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Plains GP Holdings LP (NYSE:PAGP)
Q1 2019 Earnings Call
May. 7, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone. Thank you for standing by. Welcome to the PAA and PAGP First 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.

Roy Lamoreaux -- VP:Investor Relations & Communications

Thank you, Hannah. Good afternoon and welcome to Plains All American's first quarter 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 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 will turn the call over to Willie.

Willie C. Chiang -- Chief Executive Officer and Director

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. This afternoon we are pleased to report first quarter results, that meaningfully exceeded our expectations. As outlined on Slide 3, and as Al will discuss in more detail, these results reflect strong performance in our margin based supply and logistics segment and fee-based earnings that were in line with expectations.

Accordingly, we have increased our full-year adjusted EBITDA guidance by $100 million, plus or minus $2.85 billion for the year. With respect to positioning PAA for the future, we continue to execute on several key initiatives to create enduring value for our investors. In April, we announced the completion of our August 2017 deleveraging plan, updates to our financial policy and targeted metrics and an increase to our common unit distribution.

As detailed in the announcement, we've taken a balanced long-term approach to enhancing permanent value creation through our commitment to improving financial flexibility making disciplined investments and prudently increasing cash return to equity holders over time. We will continue to optimize our system and drive for improved returns. Over the past three years, we've executed approximately $3 billion of divestitures, several of which have been through strategic JV and joint operating agreements that have bolstered the durability and visibility of our fee-based business, while allowing us to reduce debt and fund a large portion of our growth capital.

Optimizing our existing capacity, leveraging our systems to sanction capital efficient projects and pursuing strategic JVs and divestiture opportunities have been and will continue to be central to our ongoing strategy. We remain highly focused on capital discipline and project returns and have sanctioned, a number of additional strategic and accretive projects that bolt-on, extend, or expand our existing systems increasing our capabilities. As a result, and as Al will discuss further, we've increased our 2019 capital program by $250 million to plus or minus $1.35 billion.

Now, I'd like to give you an update on our progress in building our Permian footprint, as well as a few key other projects. As illustrated on Slide 4, since the beginning of 2018, we have added approximately 1.7 million barrels a day of new Permian Basin system capacity. And by year end, we expect this number to grow to more than 2.2 million barrels a day. This capacity is underpinned by a combination of long-term volume commitments and acreage dedications. We most recently placed into service approximately 500,000 barrels a day of gathering capacity upstream of Wink and approximately 670,000 barrels a day of intra-basin capacity from Wink to McCamey.

We continue to sanction additional complementary growth projects in the Permian. And as a result of our continued investments, we have substantially debottlenecked our Permian System, improve our operating efficiency, reinforced our quality segregation capacities and capabilities and positioned our pipeline and terminalling systems in advance of our Cactus II completion later this year. We're also building a new U.S. Pipeline Control Center and related office facilities in Midland, Texas, which will consolidate multiple offices in Midland and further enhance our communications and capabilities.

As illustrated on Slide 5, Cactus II construction is progressing on schedule with partial service to Ingleside expected to be complete in the third quarter of 2019 and full service to Corpus Christi expected by the first quarter of 2020. With respect to the Wink-to-Webster project, we are at full speed ahead on progressing the project, which is targeted to be placed into service in the first half of 2021. We have ordered the majority of the long lead materials including 36-inch line pipes, we've progressed our construction, contractor strategy by awarding several key contracts with construction to begin later this year. As you may recall, the project is anchored with strong commercial support and we continue to advance discussions with additional potential shippers and expect to be in a position to provide an update in the near future. Beyond the Permian, we continue to advance several opportunities to leverage our existing pipeline systems and hub terminals.

As shown on Slide 6, this includes the potential expansion in modest extension of our Diamond pipeline, a reversal of the Capline System and an expansion on our Red River System. Each of these potential projects represent accretive, capital efficient growth opportunities. In aggregate, they would represent a modest level of incremental growth capital toward 2019 program.

The binding open season for Diamond and Capline is expected to close today and if there is sufficient support from the open season, we expect to move forward with the project. With respect to Red River, we're in the process of finalizing shipper agreements, supporting and expansion of the System. At our St. James hub terminal, we have sanctioned the construction of 2.4 million barrels of new crude oil storage capacity under a long-term third-party contract targeted to be placed into service in the second half of 2020. This project will result in Plains operating more than 15 million barrels of crude storage capacity at St. James, which complements our existing connectivity, dock capacity, and overall operating capabilities at one of the most strategic terminaling hubs along the U.S. Gulf Coast.

Additionally, in Canada, we have sanctioned the construction of a new 50,000 barrel a day crude oil terminal serving the Marten Hills production area. This project is underpinned by long-term third party commitments and will bring additional volume to our Rainbow Pipeline System. These are all great examples of attractive projects, attractive return projects that leverage our existing systems in core regions and enhance our operating capabilities and flexibility. We look forward to sharing additional updates on these efforts in the near future.

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

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Thanks, Willie. During my portion of the call, I will share a brief recap of our first quarter results update to our 2019 guidance and growth capital program and provide an overview of our current capitalization, liquidity, and leverage metrics. I will also address one accounting related item. We recorded first quarter adjusted EBITDA of $862 million, which represents a year-over-year increase of more than 45% and was driven by strong performance in our S&L segment,.

Our first quarter fee based results of $583 million are summarized on Slide 7 and represent a year-over-year increase of 12% or 17%, when adjusting for the impact of asset sales. The first quarter fee-based results decreased by 4% versus the fourth quarter of 2018. This was in line with expectations and was driven by lower volumes on certain pipelines resulting from narrower differentials and other factors, including one-time items, and higher operating expense including the property taxes from assets placed into service.

As illustrated on Slide 8, we have increased our 2019 adjusted EBITDA guidance by $100 million to plus or minus $2.85 billion. This increase is driven by our S&L performance in the first quarter and is attributable to favorable regional basis differentials in both our NGL and crude oil businesses. That said, we continue to expect our S&L results in 2020 to be materially lower than 2019 as new pipeline capacity is placed in the service and logistical constraints are alleviated.

Additionally, as we noted, we are increasing our 2019 capital program by $250 million with $200 million as a result of sanctioning the St. James expansion, the Marten Hills terminal, several new complementary Permian projects, and the new Midland Pipeline Control Center related office facilities. The remaining $50 million of the increase is associated with increased cost on our Cactus II project and scope changes on a few other projects.

Shifting to our capitalization and liquidity, we remain committed to maintaining a significant level of financial flexibility, retaining a level of cash flow that limits, if not eliminates, the need to issue common equity to fund route routine growth capital programs and support metrics that are consistent with mid BBB credit ratings over time.

As of March 31st, we had more than $3 billion of committed liquidity and capitalization metrics were within our targeted levels. In April, we lowered our targeted long-term debt-to-LTM adjusted EBITDA range by a half a turn to 3.0 times to 3.5 times, which assumes an S&L contribution normalized to the level we expect this segment to generate beyond 2019.

As illustrated on Slide 9, as of March 31st, we reported a long-term debt-to-LTM adjusted EBITDA of 3.1 times, which includes our recent S&L over performance. We remain focused on continuing to migrate leverage down over time within our targeted long-term debt to LTM adjusted EBITDA range after adjusting for S&L over performance.

Based on our updated 2019 guidance, we expect to exit the year with full year distribution coverage of more than 190% cash flow in excess of distributions of approximately $970 million and per unit results that exceed our prior expectations. Before turning the call back over to Willie, I wanted to share a few comments on an accounting related matter. During the first quarter, we recognized a non-cash gain of $267 million, due to a fair value accounting adjustment required as a result of the decision by the Capline owners to convert the Capline ownership structure from a joint ownership arrangement to a limited liability company structure. We have treated this gain as the selected items in our adjusted results.

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

Willie C. Chiang -- Chief Executive Officer and Director

Thanks, Al. So we're on track with each of our goals for 2019. A summary of our goals and key take away from today's call are shown on Slides 10 and 11. Execution focus, optimizing our assets to improve returns, and capital discipline, our central themes throughout the updates that we share today. Additionally, we continue to focus on additional asset sales in strategic joint ventures.

Proceeds from these transactions along with any S&L excess profits will be used to fund capital or reduce debt. We expect the rest of 2019 to be very active as we continue to execute our plan and position the company for the long term. We look forward to sharing additional updates with you in a more detailed discussion at our upcoming Investor Day on June 11th in New York.

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

Roy Lamoreaux -- VP:Investor Relations & Communications

Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow-up question, then 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.

Hannah, we're now ready to open the call for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions). And we'll go first to Jeremy Tonet with JPMorgan.

Jeremy Tonet -- JPMorgan

Hi. Good afternoon. Just want to start off with the Cactus II pipeline, if that's OK, want to see how things are progressing there and thoughts on timelining when that could get partially and fully on service and some of the competing pipes out there, I think you'd mentioned some inflationary cost pressures, so just wondering if you have anything to comment on if you're seeing that. Thanks.

Willie C. Chiang -- Chief Executive Officer and Director

Hi, Jeremy. This is Willie. Let me start with this and I'll ask Chris Chandler to chat a bit more about that. So Cactus II is on schedule. We've -- we expect to have that in service Q3 of 2019 for the first phase and the second phase in the first quarter of 2020 and we have had some cost creep, but I'll let Chris address that.

Chris Chandler -- Executive Vice President and Chief Operating Officer

Sure. Thanks, Willie. This is Chris. We are seeing some cost pressure on both the material and labor side of the project. As you would expect, there's multiple pipelines being installed in the area and there is quite a bit of competition. But our total forecast for the Cactus II project is consistent and within about 10% of our budget for the project.

Jeremy Tonet -- JPMorgan

That's helpful. Thanks. And just turning over to Capline, was wondering the change in ownership structures here, if that has any impact on what the reversal project as far as if the governance changes, does that mean that the scope of this project could change. And is there anything in your CapEx budget this year for Capline at this juncture?

Chris Chandler -- Executive Vice President and Chief Operating Officer

So the first question on the governance piece, it was necessary to convert to a partnership to conduct a joined open season, historically it's been under a JOA, which we had three undivided interest owners, which effectively three pipes within a pipe. So it's just necessary for the conversion and conducting an open season to have one tariff and to go to the market with one offering. As far as capital goes, Capline will get sanctioned within the budget and I was just associated with shutting down the pipeline and purging the pipeline. Going forward, it will require commercial support and as Willie said in his prepared remarks, we're evaluating the open season, which kills today and so as we have something to report, we will.

Willie C. Chiang -- Chief Executive Officer and Director

Jeremy, we've given guidance before on the project being roughly $250 million net to us. If we go forward with it, it'd be a fairly modest amount in 2019, with the majority of the dollars being spent 2020 and 2021.

Jeremy Tonet -- JPMorgan

Great. That's helpful. Thanks for taking my question.

Willie C. Chiang -- Chief Executive Officer and Director

Thank you.

Operator

And we'll go next to Shneur Gershuni with UBS.

Shneur Gershuni -- UBS

Hi. Good afternoon, everyone. For the most part, it was pretty straightforward quarter and so forth. I was just wondering if we can spend some time talking about for starters, your dividend guidance of plus 5% for '20 and '21, is that where you expect fee-based earnings to grow in the '20-'21 period. What can we read from from that guidance.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Sure. I wouldn't read that into it. We -- as I commented, we have a 190% coverage and so we didn't try to link that to any -- any specific item. We did -- our looking at what we think our CapEx program will be in leverage and migrating that down, but we weren't linking that to to a cash flow or DCF type of growth number.

Shneur Gershuni -- UBS

So, there's no read through with your 8% growth rate and fee-based declining down there is potential for it to be higher than that. I mean, that's one way to think about it.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Yes. We haven't guided 2020-2021 EBITDA growth. Again, what we wanted to do was to communicate that don't expect another 20% next year of growth, when you're sitting with 190% plus coverage this year.

Willie C. Chiang -- Chief Executive Officer and Director

On the distribution.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

On the distribution.

Willie C. Chiang -- Chief Executive Officer and Director

Shneur, this is Willie. I think the other -- the other piece of it is just, we've got CapEx that we're spending. We just want to ensure that we can cover the equity portion of the CapEx over that period of time.

Shneur Gershuni -- UBS

Right. Okay. And maybe that sort of leads into a follow-up question, I mean your -- part of your earnings driver this quarter was obviously S&L, which is viewed as temporary at times, by you guys. But in general, I was wondering if you can sort of talk about the lower leverage target that you -- put out there, were the agencies pushing for it, because it's not something that we have seen out there and maybe if you can sort of talk about the excess earnings from S&L as a potential source for buybacks on a go-forward basis. Is that kind of a way to be thinking about it, just sort of, if you can sort of talk about the the pieces to the puzzle there.

Willie C. Chiang -- Chief Executive Officer and Director

Al, why don't you take that.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Yes. Clearly our leverage target and bringing it down was part of our view of what made the most sense for how we want to run the company, how investors were looking at the company, how rating agencies were looking at the company. Shneur, what you got to remember is our target of 3.0x to 3.5x for long-term debt to adjusted EBITDA, we do incur short-term hedged inventory debt and we do have preferred securities that have a 50% kind of debt component in the rating agency eyes. So on a kind of normalized basis, you got to -- you got to allow for that. So if you looked at the 3x to 3.5x, took the midpoint those two adjustments can sometimes add up to 0.75 turns. So that would be roughly a 4x, most of our large cap peers are either targeting something close to that or are already there. So no one -- kind of entity kind of nudges us to it. But we think it's prudent and we think we need to be a mid BBB entity.

I do think longer term, your comment about S&L as we get to where we want to be financially would provide a source of funds for an opportunistic share repurchase and/or funding capital or reducing debt further to create dry powder. But we're a little bit away from that, this particular cycle where we're seeing stronger S&L it's really going to fund the capital program and reduce debt.

Shneur Gershuni -- UBS

The prudency makes perfect sense. Thank you very much for the clarity and have great day, guys.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

We'll go next to Gabe Moreen with Mizuho.

Gabe Moreen -- Mizuho

Hi. Good afternoon, everyone. If I could ask a little bit Exxon is out there talking about upsizing accelerating plans of the Permian and you've talked a little bit about, I think you're partnering with them on long-haul things. Can you talk a little bit about to what extent you might be working with them on gathering the intra-basin side of things?

Jeremy Goebel -- Executive Vice President, Commercial.

Gabe, this is Jeremy Goebel. We can't speak particulars about how we're working with them in the basin. But clearly, we're aligned on with Exxon commercially on the long haul projects and that does present other alternatives from marketing or intra-basin standpoint.

Gabe Moreen -- Mizuho

Okay. And then maybe if I can ask on the Wink-to-Webster project, it sounds like you're reasonably optimistic about signing additional customers. Can you speak to maybe the return profile on the project. Would you ever need to maybe upsize it if you sign up additional customers in terms of a cap -- from a CapEx standpoint.

Jeremy Goebel -- Executive Vice President, Commercial.

Gabe, this is Jeremy again. I would say that the 36-inch pipeline, as we stated in January, the pipes have been ordered and the initial scope and budget that we put out was for full mainline capacity, which could be up to 1.5 million barrels a day, but it's greater than a million barrels a day and we would expect to continue to talk to shippers, committed shippers and potentially equity partners in the pipeline. But we're in the midst of those discussions now and prefer not to speak to that at this point. But we feel that project will be successful and well in excess of our minimum returns.

Willie C. Chiang -- Chief Executive Officer and Director

And Gabe, this is Willie. I think you're thinking about it correctly. Remember we sanctioned the project with adequate commercial support and that would be consistent with our 300 basis points to 500 basis points over weighted average cost of capital. So hopefully as we -- if we are able to get additional people on the project, it not only serves as a good project for them, but it increases the return of the project beyond that.

Gabe Moreen -- Mizuho

Thanks, guys. Appreciate it.

Willie C. Chiang -- Chief Executive Officer and Director

Thanks, Gabe.

Operator

We'll go next to Justin Jenkins with Raymond James.

Justin Jenkins -- Raymond James

Great. Thanks. Afternoon everyone. Willie, I want to start maybe with a more macro-oriented question here on crude quality and it's something we get quite a few questions on, maybe just thinking about how API gravity has changed in the Permian over the past few years and the challenges or opportunities that presents for you guys in the industry as a whole.

Willie C. Chiang -- Chief Executive Officer and Director

Yes. I'll start with this and I think maybe Jeremy and/or Chris can can add, and certainly Harry can can add as well. We've been a pretty big proponent of making sure we're talking about quality, if you think about the projects that we have built and continue to build is really around three things, it's flow assurance, it's quality -- maintaining the quality of the segregation, and access to markets. And I think what you're seeing now is over the last number of years, the API gravity has gotten lighter and lighter and in our view, we've started to hit limits, where other U.S. refiners have started to push back and it doesn't make as much sense to run the light barrel in their facilities.

And to that point, you're starting to see more price transparency around Midland with the light barrels, including the addition of an additional marker out there called WTI Light, which will give a little more transparency to the pricing. And the reason I tell you all this is, again, if you've got a system that is built for segregation, I think that's going to be a more important component going forward of being able to make sure we maintain the segregation of the different crudes, to be able to get it to market and preserve quality of all the barrels in the basin.

Justin Jenkins -- Raymond James

Perfect. Thanks for that Willie and I guess the follow-up question is probably for Al. How do we stand here today in terms of where the kind of portfolio optimization process is and maybe if -- if we targeting any more incremental asset sales throughout 2019 and beyond? Thanks.

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Yes. I think Willie touched on it. But yes, we continue to try to manage our portfolio, look for opportunities to either sell assets or bring in partners that can support them, that by in to a part of an asset and bring volume to it. So we're continuing that, but we aren't setting a specific dollar target. We don't believe -- we did for a couple of years when it was more to help explain how we're funding things, but nothing has changed, as far as our approach and our discipline around that.

We think it's a very positive way to challenge our business and we continue to do so.

Justin Jenkins -- Raymond James

Got it. Thanks, guys.

Operator

We'll go next to Michael Blum with Wells Fargo.

Michael Blum -- Wells Fargo

Hi. Thank you. I guess first question is just, I think you addressed Capline line. But in terms of assuming Diamond expansion and Red River, both move forward as FID projects, would that materially impact 2019 CapEx or that spend be more in 2020?

Willie C. Chiang -- Chief Executive Officer and Director

Michael, this is Willie. For 2019, it would be a modest increase to the tune of between the projects, maybe $100 million to $150 million order of magnitude, just to give you some perspective, and the majority would be in 2020.

Michael Blum -- Wells Fargo

Great. And then, second question was just on S&L. So I guess prior quarter, you've given guidance, you said you had locked in the majority of that with hedges. Just trying to understand the out performance here, was that up above and beyond what you hedged in Canada. Just wanted to get a little more details on exactly what transpired during the quarter?

Willie C. Chiang -- Chief Executive Officer and Director

It's -- some of both. We didn't fully hedge. What we're trying to say on the last call was we're comfortable with our $350 million, partially due to the fact that we had hedged a substantial amount of it. But we don't -- hedge 100% of things were operational upsets could cause volumes not to move that type of thing and we did see stronger NGL performance as you look at it.

Michael Blum -- Wells Fargo

Great. Thank you.

Willie C. Chiang -- Chief Executive Officer and Director

Thanks, Michael.

Operator

And we'll go next to Dennis Coleman with Bank of America Merrill Lynch.

Dennis Coleman -- Bank of America Merrill Lynch

Great. Thanks for taking my questions. If I could start with just one detailed point, just because a lot of these open season seem to conclude with then extension of an open season. Did I hear it right, the open season for Capline closed, it did close, it won't be extended?

Willie C. Chiang -- Chief Executive Officer and Director

We should probably let the operator speak to that, but it's our understanding that we have closed the open season.

Dennis Coleman -- Bank of America Merrill Lynch

Fantastic. That's good news. I guess just maybe one other question on the 250 million of projects that you added, maybe I missed it, but did you give any -- I mean, what's the timeline on some of these things as it -- are they short-term projects? Will they impact 2020 earnings? And if so, can you give any -- speak to any kind of return metrics that we might use?

Chris Chandler -- Executive Vice President and Chief Operating Officer

Sure. Dennis, this is Chris. Al covered the details in our prepared remarks, but just to recap, we're investing in an additional 2.4 million barrels of capacity at our St. James terminal. That's about six tanks backed by third-party commitments. We have a new terminal being built in the Marten Hills region of North Central Alberta that'll place volume into to our Rainbow Pipeline and then we have several complementary Permian projects. So timing with those, would be a typical 18 months to 24 months and returns would be consistent with 300 basis points to 500 basis points above cost of capital.

Dennis Coleman -- Bank of America Merrill Lynch

Great. Sorry if I missed that. Thanks. That's it from me.

Operator

And we'll go next to Jean Ann Salisbury with Bernstein.

Jean Ann Salisbury -- Bernstein

Hi. Can you remind us how much of Cactus I is still take or pay, assuming that the traffic or take or pay moves to Cactus II?

Jeremy Goebel -- Executive Vice President, Commercial.

Jean Ann, this is Jeremy. We don't publicly disclose that, but we are actively looking to continue to back that. So I wouldn't necessarily look at it, because it comes off nothing comes back and we have substantial commitments in the field and it's a question of do you convert them from Midland to the Gulf Coast basis. So we have lots of opportunities to fill that space with or without specific shippers. (Multiple Speakers) Please do.

Willie C. Chiang -- Chief Executive Officer and Director

Remember Cactus I was placed in service, a long time before we had any discussions with Trafigura. So it was -- it had meaningful contractual commitments upfront.

Jean Ann Salisbury -- Bernstein

Yes. I feel like you -- maybe it's just old information, but I feel like you disclosed 245 right before Trafigura or another 100, but maybe that information is old, but I was just saying if that was still the case?

Willie C. Chiang -- Chief Executive Officer and Director

Jean Ann, there has been things that have been in and out since then, so it's kind of sale number that's all I'm trying to get to.

Jean Ann Salisbury -- Bernstein

Okay. No. That's fair. And then, as a follow-up over the past few years, private equity has obviously been very active in Permian midstream, many observers believe that that was putting pressure on margins and gathering, can you discuss whether you're still seeing that pressure from PE or is it easing up a bit, now that people are trying to figure it out, where they're playing?

Jeremy Goebel -- Executive Vice President, Commercial.

Jean Ann, this is Jeremy. It depends on your area in the basin. I would say they closer to Midland you are, the more competition you'll see from a gathering standpoint, you'll see more competition from a margin standpoint, which is why honestly we focused a lot out west, and it's a larger pull-through for our business. But I'd say that depending on the area you see different pressures from different either strategics or private equity.

Certain customers are more open to working with private equity backed teams and there the competition is more intense, certain of our customers that we have lined with, you don't necessarily see that pressure because they want an industry partner. So I'd say it's not a ubiquitous, we see the same competition everywhere its, so we spend a lot of our business development time and opportunities where we can win and not necessarily have to compete directly with that capital. But certainly, there's areas where we just are not competitive because what they're willing to do is inconsistent with some of our investment philosophies.

Jean Ann Salisbury -- Bernstein

Make sense. Thank you for taking my question. That's all from me.

Jeremy Goebel -- Executive Vice President, Commercial.

No problem.

Operator

We'll go next to Colton Bean with Tudor, Pickering, Holt & Co.

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

Good afternoon. So just to follow-up, you noted that the wider spreads drove some benefit to the NGL business this quarter. So how are you guys seeing that play out over the next couple of years here with Ridley Island starting up I guess here in the next couple of months and Prince Rupert coming on next year. Do you see any impacts in the NGL marketing business?

Willie C. Chiang -- Chief Executive Officer and Director

Harry, you want to take that.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

Sure. So yes -- the more infrastructure you develop, the more takeaway capacity that exist. So I think it complements sort of the growing production over North America. We've really sort of streamlined our business and we think going forward, you'll see more stability in the margins are not quite the volatility, so that means while not as much downside, it does take away some upside opportunities as well. So, I think it's probably going to be more a factor of the way we've streamlined our business and the historical volatility. Long way of saying those assets will create more takeaway capacity for the growing production over North America, but we think we'll see more stable earnings in our NGL business.

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

And specifically, the business going forward has less sensitivity to overall basis spreads than maybe it did in the past.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

Correct.

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

Perfect. And then, so just on facilities, a pretty strong contribution here in Q1, how are you thinking about that in regard to the full year guide? And just on a related note, and there has been quite a bit of discussion around an increasingly tight frac market in Edmonton. So any thoughts you have there would be helpful.

Willie C. Chiang -- Chief Executive Officer and Director

Harry, I'll take the first part, maybe you take the second part on the frac market. But, yes our facility segment, we did have a strong quarter. Following last year, we had a pretty strong year, we've seen excess throughput. We've seen some gains in the terminals. We have a tendency to try not to reforecast some of that because you don't know if they will recur at the same volumetric contributions. So hopefully the business continues to perform higher than our guidance, but we're not certain of that. So we chose to kind of leave it flat. I'll let Harry take the second part of it.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

So we have seen a tightening in the frac capacity in Edmonton. I think it's been reflected in our guidance we see higher rates this year on recontracting than we saw last year, but most of the capacity is contracted on one at least one year terms, a lot of it is multiyear terms as well. So I wouldn't take that to mean that you would see much upside in our guidance in the facility section, because a lot of that was baked into our forecast.

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

Okay. That's helpful. I appreciate your time.

Willie C. Chiang -- Chief Executive Officer and Director

Thanks, Colton.

Operator

We'll go next to Chris Sighinolfi with Jefferies.

Vikram Bagri -- Jefferies

Good evening, everyone. This is Vikram Bagri for Chris. I wanted to understand the minor decrease in volume guidance for us to know was it driven more by change in producer budgets or more competition in the basin? And more broadly, your peers have talked about basin getting over piped, we -- our analysis also shows that on crude side basis, Permian Basin will be over piped for some time and tariffs have been going down. How do you see that situation evolving, is there some repurposing that can take place in the basin or how do you see that situation evolving over time?

Willie C. Chiang -- Chief Executive Officer and Director

Al, why don't you take that?

Al P. Swanson -- Executive Vice President and Chief Financial Officer

I'll take the first part and I don't know if Harry or Jeremy take the second part. But the volume on S&L that you've seen down roughly 85,000 barrels a day is all virtually all NGL and it's the streamlining that Harry mentioned. We chose to take a different view on contracting going forward. Again, back to the stability and that -- that Harry just walked through. So that's really what drove the volume change.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

On the longer-term Permian, to the extent that it does get over piped, the pipelines that had the strategic advantages and the competitive advantage on the upstream connectivity and sourcing of barrels and downstream, they'll stay for the ability to segregate barrels provide flow assurance and market options. The other barrels -- the other pipelines that don't will look for other alternative uses as you mentioned, take the DJ Basin for instance, the combining of the Saddlehorn Pipeline, the conversion of White Cliffs. That's an example of what a basin does when it gets long capacity. So you would expect things to happen in the Permian as well. No one sits still in perpetuity. So you would fully expect the industry to respond and then, this is where you're over piped.

Vikram Bagri -- Jefferies

Great. And then just as a follow up, when is St. James Storage coming online, the additional storage that you're building. It seems like you're preparing for Capline reversal, so the date of that storage coming online will coincide when Capline comes online. And then if you can talk about whether this is -- you can expand storage further and what kind of opportunities you will see once that decision is made and how much of increase in CapEx or opportunities you may announce with the FID of reversal of that pipeline?

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

The first component, this expansion is not tied, it's a separate customer that is likely not going to participate in Capline. It's just for local business. Any additional expansion to Capline successful open season and once we get the results of the open season, we'll be in a position to support it. But it's certainly favorable for the expanded dock capacity at St. James, which we're reasonably expanding from 250 to 400 that can be complementary to that. We have an existing footprint in St. James that's capable of expansion for additional customers that would want to export across that dock and then the Capline Dock and tankage could ultimately benefit, which were owners in as well.

Vikram Bagri -- Jefferies

Thank you.

Operator

We'll go next to Sunil Sibal with Seaport Global Securities.

Sunil Sibal -- Seaport Global Securities

Yes. Hi. Good afternoon, guys and thanks for all the clarity on the call. Just wanted to take a step back and from an industry point of view, seems like there is increasing (inaudible) on the E&P side, consolidating Permian. I was wondering if you could talk a little bit about how do you think that impacts your business in Permian, especially when we think about the three legs the gathering and the intra-basin and the long haul pipeline components of the business?

Jeremy Goebel -- Executive Vice President, Commercial.

Sunil, this is Jeremy. One, you would say that that's generally positive, because a lot of our customers are larger customers, looking for long-term partners in the basin, the flexibility of the system, they generally don't like to consolidate all in one particular market and have access to multiple markets, quality control becomes important because they want to market the barrel and get the highest value for their product. So we're looking at a customer-friendly model toward the larger customers and intend to work with them. Several instances this year where there's been M&A in the last 12 months, those have been positive results for us, so history is a measure of what it's going to look like in the future. We're happy with the consolidation and thinks it plays to our strengths.

Sunil Sibal -- Seaport Global Securities

Okay. Got it. And then my follow-up was on Capline reversal. I was wondering is there is certain minimum volume that you would need on the 40-inch pipeline for stable operations, when you sanction the project for reversal of a Capline?

Willie C. Chiang -- Chief Executive Officer and Director

I would say that there is two components. There is a financial component and there is a safety and operational component. And both of those will be guiding principles on how we commercialize the asset.

Sunil Sibal -- Seaport Global Securities

Any good way to handicap from an operational perspective, what is the kind of flow you need?

Willie C. Chiang -- Chief Executive Officer and Director

I think Chris and the team will work directly with the operator to make sure that we stay within something we're comfortable with.

Chris Chandler -- Executive Vice President and Chief Operating Officer

Yes. We've designed the open season around making sure that we have sufficient flows to meet our standards around safety and engineering.

Sunil Sibal -- Seaport Global Securities

Okay. Got it. Thanks, guys.

Operator

We'll go next to Danilo Juvane with BMO Capital Markets.

Danilo Juvane -- BMO Capital Markets

Hi. Good afternoon and thank you. Some of your peers have recently talked about the importance of Houston as a market for crude logistics and certainly a market for exports and viewed Corpus as somewhat of a secondary destination. You obviously have projects and pipelines going into both locations. We're just curious on what your thoughts are on the Houston versus Corpus as a desired market for your customers?

Willie C. Chiang -- Chief Executive Officer and Director

Danilo, this is Willie. We believe in access to all markets. When you think about what I talked about flow assurance quality, segregation, and access to markets we want to give solutions to people to get to whatever markets they want to get to. And one thing that we found over the last year, as we've developed some of these projects is there actually a preference sometimes to use one person's pipe in others docks. So rather than a single solution, where you have to go through a pipe and a dock having the flexibility to get to other docks as well as your own dock, I think it gives the shippers the most flexibility possible.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

Yes. If you think about it -- it's not like we're building a pipeline to a market and then hoping to go get shippers to that market. The shippers are telling us where they want to go. So I'm certain, there are some shippers that prefer the Houston market and there are others that prefer the Corpus market and it would be hard to say that one is inferior to the other, the pipes are going to where the shippers want them to go.

Jeremy Goebel -- Executive Vice President, Commercial.

And there is certainly attributes of both, if the marginal barrel has to get to the water and it can efficiently get there, one maybe better than the other, if the intent is to sell to local refiners, it maybe the other. Certainly, there's attribute of the Corpus Ship Channel or Ingleside that are preferential to docks inside. So I don't think it's one answer fits all. Once again, it goes to Harry's point that the shippers will dictate, where they're most comfortable with and they view logistical advantages. In addition, a lot of these shippers are large enough, so they would want exposure to multiple markets. They don't want a Hurricane to shut in their entire production field. So I think there's attributes of all and we are trying to create a mousetrap in the Permian Basin in the Mid-Continent that touches St. James, Nederland (ph), Houston, and Corpus to allow for the most flexibility flow assurance and quality control, as Willie mentioned in the beginning.

Willie C. Chiang -- Chief Executive Officer and Director

And Cushing.

Danilo Juvane -- BMO Capital Markets

Thanks for the great color there. My second question, if I may, one of your owners at PAGP is obviously going through a potential M&A transaction to the extent that they try to sell down some of their ownership. Does that impact you in anyway?

Jeremy Goebel -- Executive Vice President, Commercial.

No. They won't.

Danilo Juvane -- BMO Capital Markets

Thank you. Those are my questions.

Jeremy Goebel -- Executive Vice President, Commercial.

Thank you. I think we are -- maybe have time for one last question. Jeremy, I think you're in the queue.

Willie C. Chiang -- Chief Executive Officer and Director

You get the prize, Jeremy.

Operator

Jeremy --

Jeremy Tonet -- JPMorgan

Thanks for squeezing me back in here. Just a couple of quick ones here. Thoughts as far as there's lot of pipes originating at Wink, do you see the need for more in new commercial storage there, especially on the segregation side, given all the different grades that are coming through and producers looking to keep -- keep those grades separate, just wondering if you see much storage being needed there and that being an opportunity for you?

Willie C. Chiang -- Chief Executive Officer and Director

Jeremy has been chomping at -- our Jeremy has been chomping at the bit to talk about this. Go ahead.

Jeremy Goebel -- Executive Vice President, Commercial.

Jeremy. Good question. The answer is yes. I think you'll see the wink will be the source of -- for the aggregation point for most of the WTL and condensate. It'll have export capabilities there, it'll have capabilities to move to Midland. So we're creating that, but there is a need for operational storage, one for safe and reliability. So, as we move more and more volume through there in the Delaware Basin growth, so I think operationally the answer is yes. But commercially, there is a potential that it could develop into a pricing hub similar to Midland and so you're going to see different pricing hubs develop in the Gulf Coast and you'll probably see some additional ones and you've seen a pricing marker that will start in June. But you're already seeing some price discovery as Willie mentioned in the the condensate. So you're seeing different grades show up from a pricing standpoint, you could see different locations both in the Gulf Coast and within the basins themselves.

Jeremy Tonet -- JPMorgan

And if I could finish one last quick one. Differentials kind of have been coming in now, but just wondering what your thoughts were as far as crude by rail activity out of Canada and how that impacts you guys?

Willie C. Chiang -- Chief Executive Officer and Director

Harry, do you want to take that one?

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

I'll take a crack at it. Listen, I think the incremental barrel is going to have to move by rail out of Canada. So, we continue to see rail movements out of Canada, as production increases, we think you'll see some more rail activity out of Canada, until new pipes come into service.

Willie C. Chiang -- Chief Executive Officer and Director

Okay. Rail will be the governor and then the -- other pieces whether or not production mandates get -- production cuts get lifted or not.

Jeremy Tonet -- JPMorgan

That's very helpful. Thanks for taking my other question.

Willie C. Chiang -- Chief Executive Officer and Director

Thanks, Jeremy.

Roy Lamoreaux -- VP:Investor Relations & Communications

Thank you everybody for joining the call. Thank you, Hannah for your help today and have a safe evening. Thank you.

Operator

That concludes today's conference. Thank you for your participation.

Duration: 46 minutes

Call participants:

Roy Lamoreaux -- VP:Investor Relations & Communications

Willie C. Chiang -- Chief Executive Officer and Director

Al P. Swanson -- Executive Vice President and Chief Financial Officer

Chris Chandler -- Executive Vice President and Chief Operating Officer

Jeremy Goebel -- Executive Vice President, Commercial.

Harry N. Pefanis -- President & Chief Commercial Officer (CCO) and Director

Jeremy Tonet -- JPMorgan

Shneur Gershuni -- UBS

Gabe Moreen -- Mizuho

Justin Jenkins -- Raymond James

Michael Blum -- Wells Fargo

Dennis Coleman -- Bank of America Merrill Lynch

Jean Ann Salisbury -- Bernstein

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

Vikram Bagri -- Jefferies

Sunil Sibal -- Seaport Global Securities

Danilo Juvane -- BMO Capital Markets

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