn't need to a lot of activity to bring the volume back.

How should we think about our existing business and volume run-rate in 2017 and can the CapEx that you highlighted offset all of the big decline, can it actually produce growth, I mean how should we sort of be thinking about that, when we think about your run-rate via 2017 before we get to 2018 or your expect climbs to be up. .

If I can frame this, t embraces what we said and it hasn't really changed that is with the projects that we have coming on in stages not only at the end of this year but the beginning of and throughout really 2017, we expect EBITDA to grow even if we stay in the down cycle in to 2017.

Some of that EBITDA may turn if we are wrong on the volumes as we exit this year, supported by MVCs most highly anticipated projects are , yes we are going to get the cash and as Al defined earlier if we had discussed on prior calls.

We were trying to figure out do we address the situation where we have cash, we are going to collect it and yet for GAAP purposes we don't get to recognize this as avenues. And so we chose to make that adjustment on an adjusted basis we would expect EBITDA to continue to grow through the second half of 2016 and into 2017. .

One last question, rail in general for your partnerships basically seems to be quite challenge with some pipelines coming up and volumes coming down and so forth, there being more competitive? How do you think about being able to repurpose the assets? Did something you know emerging that cooper rail or flying products by rail, how should we think about this or these assets or going to as leases sort of eased, edge out?.

First of all in our guidance we reflected the challenging environment very well outlined, and parceled and as Willie mentioned in his comments we are looking to optimize our assets.

I think if you look historically plains we have had a history of being able to repurpose assets especially on the pipeline side and certainly the concept should apply as well as you suggest on the rail side.

On the pipeline side, we have some pipelines that had moved north and south and north again and some cases actually changed out of one product service central to another one. The same type of flexibility has the potential to exist for certain rail assets.

We are in the benefit of having both loading and unloading so they were not married in just in one part of the business. I couldn't really comment more beyond this far what we might be done with at this time. .

Yes, I will add to what Greg mentioned in that if you look at our rail facilities, a lot of them are either tied to our pipelines or terminals, fully embedded flexibility in the rail assets.

So if you get market dislocations or disruptions the rail still provides an alternative but we have very few facilities that are isolated with the rail facilities on a standalone basis. .

Okay. Great, thank you very much for the color. .

Next is the line of Faisel Khan of Citigroup. Please go ahead..

Thanks, good morning guys. Looking at the guidance for the Permian Basin volumes for 2016 down about a 170 a day or so.

I just want to understand is that just a base sort of production volume change or is there a multiple change too? Do you expect the volumes to be less on some of the pipelines but the production needs to wrap-up? I just wanted to make sure I understand that reduction in volumes. .

Faisel, what number are you looking at again?.

Yes, so the 2016 crude oil pipeline volume sort of the Permian Basin 2 million 207 versus 2 million 80, I just wanted to make sure if that's a production decline or is there something else causing the system to be lower?.

Well, lot of it is around lower expected growth than we thought before.

And there is a multiplier effect, if you think about the Permian, I think Harry's numbers that he shared in his portion of the call have roughly a 2.5 times to 3 times multiple on it so if you think about the initial barrel that's produced in the multiplier effect you could use 2.5 to 3 across the Permian and it will be a pretty good proxy. .

And Faisel, just to make sure I am clear on what you are asking is, quarterly shown on page 5 show growth throughout the year.

You are comparing the average of the year with prior?.

Yes, the prior..

And so you go back with the 500 rigs, I think the Permian of the 500 we started off in the beginning of the year, I think we were about 205 to 207 was what the average was for the Permian. We are running around now about 135.

So we are anticipating and built into the guidance is that we expect to see the tail end of 2016 volumes to fall because there is a time lag between rigs and clearly they are more efficient, but the completions were actually seen so if you took the difference in that average and you probably divide it by some multiplier, you are going to end up basically with a lower level of expected decline for the Permian but it's still going to be that amplified level of impact on plains.

.

Compared to our original guidance, our gathered volumes, the barrels that we first gather and start the multiplier process are probably down, are lower than our original forecast of say plus or minus 40,000 barrels a day. .

Okay.

And then also the guidance around the western segment, there is nothing in there for the reactivation of the pipeline, is there?.

There is not. It's mostly tied to the revision I the western segment, mostly tied to the timing of the restart of the Torrence Refinery..

Makes sense, and then the Gulf Coast, has the volume trajectory being lowered, is that what's causing that number to lower?.

Yes, big piece of it is. .

Okay.

And just wanted to talk about Empress, it's been one of these assets that's one of these feature famine over the last decade or decade and a half? Is there something you guys can do for this system to sort of stabilize the profitability as an asset?.

Faisel, I think if you announce our initial acquisition of the BP facility which got us our initial hold in into the Empress area, BP ran a totally different business model than we did. We tend to basically hedge and integrate those assets with our existing operation.

We would intend to fold this in the same way so there may be given less upside what there had been before but there should be a lot lower downside as well.

Wouldn't you say Harry?.

The assets are just complimentary to the existing footprint that we have and provided the unique set of synergies available to us. .

Okay, got it. Thanks for the time. .

Thank you..

Next we will go to the line of Gabe Maurin, Bank of America, please go ahead. .

Good morning all, last call you did on the counterparties side of that thing, anything changed on that front, has any of that been incorporated in the guidance?.

Yes, we did do a deep down. Last time we felt we needed to do it, we didn't feel to walk through it again. No material changes at all and we remain comfortable with our overall credit exposure and performance risk of our shippers and our customer. Again, we continually monitor that process as we have done for a long time. So no real change their Gabe. .

Thanks Al and the comments you mentioned Greg, at the closing in terms of swiping assets both investors as well as acquisitions.

In addition to that what other areas are you really looking at, I would have it assume kind of doing tuck in kind of acquisitions?.

Yes I would say we are constantly in the state of announces and review and I think we have had our eyes on a few for some time, this is the asset. Empress was one that was identified early post the acquisition and sometimes they take tie to pull together.

There is not anything that I would want to telegraph on this call that is either imminent or that would alert any of our potential competitors just where we are focused. .

Great thanks. .

Okay. Next we will go to the line of Jeremy Tonet with JP Morgan, please go ahead. .

Good morning.

I was wondering if you could help me think through the Canadian wildfires, what impact do you see on the commodity side there? The crude oil prices and/are comfortable sharing your thought there and the impact it could have there?.

Well, similar situation happened last year and we had a pretty meaningful impact that drove prices up close to $60 but we are seeing that it is impacting the operations up in that part of Canada.

There is no direct impact to any of our assets but within movement of differentials could have had a slight positive impact to us but we embed that kind of volatility in our guidance to start with. So, its meaningful impact to our guidance but those are a bunch of things that could dislocations from time to time. .

Yes, Jeremy I think it's probably early days in response to the event so without better clarification from anybody as to what the duration and overall magnitude of the impact is going to be on the actual operations, it's hard to say but a good thing is we are fairly well positioned.

We can certainly have some parts of our business that can impacted negatively by differentials.

That we might have been expecting to make a profit on certain barrel movements but as Harry mentioned there could be other parts that tend to pick up so, from an overall supply demand balance if you lose what's the order magnitude but from anywhere from 0 to 500 is what I have heard.

So that would impact the inventory pull-down as long as we don't end up importing more water to replace.

There's certain parts I mean that we should incremental movements of cap line perhaps to help replace those barrels but again that would probably be more foreign movement that comes in so it won't necessarily effect the overall inventory but it would affect our movements on that pipeline. .

Great.

And just a quick modelling questions on the MVC, have you guys identified, which pipes those are showing up on and the quantity?.

Yes Jeremy, MVC when we bill it, it's in that contract so that's all underlying that adjustment there. Clearly, more of our recently pipes are the ones that have the MVCs on them. .

Yes, Jeremy if I understood your question correctly, I will just answer it, do we now which pipe is absolutely, have we communicated to the public and the answer is obviously not, shipper information by law is extremely sensitive and we certainly don't want to step on that line. .

I think I stated in my prepared comments that the deficiencies were 10,000 barrels a day more than we forecasted in our original guidance but that doesn't have the multiplier effect because it doesn't affect more than on pipe..

Yes, where we lose on that we collect on this one pipe and we seriously said if we were counting on that 10,000 barrels to move off pipe, we may have an MVC paving on but it would have normally transferred on to pipeline B that it might not have an MVC for that barrel.

You can end up where we paid for the first 10,000 but we haven't collected on the next 10,000 till they move it. .

Appreciate the sensitivity, don't want to give anything away there.

Is it possible to maybe talk about regions without pushing too hard here?.

I think I said in the prepared comments it's related to the Permian. .

Okay, thank you.

And I think previously there was talks about what we look for 2017 being all about 10% higher and expanding on the comments you had before of the exit rate of the 2016 volumes, does it still make sense the 10% number? Does it make sense, lower base or realize we just might end up on this analyst day? If you could provide us any thoughts there?.

Don't have any additional comments to today's discussion. We are like everybody else, trying to deal with dynamic situation. Clearly the visibility for 2016 is a bit better.

Part of the issue is what happens as we get closer to the end of the year it's quite possible that we could see a fairly significant response to the rig activity toward the end of the year that would not have any impact on 2016 but would have impact on 2017.

I think it would be premature for us to try to add much clarity to 2017 other than that we know MVC is the projects that we have.

The decent uplift in 2017, I am just trying to raise and calibrate something right now that would have to come back to you later on and say new data, we have to recalibrate when at this point in time our focus is really on the near term. .

Thanks for all the help today. .

Next we will go to the line of John Edward of Credit Suisse. Please go ahead. .

Yes, thanks everybody I will start by, I your guidance revisions how much cost saving is based into that, if you could give us an idea or qualification?.

Yes, let me take that and be a bit specific. We haven't gone out with a specific target, one of the things we are sensitive on is not trying to manage by objective, set a target and everyone goes for it.

What we are trying to do here is working through the organization to make sure people are aware of what we are and what we do and we get a lot of round up cost savings and the way I would characterize it is you see a lot in the, I mentioned managing people and survivor savings and contractors.

I am seeing good progress in that, I would measure that I tens of millions if not hundreds of millions, if that helps. .

Yes, that helps. Okay. And then I am just curious Greg given this steeper volume drop off that you are talking about and how are you seeing competitive conditions intensify and I guess that's what, I mean if you could comment there about anything with regards to have a look through the next year as well..

Yes, I can't so much give you the look through here, I can say that balance of 2016, if there was a lot of competition for the marginal barrels.

We have more competition for what's remaining and we have built that to our expectations and I hate to fall back on the old comments but we are clearly getting progressive through the cycle, to the point where the best year for low oil prices is low oil prices and some point in time when this thing turns we are going to end up where everybody's trying to figure out how to move more barrels that I think need to be developed and responded to the gap in demand.

Again I would probably tell you that there is certainly competition has, at least it has thought more intense so that marginal barrel today and that is reflected in our expectations for the balance of 2016, to try to go into 2017 just year when we really don't have the passage of the kind us, I am not sure I can give you any high percentage level that would be worth anything.

.

Okay and then has there been any change to your crude price assumption now, I think in the first quarter, last quarterly call you said $47 or the full year, I missed it maybe you reaffirmed that slightly different take on that..

Yes, we are not in the business of forecasting oil prices. What we have to do sometimes is make assumptions for example we are trying to figure out what producers support out of cash flow and that's we did at the beginning of the year when we had our $35 to $45, $55 and then $60 per quarter.

You can't associate it anything more than plan dumb luck but our numbers have been right on top on the price.

The problem is that the activity levels that level of cash level would support are significantly lower so I think our view is inventories we at very high level at 540 million barrels right now which our outlook will tell you, we probably don't cross under the same level of inventory we have in 2015 until end of third, late fourth quarter and so what happens is we will be below 2015 inventory, that would be a pretty significant psychological barrier to break.

Having said that when we break through that we still be roughly 60 million barrels above normal so there's pressure so part of the issue is when the markets start to outrun the solution is we are accused of being bullish after being accused of being bearish for a long time.

I don't think we have changed our view that this thing is going to rally pretty hard, it may get worse before it gets better just because of the inventory we got to get through the summer. There's a lot of expectations around Delaha that didn't come to fruition and there's other things that helped that.

We have the OPEC meeting on June 2 and normally that gets a lot of press and it doesn't necessarily a lot of substance for them to put a lot of press out there.

At the end of the day there is a band of elasticity between $30 a barrel and $45 a barrel that when it moves up or down $5 the press always has an answer for the reason, why we look at each other and say we are not sure what changed from what changed 5 hours ago. So, I don't think we would change our outlook with any significant calibration.

It will be interesting to see how it passes. We were $35, $45, $55 and $60 and right now when I walked in the price was $45. So don't enough to change anything. .

Okay. That's helpful for me thank you. .

Next we will go to the line of Brian Gamble with Simmons & Company. Please go ahead..

Morning everybody, Greg you shouldn't pull yourself short when you get something right like calling the crew cross reported, you should think about rather than dumb luck. .

Let's talk at the end of the year and see how we came out. .

That's fair. I did want to follow up on your last few answers, when you look at the level of activity, the discrepancy between your previous forecast and your current forecast, it kind of juxtapose again the volumes that are moving in the Basin and I am sure you have been keeping abreast of what things have been reported.

They have been reported pretty strong production quarter result and that expectation.

Just the extent that the industry continues to upside on their efficiencies and drilling, does that change in the long term as to which asset or which region may be better positioned for change than anything else, change anything in your thinking on what the sell, what the buy.

I just want to know if the trends we are seeing first 4 months are starting to implement your long term though process..

I think the best way to answer is we try to use all available data to what you are suggesting.

What do we need to make sure we have additional capacity if we see a particular area's heating up and if we were having this discussion two years ago one of the hottest areas was Mississippi line, it is one of the weakest areas and so you have to be careful to make sure what you think is truly sustainable and when we try to make that.

I think one of things we're working through and yield earning season is just as probably busy for us as some of the analysts because we try to take the public comments that are made and throw it up with the data realizing that in many areas Brian we do a well by well analysis and we tracking everything that's going on, not by areas but county's and some cases sub-county's because it really matters where you put that pipe at or where you free up capacity.

Some of the BOE revisions, there are BOE and there is big portion of gas in there. Gas increases don't help us. If it's an area that's on somebody's acreage that they have dedicated to some acreage commitment to somebody else.

If there's 10,000 barrels of extra production it might not help us at all, it has a big impact so short answer is we use that data.

I think if we sit here today trying to co-relate press releases of people tweaking guidance, what did we already account for and what we had in the beginning of the year because in some case we have dialogues with these customers and they tell us prepare for 40,000 barrel a day increase in a given area and they may be telling us privately it's 35,000 but the public may have been expecting 30,000 so it sounds like it's up but it may be down relative to what we were told in the beginning of the year.

We don't, we understand the challenges that outside analysts have trying to look at that data, we have the same challenge internally trying to co-relate all that into a cohesive model will be reflected in at least our guidance right now is the best estimate we have with that data.

Based upon not only public but some case non-public data of what the drilling plans they shared with us..

Great answer and just to follow on to that, you don't have to answer if you don't want to or don't have an answer, is there any one data point of couple of data points so far that have surprised you in its earnings go through?.

Not really. I would also say the number of operators, there's probably handful. 15 to 20 high quality operators that are doing well and somebody's making up the other side of those averages and there are customers too, I think there is a penalty to take. If they are saying productions up in an area it must be true for everybody.

Some cases you guys are analyzing the best of the best and there's others out there that either don't have a good quality of acreage, their technical skills aren't quite yet up to the standards of others so there is a reason why there is an average number because somebody is above and somebody below it. .

Thanks a lot Greg, appreciate it. .

Thank you Brian. .

Alright and next we will go the line of Steve [ph] of Goldman Sachs. Please go ahead..

Hi, good morning. Thanks for taking my question. I believe in your opening remarks you mentioned that you were taking into account lower lease gathering volumes and margins due to competition and I think that Willie had mentioned that you are gathering volume expectations for lower buy, roughly 40,000 barrels a day on average for the year.

I am wondering how much of that 40,000 barrel a year revision was made by competition versus lower production expectation?.

I don't remember the 40,000..

And then I believe you said take 40,000 and there was a multiplier effect. .

That wasn't me that was on the pipeline volumes versus to our forecast on the Permian base, the gathering down volumes probably down 50,000 to 20,000. Yes, I think that was on the guidance. .

Okay.

Got you and then on the 15,000 I guess how much is related to competition versus a lower production outlook?.

It is probably more geared towards the lower production outlook and certainly we gain and loose barrels all the time on the lease. .

On the competition side of it Steve, think of it as a tug of war we pull barrels and somebody pulls other barrels because again we are still competing against these cases in over commitments on the shipper pay for other pipelines so margins have been heading down as that tug of war goes on but I think most of the change.

We think we would probably continue to net back and forth on that but if you take that 15,000 barrels a day and lower volumes but you put the pipeline multiplier effect on that..

Just a quick follow up, I think it was marathon, that was saying recently bringing up the top line or bringing up the cap line reversal, I guess any update on that and where you think crude oil prices would need to go or production's the driver?.

Not much more we will add to what we have already said. I think what you read in the press is all about anybody knows at this point in time. We are big fans of thinking that it is a great asset to be reversed. The same obstacle that exists today existed before that have kept that from moving forward and it's really not related to prices. .

Got you okay. Thank you. .

Next will be the line of Sunil Sibal or Seaport Securities. Please go ahead..

Good morning guys, I am just trying to get a little bit of understanding from the transportation segment especially with regards to the volume and the margin shows there and how they are moving around.

I think you talked about it one time again in the first quarter, in addition to that are there any big drivers of margins as they think about the remainder 2016?.

Yes, I think $12 million was a combination of operating expenses and inventory costing. So the transportation segment, $8 million was probably the impact of the operating expenses which were caught in the middle. .

Okay.

And then the rest of the variations primarily basically function of your contract of a tariff on the pipeline I presume correct?.

Yes, mostly volume because if you think about it all of our legacy pipes are not contracted. Historically crude oil pipelines have operated on the basis of a commentary of where you have a shipper can ship but not committed volumes. Most of the committed volumes are related to the new construction. .

Yes, Sunil the way I think about it is purely volumes offset by we have got a good chunk that we get book MVC games on so it's just volumes times the terra MVC volumes that we have for the year, that was your question. .

Okay.

And the volumes of course have MVCs with them right?.

Yes..

Okay. Got it and then thanks for the clarification on the rig count.

I was curious about the updated guidance that was provided today or yesterday the 330 rig count in April, what kind of assumption for the remainder of the year for the rig count if there is something?.

It's basically holding in that range, there is trade-offs in there, one of the things we calibrate, what happens if one of the rigs move up or down 50 rigs, we think there is a bit of corresponding.

Also the counters there with respect to the completion so we have tried to build in for example rigs have coming down, we actually take some of the dock completion going up specially these prices have rallied a little bit so I would say we are really basically saying for the rest of the year, let's just assume it holds relatively constant.

We are not ready to clear a bottom or anything but it's come down quite a bit and you should have seen it fluctuate here recently, plus or minus few rigs whereas for week after week for the first three months it was just down. .

Okay. Got it and on your CapEx program you mentioned you sanctioned somebody's storage editions.

I am curious is there anything specific in those contracts that you signed for those additions vis-à-vis how you have contracted in the past?.

No, I mean we are fundamentally focused in on long term customers and I think we have actually tank editions at Stoca, Cushing and St. James and they are all the same type of activities we have had before. Good long term customers who are going to use an operational as opposed to financial driven people. So it's all operational people. .

Okay. And then last one from me on leverage metrics, which was provided the 4.2X that too EBITDA at the end of Q1 2016.

Is that fairly representative of how your color ends are in terms of the leverage metrics or are there any delta there that you should be aware of?.

No, that metrics is fairly consistent with our bank facility. There are a few adjustments but they are pretty close. .

Okay. Got it thanks guys. .

Thank you. .

Next we will go to the line of Selman Akyol with Stifel, please go ahead. .

Thank you good morning.

Couple of quick ones, on the MVCs are you seeing more shippers or is it just the same shippers before that are below their MVCs?.

I think this is really the first quarter that we have started seeing that number climb up.

We used to have some MVCs late last year where we had some, that just started, a lot of our projects are really now going into service in the last 6 months probably, where this would become the issue and that's why the dialogue we have had the last couple of quarters has been, how are you going to handle that if volumes aren't there and so we finally landed on this approach that we shared right now.

There's not really a lot of history to compare to as Harry mentioned you don't really have existing MVCs on a pipeline that has been built 30 years ago. It's only the recent ones that we have just started putting these in service here recently. .

Okay. Fair enough. And then on the supply and logistic, we have talked about $1.65 in Q1 going to $0.42 in the second quarter. Clearly larger decline than historical. And I have heard 3 reasons on the call from weather related to increased competition and so not explicitly the multiplier effect there as well.

So I am trying to think about which ones are the largest give and take on that and longer terms thinking about supply and logistics is being a $500 million run-rate business?.

You really happened to, it's really hard quarter-to-quarter, because the first and fourth quarters are impacted so much by the NGP business and all your margins are in the first and the fourth quarter and second and the third quarter usually there is minimal margin because you got the carrying cost, storage cost and you don't have much NGO sales so looking from Q1 to Q2, it's really hard.

You know the crude oil business is really....

Yes, if you look at Slide 11, we have shown a kind of a seasonal horseback and there's been there in the prior years and you would have always seen that margin projected the move down from first quarter to second quarter in the same direction. .

Selman one way to think of it is in February we had a unit margin of a year for $1.13 and our updated guidance on effectively the same volume as the dollar to so that was an $0.11 change so that does reflect on the competitive pressures we are seeing on the crude side that we discussed earlier. .

And so it is not really a multiplier effect on supply and logistics, the supply and logistics drives the multiplier effect on transportation and someone I would look at if you are looking at Slide 12, Q1 and Q2, almost all of that is the seasonal NGO sales primarily around Canada. .

Alright, thanks very much. .

Thank you..

Next is the line of Charles Marshall from Capital One. Please go ahead. .

Good morning everyone, looks like storage is getting more air time today given the positive trends we see in the fundamentals and you guys had a pretty solid contracting season with Louisiana facility, that was a great contract, do you have any thoughts on how you see this materializing from here in the firm contract pricing and just what potential commercial opportunities you would consider to further optimize these assets will be helpful.

Any general color?.

You have seemed to answer your question. .

What we are seeing a pickup commercially particularly in the outer years in 2018 and beyond and based on the announcement. I think where the drivers going to be is the location, we clearly see more activity down the time period and so our contracting efforts are good there.

I think the biggest change we have got a lot more contracting going out and we are really holing a lot less for ourselves, probably less than 10%. So you know the interest is more around operational customers going forward versus financial players though it's very positive but it is location specific. .

And Chuck you probably know from your firsthand knowledge we try to track only what our activity is in terms of actual deliveries and storage activities but also other facilities and we are pretty pleased that it has developed the most active hub out there and we expect that perhaps to continue to be the case if not amplify as we continue to see LNG exports because it is just sitting in the best position and again as you know from first hand we have put a lot of compression out there to handle that and I still don't know any better position we are geographically, physically and operationally.

.

Thanks for the color, just want to follow up.

The increased demand activity do you see any future needs to increase storage capacity or at these levels are you comfortable?.

We are watching it pretty closely. .

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

Alright and there are no further questions. .

Thanks everybody for participating in the call and we look forward to update you in about three months. .

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