Plains All American Pipeline (PAA) Q3 2021 Earnings Call Transcript

Plains All American Pipeline (PAA 1.11%)
Q3 2021 Earnings Call
Nov 02, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and thank you for standing by. Welcome to the PAA and PAGP third quarter 2021 earnings conference call. [Operator instructions] I would now like to hand the conference over to your speaker today, Mr. Roy Lamoreaux.

Please go ahead.

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

Thank you, Gino, and good afternoon, and welcome to Plains All American's third quarter 2021 earnings conference call. Today's slide presentation is posted on the Investor Relations website under the News & Events section at plainsallamerican.com or an audio replay will also be available following today's call. Important disclosures regarding forward-looking statements and non-GAAP financial measures are provided on Slide 2. The 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 CEO; and Al Swanson, executive vice president and CFO. Other members of our team will be available for the Q&A session including Harry Pefanis, president; Chris Chandler, executive vice president and chief operating officer; and Jeremy Goebel, executive vice president and chief commercial officer; and Chris Herbold, senior vice president, finance, and chief accounting officer. With that, I'll now turn the call over to Willie.

Willie Chiang -- Chairman and Chief Executive Officer

Thank you, Roy, and thanks to everyone for joining our call. Well, what a difference a quarter makes. Since our last earnings call, oil and gas prices are materially higher as global demand returns to pre-pandemic levels, and the markets are increasingly concerned about a supply demand imbalance. Once again, the Permian appears to be the obvious choice for increasing domestic oil production, reinforcing our confidence in the long-term outlook for our business.

In terms of the third quarter, we delivered better than expected adjusted EBITDA of $519 million despite some operational challenges at our Fort Saskatchewan fractionation facility, and we continue to execute on a number of our initiatives. We have maintained our 2021 adjusted EBITDA guidance of plus or minus $2.17 billion. This is despite an approximately $40 million negative impact of non-recurring and timing-related items, which includes a fire that we experienced at our Fort Sask facility in late September. Al will discuss the 2021 EBITDA impacts relate -- impact related to these items in his prepared comments.

With respect to Fort Sask, while it's unfortunate that this incident occurred, I want to acknowledge our Canadian team's execution of our emergency response plan and that fortunately, no injuries occurred. Our team's been assessing the damaged area and making the appropriate repairs to return capacity to service in the near future. Now let me shift to our 2021 outlook and positioning for 2022, which are summarized on Slides 3 and 4. Notably, we further reduced 2021 investment capital by $50 million, and have increased forecasted 2021 free cash flow after distributions by the corresponding amount to plus or minus $1.4 billion.

This reflects our continued execution of the goals and initiatives that we outlined at the beginning of the year, which have centered around maximizing free cash flow, and consistent with our plan, we have allocated this free cash flow to reduce debt and to execute our repurchase program. And we have improved our visibility to increase cash returned to our equity holders including prudent distribution growth as leverage approaches our target metrics. Additionally, in October, we closed the Plains Oryx Permian basin joint venture, and are confident in our ability to achieve the JV synergies that we previously identified. In fact, we expect some of the synergies will be recognized earlier in 2022 than anticipated.

An overview of the JV is included in the appendix. With respect to our remaining key projects, the fully contracted Wink to Webster JV pipeline running from the Permian to the Houston area markets is scheduled to enter full service around year end with committed volume scheduling to begin ramping up in first quarter '22 and continuing into 2023. Additionally, the MVC-backed Capline JV reversal for southbound service from Patoka to St. James is on track.

Linefill from Patoka has commenced, which is expected to be completed in December and is on schedule for January 2022 in-service state. Capline's initial throughput is expected to be approximately 100,000 barrels a day, and the system has adequate capacity to serve growth in Canadian production. Regarding sustainability, we have continued to advance on multiple fronts. Since publishing our sustainability report in July, we have received positive feedback from investors and we've seen notable improvements in our ESG scores from a key third-party ESG rating agency.

In August, we announced further improvements to our governance resulting in 100% of Plains' directors now being subject to public election. And just last week, we announced the appointment of Dan Noack to the role of Vice President, Emerging Energy, and Process Optimization, and the formation of a cross-functional, inner -- emerging energy team. Dan has been with Plains for 13 years, most recently as vice president of operations for our natural gas storage business. We're taking a very thoughtful and disciplined approach to evaluating a number of opportunities in and around our existing asset base and operations.

We look forward to sharing more information as appropriate in the future. Now let me make some comments about global supply and demand, and industry fundamentals that are shown on Slide 5 and it's further detailed in the appendix. Hydrocarbons are absolutely critical to the global economy, Global demand is recovering to pre-COVID levels resulting in sustained inventory draws against a multi-year backdrop of reduced upstream investment and a continuation of OPEC discipline. Global energy markets are tight with shortages in traditional energy sources including natural gas, coal, and crude oil as evidenced by the increase in most all commodity prices as seasonal heating demand approaches.

Global supply chain disruptions are exacerbating product shortages in certain regions and incentivizing increased coal-fired power generation and others. We believe North American energy supply will play a very key role in satisfying global demand, and the Permian is positioned to drive the vast majority of US short-cycle production growth. Permian completion activity has increased since our prior earnings call reinforcing our competence in the magnitude of production growth, which could be approximately 2 million barrels a day in four or five years assuming no material change in present-day producer discipline, capital recycle rates as well as no significant supply chain impacts. We look forward to providing additional updates in February with the benefit of timely data following the completion of producer budgeting season that's currently underway.

We believe that Plains is very well-positioned to serve the global call on North American energy supply, which also positions us well to generate significant free cash flow going forward, which is summarized on Slide 6. With that, I'll turn the call over to Al to cover our third quarter financials, full year guidance, and capital allocation. Al?

Al Swanson -- Executive Vice President and Chief Financial Officer

Thanks, Willie. An overview of our third quarter results is illustrated on Slide 7 within the context of our full year guidance and directional estimates for the quarter. Third quarter adjusted EBITDA of $519 million exceeded our guidance expectations driven by stronger throughput across our Permian pipeline systems and hub terminals as well as incremental NGL sales in Canada, partially offset by operating expenses associated with the Fort Sask incident and a continuation of supply and logistics margin compression. Additional detail on our third quarter, transportation and facilities segment results is summarized on Slide 8.

Our capitalization and liquidity metrics are provided on Slide 9. Total debt decreased approximately $650 million during the quarter, and approximately $1 billion since year end 2020 as proceeds from the gas storage divestiture were temporarily used to reduce bank debt and commercial paper borrowing. We intend to ultimately use the proceeds to retire the $750 million senior notes due in June 2022 at the March 2022 par call date. Our long-term debt to adjusted EBITDA ratio was 3.8 times at quarter end, which remains above the high end of our target range and reinforces our commitment to further debt -- reduce debt.

Slide 10 provides a recap of our capital allocation plans for the year, including a summary of the equity repurchase activity we have completed since we implemented the plan last November. In total, we have repurchased 18.1 million PAA common units or $167 million with $64 million repurchased in the third quarter. As Willie mentioned and as detailed on Slide 11, we have further reduced 2021 investment capital and continue to expect an annual run rate to range between 200 and $300 million. As detailed on Slide 12, the[Technical difficulty]2021 adjusted EBITDA guidance of plus or minus $2.175 billion reflecting third quarter transportation segment over performance, offset by an estimated $25 million impact from the Fort Sask incident in addition to approximately $15 million in timing-related items comprised of Wink to Webster entering full-service roughly two months later than we had previously forecasted and an MVC deficiency timing shift into the first quarter of 2022.

I would also note that 2021 guidance does not incorporate the Plains Oryx Permian Basin JV as we do not expect the JV to have a material incremental net EBITDA impact on our full year 2021 results, which is consistent with our discussion on our JV announcement conference call. Slide 13[Technical difficulty]our November guidance into the context relative to our initial 2021 guidance furnished in February and illustrates the most notable drivers to date and expected through year end. Acknowledging the significant degree to which the margin-based earnings reported within our S&L segment have continued to evolve over the past several years, we are currently reviewing our reporting segments to ensure alignment with our current and future operating decisions as well as the competitive environment in which we operate. If through this review we determine that segment change is warranted, we intend to incorporate this change within our fourth quarter earnings release, our 2022 financial and operating guidance, and our 202110-K.

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

Willie Chiang -- Chairman and Chief Executive Officer

Thanks, Al. Our third quarter results reflect continued execution of our plan. We've made progress reinforcing our balance sheet and divesting non-core assets at attractive multiples while exercising strong capital discipline and preserving our most notable strengths. We have an integrated wellhead to market asset base and business model, strong alignment with customers and partners throughout the industry value chain.

We have strategic positioning in key U.S. and Canadian producing regions, demand centers, and export outlets. We have a leading Permian franchise with significant operating leverage, and we have investment-grade credit ratings. As we look forward, this positions us to generate significant positive free cash flow for years to come, benefiting from improved global fundamentals and a growing Permian Basin.

Owners of PAA and PAGP are positioned to benefit from this growth through our commitment to increasing cash return to equity holders over time. With that, I will turn the call over to Roy who will lead us into Q&A.

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

Thanks, Willie. Prior to opening the call to Q&A, I would mention the summary of our 2021 goals, and key takeaways from today's call are provided on Slides 14 and 15. 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, our IR team plans to be available throughout the week to address additional questions. Gino, we're now ready to open the call for questions.

Questions & Answers:

Operator

All right. [Operator instructions] We do have a question from Michael Blum from Wells Fargo. Your line is now open.

Michael Blum -- Wells Fargo Securities -- Analyst

Thanks. Good afternoon, everybody. I had a question on M&A, really on the asset divestiture side. Obviously, you guys have been pretty aggressive over the last few years, I'd say, on that front.

Do you think you're effectively done after this year, or do you see continued asset divestitures in '22 and beyond?

Willie Chiang -- Chairman and Chief Executive Officer

Michael, this is Willie. Thanks for the question, and I appreciate the acknowledgment that we have been aggressive in optimizing our portfolio through sales. We've completed $4.5 billion worth of asset sales in the last number of years, and we think we're probably at the end of the significant asset sales. However, we continue to look at all kinds of opportunities.

And we believe in the efforts of continuous improvement. We always look to see if assets are worth more to others, and there's a win-win there. So at this point in time, we do not anticipate announcing a formal debt disposition program for 2022. Hopefully that helps.

Michael Blum -- Wells Fargo Securities -- Analyst

Yes. That helps. Thank you. Maybe on a related note, any updates you can provide in terms of efforts to either repurpose or rationalize pipeline capacity out of the Permian? I know you're seeing strong Permian volume growth, but there is still a decent amount of excess capacity? Thanks.

Willie Chiang -- Chairman and Chief Executive Officer

Yes. I'm going to let Jeremy address this, but I do want to make a comment. I think we've proven ourselves that as far as repurposing and optimization, and I'll just point out that, both Wink-to-Webster, the project is a result of consolidation and rationalization of a number of shippers. And if you think about our repurposing of Capline and reversing it from an idle line to a line that's going to go on service, it's completely in our playbook, but I'll let Jeremy talk about the Permian and our thoughts.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Michael, this is Jeremy Goebel. The industry as a whole, so not just Plains, all the large owners of the pipeline are looking at it. Some projects make more sense than others. At this time, nothing has been announced, but I would tell you that everyone wants that to happen, but the counter to that is you're also going to look at supply and demand and -- based on production growth.

So I think it's something we continue to look at. We'll look at with other partners, we'll look for rationalization and cost reductions across the system, we'll look for repurposing assets. A lot of that's new. Some of the potential alternatives that Dan is looking at in our -- in the group -- in Chris's group, Dan Noack that Willie announced, he's going to look at potential projects.

So I think we're early in the process at some of those, but the industry is looking at gas conversions, refined products conversions, all kinds -- not just in the Permian but across the system. So I think stay tuned, but this is something that is going to take time. It's going to take industry partners to make that work. And we're aware of it.

We're going to keep looking at it, but no update at this time.

Michael Blum -- Wells Fargo Securities -- Analyst

Thank you.

Willie Chiang -- Chairman and Chief Executive Officer

Thanks, Michael.

Operator

Next one on the queue is Shneur Gershuni from UBS. Your line is now open.

Shneur Gershuni -- UBS -- Analyst

Hi. Good afternoon, everyone. Maybe to start off, there have been a lot of comments throughout this earnings season about positive developments in the Permian from a production perspective. Some of the majors were talking about more volumes.

You have a slide on that as well also. With the JV in place now with Oryx, do you feel that Plains is better able to capitalize on this growth? Are you able to give us a little bit more color than you were able to give at the time of the announcement?

Willie Chiang -- Chairman and Chief Executive Officer

Again, I'll ask Jeremy to comment on this. But the whole purpose we did the Oryx JV is if you think about -- back to rationalization and trying to be capital efficient, we think that was clearly a win-win-win, right. Win for Oryx, win for us, and win for customers and putting that together. But everything we've done around the Permian is really focused around how do we build that integrated value chain from wellhead all the way to markets.

And with the ability for us to first purchase, we think that really gives us a differentiated view of the Permian. So short answer is, I think it's absolutely key to additionally building out our system in the Permian. And I don't know Jeremy if you have any other comments you want to make about it.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Shneur, we just closed in about a month ago. And so what I would say is transitions run very smooth. Objective No. 1 is turn the pipeline over safely, continue operations, and service existing customers.

And so, that process is all going very well. I'd say you've already seen capital rationalization, our ability to defer or eliminate whether it's expansions of our system or there are -- putting new connections in place. So I think we're seeing some of those on the cost side. We're rationalizing there.

Commercially, we are approaching -- now we're finally allowed to jointly approach our large customers and our smaller customers. And we canvas all the customers, and they're generally very excited about Plains taking over operatorship. We're looking for long-term solutions, extensions of contracts, a very stable long-term cash flow from this asset, and initial results are positive, and we're going to continue to drive for that. So just on the intra-basin movements alone, we're looking to take the system, which has got expanded reliability, quality control, and connectivity, and create long-term partnerships with our customers.

And that's where that focus has been, and it's going very well.

Shneur Gershuni -- UBS -- Analyst

Great. Really appreciate that. And maybe as a follow-up question here, it seems you purchased about $64 million units during the quarter, $160 million since the authorization was in place. So you've reduced your units outstanding by -- on my math, about 2.5%.

Your free cash flow after dividend is actually increasing based on your guide, and I know the formula is up to 25%, you've reiterated that in the past. But even if I take into account asset sale adjustment-related debt reduction, it sort of suggests that you've got about $150 million worth of capacity into year end. Do you expect that to still be a part of the plan? And is that the expectation that the board likely has for next year that you'll have a similar up to 25% view in terms of returning capital to unitholders?

Willie Chiang -- Chairman and Chief Executive Officer

Well, Shneur, I think we've demonstrated that we are definitely executing against the plan. We've got a slide somewhere in the presentation that kind of talks about all of the conditions that we look at including outlook, value of the units, the yield of the units. And so, we intend to continue to buy. I don't think we're going to be specific about how much, when, or where, but that clearly continues to be part of the capital allocation plan along with the primary piece going to debt reduction.

Al, do you want to add anything to that?

Al Swanson -- Executive Vice President and Chief Financial Officer

Yes. No. I would echo that. Clearly, we have tried to articulate that the math formula is to come up with a limit.

Primary focus is to try to manage our leverage in the very near term as Willie mentioned, and clearly, we're still running above it. But we thought we could do it in a balanced way to implement some repurchases in the meantime. We would plan to probably provide commentary on those percentages or the free cash flow allocation for 2022 on the February call.

Willie Chiang -- Chairman and Chief Executive Officer

Shneur, I wanted to add one thing to the -- to Jeremy's comments on the Oryx JV. We can't give you a lot of details right now because we're just kind of in the midst of transition, a successful transition moving forward. But I will highlight that as we announced at the -- when we announced the deal, there's a lot of acreage dedication that anchors volumes there. And I also want to complement Jeremy's team and Brett Wiggs' team.

As we've gotten together, there's a lot of excitement anytime you get two good teams working together. So I do think we're going to continue to make progress, and we'll be able to share more on the next call.

Shneur Gershuni -- UBS -- Analyst

Really appreciate that. Thank you.

Operator

Next one on the queue is Jeremy Tonet from J.P. Morgan. Your line is now open.

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

Hi. Good afternoon.

Willie Chiang -- Chairman and Chief Executive Officer

Hi, Jeremy.

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

Just a couple of high-level macro questions, if I could. Just wondering about Cushing operating, we've seen inventories really reaching these very low levels. Do you see an impact on the market here as this continues to drain? Do you see reversal of this at any point? Just wondering if you could talk about, I guess, what impacts this could have in -- on the crude oil market as a whole and exports as well?

Willie Chiang -- Chairman and Chief Executive Officer

Jeremy, our Jeremy, you want to talk about that?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

So Cushing inventory, so it's been declining since COVID, right. This has been a long decline, and it accelerated recently. And so, what that does is it just creates a situation with steep backwardation and it tightens Brent and WTI, right. So the thing about that is the scarcity of availability for crude, right.

So that creates the demand in Cushing for neat barrels as opposed to blended settled barrels of the NYMEX. So think about that, it could pull additional barrels from different regions in the Permian for operating. And so, it ebbs and flows, right. So that's going to be a pull away from exports.

So this is not something -- when everyone said that basin is going to completely dry up, that doesn't always happen. This is something that's cyclical. And so parts of it, the pull toward the water will move barrels that way. Right now, you've got to pull toward Cushing just because you've got limited inventory.

So that's a -- moving barrels in that direction. So arbs get solved, right? If there's a pull toward Cushing, barrels flow to Cushing, pull the water. So crude markets are just not static, and that will impact margins as a refiner. So this is a -- it's not a simple yes or no answer.

I would just say that as the inventories decline, there's less barrels to physically settle contracts. It's going to pull more neat barrels from different basins. So as and when production grows in the Rockies or the Mid-Continent, that's going to pull barrels from the Permian Basin. That's one way to think about that.

Willie Chiang -- Chairman and Chief Executive Officer

And, Jeremy, Cushing remains a very key hub, right. And we think it continues to remain a very key hub going forward.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Operationally, those barrels are needed in those terminals that are most connected to supply sources and distribution sources. We'll continue to operate and be profitable in spite of a steeply backwardated market that's against storage.

Willie Chiang -- Chairman and Chief Executive Officer

I will tell you that we are seeing some pressure on margin or recontracting on the Cushing storage. So that may be a factor of the lower tank use today.

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

Got it. That's helpful. Thanks. And thinking about the Permian and the levels of growth that you outlined there, potentially getting pretty strong in the coming years here.

Just wondering how you think bottlenecks in the basin could emerge and not on the crude oil side, but on the natural gas side. Just curious if you think that, that could be something of a speed bump a couple of years down the road as far as nat gas takeaway needs and new pipeline needed for that and whether that could slow down crude oil production.

Willie Chiang -- Chairman and Chief Executive Officer

Well, I think back to what our Jeremy was talking about on rationalization and optimization within the basin, I think there's a lot yet to be played out. If you do look at the constraints, natural gas is probably one of the first constraints you hit with the growth in the production. And if you compound that with the desire for the industry to not flare as much, it puts a little additional pressure on that. So I think there's a lot yet to come on opportunities to optimize, hopefully within existing pipes, and that's more to come as we go forward.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Jeremy, this is Jeremy. The way I'd look at it is there's going to be a few constraints, right. Labor, pressure pumping, other types of supply constraints on the service side. Gas is one that's depending on your production forecast '23 and '24.

On the negative side, from flowing barrels is that's a positive side, I would say, for the industry as a whole. There's a resistance to flaring now, which is I think positive from an ESG perspective, but it could constrain production. We've seen it at times, processing plants go down or other things in the field. But I think the industry is getting better at thinking more forward and solving those issues and taking capacity out of the basin to do it.

So I think the gas issue does get solved and everyone is aware of it. There's three projects out there chasing it. So I think whether that happens or a conversion happens, I think that one gets solved. More -- right in front of us is the labor thing -- labor issue that's affecting all markets.

And then potentially, the lack of maintenance on service equipment. I think those are the negatives. I think on the positive side, what we're seeing from a growth standpoint is less activity and more accomplishment on the gathering side. The desire to reduce methane emissions is going to have fewer connections, bigger connections, very efficient operations on the gas, crude, and water side.

So I think you're going to see the industry move to more efficient, less potential emissions points, which is good for our capital going into the ground. It's less capital to get more barrels to the system. So I think you're going to see some negatives and positives come out of this. But I think all in all, we're going to work -- the industry will solve these issues.

Willie Chiang -- Chairman and Chief Executive Officer

It does reinforce the need for all parts of the value chain to work together. If you think about efficient value chains, I think global situation is going to force that on us. We were in the peer growth mode where everybody was growing. And now as we have a little bit of a check step, this efficiency mode or optimization is going to play out with more and more players.

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

Got it. Thank you, Jeremy and Willie.

Willie Chiang -- Chairman and Chief Executive Officer

Thank you, Jeremy.

Operator

Next one on the queue is Jean Ann Salisbury from Bernstein. Your line is now open.

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

Hi. Good evening. What share of EBITDA roughly is linked to PPI or some other inflation index? And do you anticipate that if costs go up less than that, this could provide a material benefit over the next 12 months, or should I not get too excited about that?

Willie Chiang -- Chairman and Chief Executive Officer

Yes. Generally speaking, I would tell you, we have -- we would expect to be able to offset cost increases with our escalators. There may be some timing issues there. I don't know if anyone wants to offer any more detail.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Jean Ann, this is Jeremy. So we have -- the way you look at it as some of the longer-term contracts have -- including the acreage dedication in the Permian are exposed. And so some of them have caps, a lot of the producers' recognizing this. Caps could be in the range of 3% to 3.5%.

Some of them have banking, some of them don't. So yes, we are absolutely exposed. That will be incorporated in our guidance when we have a better view in February. But I would say we're monitoring it.

We're paying attention that should more than offset the cost, but it's something that will give you a better sense for what that impact is because some movements like spot movements won't be impacted by that. So it's not take all of it, we will be exposed to that. But I would just say, let us give you some guidance in February once we have a better sense for what that looks like and what volumes on different pipes will look like.

Willie Chiang -- Chairman and Chief Executive Officer

Jeremy, do you want to just confirm what you mean by exposed?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Well, we have escalators. Exposed just means we have escalators attested. There's an opportunity for exposure to escalation. You're also exposed to cost, but lower capital budget, higher revenue exposure should be directionally positive, but we'll give more guidance in the spread early in February.

Willie Chiang -- Chairman and Chief Executive Officer

Jean Ann, did that answer your question?

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

Yes. Yes, it did. Yes. So it's moderately positive.

So appreciate that. And then as my follow-up, congrats on getting the Capline reversal done. On that $100,000 that's flowing out, are you able to say roughly how much is coming from Canadian crude versus US? And kind of talk about what would -- what you would need to see for that number to go up? Is it just kind of more production in the Bakken and in Canada? Or are there kind of specific third-party projects or expansions that could lead to Capline getting more crude over the next year or two?

Willie Chiang -- Chairman and Chief Executive Officer

Well, there's never an easy answer to this, but I'll let Jeremy give it his best shot here.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Jean Ann, I'd say to your first question, we would expect it to be 100% Canadian crude. And to your second question, I think there's a number of projects potentially restructuring how crude gets across the Canadian border and what markets it goes to. And so, once there's clarity with Enbridge and its shippers and TransCanada and its shippers, I think we'll see how much -- how many barrels flow to Patoka and the potential to expand it. So we definitely think there's opportunities to increase from where it is today, but there needs to be certainty of which barrels end up in Patoka and US shipper industry to get there.

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

That's very helpful. Cool. That's all for me. Thank you.

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Shipper rights is great.

Willie Chiang -- Chairman and Chief Executive Officer

Thanks, Jean Ann.

Operator

Next one on the queue is Colton Bean from Tudor, Pickering, Holt & Company. Your line is now open.

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

So first, just wanted to follow up on Willie's comment around lower storage rates at Cushing. Any rough sense as the volume's rolling over the next year or two? And just general exposure there?

Willie Chiang -- Chairman and Chief Executive Officer

Jeremy?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

I'd say we actively manage it, so it's staggered over time. And obviously, the further out you get. I think the near-term uncertainty is less. We're just putting it out there that, hey, there is some exposure.

It's not much that -- It's nowhere near 100% of the contracts. And it's -- generally, for our facilities, they're highly contracted assets. And for the next 12 months, they'll be highly contracted assets. But we're just making people aware that lower inventories does put pressure on whether it's spot movements or there's no contango opportunities around there.

So some of that is more of the opportunistic storage that our customers' experience won't be there. So it's going to be limited to throughput and storage rates, but incremental successive storage rates will be at lower rates than historical ones. So there's no near-term cliff. It's not like Cushing is going to be fully exposed next year.

It's a much smaller portion of that. It's just something we're pointing out that backward dated markets make it tougher on facilities. And operationally, you're running with no cushion, right? You're running as bottoms in the system.

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

Got it. And then maybe switching back to Capline. You mentioned needing to know how many volumes show up in Patoka. Is that kind of the preferred option now as seeing what producers and refiners are looking at? Or is there any opportunity to structure a bundled rate all the way from Alberta?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

I think there's always opportunities. But I think the key thing now is they're trying -- Enbridge is trying to understand what the rules are, right, to how they agree on what it is. So in the future, certainly to have a joint rate. But I think near term, getting it there and having a rate across, I think we take this uncertainty where the barrels will end.

We've had discussions with all the longer-term carriers. But I think the uncertainty of what the structure looks like and what they can offer is prescient relative to adding additional joint tariffs with third party.

Willie Chiang -- Chairman and Chief Executive Officer

Colt, the comment I would make, this is Willie again, is if you think about the longer picture, there's always going to be abnormalities over periods of time whether or not you're going to be up in a backwardated market, contango markets. If you think about the production profile and what we believe to be the energy demand that's going to be needed in the world, long term, barrels are going to flow to the water. And it may be quarter, two quarters, three quarters away, but as constraints get fixed, efficient paths to markets ultimately get filled. And that's what we believe in and that's what we're planning for.

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

Got it. Thank you.

Operator

Next on our queue is Chase Mulvehill from Bank of America. Your line is now open.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Hey. So I just wanted to come back to the line of questioning around the Permian. I think last quarter on the conference call you guys talked about kind of stabilization of Permian oil volumes kind of in the near term and you really didn't expect much growth until you got to around the mid part of next year. So if I missed it I apologize, but could you kind of update us on kind of your view of Permian oil volumes over the near term? And do you expect those to grow now just given the higher oil price?

Willie Chiang -- Chairman and Chief Executive Officer

Yes. So Chase, we probably would rather give a much better update after we hear what all the producers are going to be doing. But you're correct in that -- on our last earnings call, we had a lower rate than we thought the year would end at. And I think because of the increased completions I mean, it's stepped up.

Clearly, it's higher. I think the trajectory is probably similar where it's going to be flatter and then rise in 2022. Jeremy, do you want to add to that?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Chase, we had the last call in May, and I'd say July and August were strong months from -- the end of June, July, and August were strong months for completion. And so our 4.5 to 4.6 has moved to 4.8 to 4.9, which is more in line with consensus. But after that call -- I'm sorry, in August, we were just starting to see that wave, and now we're seeing that continue. I think you're always going to see toward the end of the year as people make sure they hit their capital budgets a bit of a slowdown, but usually, it ramps up in the first part of next year when capital budgets are reloaded.

So I think from a shape perspective, it will continue to grind higher. I'd say drilled and uncompleted wells, that inventory continues to get exhausted. You're going to need to see rigs to show up to sustain growth. And so we'd expect to see some of that in the first quarter of next year.

Without giving specific guidance, the way to think about it is the private operators continue to add completion crews and rigs as you've seen and the industry has seen. I think your large and mid-sized independents are largely holding the line even at $80 oil. I don't know, third-party pressure whether it be from the government or investors are starting looking for growth at those levels because the returns are high, but they're holding the line. We're also seeing the integrated start to look to step out and potentially add activity.

So it's not a perfect picture right now, but we have a good sense for what's happening. And we'll have a better one in February. But if I were to give you a qualitative answer to what's going to drive growth, right now it looks like the integrators will start to step up activity and the privates will drive growth. You'll see allocations of capital.

That will be important to people allocating capital to other basins at the higher prices since they do work at these prices or do they stay within the Permian and let those decline. I think these are all things that will bear out between now and February.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

All right. That's helpful. We're pretty bullish on the whole full-service kind over here, we're pretty bullish on activity levels in 2022. So a quick follow-up question.

There's a lot of questioning around kind of Cushing and I guess, maybe I have a question on inventories. Obviously, inventories are below five-year averages or even five-year lows for this time of the year. Obviously, global oil supply demand dynamics are pretty tight with OPEC still holding crude off the market when we probably need more at this point. But as we kind of move into 2022, balance is probably -- at least kind of balanced out a little bit.

And maybe there may be a little bit oversupply depending on kind of what happens with Iran and some other things. But when you think about that and things kind of moving from being significantly undersupplied to more balanced, you might start filling Cushing again on the inventory side. So when that happens, where do you think those barrels actually come from? And if they're coming from the Permian, just kind of help us understand the operating leverage you would have as those barrels come back into Cushing if they come from the Permian?

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Sure. I think where they come from is, once again, depending on the capital allocation to the Rockies, Mid-Continent, and absent growth in those markets. In Canada, you're going to have some from the line three expansion. But absent that, you're going to see -- if you see continued increased refining runs, you're going to need to pull on the Permian to supply those because inventory isn't supply and that in-basin in Sunrise would be our primary exposure there, the uncontracted portions of it.

And you've seen throughout different quarters this year when there is a pull when Canadian upgraders are down or when the balances pull like they are today, you'll see exposure from the basin corridor, and that's a pull-through from the gathering system to the -- on the Sunrise in the basin. I'd say that's the primary leverage. And then any time there's throughput in a terminal, there's additional fees and terms associated with that in the Cushing markets as well. So that's where you would see that -- we do agree with you that if demand continues to grow at this pace and there's no additional upsets from COVID, supply will be outstripped -- or demand will outstrip supply, and that should drive additional rigs and allocation of capital to the Permian because you'd have to think at this point there's probably higher discount rates and the steep backwardation associated with longer-dated projects.

It probably pulls capital into short-cycle projects. You probably see even more waiting with the guys who have other options. And so we do agree with you that, that could happen. But forecasting that is pretty difficult from where we sit right now, but we will have a better sense in February.

Willie Chiang -- Chairman and Chief Executive Officer

Chase, one thing to add to that, if you -- I'll just -- I want to just give you a perspective of our system that we have in the Permian. If you think about our gathering intra-basin and long-haul lines, we have access to multiple markets. So as Jeremy described what was happening and the flexibility on basin, if the arb supports moving barrels to the coast, they go to the coast. If the arb supports going to Cushing, we have the flexibility to get volumes on basin going up to Cushing.

What it does do is a lot of the volumes that we have going to the coast are supported by minimum volume commitments. So a person can opt to send that up to Cushing, which we would get the benefit of the tariff, and we would then have a little bit more noise on the transportation side on -- if a barrel didn't flow, we still get paid. There'll be some deficiency payments. But I just wanted to reinforce, it's a benefit of the system that we have and that we have multiple outlets that we could get some benefit from.

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

Makes sense. Alrighty. I'll turn it back over. Thanks for the color.

Willie Chiang -- Chairman and Chief Executive Officer

Thanks.

Operator

For the next question, we do have Becca Followill from U.S. Capital Advisors. Your line is now open.

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

Good afternoon. You guys talked a little bit about -- that you're evaluating S&L and your reporting mechanisms. If you choose to pull that into other segments, is there any other visibility that you're maybe considering in terms of maybe providing additional information on Canada or for other segment reporting?

Willie Chiang -- Chairman and Chief Executive Officer

I'm going to let Al Swanson address that Becca.

Al Swanson -- Executive Vice President and Chief Financial Officer

Yes. We're going to take a look at what we think the right reporting would be structured, Becca, and we do decide to make a change, which we haven't yet. We'll come out with that in February. So I think it's premature to try to speculate on potential changes, especially when we haven't decided for sure that we're going to make any.

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

Can we put in requests in the meantime?

Willie Chiang -- Chairman and Chief Executive Officer

Our IR team is available for phone calls after the conference call always.

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

Bring it on, Becca. Bring it on.

Willie Chiang -- Chairman and Chief Executive Officer

As you know, I mean, the reported -- the segment reporting structure needs to mirror kind of how we are managing the business. So there's some very particular rules around that, that we have to keep in mind as well.

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

Gotcha. Thank you. And I don't know if you talked about it earlier in the prepared remarks, I apologize if you did, the $200 million asset impairment, what was that for?

Willie Chiang -- Chairman and Chief Executive Officer

Al, you want to cover that?

Al Swanson -- Executive Vice President and Chief Financial Officer

Yes. It was our remaining terminal out on the East Coast at Yorktown.

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

Gotcha. OK. Thank you.

Willie Chiang -- Chairman and Chief Executive Officer

Thanks, Becca.

Operator

All right. There are no further questions on the queue. I will now turn the call over back to the presenters.

Willie Chiang -- Chairman and Chief Executive Officer

Well, once again, we thank you for your continued interest and support of Plains. We look forward to giving you more updates as we go forward. Please stay safe, and I will say, go Astros. Thank you very much.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

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

Willie Chiang -- Chairman and Chief Executive Officer

Al Swanson -- Executive Vice President and Chief Financial Officer

Michael Blum -- Wells Fargo Securities -- Analyst

Jeremy Goebel -- Executive Vice President and Chief Commercial Officer

Shneur Gershuni -- UBS -- Analyst

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

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

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

Chase Mulvehill -- Bank of America Merrill Lynch -- Analyst

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

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