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Plains All American Pipeline (NYSE:PAA)
Q4 2018 Earnings Conference Call
Feb. 5, 2019 5:00 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to today's PAA and PAGP fourth-quarter and full-year 2018 earnings call. I would like to remind everyone that this conference is being recorded. And at this time, I'd like to turn the floor over to Roy Lamoreaux. Please go ahead.

Roy Lamoreaux -- Vice President, Investor Relations & Communications

Thank you, Greg. Good afternoon, and welcome to Plains All American's fourth-quarter and full-year 2018 earnings conference call. The slide presentation for today's call can be found within 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; and Jeremy Goebel, senior vice president, Commercial; and Chris Chandler, senior vice president, Strategic Planning and Acquisitions; and 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.

Willie Chiang -- Chief Executive Officer

Thanks, Roy. Good afternoon, everyone. Thank you for joining us today. We're pleased to have delivered solid performance in 2018, and we are well-positioned as we enter 2019.

We characterized 2018 as the year of execution, focused on several key initiatives including our deleveraging plan, our Permian-focused capital program, multiple commercial and operational initiatives and driving improvement in our safety and environmental programs. I'm pleased to report we've executed across each of these initiatives. And as reflected on Slide 3, we delivered solid results against our goals for the year. We have provided a summary of our key highlights on Slide 4.

With respect to the 2018 financial results, this afternoon, we reported fourth-quarter and full-year results that exceeded our guidance. Full-year adjusted EBITDA totaled approximately $2.68 billion, which was approximately $130 million above our November guidance and $380 million more than our beginning of the year expectations. These results were underpinned by our fee-based business, which grew by approximately 10% year over year and was generally in line or slightly above the expectations. Our over-performance was primarily related to our margin-based S&L segment, reflecting proactive coordination among our operations, engineering and commercial groups to accelerate certain pipeline projects and achieve higher utilization rates on key Permian long-haul capacity.

These efforts across the U.S. and Canada, combined with record levels of throughput on certain of our assets, enabled us to participate in capturing regional location differentials, particularly in the second half of the year. In addition to delivering solid operating and financial performance, we also made meaningful progress in delivering on our deleveraging efforts throughout the year. In regards to 2019, we have provided our 2019 adjusted EBITDA guidance of plus or minus $2.75 billion, calibrating for a lower crude oil price environment and the expected impact on producers as well as other market changes and the market impacts on our anticipated performance.

In regards to our fee-based business, we expect solid year-over-year fee-based growth of 8% or 11% pro forma growth adjusted for our partial sale of BridgeTex. We also expect a continuation of strong near-term S&L contribution in 2019. Al will discuss our 2019 guidance in greater detail in his section. Now let me address CAPEX and our Permian-focused capital program, which is approximately $1.9 billion in 2018.

We placed multiple key products into service on time or ahead of schedule, including our Sunrise pipeline expansion, which added more than 300,000 barrels a day of incremental takeaway capacity from the Permian Basin. We also continue to progress our Cactus two pipeline on schedule with partial service expected in late third-quarter 2019 and full service plan by April 2020. Throughout 2018, we advanced several complementary Permian gathering intra-basin and terminal expansion projects, which are expected to be placed into service throughout the first half of 2019 and ramping into 2020. A number of these projects are anchored by additional new acreage commitments to our Permian systems, which will drive increased utilization for our overall Permian asset base.

We also positioned ourselves to advance multiple growth opportunities that will drive fee-based growth well beyond 2019. Specifically, as shown on Slide 5, last week, we announced along with ExxonMobil and Lotus Midstream, the execution of definitive agreements forming the Wink to Webster Pipeline LLC Joint Venture, sanctioning the project with long-term shipper commitments sufficient to proceed with the development of a new 36-inch long-haul Permian pipeline, targeted to be placed into service in the first half of 2021. Plains will lead construction activities on behalf of the joint venture. We have ordered line pipe and land acquisition, and permitting activities are now under way.

The pipeline is designed to transport more than one million barrels a day of crude and condensate in a batch system from the Permian Basin to the Texas Gulf coast with origination points at Wink and Midland. We have a 20% ownership interest in the joint venture and expect a net 2019 capital investment of approximately $250 million. We expect total project capital to be invested primarily through throughout 2019 and 2020 with returns on our total investment to be consistent with our targets of 300 to 500 basis points above our weighted average cost of capital. We look forward to providing additional updates in the future.

As shown on Slide 6, we continue to progress several other strategic and accretive growth projects that leverage our existing system. We've finalized joint venture agreements with the Capline owners and Marathon Petroleum Corporation as the operator has launched binding open seasons for Capline reversal that would support movements from Patoka to St. James and from Cushing to St. James via a joint tariff.

The target in-service date is third quarter 2020 for light oil service and early 2022 for heavy oil service. Pending a successful open season, the Cushing to St. James movement would include a 200,000 barrel a day expansion and a modest extension of our Diamond JV pipeline that would connect to Capline. On the Red River expansion project, we are working with potential customers to advance plants that would provide an additional 100,000 barrels a day of Cushing takeaway capacity.

Successful advancement of the expansion of these existing assets may allow us to add to our -- may allow us to add to our capital program in 2019 and 2020 at attractive returns. With that, I'll turn the call over to Al.

Al Swanson -- executive Vice President and Chief Financial Officer

Thanks, Willie. During my portion of the call, I'll share a brief recap of our fourth-quarter and full-year results and provide an update on our 2019 guidance, growth capital program and current financial positioning. Our fourth-quarter results exceeded expectations as we reported adjusted EBITDA for the quarter of $949 million, which equates to a year-over-year increase of more than 50%. This was driven by strong performance in our S&L segment resulting from strong execution across the organization to capitalize on favorable regional crude oil basis differentials in Canada and the Permian Basin.

As shown on Slide 7, on a sequential basis, 4Q '18 fee-based adjusted EBITDA grew by 8% versus 3Q or 13% on adjusting for the impact of our sale of a 30% interest in the BridgeTex Pipeline. As shown on Slide 8, on a full-year basis, our fee-based results slightly exceeded our beginning of the year guidance, and our S&L segment materially outperformed. Full-year 2018 adjusted EBITDA of $2.68 billion and DCF per common unit of $2.46 exceeded our beginning of the year guidance by 17% and 21%, respectively. Additionally, diluted adjusted net income per common unit of $1.88 for 2018 represents a year-over-year increase of $0.78 per unit or 71%.

As Willie noted, we've provided our 2019 guidance. Our full-year adjusted EBITDA guidance is plus or minus $2.75 billion, which is 2% lower for our fee-based segments versus our November 2018 preliminary estimate. This includes our current view on a number of factors, including the impact on production volumes of a meaningful crude oil price decrease that began in late 2018. Our 2019 guidance includes plus or minus $350 million of adjusted EBITDA for our S&L segment.

We currently expect the S&L contribution in 2020 will be materially lower than 2019. We enter 2019 with a much improved balance sheet and improved financial flexibility and expect to generate DCF per common unit of $2.58, which implies more than $900 million of cash flow in excess of distributions based on our current distribution level. Additionally, as illustrated on Slide 9, our long-term debt-to-adjusted EBITDA ratio at year end was 3.4 times, which does include the benefit of the strong S&L performance. We have substantially completed our previously announced deleveraging plans and expect to formally complete this plan in the first half of 2019.

Consistent with our prior expectations, and as shown on Slide 10, we have increased our 2019 capital program by $450 million to approximately $1.1 billion. The Wink to Webster JV pipeline represents a largest single component of this increase with the majority of the balance comprised of several new smaller Permian capital projects plus a shift in some capital investment from 2018 into 2019. As Willie noted, we continue to advance multiple capital-efficient opportunities that may add to our capital program later in the year. Importantly, we plan to self-fund at least the equity portion of this capital program with retained cash flow.

As a result, we do not plan to issue any incremental common equity in 2019. As mentioned earlier, we expect to formally complete our deleveraging plan in the coming months. Upon completion, we intend to communicate an updated financial strategy, including our capital allocation framework, distribution management and leverage targets. We don't intend to go into details on this call, but as we have previously communicated and summarized on Slide 11, we remain committed to maintaining a significant level of financial and operational flexibility, retaining a level of cash flow that limits, if not eliminates, the need to issue common equity to fund routine growth capital programs and support metrics that are consistent with mid-BBB credit ratings over time.

Before turning the call back over to Willie, I wanted to note that our 4Q GAAP results include a mark-to- market derivative gain of $610 million as reported in the selected items impacting comparability table in the press release. We used derivatives to hedge purchases and sales of physical commodities, basis differentials and inventory. Approximately one-third of the gain is attributed to reversals of losses from prior quarters and the majority of the balance is associated with hedging 2019 and 2020 basis differentials in Canada and the Permian Basin and, fractionation hedges associated with our straddle plants in Canada. These hedge positions were favorable to market conditions at year end.

With that, I'll turn the call back over to Willie.

Willie Chiang -- Chief Executive Officer

Thanks, Al. 2018 marked a strong year of execution for the partnership. I want to publicly acknowledge and thank our PAA team for their hard work and dedication in delivering these results. Looking forward, we expect 2019 to be a very active year as we execute on our plan and position PAA for 2020 and beyond.

Slide 12 sets forth our goals for 2019. We look forward to providing updates on our performance versus these goals as we progress throughout the year. With that, I'll turn the call back over to you, Roy.

Roy Lamoreaux -- Vice President, Investor Relations & Communications

Thanks, Willie. [Operator instructions] Additionally, Brett Magill and I, and the rest of the Investor Relations team plan to be available this evening and tomorrow to address additional questions. Greg, we're now ready to open the call for questions.

Questions and Answers:

Operator

[Operator instructions] And first from UBS, you'll hear from Shneur Gershuni.

Shneur Gershuni -- UBS -- Analyst

Good afternoon, guys. Maybe to start off, I wanted to chat about the Exxon JV that was FID-ed. I was wondering if you can give us some color with respect to what percentage Plains will own of the project when it's done? And then are there any operational leverage benefits that Plains will receive mostly to itself from a gathering perspective? Or is it really just a benefit of the pipeline itself?

Willie Chiang -- Chief Executive Officer

Shneur, thanks for the question. As we said, we're going to be a 20% owner of the joint venture currently. This is Willie. So I think that answers your first question.

And maybe I'll just step back, and as we think about how benefits Plains and ExxonMobil, we have a preeminent position with a lot of flexibility in the basin with the capability to aggregate a lot of volumes in the Permian. And so when you think about matching the strategic needs of an ExxonMobil with their production capabilities and trajectory in the Permian tied to their downstream capabilities on the Gulf coast, it really is quite a natural fit. So as we think about what this brings to us, not only does it bring the capacity on the line but it -- it's further integrated into our system through many different context, and of course, the other piece of this is building a strong relation with ExxonMobil as we do other things. Jeremy, did you have anything you wanted to add?

Jeremy Goebel -- Senior Vice President, Commercial

No, Willie. I guess, the number one thing though is aligning with our customers to downstream market as the markets move to the Gulf Coast for export and expansion of demand just as they've announced recently, that align for our customers being natural crude Plains All American barrels, as well as our guys that shift to third party in our system.

Shneur Gershuni -- UBS -- Analyst

Great. And just one follow-up with respect to Capline, I recognize it's an open season and so forth. And I think you had mentioned in your prepared remarks with respect to Capline, as well as the other project -- the Red River project, that it would have attractive returns. How should we be thinking about it with respect to your historical views on returns? I mean, is it kind of like a brownfield type of return and kind of a for multiple type of thing on EBITDA? Or should we be thinking lower or higher around -- with respect to those types of returns?

Willie Chiang -- Chief Executive Officer

Well, this is Willie again. I'm going to ask Harry to comment on this. But clearly, having an existing footprint and pipe in the ground gives us a significant advantage of getting the project done as well as a cost-efficient way of capital efficiency. And so when we think about what returns those might bring, I think you can expect them to be significantly higher than what our normal threshold is.

I don't want to get into what the exact numbers are because I think it's a little early, and we need to let the open season take its course. Harry?

Harry Pefanis -- President and Chief Commercial Officer

Yes. I mean, I think Willie hit most of the points. I mean, it's really going to be tied to the open season results. And if the open season doesn't generate enough returns to generate the type -- enough interest to generate types of returns we're forecasting, we wouldn't spend the capital.

Shneur Gershuni -- UBS -- Analyst

Right. Fair enough. Thank you very much, guys. I'll jump back in the queue.

Operator

Moving on, we have Jeremy Tonet with JPMorgan.

Jeremy Tonet -- J.P. Morgan -- Analyst

Hi, good afternoon. Some in the marketplace had thought that this pipe, Wink to Webster, could be combined with another kind of computing pipe out there. I was wondering if you might be able to talk about the decision tree and what brought you to going with the project alone? It seems like there could be benefits as far as operating leverage that it brings to your system and kind of other synergies that'd be uniquely beneficial to you. At the same time, there could be concerns that there's too many pipes coming out of basin could adversely impact other things in your system.

I was wondering if you could kind of walk through some of the gives and takes there?

Willie Chiang -- Chief Executive Officer

Jeremy, this is Willie again. We've -- as we've articulated before, this has been a great project for us. We remain very excited about it. We were pleased to have enough to sanction the project and move forward.

That being said, we're always looking at not only additional shippers on the line, but talking to others on how we might be able to improve the returns for not only us and others. So while open to all that, we will -- we're still progressing forward and what we really wanted to do is to get to the point where we could order pipe and get the process going. So what that says is, we haven't -- we certainly haven't eliminated an opportunity to make the project stronger and conversations continue, but at the base core of it, we've got pipe ordered and we're ready to go.

Jeremy Tonet -- J.P. Morgan -- Analyst

That's helpful. And then just turning to your guidance here, it looks like the facilities guidance you've been exceeding it, it seems like the past several quarters and it points to something a bit lower next year, but it seems like you keep coming ahead of what you've been saying. Is there asset sale timing or kind of other stuff involved there? Or could you explain a bit more about what drives the assumptions as far as being lower year over year there?

Al Swanson -- executive Vice President and Chief Financial Officer

Yes. I'll take a shot at that. This is Al. Yes, it's exactly what you said.

If you recall and went back a year, our guidance for 2018 was $665 million, the same guidance where we provided for 2019. The segment performed above expectation this year. Some of that we aren't, forecasting continues. We'll see if that turns out to be conservative or not.

There was a small bit of asset sale that impacted year over year, but it's pretty small. We're using a little bit higher of the net FX rate assumption for our Canadian business, which impacts it. But generally speaking, it is just that we've over-performed this year, and we're kind of using the same forecast for next year.

Jeremy Tonet -- J.P. Morgan -- Analyst

Sorry, which part over-performed this year?

Al Swanson -- executive Vice President and Chief Financial Officer

The facility segment. I mean, the throughput at terminals being the primary bid, we picked up more rail activity late this year than we expected. But really a large part of it and some of the throughput that we've seen at some of our market terminals like Cushing, Patoka, St. James.

Willie Chiang -- Chief Executive Officer

Yes. Jeremy, one other when you think about. If you think about, for example, the rail impacts on our facilities, we had a very, very wide Canadian differentials earlier in the year and one of the things that kind of changed our outlook at the end of the year was the production -- the mandated production cuts in Canada, which taken the differentials much, much tighter. So it's things like that that have impacted some of the facilities earnings.

Al Swanson -- executive Vice President and Chief Financial Officer

Or our forecast.

Willie Chiang -- Chief Executive Officer

Yes. The forecast for 2019.

Jeremy Tonet -- J.P. Morgan -- Analyst

Great. That's helpful. I'll get back in the queue.

Operator

Next question comes from Spiro Dounis with Credit Suisse.

Spiro Dounis -- Credit Suisse -- Analyst

Hey, good afternoon. I just wanted to start off on Capline, if we could. Trying to get a sense of the total potential capacity there once you fully reverse it. How to think about that? And then maybe bottlenecks as well, either upstream at DAPL or even Diamond's.

Basically, how much flow should we expect to be coming down to the Gulf Coast?

Willie Chiang -- Chief Executive Officer

Well, diamond probably has about 200,000 barrels a day of capacity. Well, not today, but can they expand it to work and move about 200,000 barrels a day? It's really going to be a function of how much of the volumes are light and how much are heavy. In northbound service you can move about one million barrels a day from north to south. But it will be meaningfully less because with the introduction of Canadian crude moving south, and it'll be a function of how many pump.

So it's probably too early to say from Patoka down, but the limiting factors, I think, access to Canadian crude, pumps and the type of crude that goes into the pipe.

Spiro Dounis -- Credit Suisse -- Analyst

Got it. Appreciate that. And then just switching gears a bit here on Rockies volumes. They were a lot higher than we had expected this quarter.

So just wondering about two things. One, what drove that? And how sustainable are the volumes that we just saw?

Willie Chiang -- Chief Executive Officer

I think the Canadian did struggle out of it.

Spiro Dounis -- Credit Suisse -- Analyst

All right. Appreciate the color. Thank you.

Operator

Next up, we have Gabe Moreen with Mizuho Securities.

Gabe Moreen -- Mizuho Securities -- Analyst

Hey, good afternoon, everyone. I'll be the first, I guess, to ask about us. And now just in terms of, I guess, things having changed a bit since November between West Texas and Gulf spreads and what happened, as Will, you alluded to in Western Canada. Can you just talk about -- I think your prior view was basically spreads being wide in the first half of this year and then narrowing in the back half of this year.

Can you just talk about kind of what your market view is, to what extent you need that view to play out to hit that plus or minus $350 million and just kind of a degree of confidence in that guidance given where spreads have gone?

Willie Chiang -- Chief Executive Officer

Yes, Gabe. This is Willie, I'll take a stab to start it and others can jump in. When we look at 2019, we did expect spreads to stay wide until line started to getting built and put in service. One of the things that's changed is, there are some third-party lines that are going into service earlier than we thought, which I think has impacted the differentials, and so there is a piece of that, that is impacting our thoughts on 2019.

I think the other perspective I'd give you is that, Al talked about our adjustments -- our mark to market at the end of the year, we had roughly $610 million, of which a third of it was reversing losses from the previous quarter. But the balance of that was really a mark-to-market on what we've hedged in '19 and '20. And if you think about what we've done, there's a good portion of that that is probably covered under that as far as hedged for this year. We came out with the guidance of $350 million, which we feel very confident we can meet.

I think going forward, if the arbitrage opportunities are very slim between Permian and Midland, it'll be hard -- harder to capture additional differentials, but that's kind of where we sit.

Gabe Moreen -- Mizuho Securities -- Analyst

OK, great. And then following up basically on the leverage slide. I don't know if the currently under review statement around the historical target range on leverage is new or not, but can you speak to that a little bit? And how that might play into your thoughts about capital returns that you're, I guess, everyone's expecting you to announce later this year.

Al Swanson -- executive Vice President and Chief Financial Officer

Yes. Gabe, this is Al. I guess, we added that comment there, but the one slide we've been using for probably about six months on distribution management. We are trying to tie all of this together as we think about kind of the financial policies, capital allocation thoughts, distributions, leverage.

So all that is being kind of combined in our thought process, and as we kind of conclude that in the first half of this year, we would expect to come out and discuss it with the broader community. That comment, clearly, we brought our leverage down, gotten back into our range. And what our view is is that we need to challenge whether the range should be reduced, and so that will be part of our thought process.

Operator

And next from SunTrust, we have Tristan Richardson.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Hey, good afternoon, guys. Just a quick question on the transport volumes you talked about for the budget for '19. Can you talk about the Permian component of that? And how it compares to the 3.7 that you guys reported for 2018?

Al Swanson -- executive Vice President and Chief Financial Officer

Yes, this is Al. We didn't provide a separate number for Permian, but I think on our guidance, you can see, I think we're showing about seven million barrels a day of total transport, and you can see the growth from this year. The vast majority of that growth is coming off the Permian business.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Understood, that's helpful. And then just thinking about Capline in terms of the discrete time line of the different crude grades, should we think about the majority of the potential return opportunity coming at that later date when you're able to start flowing heavier? Or is there potential to see early cash flows from that project with the lighter grades?

Harry Pefanis -- President and Chief Commercial Officer

Well, with the earlier capital contributions from lighter grades. So the capacity from Cushing down to St. James should be available on a quicker time frame than the heavies moving down from Patoka. We'll see what the open season results are, but certainly, that would be our expectation.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Thanks, guys, very much.

Operator

Next question comes from Jean Ann Salisbury with Bernstein.

Jean Ann Salisbury -- Sanford C. Bernstein -- Analyst

Hi. You have Cactus II for partial service in third quarter and full service in April 2020. I think that the holdup between them is thought to build out at Corpus. I believe both enterprise and Kinder Morgan say that they have room on their pipes from Corpus to Houston, there may also be some spare Corpus export capacity with someone else.

Are you guys exploring any interim solutions that might allow Cactus II to run at full service earlier?

Willie Chiang -- Chief Executive Officer

Jeremy, why don't you take this one?

Jeremy Goebel -- Senior Vice President, Commercial

Jean Ann, this is Jeremy Goebel. We are well ahead, I think, of the other parts and activity in our existing infrastructure. This is their first pipe down there. In addition with Cactus II, we've got dock capacity for our customers, so we think we'll be able to ramp up pretty quickly.

We're actively engaged on construction to get in as soon as possible in addition to get the connectivity in place. We feel from an aggregation standpoint and from a distribution standpoint, we're in good shape. With the connections that are planned and really don't see a need for capacity at the Houston at this time, for Texas too specifically.

Jean Ann Salisbury -- Sanford C. Bernstein -- Analyst

OK, that makes sense. And then just a quick one. What is your internal estimate of your weighted average cost of capital currently?

Al Swanson -- executive Vice President and Chief Financial Officer

This is Al. It clearly fluctuates frequently, but roughly 9%.

Jean Ann Salisbury -- Sanford C. Bernstein -- Analyst

OK, and that's kind of what would you use for project return plus that 300 to 500? OK. Cool.

Al Swanson -- executive Vice President and Chief Financial Officer

Yes. So 12% to 14%. Clearly, we would like to do more than the high end, but that's kind of the target.

Operator

Next from Jefferies, we have Vikram Bagri.

Vikram Bagri -- Jefferies -- Analyst

Hey, guys. I wanted to understand all the moving parts as it relates to CAPEX. What all projects are included in there? Is the estimate for Capline reversal, Diamond extension, the Red River project, is it all in there? And if not, how much higher can this CAPEX plan for 2019 be? And is it a plan to do any more asset sales to fund that capital program? And how should we think about all that?

Al Swanson -- executive Vice President and Chief Financial Officer

This is Al. No, those handful of specific projects you mentioned are not in the $1.1 billion. We are not planning to provide a asset sale target this year. We don't feel like we need to look to sell assets to fund growth capital.

We've made substantial progress on our leverage plans. So our view is that we -- if the capital program grows that we will fund it with retained cash flow and some modest amount of debt increase.

Vikram Bagri -- Jefferies -- Analyst

Great. And the second question I had was on Capline. The 18-month gap between light and heavy, I just wanted to understand what the limiting factor there is. I recall from the last conference call that I think you mentioned Memphis, Southbound from Memphis can be reversed in 18 months and six months after that, you can reverse the entire pipeline.

Is there an embedded assumption for Keystone XL or Line three in there? And that's why the gap is so wide. And secondly, can there be a potential partner, an additional partner on Capline, who can provide additional volumes at Patoka? Are you looking at that option as well?

Willie Chiang -- Chief Executive Officer

Harry, you want to take that?

Harry Pefanis -- President and Chief Commercial Officer

Sure. Yes. The limiting factor of Patoka's access to Canadian crude, so we're trying to time the reversal with when we think either Keystone or Enbridge would have additional capacity into Patoka. The base case does not assume any additional parties in Capline.

Of course, if they were compelling economics to have. But another partner on Capline, we would obviously consider that.

Vikram Bagri -- Jefferies -- Analyst

So the assumption is Line three comes online sometimes much sooner than 2022. Is it -- is the assumption that Line three doesn't come online on time or you might not get any barrels from Line three expansion 375,000 barrels a day, which is being planned?

Harry Pefanis -- President and Chief Commercial Officer

I'm not sure we have a good enough handle on when Line three is going to come online. But I do know that Enbridge has -- is not able to contract additional capacity until mid- to late 2021. So that's part of the thought process and the timing. Line three still -- it still has permits.

I mean, I think we'd love to see them in service much earlier than 2022 though. But that's -- it's like I said, they still have permits to think before they can actually complete the project.

Vikram Bagri -- Jefferies -- Analyst

OK. Thank you very much.

Operator

Next question will come from Dennis Coleman with Bank of America Merrill Lynch.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Good afternoon, everyone. Thanks for taking the question. I wanted to just circle back to the derivatives gain, if I can. You gave us a little bit of color on sort of two-thirds of it was for positions in 2019 and 2020.

Can you -- Al, you rattled off a number of different things that were driving that Canadian diffs to Permian diffs. Can we get any granularity on which of those might be more of it? Is it half the Canadian differentials and -- anything would help.

Al Swanson -- executive Vice President and Chief Financial Officer

Yes. This is Al. We normally don't provide that level of breakout. But clearly, if you look at it, both those spreads have tightened meaningfully late in the year.

The Permian spreads, as you know, as well as WCS diffs oil prices came down, which as far as our fractionation hedges for our straddle plants bringing the NGL value down as well. So all three of those things really drove the bulk of it. All of those results flow through our S&L segment. And again, that's partly why we haven't had to change our -- from November S&L guidance till today is because we hedged a meaningful part of it.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

OK. And then just a more detailed one, if I can. You gave us CAPEX for the Wink to Webster, I think, for 2019. Is it -- should we assume a similar number for 2020?

Willie Chiang -- Chief Executive Officer

No. It's -- I would think it -- this is Willie. I would think about it as a typical S-curve on a construction project, and I think that's the most resolution we can give you.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

OK. Thank you.

Operator

Next from Wells Fargo, we have Michael Blum.

Michael Blum -- Wells Fargo -- Analyst

Hey, good afternoon, everybody. A couple of quick questions on Capline. What is the timing of the open season? And I guess, when would be the earliest you could move to FID status on that?

Willie Chiang -- Chief Executive Officer

The open season extends through April 30.

Michael Blum -- Wells Fargo -- Analyst

OK. And then in terms of the -- any incremental CAPEX that you add to the budget for 2019, is it basically, if Red River or Capline reach the finish line, are those the kind of the two projects to watch for?

Al Swanson -- executive Vice President and Chief Financial Officer

This is Al. Yes, I think those two would be, but there's also -- I mean, those are the ones where we publicly have talked about. But we're continuing to look at other stuff, again maybe smaller in nature, but yes, those aren't the only two things that we're trying to advance.

Michael Blum -- Wells Fargo -- Analyst

OK. Great. Thank you.

Operator

Next question will come from Ethan Bellamy with Baird.

Ethan Bellamy -- Baird -- Analyst

Hey, guys. We've seen a shift in financial metrics and what investors would like to see sulphur for infrastructure companies from DCF growth, say, earnings and free cash flow. What are the current management compensation metrics? Are they the right metrics to use and would you anticipate any changes to those going forward over the next couple of years?

Willie Chiang -- Chief Executive Officer

Ethan, this is Willie. One of the things we've done is, we historically had performance metrics around distributions and hitting certain marks, and we have shifted that to DCF per unit and that's something that already happened. And I think you'll see us further build on that.

Ethan Bellamy -- Baird -- Analyst

All right. And then and just one follow-up. Are you seeing any steel or labor cost inflation related to the tariffs? And are the E&C costs accelerating, given how many large diameter long-haul pipes are planned?

Willie Chiang -- Chief Executive Officer

E&P costs?

Well, we're seeing higher pipe costs, that's for sure. Ethan, we don't -- I don't have a good price number for you today on what U.S. steel is. I had some numbers previously when the tariffs were implemented we certainly saw a pop up, but I just don't know exactly where it stands today.

Ethan Bellamy -- Baird -- Analyst

And would you say, you have a significant exposure to cost inflation or most of your cost locked in at this point?

Al Swanson -- executive Vice President and Chief Financial Officer

For Cactus two, all that's locked in was the Houston companies as well as the pipe. And then for the Exxon JV, we actually priced it in September and we priced it price again now, and prices honestly came down. So they've kind of peaked earlier and then they've come down some, but it's still higher than probably would've estimated a year ago. On the E&P side, we continue to manage it.

We -- our procurement grew progressively, bid down everything and we'll work to manage those costs. But from a labor standpoint, it's shorter that it has historically been, but we're going to actively manage those costs and we think the capital estimates we're using are very reflective on current markets.

Willie Chiang -- Chief Executive Officer

Yes. Ethan, we've actually placed the order for the line pipe for the Exxon -- the Wink to Webster project. And just a side point, it's from U.S. steel producers.

So it has less exposure perhaps to tariffs and other duties.

Ethan Bellamy -- Baird -- Analyst

Alright. Thanks very much.

Operator

Moving on, we have Colton Bean with Tudor, Pickering & Holt.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

Good afternoon. Just to frame the 2019 CAPEX discussion a bit differently. I appreciate you're probably still working through a few details there on Capline, but an preliminary thoughts on what work may be required in 2019 to hit that Q3 '20 in-service maybe Diamond or the Southern segment there?

Willie Chiang -- Chief Executive Officer

Well, the Diamond expansion includes pumps and extension of the line 30 miles or so. The Capline portion of it is just going to be reversing pumps, cleaning the line versus purging the line, cleaning it and additional pump capacity and some modifications at the manifold that both were seeking delivery locations.

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

And in terms of time line on the construction, how much of that would need to be in 2019?

Willie Chiang -- Chief Executive Officer

Yes. Colton, I would think about that project as it's not hundreds of millions of dollars, right? When you think about the exposure for us, it would be -- we would be a partner in that, and I would think about the exposure for 2019 in a smaller number than that. Does that help?

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

That's helpful. Yes. And just on the NGL pipes, a pretty significant step up versus what we've seen in the last couple of years. Can you guys just offer a bit of commentary on what the primary drivers were?

Willie Chiang -- Chief Executive Officer

On which pipes? Which pipe was that, Colton?

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

On the NGL pipe

Willie Chiang -- Chief Executive Officer

Yes. So a lot of it, it's a little bit on the gathering system. It's mostly movements in the market area around Sarnia.

Operator

Next question comes from David Amos with Heikkinen Energy.

David Amoss -- Heikkinen Energy -- Analyst

Hey, guys. I just wanted to see if you wouldn't mind going into a little bit of detail about the revisions to your commodity and volume assumptions between your third quarter guidance and your fourth quarter guidance?

Willie Chiang -- Chief Executive Officer

Al?

Al Swanson -- executive Vice President and Chief Financial Officer

You're talking about the difference between the $2.45 billion and the $2.4 billion for our fee-based segments?

David Amoss -- Heikkinen Energy -- Analyst

Right. I think you mentioned earlier in the call that, that was reflective of a revision to your volume guidance based on potential change to commodity outlook?

Al Swanson -- executive Vice President and Chief Financial Officer

Yes. And what -- yes, and it quickly was. Basically, what we had provided in November is what we call preliminary guidance. It effectively was our shadow guidance from August of last year adjusted for the BridgeTex sale.

So clearly a lot of things have changed in that period of time. It's roughly a 2% change. Clearly, we do expect to see some impacts on producers' activity relative to what we had expected previously with the price move. Clearly, there's been some impacts with regard to pipes coming on earlier than what we were thinking before, which is partly why you see the spreads that we've been talking about come in a little quicker.

Lower prices does impact the value of our PLA that we collect as part of the tariffs. We also are going with a little higher FX rate, which affects those things. There is no one underlying thing. But the macro environment, I think we feel like we should be a little bit more cautious relative to it as a result of kind of the price environment, producer activity levels, as well as these pipes coming on earlier.

Jeremy Goebel -- Senior Vice President, Commercial

And Al -- this is Jeremy. One thing to add is the impact of the Alberta curtailments had an impact on our claims and on the spreads as well.

Al Swanson -- executive Vice President and Chief Financial Officer

Yes, that's a good point.

David Amoss -- Heikkinen Energy -- Analyst

OK. Just trying to understand the Red River expansion project a little bit better. Are those -- is there a portion of this 100,000 barrels a day of barrels expected to get consumed in the East Texas region or all of this is supposed to go to St. James? And if so, how do you connect and how comfortable do you feel about the connection?

Jeremy Goebel -- Senior Vice President, Commercial

This is Jeremy. It will be a mix. Ultimately, it will be demand driven, but it will be a mix of locations and how it will be consumed.

Willie Chiang -- Chief Executive Officer

And there's also some infrastructure in the Longview area down to the Gulf Coast. So there are several markets that could always [indiscernible] the regular system.

Roy Lamoreaux -- Vice President, Investor Relations & Communications

Greg, I think we've got time for one more question, if we could. And then we'll wrap up after that.

Operator

OK. In that case, we'll take our final question from Jerren Holder with Goldman Sachs.

Jerren Holder -- Goldman Sachs -- Analyst

Just a quick one on Capline. And can you guys move light crude from Patoka in 2020?

Harry Pefanis -- President and Chief Commercial Officer

Yes. We should be able to.

Jerren Holder -- Goldman Sachs -- Analyst

OK. And then a quick follow-up on crude exports. What are the opportunities there for Plains? Obviously, a lot of projects have been announced, just trying to see how you guys were thinking about that?

Harry Pefanis -- President and Chief Commercial Officer

We have our facility at Corpus Christi and we have a facility at St. James that could both could export crude.

Willie Chiang -- Chief Executive Officer

And Jerren, this is Willie. The other piece of this is, Harry mentioned the assets we do have. We went into this couple of years ago, particularly around the open season for Cactus two. We were thinking about our integrated solutions of pipe versus dock -- pipe and dock.

And what we've found is that shippers want to have choices of docks. So we've shifted at our strategy a little bit to -- we think we're the best solution to be able to get barrels to the coast and what we strive to do is to have connectivity to the many, many docks that are being expanded to be able to get access to water. And that's so far is -- there's been a lot of interest in us being able to get connections.

Roy Lamoreaux -- Vice President, Investor Relations & Communications

Thank you, everyone, for joining us today. We appreciate your time, and I look forward to talking to all of you very soon. Thank you.

Operator

[Operator signoff]

Duration: 47 minutes

Call Participants:

Roy Lamoreaux -- Vice President, Investor Relations & Communications

Willie Chiang -- Chief Executive Officer

Al Swanson -- executive Vice President and Chief Financial Officer

Shneur Gershuni -- UBS -- Analyst

Jeremy Goebel -- Senior Vice President, Commercial

Harry Pefanis -- President and Chief Commercial Officer

Jeremy Tonet -- J.P. Morgan -- Analyst

Spiro Dounis -- Credit Suisse -- Analyst

Gabe Moreen -- Mizuho Securities -- Analyst

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Jean Ann Salisbury -- Sanford C. Bernstein -- Analyst

Vikram Bagri -- Jefferies -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Ethan Bellamy -- Baird -- Analyst

Colton Bean -- Tudor, Pickering, Holt & Co. -- Analyst

David Amoss -- Heikkinen Energy -- Analyst

Jerren Holder -- Goldman Sachs -- Analyst

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