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Plains GP Holdings LP (NYSE:PAGP)
Q2 2019 Earnings Call
Aug 6, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the PAA and PAGP Second Quarter 2019 Earnings Call.

[Operator Instructions]

. At this time, I'd like to turn the conference over to Roy Lamoreaux, VP of Investor Relations. Please go ahead, sir.

Roy I. Lamoreaux -- Vice President, Investor Relations and Communications

Thank you, Melissa. Good afternoon, and welcome to Plains All American Second 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 of Commercial; and Chris Chandler, Executive Vice President and Chief Operating Officer, along with other members of our senior management team are available for the Q&A portion of today's call.

With that, I will now turn the call over to Willie.

Willie 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. We're pleased to report second quarter earnings results that exceeded our expectations. As outlined on Slide 3, these results reflect strong performance in our margin-based Supply and Logistics segment and fee-based earnings that were in line with expectations. As Al will discuss more in detail, we have increased our full year adjusted EBITDA guidance by $125 million, so plus or minus $2.975 billion, driven primarily by our S&L segment. We continue to execute on a number of initiatives to position us for the future and to create long-term value for our investors.

We provided a comprehensive review of these opportunities at our Investor Day and highlighted our strategy of optimizing our systems and driving improved returns by advancing capital-efficient projects that leverage existing assets and align us with industry partners. We also continue to focus on managing our financial position to further lower leverage and prudently return cash to equity holders over time. Our progress on our commercial initiatives are reflected on Slides 4 and 5. Let me highlight a few. Regarding our Permian takeaway projects, we have continued to enhance the Wink to Webster project, further aligning with industry partners to optimize the project. In that regard, MPLX, Delek U.S. and Rattler Midstream have joined as partners in the Wink to Webster joint venture, and we expect an additional undisclosed third party to announce their ownership in the project in the near future.

As a result of these transactions, Wink to Webster is highly contracted under long-term volume commitments. Additionally, claims equity interest in the Wink to Webster joint venture has decreased from 20% to 16%. We are targeting Wink to Webster capacity to be in service beginning in early 2021. In the Rockies and Mid-Continent, we progressed a number of projects that are great examples of capital efficiency, utilizing our existing assets and commercial flexibility to drive returns above our targeted threshold with further upside. On the Diamond Capline JV, we have sanctioned an expansion and extension, which will connect the Diamond pipeline to the Capline system. These projects are expected to be placed into service in late 2020 for light crude rights in early 2022 for heavy crude rights.

The combined Diamond and Capline project scope is underpinned by a sufficient long -- sufficient level of long-term commitments to achieve our targeted investment return thresholds, and we are working to further enhance returns by bringing additional committed volumes to the system. The Saddlehorn JV partners recently announced a capacity expansion of up to 100,000 barrels a day, plus a new Fort Laramie origin on the Saddlehorn pipeline, which is underpinned by long-term volume commitments. This project is primarily increasing pumping capacity and enhancing commercial alignment to provide additional flexibility to our shipper customers. An initial expansion of 60,000 barrels per day is under way and is expected to be placed into service in late 2020, with the potential to increase to 100,000 barrels a day.

In May, we announced an expansion and new joint venture on our Red River pipeline system through which Delek increased their long-term minimum volume commitment from 35,000 to 100,000 barrels a day and acquired a 33% equity interest in the project for $128 million. This transaction expands our long term and alignment with a strategic partner and shipper. It supports and more than funds the 85,000-barrel a day capacity expansion. It increases Plains' net committed annual cash flow and it provides an additional source of funding for our capital program or debt reduction. We expect to announce an open season for additional volume commitments on the system in the very near future. On Red Oak, we're proceeding with pre-construction activities on this 50-50 joint venture with Phillips 66 that was officially sanctioned in June.

The system will enable volumes from Cushing, Oklahoma and the Permian Basin to access multiple Gulf Coast destinations, including Corpus Christi, Ingleside, Houston and Belmont, Texas. We expect the project, which is underpinned by long-term shipper agreements, to begin initial service as early as the first quarter of 2021. We, along with our partner, will evaluate the outcome of the current supplemental open season in progress. We also continue to advance additional commercial opportunities, including a potential expansion of our Rangeland and Western Corridor systems to support Canadian production growth and further enable movements from Edmonton to U.S. Gulf Coast markets. These expansions are subject to the outcome of the Western quarter open season that's currently under way.

Each of these projects demonstrate opportunities that are enabled by our existing asset base, our operational capabilities and commercial presence, which allows us to build and position ourselves for the future with accretive growth. These projects will be completed over the next 2 or 3 years, and we expect to be able to self-fund the equity portion of our investments through this time period. As a result of these projects, and as Al will discuss in greater detail, we've increased our 2019 capital program by $150 million, which is expected to be more than offset by proceeds from JV asset sales completed to date and our strong S&L performance generated in the first half of the year.

Before I hand the call over to Al, let me share a quick update on Cactus II. I'm pleased to report that the pipeline is mechanically complete from Wink to Ingleside and that we're currently performing commissioning and line fill activities. As of today, the line is approximately 50% filled with crude, and we anticipate entering initial commercial service sometime next week. We expect to have direct Cactus II connectivity to Corpus in service by the end of the first quarter of 2020. At this point, I'd like to publicly acknowledge the hard work and dedication of our team to bring our second Permian takeaway project into service within the last 12 months.

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

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

Thanks, Willie. During my portion of the call, I'll share a brief recap of our second quarter results, provide updates to our 2019 guidance and growth capital program and review our current capitalization, liquidity and leverage metrics. We reported second quarter adjusted EBITDA of $784 million, which represents a year-over-year increase of 55%, driven by strong performance in our S&L segment. As summarized on Slide 6, our second quarter fee-based results of $582 million were in line with expectations, representing a year-over-year increase of 10% and were roughly flat to the first quarter of 2019. Looking forward to the balance of the year, as illustrated on Slide 7, as Willie noted, we have increased our 2019 adjusted EBITDA guidance by $125 million to plus or minus $2.975 billion.

This increase was driven by our S&L performance in the second quarter, primarily attributable to favorable crude oil differentials in the Permian Basin and Canada and improved NGL margins. Additionally, we have lowered our 2019 transportation segment guidance by approximately $25 million or 1%, calibrating for our current outlook on producer activity levels through the balance of the year. Our 2019 DCF guidance was increased by $65 million reflecting the increased adjusted EBITDA guidance, partially offset by $40 million of higher income tax expense in Canada and a $20 million increase in maintenance capital as we expect to complete more work in 2019 than originally anticipated. As illustrated on Slide 7, given the newly sanctioned projects Willie discussed, we have increased our 2019 capital program by $150 million net of lower costs on Wink to Webster resulting from our reduced equity interest in the project.

We remain focused on capital discipline and prudent financial management. In that regard, the increase in our capital program was more than offset by the $128 million of cash received from the formation of the Red River JV and the $65 million increase in our 2019 DCF guidance. Additionally, while the large majority of the capital associated with these new lease sanctioned projects is expected to be incurred in 2020 and 2021, we do not expect to issued common equity to fund our capital programs in those years, and we'll continue to explore and utilize potential asset sales, strategic JVs and alternative financing opportunities to add funding flexibility. Moving to our capitalization and liquidity, as illustrated on Slide 8. At quarter end, we had a long-term debt to adjusted EBITDA ratio of 2.8x, which benefits from S&L overperformance over the last 12 months.

Excluding the S&L overperformance, we remain focused on continuing to migrate leverage down within our targeted long-term debt to adjusted EBITDA range and achieving mid-BBB credit ratings over time. Based on our updated 2019 guidance, we expect to exit the year with full year common unit distribution coverage of more than 200%, more than $1 billion of cash flow in excess of distributions, and per unit results that exceed our prior expectations.

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

Willie Chiang -- Chief Executive Officer and Director

Thanks, Al. So we had a solid quarter of financial, operating and commercial performance, and we're pleased to have made the significant progress on a number of initiatives that position us well for our future. We remain intently focused on executing our 2019 plan and advancing the projects and initiatives that we set forth throughout our call today. A summary of the 2019 goals and the key takeaways from today's call are shown on Slide 9 and 10. With that, we'd be happy to take your questions.

I'll turn the call over to Roy.

Roy I. Lamoreaux -- Vice President, Investor Relations and Communications

Thanks, Willie.

[Operator Instructions]

Additionally, Brett and I plan to be available this evening and tomorrow to address additional questions. Melissa, we're now ready to open the call for questions.

Questions and Answers:

Operator

Thank you.

[Operator Instructions]

And our first question will come from Shneur Gershuni with UBS.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning guys. congrats. And good afternoon Just maybe to start off on the guidance that you've put out today. I understand that it's going up partially for the -- or is going for the S&L beat and so forth. I was just wondering if you can sort of give us a little bit of detail on the transportation side. You have margins going up, but you've got volumes going down. Any particular reason that you would attribute to the volume change?

Willie Chiang -- Chief Executive Officer and Director

Jeremy?

Jeremy L. Goebel -- Executive Vice President of Commercial

Thanks, Shneur. This is Jeremy Goebel. Question is a good one in reflection of the change in the industry in the upstream side. I think our guidance reflects our expectations for the year. It includes pipeline utilization changes with regard to Gulf Coast pipes coming online and potential barrels coming off of basins. So I think that's -- it's just to reflect our current guidance, our view. We will continue to update that throughout the year as we talk to our customers, but it's a dynamic time in the industry, and it's within 1% of our original forecast, but we're just reflecting it of where we think that the market is headed.

Shneur Gershuni -- UBS -- Analyst

If I can paraphrase, essentially, you're losing some volumes on low-margin areas, but you're gaining on some others or maintaining on higher margins. Is that kind of the right way to think about it?

Jeremy L. Goebel -- Executive Vice President of Commercial

I think there's just a lot of moving pieces with respect to our asset base, where it's hard to identify and simplify it to that. I think in the context of a $25 million move and the entire thing. That's just a reflection of the entire asset base and how we think -- see things moving differentials across the basin and market input of barrel.

Shneur Gershuni -- UBS -- Analyst

That makes perfect sense. And I didn't want to beat up on a minutiae item, just -- I just wanted a clarification. And then one other last clarification question. There sort of seems to be more and more participants joining the Wink to Webster pipeline. Does this change your Capex outlook at all as you think about next year? And do you have a sense of what Plains, its final ownership, is going to be of the project?

Jeremy L. Goebel -- Executive Vice President of Commercial

Sure. We will own 16% of the Wink to Webster project, which will be over 1 million barrels a day and fully contracted pipeline. We're excited about it. We took a reduction in our interest to make room for the additional partners. We've given guidance for 2019, and that reflects our lower interest in the project, but at this point haven't given 2020 guidance for capital. Hopefully, later this year.

Shneur Gershuni -- UBS -- Analyst

Perfect, thank you very much. I've used up my two questions. I'll jump back in the queue

Operator

Our next question will come from Jeremy Tonet with JPMorgan.

Jeremy Tonet -- JPMorgan -- Analyst

Hi, good afternoon, just want to follow up a little bit there on the Permian. And given kind of a -- producer commentary has been changing a bit there. Some people kind of pulling in on growth or deferring. And you guys in the past have kind of presented your view as far as longer-dated Permian growth. I'm wondering, does anything changed materially from your prior expectations, specifically, Concho discussed changes in their approach. So that would be helpful for any color there.

Jeremy L. Goebel -- Executive Vice President of Commercial

Sure. We continue to monitor that and stay in front of our customers. We have moderated our forecast in the Permian. That's reflected in our guidance forecast for the rest of 2019. We had a reduction coming into the year to 400 horizontal rigs and a steady state for the second half of this year. We're roughly at 390 now. So marginally, it is a bit lower, but it's fairly consistent with our views. But on the margin, it is lower. We'll continue to monitor producers' views and how they look to operate within cash flow and specific to our customers on our pipeline, and we'll stay on top of that.

Willie Chiang -- Chief Executive Officer and Director

Yes, Jeremy, this is Willie. It's the question that you ask is a good one, but very difficult to answer. And I think that the key on this is we want to wait until the rest of this year, when we continue to monitor, as Jeremy said, but I think we'll be able to give a little better color on 2020 and beyond over the next 3 months.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful. And then maybe just following up with regards to the opportunities that arose in Canada. Would you be able to provide a bit more color on what happened there, and I guess, the ability to kind of capture those margins again in the future?

Jeremy L. Goebel -- Executive Vice President of Commercial

No. Those are sort of onetime type of events. A lot of it centered around differentials that got wider around post close to apportionment and around some of the upgrader outages in the plant turnarounds in the -- in Western Canada. So I certainly wouldn't characterize those as recurring type of events.

Jeremy Tonet -- JPMorgan -- Analyst

That's helpful color. Thank you for taking my questions.

Jeremy L. Goebel -- Executive Vice President of Commercial

Thanks, Jeremy.

Operator

Our next question will come from Tristan Richardson with SunTrust.

Tristan Richardson -- SunTrust -- Analyst

Hey, good afternoon guys. And Now that we're kind of midway through the year, and you have a better sense of the JV structure on Wink to Webster schedule on Capline and St. James. As you look at some of these long lead projects, just talk a little bit about how Capex is shaping up for 2020 and just the potential of prospects that we could see Capex lower next year versus 2019?

Willie Chiang -- Chief Executive Officer and Director

Al, why don't you take that?

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

Yes. Yes, this is Al. I think our view was that we wanted to wait and update our 2020 capital probably in November on that call. We would probably say it'll be roughly equivalent to the neighborhood we are this year. Clearly, there's some timing issues to whether some of it pushes into 2021 versus pull forward into 2020. There's also whether or not we look at doing a project finance inside of the Red Oak joint venture. So there are some things that could cause it to shift. But we think it will be roughly in the neighborhood of this year.

Tristan Richardson -- SunTrust -- Analyst

That's helpful. And then not to bring up a lightning rod item, but can you talk about just tariff surcharges to the extent that future build-out pipelines, etc. This may be something that you employ when and where the procurement process incurs these costs.

Willie Chiang -- Chief Executive Officer and Director

Yes. This is Willie, Tristan. I'll give you my view on this. This is a -- as with everything, it seems these days there's a lot of moving parts. We -- on Cactus II, we ended up buying international, a non-U.S. steel because the U.S. steel producers were not able to produce the pipe and the spec that we wanted. The key point on this is we purchased the steel before the tariffs were implemented. And so we are going through the exception process with the Department of Commerce, and continue -- we'll continue to do that to try to get resolution on it.

As a parallel path, we have moved forward with a surcharge. And if we're able to get an exemption, clearly, we would stop the surcharge and rebate it as appropriate. But again, this is something that I highlighted early on where we've got to make sure that the regulations and the rules are clear for people before they make the investments on these projects. Hopefully, that helps, Tristan.

Tristan Richardson -- SunTrust -- Analyst

Appreciate it. Thank you guys very much.

Operator

The next question will come from Colton Bean from Tudor, Pickering, Holt & Co.

Colton Bean -- Tudor, Pickering, Holt and Co -- Analyst

Good afternoon, so just to follow up on Wink to Webster. I think Delek had recently noted their net project costs, and the implied total is about $2.4 billion. So do you think that seems a little bit low relative to the prior S-curve commentary, just in terms of your expectations on 2020? So I wanted to see if that $2.4 million was consistent with your expectations or if there were some Plains-specific considerations we should be aware of.

Willie Chiang -- Chief Executive Officer and Director

We're not going to comment exactly what Delek's quote was. They could have some financing or other things net to their interest. So I think that may not necessarily tie directly to ours. I think ours is closer to the $500 million or $550 million range, net to our interest for the entire scope of the project and without financing.

Colton Bean -- Tudor, Pickering, Holt and Co -- Analyst

Got it. That's helpful. And then just looking at the Rangeland and Western Corridor expansions. Can you provide a bit of context on the scope of that project and what the driver is of 2021 in-service? With those barrels, we expected to flow on Liberty and Red Oak. Or should we expect some of those to be dropped off in Billings or other refinery complexes?

Willie Chiang -- Chief Executive Officer and Director

That's a good question. Think of Rangeland as north of the border currently flows into Edmonton, both the ability to flow the Edmonton or sundry barrels down to the border and have it picked up by the Western Corridor system. At Guernsey, it will connect to the Liberty project and ultimately into Red Oak to feed barrels to the integrated solution with P66 playing to the outperformers in the system.

Colton Bean -- Tudor, Pickering, Holt and Co -- Analyst

Got it. And just a quick clarification. If you were to get the system online a little bit early with Western Corridor, will Saddlehorn be an interim solution? Or is it still pretty firm that you need Liberty on?

Jeremy L. Goebel -- Executive Vice President of Commercial

The Saddlehorn open season, as Willie suggested, recently closed, and that will largely be a full pipeline. So I think the intent is to bring a lot of that capacity on a similar time frame. If there are earlier opportunities, we certainly look to take advantage of them.

Unidentified Speaker

There are some work to be done on Western Corridor as well. So it's probably not a huge time line difference between Rangeland and Western Corridor. We'll be capable of increased capacity and when Liberty would be in service.

Jeremy L. Goebel -- Executive Vice President of Commercial

Got it. I appreciate that.

Operator

Our next question will come from Gabe Moreen with Mizuho.

Gabe Moreen -- Mizuho -- Analyst

Hi, good afternoon, can you speak to how high you'd be willing to let leverage go and your metrics go sort of on a temporary basis? If you've got a large number to finance in 2020, with the fact that you may have visibility to getting that leverage back down to the 3s as these projects come online? Just curious kind of how much headroom you think you might have on the metrics.

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

We do intend to migrate. When we look at it internally, I know it's hard from the outside, but we normalize what we think S&L will be on an ongoing basis. And so we do expect, with the addition of Red Oak, a slight uptick in 2020 from where we're at, and then migrating down. We will not do -- bring it up to a point where it would cause concern, but we don't view that we have to be inside of the newly established leverage range in 2020. We will migrate down over time.

Gabe Moreen -- Mizuho -- Analyst

Okay. Curious, obviously, what that normalized level of S&L is, but at some point, maybe we'll get that number. The second question from me is around maybe...

Willie Chiang -- Chief Executive Officer and Director

Good try, Gabriel.

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

That was a good try.

Gabe Moreen -- Mizuho -- Analyst

Keep trying. Then maybe just in terms of Capline, can you speak to, I guess, the volumes on that expansion? How much is contracted? Is that refiner-driven, producer-driven, just kind of what actually emerged from the open season? Just curious if there's more color there.

Jeremy L. Goebel -- Executive Vice President of Commercial

I think, Gabe, at this point, we'd say that it's sufficient to reverse the Capline pipeline system from Patoka South, also to expand and tie-in the Diamond system and support that. So we've met in the excess of our internal returns as well as our partners to sanction the project. We'll be looking for opportunities to add additional volume and commitments to the system based on timing of other connecting carriers and volume. So we'll be on top of that with the ability to continue to increase returns.

Willie Chiang -- Chief Executive Officer and Director

One other point on that is there's an additional benefit for us. With Capline idle, you've got cost to maintain that. When you put it in service, you certainly -- you save some money there as well. So that's one of the things that helps the return.

Gabe Moreen -- Mizuho -- Analyst

And just one quick follow-up on Capline. Is there any regulatory approvals needed for either the extension on Diamond or the reversal? Or are you just kind of good to go there?

Chris R. Chandler -- Executive Vice President and Chief Operating Officer

This is Chris Chandler. I'll talk on the extension at Diamond. There is about a 40-mile segment that we'll be laying from Memphis to be able to tie in to Capline. And that will, of course, require normal permits for that new piece of pipe.

Gabe Moreen -- Mizuho -- Analyst

Great, thank you.

Operator

Next we'll take a question from Michael Blum with Wells Fargo.

Michael Blum -- Wells Fargo -- Analyst

Hey, thank you, just wanted to clarify first. Wink to Webster, so is that now set at 1 million barrels in terms of the capacity and not 1.5 million?

Willie Chiang -- Chief Executive Officer and Director

You know what, Michael, you should think about it this way. It's a 36-inch line, which capacity is roughly 1.5 million . Hopefully, that helps.

Michael Blum -- Wells Fargo -- Analyst

Okay. Second question, just on the quarter. In terms of S&L, I'm sure you're not going to give you exact numbers. But I mean, can you give any kind of just a rough idea of the magnitude of how much of the beat or the contribution came from 2 crude oil locational spreads versus the Canadian NGL business?

Jeremy L. Goebel -- Executive Vice President of Commercial

The large majority of it was from the crude oil spreads, both in the Permian and in Canada, much smaller degree from NGL.

Operator

Next we'll take a question from Keith Stanley from Wolfe Research.

Keith Stanley -- Wolfe Research -- Analyst

The updated transportation guidance, the $1.7 billion, implies a pretty steep ramp in the second half of the year. Is that mainly Cactus II starting off? Or is there anything else significant that drives EBITDA higher in the balance of the year?

Willie Chiang -- Chief Executive Officer and Director

That's a significant contributor. One of the primary contributors in the second half of the year. But the rest of it is just line of sight volume growth onto the system that we feel pretty comfortable with.

Keith Stanley -- Wolfe Research -- Analyst

Okay. So just Cactus II and then just typical growth that you guys usually see.

Willie Chiang -- Chief Executive Officer and Director

Correct. Adjusted.

Keith Stanley -- Wolfe Research -- Analyst

Okay. And then just a follow-up on the NGL business in S&L and Canada. How would you say that business is positioned right now with the low NGL pricing that we're seeing, but steep contango in the forward curves over the next few months and into 2020?

Willie Chiang -- Chief Executive Officer and Director

Harry, why don't you take that one?

Harry N. Pefanis -- President, Chief Commercial Officer and Director

It's hard to go into a lot of detail on our positioning, obviously, the contango market helps. We have propane and butane storage capacity, which would take advantage of in this type of market. And we did a lot of work over the last year, streamlining our business and taking some of the volatility out of the business, making more consistent returns. So I think we're well positioned. We certainly put ourselves in a position where we probably won't see the spikes in upside in, say, high demand environment in the winter, but we also have eliminated the risk of significant amount of downside if you get into a low demand winter. So I think we're pretty well positioned.

Keith Stanley -- Wolfe Research -- Analyst

Thank you.

Operator

Next we'll take a question from Jean Salisbury from Bernstein.

Jean Salisbury -- Bernstein -- Analyst

Hi, There are some concerns that Corpus export capacity will be ready in time for the pipelines going there in the second half, and that could set those types from ramping as much as initially thought. Is there any market intel you can share or your view on that?

Jeremy L. Goebel -- Executive Vice President of Commercial

I think we have line of sight into our connecting carriers and our shippers demand, but not necessarily to everyone else. Clearly, you can follow permitting processes and the schedule of the other facilities coming online. The PAA Eagle Ford JV with Enterprise, that's starting up next month. But that's additional capacity that's coming online. And then our connecting carriers have already -- our shippers on Cactus II have already contracted the capacity necessary for their full demand. So maybe timing of tanks and connections. But for the large partners, definitely a line of sight for Cactus II to ramp up for capacity.

Chris R. Chandler -- Executive Vice President and Chief Operating Officer

This is Chris Chandler. I'll just reiterate that the carriers that we're connecting to have indicated that they will be able to support the full capacity of the pipe by the end of September.

Jean Salisbury -- Bernstein -- Analyst

Great. And sorry to get back to this, but can you share any more detail on if the decrease in volumes in 2019 guidance was more on long-haul or on gathering? I guess the low change in EBITDA would suggest that it was mostly gathering.

Jeremy L. Goebel -- Executive Vice President of Commercial

Yes, I think say it's primarily gathering. It's -- whether it's timing, producers' capital budgets. But as you're aware, our numbers are gathering in the long haul, so they propagate. But with the timing of Cactus II, that's going to offset some of the long-haul piece. So I think it's really primarily a gathering -- a view of gathering.

Jean Salisbury -- Bernstein -- Analyst

Great, thanks. That's all for me.

Operator

Next we'll go to Dennis Coleman with Bank of America.

Dennis Coleman -- Bank of America. -- Analyst

Yeah, good afternoon and thanks for taking my question. A lot has been hit on S&L and that sort of feels like the old days where big beats come out of that sector. So congrats on that. I do just want to ask, it does seem like there was a tick-up in the short-term debt at the end of the quarter. And I'm guessing that relates to the increase in activity there. Is that right? And then, should we expect to see that trend back down? Or how should we think about that?

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

This is Al; I'll take a shot at it. Yes, partially, we've been in a situation where we haven't had a need to borrow short-term as much as what our inventory positions were. And that's been for a number of quarters. This quarter, we actually had -- and I think it's embedded in one of the footnotes on the slide. We exited with $400 million of cash on the balance sheet again.

So technically, if we would have been able to pay everything down, it would have been a lot lower as well. That increase would have been as much. But for a number of quarters, following the BridgeTex sale, we haven't been able to fully borrow just from use of -- from a use of cash. And this quarter, we had the cash on the balance sheet again.

Dennis Coleman -- Bank of America. -- Analyst

Okay. Okay. And just maybe I missed this, but so S&L, this is just a onetime shot, continuing to think about the out years in the prior range that you've talked about.

Willie Chiang -- Chief Executive Officer and Director

Dennis, this is Willie. Let me see if I can give some color on this. S&L this year is playing its position exactly as we expected. We've given guidance over the last number of periods of time that once the pipes get overbuilt, the arbitrage opportunities will go away, right? So clearly, this year is something where the spreads have been -- the spreads have been wider. We've been able to capture opportunities there. And exactly what we've said we think will happen is happening in that. As the long-haul pipes start starting up later part of this year, the arbitrage opportunities go away. The twist on that was Canada. And I think some of that is getting solved today as well with both additional volumes leaving Canada because of the slight reductions of constraints as well as some of the rail facilities pulling barrels out. So I wouldn't -- please don't take this S&L performance is something that's different than what we talked about.

We've always said meaningfully less S&L in 2020 going forward because of the pipes that have been built, and the way we ought to view our S&L segment as it provides the ability to capture arbs when they're there. And we'll use that to pay for capital investments or reduce debt, but we shouldn't count on the -- we shouldn't count on any large number as far as S&L goes going forward, at this point in time anyway.

Dennis Coleman -- Bank of America. -- Analyst

Great. That's perfect. Thanks for confirming that. That's all. --

Willie Chiang -- Chief Executive Officer and Director

You bet.

Operator

Our next question will come from Sunil Sibal from Seaport Global Securities.

Sunil Sibal -- Seaport Global Securities. -- Analyst

Yeah, hi, good afternoon guys most of my questions have been hit, but I just wanted to go back to your projects on the Western Corridor and the Rangeland. I'm just curious the additional flexibility that you're adding, does it help you move to heavier volumes too? Or is it more of lighter volumes and then that helps offload some of the lighter volumes from some of other pipelines?

Jeremy L. Goebel -- Executive Vice President of Commercial

So it will -- it's designed as a light pipeline because of the size of the Western Corridor and Rangeland system so that it would be prohibitive to move any substantial volume of heavy. So it's going to be a light-only pipeline system that will tie into Cushing and then eventually, distribute to multiple Gulf Coast destinations. So it offers a lot of flexibility to the shippers.

Sunil Sibal -- Seaport Global Securities. -- Analyst

Okay, got it. And then on Capline reversal. I was wondering if you could talk a little bit about the returns from that? Should we expect that to be better than some of the other project returns that you've outlined?

Jeremy L. Goebel -- Executive Vice President of Commercial

I think as it's sanctioned, it's consistent with the brownfield projects we typically do with the ability to even outperform that for a successful and subsequent open season.

Sunil Sibal -- Seaport Global Securities. -- Analyst

Okay. So the baseline, at least, is the same as some of the projects, correct?

Jeremy L. Goebel -- Executive Vice President of Commercial

With [Indecipherable] projects.

Sunil Sibal -- Seaport Global Securities. -- Analyst

Yeah. Okay, thanks guys.

Jeremy L. Goebel -- Executive Vice President of Commercial

Thank you.

Operator

Next we'll take a question from Becca Followill with U.S. Capital Advisors.

Becca Followill -- U.S. Capital Advisors. -- Analsyt

Good afternoon I wanted to revisit the guidance for transportation for 2019 and your degree of confidence in it. It seems like there's almost daily land mines right now in the E&P space. Is the guidance based on discussions you've had prior to Q2? Does it incorporate everything we've seen in Q2? And then does it risk it for other things that might happen across the year?

Jeremy L. Goebel -- Executive Vice President of Commercial

So that's a good question. But I'd say that we're in active dialogue. We have an expansive lease marketing and pipeline commercial group that's in constant contact with our customers. We get from the vast majority of our shippers monthly updates. I think we have a good sense for -- if you think about it, the planning cycle for the upstream guys from when the rig shows up to when it's production, it's roughly 8 months is the cycle time now. So the line -- the crystal ball gets fuzzy outside of 6, 7, 8 months, but within a 6-month window, you usually have a fairly higher degree, like there's going to be variability.

And things are going to go higher in some areas and lower in other, but more of that's going to be driven by individual well performance, not changes in activity. 2020 will look different because of changes in activity, but the second half of this year, will largely be driven by well performance of things that are already planned to come online. So I would put the 2020 as a different degree of uncertainty as the second half of this year...

Willie Chiang -- Chief Executive Officer and Director

Which, Becca, we're not giving guidance on 2020 right now.

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

Becca, all the things you mentioned go into our forecasting. We start with sort of dialogue we have with producers, we incorporate our views, and we adjust it for potential risk with respect to timing, performance, etc. So listen, it's not going to be exact. It's our best estimate. But we try and factor in many of the things that you raised in your question.

Willie Chiang -- Chief Executive Officer and Director

Great, thank you guys. That's all I had.

Operator

And that does conclude our question-and-answer session today. And I'll turn the call back over to Roy Lamoreaux for closing remarks.

Roy I. Lamoreaux -- Vice President, Investor Relations and Communications

Thank you all for joining today, and I look forward to updating you on our call in November.

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Roy I. Lamoreaux -- Vice President, Investor Relations and Communications

Willie Chiang -- Chief Executive Officer and Director

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

Jeremy L. Goebel -- Executive Vice President of Commercial

Unidentified Speaker

Chris R. Chandler -- Executive Vice President and Chief Operating Officer

Harry N. Pefanis -- President, Chief Commercial Officer and Director

Shneur Gershuni -- UBS -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Tristan Richardson -- SunTrust -- Analyst

Colton Bean -- Tudor, Pickering, Holt and Co -- Analyst

Gabe Moreen -- Mizuho -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Jean Salisbury -- Bernstein -- Analyst

Dennis Coleman -- Bank of America. -- Analyst

Sunil Sibal -- Seaport Global Securities. -- Analyst

Becca Followill -- U.S. Capital Advisors. -- Analsyt

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