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Good day, everyone. Welcome to the PAA and PAGP Fourth Quarter and Full 2019 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Roy Lamoreaux, Vice President of Investor Relations. Please go ahead, sir.
Thank you, Kelly Ann. Good afternoon, and welcome to the Plains All American Fourth Quarter and Full Year 2019 Earnings Conference Call. Today's slide presentation is posted on the Investor Relations News and 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, consolidated balance sheet information for PAGP. Today's call will be hosted by Willie Chiang, Chairman and Chief Executive Officer; and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial; 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 will now turn the call over to Willie.
Thanks, Roy. Good afternoon, everyone, and thank you for joining us today. This afternoon, we reported fourth quarter results that exceeded our expectations, and we furnished financial and operating guidance for 2020 that is consistent with the preliminary guidance that we provided in November. I'll provide a quick review of our 2019 performance, an overview of our 2020 guidance and plans for the future, including our 2020 and 2021 capital program and asset sales as well as a recap of our portfolio optimization initiatives. Our adjusted EBITDA results in 2019 were $3.24 billion, with in line performance in our fee-based segment and significant market capture in our S&L or supply and logistics segment. 2019 was a year focused on executing during favorable S&L market conditions and positioning the partnership for more competitive environment in 2020. Throughout the year, we maintained high levels of reliability and commenced operation on key projects. This allowed us to capture meaningful S&L profitability, highlighted by strong pipeline utilization with our U.S. Gulf Coast long-haul lines running at capacity. We also advanced and sanctioned a number of strategic projects that strengthened our competitive positioning in legacy areas while aligning ourselves with long-term industry partners. In addition to continuing to improve our safety and operating performance, we also advanced multiple initiatives to strengthen our operational, commercial and financial positioning as we enter 2020. As highlighted on Slide 3, and further detailed on Slide 4. In 2019, we achieved, and in certain cases, materially exceeded each of the goals that we outlined for the year. We generated fee-based results that represented growth of 9% compared to 2018, which was in line with our guidance, and we also exceeded expected capture of market opportunities through our S&L segment. As a result, we meaningfully exceeded our beginning of the year expectations and generated stronger per unit results as well as substantial distribution coverage and leverage reduction, helping fund the equity portion of our capital program without issuing equity. From an operational perspective, our transportation segment volumes grew 1 million barrels a day or 17% over 2018, while we made steady improvements in operating excellence towards our goal 0 objective by exceeding our 20% improvement goals for both employee safety as measured by total recordable injury rates and our environmental performance as measured by federally reportable releases. Notably, these safety and environmental metrics are approximately 50% better than 3 years ago, demonstrating a significantly strengthened safety and performance culture over that time period. Our 2020 adjusted EBITDA guidance is plus or minus $2.575 billion, and as we have shared for some time, we expect our S&L segment earnings to revert to a lower level as additional industry infrastructure comes into service. As shown on Slide 5, for fee-based segments, our 2020 adjusted EBITDA guidance of plus or minus $2.5 billion reflects approximately a net $75 million year-over-year increase, with $100 million increase in our transportation segment, partially offset by a $25 million decrease in our facilities segment primarily due to expected asset sales. Our 2020 guidance for S&L segment is $75 million. With respect to our capital program for 2020 and 2021 combined, we expect total expansion capital investment to be approximately $2.3 billion, excluding project financing. We currently estimate investing about $1.4 billion in 2020, followed by a meaningful reduction in 2021 to approximately $900 million. I would note that there could be some shift between 2020 and 2021, depending on the timing of project investment and joint venture capital calls. Importantly, we intend to fund the equity portion of our 2020 and 2021 expansion capital without issuing equity. Looking forward, we do not have any material organic growth capital commitments beyond 2021, and we expect our capital program to be further reduced in 2022. With respect to progress on our capital program, we continue to advance each of our key projects, generally consistent with expectations described in our November earnings call, a recap, which is provided in the appendix. Importantly, we expect a step change in free cash flow improvement as we reduce our organic growth capital investments and the EBITDA benefit of these projects begins ramping up in 2021. With respect to the Red Oak pipeline JV, we sanctioned the project in mid-2019, supported by long-term volume commitments and expect to generate returns consistent with our targeted hurdle rate of 300 to 500 basis points above our weighted average cost of capital. We expect Red Oak to begin its cash flow ramp in mid-2021 and similar to other projects, we continue to work to enhance the overall return profile. As summarized on Slide 6, portfolio optimization remains a key part of our strategy, including noncore asset sales, forming strategic joint ventures with long-term industry partners to secure commitments and enhance returns as well as making strategic and opportunistic bolt-on acquisitions. Over the past 3 years, we've generated more than $3 billion, selling noncore assets in forming and expanding strategic joint ventures. We continue to optimize our base business and high-grade our asset portfolio while funding strategic investments.
In 2019, we completed $200 million in asset sales with approximately $70 million in the fourth quarter of 2019. We also materially advanced several other divestiture opportunities. And for 2020, we have established a $600 million asset sales target. Included in this target is our recently closed sale of a 10% interest in Saddlehorn, our Los Angeles crude terminal assets for which definitive agreements have been signed, and closing is expected in the second half of 2020, and other transitions -- and other transactions in advanced stages of negotiation. We also continue to pursue additional potential strategic JVs and asset sale opportunities beyond our 2020 asset sales target. Also in line with our portfolio optimization strategy, as shown on Slide 7, we recently completed a $300 million transaction with Felix Energy, which involve a long-term extension and modification of an existing dedication and gathering agreement and a bolt-on acquisition of Felix's crude oil gathering system that connects into our Alpha Crude Connector and Wink South systems. We are well positioned to optimize this gathering system, realizing pull-through benefits on our system and generating a mid-teens unlevered return. The system is located in a core area and backed by a high-quality producer with an active program on the acreage. Our 2020 guidance includes the operating cash flow benefit from this acquisition, which we expect will be roughly offset projected cash flow impact of our targeted $600 million of asset sales in 2020. With that, let me turn the call over to Al.
Thanks, Willie. During my portion of the call, I'll recap our fourth quarter and full year results, review our current capitalization, liquidity and leverage metrics and share additional comments related to our 2020 financial positioning. I will also address 1 noncash accounting-related item. Our fourth quarter adjusted EBITDA of $860 million exceeded our expectations and was driven by a continuation of strong performance in our S&L segment and includes the seasonal benefit of our NGL business. I would note that $25 million to $30 million of this overperformance was an acceleration of earnings originally expected to be generated in 2020, and the timing shift has been taken into account in our 2020 S&L guidance of plus or minus $75 million. Fee-based adjusted EBITDA for the quarter of $627 million was slightly ahead of expectations due to strong performance on our Cactus II pipeline and increased activity and lower costs in our facilities segment. As shown on Slide 8 and consistent with our expectations, transportation segment results were down from the prior quarter. This was primarily due to long-haul movements on our basin -- lower long-haul movements on our basin, BridgeTex and Red River Pipeline systems, partially offset by a full quarter benefit of Cactus II being in service and volume growth on our broader Permian area systems. On a full year basis, as Willie noted, we reported 2019 adjusted EBITDA of $3.24 billion; DCF per common unit of $2.99; diluted adjusted net income per common unit of $2.51, which exceeded our beginning of the year guidance by 18%, 16% and 24%, respectively. Our 2019 DCF and DCF per unit included maintenance capital investment of approximately $290 million, which was higher-than-expected in our guidance and consisted of several onetime projects that totaled approximately $40 million. Our 2020 maintenance capital forecast is $250 million. As shown on Slide 9, at year-end 2019, we reported significant improvement in our targeted financial metrics relative to prior years and committed liquidity of approximately $2.5 billion. As we look to our 2020 guidance, despite growth in our fee-based business, we expect our financial metrics to compress and leverage ratios to increase as our S&L earnings normalize and we complete our multiyear expansion capital program. Consistent with our targeted financing structure, we expect to fund 2020 capital through a combination of excess distributable cash flow, asset sales proceeds and long-term debt. Our 2020 CapEx is $50 million higher than the preliminary capital program guidance we shared in November, as a result of incremental capital associated with the Felix acquisition, coupled with a minor timing shift from 2019.
As Willie indicated, our expansion capital investments currently underway primarily benefit 2021 and beyond, during which we expect meaningful reductions in our growth capital investment. Lower capital investment, combined with cash flow benefit from completing our multiyear capital program should positively impact our free cash flow and further improve our leverage metrics over time. Consistent with past practice, we do not intend to provide preliminary 2021 adjusted EBITDA guidance until later in the year, but we will continue to monitor drilling and completion activity, production trends and service timing of our projects and competitive dynamics as new pipeline capacity enter service. And we will incorporate that information into our forecast when we provide preliminary 2021 guidance in November. Before turning the call back over to Willie, I would mention that in the first quarter of 2020, we expect to reclassify our LA terminals as a held-for-sale asset and recognize a noncash charge of approximately $160 million, which will be treated as a selected item in our adjusted results. With that, I will turn the call back over to Willie.
Thanks, Al. So 2019 marked a strong year of execution for Plains. We progressed operating commercial and financial initiatives that we feel position us for a more competitive environment. And we advanced our multiyear strategic capital program, which we expect to substantially complete over the next 2 years. We also continue to progress additional potential asset sales beyond those in our 2020 target, which, if completed, will provide us additional financial flexibility for leverage reduction and, after achieving our targeted leverage metrics, support incremental return to shareholders. I'd like to publicly acknowledge the hard work and dedication of all of our employees on our 2019 results. Our collective efforts remain focused on achieving our 2020 goals, as shown on Slide 10, and continuing to optimize our portfolio and gaining additional efficiencies across our organization. A summary of key takeaways from today's call is outlined on Slide 11. We look forward to providing an update on our progress during our conference call in May. With that, I'll turn the call over to Roy.
Thanks, Willie. [Operator Instructions]. Additionally, Brett Magill and I plan to be available this evening and tomorrow to address additional questions. Kelly Ann, we're now ready to open the call for questions.
[Operator Instructions] We'll hear first today from Jeremy Tonet with JPMorgan.
I want to start off with the Felix acquisition here, and just want to see if you could provide a little bit more color if this was an auction process or not. And when you're talking about hitting those economics that you stated there, is there additional synergies needed? Or what type of EBITDA does it have on a stand-alone basis now? Just any color you can provide around that would be helpful.
Sure. It's an asset that's been tied to us. We've known the Felix guys for quite some time. It was originally auctioned, but it came back around to us. And we looked at the opportunity and felt like the synergies it provides, it's an integration through the system. So we're now having -- with substantial near-term cash flow, with a high PDP component, we're able to take that at a constant rig activity profile and pull through the system and meet the mid-level returns. We don't need anything extra beyond that. The rest of it is upside.
So we have a good model that fits us with the activity level that's on the program with -- on the system today to meet the return thresholds we have. It's not a hockey stick profile like most of the ones that you see. And once again, we passed originally when we saw the deal and it came back to us, and it's an opportunity we're excited about.
That was our Jeremy. That was our Jeremy, Jeremy.
The first time around, it was a larger package, included what -- other assets besides just preferred -- was the primary driver for passing on the first time.
That's helpful. And if I could just follow up with regards to guidance, good to see this thing with the numbers you provided previously. Just wondering if you could provide any color about your conversations with producers right now. And I guess your expectations for the basin as a whole, has it changed that much from when you first put out the guidance? Or any kind of color you can provide there? Are you seeing kind of some weakness with oil prices here? Just want to get a feeling for what you guys are seeing.
Sure. We stay in constant dialogue with producers. And obviously the last 2 weeks wasn't in everybody's forecast. But in November, there was a lot of the same sentiment that there is today. It was kind of a round-trip that went back up because of the global tensions and then most recently come down. But in November, the sentiment was very similar to what it is today. And our discussions with producers led us to the Permian production growth that we talked about. I think largely in the last month, 25 additional horizontal rigs have been added to the Permian. So our forecast is consistent to slightly higher than it was, but it's still moderated from expectations earlier in the year, so close to 400,000 barrels a day of growth. There's substantial opportunities.
I think what we're seeing is a concentration of activity in the core block. So those with core acreage dedications, we'll continue to see it with well-capitalized producers. So there'll be haves and have-nots throughout this. I think more broadly in the U.S., we see flat, some down, that the Permian will have close to 400,000 barrels a day of growth. So we see that coring of activity. Now if flat prices fall to $40, that could be a different thing. But all along, we expected producer budgeting between $50 and $55 a barrel.
We'll hear next from Shneur Gershuni with UBS.
Just to follow up on the last question, just for a little bit of clarification. If I remember correctly, you had a pretty low expectation versus industry experts on the 300,000 to 400,000, 4Q to 4Q exit. Did you just say that it was tracking better than that? I just want to clarify that I heard that correctly before I answer -- ask my 2 questions.
What I said is that it's tracking towards the higher end is simply on a constant activity basis, right? So you had 375 horizontal rigs then, you have 390 horizontal rigs now. So it would be towards the higher end, but it's not materially different expectations than we had before, just simply on a constant activity basis.
Okay. That totally makes sense. Just 2 quick questions here. Well, the first, a guidance clarification here. During the last call, you had talked about an $85 million sensitivity to the competitive environment. Has that changed at all? Have you been able to reduce that risk at all through some contracting activity? And also can you clarify whether the asset sales that you're budgeting for are included or excluded from guidance?
Shneur, this is Al. No, as you could see, we did not adjust the $2.5 billion fee-based and so we did not materially change our view on the $85 million for this year, so you see a flat number. The asset sales are included, the $600 million in our estimate. The Felix acquisition roughly offsets it on a cash flow basis. That's early in the year, some of the sales will be in the second half, so that roughly offset. That's why you see no change.
Okay. And one final follow-up question. When we're thinking about the facility segment, and sort of thinking about the high natural gas storage levels that we're seeing, are there opportunities to see continued rate improvement for your -- the old P&G business? Is there opportunity for more volumes there? Is that a business that can potentially outperform given the unfortunate high storage levels of natural gas these days?
Well, we've been seeing natural gas storage rates increase over time. A lot of is due to the activity and particularly the LNG activity at our other facilities. They've been ratcheting up. But when you look at 2020, we're highly contracted so the storage fee component of it probably isn't going to change materially in 2020. The activity levels sort of ebb and flow, but that would be the only sort of upside activity in the P&G assets.
We'll move next to Christine Cho with Barclays.
When we think about your commentary for asset sales, what do you exactly consider noncore? And then with the strategic JVS, are we thinking for projects that are not yet in service or existing assets that are currently generating cash flow? And are you open to another partner on Red Oak?
Christine, this is Willie. Clearly, you've seen the playbook as far as strategic JVs. So when we think about additional asset sales, it absolutely includes potentially additional partners on some of the projects we've got. And other noncore asset sales, some of it is around making sure we are as efficiently as we can in some of our ownership positions up in Canada. I think I'll just leave it at that.
Okay. And then just moving over to your 2020 guide. The volumes obviously up year-on-year but the EBITDA per barrel continues to come down. So just wanted to see if we could get more color on is this just a function of more lower margin, short-haul intra-basin gathering volumes or did a lowering of tariffs on existing long-haul pipes also play a role?
Al, why don't you take that?
Yes, Christine, I would say it's really kind of a combination of several different things. Most of it is just the business mix and growing volumes on pipes that have lower tariffs. I mean we have certain pipes that have tariffs in the $0.20 to $0.30 range and some that are $4-plus. And so the business mix is a big part of it. Clearly, growing Permian intra-basin movements, they're generally lower tariff rates. So that's what's driving a part of it.
Also when you look back at the prior year, we had some sales of some higher EBITDA pipes like BridgeTex and one of our Rockies pipes. And then also there's some noise around it involving Capline, where we had a consolidated and undivided joint interest. Early this year, it became an equity investment, and that created some noise. So it's a little bit of a combination of all 3 of them.
And from Crédit Suisse, we'll hear from Spiro Dounis.
Maybe picking up on some of the contracting rates. One of your peers last week provided some data points around Permian long-haul contracting markets. Just curious if you're also seeing rates in that kind of $1.10 to $1.50 per barrel range. And if there's any appetite on your side, do you approach shippers about maybe blending and extending some of those contracts?
Let me -- Jeremy, here, why don't you take that?
This is Jeremy. We're constantly looking at our contract profile. What I'd first say is that any of the recently sanctioned projects have -- or materially contracted for extended periods of time. But if there is available space, we'll constantly look to optimize. I can't speak to our peer for the market, but is that a reasonable estimate? Sure. It depends on the term and the volume, and it depends on where that barrel originates from. We'll have the ability to move those barrels from further back in the basin, so the origin and destination will also matter when you consider that.
But we're constantly looking to optimize our position and contract profile. We're not going to have meaningful roll-offs for the next several years. But when they do, we'll look at the blending and extending program. And we would actively look to manage that over time.
Got it. That's helpful. And then just on CapEx coming down over the next few years, certainly encouraging to see that from a capital discipline perspective. How should we think about minimum CapEx levels you guys think you need to spend in order to maybe offset some of that recontracting pressure over those next few years? And maybe more broadly, are you even looking at it that way? Or is the goal to really grow free cash flow and not strictly grow EBITDA?
This is Al. I don't think we have an absolute mandate to just invest capital to try to offset declines or contract and other spots. We don't have a significant amount of contracts that have short tenures to them, as we had commented on the last call. Clearly, we're subject to some of the competitive pressures, volume growth, et cetera. But no, we don't have a kind of a minimum investment target. We do target returns, unlevered returns, $300 million to $500 million of our cost of capital.
We just think that the opportunity set and the infrastructure being deployed right now will create results in a situation where there's less requirement for us to build some of the larger long-haul pipes and that our CapEx will migrate meaningfully below the kind of the $900 million we're expecting in 2021. We put that bar on the one chart to kind of show a step-down. We think we'll always have opportunities around our assets to continue to add debottleneck and extend to get more production, et cetera.
And Spiro, this is Willie. I would also add, with a conscious effort to increase our capital discipline and target projects at the higher end of the difference between the higher return range of our cost of capital -- versus cost of capital. So we've been pushing that pretty hard.
We'll hear now from Keith Stanley with Wolfe Research.
I wanted to ask on the dividend. I think maybe a year ago, might have been more, you had talked to targeting potentially plus or minus 5% growth after the step-up last year. Is that still the plan looking forward for this year and beyond or to be determined?
Yes, Keith, we haven't changed any public guidance on our distribution policy. It's consistent, we've talked about last time. And I'd be jumping ahead of ourselves if we try to discuss what we might do here in April. April, May. Al, do you have anything to add?
Yes. No, our public guidance hasn't changed from that plus or minus 5%. But clearly, we have -- the decision won't be for a few more months.
Okay. And then for Felix, you said it's not a hockey stick profile to get to the returns. Apologies if I missed this. Did you say there's an expected capital need for that system? And then somewhat related, somewhat separate, with the asset sales you're planning now and the acquisition, when would you expect to get to your leverage target? Can it be achieved by next year? Or is it more likely 2022?
This is Jeremy. I'll take the first part of that and turn it over to Al. The Felix asset has substantial PDP component. There's a lot of public about the upstream component to that. The 5-rig program that's on the system now has ratable growth. And there's a lot of inventory of built and uncompleted wells that will come on through the year. So a lot of the ramp will occur by April of this year. And then there's only modest growth over the next couple of years and then basically assume flat.
So based on the acquisition that was just one of the upstream, we're very consistent with what that looks like. And a lot of that ramp occurs through April this year. In addition, part of the contracting was Plains is the first purchaser. Those barrels are now dedicated to our pipe for over 10 years, so it's a pretty ratable cash flow profile. And by ensuring those barrels stay in our system and making sure that connectivity stays with Plains, we've now basically extended the contract term for all of those on our system, and it gives us a first shot of things we didn't put into the acquisition economics like further downstream tariffs and things like that.
With regard to the second part on leverage, we do not expect we will be inside of our target range by the end of 2020, nor did we expect it we would be when we announced the financial kind of policy in April of last year. As you recall, we lowered our targeted leverage range by 0.5 turn and made it to be without excess S&L, so to speak. Now granted, we're entering a period of much lower S&L results. So when we announced that, call it, 11 months or 12 months ago, we didn't expect to -- we don't expect to now. We expect to see leverage increase slightly this year. And then it will take several years for us to actually work it back down into that leverage. Clearly, there's transactions or things outside of that that can accelerate that. But just under our base plan, we do not expect to achieve it this year, nor did we, like I say, a year ago.
Keith, this is Jeremy again. I didn't address one part of your question in regard to capital. There's some upfront capital to get it to the PAA standards and to further integrate into our system. But after that, it's a modest capital requirement because the backbone for the system has the capacities needed to meet the long-term production profile and to its minimal maintenance capital for the asset going forward.
And Keith, the increase is incorporated in the $1.4 billion that we target for 2020. And so that's what raised that up a little bit versus what we had before.
Tristan Richardson with SunTrust has our next question.
Appreciate all the background on the gathering transaction and the contracting there. You talked about in this environment using your capabilities on gathering and in S&L to compete for share. It seems like this one was opportunistic, but is there a concerted effort to grow the footprint in-basin to keep the long-haul utilized? Or was -- this came to you and it was more of a reactive?
This is Jeremy. This was more of an opportunistic that we don't necessarily have an intention to go out and buy additional gathering systems. This was one that fit us extremely well from a crude quality standpoint, from a location standpoint, from a contractual standpoint and from an alignment with a producer standpoint. So I think this asset sits in the deepest, most higher-pressured oil as part of the Delaware Basin, so there's some long-term attributes of the asset that we feel like will be developed.
Our footprint largely fits everything that we need at this point. And we're enhancing connectivity at Midland and other places to make sure we have that liquidity, and a lot of those can be done in low-cost with someone else's capital, not ours, so we're going to optimize anyway. This one was really more opportunistic than anything.
And Tristan, we actually had volumes. I think you probably know this already, but the existing contract we had, this was an opportunity to extend the contract and just provide a more secure long-term fee-based part of our business.
Helpful. And then just a quick follow-up. Appreciate the commentary on the -- the earlier question about the $85 million of impact that you guys talked about previously. I guess we think of that as there's a multiyear aspect to that. Is there a figure or a notion higher or lower about that sort of impact in further years? 2021 or otherwise?
No, this is Al. No, we plan to provide 2021 guidance or preliminary guidance in November. So clearly, there's a number of things we'll monitor, as I've mentioned in the prepared remarks, between now and then and provide that update later this year.
This is Willie, again. If you think about where we are right now, there's probably more variables than ever as far as trying to forecast what might happen, not only in what we control but in regulatory elections as well as global demand. So I think there'll be a lot more resolution as we let some months pass by.
But Willie, just to reiterate, this is Jeremy, one aspect that Al and I both brought up earlier, there's not meaningful contract roll off until 2025 in the vast majority of our systems. So a lot of the headwinds we get -- there's some next year, but they're smaller in nature. So we do have a period of high-contracted capacity. Margins have shrunk obviously, so spot capacity will be impacted. But some of that is in 2020. So it's not like we expect every year to have that roll off, but there will be as contracts roll up. But we have material contract protection on a lot of our assets.
We'll hear next from Michael Lapides with Goldman Sachs.
Just curious, how should we be thinking about the Permian in general and kind of what looks like it's going to be a surplus pipeline or takeaway capacity? How do you think about across the industries, where you're positioned, your assets, your pipelines are positioned volume-wise versus kind of some of your competitive strength relative to kind of market participants maybe that don't quite have your competitive positioning?
Well, I'll start and others can jump in. We spent a lot of time talking about our Permian position. So if your question was really related to the Permian, it also sets the tone for the other regions that we operate in. But we built our assets over decades, and so when we think about our business, it's an integrated asset mix. We've got gathering. We've got intra-basin, long haul. We've got a lot of flexibility with storage tanks. As we think about our calling card, its flow assurance, quality segregation, access to multiple markets. So we do think it's a differentiator for us in the Permian.
And that's why you see us building on all the projects that we've got. And strategic projects really help us further enhance that position. And as you think about the other reasons that we operate in, it's a very similar business model, trying to get aggregation, connectivity and access to multiple points.
Got it. Can you also talk about the contract status in terms of what percentage is contracted for both Red Oak and Wink-to-Webster?
This is Jeremy. We don't disclose publicly what our contracted status are, but we can say both of those are projects that we expect to hit the rate-of-return thresholds, obviously targeting the higher end. And anything that's unutilized, we're going to look to optimize through strategic partnerships or whatever. Wink-to-Webster has 5 partners in it. So you can understand, we brought a lot of parties in who brought barrels, and we expect that to be full for a long time.
Red Oak met our return threshold, and we're going to continue to look to optimize to bringing additional barrels, bringing in additional partners. So we're not finished by any stretch to improve upon what already hit our base thresholds.
We'll move next to Pearce Hammond with Simmons Energy.
My first is just a clarification from some earlier questions. Jeremy, when you were talking about 400,000 barrels a day of oil growth from the Permian, were you talking this '20 over this '19? Or you meaning calendar year '20 over calendar year '19?
It was exit-to-exit, Pearce.
Okay. And then my follow-up question, the $600 million of divestitures, how do you see the market out there for divestitures? Are you seeing kind of a disconnect between private valuations versus where public companies trade as far as multiples? And how strong do you think it is?
So Pearce, this is Jeremy. It's asset dependent, right? I think a lot of the assets we have are cash-flowing assets and assets that they're strategic value to different parties. And we're good at identifying ones that have natural counterparties, and we look to do that. And a lot of these, you might end up in trains, you might end up in outright sales. We're going to optimize our footprint by the end of this.
And then you've seen that $3 billion that Willie sold, and we haven't missed a beat necessarily. We -- basically assets that don't fit our marketing pipeline facilities and pipeline business all-in-one and not necessarily core, that's what we look to do. And we're going to look to be opportunistic and sell to counterparties, who have a need. So I think part of this is selecting -- we don't want activity without accomplishments, so we're going to work towards selling deals that have natural counterparties.
And Becca Followill with U.S. Capital Advisors has our next question.
My questions have been asked and answered.
We'll move next to Jean Ann Salisbury with Bernstein.
Just a follow-up again on Spiro's earlier question about the blend and extend. Is the right interpretation of -- Jeremy, your answer that you're basically saying that you're happy with your existing take-or-pay level out of the Permian, and don't feel a lot of pressure to firm up spot capacity at what shippers are willing to pay right now?
Jean Ann, this is Jeremy. Yes. Right at this point, we're happy with what we have, but we'll always continue to look to optimize our portfolio, if we can extend term and do something that's a win-win for our shippers. I think with Cactus II, with Cactus I, our shippers have done really well with their opportunities, and they like to work with us. And so we're going to continue to look. And if there's a need on their end that it works for us, we'll do it. But we don't feel any pressure or more compelled to do anything differently than we're doing today.
And Jean Ann, Jeremy and his team have been very, very active in trying to increase the amount of term versus spot that we have, so things like additional acreage dedications, some of the blend and extend. So we've made a lot of progress in being able to increase the amount of term -- barrels that we move in the Permian.
Definitely. Great. And then 2 just very quick ones, if I may. Was there any update that you can share on the Western Corridor open season?
Jeremy?
We haven't provided a formal update. We'll talk with our partners and do so. We're looking to wrap all that up here shortly, and we'll provide an update probably on the next call.
Okay. Perfect. And then just a quick one. On the Felix acquisition, I just want to clarify if the oil flows on your long haul, would the uplift from that part be captured in S&L? I don't think I saw them taking out a contract on your long-haul in their lease.
We look at this more as a pipeline in that transportation deal. If there's additional benefit to S&L that would be outside of this. I think we don't need any benefit from S&L to make this acquisition work.
From Bank of America, we'll hear next from Ujjwal Pradhan.
My first question is on buyback. You had previously stated, you could implement a buyback quickly if the units presented compelling value, in the last call. Can you update us on your thoughts on buyback today, given where the unit prices are? And is meeting the leverage target a hurdle before considering a buyback?
Yes, this is Al. I'll take a shot. With respect to kind of how we approach our thinking of capital allocation, clearly we have a capital program that we've committed to building strategic assets that we think, over the long run, will create meaningful value to our shareholders. So that's -- we've got to do that. That's priority one and leverage is our second focus. And so implementing the share buyback really doesn't have the play today with where our share price is versus our prioritization of those 2 first objectives.
We did comment that we've had dialogue with our Board. We do feel like if we were in a position and wanted to implement a program that we can move pretty quickly to do so. But the reality of it is, is we would want to do so in a way that didn't -- was leverage friendly. Again, as I mentioned on one of the earlier questions, we're expecting to see our leverage increase this year as we fund capital. And so therefore, that will be a priority to make sure our leverage is in line before we try to implement a repurchase program.
And for the second question, in 2020, are you able to share your fee-based EBITDA sensitivity to per barrel changes in WTI prices?
Per barrel prices on what, I'm sorry?
WTI oil prices.
I can take a shot at it, and to me -- this is Al. We don't have meaningful direct commodity price exposure. It's more of an indirect commodity price exposure. So obviously, I think earlier you heard one of us, if oil prices fell dramatically and rigs drop off, we would potentially see less volumes after a delay flowing through our systems. We do have some PLA and that type of thing, but we're a big consumer of diesel for our truck fleet.
So what we would leave you with is not a significant direct exposure but more of an indirect exposure. So what we would say is that if oil prices fell from $55 to $50, you won't see us, say, in a meaningful change in our company cash flow at all.
It's more of a binary decision on whether or not producers continue to drill or not.
And Gabe Moreen with Mizuho Securities has our next question.
Just wanted to follow up on questions on CapEx. The initial look at 2021, I guess I'm just wondering how that plus or minus $900 million, how much of that might be in the intra-basin complementary Permian projects. And maybe if you can speak to just kind of what you view as sort of a baseline level of that sort of maybe gathering CapEx that you need to spend in year in, year out, that's in your growth CapEx.
Chris, do you want to take this?
Sure. Yes. Gabe, this is Chris Chandler. We're certainly investing in some large projects in 2020 and 2021, things like Wink-to-Webster, Red Oak and Diamond, Capline. If you think about the next 18 months, those projects will be in construction and in startup. And when those roll off, we do see our capital investment evolving over time towards less large long-haul pipes and really more well hook-ups and gathering type projects.
We've not forecasted or shared a base capital level around that gathering business. It really depends on the strategy our producers take. Do they utilize existing infrastructure that -- or are already connected to and tie their new wells into that? Or are they drilling in new areas that require new connections? But as others have shared today, we certainly expect meaningfully lower capital in 2021 and into 2022. And I think our slide package gives a rough illustration of that.
And then kind of as my follow-up, I appreciate that there's a terminal sale out in California. I think you've attempted a terminal sale in California before you run into some regulatory issues. Can you talk about your level of confidence in closing that sale this time around?
Thanks for the question. This is Jeremy. We don't foresee the same issues we had last time with respect to regulatory concerns. We still have CPUC approval and HSR, but we don't see the HSR concerns we had in prior divestiture.
And Danilo Juvane with BMO has our next question.
A couple of quick ones for me. On the accelerated S&L earnings this year, curious as to why guidance remains effectively unchanged from your preliminary outlook.
Harry, you want to take that?
Just when we look into the first quarter, our strategies have been more and more successful in the first quarter than we had anticipated a few months ago. So while we accelerated some of the earnings, we've created additional earning capacity in this year.
Got it. And my follow-up is can you comment on any potential impact from a FERC ruling this year on liquid types tax allowance and so forth on the guide for the year? Any risks there that you may see?
I think your question was on FERC indexing and just didn't anticipate...
I think -- I mean the -- whatever FERC decides to do, if they decide to change anything on it, it won't go into effect until mid-2021.
Right?
So it would have no impact on 2020 guidance. There's really no update from what we said before. Clearly, us and the industry, we'll work with FERC, comment with them to try to make sure it's a logical implementation of what they plan to do with changing that index method, but there would be no impact on 2020.
Kelly Ann, I think we'll take 1 more question and then -- or 1 more participant, then we'll close up the call.
Okay. That will be from Harry Mateer with Barclays.
Al, you previously indicated that the preferred market could be one part of your funding tool kit for the year. Is that still the case? Or given the asset sales, how are you guys planning? Do you think it's more likely you'll focus on just the straight debt market?
Yes, we had said that. And we do think it's a tool. It was not kind of the primary tool that we're thinking about. We do look at asset sales as being a pretty good tool in the meantime because we do get some business streamlining and that we think we -- ultimately, that works as well. But clearly, it's a tool for if we feel like we need to manage our cap structure, we've got a basket left. We think the market is pretty attractive. So it's something we'll monitor, but it's not the first step on our tool list, toolkit.
Yes, Harry, this is Willie. When you think about what we're trying to do with the asset footprint that we have, a lot of what we're trying to do is do a transaction which brings another partner in, adds volume, right? It adds synergies. And so when we think about a preferred, you lose that opportunity in many cases to do that. So we're always trying to do more with strategics than we usually are on financials. Hopefully, that helps.
Okay. We thank you very much for joining us today, and we appreciate you taking the time and look forward to updating you on our call in May.
Thank you.
And that will conclude today's conference. Again, thank you for joining us.