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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day and welcome to the PAA and PAGP Second Quarter 2019 Earnings Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Roy Lamoreaux. Please go ahead.
Thank you, Melissa. Good afternoon, and welcome to Plains All American's second quarter 2019 earnings conference call. Today's slide presentation is posted on the Investor Relations News & Events section of our website at plainsallamerican.com.
Slide 2 contains important disclosures regarding forward-looking statements and non-GAAP financial measures. The appendix includes condensed consolidating balance sheet information for PAGP.
Today's call will be hosted by Willie Chiang, Chief Executive Officer; and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial Officer; Jeremy Goebel, Executive Vice President, Commercial; and Chris Chandler, Executive Vice President and Chief Operating Officer along with other members of our senior management team are available for the Q&A portion of today's call.
With that, I'll turn the call over to Willie.
Thanks, Roy. Good afternoon, everyone and thank you for joining our call. Let me begin by hitting the high points of the information we released today. We're pleased to report second quarter earnings results that exceeded our expectations. As outlined on Slide 3, these results reflect strong performance in our margin based supply and logistic segment and fee based earnings that were in line with expectations.
As Al will discuss more in detail, we have increased our full year adjusted EBITDA guidance by 125 million to plus or minus 2.975 billion driven primarily by our S&L segment. We continue to execute on a number of initiatives to position us for the future and to create long-term value for our investors. We provided a comprehensive review of these opportunities at our Investor Day and highlighted our strategy of optimizing our systems and driving improved returns by advancing capital efficient projects that leverage existing assets and align us with industry partners.
We also continue to focus on managing our financial position to further lower leverage and prudently return cash to equity holders over time. Our progress on our commercial initiatives are reflected on Slides 4 and 5. Let me highlight a few. Regarding our Permian takeaway projects, we have continued to enhance the Wink to Webster project, further aligning with industry partners to optimize the project. In that regard, MPLX, Delek US and Rattler Midstream have joined as partners in the Wink to Webster joint venture and we expect an additional undisclosed third party to announce their ownership in the project in the near future.
As a result of these transaction Wink to Webster is highly contracted under long-term volume commitments. Additionally, Plains equity interest in the Wink to Webster joint venture has decreased from 20% to 16%. We are targeting Wink to Webster capacity to be in service beginning in early 2021. In the Rockies and Mid-Continent we've progressed a number of projects that are great examples of capital efficiency utilizing our existing assets and commercial flexibility to drive returns above our targeted threshold with further upside.
On the Diamond and Capline JV, we have sanctioned an expansion and extension, which will connect the Diamond pipeline to the Capline system. These projects are expected to be placed into service in late 2020 for light crude grades and early 2022 for heavy crude grades. The combined Diamond and Capline project scope is underpinned by sufficient level of long-term commitments to achieve our targeted investment return thresholds. And we are working to further enhance returns by bringing additional committed volumes to the system.
The Saddlehorn JV partners recently announced a capacity expansion of up to 100,000 barrels a day plus a new Fort Laramie origin on the Saddlehorn pipeline, which is underpinned by long-term volume commitments. This project is primarily increasing pumping capacity and enhancing commercial alignment to provide additional flexibility to our shipper customers. An initial expansion of 60,000 per barrels per day is underway, and is expected to be placed into service in late 2020. With the potential to increase to 100,000 barrels a day.
In May, we announced an expansion in new joint venture on our Red River pipeline system through which Delek increased their long-term minimum buying commitment from 35,000 to 100,000 barrels a day and acquired a 33% equity interest in the project for 128 million. This transaction expands our long-term in alignment with a strategic partner and shipper. It supports and more than funds the 85,000 barrel a day capacity expansion. It increases Plains net committed annual cash flow and it provides an additional source of funding for our capital program or debt reduction. We expect to announce an open season for additional volume commitments on the system in the very near future.
On Red Oak, we're proceeding with pre-construction activities on his 50-50 joint venture with Philips 66 that was officially sanctioned in June. The system will enable volumes from Cushing, Oklahoma and the Permian Basin to access multiple Gulf Coast destinations, including Corpus Christi, Ingle side, Houston and Beaumont, Texas. We expect the project which is underpinned by long-term ship agreements to begin initial service as early as the first quarter of 2021. We along with our partner will evaluate the outcome of the current supplemental open season in progress.
We also continue advanced additional commercial opportunities, including a potential expansion of our Rangeland and Western Corridor systems to support Canadian production growth and further enable movements from Edmonton to US Gulf Coast markets. These expansions are subject to the outcome of the Western Corridor open season that's currently underway. Each of these projects demonstrate opportunities that are enabled by existing asset base, our operational capabilities and commercial presence, which allows us to build and position ourselves for the future with a creative growth. These projects will be completed over the next two or three years, and we expect to be able to self-fund the equity portion of our investments through this time period.
As a result of these projects and as Al will discuss in greater detail, we've increased our 2019 capital program by 150 million, which is expected to be more than offset by proceeds from JV asset sales completed to date and our strong S&L performance generated in the first half of the year. Before I hand the call over to Al, let me share a quick update on Cactus II. I'm pleased to report that the pipeline is mechanically complete from Wink to Ingleside and that we're currently performing commissioning in linefill activities. As of today, the line is approximately 50% filled with crude and we anticipate entering initial commercial service sometime next week. We expect to have direct Cactus II connectivity to Corpus in service by the end of the first quarter 2020.
At this point, I'd like to publicly acknowledge the hard work and dedication of our team to bring our second Permian takeaway project into service within the last 12 months.
With that, I'll turn the call over to Al.
Thanks, Willie. During my portion of the call, I'll share a brief recap of our second quarter results, provide update to our 2019 guidance and growth capital program and review our current capitalization, liquidity and leverage metrics.
We reported second quarter adjusted EBITDA of $784 million, which represents a year-over-year increase of 55% driven by strong performance in our S&L segment. As summarized on Slide 6, our second quarter fee-based results of $582 million were in line with expectations, representing a year-over-year increase of 10% and were roughly flat to the first quarter of 2019.
Looking forward to the balance of the year as illustrated on Slide 7. As Willie noted, we have increased our 2019 adjusted EBITDA guidance by $125 million to plus or minus $2.975 billion. This increase was driven by our S&L performance in the second quarter, primarily attributable to favorable crude oil differentials in the Permian Basin and Canada, and improved NGL margins.
Additionally, we have lowered our 2019 transportation segment guidance by approximately $25 million or 1%, calibrating for our current outlook on producer activity levels through the balance of the year. Our 2019 DCF guidance was increased by $65 million, reflecting the increased adjusted EBITDA guidance, partially offset by $40 million of higher income tax expense in Canada and $20 million increase in maintenance capital, as we expect to complete more work in 2019 than originally anticipated.
As illustrated on Slide 7, given the newly sanctioned projects Willie discussed, we have increased our 2019 capital program by $150 million, net of lower costs on Wink to Webster resulting from our reduced equity interest in the project. We remain focused on capital discipline and prudent financial management. In that regard, the increase in our capital program is more than offset by the $128 million of cash received from the formation of the Red River JV and the $65 million increase in our 2019 DCF guidance.
Additionally, while the large majority of the capital associated with these newly sanctioned projects is expected to be incurred in 2020 and 2021, we do not expect to issue common equity to fund our capital program in those years and we'll continue to explore and utilize potential asset sales, strategic JVs and alternative financing opportunities to add funding flexibility.
Moving into our capitalization and liquidity, as illustrated on Slide 8, at quarter end we had a long-term debt to adjusted EBITDA ratio of 2.8 times, which benefits from S&L over performance over the last 12 months. Excluding the S&L over performance, we remain focused on continuing to migrate leverage down within our targeted long-term debt to adjusted EBITDA range and achieving mid-triple B credit ratings over time.
Based on our updated 2019 guidance, we expect to exit the year with full year common unit distribution coverage of more than 200%, more than $1 billion of cash flow in excess of distributions and per unit results that exceed our prior expectations.
With that I will turn the call back over to Willie.
Thanks, Al. So we had a solid quarter of financial, operating and commercial performance and we're pleased to have made this significant progress on a number of initiatives that position us well for the future. We remain intently focused on executing our 2019 plan, and advancing the projects and initiatives that we set forth throughout our call today. A summary of the 2019 goals and the key takeaways from today's call are shown on Slide nines and 10.
With that we'd be happy to take your questions. I'll turn the call over to Roy.
Thanks Willie. As we enter the Q&A session, please limit yourself to one question one follow-up question and return to the queue if you have additional follow-ups. This will allow us to address the top questions from as many participants as practical in our available time this afternoon. Additionally, Brett Magill and I plan to be available this evening and tomorrow to address additional questions.
Melissa, we're now ready to open the call for questions.
Thank you. [Operator Instructions] And our first question will come from Shneur Gershuni with UBS.
Hi, good morning, guys. I think I should say good afternoon. Just maybe to start off on the guidance that you put out today. I understand that it's going up partially for the – it's going up for the S&L beat and so forth. I was just wondering if you can sort of give us a little bit of detail on the transportation side. You have margins going up, but you've got volumes going down any particular reason that you would attribute to the volume change.
Jeremy?
Thanks, Shneur. This is Jeremy Goebel. Question is a good one in reflection of changing in the industry in the upstream side. I think our guidance reflects our expectations for the year that includes pipeline utilization changes with regard to Gulf Coast pipes coming online and potential barrels coming off the basin. So I think that it's just to reflect our current guidance, our view, we will continue to update that throughout the year as we talk to our customers, but it's a dynamic time in the industry. And it's within 1% of our original forecast. We're just reflecting it of where we think that the market is headed.
If I can paraphrase, essentially, you're losing some volumes on low margin areas. But you're gaining on some others or maintaining on the higher margins, is that kind of the right way to think about it?
I think there's just a lot of moving pieces with respect to our asset base where it's hard to identify and simplify it to that. I think in the context of a $25 million move and the entire thing that's just a reflection of the entire asset base and how we see things moving in differentials across the basin and end market input will help barrel [ph].
That makes perfect sense. That didn't want to beat up on a minutia item, just wanted to make clarification. And then one other last clarification question, there sort of seems to be more and more participants joining the Wink to Webster pipeline. Does this change your CapEx outlook at all as you think about next year? And do you have a sense of what Plains' final ownership is going to be of the of the project?
Sure, we'll own 16% of the Wink to Webster project, which will be over 1 million barrels a day and fully contracted pipeline, we're excited about it. We took a reduction in our interest to make room for the additional partners. We've given guidance for 2019 and that reflects our lower interest in the project. But at this point, I haven't given any 2020 guidance capital. We will later this year.
Perfect. Thank you very much. I've used up my two questions. I'll jump back in the queue.
Thanks, Shneur.
Our next question will come from Jeremy Tonet with JP Morgan.
Hi, good afternoon. Just want to follow up a little bit there on the Permian. And given kind of a – producer commentary has been changing a bit there. Some people kind of pulling in on growth or differing. And you guys in the past kind of presented your view as far as longer dated Permian growth. I'm wondering, does anything change materially from your prior expectations? Specifically, Concho discussed changes in their approach. So that'll be helpful for any color there.
Sure, we continue to monitor that and stay in front of our customers. We have moderated our forecasts in the Permian. That's reflected in our guidance forecast for the rest of 2019. We had a reduction coming into the year to 400 horizontal rigs and steady state for the second half of this year, you're roughly at 390 now, so marginally, it is a bit lower, but it's very consistent with our views, but on the margin it is lower and we'll continue to monitor producers views and how they look to operate within cash flow and specific to our customers on our pipeline and we'll stay on top of that.
Jeremy, this is Willie, the question that you ask is a good one, but very difficult to answer. And I think that the key on this is we want to wait till the rest of this year. We continue to monitor as Jeremy said, but I think we'll be able to give a little better color on 2020 and beyond over the next three months.
That's helpful, thanks. And then maybe just following up with regards to the opportunities that arose in Canada, would you be able to provide a bit more color on what happened there and I guess the ability to kind of capture those margins again in the future.
Those are sort of one time type of events. A lot of it centered around differentials that got water around post to [indiscernible] and around some of the upgrade or outages in the plant turnarounds in Western Canada, so certainly wouldn't characterize those is recurring type of events.
That's helpful color. Thank you for taking my questions.
Thanks, Jeremy.
Our next question will come from Tristan Richardson with SunTrust.
Hey, good afternoon, guys. Now that we're kind of midway through the year and you have a better sense of the JV structure on Wink to Webster, a schedule on Capline and St. James, as you look at some of these long lead projects. Could you talk a little bit about how CapEx is shaping up for 2020 and just the potential prospects that we could see CapEx lower next year versus 2019?
Al, why don't you take that.
Yeah, this is Al. I think our view was we wanted to wait and update our 2020 capital probably in November, on that call. We would probably say it'll be roughly equivalent to the neighborhood we are this year. Clearly, there's some timing issues as to whether some of it pushes into 2021 versus pulled forward into 2020. There's also whether or not we look at doing a project finance inside of the Red Oak joint venture. So there's some things that could cause it to shift. But we think it'll be roughly in a neighborhood of this year.
It's helpful thank you. And then not to bring up a lightning rod item, but can you talk about just tariffs, surcharges to the extent that future build out pipelines et cetera. This may be something that you employ when and where the procurement process incurs these costs.
Yeah, this is Willie, Tristan. I'll give you my views on this. This is a – as with everything it seems these days there's a lot of moving parts. On Cactus II, we ended up buying international, non-US steel because the US steel producers were not able to produce the pipe in the spec that we wanted. The key point on this is we purchased the steel before the tariffs were implemented. And so we are going through the reception process with the Department of Commerce and will continue to do that to try to get resolution on it. As a parallel path, we have moved forward with the surcharge and if we're able to get an exemption, clearly, we would stop the surcharge and in rebate it as appropriate. But again, this is something that I highlighted early on, where we've got to make sure that the regulations and the rules are clear for people before they make the investments on these projects. Hopefully that helps Tristan.
Appreciate it. Thank you, guys, very much.
The next question we'll take from Colton Bean from Tudor Pickering, Holt & Company.
Good afternoon. So just to follow up on Wink to Webster, I think Delek had recently noted their net project costs and the implied totals about 2.4 billion. So I think that seemed a little bit low relative to the prior S curve commentary just in terms of your expectations on 2020. So I wanted to see if that 2.4 was consistent with your expectations or if there were some Plains specific considerations, we should be aware of?
We're not going to rate exactly what Delek's quote was they could have some financing or other things that to their interest. So I think that may not necessarily tie directly to ours. I think ours is closer to the $500 million or $550 million range net to our interest for the entire scope of the project and without financing.
Got it, that's helpful. Then just looking at the range on Western Corridor expansions, can you provide a bit of context on the scope of that project and what the driver is of 2021 in service? Would those barrels be expected to flow on Liberty and Red Oak? Or should we expect some of those to be dropped off and Billings or other refinery complexes?
That's a good question. Think of Rangeland as north of the border currently flows into Edmonton, but with the ability to flow the Edmonton or Sundry barrels down to the border and have picked up by the Western Corridor system. At Guernsey it will connect to the Liberty project and ultimately into Red Oak to feed barrels to the integrated solution with P 66, Plains and the other partners in the system.
Got it and then just a quick clarification, if you were to get the system online a little bit early with Western Corridor would Saddlehorn be an interim solution or is it still pretty firm that you need Liberty online?
The Saddlehorn open season, as Willie suggested, recently closed and that'll largely be a full pipeline. So I think the intent is to bring a lot of that capacity on in a similar time frame. If there are earlier opportunities, we'd certainly look to take advantage of them.
There's some work that needs to be done on Western Corridor as well. So it's probably not a huge time line difference between Western Corridor, would be capable of increased capacity in Liberty with the in service.
Got it, appreciate that.
Our next question will come from Gabe Moreen with Mizuho.
Hi, good afternoon. Can you speak to how high you'd be willing to let leverage go and your metrics go sort of on a temporary basis? If you've got a large number to finance in 2020, with the fact that you may have visibility to getting that leverage back down to the threes. As these projects come online, just curious kind of how much headroom you think you might have on the metrics.
We do intend to migrate – we look at it internally. I know it's hard from the outside, but we normalize what we think S&L will be on an ongoing basis. And so we do expect with the addition of Red Oak a slight uptick in 2020, from where we're at and then migrating down. We will not bring it up to a point where it would cause concern that we don't do that we have to be inside of the newly established leverage range in 2020. We will migrate down over time.
Okay, curious, obviously what that normalized level of S&L is, but some point maybe Al; maybe we'll get that number. The second question for me is around – sorry go ahead.
That's right Gabe. I think it’s right.
Keep trying, then maybe just in terms of Capline, can you speak to, I guess the volumes on that expansion, how much is contracted, is that refiner driven, producer driven, just kind of what actually emerged from the open season? Just curious if there's more color there.
I think Gabe, at this point, we'd say that it's sufficient to reverse the Capline pipeline system from Patoka South, also to expand and tie into Diamond system and support that. So we met in excess of our internal returns, as well as our partners to sanction the project. We'll be looking for opportunities to add additional volume and commitments to the system based on timing of other connecting carriers and volumes, so we'll be on top of that with the ability to continue to increase returns.
One other point on that is that there's an additional benefit for us with Capline idle, you've got cost to maintain that when you put it in service, you'd certainly – you save some money there as well. So that's one of the things that helps the return.
Thanks, Willie. And just one quick follow up on Capline, is there any regulatory approvals needed for either the extension on Diamond or the reversal or you just kind of good to go there?
Yeah, this is Chris Chandler. I'll talk on the extension of Diamond, there is about a 40 mile segment that we'll be laying from Memphis to be able to tie into Capline. And that'll Of course, require normal permits for that new piece of pipe.
Great, thank you.
Next, we'll take a question from Michael Blum with Wells Fargo.
Hey, thank you. Just want to clarify first Wink to Webster, so is that now set at a million barrels in terms of the capacity and not 1.5?
Michael, you should think about it this way. It's a 36 inch line, which capacity is roughly 1.5. Hopefully that helps.
Okay, second question just on the quarter, in terms of S&L, I'm sure you're not going to give me exact numbers, but can you give me kind of just like a rough idea of the magnitude of how much of the beat or the contribution came from two crude oil location spreads versus the Canadian NGL business? Thanks.
The large majority of it was from the crude oil spreads both in the Permian and in Canada, much smaller degree from NGL.
Okay, perfect. Thank you.
Next, we'll take a question from Keith Stanley from Wolfe Research.
Hi, good afternoon. The updated transportation guidance, the 1.7 billion implies a pretty steep ramp in the second half of the year. Is that mainly Cactus II starting up? Or is there anything else significant that drives EBITDA higher in the balance of the year?
That's a significant contributor, it's one of the primary contributors in the second half of the year, but the rest of it is just minus side volume growth on to the system that we feel pretty comfortable with.
Okay, so just Cactus II and then just typical growth that you guys usually see.
Correct, adjusted.
Okay and then just a follow up on the NGL business in S&L and Canada. How would you say that business is positioned right now with the low NGL pricing that we're seeing, but steep contango and the forward curves over the next few months and into 2020?
Harry, why don't you take that one?
It's hard to go into a lot of detail on our positioning. Obviously, the contango market helps the propane and butane storage capacity to take advantage of this type of market. We've done a lot of work over the last year streamlining our business, taking some of the volatility out of the business, making more consistent returns. So I think we're well positioned we certainly put ourselves in a position where we probably won't see the spikes in upside and in a say high demand environment window, but we also have eliminated the risk of an amount of downside if you get into a low demand winner. So I think we're pretty well positioned.
Thank you.
Next we'll take a question from Jean Salisbury from Bernstein.
Hi, there are some concerns, that Corpus export capacity won't be ready in time for the pipeline's going there in the second half. And that could stop pipes from ripping as much as initially thought, is there any market Intel you can share or on your view on that?
I think we have line of sight into our connecting carriers and our shippers demand, but not necessarily to everyone else's, clearly you can follow the permitting processes and the schedule. The other facilities coming online, the PA, Eagle Ford for JV with Enterprise that's starting up next month, so that's additional capacity that's coming online. And then our connecting carriers have already – our shippers on Cactus II have already contracted the capacity necessary for their full demand. So maybe timing of tanks and connections, but for a large part, there's definitely a line of sight for Texas too to ramp up to full capacity.
This is Christian. I'll just reiterate that the carriers that we're connecting to have indicated that they will be able to support the full capacity of the pipe by the end of September.
Great, thank you. And sorry to get back to this, but can you share any more detail on if the decrease in volumes in 2019 guidance was more on long haul or in gathering? I guess the load change in EBITDA would suggest that it was mostly gathering.
I'd say it's primarily gathering. It's whether its timing producers capital budgets. But as you're aware of the – our numbers are gathering in the long haul, so they propagate. But with the timing of Cactus II that's going to offset some of the long haul piece. So I think it's really primarily a gathering.
Great, thanks. That's all for me.
Next, we'll go to Dennis Coleman with Bank of America.
Yeah, good afternoon, thanks for taking my question. A lot has been hit on S&L and sort of feels like the old days where big beats come out of that sector, so congrats on that. I do just want to ask, does seem like there was a tick up in the short-term debt at the end of the quarter. And I'm guessing that relates to the increase in activity there. Is that right? And should we expect to see that trend back down? Or how should we think about that?
This is Al, I'll take shot at it. Yeah, firstly, we've been in a situation where we haven't had a need to borrow short-term as much as what our inventory positions were. And that's been for a number of quarters. This quarter, we actually had, I think it's embedded in one of the footnotes on the slide we exited with enough cash on the balance sheet again. So technically, if we would have been able to pay everything down, it would have been a lot lower as well, that increase wouldn't spend as much. But for a number of quarters following the Bridge Tex sale, we haven't been able to fully borrow just from the use of cash. In this quarter, we had the cash on the balance sheet again.
Okay. And just maybe I missed this. But so S&L this is just a onetime shot, continuing to think about the out years in the prior range that that you've talked about.
Dennis, this is Willie. Let me see if I can give some color on this. S&L this year is playing its position exactly as we expected. We've given guidance over the last number of periods of time that once the pipes get overbuilt, the arbitrage opportunities will go away, right. So clearly this year is something where the spreads have been wider, we've been able to capture opportunities there. And exactly what we've said, we think will happen is happening in that as the long haul pipes starting up late later part of this year, the arbitrage opportunities go away. The twist on that was Canada and I think some of that is getting solved today as well, with both additional volumes, leaving Canada because of the slight reductions of constraints, as well as some of the rail facilities pulling barrels out. So I wouldn't – please don't take this S&L performance as something that's different than what we talked about. We've always said meaningfully less S&L in 2020 going forward because of the pipes that have been built. And the way we ought to view our S&L segment is it provides the ability to capture arms when they're there. And we'll use that to pay for capital investments or reduce debt. But we shouldn't count on any large number as far as S&L goes going forward at this point in time anyway.
Great, that's perfect. Thanks for confirming that Willie. That's all for me.
Our next question will come from Sunil Sibal from Seaport Global Securities.
Hi, good afternoon, guys. Most of my questions have been heard, but just wanted to go back to your projects on the Western Corridor and Rangeland. I was curious the additional flexibility that you're adding, does that help you move the heavier volumes through or is it more of lighter volumes and then that helps offload some of the lighter volumes on some of the other pipelines?
It's designed as a light pipeline because of the size of the Western Corridor and Rangeland system so that it would be prohibitive to move any potential volume of heavy. So it's going to be a light only pipeline system that will tie into Cushing and then eventually distribute to multiple Gulf Coast destination. So it offers a lot of flexibility to the shippers.
Okay, got it. And then on Capline reversal, I was wondering if you could talk a little bit about the returns on that? Should we expect that to be better than some of the other project returns that you have outlined?
I think, as its sanction that's consistent with the Brownfield projects we typically do with the ability to even outperform that for successful in subsequent open season.
Okay, so the baseline at least is the same as some of the projects, correct?
With Brownfield projects.
Yeah. Okay. Thanks, guys.
Thank you.
Next we'll take a question from Becca Followill with US Capital Advisors.
Good afternoon. Wanted to revisit the guidance for transportation for 2019 and your degree of confidence in it? It seems like there's almost daily land mines right now in the E&P space. Is the guidance based on discussions you had prior to Q2? Does it incorporate everything we've seen in Q2 and then does it risk it for other things that might happen across the year?
So that's a good question. But I'd say that we're an active dialogue. We have an expansive lease marketing pipeline commercial group that's in constant contact with our customers. We get from the vast majority of our shippers monthly updates, I think we have a good sense for. If you if you think about it, the planning cycle for the upstream guys from when the rig shows up to when its production it's roughly eight months is the cycle time now. So the crystal ball gets fuzzy outside of six, seven, eight, but within a six month window, you usually have a fairly higher degree, but there's going to be variability and things are going to go higher in some areas and lower other and more of that's going to be driven by individual well performance, not changes and activity. 2020 will look different because of changes in activity, but the second half of this year will largely be driven by well performance of things that already planned to come online. So I would put the 2020 as a different degree of uncertainty as the second half of this year.
Which Becca, we're not giving guidance on 2020 right now.
But Becca, all the things you've mentioned, go into our forecasting. We start with sort of dialogue we have with producers; we incorporate our views and we adjust it for potential risk with respect to timing, performance, et cetera. So listen it's not going to be exact, it's our best estimate. So we try and factor in many of the things that you raised in your question.
Great, thank you guys, that's all I had.
Thanks, Becca.
And that does conclude our question-and-answer session today. And I'll turn the call back over to Roy Lamoreaux for closing remarks.
Thank you all for joining today and look forward to updating you on our call in November.
Once again, that does conclude our conference for today. Thank you for your participation.