Plains All American Pipeline - Q3 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to Plains All American's third quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's call is being recorded. I would now like to hand the conference over to your speaker today, Blake Fernandez, Vice President, Investor Relations. Please go ahead, sir.

Blake Fernandez (VP of Investor Relations)

Thank you, Norma. Good morning, and welcome to Plains All American third quarter 2023 earnings call. Today's slide presentation is posted on the Investor Relations website under the News and Events section at plains.com. 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 two. An overview of today's call is provided on slide three. A condensed consolidating balance sheet for PAGP and other reference materials are in the appendix. Today's call will be hosted by Willie Chiang, our Chairman and CEO, and Al Swanson, Executive Vice President and CFO, as well as other members of our management team. With that, I'll turn the call over to Willie.

Willie Chiang (Chairman and CEO)

Thanks, Blake. Happy Friday, everyone, and thank you for joining us this morning. Today, we reported strong third quarter results, along with the closing of two Permian gathering bolt-on acquisitions and the continued execution of our multi-year capital allocation framework, which is focused on lowering leverage and increasing the return of capital to our unitholders. As a result of our year-to-date performance and the partial year contributions of our recent bolt-on acquisitions, we are raising our full year 2023 Adjusted EBITDA guidance to a range of $2.6 billion-$2.65 billion. This reflects an increase of $50 million-$100 million from the high end of our previous guidance range. A high-level overview of our updated 2023 guidance is located on slide 4, and Al will share additional detail in his portion of the call.

As summarized on slide 5, our Permian JV acquired Rattler Midstream's Southern Delaware Basin crude gathering system and LM Energy's Northern Delaware Basin Touchdown crude gathering system for an aggregate cash consideration of approximately $205 million, or approximately $135 million net to Plains. These bolt-on acquisitions are expected to generate unlevered returns in line with our return thresholds of approximately 300-500 basis points above our weighted average cost of capital, in addition to enhancing our position in the Delaware Basin. The assets will further position the Permian JV to expand its service and offerings and extend commercial relationships with both new and existing customers. Regarding today's capital allocation update, we continue to make meaningful progress towards our goal of lower absolute debt and maintaining a strong balance sheet that can withstand various commodity cycles.

As highlighted on slide 6, we are lowering our long-term leverage ratio target range to 3.25x-3.75x. This is intended to be a long-term range target, target range, where we may operate below the low range, the low end of the range during certain periods, or temporarily above the top end of the range in the event of strategic transactions, with a goal of moving back into the target range on a long-term basis. We expect to exit the year below 3.5x due to a reduction in net debt of approximately $450 million, which is underpinned by the repayment of $1.1 billion of senior notes in 2023.

In further support of our capital allocation framework laid out in November of 2022, we intend to recommend to our board a $0.20 per unit annualized increase in our quarterly distribution, payable in February of 2024, as seen on slide 7. On an annualized basis, the distribution would increase from $1.07 per unit currently to $1.27 per unit, representing a 19% increase. I would also note the proposed acceleration and timing of our annual distribution increase, which would pull the increase forward from our May timing to February. This is all consistent with our objective of increasing returns to our unitholders, and it reflects our continued confidence in our business, which is bolstered by the benefits from the recent bolt-on acquisitions.

Long term, our free cash flow generation continues to support our multi-year capital allocation framework, which continues to target annualized distribution increases of approximately $0.15 per unit each year until reaching a target common unit distribution coverage of approximately 160%. With that, I'll turn the call over to Al.

Al Swanson (EVP and CFO)

Thanks, Willie. We reported third quarter Adjusted EBITDA attributable to PAA of $662 million. This reflects the benefit of annual tariff escalators, higher volumes in regions outside of the Permian, contribution from recent bolt-on acquisitions, and the benefit of market-based opportunities. These were partially offset by lower than expected Permian volumes due to weather-related impacts on gas processing capacity and field compression issues that ultimately impacted oil production and extended into the middle of August. The NGL segment benefited from stronger regional basis differentials and additional spot opportunities on both propane and butane, resulting in higher realized frac spreads. slides 12 and 13 in today's appendix include walks, which provide more detail on our third quarter performance.

A summary of our updated 2023 guidance is located on slide 8. As a result of strong year-to-date business performance in both our crude and NGL segments and the contributions from our recently announced bolt-on acquisitions, we are raising our full year 2023 adjusted EBITDA guidance to $2.6 billion-$2.65 billion. Our updated outlook factors in lower than expected Permian production, predominantly driven by the weather-related impacts. We continue to expect year-over-year growth in our crude oil segment, driven by tariff volume increases and tariff escalations. For the NGL segment, we remain highly hedged and expect a typical seasonal step-up in sales as we enter the winter months.

Shifting to capital allocation, as illustrated on slide 9, for 2023, we expect to generate $2.45 billion in cash flow from operations and $1.45 billion of free cash flow, which takes into account the cash outlay for our recently announced bolt-on acquisitions. This results in $450 million of free cash flow after distributions available for net debt reduction. We continue to self-fund $325 million of investment capital net to PAA, which is consistent with previous guidance. We have increased our maintenance capital budget by $15 million to $210 million net to PAA for 2023. This reflects additional maintenance capital for recent bolt-on acquisitions and higher integrity maintenance activity for the year.

Before turning the call back to Willie, I wanted to share a few directional comments on 2024, with formal guidance to come early next year. We continue to expect growth in our crude oil business, primarily driven by operating leverage, continued Permian growth, tariff escalation, and full-year contributions from bolt-on acquisitions. In our NGL segment, we have seen volatility in frac spreads, but have made meaningful progress in hedging over two-thirds of our expected 2024 frac exposed volumes at a spread above $0.60 per gallon. Additionally, we should benefit from the absence of planned turnaround activity next year, which negatively impacted commodity-exposed volumes in 2023. With that, I'll turn the call back to Willie.

Willie Chiang (Chairman and CEO)

Thanks, Al. Before finishing today's call, I want to reiterate a few key messages. First, current global events have highlighted and reaffirmed the importance of hydrocarbons in everyday life. Plains remains very well-positioned as North American supply will continue to be critical to global energy security, affordability, and reliability. Secondly, and importantly, our business remains strong. We continue to execute our strategy of generating meaningful cash flow, maintaining capital discipline, reducing leverage, and increasing return of capital to our unit holders. And lastly, we continue to have confidence in our business, which is built on an integrated, flexible asset base with operating leverage across our system. We appreciate your continued interest and support, and we look forward to fielding your questions as well as giving you further formal updates on our earnings call for 2024 in February.

With that, I'll turn the call over to Blake to lead us into Q&A.

Blake Fernandez (VP of Investor Relations)

Thanks, Willie. As we enter the Q&A session, please limit yourself to one question and one follow-up. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as possible in our available time this morning. Additionally, the IR team will be available to address any additional questions you may have. Norma, I believe we're ready to open up the call to questions.

Operator (participant)

Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. Please wait for your name to be announced. One moment for our first question, please. Our first question comes from the line of Michael Blum with Wells Fargo. Your line is now open.

Michael Blum (Managing Director)

Thanks, uh-

Willie Chiang (Chairman and CEO)

Hi, Michael

Michael Blum (Managing Director)

... Good morning, everyone. Good morning. Wanted to first ask just about the bolt-on acquisitions of the Permian. Do you expect this to be kind of normal course? Do you see more opportunities to consolidate in the Permian? And then kind of second part of that is, would, should we expect to see any kind of, any of this type of activity outside of the Permian?

Willie Chiang (Chairman and CEO)

Yeah, let me speak to the bolt-ons, Michael. It's a good question. As you know, we've got a great footprint that allows us to capture synergies and opportunities that are out there. We do think there are more opportunities. We're going to be very, very disciplined on how we approach it. The valuations are going to be key. And I think you'll see continued focus on that. We look at all opportunities because our interests are in the best interest of our unit holders, but I think you'll see both bolt-on opportunities in both the Permian and outside of the Permian.

Michael Blum (Managing Director)

Okay, great. And then my second question is really probably related to the first. The rationale for reducing the leverage target, maybe you could just walk through that, and is that in any way related to, you know, what you see down the road in terms of M&A and having the flexibility to act there?

Al Swanson (EVP and CFO)

Michael, this is Al. Our view was, is we intended to be running the company at a lower leverage than what we had been historically. Part of the reason for committing to it publicly like we have is our intent was to do it. Two, we believe the broader energy sector is and will be running with lower leverage, and we want to actually complete and get our upgrades to mid triple B. And we think this range that we've established puts us solidly in that with some flexibility for that. And recognizing again that our intent is to run the company a little bit more conservatively with the balance sheet.

Michael Blum (Managing Director)

Got it. Thank you.

Operator (participant)

Thank you. One moment for our next question, please. Our next question comes from the line of Brian Reynolds with UBS. Your line is now open.

Brian Reynolds (Equity Research Analyst)

Hi, good morning, everyone. Thanks for the prepared remarks on the impacts on volumes in the Permian this quarter related to weather, it sounds like. But kind of just wanted to follow up on the Permian outlook here. First part of the question is, are you seeing any recent crude gathering acquisitions in the basin kind of impacting volumes for the quarter or going forward? And then second part, maybe a little more longer-dated question. We've heard some very constructive Permian growth expectations into 2024 into 2025. I'm just kind of curious if you can kind of give us an early look of what you're seeing for Permian activity as we look ahead to next year. Thanks.

Willie Chiang (Chairman and CEO)

Yeah. Brian, I'm glad you asked the question. This is Willie. You know, First off, we'll give you a formal guidance in February on 2024 in the Permian, but I'll give you some snapshots here. This has been a little bit of a strange year in that we had some weather issues in the summer that really impacted both second and third quarter. You know, our original guidance for the year was 500,000 barrels a day growth, exit to exit. We updated on our last call, we thought it was going to be a little bit below that. You know, our views now is it's probably in that 350-400 range for the year.

But the thing I wanted to share with you is, if you look at our October volumes in gathering, this may address your question. We're actually 175,000 barrels a day higher in October than we were for the third quarter. So it really gives us confidence in the fourth quarter. You never can perfectly predict the future, but we are seeing increased volumes as we start the fourth quarter off. And then certainly, a lot of the recent announcements, particularly with one of the large transactions and one of the very large super majors really lends support and aligns our view of the Permian going to be around for a long, long time as we go forward.

Brian Reynolds (Equity Research Analyst)

Great. Thanks, appreciate that. And maybe to touch on the distribution, it seems to come in a little bit above expectations from last year's capital allocation update. So kind of curious if you can refresh us. Are there any structural changes that we'd be thinking about, or is, you know, kind of targeting that 1.6 coverage over a multi-year framework still the right way to think about it? And how ultimately some of these acquisitions impact that distribution outlook going forward? Thanks.

Al Swanson (EVP and CFO)

Yeah, this is Al. We still, we still are committed in the future for the $0.15 annual increase and the 160% coverage at the common level. Part of the reason for moving it up and the extra $0.05 of this is related to the acquisitions that we've completed. They're accretive. Again, we've targeted hurdle rates that will bring good accretion for these bolt-on transactions, and we also have seen strong performance out of our business. But, but once we complete this, we're back to the $0.15 and a 160% coverage.

We think the 160% coverage allows us to basically fund investment capital going forward and a number of small bolt-ons in the future without actually needing to raise external money. So kind of live within our own cash flow means.

Brian Reynolds (Equity Research Analyst)

Great. All makes sense. I'll leave it there. Enjoy the rest of your morning.

Willie Chiang (Chairman and CEO)

Thanks, Brian.

Operator (participant)

Thank you. One moment for our next question, please. Our next question comes from the line of Gabriel Moreen with Mizuho. Your line is now open.

Gabriel Moreen (Managing Director)

Thank you. Good morning, everyone. Maybe, Willie, if I can just ask a follow-up on Michael's question about recurring bolt-on M&A. You mentioned looking at things outside the Permian. Can you maybe elaborate on which basins you might think about as far as doing those bolt-ons? And is doing something like the Oryx JV structure appealing to you in other basins outside the Permian as well?

Jeremy Goebel (EVP and CCO)

Hi, Gabriel, this is Jeremy Goebel. I would say we're structure agnostic. We're just trying to basically garner the most synergies in a way that works for us and the counterparty. Where we would focus, it's where we have strength. I'd say, for our vantage point, we have gathering assets in all the core basins where we have a strength in our marketing business, our pipeline business, and our terminals, and we can add value to assets, we'll continue to look there. So if you look across our footprint, where we have strength is an area where we think we can add value and extract synergies and do accretive deals. And the model that Al just mentioned, that's where we're going to target.

Gabriel Moreen (Managing Director)

Thanks, Jeremy. Then maybe if I can ask about sort of the hedging of the frac spread exposure heading into 2024. Because you mentioned that you had put a lot of the spread exposure to bed at this point. Are you close to that 80% level that you're targeting? Do you see yourself getting there near term, or are you kind of leaving some stuff open in anticipation of some strength?

Willie Chiang (Chairman and CEO)

Yeah, Gabe, we're not going to disclose the exact number, but Al's comments on well over 60% hedged was really indicative of that we've got a good portion of this hedge at good values, and we'll give a further update when we get into February.

Gabriel Moreen (Managing Director)

Okay. Thanks, Willie.

Operator (participant)

Thank you.

Willie Chiang (Chairman and CEO)

Thanks, Gabe.

Operator (participant)

One moment for our next question. Our next question comes from the line of Keith Stanley with Wolfe Research. Your line is now open.

Keith Stanley (Managing Director)

Hi, good morning. Follow up on the... Sorry, again, on the frac spread, just to make sure I understand this right. So the 60% is hedged above $0.60/gallon. Can you say directionally, I think 2023 was a little higher than that when you did your plan? Just trying to think directionally where that sits on the $0.60.

Willie Chiang (Chairman and CEO)

... Yeah, Keith, this is Willie again. You know, for 2023, we were very well hedged. We actually put these hedges on proactively in late 2022. So if you think about the weighted average value of that hedge is a little bit over $0.70. So if you compare it to what we actually hedged in 2023, you know, it's circa $0.10 lower than that. If you think about the impact of that, that's roughly, you know, ±$70 million. And as Al pointed out, we also have a turnaround. We had a turnaround this year that next year that we won't be having. So that may give you a little better indication of where the NGL business is.

Keith Stanley (Managing Director)

That, that's very helpful. Thanks for that. The second one, I know the company's talked about the preferreds not being a near-term priority. Just curious with the official leverage target now at 3.25-3.75, you know, under certain circumstances, would you consider going above the leverage target in order to repurchase the preferreds? Or if you were to take out the preferreds at some point down the road, would you need to still stay within that new leverage band?

Al Swanson (EVP and CFO)

This is Al. There's been no change in our thinking around the preferreds. Debt markets are fairly high. You know, like, issuing a new ten-year would be 6.5-6.75. It's a long way of saying that the rates on the preferreds are still fairly attractive in our view, relative to our weighted average cost of capital. Our intent would not be to meaningfully increase leverage to take those preferreds out. So it's hard to say hypothetically what you might do a few years down the road. But no, we wouldn't sacrifice our financial flexibility to reduce them again because they're not that high relative to our cost of capital.

We think our weighted average cost of capital today is in the 11%-12% range, and the preferreds on the same weighting are 200+ basis points less. So again, but there'll be one day where maybe we will be able to take them out, but we don't want to sacrifice financial flexibility.

Keith Stanley (Managing Director)

Thank you.

Operator (participant)

Thank you. One moment for our next question, please. Our next question comes from the line of Neel Mitra with Bank of America. Your line is now open.

Neel Mitra (Senior Analyst)

Hi, thanks for taking my questions. I wanted to touch on the Permian long-haul volumes. It seems like, they fell a little bit more disproportionately relative to, gathering in intrabasin in the quarter, versus the second quarter. And also, how did Basin perform, just given the low Cushing inventories this quarter?

Jeremy Goebel (EVP and CCO)

Neel, hi, it's Jeremy Goebel. What I would say is, on the long-haul volumes, that was just some market dynamics in Corpus. It was cheaper for the shippers to buy at Corpus than it was to ship the barrel from Midland. So it was just an election by some of the shippers on the pipeline, but it's transitory. The pipelines going into the fourth quarter are in line with where they've historically been, and demand is robust longer term for the shipments. Basin is a similar story. There was, as the inventories came down, there was less need for movements in that direction. But directionally, as those inventories go down, there's more pull on basin.

Neel Mitra (Senior Analyst)

Got it. Perfect. And then if I could ask generally, your—what you're seeing in the basin on growth dynamics. I know most of the gas processors had flat volumes from May through August, just like yourselves. But can you touch upon which regions got affected the most? You know, was it the New Mexico, Delaware that was impacted the most versus the other basins? And then also what you're seeing from the producers during the heat that would have impacted their side versus the infrastructure side, understanding that you guys are up and running again in October with strong volumes.

Jeremy Goebel (EVP and CCO)

Thanks, Neel. It was that state line area, north into New Mexico. I think the other dynamic there was the some of the issues around flaring and stopping of flaring. So it all hit at once, and it was within a three-month period. But the big surge in volume is coming from those same regions and part of the Northern Midland Basin. So I'd say it's recovering, and then some, and we see that momentum carrying based on the connections we have made in November and will make this month and next month into next year, that that momentum should continue.

Neel Mitra (Senior Analyst)

Jeremy, I don't know if I got a response on Basin, how that was running during the quarter, if you don't mind commenting on that.

Jeremy Goebel (EVP and CCO)

Sure. It was in line with expectations, and as inventories range, we would expect the volumes to increase.

Neel Mitra (Senior Analyst)

Okay, great. Thank you.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Doug Irwin with Citi. Your line is now open.

Doug Irwin (VP)

Hey, thanks for the question. Just a couple follow-ups on guidance, so maybe I'll ask them both at once. First, I'm just wondering if you can kind of help bridge the facts that, that the EBITDA guidance moved higher, but then we saw cash from operations and, and free cash flow move a bit lower. I'm sure the acquisitions have an impact on that, but are there any other kind of bigger moving pieces you can point to there? And then again, kind of on the implied Q4 guidance, the midpoint implies a step down versus this quarter. I'm just wondering if you can kind of help reconcile that step down versus some of the tailwinds in the year-end, like these acquisitions and, and probably Permian growth rebounding a bit.

Al Swanson (EVP and CFO)

... This is Al. I'll take a shot at the first one. Yeah, the between the free cash flow and the cash from operations, effectively, the acquisitions reduce cash flow from the free cash flow number by roughly the $135 million that we described. The other two higher EBITDA has been in our forecast is offset by higher taxes as well as our assumed working capital and merchant needs, again, which is all kind of timing related. Those were really the three things I would point to. You know, as to kind of guidance, you know, third quarter to fourth quarter, again, we feel like the midpoint of our range, we do see quarterly flux between them.

It would probably be better to take offline with the IR team, kind of any more micro detailing type of discussion.

Doug Irwin (VP)

Okay, understood. Appreciate it.

Operator (participant)

Thank you. One moment for our next question, please. This question comes from the line of Jeremy Tonet with JPMorgan Securities. Your line is now open.

Vrathan Reddy (Equity Research Associate)

Hey, guys, this is Vrathan Reddy on for Jeremy. I think it's been hit on a couple of times in the call already, but just to clarify, are you guys able to disclose what part of the guidance raise is attributable to the base business strength, given that you guys had already pointed to the high end last quarter, versus the incremental contribution for the bolt-on acquisitions? Thanks.

Jeremy Goebel (EVP and CCO)

Sure. This is Jeremy. It's roughly $10 million-$15 million from the acquisitions.

Vrathan Reddy (Equity Research Associate)

Okay, perfect. Thank you. And then for the second one, last quarter, you talked about Canadian optimization opportunities and maybe utilizing some of that underutilized capacity at Sarnia. So, curious to hear updated thoughts here and, you know, what, what you guys are seeing in terms of low capital, smaller growth optimization opportunities. Thanks.

Jeremy Goebel (EVP and CCO)

Yeah, I'll take a stab at that. I mean, I think as we shared last call, our East-West system together has been, you know, it gives us an advantage because we've got spare, spare capacity in the East, and that was a key part of our ability to be able to move quickly on our debottleneck in the West. So we continue to work on a lot of neat opportunities around optimization, both of our Empress Complex, Fort Sask, and Sarnia. And I think the thing to take away from it is, no big announcements on projects other than what we've already announced, but there's clearly capacity there that we can continue to optimize and utilize without having to put, you know, greenfield projects in.

Vrathan Reddy (Equity Research Associate)

Perfect. Thanks for all the color.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Neal Dingman with Truist Securities. Your line is now open.

Neal Dingmann (Managing Director)

Morning, all. Thanks for the time. One first quick one. Could you all just give an update? I think you've talked about this in the past, just on the minimum volume commitments, where you stand there and, kind of as you enter 2024, how those sit?

Jeremy Goebel (EVP and CCO)

I'm not sure I understand the question. Can you repeat it?

Neal Dingmann (Managing Director)

Just on-

Jeremy Goebel (EVP and CCO)

Minimum Volume Commitment on long-haul, or?

Neal Dingmann (Managing Director)

Just, yes, just on the long haul. Yes, sir.

Jeremy Goebel (EVP and CCO)

Oh, sure. What I would say is, we continue to have constructive dialogues with the customers. Nothing to highlight at this point. Enterprise announcements, obviously, additive to that equation, and market dynamics are such that, with the continued acquisitions, enhancing relationships with customers, we feel we're in a good place, and we'll give you guys an update when it's appropriate. We do believe in the basin long term, and these acquisitions and improved recoveries should all support that ongoing growth through the decade and, and continued contracting in the pipelines.

Neal Dingmann (Managing Director)

Great. And then, just one second, could you give the latest on the continued Canadian opportunities, such as in Edmonton or Ontario, you know, around like that NGL extraction plant site or some other things you have?

Jeremy Goebel (EVP and CCO)

Sure. Broadly in Canada, around the NGL system, I think the opportunities you're gonna see is the Fort Sask is constrained, the opportunity for East to West movements and higher margins and other things to purchase additional NGLs. There's opportunities throughout next year that we'll see. I don't know if that's what you're asking for, but it seems to me that there are margin enhancement opportunities around the system, and we'll look to use our system to capture them.

Blake Fernandez (VP of Investor Relations)

Yeah, Neal, the other thing I would add is, as we think about our Canadian footprint, we're very bullish on Western Canadian gas production. So as that increases and there's additional takeaway to the West Coast, we think it encourages additional production, and that gives us the opportunity to be able to capture more NGLs out of a wet stream.

Neal Dingmann (Managing Director)

Great detail. That's exactly what I was looking for. Thanks, guys.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from Sunil Sibal with Seaport Global. Your line is now open.

Sunil Sibal (Managing Director and Senior Analyst)

Yeah, hi, good morning, everybody, and thanks for all the clarity in the call. So just wanted to understand some of the dynamics on the, the EBITDA guidance increase. So it seems like from what you've indicated, $10-$15 million impact of the bolt-on acquisitions, but—and at the same time, you're reducing your volume expectations. So is it fair to assume your unit margins are going up? And then, any significant driver of that? Obviously, you know, tariffs are increasing, but that is probably well known.

Al Swanson (EVP and CFO)

Yeah, I'll take a shot at it. This is Al. In the crude side, we've seen and are expecting, you know, more favorable market-based opportunities. We've seen over the year higher movements into and out of Cushing. Our non-Permian assets have performed well, and then clearly, the contribution from the acquisition. In the NGL segment, we've seen benefit from higher, better improved NGL yields. This is likely temporary in the AECO gas stream, as well as more attractive differentials west to east, as Jeremy mentioned. So those are really the things that are kind of driving it.

Jeremy Goebel (EVP and CCO)

One thing to note, though, we view the Permian reduction as transitory. This is building momentum into the fourth quarter and into next year. So the view that it's slowed down or our expectations long term has slowed down, have not. This is a function of transitory timing.

Sunil Sibal (Managing Director and Senior Analyst)

Understood. And then, on the pipeline loss allowance, you know, with all the recent acquisitions that you've done, could you remind us, you know, what is your total exposure on crude with the pipeline loss allowance?

Blake Fernandez (VP of Investor Relations)

Hey, Sunil, it's Blake. You know, historically, what we've said is 2-3 million barrels, and we haven't provided an update to that. I think it's correct to think as more volumes ultimately make their way onto the system, that could increase over time, and we'll give an update when appropriate.

Sunil Sibal (Managing Director and Senior Analyst)

Understood. Thanks.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of John McKay with Goldman Sachs. Your line is now open.

John Mackay (VP Equity Research)

Hey, good morning, everyone. Thank you for the time. I wanted to touch on kind of broader picture for Permian long haul. We've had some, you know, changes in the market recently, Seminole coming out of service, the Gray Oak open season seems like it's about to go forward. I guess I'd just be curious to hear from your side, where you see kind of overall balances for the market over the next couple of years, and, you know, whether or not you expect we could see more conversions out of crude service into something else? Thanks.

Willie Chiang (Chairman and CEO)

Yeah, John, this is Willie. You know, it's, there's a lot of puts and take to this. You know, when I think about the moves that were the proposed possible projects, these are what I would call smaller increases, maybe 100-200,000 barrels a day. You know, when we think longer term, with the growth of the Permian, we're consistent with our, with our views that capacity is gonna get tight. I don't think new build long-haul lines are gonna get built. With the Seminole announcement, it's taken a little bit out, so there's a lot of puts and takes again against it. But long term, our views have not changed. It's still gonna be tightening capacity, in a market that's gonna be harder and harder to build long-haul lines.

John Mackay (VP Equity Research)

All right. That's, that's fair. Maybe shifting gears, you touched on the working capital a little bit in the quarter. And I know it's transitory and should come back. It was just larger than it looks like we've seen in a couple of quarters. Is there a, you know, when we're thinking about capital returns next year, potentially buybacks, is there a kind of minimum level of cash you'd want to see on the balance sheet? And, you know, does this quarter's kind of larger working capital draw affect that math at all?

Al Swanson (EVP and CFO)

This is Al. We do see fairly significant quarter-over-quarter working capital fluxes. We use the word working capital as if we're building inventory and we're borrowing short term on our credit facilities, it's a working capital use, although technically, they're both in working capital, so it's kind of working capital and merchant requirements. We do see quarter-to-quarter fairly significant moves. Generally, over a 12-month period, all those normalize out. We normally model assuming lower cash balances than what we've been running, and we'll be showing that when we show you the year-end balance sheet, because the cash balances will have been consumed with the note we just paid down here in October.

But normally, we would model about $100 million in cash on the balance sheet, and we use our credit facilities and the commercial paper markets to balance this out. And it is timing. We end up reverting back to more of a normalized balance over the course of a few quarters.

John Mackay (VP Equity Research)

All right. Very clear. Appreciate the time.

Operator (participant)

Thank you for your questions. This concludes today's conference call. Thank you for participating in today's call. You may now disconnect. Everyone, have a wonderful day!