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Plains All American Pipeline LP (NYSE:PAA)
Q1 2020 Earnings Call
May 5, 2020, 5:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the PAA and PAGP First Quarter 2020 Earnings Call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Roy Lamoreaux, Vice President of Investor Relations, Communications and Government Relations. Please go ahead, sir.

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

Thank you, Keith. Good afternoon, and welcome to Plains All American's first quarter earnings conference call. Today's slide presentation is posted on the Investor Relations, News & Events section of our website at plainsallamerican.com, where audio replay will also be available following our call today.

As a reminder, later this evening, we plan to post our standard Earnings Package to the Investor Kit section of our IR website, which will include today's transcript and other reference materials. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2 of today's presentation. A condensed consolidating balance sheet for PAGP and other reference materials are located in the appendix.

Today's call will be hosted by Willie Chiang, Chairman and Chief Executive Officer and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pefanis, President and Chief Commercial Officer; Chris Chandler, Executive Vice President and Chief Operating Officer; and Jeremy Goebel, Executive Vice President of Commercial, 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 -- Chairman of the Board & Chief Executive Officer

Thanks, Roy. Hello everyone. Thank you for joining us and we hope that you and your families are safe and well through these very challenging times. This afternoon we reported solid first-quarter Adjusted EBITDA of $795 million, which exceeded our expectations. These results include the benefit of additional margin-based opportunities in our S&L segment and a $20 million benefit from a contract deficiency payment previously expected to be recognized in the second quarter.

On a GAAP basis, we reported a net loss due to approximately $3.2 billion in aggregate non-cash impairments, reflecting the impact of the global market downturn that emerged following our February earnings call.

As we all know, the world has changed significantly as a result of the coronavirus and it remains a very uncertain and dynamic time. Let me first acknowledge the commitment of our PAA team and our colleagues who have responded quickly to the challenges of operating in a socially distant world, including minimizing large-group exposure and executing on amended procedures for our field staff and control rooms and more than 95% of our office staff working remotely.

Our team has adapted and maintained our operations while responding to evolving market dynamics and working closely with our producer and refining customers during this unprecedented disruption.

Acknowledging the dynamic and uncertain market conditions, this afternoon we furnished updated 2020 financial and operating guidance. Our 2020 Adjusted EBITDA guidance of plus or minus $2.425 billion is approximately 6% below previous guidance and reflects fee-based earnings of $2.2 billion, a 12% reduction from our pre-coronavirus February guidance, and stronger S&L earnings of $225 million, offsetting a portion of the lower fee-based estimate.

This guidance highlights the benefits of our integrated business model, where we can generate additional S&L earnings in certain volatile market conditions. That said, the combination of the current impact on our Transportation segment, limited visibility regarding the pace of demand recovery, and our desire to be proactive really drove our actions that we announced in early April to further strengthen our balance sheet, our liquidity and our long-term financial flexibility.

As shown on Slide 3, collectively, we expect these changes to result in approximately $1 billion of benefit to our cash positioning in 2020. As outlined on Slide 4, our specific actions included making significant reductions to both our capital program as well as our common equity distributions. We also continue to pursue and capture capital and cost reductions throughout the organization and our supply chain, as well as additional non-core asset sales.

Regarding asset sales, transactions representing approximately $440 million of our $600 million target have either closed or are pending closing under definitive agreement. We continue to target a total of $600 million in non-core asset sales in 2020 but we do acknowledge that this number could be more difficult to achieve in the current environment and could slip into 2021.

Now let me share a few market observations that underpin our outlook. Shortly after our February 4th, 2020 earnings call, the world changed significantly. We've included a few charts on Slide 5 that illustrate the fundamental changes experienced to-date. As the coronavirus escalated into a global pandemic, the associated societal mitigation actions including shelter-in-place orders and the resulting energy demand destruction accelerated at an unprecedented pace and magnitude.

This demand decrease is a significant near-term challenge facing our industry. Specifically, there's uncertainty around not only the scale and duration of the impact, but also the timing and extent of recovery. For context, the majority of reputable estimates of year-over-year global demand destruction for the second quarter range from 20% to 25%, and plus or minus 10% for the full year.

The OPEC++ efforts to curtail production have since followed. And although these cuts alone are not enough to offset near-term demand destruction, they certainly will help the longer-term process of rebalancing the market, which will depend heavily on the ultimate level of demand recovery as well as the duration and extent of the near-term global supply surplus.

In North American markets, the widespread shelter-in-place requirements for most metropolitan areas resulted in an immediate response by the U.S. refining sector to quickly reduce runs. The demand destruction is impacting the entire value chain and the supply chain, causing crude oil and gasoline inventories to approach their peaks, driving wellhead prices to historic lows and reducing producer drilling and completion activity, causing significant levels of voluntary shut-ins, which we expect will cause production levels to decline in the very near future in most, if not all, key basins.

The overhang of inventory for both crude oil and refined products, coupled with the potential for a more gradual recovery, suggests that a price recovery may be extended into 2021; however, that will be dependent on the duration of the impact to demand, the willingness of producers to continue to curtail production. With this backdrop, we're now forecasting, on a year-over-year exit-to-exit basis, that the Permian crude oil production in 2020 could be down 15% to 20%, reaching trough levels in June and flattening out the second half of this year.

It remains too early to call Permian growth trajectory for 2021, but we expect it to be lower than what we had internally forecasted at the beginning of this year, pre-coronavirus. As a result of these dynamics, and as previously announced and as reflected on Slide 6, we have reduced our 2020-2021 capital program by $750 million or approximately $1.35 billion, or 50%, when factoring in previously anticipated JV project financing to a total of approximately $1.55 billion over the two year period.

Our first quarter investment was approximately $350 million, and we currently expect and estimate $1.1 billion of total investments in 2020, and $450 million in 2021, with the potential for some timing shifts between the two years. We expect the vast majority of this investment to proceed considering the highly contracted nature of these projects. That said, we continue to challenge all investments in the current environment and are working to capture additional cost savings.

Beyond 2021, we expect annual expansion CAPEX to be below the $500 million level.

With that, let me 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 recap our first-quarter results, discuss our 2020 guidance, review our current capitalization, liquidity, and leverage metrics. I will also review the non-cash impairments we reported in the quarter.

In the first quarter we generated solid results in each of our segments, reporting fee-based Adjusted EBITDA of $652 million and Adjusted EBITDA of $141 million in our Supply & Logistics segment. As shown on Slide 7, Transportation segment results slightly exceeded expectations, coming in 11% ahead of the first quarter 2019 and slightly below the fourth quarter 2019.

First Quarter Facilities segment results also exceeded expectations including the $20 million benefit of an early deficiency payment that Willie referenced. S&L results exceeded expectations due to favorable crude oil differentials, partially offset by less favorable NGL margins.

Now let me shift gears to our 2020 guidance, which is reflected on Slide 8. As Willie discussed previously, clearly this is a very challenging market to assess right now. The largest headwind for our business is the shift to near-term declines in production, both from reduced drilling and completion activities as well as from producer shut-ins. Our revised 2020 adjusted EBITDA guidance of plus or minus $2.425 billion is $150 million or 6% below our original guidance provided in February.

As is our normal practice, we are providing a plus or minus number versus a range, but we would caution that with the dynamic market conditions and lack of visibility associated with the COVID-19 demand destruction, there is a range of outcomes depending on market developments either to the plus or minus side of these guidance amounts.

Additionally, there may be some interplay for the balance of the year between our Transportation and Supply & Logistics segments depending on shifting market signals associated with storage availability and regional pricing differentials.

Our revised guidance reflects a $300 million downward revision for the Transportation segment, a $150 million upward revision for our S&L segment, and no change to our Facilities segment.

For the Transportation segment, our February guidance had assumed 10% volume growth from 2019 with 2020 tariff volumes averaging 7.6 million barrels per day, driven by continued Permian production growth, and in the aggregate, flat to slightly lower production in the remaining U.S. shale basins.

We now expect 2020 shale production to decline in all basins both in terms of year-to-year average and exit rate, including the Permian, and now forecast 2020 Transportation segment volumes of 6.6 million barrels per day.

For perspective, forecasting Transportation volumes for the second quarter alone has proved challenging due to the extreme volatility in recent commodity prices and assessing the corresponding response from producers, which is why we provided the reminder about the range of outcomes to the plus or minus of our guidance amounts.

With respect to the S&L segment, in the near term, we expect to capture additional margin opportunities, resulting primarily from the contango market structure as well as overall dynamic market conditions. Additionally, in 2020, we expect a portion of the benefits from near-term contango opportunities to be offset by lower margins in our Canadian NGL business.

In addition to our expansion capital reduction that Willie outlined, our updated guidance reflects a $35 million reduction in our expected maintenance capital for 2020, which is a result of our emphasis on reducing capital expenditures, while continuing our focus on safe, reliable, and responsible operations.

Moving on to our capitalization and liquidity, a summary of key metrics is provided on Slide 9 and all metrics are strong and remain in line with or favorable to our targets. Following the actions we announced in early April, our investment grade credit ratings were reaffirmed by S&P and Fitch, both with stable outlooks.

Our total committed liquidity as of quarter-end was $2.5 billion. Additionally, we have no senior notes maturing in 2020 and one $600 million senior note maturing in February 2021. Accordingly, we do not expect a need to access the capital markets, certainly through the end of this year, and we have adequate flexibility to refinance the February 2021 senior note maturity on our revolver if capital markets do not present attractive opportunities over the next year or so.

Before turning the call back over to Willie, let me share a few additional comments related to the $3.2 billion of non-cash impairments we took in the quarter. The recent events and related uncertainty impacting global economies and the energy industry represented a trigger event requiring an interim assessment of our goodwill balances. Accordingly, we performed a quantitative impairment test as of March 31 and recorded a full impairment of the $2.5 billion goodwill balance.

We also recorded additional non-cash impairments totaling approximately $655 million. These include a $150 million loss on the classification of our LA Terminal asset to held for sale that we communicated last quarter as well as various non-cash asset impairments totaling $505 million.

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

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thank you, Al. So as discussed throughout the call and as we've all experienced, 2020 clearly remains a very dynamic and challenging environment. We have taken a number of proactive actions to further strengthen our liquidity, our balance sheet, financial positioning, and we continue to actively manage our costs and capital expenditures.

We remain constructive long-term, as we believe that demand will return to meet the needs of a growing global population, although full recovery may occur beyond the next 12 months. Additionally, it is worth pointing out that we have a very integrated crude oil infrastructure system throughout much of the U.S. and Canada, with a significant pipeline and storage network in the Permian Basin underpinned by significant volume commitments and over 2 million dedicated acres.

And we believe the Permian will lead North America in the eventual recovery. The significant retrenchment of industry investment should provide opportunities over time, and we expect that the actions we've taken position PAA well for the future.

Finally, we remain very focused on what we can control, which is prioritizing the health and safety of our employees, operating in a reliable and responsible manner, and continuing to manage our business for the long-term. I would like to publicly acknowledge and thank our employees for their hard work and dedication as we continue to navigate these unprecedented times.

A summary of takeaways from today's call is outlined on Slide 10. We look forward to sharing additional updates on our second-quarter earnings call in August.

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

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow up question and 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 through the balance of the week to address additional questions. Keith, we are now ready to open the call for questions.

Questions and Answers:

Operator

Thank you. Thank you. [Operator Instructions] We'll take our first question from Shneur Gershuni with UBS. Please go ahead.

Shneur Gershuni -- UBS -- Analyst

Hi, good afternoon, everyone. Hopefully everyone is safe. Just wanted to start off on guidance -- on the guidance. With all the talk of shut-ins, I guess, the Transportation guidance makes sense and it sounds like you're not expecting a reversal of shut-ins, before the end of 2020. So I was wondering, if we can talk about the S&L side for a minute. If I subtract out the 1Q performance from your guidance, it certainly looks like you're saying the back half -- or the next three quarters is going to equals less than half of what you did in the first quarter.

So kind of wondering, if you don't think you'll be able to capture some of the surging storage rates and spreads that are currently occurring right now or is it more that you're being conservative similar to how you guided S&L throughout 2019?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Yeah, Shneur, hi. This is Willie. I'll start and then I'll let either Jeremy or Harry jump in. One thing, I wanted to remind you of is our typical S&L earnings profile is a saddle, right, normally the first and fourth quarters are the stronger -- are the stronger quarters with the second and third less strong. Jeremy or Harry?

Jeremy Goebel -- Executive Vice President, Commercial

I think our assets are well positioned to take advantage of disruptions and volatility. I think our -- the current opportunities in front of us, we're capturing contango going forward market differentials. So any volatility and choppiness in between, we'll be able to capture, I think this reflects something we're -- a number we're very comfortable in.

Harry Pefanis -- President & Chief Commercial Officer and Director

Yeah, I think Al pointed in his prepared comments that the guidance reflects positive benefits from contango margin opportunities, little bit offset by some weakness in the NGL is expected in the balance figure.

Shneur Gershuni -- UBS -- Analyst

Okay. Yeah, appreciate that color. And maybe as a follow-up I was wondering, if we can talk about G&A and OpEx expenses. Just wondering, if you've put any targets out, or have any expectations about being able to take down G&A and OpEx expense a lot of your peers are taking that down as well too? And also, if you can confirm the $500 million capex number post '21 that you mentioned in the prepared remarks?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Sure, Shneur. This is Willie, again, I'll start and I'll ask Chris Chandler to comment on this. Let me start with the easy one first. And the capex expectations for '21 plus is under $500 million, so I confirm that. On G&A and operating expense, we are absolutely pursuing cost reductions we have in 2019. We're building on that. We've got a lot of initiatives in this year to try to capture some and we've already captured a number of savings.

The one nuance I want to give you is, when we are doing this, I've been in many different situations where you chase cost savings. And rather than put a dollar target out, we have focused heavily on how do we streamline our organization. We've got different segments within the company that we're trying to make sure we are consistent.

We get the best practices between it. So we're really setting a goal to streamline and be as efficient as we possibly can. And that's kind of the overarching thing. But I will tell you is the numbers are substantial and we baked a lot of that into our current outlook. Chris you want to talk a little bit more?

Chris Chandler -- Executive Vice President and Chief Operating Officer

Yeah, thanks. This is Chris Chandler. I'll just build on what Willie said. We're really continuing what we started in 2019 and the focus there was identifying best practices, and really driving organizational consistency across North America. We're also looking closely at our business processes and our business systems for cost and efficiency improvements. So here we are in 2020 and we're really accelerating all those initiatives we started in 2019.

We are seeing some cost deflation across the industry and our supply chain organization is working tirelessly to rebid services, materials and chemicals and capture that savings. We have reduced hiring. We're absorbing vacancies. We're reducing energy and utility costs across our system as we optimize our operations with flows moving in different directions and at different volumes.

We're doing things like optimizing our drag reducing agent, injection rates, even optimizing the number of pumps we're operating and pump stations that we operate. Travel expenses are down, as you might expect. We're operating maintenance spend while not impacting safety or integrity.

We have not implemented a dollar or a percentage target for our cost savings, but we do expect them to be significant and they could be in the order of -- the range of $50 million to $100 million for 2020. And that is, as Willie said, incorporated into our guidance. So I hope that's helpful.

Shneur Gershuni -- UBS -- Analyst

Yeah, that's super helpful guys. Really appreciate the color. Though I have a lot more questions, I'll step back into the queue for now. Thank you and stay safe.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Shneur.

Operator

We'll take our next question from Keith Stanley with Wolfe Research.

Keith Stanley -- Wolfe Research -- Analyst

Hi, thank you. First just wanted to confirm Willie, you said, I guess the volume and EBITDA guidance for the year, you're assuming volumes trough in June, and then kind of flatten out over the second half of the year. I guess, one, is that true and wouldn't that also mean based, obviously these all are moving target, but based on what you know today, you are thinking 2021 volumes could be kind of consistent with an exit rate for this year?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Yeah, Keith. I'm going to ask Jeremy to address those.

Jeremy Goebel -- Executive Vice President, Commercial

Keith, this is Jeremy Goebel. Just as Willie said, what we're looking at is lower activity, shut-ins. In May we estimate, for instance in the Permian Basin, close to a million barrels a day of shut-ins. June and forward will be ultimately dictated by pricing signals. So contango spreads, regional basis differentials, flat prices, all of those will come in and help producer's decision.

So what we've assumed is that the most severe is May, June and into July a bit it. Then you have some level of activity coming back in an August time period. And so the pace of demand destruction and coming back into the market will dictate what that signal is and how much activity comes back. So the inflection point at the end of the year will be heavily dependent upon prices. It could be an upward trajectory, it could be flat is largely what we've assumed in this forward guidance that we've given.

Keith Stanley -- Wolfe Research -- Analyst

Okay. But for 2020, you're assuming -- it sounds like you're assuming a little bit of a recovery in Q3, Q4 relative to May and June levels?

Jeremy Goebel -- Executive Vice President, Commercial

It's more of a flattening. So the pace of the underlying decline will naturally mitigate itself, as well as the decline happens, but there are some activities that will come in just to offset additional decline. So it's a very low level of activity, but that's consistent with our forecast.

Keith Stanley -- Wolfe Research -- Analyst

Okay. Got it. Second question just curious if you have any more to add on, on the thought process around the dividend just factors you weighed, how you ended up at a 50% cut. And I guess how you're thinking about your leverage targets as part of that decision as well.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Al, do you want to take that?

Al Swanson -- Executive Vice President and Chief Financial Officer

Sure. As far as the determination, there was a number of things that we considered as we reflected on it. One, industry -- industry conditions, visibility for those conditions, but also leverage our liquidity, being a couple of them, our investment program. There was no one single kind of driver to reach it.

And so, management did a lot of work, ran multiple scenarios that it had worked with our Board of Directors. And we came up with the size of it, but there was no one single kind of driver with regard to it. Clearly, as we've been talking for a period of time, we have wanted and continue to focus on ensuring that our leverage continues to migrate down over time, and our focus on retaining and improving our investment grade credit ratings over time factored into to our decision as well.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Yeah, Keith, I'll just reinforce, balance sheet and financial flexibility are really the keys.

Keith Stanley -- Wolfe Research -- Analyst

Got it. Great. Thank you. Thank you very much.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Keith.

Operator

We'll will take our next question from Jeremy Tonet with JPMorgan.

Jeremy Tonet -- JPMorgan -- Analyst

Hi. Good afternoon. Just want to start off with the Permian volume trajectory as you outlined out there. Just wondering how you think this applies to Plains itself. Do you see your volumes being better or worse or kind of in step with the rest of the basin there?

And then, how does this impact your system across kind of like the gathering, the intra-basin pipe, the take away? If you could just help us dive into your thoughts there that'd be helpful.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Jeremy?

Jeremy Goebel -- Executive Vice President, Commercial

Hi Jeremy, this is Jeremy Goebel. We've assumed largely just for planning purposes that we would be impacted by the system -- our system, gathering, an intra-basin system would be impacted, similar to the general market. As for outbound pipes, we balanced flows on pipes where we believe that the barrels will want to go over periods.

So we have a -- it's a mix. For specific gathering systems, we've taken what producer's guidance has specifically given us for intra-basin, it largely looks like the rest of the basin. And for the outbound pipes, we actually balance the entire system based on where we think commitments and how the systems are connected. So it's a little bit of a Rubik's Cube.

Jeremy Tonet -- JPMorgan -- Analyst

Got it. And as far the impacts, I mean, do you see more impact on the gathering or the takeaway or -- just trying to get order of magnitude feeling for how you see it uplifting your system?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

So the takeaway, a lot of it's contracted and under T&D, so physical flows and revenue will be different. On the intra-basin system it's a mix of T&Ds and acreage dedications. So, the physical flows and the revenue impact will be different. But where we have the T&Ds on a lot of our long haul pipelines, that's going to have a more muted impact. On the gathering side, it's going to be based on forecasted productions and overall basin flows will impact the intra-basin business.

Jeremy Tonet -- JPMorgan -- Analyst

Yeah, it's helpful. Thanks. And just want to see, Supply & Logistics moving up, Transportation moving down in the guidance, is there any interplay there between one bucket moving to the other bucket, or is S&L really just kind of contango or other drivers to that opportunity set.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Yeah. Go ahead, Harry.

Harry Pefanis -- President & Chief Commercial Officer and Director

The S&L is largely driven by contango, but as the year develops, we very well could see some fluctuations between Transportation and Supply. I think, Al touch on that a little bit in his prepared comments. Al?

Al Swanson -- Executive Vice President and Chief Financial Officer

Yeah. That's right. We -- there very well likely could be interplays, Jeremy.

Jeremy Tonet -- JPMorgan -- Analyst

Okay. Thanks for taking my question.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Jeremy.

Operator

We'll take our next question from Michael Lapides with Goldman Sachs.

Michael Lapides -- Goldman Sachs -- Analyst

Hi, guys. Thank you for taking my question. Can you talk a little bit about what your customers are seeking in terms of storage these days? Meaning, are your customers concerned about storage going up? If so, where do you think or are there other mechanisms you can do to alleviate storage concerns faced by the producers? Meaning, are there opportunities to use other facilities, whether it's unutilized pipeline capacity, whether it's other assets to help increase the short term amount of storage available to customers?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Hey, Michael, this is Willie I'll start and let Jeremy add on to it. Clearly, there's been a lot of work to try to find additional storage within our system and we've been successful for getting some of those barrels. But it is a very dynamic situation and I'll let Jeremy explain a little bit more.

Jeremy Goebel -- Executive Vice President, Commercial

Yes, thank you for the question. So if you think about our Facilities, they're largely leased out for operational purposes for long term. So the facility storage is largely spoken for. Within the basins and within our system, really a lot of our customers are looking -- since Plains Marketing is a big purchaser, they're looking for flow assurance and we have the ability with our system to provide that.

Where there's opportunities for additional storage, we're fully taking advantage of that with our -- for ourselves and for our customers. So, right now, I think, April we had a build, but pricing signals may change things going forward, so there was a built into April, but currently prices are rallying, which could suggest things could change.

So going forward -- that was an issue in April, finding flow assurance and takeaway. Now shut-ins are looking to balance the market and so we'll see how things go from here.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. And one follow-on real quickly, can just give us a high level view, how much of your Permian long-haul and intra-basin pipeline capacity is contracted under take-or-pay basis versus kind of more volumetrically exposed?

Al Swanson -- Executive Vice President and Chief Financial Officer

This is Al. A large majority of our Permian takeaway is under MVCs, whether it's on our pro rata piece of BridgeTex, Cactus I, Cactus II. The basin pipeline system probably has the lower percentage. That's more the line that runs up, up to Cushing. Inter-basin, as Jeremy mentioned, is a mix.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Thanks guys. Much appreciated.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

And just to add on to Al's answer, a lot of our Mid-Continent pipelines and pipelines long hauled from the DJ, those are all fully contracted. We announced transactions on Saddlehorn and Red River to fully contract those pipelines. So, it's not just Permian takeaway, we have T&Ds throughout our pipeline system.

It's clearly been one of our strategies is, how do we lock in longer term value as we work with different producers and sometimes we end up doing a strategic joint venture on a supply push or a demand pull project where, in exchange for additional volume, there's ownership in the pipe.

Michael Lapides -- Goldman Sachs -- Analyst

Got it. Much appreciated. Thanks guys.

Operator

We'll take our next question from Michael Blum with Wells Fargo. Please go ahead.

Michael Blum -- Wells Fargo -- Analyst

Thanks. Good afternoon, everybody. I'm wondering on storage, can you talk to us about the tenure of the contracts you have there on the crude storage side. And as contracts roll off, how much uplift do you think you'll see in terms of pricing?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

You know we price most of our storage on a long-term basis. We don't really think about it in the context of A, it's a short-term opportunity here that's a few months of contained -- or like Jeremy pointed out earlier, most of our customers are operational customers and they use those tanks for their daily requirements. So, minimal contractor loss this year. So, I think that's probably the best way to think of it.

Michael Blum -- Wells Fargo -- Analyst

Okay, great. And then I had a question on the Canadian business. So, you sold, I guess some new U.S. NGL storage assets here. I just wanted to understand, is there a shift in the business model in Canada related to that?

And the second part of that is the asset sale is being reported as about a 4 times EBITDA multiple, so I wonder if you can provide your perspective on that multiple? Thanks.

Jeremy Goebel -- Executive Vice President, Commercial

Sure Michael, this is Jeremy Goebel. First, on the business model, ultimately, what we're moving to is larger bulk transactions and focusing on our lowest cost supply NGLs. We're greatly simplifying the business, we're maintaining profitability and margin, but much fewer transactions. So, we view it as a much more sustainable business model going forward. With that, the assets that we've sold became less core to our business.

With regard to the specific Crestwood comments, I'd say, look, this is an asset where Crestwood was a very logical buyer and its worth more to them than it is to us, based on their business model. We spoke to multiple buyers and I can just tell you we're very happy with the outcome.

Michael Blum -- Wells Fargo -- Analyst

Great. Thank you very much.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks Michael.

Operator

Operator: We'll take our next question from Tristan Richardson with SunTrust.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Hey, good evening guys. Appreciate all the comments and for quantifying where you can, particularly in this environment. Just a quick follow-up on the Transportation side. Your outlook there seeing a sort of a 4% impact on the volume side versus higher expectation, but a higher percentage impact on the EBITDA side, can talk about the extent this is -- to which this is a higher tariff sales being more -- disproportionately impacted or is this just basic operating leverage? Just kind of curious there.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Jeremy?

Jeremy Goebel -- Executive Vice President, Commercial

This is Jeremy, I think the way to think about it is, some of the spots capacity could have come off of pipelines and that's obviously higher tariffs. But some of its full through, if it's a gathering barrel, that doesn't go through the inter-basin, that doesn't go through the long haul. It's those that have somewhat of a multiplier impact. So I'd say, it's a combination of spot and pull through from the lease all the way, through the pipeline system.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Hey Tristan, you made a comment about a 4% reduction, was that the question?

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Yeah, just on the volume outlook.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Okay, because the -- OK, got it. Is that the right number, 4%?

Al Swanson -- Executive Vice President and Chief Financial Officer

I think you compare [Indecipherable].

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Oh got you. Okay, yeah.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Appreciate it. And then just a quick follow-up on the facility side, could you talk a little bit about maybe some of the tailwinds and the headwinds there. I mean it seems like better prospects for higher utilization and storage or possibly price, but to the extent there's lower throughput activity, just kind of maybe generally the dynamics going on and the Facilities outlook remaining unchanged?

Jeremy Goebel -- Executive Vice President, Commercial

Facilities is largely contracted under long-term arrangements. So, if you look at our storage capacity in all the major hubs, our fractionators, they're all under term arrangements.

Al Swanson -- Executive Vice President and Chief Financial Officer

Yeah. And keep in mind, part of the -- where we had a little stronger 1Q on that segment was for this contract resolution that we had modelled later in the year. So that's just the shift between 1Q and later in the year.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Okay. Thank you guys very much.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Hey Tristan, this is Willie. I just want to make one clarification the -- if you're looking on the page, the updated 2020 guidance. Remember, our guidance for -- our guidance was a 10% increase and now it's a 4%. It's 10% and 4% together. That's the total impact on volumes.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Understood. Appreciate it. Thank you, Willie.

Operator

Operator: We'll take our next question from Gab Moreen with Mizuho. Please go ahead.

Gabe Moreen -- Mizuho Securities -- Analyst

Hey Good afternoon everyone. Just a question on capex and the scrutiny on growth capex reduction, is the ability to lower capex further, would that be a function more of projects dropping out of the queue or the ability to maybe slow walk some projects with your contractors. I'm just curious how that's going. What you're focused on? And also, the discussions with your partners in those projects.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Yeah Gabe, this is Willie. Thanks for the question. I want to ask Chris to give you kind of an overview of that.

Chris Chandler -- Executive Vice President and Chief Operating Officer

So our capex reductions come from a number of sources, certainly our discussions with producers and our customers have guided some of that. It's really a combination of project deferrals, spending delays to match the required project completion dates. Obviously there's not an incentive to finish anything early.

And then capturing cost deflation that we're seeing across the industry. So, could that continue to change? We do continue to talk to our JV partners and our customers. And to the extent that their plans change, we'll adjust our plans as well. But I would not expect it to be significant.

Gabe Moreen -- Mizuho Securities -- Analyst

Okay. So in other words, some of these big projects that you've got, just they're going ahead, they've got contractual backing, understood. And look, I've got a question, I know it's not a big business for you, but on the natural gas storage side, clearly not a business you break out anymore, I don't think it's that sizable, but are you seeing any interest in additional contracting there, given that that's also a futures curve, which at this point seems to be in contango?

Chris Chandler -- Executive Vice President and Chief Operating Officer

Yeah. No, that business has done well. It's fully contracted. We continue to see rates creep up. So it's been positive.

Gabe Moreen -- Mizuho Securities -- Analyst

Okay. Thanks, guys.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Gabe.

Operator

We'll take our next question from Colton Bean with Tudor, Pickering, Holt & Company.

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

Good afternoon. So just a follow up on the commentary around shut-ins and particularly the expectation that production may trough in June. How do you reconcile that with producer commentary over the last few days, signaling a willingness to bring production back online in the $20 to $25 a barrel range or effectively where we sit today?

Jeremy Goebel -- Executive Vice President, Commercial

Hey Colton, this is Jeremy Goebel. I think pricing signals dictated what happened in May. Shut-ins like Willie mentioned is somewhere between 3.5 million and 4.5 million barrels a day, U.S. and Canada. Pricing signals in June will help inform what nominations we receive in the coming weeks and what flows on the pipelines.

Just to carry on with what Willie said, it's May, June potentially a July trough. We assumed June, July time period for trough and then some activity resumption in the August time period.

So if it happens sooner that's a positive to our business and this is some of the interplay that Al mentioned with S&L. If the market flattens and there's more pipeline transportation, that's one of the other ways there could be interplay in this.

But we're planning for a dearth of activity in April, May, June, and then we expect some resumption starting maybe in August time period. That's our planning case.

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

Got it. And then maybe to ask the question around alternative storage a little bit more explicitly. You know with the southbound Capline service not expected until the middle of next year, is there any potential to utilize that capacity for continual opportunities here in the interim?

Chris Chandler -- Executive Vice President and Chief Operating Officer

This is Chris Chandler. I'll take that. That is a discussion we've had, but the answer is no. The activities required to reverse the pipeline, make it unsuitable for storage.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

But one thing to remember is there's terminals on both ends and we're actively using those for contango purposes, so at Patoka and St. James. So we're utilizing all available storage in a safe manner and that we can get barrels in and out of. But unfortunately, while the conduit doesn't work. We've worked with our partners to commercialize both ends. It's a great question, but we've looked at it.

Operator

We'll take our next question from Ujjwal Pradhan with Bank of America.

Ujjwal Pradhan -- Bank of America Merrill Lynch -- Analyst

Good afternoon.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Hey, Ujjwal.

Ujjwal Pradhan -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question. This is Ujjwal, hi. First question on -- following on your comment on drivers [Phonetic] earlier to Keith's question. So given the EBITDA headwinds here and further uncertainty, can you update us on your conversation with the rating agencies and how much headroom you have on the leverage?

Al Swanson -- Executive Vice President and Chief Financial Officer

Yeah, this is Al. What I would point to is just that the actions that they came out with here in the last 30 days, Standard and Poor's and Fitch, clearly our leverage today is in good position relative to our ratings at all three agencies. Clearly the environments challenging, as we've talked. So part of the actions we've taken is to make sure we stay ahead of that. But I'd normally try not to put words in their mouth, but I would point you to the S&P and the Fitch press releases that they provided in the last 30 days

Ujjwal Pradhan -- Bank of America Merrill Lynch -- Analyst

Yes. Thanks. And a quick follow-up. Can you provide more details on the impairment charges, particularly around what assets and regions were under the question here?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Al, impairment charges?

Al Swanson -- Executive Vice President and Chief Financial Officer

Yes, I would put them into three kind of high level buckets. One the $2.5 billion from goodwill that's basically we accelerated the test. Our normal annual cycle is June 30 for doing that test. Based on all the events in the industry, we viewed that we had a trigger event, did the test and basically took the $2.5 billion impairment.

As you've probably note, there has been a significant number of goodwill impairments in the industry over the last week or two. And so that's how that one triggered.

The LA terminal that we put under contract for sale and we expect to close later in the year, as we transferred that asset to held for sale, we took a $150 million impairment on that. If you recall, we actually "flagged" that on our February earnings call, we put it under contract in this year.

We knew it was coming. It just -- it hadn't plugged through our year end results yet. And the balance of them are basically where we go in and do analysis on individual assets and based on conditions and cash flow forecasts, you do impairment tests and that was on multiple assets several of them and it aggregated to the about $500 million.

Ujjwal Pradhan -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you.

Operator

We'll take our next question from Jean Ann Salisbury with Bernstein.

Jean Ann Salisbury -- Sanford C. Bernstein & Company LLC -- Analyst

Hi, everyone. The exit-to-exit decline of 15% to 20% for the Permian is a helpful estimate. Can you share how this compares to your view of U.S. or North America decline overall in 2020? Is it about the same or more?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Jean Ann, I think you'd look at activity across and it's going to differ by basin, I think there's been some quality challenges in the Eagle Ford which has pulled a lot of activity out of there. So you could see steeper declines in Eagle Ford. I think the Williston shut-ins have probably been the most aggressive of anywhere, it's farther from market.

Canadian productions, we would expect that to normalize once -- that's going to be largely driven by shut-ins. So it's going to differ by basin. The DJ, you can see the activity decline. So I think the Permian is going to be lower -- shallower than some of the other basins, is the way I'd look at it.

Jean Ann Salisbury -- Sanford C. Bernstein & Company LLC -- Analyst

Well, thank you. And then on the -- you reduced volume guidance by 1 million barrels a day. Can you break out how much of that reduction was gathering versus inter-basin versus long-haul barrels?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

We don't have that detail now, but we can look to -- or follow-up with Roy or Brad.

Jean Ann Salisbury -- Sanford C. Bernstein & Company LLC -- Analyst

Okay. Sure, I'll follow up with them. That's all for me. Thank you.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Jean Ann.

Operator

We'll take next question from Ganesh Jois with Goldman Sachs.

Ganesh Jois -- Goldman Sachs -- Analyst

Hi, thanks for taking my question. Just a couple of questions, firstly, on your capex outlook for 2021 and beyond, assuming a flat to declining U.S. production environment, I'm wondering what it is exactly that you might be thinking of spending on?

And second -- the second question I have is, we've now seen three distribution cuts from you all. At what point a unitholder is going to be prioritized when it comes to capital allocation as opposed to bond holders and in general you know, in assets build out, I guess?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Hey Ganesh, this is Willie. I'll take a -- I'll answer and then Al can add. On the capex of $500 million or below, we're not trying to telegraph anything specific for the out years other than it's below $500 million. And clearly, as you look at our expectations on projects is, there's a lot of kit that's been built and our strategy is really moving toward efficiency mode to be able to utilize existing assets, which is why I wanted to telegraph the lower capex spending in the out years.

On distribution, our focus has been to get our debt metrics down. We -- the actions I think we've taken on capex and additional cost savings is in motion and once those are -- those two are well on track, it allows us really to focus on increasing shareholder return.

Jeremy Goebel -- Executive Vice President, Commercial

Ganesh, this is Jeremy. Just one thing to add on to that, a lot of the projects we're working on now are largely driven by demand. It's refiners committing to long haul transportation on the Red River pipeline. Wink to Webster is largely driven by the buyers of crude that were buying in Houston are now buying in the Permian basin.

So a lot of the projects we're working on are underpinned by seven to ten year long term commitments from high quality, credit quality counterparties and they'll be core assets to the U.S. crude oil transportation going forward. So we've really narrowed down, including Diamond Capline is largely driven by St. James refining demand. So I think demand pull pipes is where a lot of our focus and incremental capital is.

Ganesh Jois -- Goldman Sachs -- Analyst

Got it. Thank you.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, Ganesh.

Operator

We'll take our next question from Becca Followill with U.S. Capital Advisors.

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

Good afternoon guys. Realizing that this is an incredibly unusual time with lots of uncertainty, perhaps this is an unfair question. But can you -- can you tell us the degree of confidence you have in this guidance that you put out?

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Well Becca, I'll give you my answer. We're balancing everything we currently see. We're very confident. The challenge, as you can imagine, is what might be there out of the ordinary that it's very difficult for us to see. Is the demand recovery trajectory, does it change dramatically because of additional outbreaks or hotspots? That's a big variable.

And certainly, the other big variable is what really happens on the production side. We've got -- the producers have been very proactive in production cuts. But if we get to a scenario where that's not the case, which is not what we expect, but that could certainly change the trajectory. So I don't know if that's helpful. But it gives you our view -- my view anyway.

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

It is. I just wanted to see where the places may be that would change it. And then the second question is, every curve that you look at it, there's not another pipe that's needed for the Permian. So can you give us assurance that when winks to Webster is built that you're not sitting there on a timeframe where it's built, you don't have the volumes flowing that you're not getting full EBITDA that you're expected. Is that absolutely, there's a guarantee that you're going to get those -- that EBITDA from the pipe once it gets filled and not sitting there waiting on it -- on volumes to come?

Jeremy Goebel -- Executive Vice President, Commercial

This is Jeremy. So you're talking specifically about Wink to Webster pipeline? If that's the case, yes it's very high credit quality. The -- some are integrated producers, others have the large -- I mean we're tying into the largest refining -- two of the largest refineries in the Gulf Coast that will be buying the barrels off that system. Highly contracted, it's very long contracts.

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

Contracted in the terms -- contracted in the terms of MVCs or volumetric?

Jeremy Goebel -- Executive Vice President, Commercial

MVCs.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

MVCs.

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

Okay.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Becca, you're aware of this but I'll repeat it anyway. On Wink to Webster that was a very, very -- it was a large pipeline that started off with two partners that ultimately back to capital efficiency, we were able to work, win-win with ultimately, seven total parties, which really filled the line-up.

So, I think that's actually a good example of capital efficiency on the pipe all anchored by MVC. So we would expect that to be probably the most resilient pipe out there.

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

Perfect. Thank you.

Operator

We'll take our next question from Pearce Hammond with Simmons Energy. Please go ahead.

Pearce Hammond -- Simmons Energy -- Analyst

Yes. Thank you for taking my question. I just want to follow up on Michael's question earlier, given your unique vantage point and your extensive oil storage assets, do you think it is a certainty that U.S. onshore oil storage will fill, and if so, when do you think that occurs or have the production curtailments really change that calculus?

Jeremy Goebel -- Executive Vice President, Commercial

So, Pearce, if April filled, as everyone expected, but the pricing signals have changed. And so I think pricing for May is largely set by a lot of the impacts in April with regards to time spreads, with regard to location differentials and quality differentials. So that was absolutely caused the really large 3 million to 4 million barrels a day of shut-ins that we're seeing now across North America.

What happens in June is being set by pricing as it goes now. So I think storage is a function of an imbalance in supply and demand. So you're just going to have to watch supply and demand through the figures going forward. We don't want to forecast what the future is in that, but we watch the same thing there and honestly it's going to -- what happens in June is going to impact whether everything is full. And the closer you get to full the more incentive it is for producers to take production offline. So I think it's just a dynamic situation and we'll all continue to watch.

Pearce Hammond -- Simmons Energy -- Analyst

Thanks, Jeremy.

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

Hey Keith, I think we have time for one more.

Operator

Okay.

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

One more participant question, and then we'll call for today.

Operator

Okay. For our final phone question, we'll take that question from Vikram Bagri with Jefferies.

Vikram Bagri -- Jefferies LLC -- Analyst

Good evening, everyone, and thanks for all the color on the call today. I have two questions focused on long-term cash flow sustainability. In third and fourth quarter, you have provided an estimate of competition on you 2020, the talk about $85 million.

Now with dramatically changed U.S. production outlook, has there been any change in that $85 million number? I'm trying to understand how much of the decrease in Transportation segment EBITDA per barrel is from reduced tariffs versus incentives versus change in transportation mix?

Jeremy Goebel -- Executive Vice President, Commercial

Yeah, this is Jeremy Goebel. Vikram, it's is largely driven by volumes not incentive tariffs. The vast majority of volume that flows in our system is contracted either through MVCs or acreage dedication. So this is largely volume reductions under acreage dedication. Our system is completely different. It's contracted in a completely different manner than it was in 2013. These are not -- we're not largely built on month-to-month contract. It' largely either take-or-pay or acreage dedications to our system now.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

You might share what our next threshold is as far as contracts coming inspiring, it's years out?

Jeremy Goebel -- Executive Vice President, Commercial

Yes, it's years away. I think we provided detail on the last call that it's minor impacts in '24 and some impacts in '25 plus. And so we've largely worked to -- anything we build is to support incremental production from additional contracting. It's not speculative building.

Vikram Bagri -- Jefferies LLC -- Analyst

Okay, great. And as a follow up, the Facilities segment continues to do pretty well. I was wondering how much of the benefit from wide WCS differential is flowing into that segment with rain volumes, you don't report that number anymore, but are you seeing increased rain volumes to your St. James facility which can handle that heavy upgrade. And how much of, if you can quantify, what that benefit is in Facilities segment.

Jeremy Goebel -- Executive Vice President, Commercial

So, through our facilities, it's largely fee-based tariff revenue. Throughputs to our facilities are impacted by WCS and other blends but at this point it's largely refiners moving barrels in and out of the system. So there is some throughput revenue but it's largely for Shell barrel storage.

In St. James we're seeing more throughput because we've aligned ourselves with several of the growth projects coming through the system. And so we would expect continued activity there. Several of the large downstream guys in that market has taken out storage for long periods of time and they're bringing additional pipeline connections in and out.

So we would see throughput increasing Capline, some of the other projects that are coming through the St. James area will bring more volume in and necessitate feeding some downstream refineries.

Vikram Bagri -- Jefferies LLC -- Analyst

Great. Thank you very much.

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

Thank you, everybody for joining us today. We appreciate your time and look forward to updating you on our next call in August. Keith I think that will end our call for today.

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Thanks, everyone. Be safe.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Roy Lamoreaux -- Vice President, Investor Relations, Communications and Government Relations

Willie Chiang -- Chairman of the Board & Chief Executive Officer

Al Swanson -- Executive Vice President and Chief Financial Officer

Jeremy Goebel -- Executive Vice President, Commercial

Harry Pefanis -- President & Chief Commercial Officer and Director

Chris Chandler -- Executive Vice President and Chief Operating Officer

Shneur Gershuni -- UBS -- Analyst

Keith Stanley -- Wolfe Research -- Analyst

Jeremy Tonet -- JPMorgan -- Analyst

Michael Lapides -- Goldman Sachs -- Analyst

Michael Blum -- Wells Fargo -- Analyst

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Gabe Moreen -- Mizuho Securities -- Analyst

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

Ujjwal Pradhan -- Bank of America Merrill Lynch -- Analyst

Jean Ann Salisbury -- Sanford C. Bernstein & Company LLC -- Analyst

Ganesh Jois -- Goldman Sachs -- Analyst

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

Pearce Hammond -- Simmons Energy -- Analyst

Vikram Bagri -- Jefferies LLC -- Analyst

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