Plains All American Pipeline, L.P.

Hey, everyone, and welcome to the PAA and PAGP Fourth Quarter and Full Year 2020 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Roy Lamoureux, Vice President, Investor Relations, Communications, and Governed Relations. Please go ahead, sir.

Thank you, Tulare. Good afternoon, and welcome to Plains All-American's Fourth Quarter and Full Year 2020 Earnings Conference Call. Today's slide presentation, which contains a good deal of supplementary information, is posted on the Investor Relations News and Events section of our website. at plainsallamerican.com, where audio replay will also be available following our call today. Later this evening, we plan to post our 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 two 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 Chang, Chairman and Chief Executive Officer, and Al Swanson, Executive Vice President and Chief Financial Officer. Additionally, Harry Pafonis, President and Chief Commercial Officer, Chris Chandler, Executive Vice President and Chief Operating Officer, Jeremy Goebel, Executive Vice President Commercial, and Chris Herbold, Senior Vice President and Chief Accounting Officer, along with other members of our senior management team are available for the Q&A portion of today's call. With that, I will now turn the call over to Willie.

Thank you, Roy. Hello, everyone, and thank you for joining us. This afternoon, we reported fourth quarter and full year 2020 results, each of which were largely in line with our expectations. We also furnished full year guidance for 2021. Al will discuss the results and guidance in more detail during his portion of the call. So let me start off with a few comments on the progress we made in 2020 and our positioning going forward. As we all appreciate, the challenges in 2020 were very significant. I'm thankful for and very proud of our team who demonstrated strength and resilience and worked to overcome obstacles and focused on what we could control. As a result, we accelerated several key initiatives, two of which I want to highlight. First, we have fully embraced our company-wide transition to efficiency mode, focusing on streamlining the organization, reducing costs, and working to optimize all aspects of our business. Second, we have positioned ourselves to generate meaningful positive free cash flow after distributions. We implemented actions that improved our 2020 positioning by roughly a billion dollars and expect to have strong positive free cash flow after distributions in 2021 and beyond. The collective result of these activities allowed us to activate a balanced equity repurchase program that aligns with our priorities of reducing leverage, improving our investment grade credit metrics, and returning capital to equity holders. Throughout 2020, we had solid execution against the goals we outlined at the beginning of the year, which are summarized on slide four. Notably, we delivered adjusted EBITDA within 1% of our initial pre-COVID guidance, a significant achievement largely accomplished via strong mid-year S&L results buffering the negative impact of reduced volumes on our transportation segment. We completed $450 million of asset sales, electing to defer our process for certain target asset sales into 2021. We also advanced optimization and efficiency initiatives throughout the year, resulting in more than 125 million of OPEX and G&A's cost savings, which we expect to endure in 2021 and future years. And most importantly, we continued our progress towards our goal of zero incidents with our best year ever, We exceeded our annual 20% reduction target of our total recordable injury rate and federally reportable releases, resulting in a reduction of more than 50% for each metric over the past three years. In addition to the goals we defined for the year, we continue to increase our alignment with investors and external stakeholders, including many of you. We advanced our sustainability program. improving our disclosures, and continuing to enhance our executive compensation program and overall governance framework. With respect to the heightened focus in 2020 on the topics of sustainability or ESG, energy transition, and policy agenda shared throughout the U.S. election process, let me share a few comments. Appreciating all of the above, we continue to believe that hydrocarbons will remain a key part of the energy mix needed to meet increasing global population demands and improving quality of life. Mobility, power generation, heating, and cooling are all widely recognized as key drivers of energy demand. Perhaps less frequently recognized are the basic building blocks of growth and prosperity, steel, cement, plastic, and fertilizers, each of which require hydrocarbons. We believe the transition to lower carbon intensity will occur over an extended period of time and that all sources of energy, including hydrocarbons, and efficiency and conservation will be required to meet that demand and to provide a bridge into the future. In that regard, we expect absolute demand for nearly all forms of energy to increase for the foreseeable future and for midstream infrastructure to remain an essential link between energy supply and demand. As a result, we have strong conviction in the long-term value of our business and the sustainability of our cash flow stream. We also acknowledge that we must continuously improve our operating footprint. building on our safety and environmental performance, reducing emissions, improving efficiency, increasing conservation, and leveraging technology to move whatever aligns with the highest and best use of our asset base and capabilities. As you've likely seen, we've also increased our sustainability disclosures over the past two years, and we plan to issue an updated sustainability report later this year, which will share additional information about our sustainability strategy, progress, and ongoing initiatives. With respect to current industry fundamentals, the unprecedented shock to global demand clearly reset the base for North American production. For perspective, we entered the year expecting U.S. oil production to grow from year in 19 to year in 20 by roughly 500,000 barrels a day, or 4%. U.S. oil production is now estimated to have decreased during this period of time by 2.3 million barrels a day, or 17%. This equates to a reset of absolute production expectations of more than 2.5 million barrels a day, which has created a significant level of surplus midstream infrastructure capacity for the foreseeable future. As illustrated on slide 5, global demand is expected to continue to recover, although the timing of global supply-demand rebalance is subject to multiple variables, including on the demand side, COVID, global COVID vaccination pace and effectiveness, and on the supply side, a number of dynamics, OPEC compliance, natural production decline, continued capital discipline from producers, available surplus capacity, as well as the impact of potential regulatory and carbon transition impacts. Appreciating these variables, we believe that North American crude oil will be needed long-term to support growing global population needs, and that the Permian Basin will be key to meeting those needs. As producers continue to exercise capital discipline and operate well within cash flow, we believe that Permian could grow oil production to 5 million barrels a day within a couple of years and to 6 million or more barrels a day longer term. Plains has a highly integrated system in place with a significant degree of flexibility, optionality, and operating leverage. Our assets will continue to be critical to meeting the longer-term needs of North American oil production growth while requiring minimal capital investment going forward. The actions we've taken position us to generate meaningful positive free cash flow after distributions for years to come. And in 2021, we expect to generate free cash flow after distributions of roughly 300 million, which expands to more than a billion dollars when including proceeds from targeted asset sales. This is illustrated on slide six. I'll also note that consistent with our November commentary on our $500 million common equity repurchase program in 2021, we plan to allocate 75% of more free cash flow after distributions to debt reduction and up to 25% to buybacks. Beyond 2021, as a result of anticipated EBITDA growth and a run rate investment capital of 200 to 300 million a year, we expect to generate a meaningful level of annual free cash flow. Subject to our annual board review and approval, as leverage decreases over time, we expect the allocation to further shift from debt reduction towards equity holder returns. With that, I'll turn the call over to Al.